RNS Number:3229Q
Envesta PLC
30 September 2003
Strictly embargoed until: 07:00, Tuesday 30 September 2003
ENVESTA PLC PRELIMINARY RESULTS
Envesta plc ("Envesta" or the "Company"), the alternative telephony provider,
announces preliminary results for the year ended 30 June 2003.
HIGHLIGHTS
* Turnover increased 131% to #10.8 million (2002: #4.7 million)
* Gross profit increased 74% to #2.1 million (2002: #1.2 million)
* Operating profit before goodwill and exceptionals increased 76% to
#501,689 (2002: #285,335)
* Pre-tax profit before goodwill and exceptionals increased 11% to
#476,811 (2002: #429,900)
* Earnings per share excluding goodwill and exceptionals 0.25p (2002:
0.30p)
* BT Interconnect fully operational
* Post year-end formation and launch of Eurotel Exchange, targeted at
the recently deregulated territories of Southern, Central and Eastern
Europe
* Post year-end launch of "Happy Talk Direct", giving end users
overseas an individual premium, local or national rate number for
friends and family to call them direct from the UK
* Proposed name change to Envesta Telecom plc, subject to shareholder
approval
Lyndon Chapman, Chairman of Envesta, commented "The year to 30 June 2003 was an
eventful one for Envesta plc. We have significantly grown revenues and
operating profitability, restructured the balance sheet and, in associated
transactions, changed the ownership of the Company. This has resulted in Envesta
being in a significantly stronger financial position today than at the start of
the financial year.
"Our principal subsidiary Seven Telecom, performed well for the year as a whole
but was hit hard for four months in the second half because of severe price
competition in its marketplace. As a result of its current low cost operational
base, Seven Telecom is better placed than many of its competitors to react to
changing market trends but it remains the Directors' intention to broaden
Envesta's telephony model to achieve substantial growth and maximise
opportunities in niche marketplaces."
For further information please visit www.envestaplc.com or contact:
Lyndon Chapman, Chairman Lindsay Mair
Kevin McGovern, Finance Director John Prior
Envesta plc Corporate Synergy Plc
Tel: 0870 767 7778 Tel: 020 7626 2244
kevin.mcgovern@envestaplc.com lmair@corporatesynergy.co.uk
Rosie Brown
Simon Hudson
Tavistock Communications
Tel: 020 7920 3150
rbrown@tavistock.co.uk
CHAIRMAN'S STATEMENT
The year to 30 June 2003 was an eventful one for Envesta plc. We have
significantly grown revenues and operating profitability, restructured the
balance sheet and, in associated transactions, changed the ownership of the
Company. This has resulted in Envesta being in a significantly stronger
financial position today than at the start of the financial year.
Our principal subsidiary, Seven Telecom, performed well for the year as a whole
but was hit hard for four months in the second half because of severe price
competition in its marketplace. There was evidence of an improvement in market
conditions in the last two months however, Seven Telecom's markets remain
subject to competitive pressures and this potential for volatility reinforces
the Board's belief in our strategy to broaden the base of the Company through
selective acquisitions in niche telecommunications sectors.
RESULTS
Revenues grew 131% to #10.8m while operating profit before goodwill and
exceptionals increased 76% to #501,689. The group generated #1.9m of cash from
operating activities and this allowed us to significantly reduce our debt as
well as purchase the capital equipment that has fuelled our growth.
We have amortised all the goodwill resulting from the purchase of Seven Telecom
during the period. We have also revalued Envesta's investment in Dialog Group
Inc. (formerly IMX Pharmaceuticals Inc.) and it is our intention to dispose of
this investment when the opportunity arises. The amortisation of goodwill and
the revaluation produced a non-cash charge to the Profit & Loss Account of
#1.3m.
All of the #1m convertible loan note to Hemery Trustees has been repaid during
the period and the #2.5m preference share liability, which would have been due
for repayment in March 2006, has been removed through conversion into ordinary
shares. The preference shares formed part of the personal and corporate holdings
of Stephen Dean which were disposed of at the time of his resignation as
Chairman on 16 June 2003. The shares were placed in the market with a number of
growth-oriented investors.
SEVEN TELECOM
Seven Telecom performed strongly during the first six months of the year but a
subsequent period of severe price competition resulted in a weaker performance
for the second half.
