RNS Number:4191E
Vanco PLC
25 September 2007
Vanco plc
Interim Results
For the six months ended 31 July 2007
VANCO ANNOUNCES HALF YEAR RESULTS
Vanco plc ("Vanco"), the global Virtual Network Operator ("VNO"), today
announces its interim results for the half year ended 31 July 2007.
Highlights
* Turnover up 24.8% to #98.1m (2006:#78.6m)
* Gross margin of 33.6% (2006:33.5%)
* Operating profit of #5.8m (2006: #4.3m)
* Basic earnings per ordinary share (eps) of 3.65p (2006: 2.55p)
* Free Cash Flow absorption of #19.6m (2006: absorption of #15.1m)
* Net debt of #35.0m (2006: #24.4m)
* Contracted order book up 32% to #431m (2006: #327m)
* Channel partners: New agreements were signed with a number of Asset Based
Carriers ('ABCs'); including T-Systems, which has begun to market and sell
Vanco services; and a major US carrier, for whom Vanco will provide a
national broadband service across the United States
* Customers in 161 countries and territories globally at 31 July 2007 (2006:
155)
Summary
The underlying fundamentals of the business remain strong and the sales growth
demonstrates the continued attractiveness of Vanco's proposition. We manage
networks for customers across 161 countries with a contracted order book of
#431m at 31 July 2007. During the six month ended 31 July 2007 we signed
contracts worth #120m, representing approximately one third of the contracted
order book at the beginning of the period. This contracted base, with its strong
cash flow profile, continues to form a larger proportion of the total business;
and new business, with its inherent cash absorption, contributes a decreasing
proportion. As such, the underlying cash flow profile of the Group remains
sound.
The period end cash flow position was adversely impacted by a delay in the
signing of three significant contracts. One of these contracts has subsequently
been signed, with the others expected to be signed before the end of the
calendar year.
A review of period end procedures has concluded that the Company has focused on
the achievement of short term specific cash targets at the expense of long term
contract margins. The Directors have therefore taken the decision to avoid cash
management actions in the future which excessively impact gross margins. The
adoption of this approach will result in a one-off detrimental impact to free
cash flow in the current financial year of approximately #20m. Year end net debt
will now more closely reflect the underlying net debt during the year and
provide a more accurate reflection of the capital requirements of the business.
Accordingly, the Directors now expect net debt as at 31 January 2008 will be
approximately #45m. The normalised free cash flow absorption (excluding
non-recurring items) from trading in the first half amounts to #3m.
CHAIRMAN'S STATEMENT
Commenting on the results, Prof Dr. Thomas Wolf, non-Executive Chairman, said:
"Once again, we are pleased to have delivered a robust set of figures for the
first half of the year, giving us a solid platform from which we can achieve our
full year expectations.
The period got off to an excellent start with the winning of Vanco's largest
contract to date, before making some major inroads into other large enterprise
accounts that have significant potential to grow. These contracts contributed to
a total order intake between 1 February 2007 and 31 July 2007 from new and
existing customers of approximately #120m. This is a very strong start to the
year, especially in the first half of the year which has traditionally been
weaker than the second half.
Meanwhile, we have signed additional channel relationships with Asset Based
Carriers (ABCs) around the world. This continues to represent an important route
to market that is already generating new business, as well as working to further
establish the VNO approach as the most attractive business model to enable
regional carriers to offer global solutions to their clients.
Whist we are disappointed that cash flow for the period did not meet our
internal expectation, this was primarily the result of three contracts that were
not signed within the period as originally forecast. One of these contracts has
since been signed and we expect to close the other two during the second half of
the year. We believe that this timing issue should be viewed in context, with
the strong growth in turnover, continued profitability, and excellent total
contracted order book made up of contracts with leading organisations based
throughout the world.
We are confident that the Group will continue to make progress in the second
half of this year and achieve the growth targets we have set for the year ending
31 January 2008 and beyond."
For further information, please contact
Vanco plc
Allen Timpany, Chief Executive Tel: +44 208 636 1700
Peter Johnston, Group Finance Director Tel: +44 208 636 1700
Morten Singleton, Director of Corporate Communications, Tel +44 208 636 6529
CHIEF EXECUTIVE'S STATEMENT
I am pleased to present our interim results for the six months ended 31 July
2007 and to report on another period of success and development for the Group.
Trading in the first six months was very strong, with the total order intake
between 1 February 2007 and 31 July 2007 from new and existing customers now
amounting to approximately #120m compared to #49.5m in the equivalent period in
the previous financial year. Of this, approximately #21m of revenue will be
recognised in the year ending 31 January 2008, and approximately #16m will be
received in cash by that date. This recognisable revenue represents 43% of the
new business revenue required in order to achieve market expectations for the
full year. This is ahead of the position at the same period last year. This
excludes the full effect of any additions or changes to customers' networks
which continue to be in line with the historic average.
Accordingly, we remain confident that the revenue and operating profit for the
year ending 31 January 2008 will be in line with market expectations.
Business Development
In the period Vanco announced a series of new contracts with enterprise
customers.
Of these, the most significant was a contract with a large multinational
professional services firm to design, implement and manage a global Wide Area
Network connecting their offices in over 80 countries. The 76-month contract is
now worth over US$110 million and represents Vanco's largest single enterprise
contract to date.
Other enterprise contracts included a new contract with a major technology group
- a division of one of the largest businesses in Germany with 190,000 employees
worldwide. The three and a half year deal covers 20 countries, with Vanco
delivering a mix of MPLS and related technologies. Vanco has since signed
additional strategic business with this client.
