RNS Number : 1029D
Freedom4 Group PLC
10 September 2008
10 September 2008
FREEDOM4 Group plc (the "Company")
Results for the 6 months ended 30 June 2008
FREEDOM4 Group plc, (FFG), a provider of wireless telecommunications services, today reports its results for the six months ended 30
June 2008.
Financial summary (including discontinued operations):
� Net assets at 30 June 2008 of �31.1 million (June 2007: �102.1 million), including
* �17.5 million Loan Note,
* �10.5 million cash held in escrow
* �4.3 million net cash (2007: �(98.2) million net debt)
� Turnover: �22.2 million (H1 2007: �188.9 million)
� Operating loss: �7.7 million (H1 2007: �5.3 million)
� Profit for the period, including profit on disposal: �42.6 million (H1 2007: loss of �6.5 million)
Strategic transactions completed:
� Hosting and Network Services Division sold for �120 million
� �154.8 million of cash returned to shareholders via a tender offer
� Company renamed FREEDOM4 Group plc
Wireless Joint Venture summary:
� Company invested $7.7 million in JV with further $2.7 million invested in Q3
� Initial WiMAX services launched in Milton Keynes, Warwick and Manchester
� Business roll-out strategy re-focused to align with expected market development
Mike Read, Chief Executive Officer of FREEDOM4 Group, commented:
"Following successful implementation of the outcome of the Group's strategic review and the consequent return of �154.8 million of cash
to shareholders in April, FREEDOM4 is now fully focused on optimising the value of its licensed spectrum and creating a sound platform for
future growth in the wireless broadband market.
The Group's cash position remains strong, reflecting tight control of capital and operating expenditure, in line with the refocused
strategy in the wireless joint venture. It remains the aim of the Board to return to shareholders the proceeds of the �17.5 million Loan
Note, plus accrued interest, that is due to be redeemed by October 2009."
For further details, contact:
FREEDOM4 Group plc 08703 860 403
Mike Read, Chief
Executive
Stewart Porter, Finance
Director
Collins Stewart 020 7523 8350
Hugh Field
Financial Dynamics 020 7831 3113
Juliet Clarke /Ed
Bridges/Erwan Gouraud
CHAIRMAN'S STATEMENT
STRATEGIC TRANSACTIONS
Disposal of the Hosting and Network Services Division
On 14 March 2008, the Company announced that it had entered into a conditional agreement for the sale of the hosting and network
services division to a wholly-owned subsidiary of Oakley L.P. The agreement was completed on 2 April 2008. The consideration for the
disposal was �120 million satisfied by �92.5 million in cash, �17.5 million in Loan Notes and the balance by assumption by the buyer of
certain of the Company's debts/liabilities.
The Board believed that, following the disposal of the Company's broadband and voice businesses in September 2007, there was no longer a
compelling strategic fit between the remaining businesses within the group. The disposal of the hosting and network services division
followed a competitive sale process.
For the period to 2 April 2008 the hosting and network services division contributed turnover of �22.2 million, compared to turnover of
�72.3 million for the full year in 2007. Earnings before amortisation of intangibles, depreciation, impairment and share based payments for
the period to 2 April 2008 were �1.1 million, compared to �4.4 million for the full year in 2007. The transaction gave rise to a profit on
disposal of �48.8 million.
Capital Reduction and Tender Offers
The Board recognised that following the disposal of the broadband and voice businesses and the hosting and network services division,
the Company would have capital that was surplus to its requirements and that the ongoing capital requirements of the group would reduce. As
a consequence of this, on 15 March 2008 the Company proposed to effect a capital reduction to create distributable reserves to enable it to
return capital to shareholders by means of a tender offer. The Board believed that the capital reduction and tender offers were an
appropriate means of returning cash to shareholders in a manner that enabled shareholders to choose both whether or not to participate, and
when to participate, in the return of capital.
The capital reduction required approval of shareholders at a General Meeting of the Company and approval of the High Court. These were
received such that the capital reduction became effective on 1 April 2008. The tender offers opened on 15 March 2008 and closed on 3 April
2008. In aggregate the Company bought back 1,489,775,339 shares at a price of 10.39 pence per share at a total cost of �154.8 million.
Following completion of the tender offers, which included the exercise of 151,085,002 share options, the Company had 1,070,541,017 ordinary
shares in issue.
CONTINUING OPERATIONS
The remaining business following the sale of the hosting and network services division comprised the wireless joint venture with Intel
(FREEDOM4 Limited) and central costs associated with running the Group. The Company owns 52% of the joint venture (previously named Pipex
Wireless) which is currently building a WiMAX network using licensed spectrum in the 3.6 GHz frequency band. Following the disposal of the
hosting and network services division, the level of Group costs has been significantly reduced from the level of group costs incurred in
2007.
CHAIRMAN'S STATEMENT (CONTINUED)
FINANCIAL OVERVIEW
The trading results of the hosting and network services division for the period up to its sale on 2 April 2008 are reported as
discontinued operations. The revenue and earnings before amortisation of intangibles, depreciation, impairment and share based payment costs
(EBITDA) for this division were �22.2 million and �1.1 million respectively, broadly in line with the prior period's results.
Within continuing operations, EBITDA losses for the six months were �1.6 million, compared to �3.7 million for the full year in 2007.
Losses for the period included the cost of employer's national insurance arising on the exercise of share options of �0.8 million and
relatively high costs for professional fees, though the latter have now been brought into line with the current scale of the business. Share
based payment costs in the six months ended 30 June 2008 included the benefit arising from accelerated vesting of share options under the
tender offers.
