Released: 31/07/2008
com:20080731:Rnse2736A
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RNS Number : 2736A
Spiritel PLC
31 July 2008
For release, 07.00 31 July 2008
SPIRITEL PLC
("SpiriTel" or "The Group")
PRELIMINARY UNAUDITED RESULTS FOR THE YEAR ENDED 30 APRIL 2008
SpiriTel plc (AIM: STP), the business communications service provider, is
pleased to announce preliminary unaudited results for the year ended 30 April
2008.
Commenting on the results, Lord St. John of Bletso said: "I am pleased to report
on an excellent year of growth and development for SpiriTel plc. The Group is
now a fully integrated business communications provider delivering fixed,
mobile, data and networking services to wide ranging business customers across
the UK. The Group is now very well placed to progress its chosen strategy
further towards robust, accelerating profitability and value delivery to our
shareholders."
Highlights:
* Underlying EBITDA* 15% ahead of market expectations at £938,000 (2007: loss
of £861,000)
* Revenue up 20% to £16.7 million (2007: £13.9 million)
* Gross profit up 220% to £6.42 million (2007: £2.0 million)
* Pre tax loss £4.0 million (2007: £3.1 million), after non-cash finance
costs** of £3.1m (2007: £0.6m)
* New 5 year debt and overdraft facility of £2.7m from Clydesdale Bank
* Cash inflow from operating activities of £0.9m (2007: £1.2m outflow)
* Two earnings enhancing acquisitions completed: tdotcom and WN1
* UK's largest hosted VoIP and WiFi contract with Regent Inns
* Completion of two year business restructure and rationalisation
* Post year end balance sheet restructure - partial conversion of Penta debt to
ordinary shares and waiver of more than £800,000 annual interest costs
* Post year end SpiriTel receives industry recognition with two national awards
for the converged solution pioneered for Regent Inns
* Operating profit after adding back charges for depreciation, amortisation,
share-based payments and exceptional costs
** Non-cash finance costs comprise redemption premiums on the Penta debt and
preference shares granted alongside the conversion rights less interest waived
plus IFRS charges.
Chief Executive, Alastair Mills added: "This has been a year of genuine
turnaround for SpiriTel. We are profitable in the new financial year, turnover
has increased markedly and we have achieved widespread recognition for the
quality and pioneering nature of the IP communications services we are
delivering to a broad range of business customers across the UK. Following two
more acquisitions during the year, the Group is now a fully integrated business
communications provider. This is a key differentiator for us in a market where
customers are increasingly looking to one supplier to provide the full range of
communications services they need. In a highly fragmented sector, we are also
taking advantage of ongoing acquisition opportunities to expand our customer
base, enhance earnings and, where appropriate, bring new products to the Group
offering."
For further information please visit www.SpiriTelplc.com or contact:
SpiriTel plc Tavistock Communications Daniel Stewart
Alastair Mills Simon Hudson Simon Leathers
Chief Executive Clemmie Carr Stewart Dick
Tel: +44 20 7160 0100 Tel: +44 20 7920 3150 Tel: +44 20 7776 6550
Chairman's statement
Introduction
I am pleased to report on a further year of growth and development for SpiriTel
plc. The Group is now a fully integrated business communications provider
delivering fixed and mobile, voice, data and networking services to a wide range
of business customers across the UK.
SpiriTel has made significant progress this year and is a radically transformed
business. The Group is currently profitable with strong cash flows and a robust
debt and equity structure following the initial £2.6 million Penta debt
conversion in May 2008. The operational restructuring and rebuilding of the
business that we began some two years ago was only completed during the year
under review and so this set of results reflects only partially the
transformation achieved by the management team.
Results
Underlying EBITDA* has moved from a loss in 2007 of £0.9 million to a profit of
£0.9 million and revenue was up 20% to £16.7 million (2007: £13.6 million).
Gross profit increased by 220% to £6.4 million (2007: £2.0 million) with gross
profit margins up to 38.5% from 14.9% in 2007. These margin improvements are a
result of both enhanced margins on continued operations and an improving product
mix towards higher margin products and services. Acquisitions have also
contributed to the increased profits of the business and the level of
operational gearing has enabled us to deliver higher earnings from these
acquired businesses.
