REG-Pinnacle Telecom Grp Half Yearly Report - Part 1
Released: 23/06/2009
com:20090623:RnsW3116U
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RNS Number : 3116U
Pinnacle Telecom Group PLC
23 June 2009
23 June 2009
Pinnacle Telecom Group plc ("Pinnacle" or the "Company")
Interim Results for the six months ended 31 March 2009
Pinnacle Telecom Group plc, the Scottish based provider of integrated
telecommunication solutions and services, today announces interim results for
the six months ended 31 March 2009.
Key points:
* Turnover from the continuing business increased by 48% to £1,076,944 compared
with £725,695 in the equivalent period last year
* In just 18 months, the Company has successfully completed its exit from the
IT project business where revenues were non-recurring and based on the award of
individual contractsfrom a limited corporate, and mainly financial sector,
customer base
* The Company now has over 1,000 customers, mainly SMEs, with over 70% of
revenue streams based on recurring income
* Loss for the half year reduced by over 40% to£512,861 compared to £863,728 in
the half year to 31 March 2008
* The operating loss before amortisation, impairment of goodwill and
exceptional cost widened slightly to £413,695 compared to £347,272 in the first
half last year. However the result compares favourably with the second half last
year when the equivalent operating loss was £550,878 which represents a
reduction of nearly 25% compared to the second half
* All share acquisition of Accent Telecom UK Limited ("Accent") and its
interests in associated companies announced on 11 June 2009
* Accent is highly complementary to Pinnacle, giving us a solid base of
operations, additional recurring revenues and wider geographical coverage
* Accent includes interests in a range of state-of-the-art IP solutions through
ownership of 40% of Stripe 21 Limited
* The Accent acquisition brings additional depth of experience in the
telecommunications business. Darron Giddens, the founder director and the other
major shareholder, Paul Goodland, have been instrumental in building the Accent
business and both will remain with Accent. Darron Giddens is a qualified
accountant and, until mid 2002, was the Finance Director of IDN Telecom plc,
previously an AIM listed company.
Commenting on the results, Alan J Bonner the Pinnacle CEO stated:
"We have made real progress in the last six months, lifting our turnover by 48%
and keeping our costs to levels consistent with the need to invest in people in
order to achieve growth. The acquisition of Accent will make a very real
difference to Pinnacle and will give us a bigger platform to further develop the
group. Creating a business of substance remains a key objective of the Board and
I look forward to working with the expanded team going forward."
Enquiries:
Pinnacle Telecom Group plc
Alan Bonner, Chief Executive Officer Tel: 0845 119 2100
Zeus Capital
Ross Andrews Tel: 0161 831 1512
Bobby Fletcher
Pelham PR
Alex Walters Tel: 020 7337 1550
PINNACLE TELECOM GROUP PLC
CHAIRMAN'S STATEMENT
The group has made steady progress in the half year, lifting turnover to
£1,076,944 compared to £725,695 in the same period last year, an increase of
48%. The increase is also a 40% improvement on the turnover for the second half
last year of £769,572. This is a creditable result, particularly given the
current economic climate. The operating loss before amortisation, impairment of
goodwill and exceptional cost widened slightly to £413,695 compared to £347,272
in the first half last year. However the result compares favourably with the
second half last year when the equivalent operating loss was £550,878 which
represents a reduction of nearly 25% compared to the second half. A full
analysis of the financial performance is contained in the Business Review.
We announced on 11 June 2009 the acquisition of Accent Telecom UK Limited
("Accent") and its interests in associated companies for an all share
consideration of £661,450. The shares were issued at 0.13p per share, being the
mid-market price on 9 June 2009. Achieving scale is a prime goal of the Board.