Another notable win was a #6.2 million contract with the global leader in metal
packaging technology, for the design, implementation and management of its
EMEA-region Wide Area Network. The five-year agreement includes application
performance management, managed remote access services and managed security
services.
In the period Vanco signed new channel partner agreements with a number of Asset
Based Carriers (ABCs). The most significant of these was a four-year preferred
supplier agreement with T-Systems, the business customer brand of Deutsche
Telekom.
T-Systems is now using Vanco's capability to provide DSL and Internet
connections globally. T-Systems has begun to market and sell DSL based VPN
services to its domestic and international enterprise customers around the
world. There is no revenue commitment under the agreement but T-Systems has
indicated that there is strong demand from enterprise customers for DSL Internet
services around the world, and the first two clients to sign through this
channel partnership were announced on 17 July 2007. T-Systems has since used
Vanco to deliver sites for 2 more clients. This deal requires no significant
further investment by Vanco, as the products and price lists have been developed
to allow the T-Systems' sales force to design and price customer solutions.
Vanco also announced that it had signed a contract with a major US Carrier to
provide a national Broadband service offering to its business customers across
the United States.
The agreement gives the Carrier, which has 3000 sales staff, the ability to
provide its customers with Broadband services at virtually any location across
the country. Through Vanco's Virtual Network Operator model, the Carrier can
access the networks of over 250 underlying DSL and cable providers in the USA.
There is no revenue commitment under the agreement, but the Carrier has
indicated that there is strong demand for this solution in the United States.
Further channel agreements have also been entered into with Deutsche Telekom's
International Carrier Sales and Solutions unit (ICSS) and FLAG Telecom, part of
the Reliance group of companies, India's largest business house. We continue to
believe that our channel partner strategy remains a highly attractive way of
significantly extending Vanco's customer base as well as its range of services.
Competitive environment
There has been no discernible change in the competitive environment. The few
smaller regional VNOs in countries around the world continue to have only a
limited influence in the market and Vanco continues to move away from them as it
targets and secures larger deals and increases its global capability. The ABCs
have not significantly changed their competitiveness in global bids. The IT
Outsourcers continue to prefer to partner for WAN services rather than to
deliver those themselves.
Vanco's position within the global networking marketplace has been recognised by
Gartner - the leading independent analyst in the technology industry. In the
period, Vanco was positioned in the "2007 Global Network Service Providers'
Magic Quadrant" report as a 'Challenger'.
The Gartner Magic Quadrant for Global NSPs evaluates providers of fixed
corporate network solutions spanning the world.
Two broad measurement criteria are used:
* Completeness of Vision - including market understanding, marketing
strategy, sales strategy, product strategy, business model, industry
strategy, innovation and geographic strategy.
* Ability to execute - including product/service, overall viability, sales
execution/pricing, market responsiveness and track record, marketing
execution, customer experience and operations.
Of the companies included in the Magic Quadrant, Vanco is the only VNO and the
only company that is totally dedicated to enterprise networking demands.
Vanco's inclusion in the Global Magic Quadrant comes after already having been
established in the European and Asian regional Magic Quadrants for a number of
years.
Financial information
In the half year to 31 July 2007, turnover was #98.1m which represents an
increase of 24.8% on the comparable period of the preceding year. The value of
the contracted order book at 31 July 2007 was #431m which is an increase of 32%
over the position a year ago.
Gross margin for the half year to 31 July 2007 was 33.6% which was in line with
the 33.5% achieved in the comparable period in 2006.
Free cash outflow(1) for the six months ended 31 July 2007 was #19.6m compared
to an outflow in the six months ended 31 July 2006 of #15.1m. This is
approximately #10m in excess of our expectations and is largely due to delays to
the signing of three new contracts with existing customers which were expected
to be completed prior to 31 July 2007. In common with most new deals, these
contracts contain substantial initial fees. One of these contracts has since
been signed and we anticipate signing the other contracts before the end of the
calendar year. Net debt as at 31 July 2007 was #35.0m (31 July 2006: #24.4m).
The underlying cash generation of quarterly network fees derived from the
contract base remains strong, with the contract base of #114m on 1 February 2007
expected to generate cash of #135m in the financial year ending 31 January 2008.
New contracts are normally cash generative shortly after signature by the
payment of an Initial Fee but in the early stages of the contract cash is
absorbed as the project is rolled out. Within the industry it is normal practice
for the traditional ABCs to capitalise the costs of network set up on the
balance sheet and recover these over the term of the contract. By contrast,
Vanco does not own the costs of the network and therefore recognises as revenue
the amount of work involved in the design and installation of the network.
Whilst Vanco has been successful in recovering most of this work in the Initial
Fee, it is commercially difficult to recover all of these costs up front. To the
extent to which Vanco does not recover the revenue as cash, it recognises the
difference as an increase in accrued income in the balance sheet.
Over time more revenue will derive from existing accounts, which are typically
contracts with an average life of more than 3 years; and the revenue from
initial fees will constitute a decreasing proportion of the total revenue of the
business.
In the announcement on 5 June 2007 we disclosed that average net debt in the
year ended 31 January 2007 amounted to approximately #55m. This compared to a
net debt as at 31 January 2007 of #19.8m. As at 31 July 2007 net debt of #35.0m
compared to average net debt during the first half of approximately #66m. Whilst
part of the difference is due to the natural trading cycle, where Q4 is
historically the strongest period, the remainder is due to tight management of
the working capital at period ends with consequential pressure to close specific
deals, often at the expense of gross margin.
