31 October 2014

 COMS PLC

('Coms', the 'Group' or the 'Company')

Interim Results for the six months to 31 July 2014

Coms plc, a leading provider of telecommunications products, services and infrastructure, today announces unaudited interim results for the six months ended 31 July 2014.

Period highlights

^* Exceptional items in the six months to 31 July 2014 include £797,067 of one-off reorganisation costs and £1m release of a provision for contingent consideration

Highlights

·      Significant increase in revenue generation through a combination of acquisitive and organic growth.

·      Restructuring exercise to integrate the various acquisitions and reduce overheads. This was substantially completed in the first half but has not yet benefited EBITDA.

·      Successful placing, that was more than twice oversubscribed, generating net proceeds of £7.9 million, used for the acquisition of certain subsidiaries of Actimax Acquisitions Limited ('CloudXL'), a managed network and data services provider,  Smarter Mobile UK, a mobile service provider, and other general purposes.

·      Small cash outflow as a result of investing activities and also funding additional working capital in the enlarged Group's business.

·    Strengthened Board and management team, with the appointments of Frank Beechinor and Brendan Loughrey as Chairman and Chief Operating Officer respectively.

David Breith, CEO of Coms, said:

"The key challenge for Coms in the first half of its financial year has been to integrate the businesses that have been acquired, in particular CloudXL, in order to align our cost base and position the operating divisions to maximise growth opportunities. While this process is not yet complete, we have made good progress and the vast majority of restructuring costs have already been incurred.

In a short space of time, we have successfully built an all-encompassing telecoms business that offers a broad and technically robust range of services. Our aim now is to leverage this and ensure that all operations build on their current market positions and deliver the growth potential that I firmly believe exists within the Group.

The results we have reported today I believe do not fully reflect what the business has achieved to date but also provide an indication of what is possible in the future."

A copy of these interim results together with further information on the Company is available on the Company's website: www.coms.com

Coms plc                                                                               +44 (0) 207 148 3000

David Breith (CEO)                                                                    

Frank Beechinor (Chairman)

Charles Stanley Securities                                                     +44 (0)207 149 6000

(Nominated Adviser and Joint Broker)

Karri Vuori / Philip Davies

Blythweigh                                                                             +44 (0)  207 138 3204

(PR adviser)

Paul Weigh / Alex Shilov / Eleanor Parry  

Chief Executive's Statement

Introduction

Coms has made significant progress in a short period of time. The Company is very different from the business I entered in January 2013. Through focused effort and dedication we have started to develop a quality telecommunications and IT infrastructure business with substantial scale and an exciting platform on which we will continue to build.

The acquisitions of CloudXL, which now trades as Coms direct channel, and Smarter Mobile UK, which now trades as part of Coms Mobile, were of strategic importance. They, along with the numerous acquisitions the Company made in the prior financial year, have enabled Coms to offer the full range of telecoms services - encompassing Infrastructure and ICT Management, through Redstone, Wholesale and Retail VoIP Telecoms services, through CloudXL, and Mobile Telecoms services through Coms Mobile - to our growing client base.

Our immediate priority is to fully integrate the businesses that we have acquired and we hope to make further significant progress on this in the second half of the year.  Our aim is to eliminate cost duplication wherever possible, introduce more effective systems, processes and controls across the Group. This, in turn, will ensure we extract maximum value and exploit cross-selling opportunities across all operations.

Acquisitions will continue to form part of our growth and we continue to enhance our capability to identify and integrate acquisition targets. This, over time, will help us to ain to be a consolidator in the markets in which we operate.  

In terms of organic growth we are focusing on building our existing capability by cross-selling and upselling to existing cutomers. Our product teams are working on new offerings including integrated, 'out of the box' telecoms and mobile solutions for smaller businesses. The provisioning platform in Coms gives us the capability to quickly onboard large numbers of new customers. Our aim is to release this offering during the second half of the year.

