Interim Results

RNS Number : 2884D

Maintel Holdings PLC

12 September 2008

 



Maintel Holdings Plc

Interim results for the six months to 30 June 2008

Maintel Holdings Plc, the telecoms services company, announces interim unaudited results for the six months to 30 June 2008.  

Financial Highlights

Group revenues increased by 10% to £9.8m (H1 2007 - £8.9m)

Maintenance base increased to £9m at 30 June 2008

Sales of broadband, call traffic and related products up 41% to £2.85m (H1 2007 - £2.02m)

Cash of £1.9m at 30 June 2008 (31 December 2007 - £2.1m) after paying a dividend of £364,000, share buy backs costing £391,000 and £296,000 taxation

Adjusted profit before tax of £811,000 (H1 2007 - £905,000); adjusted profit before tax is basic profit before tax of £621,000 (H1 2007 - £780,000), adjusted for goodwill impairment and intangibles amortisation

Adjusted earnings per share of 4.7p (H1 2007 - 5.1p); adjusted earnings per share is basic and diluted earnings per share of 3.5p (H1 2007 - 4.3p), adjusted for goodwill impairment and intangibles amortisation

Interim dividend proposed of 2.5p per share (2007: 2.5p)

Operational Highlights

Restructuring of sales and engineering resource in response to prevailing economic conditions and to focus on higher margin equipment sales - clear financial benefits being seen in H2 2008

3 significant maintenance orders won totalling more than £700,000 per annum, with only part of the benefit being seen in H1 2008

Appointed approved Nortel service partner, and Maintel employee awarded Nortel UK sales person of the year

For further information please contact:

Tim Mason, Chief Executive        020 7401 4601

Dale Todd, Finance Director        020 7401 0562

  Chairman's statement

Maintel's revenues rose by 10% in the first half of 2008 compared with the equivalent period last year, following several significant new business wins and lower than usual levels of attrition. This left our maintenance base at a record level of over £9m at period-end. Our network services business also enjoyed a stronger than expected first half and has become a stable and significant part of the Group's overall business.

Prevailing economic and market conditions have brought with them further pressure on equipment pricing and in turn caused us to review our group strategy to focus on the more stable and predictable recurring revenues generated by our maintenance and network services businesses and to de-emphasise the sales of equipment to the lower margin end of our customer base. This strategic review has involved reducing our cost structure by an annualised £450,000, incurring redundancy related costs of £62,000 in the first half. The impact of lower margin equipment sales has also been felt in the earlier part of the period and consequently first half basic and diluted earnings per share fell to 3.5p (H1 2007 - 4.3p), or 4.7p (H1 2007 - 5.1p) after adjusting for goodwill impairment and intangibles amortisation.

The cost restructuring is now accomplished and leaves us in good shape to approach the second half of 2008 with confidence. The Board joins me in thanking our staff for their patience during this period of strategic review and for their hard work as we continue to build and serve our client base.

Dividend

In light of our expectation of a stronger second half, we are proposing an interim dividend of 2.5p per share, unchanged from last year, to be paid on 10 October 2008 to shareholders on the register at 26 September 2008. 

J D S Booth

Chairman

11 September 2008

  Business review 

Results

After a steady year in 2007, 2008 began slowly against the uncertain economic backdrop and we have tailored our strategy accordingly:

• to focus on recurring revenues from maintenance and voice services contracts which offer the benefits of stable income and predictable resource requirements and;

• having previously reported on a deterioration in margin in 2007, to improve profitability on equipment sales through stricter margin criteria and a corresponding overhead reduction in sales and technical resource.

We are pleased to report that our efforts have been rewarded and although our interim numbers do not yet reflect these improvements primarily due to the inherent time-lag in cost reductions, we can report continued growth in the network services division and, more significantly, our maintenance and equipment division has seen a notable increase in profitability between January and June, giving us confidence in the outcome for the second half.  

	H1 2007	H2 2007	2007		H1 2008
	£000	£000	£000		£000
Revenue	8,910	10,419	19,329		9,777
Profit before tax	780	1,199	1,979		621
Add back goodwill impairment and intangibles amortisation	125	173	298		190
Adjusted profit before tax	905	1,372	2,277		811
Basic and diluted earnings per share	4.3p	6.8p	11.1p		3.5p
Adjusted earnings per share*	5.1p	8.0p	13.1p		4.7p

* Adjusted profit before tax divided by weighted average number of shares

The consequence of the time-lag in restructuring of costs is a drop in H1 2007 profit before tax to £621,000 (H1 2007 - £780,000), the reduction inflated by a £65,000 increase in the intangibles amortisation charge and £62,000 in redundancy related costs, on revenue which increased from £8.9m to £9.8m.

As a result, basic and diluted earnings per share have reduced from 4.3p in H1 2007 to 3.5p in H1 2008. Adjusted earnings per share have fallen from 5.1p to 4.7p in the same period.