Exiting the IT project business at the end of 2007, has allowed the management
team to concentrate on organic growth in the telecommunications space. Although
good progress has been made, organic growth does take time. Scale, however,
remains an important goal. This is so even more in the current climate, which
has resulted in AIM listed companies, particularly in the micro-cap area, being
largely abandoned by investors and many have de-listed. It is to achieve scale
that the Board made the Accent acquisition. Accent has a strong balance sheet,
is profitable and in the year ended 31 March 2009 it delivered a turnover of
£3,522,430, based on its unaudited management accounts for that period. The
Board are confident that the profitability of the Accent business can be
materially enhanced following integration of the two businesses and the combined
management team are working hard to complete the integration before 30 September
2009, Pinnacle's year end.
With a credit market that will not take any risks, and an equity market that is
difficult for secondary fund raisings, the dynamics of acquisitions have
changed. However, the Board will continue to seek opportunities to expand the
business through acquisitions where we can see value creation. It is our view
that there are interesting opportunities in the highly fragmented
telecommunications reseller market and, over time, we expect to be able to
capitalise on some of these opportunities.
Being able to deliver stability in terms of revenue streams has also been an
important consideration. In just 18 months, the Company has successfully
completed its exit from the IT project business where revenues were
non-recurring and based on the award of individual contracts from a limited, and
mainly financial, corporate customer base. The Company now has over 1,000
customers, mainly SMEs, with over 70% of revenue streams based on recurring
income.
The Board has been conscious of the need to preserve cash, yet deliver growth.
With the Board focused on medium to long-term growth, these two objectives can
be contradictory. Inevitably, investment in people and processes incurs costs.
In this climate, we have been fortunate to have no debt and positive cash
resources. Adding a cash generative and profitable business to the existing
group has been an important consideration of the Board, and this has been
achieved with the Accent acquisition. Apart from an equipment leasing liability
of £42,189 at 31 March 2009, Accent has no debt. This gives the combined
balance sheets a stronger profile compared to a highly leveraged business, and
allows for more financing flexibility going forward.
A final consideration of the Board is in the hiring and development of good
people. Alan J Bonner, the Group CEO, has worked in the telecommunications
industry since 1998 when the original Pinnacle business was formed. Alan has
significant industry experience and a knowledgeable team. Accent is highly
complementary to Pinnacle, giving us a solid base of operations, additional
recurring revenues and wider geographical coverage. It also brings us interests
in a range of state-of-the-art IP solutions through ownership of 40% of Stripe
21 Limited. The Accent acquisition brings additional depth of experience in the
telecommunications business. Darron Giddens, the founder director and the other
major shareholder, Paul Goodland, have been instrumental in building the Accent
business and both will remain with Accent. Darron Giddens is a qualified
accountant and, until mid 2002, was the Finance Director of IDN Telecom plc,
previously an AIM listed company. We are looking forward to quickly integrating
the two businesses and building on our strategy to expand the Company through
bolt-on opportunities, thereby enhancing our services to customers as well as
strengthening our organic growth capabilities.
Earlier this year we changed the name of the holding company to Pinnacle Telecom
Group plc, from Glen Group plc. The name change reflects better our business
activity. Our LSE "ticker" symbol has also changed to PINN from GLN. Many AIM
listed companies have suffered badly from a precipitous drop in share prices. In
the six months ended 31 March 2009, Pinnacle's share price has stood up well
when compared against the AIM all share index. From 1 October 2008 to 31 March
2009, the Pinnacle price has moved up by 20.8% compared to a further
deterioration in the AIM all share index of 33.6%. Since the half-year end and
following the acquisition of Accent, the price has increased further giving the
enlarged group a market capitalisation, based on the mid-market price at close
of business on 19 June 2009, of £5.6m.
I would like to thank Alan and his team for delivering the growth that has been
achieved. The Board look forward to working with the enlarged team going
forward.