The share of loss of the joint venture of �5.5 million, compared to �1.1 million in the same period in 2007, with the major contributor
to this increase being an impairment of �2.7 million to the carrying value of certain software and systems, following a reassessment of
their value to the joint venture.
The profit for the 6 months to June 2008 was �42.6 million (6 months to June 2007: a loss of �6.5 million) of which the profit on
disposal of the hosting and network services division contributed �48.8 million.
Net assets for the Group at 30 June 2008 were �31.1 million, compared to �136.0 million at December 2007, reflecting the disposal of the
hosting and network services division and the capital reduction and tender offer. Cash in the balance sheet was �4.3 million and trade and
other receivables of �29.3 million included the �17.5 million Loan Note arising on the sale of the hosting and network services division,
and the �10.5 million (gross) held in an escrow account to meet any potential warranty claims arising from the sale to Tiscali of the
broadband and voice businesses. Subsequent to the 30 June 2008, the Company has received �8.2 million from the escrow account and has
reduced the remaining provision for potential claims to �0.5 million.
In January 2008 the Company invested US$ 7.7 million in cash in the joint venture and in August 2008 it invested a further US$ 2.7
million. On both occasions the investments were matched by Intel in proportion to their existing shareholding.
It remains the Board's intention to distribute to shareholders the proceeds of the �17.5 million Loan Notes, plus accrued interest,
which are due to be repaid by October 2009.
OPERATIONAL REVIEW - WIRELESS DIVISION
Strategic re-focus
At its full-year results in May the Group disclosed that it had initiated a process to finalise the long-term business plan and
financial strategy for the JV. As part of this process a new review of the developing wireless broadband market was undertaken.
CHAIRMAN'S STATEMENT (CONTINUED)
OPERATIONAL REVIEW - WIRELESS DIVISION (CONTINUED)
Strategic re-focus (continued)
This analysis confirmed the strong growth potential of the wireless broadband market, and that WIMAX was potentially one of the access
technologies which would satisfy the anticipated growth of customer demand for wireless data. The rate of growth of the wireless broadband
market, and the share of this market captured by WiMAX, will be driven by a number of factors including:
� The availability of nomadic and mobile WiMAX services;
� The availability of a range of attractive, WiMAX-enabled customer devices;
� The breadth and depth of WiMAX network coverage;
� The provision of WiMAX within a suite of wireless access technologies.
The review concluded that the JV should re-focus its roll-out strategy, to maximise the opportunities that would be presented around the
development of mobility and the availability of WiMAX-enabled customer devices. The review identified the requirement for the JV to
concentrate resources in the short-term on a number of critical objectives, specifically:
� Procuring the spectrum licence amendment that will enable the JV to offer nomadic and mobile WiMAX services;
� Successfully developing the technical capability to deliver mobile WiMAX;
� Ensuring the quality of the WiMAX infrastructure roll-out in the selected target markets (Manchester, Milton Keynes,
Warwick);
� Developing a *multi-technology* access capability i.e. WiMAX, WiFi, 3G;
� Aligning capex and opex profiles more closely with expected revenue growth.
The review also concluded that the JV should maintain its commitment to the limited fixed-only services launched in the three target
markets in the first quarter. These have generated some encouraging "early adopter" interest, and will provide insight into the wireless
broadband business model and the distribution/sales cycle in the SME sector. However it is unlikely that a fixed-only service will deliver
significant traction in the market, and marketing should remain low-key until a broader range of services is available.
The re-focusing of the roll-out strategy for the business has been implemented during the course of the third quarter of 2008.
Mobile WiMAX
In February 2008 the JV initiated a process to amend its 3.6GHz spectrum licence to enable it to offer nomadic and mobile services.
The JV successfully trialled the use of mobile broadband using WiMAX 802.16 technology in the 3.6GHz frequency band to deliver service
to a laptop with a USB device. The trial achieved capacities in excess of 20Mbps and successfully demonstrated sector-to-sector handover.
CHAIRMAN'S STATEMENT (CONTINUED)
OPERATIONAL REVIEW - WIRELESS DIVISION (CONTINUED)
Network roll-out
The WiMAX network roll out in Manchester, Warwick and Milton Keynes continued through the first half, with 15 base stations live at the
end of July 2008, providing coverage to 25,000 business premises and 195,000 households across the three target markets. Rooftop agreements
are in place for a further five sites to be installed, to bring the Metropolitan Manchester site roll-out up to 50% of the initial target
total.
Customer numbers in these areas remains low, but distribution agreements are now in place, and interest in the limited fixed-only
WiMAX-only services on offer is being generated from a range of small and medium sized enterprises, and valuable commercial and technical
insights being gained.
Backhaul spectrum
In January 2008 FREEDOM4 successfully participated in an Ofcom auction of spectrum in the 28GHz frequency band extending the geographic
coverage provided by its three existing metropolitan licences to the whole of Great Britain. FREEDOM4 now owns 2x112MHz of spectrum with
national coverage in the 28GHz frequency band which will enable cost effective provision of high capacity wireless backhaul links between
WiMAX base stations and the core transmission network.
WiFi services
FREEDOM4 WiFi is currently developing capabilities to support the WiMAX business in the longer term, extending the geographic reach of
the brand through roaming agreements, enabling development of multi-technology product bundles, and offering potential sign-up and billing
synergies.
New roaming agreements have recently expanding FREEDOM4's UK coverage in hotels and airports, as well as Milton Keynes town centre.