The Directors do not consider that this is in the long term interests of the
business. The Company will therefore continue to exercise tight control over
cash management but will in future avoid a focus on short term targets where
gross margin would be excessively adversely impacted. As a consequence of this
change in emphasis we therefore expect period end net debt to reflect more
closely the average net debt.
The Directors believe that taking this view will enable the Company to achieve
the right balance between gross margin and cash generation over the full term of
a contract rather than on a completion date. This will result in improved
management of the business in the medium and longer term and facilitate more
accurate forecasting of cash and net debt because it will be less dependent upon
the completing of specific deals.
The adoption of the new approach to period end cash management in the remaining
period of the second half will result in a year end net debt position of
approximately #45m. This does not represent a change to the ongoing cash profile
of the business beyond the current year and the Company expects free cash flow
to improve as the underlying cash generation of the business increases. The
normalised free cash flow absorption for trading during the six months to 31
July 2007 was #3m.
The Company will in future therefore report the average net debt for the period.
This financial information will be in addition to the extra information that the
Company committed to provide in its announcement of 5 June 2007.
During the first half, the Group renegotiated its banking facilities and has put
in place a five year revolving credit facility of #100m.
--------------------------
(1) Defined as cash from operating activities less capital expenditure, net
interest, tax and finance lease repayments
--------------------------
Board Changes
In the period Vanco announced the appointment of Peter Johnston as its new Group
Finance Director. Peter joined the Board of Vanco on 1 September 2007. He took
over the position from Simon Hargreaves, who announced his resignation as a
Director from the Group on 25 September 2007. Simon has worked at Vanco for 13
years, for most of the time as Finance Director and more recently as Managing
Director of Vanco Solutions. Simon has decided to leave the Group for personal
reasons. The Directors would like to thank Simon for the enormous contribution
he has made to the Company. Simon will be continuing in a full time capacity
until 31 December 2007 and as an employee through to April 2008.
Also in the period, Vanco announced the appointment of Mark Thompson to the
Board as an Executive Director of Vanco plc. With Simon Hargreaves resignation
as Director Mark Thompson has been promoted to Managing Director of Vanco
Solutions with immediate effect.
In addition Vanco welcomes Morten Singleton to the Group, joining as Director of
Corporate Communications on 10 September 2007.
Trading Outlook
The drivers for growth remain strong. They can be summarised as follows:
* continued increased recognition of the Vanco brand globally
* increased use of IT Outsourcer, Systems Integrators and ABCs as sales
channels
* the significant growth opportunity represented by converged voice and data
solutions
* growth within existing accounts
In previous years there has been a significant weighting of turnover and
operating profit in the second half of the financial year and we expect this
trend to continue this year. We believe that Vanco's business is well placed to
continue its record of success and remain confident about the prospects for the
full year.
The business is uniquely placed to continue to win significant new customer
business as a result of its independence as the leading global VNO.
We continue to be pleased with the development of both our Vanco Solutions
business, addressing the networking requirements of enterprises and Systems
Integrators, and our Vanco Direct business, extending the network reach of our
ABC channel partners, on a global level. The former continues to win larger and
larger contracts, while the latter has signed significant agreements with some
of the major ABCs around the world.
Current trading is good and we expect the final results for the year ending 31
January 2008 to be in line with market expectations.
Allen Timpany
Chief Executive
25 September 2007
MARKET AND COMPANY BACKGROUND
Information Technology plays an important role in most businesses. Organisations
need to transfer information between employees, and often to their suppliers,
customers and other stakeholders. To connect these groups and individuals via
their PCs in a safe and reliable way, a data network is required, and where this
network extends across more than one location, this requires a Wide Area Network
(WAN).
Prior to deregulation, companies went to the incumbent network provider for
every country in which they operated and an internal team managed these
non-competing providers. Deregulation delivered huge investment in supply, an
explosion of choice and reduced prices. However, it also increased the
complexity of managing a company's IT requirements and operation. In order to
maintain a competitive IT solution, companies had to remain abreast of changing
technologies and pricing as well as managing the complication of selecting the
best infrastructure provider in each geography.
The VNO approach
Since 1988, Vanco has built a successful business in solving this problem for
companies by inviting them to outsource their data network requirements. With an
extensive understanding of the global marketplace - the network suppliers, the
technologies available, service levels, pricing, the integration of
technologies, and customer requirements - Vanco focuses on the design,
implementation and management of Wide Area Networks. By contracting with Vanco,
companies gain the benefits of multiple suppliers (each the most appropriate for
their needs in terms of geography, technology, pricing and service) with the
ease of working with a single supplier - a VNO.
Vanco pioneered the VNO model, and in order to provide the most competitive
solutions from the start, it was fundamental that these services were delivered
without owning any fibre and copper transmission circuits, or having any
contractual allegiance to any particular technology provider. Vanco instead
designs networks using the most relevant technologies and purchases commodity
infrastructure from the most suitable telecommunications ABCs to build the
network. This service fills a very significant market gap between the ABCs, for
whom it is economically unviable to own all the telecommunications
infrastructure necessary to satisfy the network requirements of geographically
diverse enterprises, and enterprises, for whom the design and management of a
complex network diverts resources from core activities.
Market development
Leading industry analysts have recognised the emergence of the VNO concept and
rank Vanco as a highly credible competitor alongside the traditional ABCs, such
as BT, Orange Business Services, and AT&T, when discussing the marketplace. This
awareness is increasingly matched by companies recognising that Vanco and the
VNO approach is an alternative means of purchasing their data networks to the
traditional approach of buying direct from one or more ABCs. As a result, Vanco
is regularly included in companies' initial lists of potential WAN suppliers.