We were not willing to maintain our business through loss-making discounting.
Since the year-end we have successfully reduced operating costs to match
revenues and implemented sales initiatives that have resulted in an improvement
to both the top line and margins in both August and September. The Board
believes that the company should be able to regain the momentum it previously
enjoyed before some of our larger competitors created this year's period of
unsustainable price erosion.
In particular, Seven Telecom's growing relationship with BT enables the company
to continue to strengthen its emphasis on quality and joint marketing
initiatives will help to significantly increase Seven Telecom's profile.
EUROTEL EXCHANGE
On 13 August, following the year-end, we announced the formation and launch of a
start-up company, Eurotel Exchange, which is targeted at the recently
deregulated territories of Southern, Central and Eastern Europe. It is led by
Managing Director, John Janaraghi, who has considerable experience with leading
international carriers in the management of wholesale carrier markets. There
are significant synergies between Eurotel Exchange and Seven Telecom. In
particular, Eurotel Exchange is able to utilise Seven Telecom's back office
facilities and can route its traffic through Seven Telecom's switches and
platforms, producing considerable overhead savings.
In the first instance, Eurotel Exchange is investigating a number of
distribution opportunities, principally in Italy and Spain and its management
has also identified sizeable growth prospects through the formation of affinity
partnerships and joint ventures.
BOARD AND MANAGEMENT
I would like to take this opportunity to welcome David Hunter to the Board as a
non-executive Director. David's wide range of knowledge gained in the Telecoms
sector with companies such as Thus plc and Alpha Telecom will be a tremendous
asset to us and it is my intention to further strengthen the Board when suitable
individuals become available.
OUTLOOK
As a result of its current low cost operational base, Seven Telecom is better
placed than many of its competitors to react to changing market trends but it
remains the Directors' intention to broaden Envesta's telephony model to achieve
substantial growth and maximise opportunities in niche marketplaces. To this
end, we have been investigating a number of acquisition opportunities, which
meet our strict criteria: that the businesses should be profitable, cash
positive, and provide synergy with our existing operations.
We continue to negotiate with a number of companies however our financial
requirements were not satisfied with the acquisition I had hoped to announce at
the time of these results. I remain confident that we will be announcing a
successful expansion of our business during the coming months.
We will also be seeking shareholder approval at the AGM on 23 October 2003 to
change the Company's name to Envesta Telecom plc to better reflect our profile.
During the year under review we have created a financially stronger business
with a cleaner structure and a stable shareholder base. This will provide the
foundation platform from which we can now grow Envesta. In doing so we must
balance the requirements for short term profitability against the undoubted
rewards available, longer term, from entry into broader based, more stable areas
of the alternative telecommunications market. I believe that we are now very
well placed to use our experience, expertise and current operational assets to
provide shareholders with significant returns over the next few years. I look
forward to updating shareholders on our progress in due course.
Finally, I would like to thank all our staff and our advisers for their hard
work and commitment during a busy year. Much has been achieved in the last 12
months, but I believe we are only at the beginning of the Envesta story and the
future will see rewards for staff and shareholders alike for their continued
support.
Lyndon Chapman
Chairman
30 September 2003
OPERATIONAL REVIEW
Seven Telecom is now two years old. Last year was our first full year of
trading and we achieved revenues of #10.8m, generated from just ten employees.
Like all young and growing companies though, we have had a steep learning curve,
coming to terms with not only changes in the regulatory environment, but also
volatile trading patterns. During the first six months of the financial year,
we experienced a profitable period of growth despite substantial price erosion
impacting the market. However, the effect of this price erosion resulted in a
downturn in growth in the second half.
We can do nothing about the increasingly volatile nature of our marketplace,
however we can work to mitigate its effects and in the first six months of the
year, having identified the pressures on Seven Telecom's business, we responded
by broadening our product base and introducing new income streams from non-UK
markets. As a result, we have continued building our portfolio overseas.
WHOLESALE MARKET
The largest of our revenue streams remains the wholesale of international call
minutes to customers who package these minutes through international calling
cards, which are then distributed through their own sales networks. Our service
provides the infrastructure and functionality for customers to manage their own
products using our equipment. This reduces our overheads, increases customer
loyalty and minimises customer churn. Seven Telecom still has all of the
customers it originally signed up at launch two years ago.