These results are a significant achievement for SpiriTel and demonstrate that
the progress made in restructuring and realigning the business is now flowing
through to revenue and profit enhancement. The two acquisitions made in the year
under review, tdotcom Limited and WN1 Limited, contributed for only six months
and one month respectively. We look forward to incorporating a full year's
earnings from these businesses, which should deliver a significantly enhanced
level of profitability in the current financial year.
Dividend
SpiriTel is still pursuing its acquisition strategy and therefore reinvesting
funds generated from operations into the business. The Directors are not
recommending the payment of a dividend for the year to 30 April 2008.
Board
As reported in our interim statements, we appointed Ronnie Smith to the Board as
the Group's Chief Financial Officer following his tenure as Finance Director. We
also appointed David Anahory as Managing Director of SpiriTel Business. David
joined us from Carphone Warehouse where he was the Commercial Director
responsible for over 100,000 customers in their Business Division.
Both Ronnie and David are integral to the success of the business and played
significant roles over the course of the financial year in the delivery of much
improved financial and operational performance.
I am also pleased to report that our Chief Executive, Alastair Mills, received
personal recognition for the Group's progress with a nomination as a finalist
for the 2008 Ernst & Young Entrepreneur of the Year award. The award is
recognised globally and marks entrepreneurial spirit, innovation and outstanding
leadership and drive. I congratulate him on this achievement.
Current year and outlook
Revenues and profitability are currently running at levels significantly above
those of a year ago with earnings visibility from contracted revenue continuing
to grow. This is a reflection of our acquisitions and the strong organic growth
being driven by our push to cross sell products and services into our expanded
customer base. We also achieved substantial improvement in margins during the
year under review and these strong margins have been maintained into the current
financial year.
In June 2008, we completed the integration of our most recent acquisition,
mobile specialist WN1 Communications, which has now been fully re-branded as
SpiriTel Mobile and relocated to our Business Division's Wigan office. We look
forward to reporting a full six months contribution from the WN1 acquisition in
our next interim results.
During the year, we have successfully executed our 'Acquire, Integrate, Grow'
strategy and as a result the business has delivered much improved financial and
operational results. The Group is now very well placed to further progress its
chosen strategy towards robust, accelerating profitability and value delivery to
its shareholders.
Lord St John of Bletso
Chairman
31 July 2008
Chief Executive's review
2007/08 has been a year of considerable progress for SpiriTel and I am delighted
to be able to provide the most positive review since the current management team
took charge of SpiriTel's strategy. Our restructure of the Group is complete and
the combination of organic growth alongside selective earnings enhancing
acquisitions is now reflected in improved operational and financial performance
across the Group. Whilst growing overall customer numbers, we have also sold
more products to our existing customers, which is now a key focus for the
management team. During the year, we also reached agreement for an important
balance sheet restructure which was approved at our EGM post year end in May
2008.
During the year, we completed our fourth and fifth acquisitions with tdotcom
Limited and WN1 Limited. The acquisition of WN1, now fully re-branded as
SpiriTel Mobile, completed our B2B communications product set, adding mobile to
our existing fixed line, data and networking services. The tdotcom transaction
leveraged our existing operational infrastructure, enabling us to rapidly
integrate the value of tdotcom's services and customers into SpiriTel Business.
Both acquisitions are good examples of our acquisition strategy: buy quality
businesses with attractive customer bases, integrate them swiftly and drive
forward the resulting synergy benefits of cost savings and new sales
opportunities.
Results
Revenue for the year to 30 April 2008 was up 20% to £16.7 million (2007: £13.6
million) and gross profit increased to £6.42 million (2007: £2.0 million), a
rise of 220%. Underlying EBITDA* increased significantly to £938,000 profit
(2007: £861,000 loss), albeit there was only a part year contribution from the
two acquisitions, tdotcom and WN1. As a result of the timing of these
acquisitions, the Group is currently performing at a level that is significantly
ahead of the year ended 30 April 2008.
At a divisional level, SpiriTel Business' revenue increased by 313% to £6.74
million (2007: £1.63 million) while Underlying EBITDA* increased more than
fourfold to £1,125,000 (2007: £236,000), Our other Division, SpiriTel
Technologies, increased Underlying EBITDA* to £1,024,000 (2007: £40,000 loss).