Various new products are under development, including a bundled 3G/WiFi offering, using a USB dongle, planned to be launched in the fourth
quarter of 2008.
Financial profile
At its full-year results in May the Group indicated that US$7.7 million had been invested in the JV at the start of the year. To date
the Group has invested an additional US$2.7 million only, reflecting the re-focusing of the strategy and specifically the alignment of the
JV's capital and operating expenditure with the expected revenue growth profile. This included a reduction in headcount and contractor
numbers in activities no longer identified as critical to the JV's current business priorities.
CHAIRMAN'S STATEMENT (CONTINUED)
SUMMARY AND OUTLOOK
The Group continues to believe that the UK wireless broadband market represents a major long-term growth opportunity, and that WiMAX
technology delivers an attractive combination of range and access speed and bandwidth that can enable it to capture a material part of the
growing market for wireless broadband services.
Through its ownership of 52% of the JV with Intel FREEDOM4 is strongly positioned to benefit from the growth of the wireless broadband
market. The JV owns the largest block of licensed wireless broadband spectrum in the UK, a national wireless backhaul capability, an
operational WiMAX network and systems infrastructure, and the capability to deliver multi-technology access for customers.
On the basis of its re-focused strategy the Group is now putting in place a sound platform for future growth, as the market develops
over the next two years.
FREEDOM4 GROUP PLC (FORMERLY FREEDOM4 COMMUNICATIONS PLC, FORMERLY PIPEX COMMUNICATIONS PLC)
CONSOLIDATED INCOME STATEMENT
for the six month period ended 30 June 2008
_________________________________________________________________________ ________
Total operations, including continuing,
discontinued and acquisitions
Six month period Year ended 31
ended 30 June 2007 December 2007
Six month period ended 30 June 2008
Continuing Discontinued Total
Note �'000 �'000 �'000 �'000 �'000
REVENUE 2 27 22,154 22,181 188,935 283,063
Cost of sales (3) (10,459) (10,462) (120,402) (171,938)
GROSS PROFIT 24 11,695 11,719 68,533 111,125
Operating costs before (1,665) (10,618) (12,283) (59,131) (98,400)
amortisation of intangibles,
depreciation, impairments and
share based payment costs
EARNINGS BEFORE AMORTISATION
OF INTANGIBLES,
DEPRECIATION, IMPAIRMENT AND
SHARE BASED
PAYMENT COSTS (1,641) 1,077 (564) 9,402 12,725
Amortisation of intangibles (2) - (2) (3,804) (3,754)
Depreciation (10) - (10) (7,791) (12,795)
Impairment (306) - (306) - (1,000)
Share based payment costs (1,265) - (1,265) (2,012) (3,377)
TOTAL OPERATING COSTS (3,248) (10,618) (13,866) (72,738) (119,326)
Share of loss of joint venture (5,533) - (5,533) (1,142) (3,528)
OPERATING (LOSS)/PROFIT (8,757) 1,077 (7,680) (5,347) (11,729)
Finance income 1,752 101 1,853 895 3,119
Finance costs - (236) (236) (4,490) (9,654)
Net finance income/(expenses) 1,752 (135) 1,617 (3,595) (6,535)
(Loss)/gain arising on joint (120) - (120) 2,458 2,458
venture
(LOSS)/PROFIT BEFORE TAX (7,125) 942 (6,183) (6,484) (15,806)
Income tax credit/(expense) 13 (5) 8 10 (2,330)
(LOSS)/PROFIT AFTER TAX BEFORE (7,112) 937 (6,175) (6,474) (18,136)
PROFIT FROM DISPOSAL OF
DISCONTINUED OPERATIONS
Profit from disposal of - 48,765 48,765 - 51,582
discontinued operations, net
of tax
(LOSS)/PROFIT FOR THE PERIOD (7,112) 49,702 42,590 (6,474) 33,446
ATTRIBUTABLE TO EQUITY
SHAREHOLDERS OF THE PARENT
Earnings per share:
Basic 3 (0.40) 2.82 2.42 ( 0.27) 1.39
Diluted 3 (0.40) 2.71 2.32 ( 0.27) 1.33
FREEDOM4 GROUP PLC (FORMERLY FREEDOM4 COMMUNICATIONS PLC, FORMERLY PIPEX COMMUNICATIONS PLC)
CONSOLIDATED INCOME STATEMENT
for the six month period ended 30 June 2007
_________________________________________________________________________ ________
Continuing Operations Discontinued Operations
Existing Acquisitions Existing Acquisitions Total
�'000 �'000 �'000 �'000 �'000
REVENUE (10) - 188,945 - 188,935
Cost of sales - - (120,402) - (120,402)
GROSS (LOSS)/PROFIT (10) - 68,543 - 68,533
Operating costs before (1,747) - (57,384) - (59,131)
amortisation of intangibles,