The wholesale market has experienced unprecedented competition. This has been
at both a consumer level due to price erosion and at a direct wholesale
competitor level and resulted in a short-term downturn in revenue and
profitability.
In response, we have increased our number of wholesale customers by 110% and are
actively selling products in the less competitive markets of Germany, Italy and
Tanzania. Our most successful overseas markets have been South Africa and Eire
which have an annual revenue in excess of #1m and are continuing to grow. Seven
Telecom is poised to launch further products in these territories as well as in
several other countries.
DIVERSIFICATION
Seven Telecom has focussed on diversification into sales routes other than the
purely wholesale markets. We now have over 50 affinity customers for our Happy
Talk product and derive income from nine product types, achieving a more robust
base from which to grow.
Happy Talk Direct
We are currently launching an exciting new consumer product that will be
marketed through existing and new affinity channels called Happy Talk Direct.
This product gives the end user overseas an individual premium, local or
national rate number for their friends and relatives to call them direct from
the UK. Registration for the number will be simple - through our website,
www.happytalkdirect.com.
UK BT Interconnect
The introduction of the long awaited UK BT Interconnect was completed in May
2003 and gives Seven Telecom the ability to maximise margins on premium rate
services, such as Happy Talk, as well as enabling us to purchase directly high
quality international call minutes to support our entire business.
It also gives us the capability to expand and launch further diversified
products within the UK, including accessing the switch-less resale, call shop
and corporate markets.
The introduction of BT Interconnect has reinforced our already excellent working
relationship with BT Wholesale, as evidenced by a recent comment from Stuart
Horwood, BT Wholesale Markets Managing Director, who said: "We are proud to be
working with Seven Telecom as one of the first operators to sell a high quality
product in the historically low-quality calling card market. Seven Telecom are
relying on the best quality routes, such as those from BT, in order to ensure
longer term customer retention."
OUTLOOK
We will continue to grow Seven Telecom in line with principles and areas of
trading that have to date been successful. All new products and channels
developed by Seven Telecom derive from a business model close to our original
plan. They provide the highest possible call termination available in the
marketplace, coupled with minimal network and operational costs. Our customer
retention helps cut marketing costs, as does word of mouth recommendation of the
quality service which we provide. We expect to win all our new customers based
on this high quality.
Despite the challenges ahead we believe that Seven Telecom's outlook for the
current year is very promising. We now have the switching capacity to carry
more than 3,500 simultaneous calls over our cutting edge equipment. Our model
for international expansion means that we can sell products in virtually any
country without the need for a physical presence or increased overheads and we
intend to launch products in at least eight further countries during the next
half year, reducing our risk exposure to individual countries.
Stephen Evans Matt Baker
Managing Director Sales Director
Seven Telecom Seven Telecom
FINANCIAL REVIEW
The year to 30 June 2003 was one of significant growth and rapid change for
Envesta and I believe we emerge significantly better placed to face the
challenges ahead.
Revenues grew 131% to #10.8m while profit before tax (excluding goodwill and
exceptional items) increased 11% to #476,811. The group generated #1.9m of cash
from operating activities which significantly strengthened the Balance Sheet.
The year started well, the performance of Seven Telecom in its first nine months
from start-up led Envesta to exercise its option to acquire the remaining 25% of
the company's equity in July 2002, bringing the total consideration payable to
31 million Envesta shares. Seven Telecom's profitability and cash generation
enabled us to repay all of the #1m convertible loan note to Hemery Trustees
during the period and on 30 June 2003 the group had just #200,000 of short-term
debt, which will be fully repaid by the time of our AGM on 23 October 2003.
The #2.5m preference share liability, which would have been due for repayment in
March 2006, has also been removed through conversion into ordinary shares. The
conversion has contributed to a significant rise in the issued share capital of
the business, which together with a small equity placing, has resulted in a
useful increase in the liquidity of the stock.
We continue to look at optimising our Balance Sheet and over the next two years,
plan to address the deficit on the Profit and Loss Reserve, thereby enabling us
to pay dividends in the future.
There have been a number of exceptional costs incurred during the year, which I
highlight to better demonstrate the underlying profitability of the business.