The loss before taxation for the year was £4.0m (2007: £3.1m), after non- cash
interest charges of £3.1m (2007: £0.6m). The non-cash interest charges relate to
redemption premiums charged by Penta Capital Partners ("Penta") on the granting
of conversion rights, waiver of accrued interest costs and finance charges
related to the adoption of IFRS.
* Operating profit after adding back charges for depreciation, amortisation,
share-based payments and exceptional costs
Balance sheet
Post year end, we successfully agreed on the restructuring of the Group's
balance sheet. Conversion rights were granted over the Group's total
indebtedness of £11 million to Penta in exchange for a waiver of all interest
costs from 1 November 2007 until 1 May 2010. An initial conversion of £2.6
million of indebtedness took place on 22 May 2008 at 1.1 pence per ordinary
share (a premium to the then share price) which increased Penta's shareholding
to 49.99%. The remaining indebtedness of £8.4 million is convertible at the
higher of the most recent placing price and 1.5 pence per ordinary share,
subject to Penta's shareholding not exceeding 49.99%.
The waiver of interest costs will save the Group approximately £0.8 million in
annual interest charges and will result in a credit to profits of £0.4 million
in the current year to 30 April 2009. This is a milestone for SpiriTel that
significantly strengthens the Group's balance sheet and improves our ability to
attract future funding partners. I would like to take this opportunity to thank
Penta for their support, encouragement and advice during our restructure of the
Group's business.
During the year, we secured an initial £1.0 million loan and overdraft facility
from Clydesdale Bank to support our acquisition strategy. The successful
negotiation of this facility represented a welcome endorsement of both our
progress and our acquisition strategy. The facility was extended by £500,000 on
31 January 2008 and by a further £1,200,000 on 2 April 2008 giving a total
facility of £2.7 million, of which £1.95 million is repayable over five years.
Strategy
The UK communications market remains highly fragmented on the supply side whilst
the demand from customers for converged IP based services is accelerating and
these are key drivers behind the ongoing consolidation in our sector.
SpiriTel continues to play a significant role in this consolidation through our
"Acquire, Integrate, Grow" strategy as we build a business with the operational
scale and the broad product offering that corporate customers demand. During the
year, we successfully executed two earnings enhancing acquisitions that expanded
both our product portfolio and customer base. Our bespoke and proven integration
framework was used effectively to incorporate these acquisitions swiftly and
efficiently, as illustrated by the full integration of tdotcom into SpiriTel
Business in just 25 working days.
We continue to target growth by selective acquisition in order to leverage the
scale of our operations and breadth of our product portfolio. Increasingly, our
focus is on cross selling our now complete integrated suite of voice and data
services into our expanding customer base. Cross selling is a major focus during
the current year as many of our acquired customers have only ever taken one or
two products from the Group. As a result, product penetration is currently low
and we are confident of our ability to benefit from the considerable upside
opportunity that cross selling presents. As customers start to migrate to hosted
and managed services under long term contracts, we are also benefiting from a
much increased visibility of future earnings.
Acquisitions
During the year we completed two acquisitions that added both scale and new
product lines and services to our Business Division. The first of these was
tdotcom, a London based value added maintainer and supplier of
telecommunications systems, acquired in October 2007. This was a loss making
business which we turned around, post integration, into a business with an
operating profit margin in excess of 30% that contributed immediately to Group
earnings. The process of integration involved cost saving measures alongside
cross selling upsides and clearly demonstrated the success of our model which we
consider to be highly replicable for future acquisitions. tdotcom brought to
SpiriTel a number of high profile clients such as The City of London and BBC
Worldwide and also strengthened our strategic relationship with Mitel. tdotcom
was combined with Wigan-based Ashland Group, acquired in March 2007, to form our
IP Communications product line within SpiriTel's Business Division.
The second acquisition, in April 2008, was WN1 Limited. WN1 is a leading
reseller of mobile voice, data and Blackberry services, and holds key industry
accreditations as an O2 Advance Partner, T-Mobile Business Partner and a
Blackberry Alliance Member. It services exclusively business customers, which
include Lufthansa, Servisair and Wigan Athletic Football Club. At the time of
writing, we have completed the re-branding of WN1 as SpiriTel Mobile, also
within the Business Division, and have moved their staff into our Wigan office
with a number of back office functions being merged.