depreciation, impairments and
share based payment costs
EARNINGS BEFORE AMORTISATION
OF INTANGIBLES,
DEPRECIATION, IMPAIRMENT AND
SHARE BASED
PAYMENT COSTS (1,757) - 11,159 - 9,402
Amortisation of intangibles - - (3,804) - (3,804)
Depreciation - - (7,791) - (7,791)
Share based payment costs (2,012) - - - (2,012)
TOTAL OPERATING COSTS (3,759) - (68,979) - (72,738)
Share of loss of joint venture (1,142) - - - (1,142)
OPERATING (LOSS) (4,911) - (436) - (5,347)
Finance income 469 - 426 - 895
Finance costs - - (4,490) - (4,490)
Net finance income/(expenses) 469 - (4,064) - (3,595)
Gain arising on joint venture 2,458 - - - 2,458
(LOSS) BEFORE TAX (1,984) - (4,500) - (6,484)
Income tax credit - - 10 - 10
(LOSS) AFTER TAX BEFORE PROFIT (1,984) - (4,490) - (6,474)
FROM DISPOSAL OF DISCONTINUED
OPERATIONS
Profit from disposal of - - - - -
discontinued operations, net
of tax
(LOSS) FOR THE PERIOD (1,984) - (4,490) - (6,474)
ATTRIBUTABLE TO EQUITY
SHAREHOLDERS OF THE PARENT
FREEDOM4 GROUP PLC (FORMERLY FREEDOM4 COMMUNICATIONS PLC, FORMERLY PIPEX COMMUNICATIONS PLC)
CONSOLIDATED INCOME STATEMENT
for the year ended 31 December 2007
_________________________________________________________________________ ________
Continuing Operations Discontinued Operations
Existing Acquisitions Existing Acquisitions Total
�'000 �'000 �'000 �'000 �'000
REVENUE - - 283,063 - 283,063
Cost of sales - - (171,938) - (171,938)
GROSS PROFIT - - 111,125 - 111,125
Operating costs before (3,720) - (94,680) - (98,400)
amortisation of intangibles,
depreciation, impairments and
share based payment costs
EARNINGS BEFORE AMORTISATION
OF INTANGIBLES,
DEPRECIATION, IMPAIRMENT AND
SHARE BASED
PAYMENT COSTS (3,720) - 16,445 - 12,725
Amortisation of intangibles - - (3,754) - (3,754)
Depreciation - - (12,795) - (12,795)
Impairment - - (1,000) - (1,000)
Share based payment costs (3,377) - - - (3,377)
TOTAL OPERATING COSTS (7,097) - (112,229) - (119,326)
Share of loss of joint venture (3,528) - - - (3,528)
OPERATING (LOSS) (10,625) - (1,104) - (11,729)
Finance income 2,233 - 886 - 3,119
Finance costs (8,410) - (1,244) - (9,654)
Net finance expenses (6,177) - (358) - (6,535)
Gain arising on joint venture 2,458 - - - 2,458
(LOSS) BEFORE TAX (14,344) - (1,462) - (15,806)
Income tax expense - - (2,330) - (2,330)
(LOSS) AFTER TAX BEFORE PROFIT (14,344) - (3,792) - (18,136)
FROM DISPOSAL OF DISCONTINUED
OPERATIONS
Profit from disposal of - - 51,582 - 51,582
discontinued operations, net
of tax
(LOSS)/PROFIT FOR THE YEAR (14,344) - 47,790 - 33,446
ATTRIBUTABLE TO EQUITY
SHAREHOLDERS OF THE PARENT
FREEDOM4 GROUP PLC (FORMERLY FREEDOM4 COMMUNICATIONS PLC, FORMERLY PIPEX COMMUNICATIONS PLC)
CONSOLIDATED BALANCE SHEET
As at 30 June 2008, 30 June 2007 and 31 December 2007
_________________________________________________________________________ _________________
30 June 2008 (Restated)* 31 December 2007
30 June
2007
�'000 �'000 �'000
ASSETS
Non current assets
Goodwill 28 39,534 -
Intangible assets 83 300 -
Property, plant and equipment 31 44,699 -
Investment in joint venture 5,762 9,994 7,608
5,904 94,527 7,608
Current assets
Trade and other receivables 29,281 10,926 11,243
Cash and cash equivalents 4,297 35,174 60,750
Assets classified as held for - 179,160 100,954
sale
33,578 225,260 172,947
Current liabilities
Short term borrowings - (5,429) -
Trade and other payables (7,475) (24,033) (1,794)
Liabilities classified as held - (58,728) (40,497)
for sale
Current Tax Liability - (220) -
Provisions (500) (337) (2,219)
(7,975) (88,747) (44,510)
Net current assets 25,603 136,513 128,437
Non current liabilities
Long term borrowings - (127,971) -
Long term provisions - (987) -
Deferred tax liability (446) - -
NET ASSETS 31,061 102,082 136,045
Equity attributable to the
equity holders of the parent
Share capital 1,071 23,998 24,092
Share premium reserve 8,237 96,818 96,848
Translation reserve (500) (36) 25
Other reserves - 25,537 8,119
Retained earnings 22,253 (44,235) 6,961
EQUITY SHAREHOLDERS FUNDS 31,061 102,082 136,045
*The June 2007 numbers above include a restatement that was made at 31 December 2007. Further details of this restatement can be found
in the group's 2007 annual report and year end accounts.