Vanco's VNO proposition is a very clear differentiator as the selection process
continues and a supplier is chosen.
Market consolidation has reduced the number of underlying ABCs, but they are
still numbered in their thousands, and this will continue to underpin the logic
of outsourcing to a VNO. Additionally, the pace of change of technology has
increased the range of solutions available and with it the complexity of choice
facing customers, which Vanco is ideally positioned to manage on behalf of its
clients. This complexity also makes it more difficult for new entrants to enter
the market, as customers wish to see a long record of success before agreeing to
outsource their business critical data networks.
Vanco's propositions
Vanco addresses this market in a number of ways. For eighteen years, Vanco has
served enterprise organisations directly, designing, implementing and managing
WANs for companies such as Avis Europe, British Airways, Ford Motor Company,
Pilkington and Siemens. More recently, Vanco has served enterprises through
channel partners: IT Outsourcers and SIs, and also ABCs and market-specific
channel providers. Vanco offers its services to ABC channel partners both
through long term contracts and on a circuit-by-circuit basis through Vanco
Direct. Across these routes to market, the VNO proposition is fundamentally the
same, but the benefits gained by Vanco's customers vary:
* Enterprises contract with Vanco to design, implement and manage their
corporate WAN, accessing a global solution and the benefits of a competitive
market (flexibility, choice, better pricing) through a single, independent,
service-focused supplier.
* IT Outsourcers and SIs deliver a wide range of IT solutions to enterprise
customers. Where they are not able to provide all the services in the
overall IT solution, such as the management of a data or voice network, they
subcontract that part to Vanco. Vanco's independent VNO approach is
attractive to IT Outsourcers and SIs as they can offer their clients all the
benefits that Vanco offers its enterprise clients, but also because Vanco
does not represent a competitive threat in other areas of the overall
contract.
* ABCs contract with Vanco to extend the reach of their geographically
limited physical networks, utilising the VNO model in countries or regions
where they do not own a network. This allows them to sell global solutions
to their enterprise customers, defending their existing business with these
customers, and increasing their accessible market. Vanco represents a
quicker, easier, and far less capital intensive means of ABCs being able to
offer a global solution, compared to either building a physical network in
each country, or partnering directly with other ABCs.
Risks and uncertainties
There are a number of potential risks and uncertainties which could have a
material impact on the Group's performance in the remaining six months of the
financial year and could cause actual results to differ materially from expected
and historical results.
Commercial Relationships
The Group benefits from close commercial relationships with a number of key
customers and suppliers. Damage to, or loss of any of these relationships could
have a detrimental and material effect on the Group's results. To manage this
risk the Group carries out regular reviews with its customers and major
suppliers to ensure that it continues to meet their needs.
Foreign Exchange
The Group has significant operations outside the UK and as such is exposed to
movements in exchange rates. To protect cash flows against exchange risk the
Group will enter into formal exchange contracts to hedge foreign exchange
exposures where appropriate.
RESPONSIBILITY STATEMENT
We confirm that to the best of our knowledge:
(a) the condensed set of financial statements, which has been prepared in
accordance with IAS 34 Interim Financial Reporting, gives a true and fair view
of the assets, liabilities, financial position and profit or loss of the
undertakings included in the consolidation as a whole as required by DTR 4.2.4R;
(b) the interim management report includes a fair review of the information
required by DTR 4.2.7R; and
(c) the interim management report includes a fair review of the information
required by DTR 4.2.8R.
By order of the Board
Allen Timpany Simon Hargreaves
Chief Executive Officer Director
INDEPENDENT REVIEW REPORT TO VANCO PLC
Introduction
We have been instructed by the company to review the financial information for
the six months ended 31 July 2007 which comprise the condensed income statement,
the condensed balance sheet, the condensed statement of changes in equity, the
condensed cash flow statement and the related notes 1 to 15. We have read the
other information contained in the interim report and considered whether it
contains any apparent misstatements or material inconsistencies with the
financial information.
This report is made solely to the company in accordance with Bulletin 1999/4
issued by the Auditing Practices Board. Our work has been undertaken so that we
might state to the company those matters we are required to state to them in an
independent review report and for no other purpose. To the fullest extent
permitted by law, we do not accept or assume responsibility to anyone other than
the company, for our review work, for this report, or for the conclusions we
have formed.
Directors' responsibilities
The interim report, including the financial information contained therein, is
the responsibility of, and has been approved by, the directors. The directors
are responsible for preparing the interim report in accordance with the Listing
Rules of the Financial Services Authority and the requirements of IAS 34 which
require that the accounting policies and presentation applied to the interim
figures are consistent with those applied in preparing the preceding annual
accounts except where any changes, and the reasons for them, are disclosed.
Review work performed
We conducted our review in accordance with the guidance contained in Bulletin
1999/4 issued by the Auditing Practices Board for use in the United Kingdom. A
review consists principally of making enquiries of group management and applying
analytical procedures to the financial information and underlying financial data
and, based thereon, assessing whether the accounting policies and presentation
have been consistently applied unless otherwise disclosed. A review excludes
audit procedures such as tests of controls and verification of assets,
liabilities and transactions. It is substantially less in scope than an audit
performed in accordance with International Standards on Auditing (UK and
Ireland) and therefore provides a lower level of assurance than an audit.
Accordingly, we do not express an audit opinion on the financial information.