Revenue, meanwhile, has remained strong, with network services revenues continuing their upward trend and maintenance revenues up slightly on H2 2007 levels. The maintenance base was enhanced particularly by three new contracts worth a total of over £700,000 per annum so that the maintenance base stood at a record high at the end of the period; due to the timing of the contracts, only £108,000 of this was recognised in the first half, with the full benefit being experienced in the second half. The reduction in Group revenues from H2 2007 reflects the exceptionally strong equipment sales in that period which have since been impacted by both external economic factors and our decision to focus on higher quality business.  

We are therefore strongly positioned for the second half of 2008, which will also benefit from the cost reductions effected in the first half amounting to an annualised £450,000. 

Cash balances remain strong at 30 June 2008, at £1.9m (31 December 2007 - £2.1m), after corporation tax payments of £296,000, dividend payments of £364,000 and share buy backs at a cost of £391,000.

Maintenance and equipment division

Revenue analysis (£000)	Six months to 30 June 2008	Six months to 30 June 2007	Year ended 31 Dec 2007
Maintenance related	4,459	4,339	8,756
Equipment, installations and other	2,514	2,551	5,979
Total maintenance and equipment	6,973	6,890	14,735

Division gross profit (£000)

2,412 (35%)

2,634 (38%)

5,403 (37%)

Average headcount during the period
Sales, marketing and customer service	52*	58	59
Engineers	86*	86	86

* Reduced to 48 and 80 respectively at 30 June 2008

Maintenance

We were pleased to have won some significant new support contracts in the first half including:

• A five year contract for Tesco's administrative sites of which only two weeks of the revenue is shown in these numbers

• A contract to maintain the majority of the sites of a major high street retailer

• Davis Langdon LLP - 20 sites nationwide

together amounting to more than £700,000 per annum recurring revenue.

The first two contracts are a product of our growing relationship with Cable and Wireless following Maintel being awarded a support contract from them, under which we are providing solution design, installation and maintenance services for Mitel and Nortel, and maintenance for Siemens products across the UK. 

Maintel was appointed an approved Nortel service partner during the period, and a Maintel employee awarded Nortel UK sales person of the year.

It is also gratifying to report that attrition has been around 25% less in H1 2008 than it was during 2007, and we have re-signed virtually all the major contracts that came up for renewal in the first half.

We finished H1 2008 with a record annual contract base of just over £9m.

Equipment Sales 

Sales of equipment in H2 2007 produced increased revenue as a direct consequence of our earlier decision to pursue larger ticket, lower margin projects.  Analysis showed that some of these larger projects had disproportionately soaked up resource and, with the lower hardware margins available on them, the contribution to the bottom line was beginning to impair the company's business model. As our experience of these large tenders has grown and our ability both to anticipate and to manage their economics has increased, we have been able in 2008 to adapt both sales and engineering resource to avoid those contracts which negatively affected our net margins and to manage better the profitability of the remainder.  As a result, we have reduced our payroll costs by 4% compared with February 2008 (of which the majority of the benefit will be realised in H2 2008) and increased margin on equipment sales by 4% between Q1 and Q2, while maintaining equipment sales at an average of over £400,000 per month.

Network Services

Revenue analysis (£000)	Six months to 30 June 2008	Six months to 30 June 2007	Year ended 31 Dec 2007
Call traffic	1,795	1,396	3,120
Line rental	772	462	1,185
Other	284	162	377
Total Maintel Voice and Data	2,851	2,020	4,682

Division gross profit (£000)

705 (25%)

553 (27%)

1,232 (26%)

Our networks division has had a solid first half with continued increasing revenue streams from all areas. This has been helped by the large (but low margin) customer previously reported to have cancelled continuing with us for virtually the whole of the first half; that customer has, however, now begun to migrate its business to another provider. Call traffic and line rental have both increased and income from non-geographic numbers and other services was up by 32% on H2 2007. 

Margins remained tight in H1 2008, so that the division's gross profit was up 4% on that of H2 2007.

Administrative Expenses, excluding goodwill impairment and intangibles amortisation 

Administrative expenses (£000)	Six months to 30 June 2008	Six months to 30 June 2007	Year ended 31 Dec 2007
Sales expenses	1,100	1,152	2,290
Other administrative expenses (excluding goodwill impairment and intangibles amortisation)	1,207	1,148	2,115
Total other administrative expenses	2,307	2,300	4,405

Careful management has meant that overall administrative expenses have increased only slightly over H1 2007 and, with the restructuring of the sales department, we anticipate a reduction back towards H2 2007 levels for the remainder of this year.

Taxation

The income statement shows an effective tax rate of 31.7% (2007 - 30.1%) The two main trading companies will be taxed at 28.5% in 2008 (2007 - 30%), so that with disallowables the effective rate is above this, increased further by the goodwill impairment charge which does not attract tax relief. The 2007 charge was alleviated by a one-off benefit from deferred tax being calculated at 28% rather than 30%, and from the use of residual tax losses from the District group.

Balance Sheet

The balance sheet remains healthy, with £1.9m of cash (31 December 2007 - £2.1m) as noted above, after corporation tax payments of £296,000, dividend payments of £364,000 and share buy backs at a cost of £391,000. The Group has no debt.

