BNS Telecom Group Report Year End Results

BNS Telecom Group plc, a provider of white labelled telecoms services to the UK SME and corporate market, has published its audited preliminary results for the year ended 31 July 2007. This follows the Group’s extensive statement on trading and the outcome of the strategic review on its Network Services Division, published on 29 October 2007.

BNS reports turnover up 32 per cent. to £34.91 million (2006: £26.47 million) being made up from Business Reseller Division up 29 per cent. to £26.20 million (2006: £20.37 million) including contribution of £3.45 million from 3g and Network Services Division £8.70 million (2006: £6.09 million)

The Group noted that their Business Reseller Division operating profits were up 198 per cent. to £1.52 million (2006: £0.51 million) and that their Network Services Division closed on 29 October 2007.

Graham Wilson, Chairman, said: “Our core reseller Division has performed well and following the acquisition and integration of 3g is now in a much stronger position to strengthen its market position. However, the Network Services Division did not meet our expectations and having reviewed all options, we closed the business.

Following the development of our IP suite of products, we now have an excellent platform for further growth, with growing forward revenue visibility and cash generation, as we exploit the strong demand from SMEs for IP telephony products.“

The Group’s core Business Reseller Division, including 3g Comms (“3g”) acquired during the second half of the financial year, performed well and showed good organic growth in sales and operating profit. However, the Network Services Division, which was the subject of a detailed and extensive strategic review initiated on 14 June 2007, was closed on 29 October 2007, the Board having explored all options for this division. Strenuous efforts were made to dispose of the Network Services Division over recent months and whilst there was interest from a number of potential acquirers, the Board concluded that the best option was the rapid closure of the Division.

The Business Reseller Division increased sales from £20.37 million in 2006 to £26.20 million in 2007, including a revenue contribution of £3.45 million from 3g in the four months under BNS ownership. Operating profits for this enlarged division grew by 210 per cent. to £1.59 million before goodwill charges. A new service provider contract with Vodafone was signed and most significantly the Group started to market its newly developed Hosted IP Telephony service.

The Board believes the development of its IP Telephony service will result in a transformation of BNS from “reseller” in 2006, to “switched reseller” and now to “IP carrier”. This will enable BNS to exploit the growing demand from SMEs for VoIP products and services.

The Network Services Division consisted of four businesses acquired over the last two years. The expected revenue growth and operational leverage did not materialise and all the businesses underperformed. Following the strategic review the Board completed the Division’s closure at 29 October 2007. Consequently the Network Services Division reported a heavy level of losses and impairment charges.

Separately, the Group completed a sale and leaseback on its head office premises at Prudhoe in Northumberland generating a one-off cash inflow of £4.79 million including a profit of £1.02 million.

Financials

Group turnover increased by 32 per cent. to £34.91 million for the year to 31 July 2007. This largely arose as a result of a 29 per cent. rise in sales in the enlarged Business Reseller Division to £26.20 million (2006: £20.37 million), including a four month contribution of £3.45 million from 3g. Excluding 3g, the Business Reseller Division increased turnover by 12 per cent. to £22.75 million (2006: £20.37 million). The Network Services Division, which has now been discontinued, contributed turnover of £8.70 million (2006: £6.09 million).

The core Business Reseller Division substantially increased operating profit to £1.69 million (2006: £0.55 million) before goodwill charges of £0.06 million (2006: £nil) and operating exceptional items of £0.12 million (2006: £0.04 million).

The total operating loss in the discontinued Network Services Division was £5.97 million (2006: profit £0.03 million). This total loss comprised trading losses in the order of £1.50 million, balance sheet write-offs (including bad debt provisions) of approximately £2.8 million and non cash costs relating to goodwill and fixed asset impairment of some £1.70 million.

Group operating loss before goodwill charges and exceptional items was £1.77 million (2006: profit £0.64 million). Total Group operating loss was £4.45 million (2006: profit £0.54 million).

During the year, the Group completed a sale and lease back of its freehold head office facilities for £4.79 million in cash, giving rise to a profit on disposal of £1.02 million. This reduced the loss on ordinary activities before interest and taxation to £3.43 million (2006: profit £0.54 million).

Net interest payable in the year increased to £0.30 million (2006: £0.07 million) as a result of increased interest charges associated with the debt taken on to finance the development of the head office building and the acquisition of 3g. This resulted in a pre tax loss for the year of £3.73 million (2006: profit £0.47 million).

The Group had a tax credit in the period of £0.20 million (2006: charge £0.22 million) as a result of the utilisation of tax losses arising during the year in the Network Services Division. The credit has also been increased by an overprovision in 2006 and a release of a deferred tax liability during the year.

Loss per share for the year was 7.01p (2006: earnings of 0.47p) reflecting the operating loss in the Network Services Division. Adjusted Basic Loss per share excluding the after tax effect of goodwill charges, share-based payment charges and other exceptional items was 3.71p (2006: earnings of 0.61p).

The Board is not proposing the payment of a final dividend (2006: Nil). An interim dividend of 0.5 pence per share was paid on 27 December 2006. It is the intention of the Board to resume dividend payments as soon as future profitability permits.

The Group experienced a net operating cash outflow of £0.88 million during the year. Of the outflow, £2.89 million reflects the funding of working capital in the Network Services business. This was partially offset by a positive cash inflow from operating activities in the Business Reseller Division and £4.79 million proceeds from the sale and leaseback of the Group’s head office property. The proceeds were used to repay an on-demand loan of £3.5 million taken out specially to fund development of the head office property. The Group subsequently financed the £4.85 million acquisition of 3g through a new banking facility.

At the 31 July 2007, the Group had net debt of £2.75 million (2006: debt £0.73 million).

On 30 March 2007, the Group completed the acquisition of the entire share capital of 3g Comms Limited and 3g Landline Limited (together ‘3g’) for a total cash consideration of £4.85 million. The acquisition provided the Group with an immediate increase in scale in the mobile market as well as potential cross selling opportunities. It also provided the Group with a significant market presence in the Birmingham area, allowing cross-selling opportunities for other BNS fixed line products to the 3g customer base. At the 31 July 2007, 3g had 13,306 mobile subscribers and 321 fixed line customers.

Earlier in the year, BNS completed the acquisition of 70 per cent. of the share capital of Citygate Telecom Limited on 18 October 2006 for £100,000. However, this operation was subsequently closed, being part of the Network Services Division.