Both acquisitions were immediately earnings enhancing for SpiriTel and in line
with our organic growth strategy they have provided many significant cross
selling opportunities for the Group. For example, we have had several wins in
providing fixed line services to tdotcom (now SpiriTel IP Communications)
clients and WN1 (now SpiriTel Mobile) has successfully tendered for the supply
of mobile voice and data services to existing Group customers.
We currently have a strong pipeline of acquisition targets that meet our
criteria of being quickly earnings enhancing with additional upside opportunity
from cost savings and cross selling. All acquisitions add scale in terms of
customer numbers and some add engineering resource (for instance, tdotcom).
Others, such as WN1, add new product lines as well as expanding our customer
base which, in turn, provides further cross selling opportunities. In a rapidly
consolidating sector, the opportunity to acquire complementary businesses is
compelling. We remain selective in our evaluation of targets so as to ensure we
minimise execution risk through adding the right customers, products and staff
to our existing base. Furthermore, the restructuring of the balance sheet and
the Penta Debt Conversion agreement lends further support to the strategy, as
further fund raisings will also enable Penta to convert further debt and thereby
reduce SpiriTel's gearing.
Operations
SpiriTel is structured into two complementary divisions: SpiriTel Business and
SpiriTel Technologies - working alongside and supporting each other. Both
divisions have undergone a period of expansion and enhancement in the past year
and the Group now employs over 120 staff (2007: 102).
SpiriTel Business has grown dramatically over the course of the financial year.
The Business Division now has three lines of business: IP Communications,
Networks and Mobile. SpiriTel IP Communications provides an advanced range of IP
networking services to business customers alongside traditional structured
cabling, equipment and maintenance services. SpiriTel Networks offers fixed line
services including calls, lines and broadband. SpiriTel Mobile provides mobile
voice and data, including Blackberry services. The acquisition of WN1 completed
the integrated communications portfolio that SpiriTel Business now offers.
SpiriTel Business has substantially increased its customer numbers from 700 at
the beginning of the year and currently has over 1,500 business customers. These
range from smaller UK SMEs, to high profile customers such as Wigan Athletic
Football Club and blue chips like Whitbread, Marriott, and Lufthansa. These
customers are supported by a team of 45 accredited engineers, providing 24/7
nationwide engineering coverage.
SpiriTel Business has developed a particularly close relationship with Mitel,
and this relationship was key in the VoIP and WiFi solution that SpiriTel
developed for Regent Inns, the UK's largest converged VoIP/WiFi deal. SpiriTel
won this contract against fierce competition from much larger companies. Our
solution provides Regent Inns with a complex and pioneering service that
encompasses all their voice and data services across over 100 sites. I am
delighted to report that in June 2008, this solution won both the "UK's Best
Converged Solution" at the 2008 national Comms Business Awards and also the
Federation of Communication Services "Best VoIP Solution" 2008 award. We are
confident of our ability to roll this award winning solution out to other major
corporate customers in the current year.
We see ongoing scope for rapid growth - both organic and acquisitive - in our
Business Division. We are particularly focused on cross selling opportunities to
our existing customer base and we hope to increase significantly the product
penetration of the Division's 10 core products and services.
SpiriTel Technologies continues to play a critical role in the development of
the Group, both on its own account and in its support of SpiriTel Business. The
Technologies team sees the Business Division as a key customer and their IP
infrastructure and experience is a key differentiator for SpiriTel. SpiriTel
Technologies provides the platform and credibility for us to deliver large
scale, managed IP solutions for UK wide customers. Technologies was particularly
instrumental in the hosted solution provided for Regent Inns where our next
generation IP network architecture was the key component that enabled the
Business Division to deliver the necessary high level of service to the
customer. Technologies has built a robust and dynamic IP network that has three
operation centres, five points of presence and several Tier 1 carrier
interconnects. It provides the backbone for the support and development of the
products and network infrastructure that the Business Division takes to market.