FREEDOM4 GROUP PLC (FORMERLY FREEDOM4 COMMUNICATIONS PLC, FORMERLY PIPEX COMMUNICATIONS PLC)
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
As at 30 June 2008, 30 June 2007 and 31 December 2007
_________________________________________________________________________ ________________
Attributable to the equity holders of the parent
Share Merger Capital Bond
Share premium Translation equity Retained TOTAL
capital reserve reserve reserve reserve reserve earnings EQUITY
�'000 �'000 �'000 �'000 �'000 �'000 �'000 �'000
At 1 January 2007 23,931 96,215 (61) 17,638 207 7,692 (39,773) 105,849
Issue of shares 67 603 - - - - - 670
Share based payment costs - - - - - - 2,012 2,012
Exchange differences on - - 25 - - - - 25
translating foreign operations
Loss for the period - - - - - - (6,474) (6,474)
At 30 June 2007 and 1 July 23,998 96,818 (36) 17,638 207 7,692 (44,235) 102,082
2007
Issue of shares 94 30 - - - - - 124
Share based payment costs - - - - - - 1,365 1,365
Share of joint venture share - - - - - - 185 185
option cost
Redemption of convertible - - - - - (7,692) - (7,692)
bonds
Exchange differences on - - 61 - - - - 61
translating foreign operations
Disposal of subsidiaries - - - (9,519) (207) - 9,726 -
Profit for the period - - - - - - 39,920 39,920
At 31 December 2007 and 1 24,092 96,848 25 8,119 - - 6,961 136,045
January 2008
Capital reduction scheme (21,683) (96,848) - (2,309) - - 120,840 -
Capital reduction and tender - - - - - - (1,774) (1,774)
offer costs
Tender offer (1,489) - - - - - (153,299) (154,788)
Share based payment costs - - - - - - 1,265 1,265
Share of joint venture share - - - - - - (140) (140)
based payment cost
Joint Venture exchange - - (500) - - - - (500)
difference
Exercise of options 151 8,237 - - - - - 8,388
Disposal of subsidiaries - - (25) (5,810) - - 5,810 (25)
Profit for the period - - - - - - 42,590 42,590
At 30 June 2008 1,071 8,237 (500) - - - 22,253 31,061
FREEDOM4 GROUP PLC (FORMERLY FREEDOM4 COMMUNICATIONS PLC, FORMERLY PIPEX COMMUNICATIONS PLC)
CONSOLIDATED CASH FLOW STATEMENTS
for the six month period ended 30 June 2008, 30 June 2007 and year ended 31 December 2007
Six month ended 30 Six month ended 30 Year ended 31 December 2007
June 2008 June 2007
�'000 �'000 �'000
Profit/(loss) for the period 42,590 (6,474) 33,446
Profit from disposal of (48,765) - (51,582)
discontinued operations
Income tax (credit)/expense (8) (10) 2,330
Loss/(gain) arising on joint 120 (2,458) (2,458)
venture
Interest received (1,853) (895) (3,119)
Interest payable 236 4,490 9,654
Operating (loss) (7,680) (5,347) (11,729)
Adjustments for:
Depreciation charge 10 7,791 12,795
Share of loss of joint venture 5,533 1,142 3,528
Impairment of tangible fixed 306 - 1,000
assets
Amortisation of intangibles 2 3,804 3,754
Loss on sale of fixed assets 203 - 157
Share based payment costs 1,265 2,012 3,377
Operating cash flows before (361) 9,402 12,882
movements in working capital
Decrease in inventories - 22 31
(Increase)/decrease in (3,023) 6,314 4,197
receivables
Increase/(decrease) in 12,284 (15,057) (24,292)
payables
(Decrease)/increase in (1,616) (294) 1,599
provisions
CASH GENERATED/(USED) FROM 7,284 387 (5,583)
OPERATIONS
Interest paid (99) (782) (2,387)
Bond interest paid - (1,773) (5,512)
Interest element of finance (137) (384) (827)
lease repayments
Income taxes received/(paid) 14 (4) (270)
NET CASH GENERATED/(USED) FROM 7,062 (2,556) (14,579)
OPERATING ACTIVITIES
CASH FLOWS FROM INVESTING
ACTIVITIES
Acquisition of subsidiaries (115) - (958)
Payment to acquire intangible - - (152)
assets
Investment in jointly (3,913) (2,058) (2,058)
controlled entity
Purchase of property, plant (4,003) (8,552) (23,706)
and equipment
Proceeds from sale of 7,023 - 2,648
property, plant and equipment
Proceeds from sale of 92,500 - 173,170
subsidiaries
Costs of disposal (4,644) - -
Interest received 962 587 2,115
NET CASH GENERATED/(USED) IN 87,810 (10,023) 151,059
INVESTING ACTIVITIES
CASH FLOWS FROM FINANCING
ACTIVITIES
Proceeds from the exercise of 8,388 671 795
share options
Payment to redeem convertible - - (91,500)
bonds
Payment to buy back shares (156,562) - -
Change in bank overdraft - 1,402 -
Repayments of short term - - (1,445)
borrowings
Proceeds from long term - - 2,255
borrowings
Repayments of long term - - (35,506)
borrowings
FREEDOM4 GROUP PLC (FORMERLY FREEDOM4 COMMUNICATIONS PLC, FORMERLY PIPEX COMMUNICATIONS PLC)
CONSOLIDATED CASH FLOW STATEMENTS (CONTINUED)
for the six month period ended 30 June 2008, 30 June 2007 and year ended 31 December 2007
Six month ended 30 Six month ended 30 June 2007 Year ended 31 December 2007
June 2008
�'000 �'000 �'000
Cash disposed (2,395) - -
Drawdown of new finance leases 397 - 5,700
Payment of finance lease liabilities (1,153) (2,648) (4,357)
NET CASH (USED)/GENERATED FROM FINANCING (151,325) (575) (124,058)
ACTIVITIES
NET (DECREASE)/INCREASE IN CASH AND CASH (56,453) (13,154) 12,422
EQUIVALENTS
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF 60,750 48,328 48,328
THE YEAR
CASH AND CASH EQUIVALENTS AT THE END OF THE 4,297 35,174 60,750
PERIOD
FREEDOM4 GROUP PLC (FORMERLY FREEDOM4 COMMUNICATIONS PLC, FORMERLY PIPEX COMMUNICATIONS PLC)
NOTES TO THE INTERIM GROUP FINANCIAL STATEMENTS
for the six month period ended 30 June 2008
_________________________________________________________________________ _________________
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements have been prepared and approved by the Directors in accordance with International Financial
Reporting Standards ("IFRS") as adopted by the European Union. These interim financial statements should be read in conjunction with the
annual financial statements for the year ended 31 December 2007, which were prepared in accordance with IFRS as adopted by the European
Union.
