(STP.L) Spiritel PLC Buy/Sell

Commenting on the results, Alastair Mills, Chief Executive Officer of SpiriTel, said, "The first half year's results show strong revenue and profit growth in our Business Division but also illustrate a further erosion of wholesale services, a change which has impacted Group results. A combination of organic and acquisitive growth leaves the Group currently performing significantly ahead of reported figures for the first half of the year. Based on trading in the quarter to 31 January 2010, including post 31 October 2009 acquisitions, our annualised revenue will exceed £23m, with underlying annualised EBITDA* of over £2.3m. On a standalone basis, our Business Division is now delivering an annualised underlying EBITDA* run rate in excess of £3.5m.

This level of trading, despite an incredibly challenging economic backdrop, is a fantastic achievement for the SpiriTel team and leaves the Group in its strongest ever position. Our levels of contracted revenues have continued to grow, our acquisition pipeline remains strong and we are confident of delivering continued organic growth in the second half. The Board is confident that we will be able to report further progress for the full year."

For further information please visit www.spiritelplc.com or contact:

SpiriTel plc Tavistock Communications FinnCap
Alastair Mills Simon Hudson Geoff Nash
Chief Executive James Midmer Marc Young
Tel: 020 7160 0100 Tel: 020 7920 3150 Tel: 020 7600 1658
Statement by the Chief Executive Officer, Alastair Mills

Introduction

Group results for the six months to 31 October 2009 are significantly below current levels of trading. During the first half, we focused on developing our 'complete business communications' offering whilst further strengthening our capital structure. Immediately after the period end, we were able to announce a major fundraising, led by Penta Capital and supported by new institutional investors. In addition, the Group's Business Division performed strongly, delivering organic revenue growth of more than 10% and a 22% increase in underlying EBITDA*.

As we have reported previously, our Technologies Division continued to see revenues and margins decline from wholesale voice trading, which impacted significantly on the Group's performance for the six months to 31 October 2009. However, as noted below, this division now makes no material contribution to Group profitability and therefore the downside risk of further erosion in trading is greatly reduced.

Results

Shown below is the segmental analysis of our results, which demonstrate the strength of our Business Division, which has been the focus of Group growth strategy since our restructure of the business in 2006.

SpiriTel SpiriTel
Business Technologies
Six months ended 31 October 2009 2008 2009 2008
£'000 £'000 £'000 £'000
Revenue 5,913 5,025 2,010 6,034
Underlying EBITDA* 930 763 79 862

The 18% revenue growth achieved by the Business Division during the period was largely organic, and included no contribution from the post period end acquisitions of Edge Solutions ("Edge") and ADK Communications ("ADK"). Following these recent acquisitions, the annualised run rate of underlying EBITDA* for the Business Division, based on the current quarter's trading to 31 January 2010, is more than £3.5 million. Whilst we continue to benefit from a carefully constructed and executed consolidation programme, we are encouraged by a strong level of organic growth in revenue of over 10% and a 22% increase in underlying EBITDA*. We are one of the few companies that has been able to deliver organic growth in the last 12 months; this reflects our ability to identify and execute revenue growth, primarily from exploiting cross selling opportunities.

SpiriTel Technologies' reduced underlying EBITDA* illustrates the substantial decline in wholesale voice services markets over the past year. Although of strategic benefit to the Group - it supplies infrastructure and technical support for the provision of IP services - SpiriTel Technologies is no longer material to the Group's profitability as we continue to focus our efforts and investment on the contracted revenues generated within our Business Division.

Shareholders will be aware that strengthening our capital structure has been an ongoing priority. During the period we were pleased to announce that our largest investor and lead funding provider, Penta Capital, had converted £6.8 million of debt into ordinary shares. This was followed in early November 2009 by the successful raising of £10.0 million in convertible loan notes to new participants, which included two highly experienced investors in Toscafund and Synergy Capital.

Clydesdale Bank continues to be a strong supporter of the growth of our Group through the provision of acquisition finance. In May 2009, our loan facilities were increased to £4.5 million, repayable over five years. At the half year end, funds drawn down under the facility were £4.0 million.