In addition to the development and maintenance of the Group's IP network
infrastructure, SpiriTel Technologies also generates a significant revenue
stream from the provision of wholesale voice services to its own blue chip
customers, including most of the UK's largest telecoms companies with whom the
Business Division has established long term relationships. In the past year, the
Business Division has grown into a 24/7 service with higher levels of traffic
from a broader customer base and this has resulted in enhanced earnings and
margins.
In November 2007, SpiriTel re-launched its charity directory inquiry service
with Richard Branson's Virgin Mobile. 118 918 is now fully branded as a Virgin
Mobile number and gives 20 pence from every call to charity, the highest amount
of any charity 118 service. This is a managed service for Virgin Mobile provided
by SpiriTel Technologies.
Summary and outlook
The year to 30 April 2008 was a year of genuine turnaround for SpiriTel. We
moved from losses to underlying EBITDA* profitability, revenue has increased
markedly and we have earned widespread recognition for the quality of the
communications services that we can and are delivering to a broad range of
business customers across the UK. Following two further acquisitions, the Group
is now a fully integrated business communications provider that is delivering
the full range of fixed, mobile, data and networking services. This integrated
capability is crucial in a market where customers are increasingly looking to
suppliers to provide the full range of services they need from a one-stop shop
supplier. In a highly fragmented marketplace, in which there are up to a
thousand resellers with less than £5 million of turnover, we are among the few
that can offer this scale and range of products and services. Customers
recognise this as a differentiator in a competitive market place and we are
enjoying the benefits of providing a fully converged offering
We have completed the process of restructure and rebuilding, begun two years
ago, and now have a level of revenues and earnings that provide the perfect
springboard to take SpiriTel to the next stage in its rapid development. We have
a highly replicable model where we can bolt on new, earnings enhancing
acquisitions alongside consistent organic expansion. We are now demonstrating
the benefits of our 'Acquire, Integrate, Grow' strategy which translates into a
robust business model, an expanded product portfolio and ever increasing
customer base.
SpiriTel has an energised management team and highly skilled and committed
staff. The foundations are now in place to deliver ongoing value to
shareholders. I look forward to the coming year with real confidence.
Alastair Mills
Chief Executive
31 July 2008
Consolidated income statement
Year ended 30 April 2008
2008 2007
£000 £000
Continuing operations
Revenue 16,674 13,649
Cost of sales (10,259) (11,613)
Gross profit 6,415 2,036
Administrative expenses (7,261) (4,503)
Underlying EBITDA 938 (861)
Depreciation (180) (322)
Share based payments (190) (45)
Exceptional costs (620) (991)
Amortisation of other intangible assets (794) (248)
Operating loss (846) (2,467)
Operating loss (846) (2,467)
Finance income 5 5
Finance costs (3,206) (594)
Loss before taxation (4,047) (3,056)
Tax credit 289 95
Loss for the financial year (3,758) (2,961)
Attributed to:
Equity holders of the parent (3,758) (2,827)
Minority interest - (134)
(3,758) (2,961)
Loss per share in pence
Basic and diluted (1.19) (1.33)
Consolidated statement of changes in shareholders' equity
Share capital Additional Reverse acquisition reserve Other reserves Retained losses Total
£000 paid in capital £000 £000 £000 £000
£000
Balance at 1 May 2006 1,654 2,850 (5,763) 15 (3,360) (4,604)
Loss for the financial year - - - - (2,961) (2,961)
Minority interest 134 134
Issue of share capital 1,508 1,700 - - - 3,208
Credit for equity settled share based payments - - - 62 - 62
Equity component of compound financial instruments - - - 100 - 100
Transfer between reserves - - - (80) 80 -
Balance at 1 May 2007 3,162 4,550 (5,763) 97 (6,107) (4,061)
Loss for the financial year - - - - (3,758) (3,758)
Credit for equity settled share based payments - - - 190 - 190
Equity component of compound financial instruments - - - - 333 333
Transfer between reserves - - - (55) 55 -
Balance at 30 April 2008 3,162 4,550 (5,763) 232 (9,477) (7,296)
Consolidated balance sheet
As at 30 April 2008
2008 2007
£000 £000
Assets
Non-current assets
Goodwill 5,292 2,357