Graham J Duncan MA CA
CHAIRMAN
23 June 2009
PINNACLE TELECOM GROUP PLC
BUSINESS REVIEW
Turnover and Gross Margins
Our prime objective over the first half of our financial year has been to remain
debt free and reduce costs, but at the same time increase turnover whilst
keeping our gross margins at acceptable levels. Our turnover growth is dependent
on the various channels to market which we are continuing to expand. Since
becoming CEO in June last year, I moved to develop an indirect sales channel as
an important source of new business. There are estimated to be between 600 and
1,000 independent dealers and resellers in the UK. The Group had hitherto relied
on sales generated by call centre activity and direct sales generated from
employing a direct sales force. Undoubtedly, these direct channels to market do
create a business with higher retained gross margins than are achievable through
an indirect dealer and reseller route to market, but they take time to develop
and, depending on sales staff productivity, can be very expensive. We are
therefore following multiple routes to market as we believe that the mix
delivers a more rounded business and moves our sales model from a fixed cost to
a largely variable cost model.
The focus on developing an indirect reseller and dealer channel coupled with a
focus on higher value SMEs has seen our turnover lift by 48% compared to the
equivalent period last year.
As we expected, our gross margin has dipped from 49.0% in the first half of 2008
to 30.1% for this half-year. The trend had already started at the end of the
full year last year when the gross margin was 35.8% for the full year and 23.4%
for the second half of that year. The margin has therefore recovered some of the
lost ground in this half-year.
Our gross margins vary considerably depending on both the service delivered and
the channel that service is delivered through. At one end of the market, usually
found in the delivery of services to sizeable resellers, the gross margin can
drop to single figures usually in a range 5% to 10%. However, delivering a
complex IP based solution where we can add significant value to the customer can
deliver gross margins in excess of 50%.
Administrative Expenses
Delivering a 48% increase in turnover caused a modest increase in our
administrative costs from £703,138 in the first half last year to £737,874 this
half year, an increase of 4.9%. We regard this as a good result, given the
dilemma of needing to invest in customer growth, while keeping our costs at
reasonable levels. In the second half last year, administrative costs were
£730,978. This half year, therefore, has seen little movement in these costs.
As we report under International Financial Reporting Standards (IFRS), we have
again taken a non-cash amortisation charge through the half year of £95,547 as
we continue to write down our intangible assets, as required by IFRS accounting.
Operating Loss before Tax
Our operating loss before tax for this half-year was £509,674. The first half
last year was £430,688 and the second half was £636,317. The trend is therefore
in the right direction.
Our most important objective is to deliver sustainable profits as quickly as
possible, particularly at the EBITDA (Earnings before Interest, Taxation,
Depreciation and Amortisation) level, which is regarded by many as a good
indicator of operating cash flow (before adjusting for working capital
movements). There is no requirement to publish EBITDA, but we believe it is an
important measure. In the half year to 31 March 2009, our EBITDA was negative
£378,177.
Cash
At the end of March, we had no debt and our cash balances stood at £174,755. We
continue to manage the business taking due account of our resources, including
our working capital. We are fortunate to have a material amount of our turnover
(more than 70%) collected through monthly direct debits which improves our
overall working capital capability.
Since 31 March 2009, we have continued to work on decreasing our overhead costs
and increasing our turnover. We believe that these measures, combined with the
strength of the Accent business, will strengthen the cash position of the
Company.
Accent Telecom UK Limited ("Accent")
We regard the recent announcement of the acquisition of Accent as a watershed.
This acquisition will deliver robust turnover, much of which is recurring
income, and positive operating cash flow. Accent has a strong balance sheet with
no debt other than modest equipment lease commitments. Putting the two balance
sheets together will strengthen the enlarged Group and we expect to be able to
complete the integration as quickly as possible and in any event by 30 September
2009.
PINNACLE TELECOM GROUP PLC
BUSINESS REVIEW (continued)
This acquisition will transform the size of the business, particularly in terms
of turnover. It will also provide expanded coverage in England. We expect the
initial turnover of the enlarged group to be around £425k per month, equivalent
to approximately £5m per annum. Accent is a significant sized reseller, so its
margins are lower than the current business enjoyed by Pinnacle. However, we
have already identified integration savings and we are confident that we can
lift its existing margins and utilise its excellent team to best advantage.
