Tuesday, 13 September 2005 19:28

Keycorp revenue & EBITDA up but takes tax hit


Secure electronic transaction solutions provider Keycorp Limited (ASX: KYC) has announced big increases in revenues and before tax earnings but took a tax hit that pushed its net profit into the red.

Keycorp reported a 66% increase in EBITDA to $31.2 million from $18.9 million in the year to 30 June 2005. The uplift in earnings was achieved on a 38% increase in revenue to $139.6 million from $101.3 million previously.

Pre-tax profit increased to $13.5 million from $4.6 million in 2004.

The bad news was that net profit after tax (NPAT) was substantially impacted by the accounting treatment of a Future Income Tax Benefit (FITB). In FY2005 the FITB was written down by $8.3 million reflecting a reversal of the majority of the benefit brought to account in FY2004 of $11.2 million. This resulted in a net loss of more than $2 million.

During the course of due diligence into the Trusted Network Solutions (TNS) business prior to the sale to Telstra, uncertainties were identified in relation to the tax law applicable to tax loss transfers completed between Keycorp group companies in 2001/2002. The company has submitted a request for a Private Ruling from the Australian Taxation Office (ATO), but as at the date of this report a response is yet to be received. Whilst the company has obtained Queens Counsel's opinion concluding that the transfers were correctly completed, the Directors consider that the virtual certainty test required by the Accounting Standards can not be met until such time as the Private Ruling is received. Accordingly, the future income tax benefit has been written down to reflect this accounting treatment.

The 66% increase in EBITDA in FY2005 was achieved despite a substantially lower contribution from Secure Transactions, which includes the TNS business which has been sold to Telstra for $55 million.

Keycorp retains the Smartcards, Access Devices and Services and Fleet Management business segments. These continuing businesses recorded strong improvements in FY2005 increasing revenue 63.5% to $120.9 million from $73.9 million. After all unallocated costs, EBITDA from the continuing businesses increased to a profit of $14.3 million from a loss of $7.9 million - a $22.2 million turnaround. After all unallocated costs, EBIT from the continuing businesses increased to a profit of $10.3 million from a loss of $9.4 million.

Net debt at year end was $1.5 million, down from $45.8 million at the same time in FY2004. After adjusting for the $55 million sale of the TNS business and the $33.5 million capital return to shareholders, equal to $0.41 per share, Keycorp is retaining net cash of $19.5 million.

Keycorp's strategy is to continue its transformation from a "product" based business to a "services and solutions" based company built around payments and security.

KYC shares were moderately traded closing up 3c to finish on $1.61.

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