Operational Review

SpiriTel's Business Division continues to go from strength to strength and now services approximately 3,000 customers, up almost 30% on January 2009. Perhaps most significantly, the majority of the division's growth since the first half of last financial year has been from organic growth, with revenues up 18% to £5.9 million (2008: £5.0 million). As noted above, the Business Division is now trading well ahead of last year and currently represents over 80% of turnover and over 90% of profit. Over a 12 month period to October 2009 we delivered organic growth of over 10% in the Business Division as a whole with both Mobile and Network Services lines of business growing ahead of this level. As a result of reduced capital expenditure from customers, our IP Communications ("IPC") line of business contracted over the period, although our exposure to major capital projects is increasingly being offset by continued growth in sales of our hosted VoIP and WiFi solution, for which we won the Enterprise Convergence Solution category at the National Comms Business Awards in June 2009.

Cross selling within our rapidly growing Business Division customer base remains a key aspect of our strategy, and during the period we completed over 40 new cross sales to existing customers. Currently we have cross sold to only 5% of our enlarged customer base which means that 95% of our customers are still targets for new, multiple cross sales of our 'complete business communications' product portfolio. We believe that, following the integration of carefully selected acquisitions where customers have rarely taken more than one product, our customer profile lends itself ideally to cross selling and this growth opportunity is a competitive differentiator for SpiriTel. This opportunity is evidenced by the recent acquisitions of Edge and ADK whose customers have not previously bought IPC services and only a modest amount of Mobile services. Earlier this month we appointed Bruce Wright as Commercial Director, a role similar to that which he previously held at Redstone plc, with a specific remit to further drive our successful cross selling strategy.

As with many businesses in the current economic climate, we have reviewed our cost base and have reduced expenses accordingly, with several positions being made redundant in our IPC line of business. Whilst trading remains strong in Mobile and Network Services, we are also now seeing signs of recovery in IPC. We expect the final quarter of the financial year to be strong for IPC, with several large capital installs in the pipeline and further growth in hosted services expected. More generally, SpiriTel's Business Division continues to benefit from a defensive product set of business critical services and we are increasingly able to win new business from larger competitors by offering bespoke innovative solutions that can help clients meet short and medium term cost saving targets.

Post period end acquisitions

Post period end the Company has made two significant, earnings enhancing acquisitions. Using our tried and tested integration framework, Edge and ADK are currently being integrated into our Business Division, with completion of both integration projects expected in February 2010.

The acquisition of Edge for a consideration of approximately £4.8 million, was completed in November 2009. Edge, based in London, is a leading provider of voice and data services to almost 200 corporate customers, several of which are blue chip organisations with spends of over £2,000 per month. Indeed a number of customers are currently purchasing services with a value in excess of £20,000 per month from the company. Also in November 2009, we acquired ADK for an initial consideration of up to £1.0 million. ADK, based in Hertfordshire, is a provider of voice and data services to almost 300 SME customers with an above average spend of £500 per month. Both businesses are now part of the SpiriTel Networks line of business and they represent significant cross sell opportunities for our IPC and Mobile lines of business. These transactions have contributed significantly to the Group's increased earnings visibility, with the majority of revenues from the combined customer base being recurring in nature, in contracts of up to 5 years. Both acquisitions are trading in line with expectations, with profitability significantly ahead of their performance as independent companies, and have been earnings enhancing since joining the Group.

Execution of our 'Acquire, Integrate, Grow' consolidation strategy is heavily dependent upon the integration phase of the process. SpiriTel now has an established integration framework, developed early in our history as a consolidator. The process commences well in advance of anticipated completion and, with dedicated resources, ensures that we fully realise our cost saving targets whilst also identifying areas for revenue synergies. Our dedicated management team now has the experience and the track record to effectively integrate acquired businesses.

Outlook

The success of our consolidation strategy is reflected in the current annualised run rate of underlying EBITDA* for the Group's Business Division of over £3.5 million, a level significantly above the reported first half figures. The Board remains confident of meeting market expectations for the year to April 2010. We are continuing to evaluate and pursue selective acquisitions to deliver scale for the Group and further increase cross selling opportunities. We expect to be able to announce further progress on completed transactions within the next few months.