The Board has amortised the goodwill on the Seven Telecom acquisition over one
year. It has also re-valued its investment in the Dialog Group Inc. (formerly
IMX Pharmaceuticals Inc.) to reflect market value, reflecting the likely
realisable value of the investment given its liquidity. The investment holds no
strategic value and will be disposed of as and when an appropriate value can be
realised. #20,000 was related to abortive acquisition costs where the target
failed to meet our financial requirements.
During the year, cash generation has improved due to better commercial terms
from Seven Telecom's suppliers on the back of the company's strong track record
and an increased volume of business. We have maintained our focus on minimising
operating costs, running the business with just ten staff.
Seven Telecom has experienced a recent trend of diminishing margins due to
volatile market pricing and has fought to retain market share. We are beginning
to see market prices stabilise and margins return to previous levels, helped by
full BT interconnection, but the experience has demonstrated the need to address
instability in Seven Telecom's core market. It has highlighted Seven Telecom's
need to expand its revenue streams and geographical diversity, which we plan to
achieve through investing the requisite capital from free cash flow. While I
believe that with its low operational cost base and capital requirements Seven
Telecom is well placed to do this, I recognise the risks inherent in this
strategy.
Finally, while the telecom market generally has struggled to grow revenues, I
believe there are significant niche markets that exist, where flexible companies
with low capital requirements and operating cost bases can profit from specific
value added services. We continue to look at synergistic acquisition
opportunities that can utilise Seven Telecom's technical skills and act as
additional channels to what is effectively a global market place. I believe we
are now well structured to maximise these opportunities and have the ability to
finance them effectively. I am looking forward to another exciting year ahead.
Kevin McGovern
Financial Director
GROUP PROFIT & LOSS ACCOUNT
For The Year Ended 30 June 2003
2003 2002
Excluding Including Excluding Including
Goodwill & Goodwill & Goodwill & Goodwill &
Exceptional Exceptional Exceptional Exceptional
Items Items Items Items
# # # #
TURNOVER
Continuing operations - Existing 10,818,949 10,818,949 4,687,807 4,687,807
Discontinued activities - - 223,845 223,845
Group Turnover 10,818,949 10,818,949 4,911,652 4,911,652
COST OF SALES (8,684,033) (8,684,033) (3,686,178) (3,686,178)
GROSS PROFIT 2,134,916 2,134,916 1,225,474 1,225,474
Administrative Expenses (1,633,227) (2,959,449) (1,071,330) (2,635,217)
Other operating income - - 131,191 131,191
GROUP OPERATING
PROFIT/(LOSS) 501,689 (824,533) 285,335 (1,278,552)
Interest payable (30,992) (88,992) (47,459) (47,459)
Interest receivable & similar
income 6,114 6,114 748 748
PROFIT/(LOSS) ON ORDINARY
ACTIVITIES BEFORE
TAXATION 476,811 (907,411) 429,900 (1,133,987)
TAXATION (127,702) (127,702) (95,514) (95,514)
PROFIT/(LOSS) ON ORDINARY
ACTIVITIES AFTER
TAXATION 349,109 (1,035,113) 334,386 (1,229,501)
Minority interest - - (7,284) (7,284)
Dividends - - - -
RETAINED PROFIT/(LOSS)
FOR THE YEAR 349,109 (1,035,113) 327,102 (1,236,785)
Basic earnings per share (loss) 0.25p (0.75)p 0.30p (1.14)p
Diluted earnings per share (loss) 0.25p (0.75)p 0.30p (1.14)p
GROUP BALANCE SHEET
As At 30 June 2003
2003 2002
# #
FIXED ASSETS
Intangible fixed assets 64,855 -
Tangible fixed assets 905,881 658,267
970,736 658,267
CURRENT ASSETS
Investments 154,658 868,479
Debtors 588,043 518,929
Cash at bank & in hand 680,126 172,215
1,422,827 1,559,623
CREDITORS:
Amounts falling due within one year (2,050,034) (1,022,060)
NET CURRENT (LIABILITIES)/ASSETS (627,207) 537,563
TOTAL ASSETS LESS CURRENT LIABILITIES 343,529 1,195,830