We have made real progress in the last six months, lifting our turnover by 48%
and keeping our costs to levels consistent with the need to invest in people in
order to achieve growth. The acquisition of Accent will make a very real
difference to Pinnacle and will give us a bigger platform to further develop the
group. Creating a business of substance remains a key objective of the Board and
I look forward to working with the expanded team going forward.
Alan J Bonner
CHIEF EXECUTIVE
23 June 2009
PINNACLE TELECOM GROUP PLC
CONSOLIDATED INTERIM INCOME STATEMENT - UNAUDITED
For the six months ended 31 March 2009 Audited
6 months to 6 months to 12 months to
31 March 31 March 30 September
2009 2008 2008
Note £ £ £
Revenue 2 1,076,944 725,695 1,495,267
Cost of sales (752,765) (369,829) (959,301)
Gross profit 324,179 355,866 535,966
Administrative expenses (737,874) (703,138) (1,434,116)
Operating loss before amortisation, impairment of goodwill
and exceptional cost (413,695) (347,272) (898,150)
Amortisation of intangibles (95,547) (81,711) (170,244)
Operating loss (509,242) (428,983) (1,068,394)
Interest receivable 671 1,628 4,150
Interest payable (1,103) (3,333) (2,761)
Finance costs (432) (1,705) 1,389
Loss before tax 3 (509,674) (430,688) (1,067,005)
Taxation 463 - 2,183
Loss for the period from continuing operations (509,211) (430,688) (1,064,822)
Discontinued operations
Loss for the period from discontinued operations 3 (3,650) (433,040) (566,108)
Loss for the period 3 (512,861) (863,728) (1,630,930)
Loss per share
- basic and fully diluted - continuing 4 (0.04) p (0.03) p (0.09)
- basic and fully diluted - discontinued 4 (0.00) p (0.04) p (0.05)
- basic and fully diluted - total 4 (0.04) p (0.07) p (0.14)
PINNACLE TELECOM GROUP PLC
CONSOLIDATED INTERIM BALANCE SHEET - UNAUDITED
As at 31 March 2009 Audited
31 March 31 March 30 September
2009 2008 2008
Note £ £ £
Assets
Non-current assets
Intangible assets 623,940 669,657 717,568
Property, plant and equipment 115,393 83,524 134,012
Total non-current assets 739,333 753,181 851,580
Current assets
Inventories - 3,344 344
Trade and other receivables 280,951 727,275 333,372
Cash and cash equivalents 175,490 1,116,749 545,521
Total current assets 456,441 1,847,368 879,237
Total assets 1,195,774 2,600,549 1,730,817
Liabilities
Short term borrowings (735) (27,042) (6,936)
Trade and other payables (336,225) (357,096) (353,698)
Other taxes and social security costs (37,353) (31,144) (22,759)
Accruals and other payables (170,458) (232,193) (191,477)
Total current liabilities (544,771) (647,475) (574,870)
Non current liabilities
Long term borrowings (7,917) (16,233) -
Total liabilities (552,688) (663,708) (574,870)
Net assets 643,086 1,936,841 1,155,947
Equity attributable to equity holders of the parent
Share capital 4,807,680 4,807,680 4,807,680
Share premium account 3,207,593 3,207,593 3,207,593
Other reserve 2,852 16,544 2,852
Fair value adjustment (1,064,130) (1,064,130) (1,064,130)
Profit and loss reserve 5 (6,310,909) (5,030,846) (5,798,048)
Total equity 643,086 1,936,841 1,155,947
PINNACLE TELECOM GROUP PLC
CONSOLIDATED INTERIM CASH FLOW STATEMENT - UNAUDITED
For the six months ended 31 March 2009 Audited
6 months to 6 months to 12 months to
31 March 31 March 30 September
2009 2008 2008
£ £ £
Cash flows from operating activities
Operating loss (including discontinued operations) (511,305) (859,204) (1,643,269)
Adjustments for:
Depreciation 35,416 39,312 59,360
Amortisation 95,547 81,711 170,244
Other non-cash items - - 19,396