Review conclusion
On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the six months
ended 31 July 2007.
Deloitte & Touche LLP
Chartered Accountants, London
25 September 2007
Condensed Income Statement
Six months ended 31 July 2007
Six months Six months Year
ended ended ended
31 July 31 July 31 January
2007 2006 2007
Unaudited Unaudited Audited
# # #
Revenue 98,097,728 78,614,739 183,173,636
Cost of sales (65,143,202) (52,318,810) (117,564,609)
---------------- ----------------- -----------------
Gross profit 32,954,526 26,295,929 65,609,027
Administrative
expenses (27,192,589) (22,028,692) (46,610,754)
---------------- ----------------- -----------------
Operating profit 5,761,937 4,267,237 18,998,273
Interest income 78,192 56,221 120,113
Interest costs (2,363,407) (2,008,456) (4,424,236)
---------------- ----------------- -----------------
Profit before
taxation 3,476,722 2,315,002 14,694,150
Taxation (1,164,069) (756,060) (4,628,657)
---------------- ----------------- -----------------
Profit for the
period 2,312,653 1,558,942 10,065,493
========= ========= =========
Basic earnings per
ordinary share
(pence) 3.65 2.55 16.3
========= ========= =========
Diluted earnings
per ordinary share
(pence) 3.56 2.48 15.6
========= ========= =========
All amounts are derived from continuing operations.
Condensed Balance Sheet
31 July 2007
31 July 31 July 31 January
2007 2006 2007
Unaudited Unaudited Audited
# # #
Non-current assets
Intangible assets 32,043,998 31,756,287 32,215,012
Property, plant
and equipment 12,367,223 8,953,706 10,498,661
Other receivables* 3,678,835 1,365,424 4,087,858
Deferred tax asset 1,736,850 1,885,013 1,854,333
----------------- ----------------- -----------------
49,826,906 43,960,430 48,655,864
----------------- ----------------- -----------------
Current assets
Inventories 19,333 16,095 15,412
Trade and other
receivables
Due within one
year 93,277,668 67,100,282 77,295,538
Due after more
than one year 66,858,809 42,073,279 59,735,775
Cash and cash
equivalents 11,667,360 11,734,746 19,578,729
----------------- ----------------- -----------------
171,823,170 120,924,402 156,625,454
----------------- ----------------- -----------------
Total assets 221,650,076 164,884,831 205,281,318
----------------- ----------------- -----------------
Current liabilities
Trade payables (35,284,680) (34,086,490) (36,589,846)
Other payables (72,030,306) (39,659,790) (65,625,841)
----------------- ----------------- -----------------
(107,314,986) (73,746,280) (102,215,687)
----------------- ----------------- -----------------
Net current assets 64,508,184 47,178,122 54,409,767
----------------- ----------------- -----------------
Non-current liabilities
Other payables (44,409,877) (34,020,155) (38,174,589)
Deferred tax
liabilities (1,416,624) (1,180,041) (1,349,999)
----------------- ---------------- ----------------
(45,826,501) (35,200,196) (39,524,588)
----------------- ---------------- ----------------
Total liabilities (153,141,487) (108,946,476) (141,740,275)
----------------- ---------------- ----------------
Net assets 68,508,589 55,938,356 63,541,043
========= ========= =========
Equity
Share capital 3,190,665 3,127,908 3,136,067
Share premium
account 11,910,925 9,101,106 9,240,611
Other reserves 25,777,335 24,561,453 25,424,335
Retained earnings 29,472,997 18,653,793 27,160,344
Foreign exchange
translation
reserve (1,843,333) 494,096 (1,420,314)
----------------- ----------------- -----------------
Equity
shareholders'
funds 68,508,589 55,938,356 63,541,043
========= ========= =========
* See Note 2
Condensed Consolidated Statement of Changes in Equity
Six months ended 31 July 2007
Six months ended 31 Share capital Share premium Other reserves Retained earnings Foreign exchange Total
July 2006 (unaudited) account translation
reserve
# # # # # #
Balance at 1
February 2006 2,988,172 7,163,972 23,753,453 17,094,851 (108,040) 50,892,408
Retained
profit for the
period - - - 1,558,942 - 1,558,942
Foreign
currency
translation
differences - - - - 602,136 602,136
Issue of new
ordinary
shares 139,736 1,937,134 - - - 2,076,870
Share based
incentive
plans - - 808,000 - - 808,000
---------------- -------------- --------------- ---------------- --------------- -----------
Balance at 31
July 2006 3,127,908 9,101,106 24,561,453 18,653,793 494,096 55,938,356
========= ========= ========= ========= ========= ==========
Year ended 31 January
2007 (audited)
Balance at 1
February 2006 2,988,172 7,163,972 23,753,453 17,094,851 (108,040) 50,892,408
Retained
profit for the
financial year - - - 10,065,493 - 10,065,493
Foreign
currency
translation
differences - - - - (1,312,274) (1,312,274)
Issue of new
ordinary
shares 147,895 2,076,639 - - - 2,224,534
Share based
incentive
plans - - 1,670,882 - - 1,670,882
---------------- -------------- --------------- ---------------- --------------- -----------
Balance at 31
January 2007 3,136,067 9,240,611 25,424,335 27,160,344 (1,420,314) 63,541,043
========= ========= ========= ========= ========= ==========
Six months ended 31
July 2007 (unaudited)
Balance at 1
February 2007 3,136,067 9,240,611 25,424,335 27,160,344 (1,420,314) 63,541,043
Retained
profit for the
period - - - 2,312,653 - 2,312,653
Foreign
currency
translation
