Keycom plc (the “Company” and, together with its subsidiaries, the “Group”), announces audited results for the year ended 30 September 2012.
The Directors of the Company accept responsibility for the content of this announcement.
This is my first report to you since I was invited to join the Board, which I did on 1st October 2012, and became chairman in succession to Les Halpin who had to step down for health reasons.
The year that ended on 30th September 2012 was not an easy one for the Company with a number of changes at senior level and many challenges and some areas of progress. We continue to be subject to competitive pricing pressures in our traditional areas of business, especially in the higher education sector, but are pleased that the military accommodation sector has continued to develop well.
Despite the difficult conditions, the total Group revenue for the year increased by 5% to £7,066,000 (2011: £6,729,000) with the core activity of broadband accounting for 77% of that revenue (2011: 74%). The revenue from managed broadband services increased 9% to £5,429,000 (2011: £4,984,000). Reductions in higher education broadband revenues were offset by the growth in the military sector where we increased revenue by 76% to £1,408,000 (2011: £800,000) after increasing the wireless broadband (WiFi) capability at many of our sites.
The gross number of serviced broadband rooms at 30 September 2012 was 53,100 (2011: 46,000). Of that total, 28,000 rooms were in the education and key-worker sectors and 25,100 in the military sector. The rooms in the military sector have increased in the year by 8,000. The number of student rooms fell during the year reflecting the loss of two contracts for 4,500 rooms and the securing of contracts for 3,300 new rooms.
Revenue derived from the other activities, engineering maintenance and training, decreased 6% to £1,637,000, with an operating profit of £112,000 (2011: £169,000). We have found that customers continue to defer training and capital investment because of lack of confidence in the outlook for their businesses.
Gross profit for the year after exceptional costs decreased by 3.6% to £4,043,000 at a margin of 57% (2011: £4,195,000; 62% margin). Wages and salary costs increased by 5.6% due to the need for additional staff on the introduction of 24 hour customer support 7 days a week and higher senior management costs. Administrative expenses, excluding depreciation and profit on disposal of fixed assets, increased to £3,075,000 (2011: £2,541,000). The company undertook financial and strategic reviews in 2012 with external advisers, incurring one off consultancy costs. Recruitment and interim staffing costs were higher as a result of the changes in the senior management team and the Group incurred marketing and rebranding expenses, which it had not the previous year. The Group EBITDA was £1,036,000 (2011: £1,654,000).
Financing costs of £511,000 (2011: £511,000) have remained similar to last year despite an increase in the level of debt.
Depreciation increased to £1,378,000 (2011: £947,000) reflecting capital expenditure on new customer sites, and accelerated depreciation of £155,000 as a result of termination of a higher education contract.
In line with current accounting standards, we continue to recognise £600,000 of the potential benefits of the Group’s accumulated tax losses as a deferred tax asset which is the same figure as was reported at the interim stage.
I regret we are reporting a net loss for the year of £4,740,000 (2011 profit: £681,000), which includes the exceptional write-offs previously announced with the half year’s results and a substantial impairment of goodwill. The Board has undertaken a detailed review of the goodwill associated with previous acquisitions and decided to reduce this by £3,654,000, to bring it to a figure that it believes to be more realistic.
Net debt increased by £528,000 to £3,998,000 during the year and this was in addition to the £1,404,000 (net) of new share capital raised in March 2012, which was used to fund capital expenditure on the expansion of military rooms serviced.
It is vital to have access to additional finance in order to develop the business as all contract wins entail new capital expenditure. Of the loans outstanding at the year end, £2,698,569 of principal was provided by Les Halpin who has agreed to defer receipt of interest for the time being. Les has provided further loan finance of £700,000 since the year end. The board is extremely grateful to him for his substantial and vital continuing support for the Company. Shortly, we shall be putting proposals to shareholders for formal approval for a restructuring of these loan facilities.
Due to the nature of the business and in particular the long lead times for new contracts in the education sector, we do not anticipate a significant change in the trading results in 2012/13, and we are going to be incurring increased financing charges. All costs are being reviewed to ensure that the operation is as lean and efficient as possible.
We plan to continue participating in higher education sector tenders for new outsourced contracts but will only bid at prices that justify the investment of capital expenditure on acceptable terms. New tenders will not deliver new student rooms before September 2013. In December 2012, we were awarded a contract by a university for 250 rooms for delivery in September 2013. Existing education and key worker customers continue to add rooms and there are 1,500 rooms in the pipeline for this sector in the current year.
Further new military sites have been added recently and we expect the revenue growth to continue. For 2012/13 we will complete the rollout of WiFi across all the military sites and plan to add 4,500 more rooms, taking the military sector to nearly 30,000 potential users. We will focus on growing revenues from the existing subscriber base and increasing the take up on existing sites.
We have updated the branding of all our operations bringing a fresh and contemporary look to our online and print marketing materials. This includes the military sector, trading under the name Media Force, which is now a well recognised brand in the military accommodation sector. The previously acquired brands of MCW and Masterpoint Engineering are no longer used. Training, maintenance, and engineering has been re-organised as a new sector called Corporate Solutions and trading under the Keycom brand. We hope that this will encourage greater cross selling of services to existing and new customers.
As mentioned above there have been a number of senior management changes over the last year. Both Rod Matthews and Graham Robertson stepped down from the board and we are grateful to them for their efforts over many years to develop and expand the business. Also Les Halpin was sadly forced to retire following his being diagnosed with motor neurone disease and the debilitating consequences that it can so rapidly bring. We all have reason to be extremely grateful to Les for the support and advice he has provided to the business and wish him all the very best for the future.
We are pleased to have welcomed Paula Benoit to the team as Commercial Director during the second half of 2012 and James Blessing as Chief Technology Officer who joined us recently and we look forward to working with them to further the development of the Company.
Finally on behalf of all shareholders I must thank Meri Braziel and all those who work in the Group for their individual contributions to the progress of the business. I very much hope that the hard work and dedication they put in will be rewarded, and that Keycom will become the successful and profitable business which we all wish it to be.
Jocelin Harris – Chairman