We believe that our recent track record points to the ability of the management team to successfully implement our 'Acquire, Integrate, Grow' strategy. SpiriTel will therefore continue to play its part in the consolidation of the telecoms reseller sector where the opportunity for further expansion remains significant. The recent performance of our core Business Division points to our ability to deliver growth in tough economic conditions. We are committed to a business model that delivers sustained organic and acquisitive growth and therefore the Board is confident that we will be able to report further progress for the full year.

Alastair Mills

Chief Executive

29th January 2010

Condensed Consolidated Interim Income Statement
Six months Six months Year
ended ended ended
31 October 31 October 30 April

Note Unaudited Unaudited Audited
£'000 £'000 £'000

Continuing operations
Revenue 4 7,923 11,059 19,718
Cost of sales (4,670) (6,901) (12,087)
Gross profit 3,253 4,158 7,631
Administrative expenses (3,923) (4,044) (8,280)

Underlying EBITDA 301 870 1,514
Depreciation (97) (79) (212)
Share based payments (104) (25) (204)
Exceptional costs (142) (133) (663)
Amortisation & impairment (628) (519) (1,084)
Operating (loss)/profit (670) 114 (649)

Operating (loss)/profit (670) 114 (649)
Net finance costs 5 (3,959) (1,838) (1,059)
Loss before taxation (4,629) (1,724) (1,708)
Income tax credit 141 145 774
Loss for the financial period (4,488) (1,579) (934)

Loss per ordinary share (£) 3 (0.72) (0.30) (0.16)

There were no recognised gains or losses other than the loss for the financial period.

Consolidated Interim Statement of Changes in Equity

Share Share Reverse Other Profit and Total
capital premium acquisition reserves loss equity
reserve account
£'000 £'000 £'000 £'000 £'000 £'000

Balance at 1 May 2009 6,276 4,935 (5,763) 1,965 (10,395) (2,982)
Loss for period - - - - (4,488) (4,488)
Issue of share capital 115 6,711 - - - 6,826
Equity settled share based - - - 104 - 104

payments
Modification of financial - - - 3,769 - 3,769

instruments
Balance at 31 October 2009 6,391 11,646 (5,763) 5,838 (14,883) 3,229
Condensed Consolidated Interim Balance Sheet
31 October 31 October 30 April

Note Unaudited Unaudited Audited
£'000 £'000 £'000

Non-current assets
Goodwill 5,416 6,198 5,695
Other intangible assets 3,856 5,162 4,484
Property, plant and equipment 632 500 696
9,904 11,860 10,875

Current assets
Inventories 245 227 384
Trade and other receivables 2,505 2,402 2,493
Cash and cash equivalents - 292 -
2,750 2,921 2,877

Total assets 12,654 14,781 13,752

Current liabilities
Trade and other payables (3,642) (5,019) (4,471)
Borrowings 6 (2,108) (968) (1,536)
Obligations under finance leases (26) (60) (61)
Current tax payable (41) (250) (36)
(5,817) (6,297) (6,104)

Non-current liabilities
Trade and other payables - (127) (116)
Borrowings 6 (2,703) (12,680) (9,468)
Obligations under finance leases - (39) -
Deferred tax liabilities (905) (1,528) (1,046)
(3,608) (14,374) (10,630)

Total liabilities (9,425) (20,671) (16,734)

Net assets / (liabilities) 3,229 (5,890) (2,982)

Capital and reserves
Share capital 6,391 6,276 6,276
Share premium 11,646 4,961 4,935
Reverse acquisition reserve (5,763) (5,763) (5,763)
Other reserves 5,838 257 1,965
Profit and loss account (14,883) (11,621) (10,395)
Total equity 3,229 (5,890) (2,982)
Consolidated Interim Cash Flow Statement
Six months Six months Year
ended ended ended
31 October 31 October 30 April

Unaudited Unaudited Audited
£'000 £'000 £'000

Cash flows from operating activities
Loss before taxation (4,629) (1,724) (1,708)