CREDITORS: Amounts falling due after
more than one year - (500,000)
PROVISIONS FOR LIABILITIES AND OTHER
CHARGES (84,566) (23,514)
EQUITY MINORITY INTERESTS - (7,284)
NET ASSETS 258,963 665,032
CAPITAL & RESERVES
Called up share capital - equity 1,995,897 1,237,564
Called up share capital - non equity - 2,500,000
Share premium account 12,676,851 10,306,140
Profit & loss account (14,413,785) (13,378,672)
SHAREHOLDERS' FUNDS 258,963 665,032
ANALYSIS OF SHAREHOLDERS' FUNDS
Equity 258,963 (1,834,968)
Non-equity - 2,500,000
258,963 665,032
GROUP CASH FLOW STATEMENT
For The Year Ended 30 June 2003
2003 2002
# #
NET CASH INFLOW/(OUTFLOW) FROM OPERATING
ACTIVITIES 1,939,683 (38,959)
RETURNS ON INVESTMENTS & SERVICING OF
FINANCE
Interest Received 6,114 748
Interest Paid (88,992) (47,459)
NET CASH OUTFLOW FROM RETURNS ON
INVESTMENTS & SERVICING OF FINANCE (82,878) (46,711)
TAXATION
UK Corporation Tax Paid - -
CAPITAL EXPENDITURE & FINANCIAL
INVESTMENT
Purchase of Tangible Fixed Assets (577,938) (754,298)
NET CASH OUTFLOW FROM INVESTING
ACTIVITIES (577,938) (754,298)
ACQUISITIONS & DISPOSALS
Purchase of subsidiary undertakings - (313,887)
Cash acquired with subsidiary undertakings - -
NET CASH (OUTFLOW) FROM ACQUISITIONS
& DISPOSALS - (313,887)
NET CASH INFLOW/(OUTFLOW) BEFORE
FINANCING 1,278,867 (1,153,855)
FINANCING
Proceeds from Issue of Shares 377,500 533,500
Costs of Share Issues (348,456) (59,048)
Loan finance raised 200,000 1,000,000
Loan finance repaid (1,000,000) (600,000)
NET CASH (OUTFLOW)/INFLOW FROM
FINANCING (770,956) 874,452
INCREASE/(DECREASE) IN CASH 507,911 (279,403)
1. Earning per share
The calculation of basic earnings per share is based on the loss for the
financial year of #1,035,113 (2002: loss #1,236,785) and on a weighted average
number of 1p shares in issue during the year of 137,576,482 (2002: 108,323,475).
There is no impact on loss attributable to ordinary shareholders of the
outstanding share options for the purpose of calculating diluted earnings per
ordinary share.
2. Net cash inflow/(outflow) from operating activities
2003 2002
# #
Operating loss (824,533) (1,278,552)
Depreciation 252,527 96,031
Amortisation of goodwill 592,691 1,563,887
Amortisation of development cost 12,942 -
Write down of investment 713,821 -
(Increase) in debtors (69,114) (2,467)
Increase/(decrease) in creditors 1,261,349 (417,858)
Net cash inflow/(outflow) from operating
activities 1,939,683 (38,959)
3. Reconciliation of change in cash to movement in net funds
2003 2002
# #
Increase/(decrease) in cash in year 507,911 (279,403)
Decrease/(increase) in debt financing 800,000 (400,000)
Movement in net funds in the year 1,307,911 (679,403)
Opening net debt (827,785) (148,382)
Closing net funds/(debt) 480,126 (827,785)
4. Analysis of net cash and debt
2002 Cashflow 2003
# # #
Net cash
Cash at bank 172,215 507,911 680,126
172,215 507,911 680,126
Debt due within one year (500,000) 300,000 (200,000)
Debt due after more than one year (500,000) 500,000 -
Net funds/(debt) (827,785) 1,307,911 480,126
5. The financial information set out in this document does not
constitute statutory group accounts.
6. The report and accounts for the year ended 30 June 2003 will be
posted to shareholders shortly and, after being laid before the Annual General
Meeting, will be delivered to the Registrar of Companies.
7. The Annual General Meeting will be held at Tavistock Communications,
131 Finsbury Pavement, London, EC2A 1NT on Thursday 23 October 2003 at 11:30 am.
8. The Board of Directors does not propose to pay a dividend.
Copies of this announcement will be available to the public, free of charge,
from the office of Corporate Synergy plc, 12 Nicholas Lane, London EC4N 7BN
during normal office hours, with the exception of Saturdays and Sundays, for a
period of one month from today.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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