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 10% of existing customer base covered (450km of fibre) 14,700 consumers 1,100 business premises 80% are FTTP 85% in urban areas 93% are existing (copper) broadband customers 7% are new to KC broadband approx 4% are upsells from phone only services • Sales penetration: • approx 3% are new customers to KC • 20% for consumers 30% for businesses • • Areas with FTTP ARPU: penetration double those with • consumer increased by > £4 per month. FTTC/FTTB Higher in rural • • Entry level bundle: compared to urban £30 (inc VAT) Entry level fibre: • bundle £35 (inc VAT) 98% of sales are for bundle service – broadband and telephony 2/3 rds entry level 45mbps bundle at £35 per month • • 1/3 rd a 100mbps bundle at £50 per month 5

next stage fibre roll-out • A further 30k premises over the next two years, covering 30% of network with FTTP • Why FTTP? Future proof • • B etter 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. 6

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 Sept 11 £m £m Movement Revenue 188.7 198.0 (5%) 1 EBITDA 39.1 40.7 (4%) EBITDA % 21% 21% 1 Operating profit 29.8 30.8 (3%) 1 Profit before taxation 27.5 27.0 2% Basic EPS (pence) 4.08 3.86 6% 2 Adjusted basic EPS (pence) 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) 10

KC Growth in revenue and earnings Sept 12 Sept 11 £m £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% 11

KC Growth in consumer and business Sept 12 Sept 11 £m £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 Consumer Customer Numbers Consumer ARPU’s 140 £40.00 Customers (000’s) £35.00 120 £30.00 100 £25.00 80 £20.00 60 £15.00 40 £10.00 20 £5.00 0 £0.00 KC Talk Broadband Bundles KC Talk Broadband Bundles Sep-11 Sep-12 Sep-11 Sep-12 12

Kcom Stable revenue position Sept 12 Sept 11 £m £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% 13

Kcom Growth focus H1 FY13 (£m) H1 FY12 (£m) 19.9 20.0 25.7 27.6 74.6 76.0 Enterprise Public Sector Wholesale Revenue from strategic focus areas stable • • Public sector growth of 7.4% Macro-economic environment impacting enterprise decision making • • Growth in multi-year backlog 14

PLC financial matters 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 15

Movement in debt in period Sept 12 Sept 11 Movement Reconciliation of Movement in debt £m £m £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) 16

Investment profile Balance Sheet additions Six months Six months Six to Sep 11 to Mar 12 months to £m £m 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 17

Outstanding cash conversion and debt reduction EBITDA to Operating Cash Conversion 1 Debt movement 180% 200 3.00 180 160% 2.50 160 140% 140 2.00 Debt: EBTIDA 120 120% £m 100 1.50 100% 80 1.00 60 80% 40 0.50 60% 20 40% 0 - Mar 09 Sep 09 Mar 10 Sep 10 Mar 11 Sep 11 Mar 12 Sep 12 Sep 08 Mar 09 Sep 09 Mar 10 Sep 10 Mar 11 Sep 11 Mar 12 Sep 12 Six Months Ended Six Months Ended Debt Debt:EBITDA Cumulative EBITDA to Operating Cash Conversion 100% Conversion 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 18

Outlook Bill Halbert, Executive Chairman

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 20

Appendices 21

Segmental Performance Revenue Sept 12 Sept 11 Movement £m £m 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 Sept 11 Movement £m £m KC 27.8 27.6 1% Kcom 14.5 16.1 (10%) PLC (3.2) (3.0) (7%) 39.1 40.7 (4%) 22

Kcom Restatement Revenue EBITDA Sept 12 Sept 11 Sept 12 Sept 11 £m £m £m £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 23

Pensions Movement in IAS19 Sept 12 Mar 12 Movement Deficit £m £m £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 Sept Movement £m 11 £m £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 Sept £m 11 £m CPI Inflation 2.0% 2.3% Discount Rate 4.4% 5.1% Expected return on 6.1% 6.9% assets 24