In accordance with IFRS 5, the comparative income statement has been represented so that the discontinued operations disclosed relate to
all discontinued operations at the balance sheet date.
The comparative figures for the financial year ended 31 December 2007 are not the company's statutory accounts for that financial year.
Those accounts have been reported on by the company's auditors and delivered to the registrar of companies. The report of the auditors was
(i) unqualified, (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying
their report, and (iii) did not contain a statement under section 237(2) or (3) of the Companies Act 1985. This is a statutory disclosure
required by the Companies Act 1985.
BASIS OF CONSOLIDATION
The consolidated financial statements incorporate the financial statements of FREEDOM4 Group plc (formerly FREEDOM4 Communications Plc
formerly Pipex Communications plc) (the "company") and enterprises controlled by the company (its "subsidiaries") and joint ventures,
together referred to as the "group".
ACCOUNTING POLICIES
The accounting policies applied are consistent with those of the annual financial statements for the year ended 31 December 2007, as
described in those financial statements. Taxes on income in interim periods are accrued using the tax rate that would be applicable to the
expected total annual earnings.
The preparation of interim financial statements requires management to make judgements estimates and assumptions that affect the
application of accounting policies and the reported amount of assets and liabilities, income and expense. Actual results may differ from
these estimates. In preparing these consolidated interim financial statements the significant judgements made by management in applying the
group accounting policies and the key sources of estimation uncertainty were the same as those applied to the consolidated financial
statements as at and for the year ended 31 December 2007.
FREEDOM4 GROUP PLC (FORMERLY FREEDOM4 COMMUNICATIONS PLC, FORMERLY PIPEX COMMUNICATIONS PLC)
NOTES TO THE INTERIM GROUP FINANCIAL STATEMENTS
for the six month period ended 30 June 2008
_________________________________________________________________________ _________________
2. BUSINESS AND GEOGRAPHICAL SEGMENTS
Business segments
For management purposes, the group is organised into three operating divisions - broadband and voice services, hosting services and
network services. These divisions are the basis on which the group reports its primary segment information.
The principal activities of each of the divisions are as follows:
Broadband and voice services
The group supplies internet access via broadband and narrowband, and voice telephony services (carrier pre-select and wholesale line
rental) to both residential and business customers through different brands such as Pipex, Pipex Homecall, Toucan, Nildram and Freedom 2
Surf.
Hosting services
The group provides a comprehensive suite of hosting services from shared and virtual private servers through to domain names and
security.
Network services
The group provides all aspects of network support for medium and large businesses, with a range of services including voice, enterprise
hosting, internet, IP VPNs and other IP network applications and security solutions.
Other
Includes the company, its subsidiary "Wi-Fi", its investment in the joint venture and the group's financing, including debt incurred to
provide financing for acquisition of subsidiaries.
All segments are regarded as discontinued, with the exception of the company and the joint venture, which are regarded as continuing
operations.
FREEDOM4 GROUP PLC (FORMERLY FREEDOM4 COMMUNICATIONS PLC, FORMERLY PIPEX COMMUNICATIONS PLC)
NOTES TO THE INTERIM GROUP FINANCIAL STATEMENTS
for the six month period ended 30 June 2008
_________________________________________________________________________ _________________
2. BUSINESS AND GEOGRAPHICAL SEGMENTS (continued)
The segment information for these businesses in the income statement is as follows:
For the six month period ended 30 June 2008
Broadband and voice Hosting services Network services Other TOTAL
services
Discontinued Discontinued Discontinued Continuing
�'000 �000s �000s �000s �000s
REVENUE
External sales - 10,804 11,350 27 22,181
- 10,804 11,350 27 22,181
RESULT
Segment result (i) - 2,802 (1,725) (1,641) (564)
Amortisation of intangibles - - - (2) (2)
Depreciation charge - - - (10) (10)
Impairment of tangible fixed - - - (306) (306)
assets
Share based payment costs - - - (1,265) (1,265)
Share of loss of joint venture - - - (5,533) (5,533)
Operating profit/(loss) - 2,802 (1,725) (8,757) (7,680)
Finance income - 70 31 1,752 1,853
Finance costs - (112) (124) - (236)
Loss arising on joint venture - - - (120) (120)
Profit/(loss) before tax - 2,760 (1,818) (7,125) (6,183)
Income tax (expense)/credit - - (5) 13 8
Profit on disposal of - 36,033 12,732 - 48,765
subsidiary
- 38,793 10,909 (7,112) 42,590
OTHER INFORMATION
Property, plant and equipment - 1,883 2,090 30 4,003
additions
BALANCE SHEET
Assets
Segment assets - - - 39,482 39,482
- - - 39,482 39,482
Liabilities
Segment liabilities - - - (8,421) (8,421)
- - - (8,421) (8,421)
(i) Segment result refers to earnings before amortisation of intangibles, depreciation, impairment and share based payments.