Other intangible assets 4,392 3,579
Property, plant and equipment 438 408
10,122 6,344
Current assets
Inventories 353 392
Trade and other receivables 2,151 3,007
Cash and cash equivalents 1,058 322
3,562 3,721
Total assets 13,684 10,065
Current liabilities
Trade and other payables (4,595) (3,890)
Borrowings (457) (4,037)
Obligations under finance leases (84) (60)
Current tax payable (442) (236)
(5,578) (8,223)
Non-current liabilities
Trade and other payables (432) -
Borrowings (13,603) (4,695)
Obligations under finance leases (55) (117)
Deferred tax liabilities (1,312) (1,091)
(15,402) (5,903)
Total liabilities (20,980) (14,126)
Net liabilities (7,296) (4,061)
Equity
Capital and reserves
Share capital 3,162 3,162
Additional paid in capital 4,550 4,550
Reverse acquisition reserve (5,763) (5,763)
Other reserves 232 97
Profit and loss account (9,477) (6,170)
Total equity (7,296) (4,061)
Consolidated statement of cash flows
2008 2007
£000 £000
Cash flows from operating activities
Loss before taxation (4,047) (3,052)
Adjustments for:
Net finance costs 3,201 589
Depreciation and amortisation 974 566
Impairment of tangible fixed assets 64 422
Impairment of goodwill - 269
Loss on disposal of tangible fixed asset - 12
(Increase) / decrease in inventory 63 2
(Increase) / decrease in receivables (17) 14
Increase / (decrease in payables 617 (44)
Equity settled share based payments 190 45
Interest paid (135) (1)
Cash from / (used in) operating activities 910 (1,178)
Income taxes paid - (9)
Net cash from / (used in) operating activities 910 (1,187)
Cash flows from investing activities
Acquisition of subsidiaries net of cash acquired (998) (2,810)
Payment of deferred consideration (1,227) -
Purchase of property, plant and equipment (229) (101)
Proceeds from sale of equipment - 6
Net cash used in investing activities (2,454) (2,905)
Cash flows from financing activities
Net proceeds from issue of share capital - 1,223
Proceeds from borrowings 2,347 3,100
Payment of finance lease liabilities (67) (7)
Net cash from financing activities 2,280 4,316
Net increase in cash and equivalents 736 224
Cash and equivalents at beginning of year 322 98
Cash and equivalents at end of year 1,058 322
Year ended 30 April 2008
Notes to the financial information
1. Basis of preparation
SpiriTel Plc's consolidated financial statements were prepared in accordance
with UK GAAP for the year ended 30 April 2007. For 2008, the Group has prepared
final financial information in accordance with International Financial Reporting
Standards (IFRS), as adopted by the European Union (EU), for the first time.
In relation to IFRS 1, "First-time Adoption of International Financial Reporting
Standards", the date of transition for 2008 financial statements was 1 May 2006.
The comparative figures in respect of 30 April 2007 have been restated to
reflect changes in accounting policies as a result of adoption of IFRS.
This financial information has been prepared under the historical cost
convention, except for the revaluation of certain financial instruments. The
financial information set out in this announcement does not constitute the
Group's statutory accounts for the years ended 30 April 2008 or 30 April 2007.
The financial information for the year ended 30 April 2007 is derived from the
statutory accounts for that year which have been delivered to the Registrar of
Companies, as amended for the adoption of IFRS. The auditors reported on those
accounts; their report was unqualified and did not contain a statement under
s237(2) or (3), Companies Act 1985. The audit of the statutory accounts for the
year ended 30 April 2008 is not yet complete. These accounts will be finalised
on the basis of the financial information presented by the directors in this
preliminary announcement and will be delivered to the Registrar of Companies
following the Company's annual general meeting.
Whilst the financial information included in this preliminary announcement has
been computed in accordance with IFRS, this announcement in itself does not
contain sufficient information to comply with IFRS.
The accounting policies have been applied consistently throughout the Group for
the purposes of the preparation of this financial information.
Transition to IFRS
This financial information shows the results for the years ended 30 April 2008
and 30 April 2007. The results for the year ended 30 April 2007 have been
extracted from the financial statements for that year and have been adjusted for
the effects of changes in accounting policies on transition to IFRS.
