Building a platform for sustainable growth Interim results for the - - PowerPoint PPT Presentation

“Building a platform for sustainable growth”

Interim results for the year ended 30 September 2012

Business overview Bill Halbert, Executive Chairman

Highlights

• Revenue & EBITDA performance, in line with our expectations

– Solid performance in challenging market conditions

• Profit before tax of £27.6 million, up 2.2%
• Net debt increased to £94.3 million, comfortably below 1.5x EBITDA
• Initial deployment of super-fast, fibre-based broadband complete
• Continuation of roll-out to further 30,000 homes and businesses
• Growth in Kcom multi-year order backlog
• Increase in interim dividend of 10.5%, to 1.47p

2

Business focus

3

Highlights - KC

KC

• Growth in both revenue and EBITDA
• Driven by continued demand for

– Bundles within consumer market – Connectivity services across business market

• First phase of roll-out of super-fast fibre-based broadband complete

– Launch of KC TV, based on YouView platform

• Outperforming market

4

fibre roll-out update

5 10% of existing customer base covered (450km of fibre) 80% are FTTP 85% in urban areas Sales penetration:

• 20% for consumers
• 30% for businesses
• Areas with FTTP

penetration double those with FTTC/FTTB

• Higher in rural

compared to urban 14,700 consumers 1,100 business premises

93% are existing (copper) broadband customers 7% are new to KC broadband

• approx 4% are upsells from phone only services
• approx 3% are new customers to KC

ARPU:

• consumer increased

by > £4 per month.

• Entry level bundle:

£30 (inc VAT)

• Entry level fibre:

bundle £35 (inc VAT) 98% of sales are for bundle service – broadband and telephony

• 2/3rds entry level 45mbps bundle at £35 per month
• 1/3rd a 100mbps bundle at £50 per month

6

next stage fibre roll-out

• A further 30k premises over the next two years, covering 30% of network with

FTTP

• Why FTTP?
• Future proof
• Better enable the development of “over the top” services
• An all fibre network may enable future cost savings
• Higher performance than FTTC
• Competitive deployment costs
• Trialling a KC TV proposition – includes broadband, phone bundle and YouView

from £42 per month - £12 uplift over current bundle.

Highlights - Kcom

Kcom

• Revenue in key strategic focus areas slightly ahead and stable at £122.1

million

• Overall revenue and EBITDA decline year on year, includes a £7.7 million

reduction from one-off network build

• Focus on long term recurring revenue delivers positive results in local

authority, multi-site enterprise and small business market

• Migration of 1000 schools onto emPSN completed successfully
• Backlog growth

7

Positioning to deliver

• Focused on core skills and capabilities

– Exit pure product and maintenance – Secure competitive connectivity partner – Partner with key organisations to deliver other non-core/specialist areas – Clearly defined markets which match capability

• Investment in customer impacting areas

– NOC tools, provisioning, core services, people

• Appointment of MD for Kcom

– Stephen Long joins in January

8

Financial overview Paul Simpson, Chief Financial Officer

Summary financial results

Sept 12 £m Sept 11 £m Movement Revenue 188.7 198.0 (5%) EBITDA

1

39.1 40.7 (4%) EBITDA % 21% 21% Operating profit

1

29.8 30.8 (3%) Profit before taxation

1

27.5 27.0 2% Basic EPS (pence) 4.08 3.86 6% Adjusted basic EPS (pence)

2

4.07 3.86 5% Net cash inflow from operations 19.0 35.3 (46%) Net debt 94.3 75.1 (£19.2m) Interim dividend per share (pence) 1.47 1.33 10%

1 Amounts stated before exceptional items 2 Adjusted basic EPS is Basic EPS adjusted for exceptional items (including the tax impact of the exceptional item)

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KC Growth in revenue and earnings

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Sept 12 £m Sept 11 £m Movement Revenue KC 47.3 46.4 2% Contact & Publishing 6.3 6.6 (4%) 53.6 53.0 1% EBITDA 27.8 27.6 1% EBITDA % 52% 52%

KC Growth in consumer and business

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Sept 12 £m Sept 11 £m Movement Consumer Voice Usage 3.5 3.7 (5%) Subscriptions – Voice & Broadband 20.8 19.9 4% Business Voice usage & rental 9.1 9.3 (2%) Broadband & data 11.3 10.8 5% Consumer & Business Other 2.6 2.7 (4%) 47.3 46.4 20 40 60 80 100 120 140 KC Talk Broadband Bundles Customers (000’s)

Consumer Customer Numbers

Sep-11 Sep-12 £0.00 £5.00 £10.00 £15.00 £20.00 £25.00 £30.00 £35.00 £40.00 KC Talk Broadband Bundles

