REG-Glen Group PLC Final Results - Part 1
Released: 15/01/2009
com:20090115:RnsO6666L
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RNS Number : 6666L
Glen Group PLC
15 January 2009
Embargoed until 0700
15 January 2009
Glen Group plc
("Glen" or the "Company")
PRELIMINARY RESULTS FOR THE YEAR ENDED 30 SEPTEMBER 2008
Glen Group plc, (AIM: GLN) the AIM listed provider of integrated
telecommunications solutions to the SME market, today announces its preliminary
results for the year ended 30 September 2008.
Highlights
* Successful sale, as at 31 December 2007, of the Eclectic and inGroup
businesses for a net cash consideration of £2.72m.
* Acquisition on 27June 2008 of Colloquium Limited, one of Scotland's first
ISPs, for an all cash consideration of £100,000 excluding deal costs.
* Elimination of all group debt, amounting to over £800,000.
* Cash resources of over £0.5m available at the year end.
* Turnover of £1.5m, up 47% compared to last year.
* Gross margin percentage at 35.8% compared to 23.3% last year.
* Administrative expenses reduced.
* Operating lossof £1.07m represents a reduction of 58.5% over last year.
* Overall loss for the year nearly halved from £3.0m in 2007 to £1.63m.
* Strengthened sales team.
* Board successfully restructured.
* New Nominated Adviser and Broker appointed.
* Proposed name change to Pinnacle Telecom Group PLC
Graham J Duncan, Non-Executive Chairman commented:
"The Board recognises that the first priority for the year ending 30 September
2009 is organic growth and tight cash management. We believe that the new
financial year will, in many respects, be a critically important year for us."
For further information please contact:
Glen Group plc
Graham J Duncan, Non-Executive Chairman 0131 202 0102
Alan J Bonner, Chief Executive 0845 119 2100
Zeus Capital Limited
Ross Andrews
Bobby Fletcher 0161 831 1512
Pelham PR
Alex Walters 0203 170 7435
CHAIRMAN'S STATEMENT
Despite the sharp economic downturn, we have continued to make progress, with
the results compared to last year showing a 47% lift in turnover to £1.5m and
our bottom line losses dramatically reduced by nearly 50%. We are also fortunate
to be holding cash, which amounted to over £0.5m at the year end, having repaid
all our borrowings, of over £800,000, from the proceeds of the sale of the
businesses of Eclectic Group Limited and I G Software Limited. The timing of
this sale could not have been better, given the precipitous downturn in the
financial services sector which was the most important focus of the businesses
sold.
Telecommunications spend, both fixed and mobile, remains a significant cost to
many businesses. Although we have not seen a slowdown in activity at this time,
we cannot be certain that we will avoid deterioration through 2009 as the
economy continues to weaken. In this climate, we believe that businesses may be
more willing to change their telecommunications provider on the basis of price
alone, although services and solutions which can make their businesses more
efficient remain important factors when considering a change. It is our view
that, in a downturn, telecommunication services aimed at businesses do not
suffer as rapidly as a consumer focused business and we intend to further
promote our value for money solutions through our expanding sales channels.
We continue to expand the mix of services and on 27 June we were pleased to be
able to acquire Colloquium Limited ("Colloquium"), at a realistic all cash price
of £100,000, before acquisition costs. Colloquium is one of Scotland's oldest
internet service providers, which we have fully integrated into the existing
business. We now believe that we have an all-round service capability in the ICT
space and remain focused on providing telecommunications based solutions to the
SME market.
Major changes were made during the year to our Board structure. Eric M Hagman,
our first Chairman (Non-Executive), stepped down from the Board at the end of
May and Peter J Ford, who co-founded the group, did not put himself up for
re-election at the AGM on 9 May 2008, resigning from the Board at that time.
Effective 1 June 2008, I moved up into the role of Non-Executive Chairman and
handed over the day to day running of the business to Alan J Bonner, the MD of
our operating subsidiary Pinnacle Telecom, who took on the role of group CEO. We
had welcomed David Hewitt to the Board in late February 2008, but on 1 August he
stepped down in favour of John C Anderson, a well known Scottish based business
figure, following our renewed focus on the telecommunications market. Also with
effect from 1 June, Alan J Bonner, five significant shareholders and I entered
into a memorandum of understanding for the purposes of promoting the development
of the Company and its business.
Following the Board changes, we have completely restructured our sales
operations and are actively currently building a dealer channel as an additional
route to market, as well as continuing with other direct channels, based on an
active sales force. We have materially strengthened our middle management team
and our marketing efforts have been sharpened.