Adjustments for:
Net finance costs 3,959 1,838 1,059
Depreciation and amortisation 602 598 1,296
Impairment of intangible fixed - - 113

assets
Impairment of goodwill 123 - 199
Decrease / (increase) in 139 126 (31)

inventory
Increase in receivables (250) (55) (146)
Decrease in payables (45) (1,150) (1,168)
Equity settled share based 104 25 204

payments
Interest paid (111) (110) (230)
Cash used in operating (108) (452) (412)

activities
Income taxes refunded/(paid) 6 (192) (259)
Net cash used in operating (102) (644) (671)

activities Cash flows from investing activities
Acquisition of subsidiaries - (906) (797)

net of cash acquired
Deferred and contingent (496) - (382)

consideration
Purchase of property, plant (33) (141) (470)

and equipment
Net cash used in investing (529) (1,047) (1,649)

activities Cash flows from financing activities
Net proceeds from issue of 6,826 3,525 333

share capital
Proceeds from (borrowings (6,028) (2,560) 480

repaid)/borrowings
Payment of finance lease (35) (40) (78)

liabilities
Net cash from financing 763 925 735

activities
Net increase/(decrease) in 132 (766) (1,585)

cash and equivalents
Cash and equivalents at (527) 1,058 1,058

beginning of period
Cash and equivalents at end of (395) 292 (527)

period

Notes to Consolidated Interim Financial Information

1. Nature of operations and general information

SpiriTel Plc and its subsidiaries' ("the Group") principal activity is the provision of telecommunications services.

SpiriTel Business supplies a range of products and services that includes design, supply and maintenance of traditional business telephone systems as well as IP-based voice and data services. SpiriTel Technologies is a supplier of wholesale voice services to leading telecommunications providers.

SpiriTel Plc is the Group's ultimate parent company. It is incorporated and domiciled in Great Britain. The address of SpiriTel Plc's registered office, which is also its principal place of business, is 18 King William Street, London, EC4N 7BP. SpiriTel Plc's ordinary shares are listed on the Alternative Investment Market of the London Stock Exchange.

SpiriTel Plc's consolidated interim financial statements are prepared in Pounds Sterling ("£"), which is also the functional currency of the parent company.

The consolidated condensed interim financial information has been approved for issue by the Board of Directors on 21 January 2010.

The financial information set out in this interim report does not constitute statutory accounts as defined in Section 435 of the Companies Act 2006. The Group's statutory financial statements for the year ended 30 April 2009, prepared under IFRS, have been filed with the Registrar of Companies. The auditor's report was unqualified and did not contain a statement under Section 498(2) or Section 498(3) of the Companies Act 2006.

2. Basis of preparation

The condensed consolidated interim financial information (the interim financial information) has been prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by use in the European Union. This financial information has been prepared on the same basis and using the same accounting policies as used in the financial statements for the year ended 30 April 2009.

3. Loss per share

The calculation of the basic loss per share is based on the loss attributable to ordinary shareholders divided by the weighted average number for shares in issue during the period. The share options are not dilutive and therefore a diluted earnings per share calculation has not been presented.

The losses and weighted average number of shares used in the calculation are set out below:

Six months Six months Year
ended ended ended
31 October 31 October 30 April

Unaudited Unaudited Audited

Loss after tax attributable to (4,488) (1,579) (934)

ordinary shareholders (£'000)
Weighted average number of 6,276,396 5,304,824 5,786,618

shares
Loss per share (£) (0.72) (0.30) (0.16)

During October 2009, an Extraordinary General Meeting of the Company approved the consolidation of its ordinary shares such that 100 ordinary shares of 1p each become one new ordinary share of 1p each. The above table is presented as it would have been had the consolidation taken place prior to 31 October 2009.
4. Segmental information
SpiriTel SpiriTel Other/ Total
Technologies Business Central costs
£'000 £'000 £'000 £'000

Six months ended 31 October

Unaudited
Revenue 2,010 5,913 - 7,923
Underlying EBITDA 79 930 (708) 301
Depreciation (14) (79) (4) (97)
Share based payments - - (104) (104)
Exceptional costs - (15) (127) (142)
Amortisation & impairment - (628) - (628)
Operating profit / (loss) 65 208 (943) (670)
Operating profit / (loss) 65 208 (943) (670)