Consumer ARPU’s

Sep-11 Sep-12

Kcom Stable revenue position

13

Sept 12 £m Sept 11 £m Movement Revenue Strategic focus areas 122.1 121.7

• Network build
• 7.7

(100%) Other 15.4 18.4 (16%) 137.5 147.8 (7%) EBITDA 14.5 16.1 (10%) EBITDA % 11% 11%

Kcom Growth focus

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• Revenue from strategic focus areas stable
• Public sector growth of 7.4%
• Macro-economic environment impacting enterprise decision making
• Growth in multi-year backlog

74.6 27.6 19.9

H1 FY13 (£m)

Enterprise Public Sector Wholesale 76.0 25.7 20.0

H1 FY12 (£m)

PLC financial matters

15

Pensions

• IAS19 deficit only small increase of £1.1m from March 12 to £15.0m
• EBITDA includes credit of £0.8m. Change of accounting rules from next

financial year means credit only occurs if scheme in surplus and would be reflected in net interest Share schemes

• 13.4m shares acquired during year for satisfaction of EIP and LTCIP

schemes

• Further 4.8 million of shares to purchase for remaining obligations:

0.4m FY13 2.2m FY14 2.2m FY15 Taxation

• Absent mitigating deductibles, anticipate £3m-£4m cash liability for

FY13

Movement in debt in period

16 Reconciliation of Movement in debt Sept 12 £m Sept 11 £m Movement £m Net cash inflow from operations (pre-exceptional & pensions) 22.0 40.9 (18.9) Exceptional items (2.4) (2.2) (0.2) Pensions (0.6) (3.4) 2.8 Net cash inflow from operations 19.0 35.3 (16.3) Capex (14.3) (10.9) (3.4) Interest (2.0) (3.8) 1.8 Dividends (13.8) (12.9) (0.9) Share scheme purchases (10.0) (0.2) (9.8) Other 2.1 (0.6) 2.7 Total (19.0) 6.9 (25.9)

Investment profile

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Balance Sheet additions Six months to Sep 11 £m Six months to Mar 12 £m Six months to Sep 12 £m Network, including NGA 1.8 5.2 5.6 Infrastructure, software licenses and systems related 4.2 3.5 7.7 Propositions and customer driven 3.2 4.6 2.5 Other 1.4 0.5 1.5 Total 10.6 13.8 17.3

Outstanding cash conversion and debt reduction

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• Cumulative EBITDA to cash conversion exceeds 100%
• Anticipate improvement in EBITDA to cash conversion in the second half
• Debt comfortably below 1.5x EBITDA

1 EBITDA pre exceptional. Operating cashflows pre-exceptional & pension

40% 60% 80% 100% 120% 140% 160% 180% Mar 09 Sep 09 Mar 10 Sep 10 Mar 11 Sep 11 Mar 12 Sep 12 Six Months Ended

EBITDA to Operating Cash Conversion1

Cumulative EBITDA to Operating Cash Conversion 100% Conversion

• 0.50

1.00 1.50 2.00 2.50 3.00 20 40 60 80 100 120 140 160 180 200 Sep 08 Mar 09 Sep 09 Mar 10 Sep 10 Mar 11 Sep 11 Mar 12 Sep 12 Debt: EBTIDA £m Six Months Ended

Debt movement

Debt Debt:EBITDA

Outlook Bill Halbert, Executive Chairman

20

Outlook

• KC continues to outperform peers
• Kcom winning market share, in spite of economic conditions
• 10% dividend reflects confidence in current performance and future

prospects

Appendices

21

Segmental Performance

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Revenue Sept 12 £m Sept 11 £m Movement KC 53.6 53.0 1% Kcom 137.5 147.8 (7%) PLC (2.4) (2.8) 14% 188.7 198.0 (5%) EBITDA Sept 12 £m Sept 11 £m Movement KC 27.8 27.6 1% Kcom 14.5 16.1 (10%) PLC (3.2) (3.0) (7%) 39.1 40.7 (4%)

Kcom Restatement

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Revenue EBITDA Sept 12 £m Sept 11 £m Sept 12 £m Sept 11 £m Kcom & Smart 126.8 137.7 12.1 13.4 Eclipse 10.7 10.1 2.4 2.7 137.5 147.8 14.5 16.1

Pensions

24 Movement in IAS19 Deficit Sept 12 £m Mar 12 £m Movement £m Assets 183.7 185.5 (1.8) Liabilities (198.7) (199.4) 0.7 Deficit (15.0) (13.9) (1.1) IAS19 costs Sept 12 £m Sept 11 £m Movement £m Return on assets (5.4) (5.5) 0.1 Interest Cost 4.6 4.7 (0.1) Charge/(Credit) (0.8) (0.8)

• IAS19 assumptions

Sept 12 £m Sept 11 £m CPI Inflation 2.0% 2.3% Discount Rate 4.4% 5.1% Expected return on assets 6.1% 6.9%