In order to recognise that our telecom operations now dominate the group
business, we are proposing at the AGM to change the name of the company to
Pinnacle Telecom Group PLC.
On 23 December 2008, we announced the appointment of Zeus Capital Limited as our
new Nominated Adviser and Broker and we look forward to working with them in the
future.
Small AIM listed businesses are out of fashion and may not return to popularity
for some time, perhaps several years. The ongoing costs of the listing remain
overwhelming compared to the size of our operating units and we must "grow into"
these costs and beyond in order to pull the group into profit. We do have an
extremely experienced team, but organic growth takes time. Through the efforts
of the management team, we have identified a number of possible acquisition
targets, but there needs to be more realism from private owners on the valuation
of their businesses. Any non equity financing would need to be externally
sourced by the Company.
The Board recognises that the first priority for the year ending 30 September
2009 is organic growth and tight cash management. We believe that the new
financial year will, in many respects, be a critically important year for us.
Graham J Duncan MA CA
CHAIRMAN
15 January 2009
BUSINESS REVIEW
Introduction
The economic background deteriorated sharply during the second half of the year,
and it continues to weaken. Given this dynamic, we are pleased to have lifted
our turnover, improved our gross profit, kept our administrative expenses to a
modest level and reduced our overall losses. Going forward, we cannot be certain
that we have escaped the effects of the worst decline in confidence in living
memory, but at this time we do not sense a fall off in turnover. We are,
however, keeping a watchful eye on the situation.
Given the fact that the group is running at a loss, we are putting much of our
energy into growing the business organically and, in particular, focussing on
increasing our gross profit in absolute terms. The Board believe that the
greatest risk to the business is being unable to achieve the levels of gross
profit that we need in the time scale which we have planned, without access to
further capital. Given the state of the financial markets, we are running the
business on the premise that we will not be able to access any additional funds
within the 2009 financial year, nor complete any acquisitions which require
cash.
Our cash resources are finite. Although we have no debt, and had cash in excess
of £0.5m at the year end, losses will continue to erode our cash resources until
our gross profit exceeds our cost base.
Much of our income is recurring particularly our telecom services revenues which
now make up the majority of our revenue base. Our sales channels have been
expanded both during the year and since the year end, and we now have a range of
channels to market, including direct sales using a sales team, call centre sales
activity and, more recently, the introduction of a dealer and reseller network.
Since the acquisition of Colloquium, an ISP, in late June 2008, we have been
able to sell a wider, more rounded, range of solutions to the business market
and we continue to package and deliver services which are good value for money.
In this climate, we believe that we may see more businesses change providers on
the basis of price alone.
As indicated in the Chairman's Statement, we believe that 2009 will be a pivotal
year.
Review
1) Turnover
Turnover from the continuing operations, which constitutes our reported
turnover, rose a healthy 47% over the year from £1,014,870 to £1,495,267.
Turnover from the discontinued operations sold on 31 December 2007, was
£1,686,652 for the three month period to the date of sale. Discontinued
operations are shown as a single line item in the consolidated income statement
and are more fully explained in the notes to the consolidated financial
statements.
2) Gross Profit
The overall gross profit from continuing operations for the full year was
£535,966, representing a gross profit to sales percentage of 35.8%. This
compares favourably to a gross profit percentage of 23.3% for last year.
The gross profit that can be obtained from our service portfolio varies
significantly depending on the sales channel, with top-end margins of 60%
available on certain services sold directly to customers by a sales team. By
contrast, margins as low as 5% apply for an indirect sale where we only provide
wholesale pricing of services to our dealer client who retains the prime
customer relationship. Much of this latter activity was embryonic at the year
end, but is expected to increase in the 2009 year.
3) Operating Loss
In the full year we have incurred an operating loss of £1,068,394 (2007:
£2,573,328). In 2007, we decided to expense all our goodwill, and the only
intangible asset in our balance sheet represents the written down value of
customer bases, a billing system and maintenance contracts acquired. We have
expensed £170,244 of our intangibles in the year (2007: £65,741). Last year also
saw significant write downs to goodwill and reorganisation costs expensed, which
are not repeated this year. Before these adjustments, our operating loss
amounted to £898,150 which compares favourably to an equivalent loss of
£1,208,061 last year.
As well as the need to expand our gross profit, we also work to keep our
administrative costs to modest levels given our continuing need to invest in
good people, particularly in sales. During the year we incurred administrative
expenses of £1,434,116 (2007: £1,445,020), with the costs of the parent company
making up approximately 40% of these costs.