Receipt / (payment) of corporation tax 10,421 - (3,253)
Decrease in inventories 344 19,180 22,180
Decrease in trade and other receivables 52,421 1,002,324 1,396,227
(Decrease) in trade payables,
accruals and other creditors (38,856) (1,458,591) (1,494,631)
Net cash flow from operating activities (356,012) (1,175,268) (1,473,746)
Cash flows from investing activities
Purchase of property, plant and equipment (16,797) (11,550) (9,850)
Sale of property, plant and equipment - 58,464 2,360
Disposal of subsidiary company - 2,684,387 2,635,857
Acquisition of subsidiaries, net of cash acquired (1,919) - (130,400)
Net cash used in investing activities (18,716) 2,731,301 2,497,967
Cash flows from financing activities
Interest paid less interest received (2,019) (4,525) 9,466
Repayment of borrowing - (98,603) (101,403)
Receipt from finance leases less repayment 12,917 (11,341) (44,242)
Net cash used in financing activities 10,898 (114,469) (136,179)
Net (decrease) / increase in cash (363,830) 1,441,564 888,042
Cash and cash equivalents at beginning of period 538,585 (349,457) (349,457)
Cash and cash equivalents at end of period 174,755 1,092,107 538,585
PINNACLE TELECOM GROUP PLC
CONSOLIDATED INTERIM CASH FLOW STATEMENT - UNAUDITED (CONTINUED)
For the six months ended 31 March 2009 Audited
6 months to 6 months to 12 months to
31 March 31 March 30 September
2009 2008 2008
£ £ £
Analysis of changes in net debt
Cash and cash equivalents comprise:
Cash and cash equivalents 175,490 1,116,749 545,521
Bank overdrafts (735) (24,642) (6,936)
174,755 1,092,107 538,585
PINNACLE TELECOM GROUP PLC
CONSOLIDATED INTERIM STATEMENT OF CHANGES IN EQUITY - UNAUDITED
For the six months ended 31 March 2009
Share Share Other Fair Retained
capital premium reserve value earnings Total
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)
Share based payments - - 2,852 - - 2,852
Lapse of share options - - (16,544) - - (16,544)
Net change directly in equity - - (13,692) - - (13,692)
Total movements - - (13,692) - (1,630,930) (1,644,622)
Equity at 30 September 2008 4,807,680 3,207,593 2,852 (1,064,130) (5,798,048) 1,155,947
At 1 October 2008 4,807,680 3,207,593 2,852 (1,064,130) (5,798,048) 1,155,947
Loss for the period - - - - (512,861) (512,861)
Equity at 31 March 2009 4,807,680 3,207,593 2,852 (1,064,130) (6,310,909) 643,086
PINNACLE TELECOM GROUP PLC
NOTES TO THE FINANCIAL STATEMENTS
For the six months ended 31 March 2009
1 Basis of preparation
This interim financial information has been prepared in accordance with the Company's accounting policies as disclosed in the financial statements for the year
ended 30 September 2008. The interim statements were approved by the Board of Directors on 23 June 2009.
Segmental Reporting
2 Analysis of revenue
6 months to 6 months to 12 months to
31 March 31 March 30 September
2009 2008 2008
£ £ £
By business sector
Mobile services 59,137 117,993 168,227
IT 48,325 83,773 126,546
Other communication services 969,482 523,929 1,200,494
Continuing operations 1,076,944 725,695 1,495,267
IT - discontinued operations - 1,667,491 1,686,652
Total revenue 1,076,944 2,393,186 3,181,919
By destination
United Kingdom 1,076,944 2,393,186 3,181,919
Total revenue 1,076,944 2,393,186 3,181,919
By origin
Glen Communications - continuing operations 57,338 142,581 197,008
Pinnacle -continuing operations 1,019,606 583,114 1,298,259
Eclectic and IG Software - discontinued operations - 1,667,491 1,686,652
Total revenue 1,076,944 2,393,186 3,181,919
PINNACLE TELECOM GROUP PLC
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)