differences - - - - (423,019) (423,019)
Issue of new
ordinary
shares 54,598 2,670,314 - - - 2,724,912
Share based
incentive
plans - - 353,000 - - 353,000
---------------- -------------- --------------- ---------------- --------------- -----------
Balance at 31
July 2007 3,190,665 11,910,925 25,777,335 29,472,997 (1,843,333) 68,508,589
========= ========= ========= ========= ========= ==========
Consolidated Cash Flow Statement
Six months ended 31 July 2007
Six months Six months Year
ended ended ended
31 July 31 July 31 January
2007 2006 2007
Unaudited Unaudited Audited
# # #
Operating activities
Cash
(absorbed)
generated by
operations (8,968,324) (5,161,721) 5,719,077
Interest paid (2,838,023) (1,910,234) (3,198,543)
Tax paid (1,101,084) (1,988,772) (2,877,267)
----------------- ----------------- -----------------
Net cash
outflow from
operating
activities (12,907,431) (9,060,727) (356,733)
----------------- ----------------- -----------------
Investing activities
Interest
received 71,825 56,221 120,113
Purchases of
property,
plant and
equipment (2,747,643) (507,525) (907,463)
Purchases of
intangible
fixed assets (1,515,661) (3,007,340) (3,643,100)
Acquisition of
subsidiary
undertakings - (53,790) (168,899)
----------------- ----------------- -----------------
Net cash used
in investing
activities (4,191,479) (3,512,434) (4,599,349)
----------------- ----------------- -----------------
Financing activities
Proceeds from
issue of share
capital 2,724,911 2,076,870 2,224,534
Repayment of
borrowings (1,036,488) (122,680) (1,031,013)
Repayment of
bank loans (62,000,000) - -
Repayment of
obligations
under finance
leases (2,533,756) (2,481,212) (4,783,283)
New bank loans
raised 69,235,389 9,000,000 5,600,000
New other
loans raised 3,678,903 5,300,000 12,350,000
----------------- ----------------- -----------------
Net cash from
financing
activities 10,068,959 13,772,978 14,360,238
----------------- ----------------- -----------------
Net (decrease)
increase in
cash and cash
equivalents (7,029,951) 1,199,817 9,404,156
Cash and cash
equivalents at
beginning of
period 19,578,729 10,598,045 10,598,045
Effect of
foreign
exchange rate
changes (881,419) (63,116) (423,472)
----------------- ----------------- -----------------
Cash and cash
equivalents at
end of period 11,667,359 11,734,746 19,578,729
========== ========== ==========
Reconciliation of Net Cash Flow to Movement in Net Debt
Six months ended 31 July 2007
Six months Six months Year
ended ended ended
31 July 31 July 31 January
2007 2006 2007
Unaudited Unaudited Audited
# # #
(Decrease)
increase in
cash and cash
equivalents (7,029,952) 1,199,817 9,404,156
Cash outflow
from changes
in lease and
hire purchase
financing 2,533,756 2,481,212 4,783,283
New loans (72,914,291) (14,300,000) (17,950,000)
Cash outflow
from loan
repayments 63,036,488 122,680 1,031,013
------------------- ----------------- -----------------
Change in net
debt resulting
from cash
flows (14,373,999) (10,496,291) (2,731,548)
New finance
leases - (346,000) (3,095,013)
Foreign
currency
translation
differences (881,419) (28,115) (388,472)
------------------- ----------------- -----------------
Movement in
net debt (15,255,418) (10,870,406) (6,215,033)
Opening net
debt (19,779,168) (13,564,135) (13,564,135)
------------------- ----------------- -----------------
Closing net
debt (35,034,586) (24,434,541) (19,779,168)
=========== ========= =========
Net Cash (Outflow) Inflow from Operating Activities
Six months ended 31 July 2007
Six months Six months Year
ended ended ended
31 July 31 July 31 January
2007 2006 2007
Unaudited Unaudited Audited
# # #
Operating
profit 5,761,937 4,267,237 18,998,273
Depreciation 784,968 2,608,112 4,593,168
Amortisation of
intangible
fixed assets 1,690,112 279,295 930,846
------------------- ----------------- -----------------
Operating cash
flows before
movements in
working capital 8,237,017 7,154,644 24,522,287
Increase in
inventories (3,921) (1,709) (1,026)
Increase in
receivables (22,343,140) (12,122,025) (40,157,198)
Increase
(decrease) in
payables 5,141,720 (192,631) 21,355,014
-------------------- ----------------- -----------------
Cash (absorbed
) generated by
operations (8,968,324) (5,161,721) 5,719,077
=========== ========= =========
Notes to the consolidated interim financial statements 1. General information
Vanco plc ('the Company') and its subsidiaries (together 'Vanco plc' or 'the
Group') provide enterprise clients with many managed network solutions including
the design, integration, implementation, security and management of global
corporate networks.
The Company is a public limited company incorporated and domiciled in the United
Kingdom. The address of its registered office is John Busch House, 277 London
Road, Isleworth, TW7 5AX.
The Company has its primary listing on the London Stock Exchange.
These consolidated interim financial statements have been approved for issue by
the Board of Directors on 25 September 2007.
2. Accounting policies
The accounting policies adopted by the Group are in accordance with the
accounting policies updated at the prior year end.
The amounts due after more than one year in respect of employee share incentive
schemes have been reclassified to non-current assets.