4) Discontinued Operations
The sale of the business and assets, including people, of Eclectic Group Limited
("Eclectic") and I G Software Limited was concluded on 31 December 2007. The
shares in these companies were retained by the group, and we were left to
ingather all receivables and pay all balance sheet liabilities as they fell due,
together with all bank borrowings. The transaction included a mechanism to
apportion certain costs between the buyer and the seller, and included a bonus
payment to a director and key managers of Eclectic who transferred to the
buyer.
The 'headline' price was £3.0m, and the net proceeds of sale were approximately
£1.5m after payment of the above named costs, the bonus and the outstanding bank
debt. In broad terms, we have been able to match sums received for outstanding
receivables with amounts paid for outstanding payables.
Including provisions made in 2007 and the trading results of these companies in
the current financial year to the date of sale, we have recorded losses from
this sale of £987,889 over the two years to 30 September 2008, with £566,108 of
that loss taken in the current year. Given the circumstances and timing of this
sale, we are satisfied with the outcome.
5) Balance Sheet
At 30 September 2008, the group had net assets of £1,155,947. Included in this
figure are intangible assets, making up the written down value of customer
bases, a billing system and maintenance contracts acquired, of £717,568. We are
writing down the value of the customer bases and billing system over five years,
and the maintenance contracts over 10 years from the relevant acquisition date.
We also had £879,237 of currents assets (with £545,521 being cash) and £574,870
of current liabilities at 30 September 2008.
The cash balances remain a key performance indicator of the Board.
Risks
The key business risks are as undernoted. This list is not exhaustive, and
should not be taken as being the only risks attached to the business going
forward.
* Working capital
The group's cash resources are finite and there is no banking facility in place.
The directors recognise that the group must achieve monthly profitability for
the business to cover its cost base and remain within its finance resources. The
Board seeks to mitigate this risk by carefully managing the cash resources of
the group.
* People
As in many businesses, the ability to hire and retain good people is
fundamental to the success of the
business. Given the current economic climate, such individuals may
be less willing to move to a small
business than might otherwise be the case in times of prosperity.
This includes quality sales personnel.
The Board uses its contacts and significant experience in the
recruitment and selection of employees.
* Bad debts
The customer base is mainly made up of SME customers, who are one of the groups
likely to feel the
effects of a downturn. Although we have not yet experienced any
material lift in bad debt, that does not
mean to say that there will not be an increase in 2009. A majority of
customers are signed on direct debit
which allows us very quickly to know when a customer defaults, and so
take appropriate action.
* Competition
We pride ourselves in being competitive coupled with having the ability to
deliver a solutions based result that enhances the customer's business. The
deteriorating climate might cause buying decisions to move more in the direction
of a price based sale compared to value based sale. As a relatively small
business, the group may not be able to compete on price alone. However, our size
is also a strength, as we are able to react very quickly to changing market
conditions.
Of course all businesses carry technology risks, the risks of business
interruption, the ability to get credit from suppliers on suitable terms and so
on. The above is not an exhaustive list, and it should not be taken as such, but
it does cover certain key areas which the Board is focusing on at this time.
Financing
The group relies on credit from suppliers on reasonable commercial terms. The
main creditors tend to be significant companies, such as BT. The group does not,
at this time, rely on the banking market and is therefore somewhat shielded from
the difficulties associated with overdraft and other loan facilities.
From time to time, the group has taken out leasing for plant and vehicles and
will continue to do so when required. The group owns no property.
The group's main credit exposure lies with sums due from customers. Where at all
possible, the main telecom operating company, Pinnacle Telecom plc, seeks to
sign customers up on direct debit facilities which gives us a tighter control
over cash flow.
With positive cash balances, we are exposed to a reduction in interest rates,
albeit not materially so as far as the business as a whole is concerned.
Consultancy agreement
As announced on 9 May 2008, the Company entered a consultancy agreement with
Graham J Duncan, the former group CEO. In order to assist in lowering the costs
of the Company, Graham J Duncan agreed to bring his existing executive service
contract to an end on 31 May 2008, without compensation, notwithstanding that it
had a one year notice period. Under the provisions of the Companies Act 2006,
the existing consultancy agreement was required to be approved by the
shareholders, approval to be secured before signature. Such approval was not
obtained at the time and the Company therefore proposes that the existing
agreement be discharged and a new agreement entered into for the balance of the
original term and on the same terms following shareholders' approval at the
Annual General meeting to be held on 5 March 2009. This is a related party
transaction under the terms of the AIM Rules and further details are contained
in Note 8 to this Preliminary Announcement.