Year ended 30 April 2009 Audited
Revenue 9,403 10,315 - 19,718
Underlying EBITDA 1,103 1,799 (1,388) 1,514
Depreciation (46) (160) (6) (212)
Share based payments - - (204) (204)
Exceptional costs (28) (568) (67) (663)
Amortisation & impairment - (1,084) - (1,084)
Operating profit / (loss) 1,029 (13) (1,665) (649)
Operating profit / (loss) 1,029 (13) (1,665) (649)

Six months ended 31 October

Unaudited
Revenue 6,034 5,025 - 11,059
Underlying EBITDA 862 763 (755) 870
Depreciation (23) (54) (2) (79)
Share based payments - - (25) (25)
Exceptional costs (10) (75) (48) (133)
Amortisation & impairment - (519) - (519)
Operating profit / (loss) 829 115 (830) 114
Operating profit / (loss) 829 115 (830) 114
5. Finance costs
Six months Six months Year
ended ended ended
31 October 31 October 30 April

Unaudited Unaudited Audited
£'000 £'000 £'000
Interest payable on bank loans 138 124 273

and overdrafts*
Interest on finance leases 7 7 8
Unwinding of discount in 45 90 181

liabilities
Interest on Penta loans - 67 -
Interest waived on Penta loans - (512) -
Loss arising on modification 3,769 2,299 1,026

and conversion of Penta preference shares and debt**
Change in fair value of - (237) (429)

embedded derivatives**
3,959 1,838 1,059

6. Borrowings

31 October 31 October 30 April

Unaudited Unaudited Audited
£'000 £'000 £'000

Bank loans 3,650 2,618 2,527
Bank overdraft 395 - 527
Loan notes - 268 300
Issue costs (234) (221) (201)
Loan notes - Penta Capital - 1,058 770
Other loans - Penta Capital 1,000 7,163 5,122
Debt component of redeemable - 2,742 1,959

preference shares
4,811 13,648 11,004

Current 2,108 968 1,536
Non current 2,703 12,680 9,468
4,811 13,648 11,004

1 May 31 October
2009 Non cash Borrowings Borrowings 2009
Audited movement proceeds repaid Unaudited
£'000 £'000 £'000 £'000 £'000
Bank loans 2,527 - 1,123 - 3,650
Bank overdraft 527 - - (132) 395
Issue costs (201) (33) - - (234)
Loan notes 300 - - (300) -
Loan notes - Penta Capital 770 - - (770) -
Other loans - Penta Capital 5,122 - - (4,122) 1,000
Debt component of redeemable 1,959 - - (1,959) -

preference shares - Penta Capital
Total borrowings 11,004 (33) 1,123 (7,283) 4,811

During October 2009, an Extraordinary General Meeting the Company approved the modification of the conversion terms of Penta Capital LLP, the manager of the Penta Funds, subject to immediate conversion of £6.85m of indebtedness into ordinary shares at a price of 60p per ordinary share. Following this conversion, the Penta Funds aggregate holding will represent 82.3% of the Company's issued ordinary share capital.

7. Post balance sheet events

On 2 November 2009, the Company issued £9.2m loan notes of which £7.45m was subscribed by Penta-managed funds. The loan notes are convertible at 40 pence per ordinary share with a 10% yield and are repayable at the Company's option no later than November 2014 with a 20% redemption premium. A further £0.8m loan notes were issued on 17 December 2009 on identical terms.

On 2 November 2009, the Company acquired 100% of the issued share capital of Edge Solutions Limited ("Edge"), a UK based network services provider, for an initial consideration of £3.6m. Under the terms of the acquisition, performance related earn-out payments of up to £5.7m may also be payable in cash by January 2011. In the financial year ending April 2009, Edge reported revenues of £5.5m, EBITDA of £0.7m and profit before tax of £0.6m.

On 6 November 2009, the Company acquired 100% of the issued share capital of ADK Communications Limited ("ADK"), a UK based network services provider, for an initial consideration of £1.0m. Under the terms of the acquisition, performance related earn-out payments of up to £0.5m may also be payable in cash by January 2011. In the financial year ending April 2009, ADK reported revenues of £1.6m and profit before tax of £0.46m.

This information is provided by RNS The company news service from the London Stock Exchange

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