3. Basis of preparation and statutory information
The 31 July 2007 interim consolidated financial statements of Vanco plc are for
the six month period ended 31 July 2007. These interim financial statements have
been prepared in accordance with those IFRS standards and IFRIC interpretations
issued and effective as at the time of preparing these statements (September
2007) and IAS 34 'Interim Financial Reporting'.
The interim financial information for the six months ended 31 July 2007 and 31
July 2006 has not been audited and does not constitute statutory accounts within
the meaning of Section 240 of the Companies Act 1985.
The information for the year ended 31 January 2007 does not constitute statutory
accounts as defined in section 240 of the Companies Act 1985. A copy of the
statutory accounts, which were prepared under IAS, has been filed with the
Registrar of Companies. The auditors' report on those accounts was not qualified
and did not contain statements under section 237(2) or (3) of the Companies Act
1985.
4. Segment reporting
The following is an analysis of the Group's revenue and results by geographical
segment for the periods under the review. The geographical segment also
represents the primary basis of segmentation.
Six months Six months Year
ended ended ended
31 July 31 July 31 January
2007 2006 2007
Unaudited Unaudited Audited
# # #
Revenue
United Kingdom 51,104,113 32,249,875 80,799,351
Other European
countries 26,664,392 28,285,138 61,949,869
Other countries 20,329,223 18,079,726 40,424,416
-------------------- ----------------- -----------------
98,097,728 78,614,739 183,173,636
=========== ========= =========
Segment profit
United Kingdom 1,803,495 375,914 5,148,564
Other European
countries 60,450 931,515 3,200,718
Other countries 448,708 251,513 1,716,211
-------------------- ----------------- -----------------
2,312,653 1,558,942 10,065,493
=========== ========= =========
5. Tax
Six months Six months Year
ended ended ended
31 July 31 July 31 January
2007 2006 2007
Unaudited Unaudited Audited
# # #
Current tax
United Kingdom
corporation
tax 486,901 556,500 2,047,976
Foreign tax 493,060 238,552 2,537,291
Prior period
adjustment - - (200,000)
-------------------- -------------------- --------------------
979,961 795,052 4,385,267
Deferred tax
Current year 184,108 (38,992) 145,038
Prior year - - 98,352
-------------------- ----------------- -----------------
1,164,069 756,060 4,628,657
=========== ========= =========
UK Corporation tax is calculated at 30% of the estimated assessable profit for
the year.
Taxation for other jurisdictions is calculated at the rates prevailing in the
respective jurisdictions.
6. Earnings per ordinary shares
Earnings per ordinary share have been calculated by dividing the profit after
taxation for each period by the weighted average number of ordinary shares of
the Company during the period. The diluted weighted average number of ordinary
shares has been calculated after taking into account the effect of the vesting
of shares issued to certain employees of the Group which are due to vest
providing only that the employees concerned are still employed by the Group at
the due date for vesting and where it is expected that the contingently issuable
shares due to Directors and senior employees will vest as the relevant targets
have been met.
The weighted average number of ordinary shares and the diluted weighted average
number of ordinary shares used in the calculations are as follows:
Six months Six months Year
ended ended ended
31 July 31 July 31 January
2007 2006 2007
Unaudited Unaudited Audited
No. of No. of No. of
shares shares shares
Weighted average number of
ordinary shares in issue 63,344,796 61,160,435 61,897,704
Effect of dilutive potential
ordinary shares - share
options 1,676,527 1,646,285 2,693,705
=========== ========= =========
Diluted weighted average
number of ordinary shares in
issue 65,021,323 62,806,720 64,591,409
=========== ========= =========
The profit for the financial period used in the calculation is as follows:
Six months Six months Year
ended ended ended
31 July 31 July 31 January
2007 2006 2007
Unaudited Unaudited Audited
# # #
Earnings attributable to ordinary
shareholders 2,312,653 1,558,942 10,065,493
========== ========= =========
7. Property, plant and equipment
During the period, the Group spent #2,747,643 on property, plant and equipment.
8. Borrowings
On 24 April 2007 the Company successfully renegotiated the Group revolving bank
facilities on new terms. Lloyds TSB Bank PLC is now the Group's main lender. The
total facilities now available to the Group under this facility are #100
million, #4 million of which is allocated to hedging facilities and #5 million
of which is available as overdraft. As a result of the change in principal
lender from Barclays Bank plc to Lloyds TSB Bank PLC, bank loans of #62 million
were repaid under the old revolving credit facility.
Average net debt for the six months ended 31 July 2007 was #66 million compared
to #53 million for the six month period ended 31 July 2006 and #61 million for
the six month period ended 31 January 2007.
9. Issued capital
Six months Six months Year
ended ended ended
31 July 31 July 31 January
2007 2006 2007
Unaudited Unaudited Audited
# # #
At 1 February 3,136,067 2,988,172 2,988,172
Issued during the
period 54,598 139,736 147,895
------------------ ----------------- ----------------
At 31 July/ 31
January 3,190,665 3,127,908 3,136,067
========== ========= =========
10. Movements in equity securities
For the six months ended 31 July 2006, 2,794,717 ordinary shares of 5p each were
issued as consideration for 6,298,105 deferred ordinary shares in Vanco Group
Limited. These transactions were in connection with the employee share incentive
schemes set up when the Company was listed on the main UK Stock Exchange on 6
November 2001.
For the year ended 31 January 2007, 2,957,882 ordinary shares of 5p each were
issued as consideration for 6,815,899 deferred ordinary shares in Vanco Group
Limited. These transactions were in connection with the employee share incentive
schemes set up when the Company was listed on the main UK Stock Exchange on 6
November 2001.