Loss of capital
As the net assets of the company represent less than half of its called up share
capital, the company is required by statute to convene an extraordinary general
meeting. Accordingly, the company will convene an extraordinary general meeting
to be held immediately following the annual general meeting at the same venue.
Apart from continuing to pursue their stated strategy of building an integrated
telecommunications business, however, the directors do not consider that any
particular steps need or should be taken to deal with the situation at this
time.
Alan J Bonner
CHIEF EXECUTIVE OFFICER
15 January 2009
GLEN GROUP PLC
CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED 30 SEPTEMBER 2008
Year Year
ended ended
2008 2007
Notes £ £
Revenue 4.1 1,495,267 1,014,870
Cost of sales (959,301) (777,911)
â â â â â â â â â â â â â â
Gross profit 535,966 236,959
Administration expenses (1,434,116) (1,445,020)
â â â â â â â â â â â â â â
Operating loss before amortisation, impairment of goodwill and exceptional cost (898,150) (1,208,061)
Amortisation of intangibles (170,244) (65,741)
Impairment of goodwill - (994,111)
Exceptional cost of fundamental reorganisation - (305,415)
â â â â â â â â â â â â â â
Operating loss 5 (1,068,394) (2,573,328)
â â â â â â â â â â â â â â
Interest receivable 4,150 2,771
Interest payable (2,761) (12,600)
â â â â â â â â â â â â â â
Finance costs 1,389 (9,829)
â â â â â â â â â â â â â â
Loss before tax (1,067,005) (2,583,157)
Taxation 2,183 (439)
â â â â â â â â â â â â â â
Loss for the year from continuing operations (1,064,822) (2,583,596)
Discontinued operations 2
Loss for the year from discontinued operations (566,108) (421,781)
â â â â â â â â â â â â â â
Loss for the year 4.2 (1,630,930) (3,005,377)
â â â â â â â â â â â â â â
Loss per share 6
Loss per share basic and diluted - continuing (0.09)p (0.46)p
Loss per share basic and diluted - discontinued (0.05)p (0.07)p
Loss per share basic and diluted - total (0.14)p (0.53)p
See accompanying notes to the financial statements.
GLEN GROUP PLC
CONSOLIDATED BALANCE SHEET
AS AT 30 SEPTEMBER 2008
2008 2007
£ £
Assets
Non-current assets
Intangible assets 717,568 751,368
Property, plant and equipment 134,012 105,132
â â â â â â â â â â â â â â
851,580 856,500
â â â â â â â â â â â â â â
Current assets
Inventories 344 22,524
Trade and other receivables 333,372 1,729,599
Cash and cash equivalents 545,521 157,361
â â â â â â â â â â â â â â
Total current assets 879,237 1,909,484
Assets included in disposal groups - 2,749,005
â â â â â â â â â â â â â â
Total assets 1,730,817 5,514,989
â â â â â â â â â â â â â â
Short term borrowings (6,936) (587,308)
Trade payables (353,698) (1,234,194)
Other taxes and social security costs (22,759) (442,776)
Accruals and other payables (191,477) (384,987)
â â â â â â â â â â â â â â
Total current liabilities (574,870) (2,649,265)
Non current liabilities
Long-term borrowings - (65,155)
â â â â â â â â â â â â â â
Total liabilities (574,870) (2,714,420)
â â â â â â â â â â â â â â
Net assets 1,155,947 2,800,569
â â â â â â â â â â â â â â
Equity
Share capital 4,807,680 4,807,680
Share premium account 3,207,593 3,207,593
Other reserve 2,852 16,544
Fair value adjustment (1,064,130) (1,064,130)
Profit and loss reserve (5,798,048) (4,167,118)
â â â â â â â â â â â â â â
Total equity 1,155,947 2,800,569
â â â â â â â â â â â â â â
GLEN GROUP PLC
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 30 SEPTEMBER 2008
Share Share Share to be issued Other Fair Retained
Capital Premium £ Reserve Value Earnings Total
£ £ £ £ £ £
At 1 October 2006 3,276,831 860,817 787,500 20,028 (417,221) (1,161,741) 3,366,214
Loss for the year - - - - - (3,005,377) (3,005,377)
Recognised directly in equity
Share issue 1,530,849 - - - (646,909) - 883,940
Shares to be issued as part
of acquisition - - (787,500) - - - (787,500)
Premium on share
issue - 2,438,401 - - - - 2,438,401
Share-based payments - - - 8,272 - - 8,272
Lapse of share options - - - (11,756) - - (11,756)
Expenses incurred on
share issue - (91,625) - - - - (91,625)
â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â
Net change directly
in equity 1,530,849 2,346,776 (787,500) (3,484) (646,909) - 2,439,732