FREEDOM4 GROUP PLC (FORMERLY FREEDOM4 COMMUNICATIONS PLC, FORMERLY PIPEX COMMUNICATIONS PLC)
NOTES TO THE INTERIM GROUP FINANCIAL STATEMENTS
for the six month period ended 30 June 2008
_________________________________________________________________________ _________________
2. BUSINESS AND GEOGRAPHICAL SEGMENTS (continued)
The segment information for these businesses in the income statement is as follows:
For the six month period ended 30 June 2007
Broadband and voice Hosting services Business services Other TOTAL
services
Discontinued Discontinued Discontinued Continuing
�'000 �000s �000s �000s �000s
REVENUE
External sales 155,528 17,291 16,126 (10) 188,935
Inter-segment sales -
- 17,291 16,126 (10) 188,935
RESULT
Segment result (i) 9,117 3,241 (1,199) (1,757) 9,402
Amortisation of intangibles (3,663) (141) - - (3,804)
Depreciation charge (2,533) (1,765) (3,493) - (7,791)
Share based payment costs (2,012) (2,012)
Share of loss of joint venture - - - (1,142) (1,142)
Operating profit/(loss) 2,921 1,335 (4,692) (4,911) (5,347)
Finance income - - 426 469 895
Finance costs - - (4,490) (4,490)
Gain arising on joint venture - - - 2,458 2,458
Profit/(loss) before tax 2,921 1,335 (8,756) (1,984) (6,484)
Income tax credit/(expense) 14 (4) - - 10
2,935 1,331 (8,756) (1,984) (6,474)
OTHER INFORMATION
Property, plant and equipment 909 2,537 7,351 - 10,797
additions
BALANCE SHEET
Assets
Segment assets 179,160 18,990 29,889 91,748 319,787
179,160 18,990 29,889 91,748 319,787
Liabilities
Segment liabilities (58,728) (14,548) (25,196) (119,233) (217,705)
(58,728) (14,548) (25,196) (119,233) (217,705)
(i) Segment result refers to earnings before amortisation of intangibles, depreciation, impairment and share based payments.
FREEDOM4 GROUP PLC (FORMERLY FREEDOM4 COMMUNICATIONS PLC, FORMERLY PIPEX COMMUNICATIONS PLC)
NOTES TO THE INTERIM GROUP FINANCIAL STATEMENTS
for the six month period ended 30 June 2008
_________________________________________________________________________ _________________
2. BUSINESS AND GEOGRAPHICAL SEGMENTS (continued)
The segment information for these businesses in the income statement is as follows:
For the year ended 31 December 2007
Broadband and voice Hosting services Network services Other TOTAL
services
Discontinued Discontinued Discontinued Continuing
�'000 �000s �000s �000s �000s
REVENUE
External sales 210,776 36,111 36,176 - 283,063
210,776 36,111 36,176 - 283,063
RESULT
Segment result (i) 12,013 7,240 (2,808) (3,720) 12,725
Amortisation of intangibles (3,663) (90) (1) - (3,754)
Depreciation charge (1,351) (4,000) (7,444) - (12,795)
Impairment of tangible fixed - - (1,000) - (1,000)
assets
Share based payment costs - - - (3,377) (3,377)
Share of loss of joint venture - - - (3,528) (3,528)
Operating profit/(loss) 6,999 3,150 (11,253) (10,625) (11,729)
Finance income 629 197 60 2,233 3,119
Finance costs (91) (372) (781) (8,410) (9,654)
Gain arising on joint venture - - - 2,458 2,458
Profit/(loss) before tax 7,537 2,975 (11,974) (14,344) (15,806)
Income tax expense (2,189) (141) - - (2,330)
Profit on disposal of 51,582 - - - 51,582
subsidiary
56,930 2,834 (11,974) (14,344) 33,446
OTHER INFORMATION
Property, plant and equipment 1,259 8,997 13,450 - 23,706
additions
BALANCE SHEET
Assets
Segment assets - 47,085 53,869 79,601 180,555
- 47,085 53,869 79,601 180,555
Liabilities
Segment liabilities - (16,949) (23,548) (4,013) (44,510)
- (16,949) (23,548) (4,013) (44,510)
(i) Segment result refers to earnings before amortisation of intangibles, depreciation, impairment and share based payments.
FREEDOM4 GROUP PLC (FORMERLY FREEDOM4 COMMUNICATIONS PLC, FORMERLY PIPEX COMMUNICATIONS PLC)
NOTES TO THE INTERIM GROUP FINANCIAL STATEMENTS
for the six month period ended 30 June 2008
_________________________________________________________________________ _________________
2. BUSINESS AND GEOGRAPHICAL SEGMENTS (continued)
Geographical segments
The group's operations are located in the United Kingdom and Germany. Germany provides mainly hosting services.