For the six months ended 31 July 2007 1,091,950 ordinary shares of 5p each were
issued as consideration for 2,516,620 deferred ordinary shares in Vanco Group
Limited. These transactions were in connection with the employee share incentive
schemes set up when the Company was listed on the main UK Stock Exchange on 6
November 2001.
11. Reserves
Six months Six months Year
ended ended ended
31 July 31 July 31 January
2007 2006 2007
Unaudited Unaudited Audited
# # #
Share premium
account 11,910,925 9,101,106 9,240,611
Other reserves 25,777,335 24,561,453 25,454,335
Retained
earnings 29,472,997 18,653,793 27,160,344
Foreign currency
translation
reserve (1,843,333) 494,096 (1,420,314)
------------------- ----------------- -----------------
65,317,924 52,810,448 60,434,976
=========== ========= =========
12. Share premium account
Six months Six months Year
ended ended ended
31 July 31 July 31 January
2007 2006 2007
Unaudited Unaudited Audited
# # #
At 1 February 9,240,611 7,163,972 7,163,972
Issue of new
ordinary shares 2,670,314 1,937,134 2,076,639
------------------- ----------------- -----------------
At 31 July / 31
January 11,910,925 9,101,106 9,240,611
=========== ========= =========
13. Other reserves
Six months Six months Year
ended ended ended
31 July 31 July 31 January
2007 2006 2007
Unaudited Unaudited Audited
# # #
At 1 February 25,424,335 23,753,453 23,753,453
Share based
incentive plans 353,000 808,000 1,670,882
------------------- ----------------- -----------------
At 31 July / 31
January 25,777,335 24,561,453 25,424,335
=========== ========= =========
14. Retained earnings
Six months Six months Year
ended ended ended
31 July 31 July 31 January
2007 2006 2007
Unaudited Unaudited Audited
# # #
At 1 February 27,160,344 17,094,851 17,094,851
Net profit for
the period 2,312,653 1,588,942 10,065,493
------------------- ----------------- -----------------
At 31 July / 31
January 29,472,997 18,683,793 27,160,344
=========== ========= =========
15. Foreign exchange translation reserve
Six months Six months Year
ended ended ended
31 July 31 July 31 January
2007 2006 2007
Unaudited Unaudited Audited
# # #
At 1 February (1,420,314) (108,040) (108,040)
Exchange
differences on
translation of
overseas
operations (423,019) 602,136 (1,312,274)
------------------- ----------------- -----------------
At 31 July / 31
January (1,843,333) 494,096 (1,420,314)
========== ========= =========
Appendix 1: Additional Financial Information
1. Analysis of Revenue
Six-months Six-months Year ended
ended 31 July ended 31 July 31 January
2007 2006 2007
Unaudited Unaudited Unaudited
#m #m #m
Initial phase Contracts signed in period 26 17 52
Contracts signed in prior periods 10 7 17
Management phase Contracts signed in period 1 3 7
Contracts signed in prior periods 47 39 80
Universal Access 14 13 27
------------- ------------- ---------------
98 79 183
======== ======== ========
The revenue from contracts signed in the period can be further analysed as
follows:
Six-months Six-months Year ended
ended 31 July ended 31 July 31 January
2007 2006 2007
Unaudited Unaudited Unaudited
#m #m #m
New name business Initial phase 9 5 25
Management phase - 1 3
Account management Initial phase 17 12 27
Management phase 1 2 4
----------- ----------- -----------
27 20 59
====== ====== ======
Total initial phase revenue for the six months to 31 July 2007 was #39 million,
of which #3 million relates to Universal Access. Of the total, #22 million was
supported by accrued income (56%) and #17 million was supported by cash (44%).
2. Analysis of working capital
Trade and other receivables
Six months ended Six months ended Year ended 31
31 July 2007 31 July 2006 January 2007
Unaudited #m Unaudited #m Unaudited #m
Due within one
year Trade debtors 24 17 15
Other debtors 12 7 10
Employee share scheme 2 1 4
Prepayments 20 21 15
Accrued income 35 21 33
-------------- -------------- --------------
93 67 77
-------------- -------------- --------------
Due after more
than one year Employee share scheme 4 1 4
Prepayments 7 2 5
Accrued income 60 40 55
-------------- -------------- --------------
71 43 64
-------------- -------------- --------------
Total trade
and other
receivables 164 110 141
======== ======== ========
The ageing of the accrued income is as follows:
Six months Six months Year
ended ended ended 31
31 July 2007 31 July 2006 January 2007
Unaudited Unaudited Unaudited
#m #m #m
Due within one
year 35 21 33
Due in between
one and two
years 29 18 25
Due in between
two and three
years 17 11 18
Due in between
three and four
years 10 7 9
Due in greater
than four
years 4 4 3
----------- ----------- -----------
Total accrued
income 95 61 88
====== ====== ======
Trade and other payables
Six months Six months Year ended 31
ended 31 July ended 31 July January 2007
2007 Unaudited 2006 Unaudited Unaudited
#m #m #m
Trade creditors 35 34 37
Other loans 4 3 3
Finance leases 1 2 2
Corporation tax 2 1 1
Overseas tax 1 - 2
Other taxes 5 4 5
Other creditors 2 1 3
Employee share
scheme 4 3 4
Accruals 6 6 6
Deferred income 47 20 39
------------- ------------- -------------
107 74 102
======= ======= =======
This information is provided by RNS
The company news service from the London Stock Exchange
END
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