Total movements 1,530,849 2,346,776 (787,500) (3,484) (646,909) (3,005,377) (565,645)
â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â
Equity at
30 September 2007 4,807,680 3,207,593 - 16,544 (1,064,130) (4,167,118) 2,800,569
â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â
At 1 October 2007 4,807,680 3,207,593 - 16,544 (1,064,130) (4,167,118) 2,800,569
Loss for the year - - - - - (1,630,930) (1,630,930)
Recognised directly in equity
Share-based payments - - - 2,852 - - 2,852
Lapse of share options - - - (16,544) - - (16,544)
â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â
Net change directly
in equity - - - (13,692) - - (13,692)
Total movements - - - (13,692) - (1,630,930) (1,644,622)
â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â
Equity at
30 September 2008 4,807,680 3,207,593 - 2,852 (1,064,130) (5,798,048) 1,155,947
â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â
GLEN GROUP PLC
CONSOLIDATED CASH FLOW STATEMENT
FOR THE YEAR ENDED 30 SEPTEMBER 2008
2008 2007
£ £
Cash flows from operating activities
Operating loss (1,643,269) (2,491,961)
Adjustments for:
Depreciation 59,360 93,778
Amortisation 170,244 65,741
Impairment of goodwill - 994,110
Release of negative goodwill - (9,557)
Other non-cash items 19,396 (3,484)
Payment of corporation tax (3,253) (8,712)
Decrease in inventories 22,180 11,228
Decrease in trade and other receivables 1,396,227 331,844
(Decrease) / increase in trade payables, accruals and other creditors (1,494,631) 70,872
â â â â â â â â â â â â â â
Net cash outflow from operating activities (1,473,746) (946,141)
â â â â â â â â â â â â â â
Cash flows from investing activities
Purchase of property, plant and equipment (9,850) (135,220)
Sale of property, plant and equipment 2,360 -
Disposal of subsidiary company 2,635,857 -
Acquisition of subsidiaries (130,400) 25,292
â â â â â â â â â â â â â â
Net cash used in investing activities 2,497,967 (109,928)
â â â â â â â â â â â â â â
Cash flows from financing activities
Interest paid (10,821) (62,195)
Interest received 20,287 -
Issue of shares - 1,380,000
Repayment of bank borrowing (101,403) (28,716)
Former subsidiary director's loan notes less repayments - (50,000)
Receipt of finance leases less repayments (44,242) 34,695
Expenses paid in connection with share issues - (91,625)
â â â â â â â â â â â â â â
Net cash used in financing activities (136,179) 1,182,159
â â â â â â â â â â â â â â
Net increase in cash 888,042 126,090
Cash and bank overdrafts at beginning of period (349,457) (475,547)
â â â â â â â â â â â â â â
Cash and bank overdrafts at end of period 538,585 (349,457)
â â â â â â â â â â â â â â
Cash and bank overdrafts comprise:
Cash and cash equivalents 545,521 157,361
Bank overdrafts (6,936) (506,818)
â â â â â â â â â â â â â â
538,585 (349,457)
â â â â â â â â â â â â â â
GLEN GROUP PLC
NOTES
1. General information
2.
The consolidated financial statements of the group have been prepared in accordance with International Financial
Reporting Standards as adopted by the EU. The financial statements for the year ended 30 September 2008 were approved
by the board of directors on 15 January 2009.
The financial information set out above does not constitute the company's statutory consolidated financial statements
for the year ended 30 September 2008 but is derived from those financial statements. The comparative figures are those
of the consolidated financial statements for the year ended 30 September 2007. The report of the auditors was
unqualified and did not contain a statement under s237 (2) or (3) Companies Act 1985. The statutory financial
statements for the year ended 30 September 2008 will be delivered to the Registrar of Companies following the Company's
Annual General Meeting.The information contained in this Preliminary Statement does not constitute statutory accounts
as defined by Section 240 of the Companies Act.
Glen Group plc, a public limited company, is the group's ultimate parent company. It is incorporated in England and
Wales. The address of Glen Group plc's registered office is 8-10 New Fetter Lane, London, EC4A 1RS. Its principal place
of business is Glen House, 6 Straiton View, Straiton Business Parc, Edinburgh, EH20 9QZ.