IFRS 1 "First Time Adoption of IFRS" sets out the procedures that the Group must
follow when it adopts IFRS for the first time as the basis for preparing its
consolidated financial statements.
The Group has identified its IFRS accounting policies as at 30 April 2008 and
had applied these retrospectively to determine the IFRS opening balance sheet at
its date of transition, 1 May 2006. This standard provides a number of optional
and mandatory exemptions to this general principle. The only exemptions adopted
by the Group are set out below.
IFRS 3 - Business combinations
The Group has elected not to apply IFRS 3 to the business combinations that took
place prior to the date of transition. Accordingly, combinations prior to 1 May
2006 have not been restated. As a result the carrying value of goodwill is
frozen as at 1 May 2006 but accounted for thereafter in accordance with IFRS.
IFRS 2 - Share based payments
The Group has elected to apply IFRS 2 only to relevant share based payment
transactions granted after 7 July 2005 and not vested at 1 May 2006. Previously,
share based payments were accounted for under FRS 20. There was no impact on the
UK GAAP income statement because at the date of the grant the exercise price was
materially equal to the intrinsic value.
2. Business combinations
Companies acquired during the year are as described below.
(a) tdotcom Limited
On 22 October 2007, SpiriTel plc acquired 100% of the issued share capital of
tdotcom Limited, a company based in the UK. The total cost includes the
components stated below. The purchase price was settled in cash.
£000
Purchase price 80
Contingent consideration under earn out agreement payable 150
in cash
Due diligence fees 10
Other professional fees 23
263
Up to a further £150,000 of consideration may become payable in the event that
the acquired business achieves certain earn-out sales targets during the
eighteen months following the date of acquisition. In the opinion of the
directors the likely amount payable is £150,000.
The share purchase agreement includes a payment of £70,000 due on 1 May 2008
against which any deficit in target net assets can be offset. The final net
asset amount has not been agreed with the vendors but in the opinion of the
directors this amount will not be payable.
The assessment of the fair values of the assets and liabilities of tdotcom
Limited was only provisionally completed at 30 April 2008 due to ongoing
discussions with the vendor on the completion accounts. The amounts
provisionally recognised for each class of the acquiree's assets and liabilities
recognised at the acquisition date are as follows:
Book value Fair value adjustments Provisional fair value to the Group
£000 £000 £000
Intangible fixed assets identified - 615 615
Trade and other receivables 86 - 86
Inventories 7 - 7
Current tax assets 29 - 29
Cash and cash equivalents 11 - 11
Total assets 133 615 748
Trade payables (258) - (258)
Deferred income (133) - (133)
Other taxes (39) - (39)
Other payables (103) - (103)
Deferred tax - (172) (172)
Total liabilities (533) (172) (705)
Net assets / (liabilities) acquired (400) 443 43
Provisional goodwill arising on the acquisition 220
Consideration 263
Satisfied by:
Cash 113
Contingent consideration to be settled in cash 150
263
During the period from the date of acquisition to 30 April 2008, tdotcom Limited
generated revenue of £685,000 and an operating profit of £127,000.(b) WN1
Limited
On 2 April 2008, SpiriTel Plc acquired 100% of the issued share capital of WN1
Limited, a company based in the UK. The total cost includes the components
stated below. The purchase price was settled by a combination of cash and loan
notes.
£000
Purchase price 2,260
Loan notes repayable on 1 May 2009 248
Contingent consideration under earn out agreement payable 432
in cash
Due diligence fees 25
Other professional fees 202
3,167
Up to a further £550,000 of consideration may become payable in the event that
the acquired business achieves certain earn-out sales and profit targets during
the twelve months following the date of acquisition. In the opinion of the
directors the likely amount payable is £550,000.
Due to the proximity of the acquisition to the Group's year end, the assessment
of the fair values of the assets and liabilities of WN1 Limited was only
provisionally completed at 30 April 2008. The amounts provisionally recognised
for each class of the acquiree's assets and liabilities recognised at the
acquisition date are as follows:
Book value Fair value adjustments Provisional fair value to the Group
More to follow, for following part double-click [nRn2e2736A]