Telecity Group Plc Financal Statement Analysis

Topics: Generally Accepted Accounting Principles, Financial ratios, Financial ratio Pages: 8 (2162 words) Published: March 26, 2013
Submitted in fulfillment of assignment 1 of Financial and Management Accounting course

Telecity Group plc Background
Founded in 1998 with the establishing of the first data centre in Manchester, Telecity Group plc is operating a carrier-neutral data centre in Europe to support digital economy. It is a combination of TeleCity Limited, Redbus Interhouse Limited and Globix Holdings (UK) Limited. As a leading provider of data centre services, Telecity Group plc is listed in London Stock Exchange. In the meanwhile, it is is a constituent of the FTSE 250, FTSE techMARK 100 and FTSE4 Good indices. Driven by the rapidly increasing of digital economy, Telecity Group has been targeting to build secure, resilient and highly-connected colocation environments for the IT and telecoms equipment, to which customers can outsource their telecoms, web and IT infrastructures. For this purpose, Telecity Goup has launched the demand-driven data expansion programme, which is expanding its data center capacity through Europe. This European-based programme is expected to increase customer power capacity, which will in turn bust company economic of scale. Furthermore, as an Information Technology Company, Telecity Group has been highly relying on high and new technology to attract new customers and increase profits. Thus, much effort has been put into company’s ability to innovate new products and services in terms of data accessibility, security and specialty. Focusing on evaluating the implementation of its growth strategy, this paper will analyse it is financial statement base on the basic financial ratios.

Ratios Analysis
This section will evaluate Telecity Group plc’s financial ratios in detail. Other than looking at the past and present performance trends of the Group, this essay will also discover the company’s financial performance in comparison to Datacenter industry overall. Consequently, company management team will be able to determine the short term forecast of future performance. Furthermore, the analysis in this section can give guidance to investors by providing data and giving realistic view of Telecity Group’s financial position and comparison to the industry. Profitability Ratios

Given the important role profit plays as financing both dividends to shareholders and retained earnings, it is the main measure of financial performance.

Figure 1 Profitability Ratios (GPM- Gross profit margin, OPM- Operational profit margin)

As can be seen from figure 2, the gross profit was dramatically increased from 52% to 56 % through year 2010, and there was impressively improvement for year 2011. This can be explained by company’s successfully implementation of its growth strategy. On one side, driven by the high demanding of digital economy, the company has been focusing on increasing earnings by expanding data centre capacity and adopting new technology. On the other hand, along with the growth there is high cost. However, the even higher revenue growth still made the growth of gross profit margin. Operation profit was slightly decrease in year 2011, which implies high administrative costs in 2011. This is mainly because of a total amount of £1,510,000 provisions respect of certain leases and the acquisition with Data Electronics and UK Grid, the costs of which were accounted in operational exceptional items in consolidated income statement.

Figure 2 Profitability Ratios (PreTPM- Pre-tax profit margin, PostTPM- Post-tax profit margin) The pre-tax profit margin has also significantly improved from near 23.5 % to about 25 % in 2011. One of reasons of this improvement is the gains on foreign exchange. The most important reason should be the write off of costs incurred on refinancing, which was an £200m five-year financing agreement with Barclays, HSBC, Lloyds Banking Group and RBS from last year. Unlike PreTMP, post-tax profit margin has dropped impressively to about 17.6 %. This may be mainly because of the...

References: Atrill, P. and McLaney,P. (2011) Accounting and Finance for Non-Specialists. 7th. ed. Essex: Pearson Education Limited.
Telecity Group plc Annual report and accounts 2011 Data centres at the heart
of the digital economy, 2011 TelecityGroup.

Telecity Group plc Annual report and accounts 2010 Data centres at the heart
of the digital economy, 2010 TelecityGroup., Investopedia.
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