The segment information for these geographical destinations which is not materially different to its origin is as follows:
For the six month period ended 30 June 2008
Continuing Discontinued
United United TOTAL
Kingdom Germany Kingdom 2008
�'000 �'000 �'000 �'000
Sales revenue 27 4,265 17,889 22,181
Carrying amount of segment 39,482 - - 39,482
assets
Additions to property, plant and 30 1,292 2,681 4,003
equipment
For the six month period ended 30 June 2007
Continuing Discontinued
United United TOTAL
Kingdom Germany Kingdom 2007
�'000 �'000 �'000 �'000
Sales revenue (10) 5,633 183,312 188,935
Carrying amount of segment 91,748 12,758 215,281 319,787
assets
Additions to property, plant and - 2,010 8,787 10,797
equipment
For the year ended 31 December 2007
Continuing Discontinued
United United TOTAL
Kingdom Germany Kingdom 2008
�'000 �'000 �'000 �'000
Sales revenue - 12,568 270,495 283,063
Carrying amount of segment 79,601 16,186 84,768 180,555
assets
Additions to property, plant and - 7,931 15,775 23,706
equipment
FREEDOM4 GROUP PLC (FORMERLY FREEDOM4 COMMUNICATIONS PLC, FORMERLY PIPEX COMMUNICATIONS PLC)
NOTES TO THE INTERIM GROUP FINANCIAL STATEMENTS
for the six month period ended 30 June 2008
_________________________________________________________________________ _________________
3. EARNINGS PER SHARE
The calculation of the basic and diluted earnings per share is based on the following data:
Six month period Six month period Year
ended 30 June ended 30 June ended 31 December
2008 2007 2007
Profit/(loss) for the year 42,590 (6,474) 33,446
attributable to the equity
holders of the parent)
30 June 2008 30 June 2007 31 December 2007
Number Number Number
million million million
Weighted average number of 1,762 2,397 2,400
ordinary shares for the
purposes of basic earnings per
share
Dilution impact of share 73 - 110
options*
Diluted number of ordinary 1,835 2,397 2,510
shares for the purpose of the
diluted earnings per share
* In June 2007 dilution has no effect on EPS as the group was loss making for the period
FREEDOM4 GROUP PLC (FORMERLY FREEDOM4 COMMUNICATIONS PLC, FORMERLY PIPEX COMMUNICATIONS PLC)
NOTES TO THE INTERIM GROUP FINANCIAL STATEMENTS
for the six month period ended 30 June 2008
_________________________________________________________________________ _________________
4. DISPOSAL OF SUBSIDIARIES
On 14 March 2008, the company announced that it had entered into a conditional agreement for the sale of the hosting and network
services division to a wholly-owned subsidiary of Oakley L.P. The agreement was completed on 2 April 2008. The sale was of the share capital
of GX Networks Limited, XTML Holdings Limited, CIX Holdings Limited, Supanetwork Limited and Transigent Limited together with the
subsidiaries of these entities, and which taken together comprised the hosting and network services division.
The proceeds of the sale amounted to �110.0 million after adjusting for debt assumed by the buyer, and before costs. The sale proceeds
comprised �92.5 million in cash and �17.5 million in loan notes. In addition, the buyer paid �2.6 million in cash in respect of the bank and
cash balance left in the businesses at completion. This �2.6 million is not included in the cash and cash equivalents below. The loan notes,
which are repayable within 18 months from the date of completion of the sale, accrue interest at the rate of 8.25% per annum for the first
12 months and 10.75% per annum thereafter.
For the period to 2 April 2008 the turnover attributable to the division was �22.2 million (compared to a turnover of �72.3 million for
the full year in 2007) with an EBITDA of �1.1 million (compared to �4.4 million for the full year in 2007). On 2 April 2008 the net assets
of the division were �56.6 million.
The net assets of the above companies at the date of disposal were as follows:
2007
�'000
Property, plant and equipment 34,009
Intangible assets 301
Trade and other receivables 27,863
Cash and cash equivalents 2,395
Long term borrowings (5,415)
Deferred tax liability (144)
Income tax liability (106)
Trade and other payables (33,004)
Obligations under finance leases (7,886)
Provisions (956)
Attributable goodwill 39,534
56,591
Cost of disposal 4,644
Gain on disposal 48,765
Total consideration 110,000
Satisfied by:
Cash 92,500
Deferred consideration 17,500
110,000
The costs of disposal of �4.6 million consist of legal and professional fees of �4.0 million, payroll costs of �0.3 million and other
costs of �0.3 million.
INDEPENDENT REVIEW REPORT TO FREEDOM4 GROUP PLC
Introduction
We have been engaged by the company to review the condensed set of financial statements in the half-yearly report for the six months
ended 30 June 2008 which comprises the consolidated income statement, the consolidated balance sheet, the consolidated statement of changes
in equity, the consolidated cash flow statement and the related explanatory notes. We have read the other information contained in the
half-yearly report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the
condensed set of financial statements.
This report is made solely to the company in accordance with the terms of our engagement. Our review has been undertaken so that we
might state to the company those matters we are required to state to it in this report and for no other purpose. To the fullest extent
permitted by law, we do not accept or assume responsibility to anyone other than the company for our review work, for this report, or for
the conclusions we have reached.
Directors' responsibilities
The half-yearly report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing
the half-yearly report in accordance with the AIM Rules.
As disclosed in note 1, the annual financial statements of the group are prepared in accordance with IFRSs as adopted by the EU. The
condensed set of financial statements included in this half-yearly report has been prepared in accordance with the recognition and
measurement requirements of IFRSs as adopted by the EU.
Our responsibility
Our responsibility is to express to the company a conclusion on the condensed set of financial statements in the half-yearly report
based on our review.
Scope of review
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 Review of Interim
Financial Information Performed by the Independent Auditor of the Entity issued by the Auditing Practices Board for use in the UK. A review
of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and
applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with
International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of
all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the
half-yearly report for the six months ended 30 June 2008 is not prepared, in all material respects, in accordance with the recognition and
measurement requirements of IFRSs as adopted by the EU and the AIM Rules.
KPMG Audit Plc
Chartered Accountants
Registered Auditor
8 Salisbury Square
London EC4Y 8BB
United Kingdom
10 September 2008
This information is provided by RNS
The company news service from the London Stock Exchange
END
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