Financial Results

The results reported today demonstrate the progress that the Company has made. There has been a significant leap in the Group's turnover, with revenue of £23.1 million (2013: £2.5 million), largely thanks to the acquisitions made in the latter part of the previous financial year and the early part of the first half of the current financial year.  The gross margin in the first half was 23% compared with the margin over the comparative period of 41% and for the whole of 2014 of 34%. The lower margin reflects the higher proportion of the Company's business generated by the Infrastructure division which was acquired in November 2013 and which is generally lower margin than the other divisions.

EBITDA for the first half was £89,158 (2013: £31,869). As previously reported, the Company embarked on a restructuring exercise at the start of this year to integrate the businesses acquired and generate cost savings across the Group. This exercise, which included staff redundancies as well as moves into two new offices and the closure of 7 offices was substantially completed in the first half although a small amount of additional cost continued into the second half. The exceptional costs associated with the restructuring exercise, which amounted to £797,067 are disclosed separately in the income statement and were not deducted from the EBITDA. However, the business also suffered some disruption as well as duplicate running costs during the first half which impacted EBITDA. CloudXL, which was acquired in February 2014, was also trading at a loss at the time of its acquisition and continued to generate a loss for the first 2 months in the first half of the financial year.

The exceptional costs incurred in connection with the integration and restructuring exercise were offset by the release of a provision of £1m which related to the estimated contingent consideration payable in connection with the acquisition of CloudXL. As a result the loss before tax after exceptional items was reduced to £214,536 (2013: loss of £118,645).   

During the period, the Company's cash resources reduced by £24,690 (2013: increase of £954,109). The £7.9m (net of costs) raised from the placing in February 2014 (2013 share issues of £1.6m) funded the operational cash outflow of £3.9m (2013: £0.4m), the investments in CloudXL and Smarter Mobile and deferred consideration paid in respect of Redstone as well as fixed asset investments which totalled a further £3.5m (2013: £0.1m).

The operational cash outflow of £3.9m (2013 £0.4m) largely resulted from a build-up of working capital utilised in CloudXL and the Infrastructure division. This comprised both work on projects which has not yet been invoiced and a build up in trade debtor days. The increased working capital requirement is partially because of higher trading levels but also as a result of poorer debtor collection. Work will be undertaken in the second half to control the Company's ongoing working capital requirements. 

The cash invested in CloudXL amounted to £2.22m net of cash acquired with the business and the net cash invested in Smarter Mobile was £0.16m.  The deferred consideration outstanding in respect of Redstone amounted to £1.85m at the start of the year. This has been reduced to £1.1m by payment of £559,766 in May 2014, earlier than required by the contract. The gain arising from early settlement accounts for the positive balance in finance costs in the income statement.

At the end of the period the Company had net cash balances of £1m (2013: £1.1m).

Management Team

Given the rapid expansion of Coms' business, it was essential that the Company strengthened its operational management team in order to ensure that the Group capitalises on the growth opportunities in the market. Brendan Loughrey was appointed Chief Operating Officer during the period. Brendan brings extensive knowledge, having over 20 years' experience within Redstone in both telecoms and infrastructure and is already proving to be a valuable asset to the business.

We strengthened our Board of Directors and I was delighted that Frank Beechinor agreed to join as Chairman in July.

We have also taken action to strengthen our finance function and audit process. We initiated a process to select a new auditor and in October  KPMG LLP were appointed as auditor. There is a search process underway to appoint a new CFO with appropriate public company experience.

As a rapidly growing business I am highly conscious of the ongoing need to bring in talent in order to ensure that we maximise Coms' growth potential and deliver shareholder value. However, at both a Board and executive management level I am confident that we now have the right people in place, with the requisite knowledge, experience and drive, to ensure that the Company continues to grow and achieves the ambitions I have for the Group.  

Summary and Outlook

As per our earlier anouncements we have been successful in securing a number of new contracts and our sales pipeline has continued to grow which, together, give me confidence that we will achieve our revenue forecast for the full year. In saying this, the gross profit on new business in the infrastructure business has tended to be lower than we had originally expected but we are working on improving our margin. This is reflected in a slightly higher gross profit of 25% achieved in the first two months of the second half year, up from the 23% achieved in the first half year.     

Dave Breith

Chief Executive Officer