No significant expenditure has been required on plant and equipment during the period, however further investment has been made in establishing a comprehensive maintenance stock for new products.

The deferred tax liability arises from the application of IFRS, whereby a liability of £290,000 was created on the recognition of the intangible asset relating to District. This is likely to continue to be released in parallel with the amortisation of the intangible and is partially offset by deferred tax assets.

Intangible assets

The Group has three intangible assets - goodwill arising on the acquisition of Maintel Network Services Limited, an intangible asset represented by customer contracts and relationships acquired from District Holdings Limited and Callmaster Limited, together with goodwill relating to the District acquisition.

Goodwill has been subject to an impairment charge of £59,000 in the period (full year 2007 - £76,000), leaving a carrying value of £438,000 (2007 - £497,000).

The intangible asset relating to customer contracts and relationships has been subject to an amortisation charge of £131,000 (full year 2007 - £222,000), leaving a carrying value of £963,000 (2007 - £1,094,000). 

Purchase of own shares

Further to the authority granted at the last AGM, the Company repurchased and cancelled 240,000 of its own shares in January 2008, at a price of 161.5p, at a total cost of £391,000 and 175,000 shares in July 2008 at 115p and a total cost of £203,000. 

Market Conditions and Outlook

Maintel benefits from a significant level of contracted revenue from maintenance and network services which represented £7.3m (74%) of our Group income (full year 2007 - £13.4m and 69%). This income is holding up well. Discretionary spending patterns are best reflected by the income from equipment sales from our maintenance customers and these represent new systems and moves and changes often prompted by business growth. Although we have actively avoided larger work with lower margins in H1 2008 as described above, we are still picking up good quality business including the supply and installation of the telephone system for a government department, and a number of large projects for IKEA. The steady flow of smaller additional work jobs continues at the same levels as 2007. 

In summary, therefore, we are well placed for the second half of 2008, which has begun satisfactorily.

Dividend

In the light of expectations for the second half I am pleased to confirm that we are proposing an unchanged interim dividend of 2.5p per share.

Tim Mason

Chief Executive

11 September 2008

  Maintel Holdings Plc

Consolidated interim income statement

for the six months to 30 June 2008

	Six months to	Six months to	Year ended
	30 June 2008	30 June 2007	31 Dec 2007
	£'000	£'000	£'000
	(unaudited)	(unaudited)	(audited)
Revenue	9,777	8,910	19,329
Cost of sales	6,699	5,764	12,762
Gross profit	3,078	3,146	6,567
Administrative expenses
Goodwill impairment	59	29	76
Intangibles amortisation	131	96	222
Other administrative expenses	2,307	2,300	4,405
	2,497	2,425	4,703
Operating profit	581	721	1,864
Finance income	40	59	115
Profit before taxation	621	780	1,979
Taxation	197	241	595
Profit after taxation attributable  to equity holders of the parent	424	539	1,384
Earnings per share
Basic and diluted (note 3)	3.5p	4.3p	11.1p

  Maintel Holdings Plc 

Consolidated balance sheet  

as at 30 June 2008

	30 June 2008	30 June 2007	31 Dec 2007
	£'000	£'000	£'000
	(unaudited)	(unaudited)	(audited)
Non current assets
Intangible assets	1,401	1,316	1,591
Property, plant and equipment	201	223	208
	1,602	1,539	1,799
Current assets
Inventories	837	733	829
Trade and other receivables	3,993	3,050	3,928
Cash and cash equivalents	1,896	2,645	2,109
Total current assets	6,726	6,428	6,866
Total assets	8,328	7,967	8,665
Current liabilities
Trade and other payables	6,118	5,598	6,025
Current tax liabilities	226	415	295
Total current liabilities	6,344	6,013	6,320
Non current liabilities
Deferred tax liability	109	165	139
Total net assets	1,875	1,789	2,206
Equity
Issued share capital	121	124	124
Share premium	628	628	628
Capital redemption reserve	15	12	12
Retained earnings	1,111	1,025	1,442
Total equity	1,875	1,789	2,206

  Maintel Holdings Plc

Consolidated statement of changes in equity

for the period to 30 June 2008 (unaudited)

	Share capital	Share premium	Capital redemption reserve	Retained earnings	Total
	£'000	£'000	£'000	£'000	£'000
At 1 January 2007	124	628	12	847	1,611
Profit for the period*	-	-	-	539	539
Dividend	-	-	-	(361)	(361)
At 30 June 2007	124	628	12	1,025	1,789
Profit for the period*	-	-	-	845	845
Dividend	-	-	-	(311)	(311)
Movements in respect of purchase of own shares	-	-	-	(117)	(117)
At 31 December 2007	124	628	12	1,442	2,206
Profit for the period*	-	-	-	424	424
Dividend	-	-		(364)	(364)
Movements in respect of purchase of own shares	(3)	-	3	(391)	(391)
At 30 June 2008	121	628	15	1,111	1,875

*Total recognised income and expenses for the period are the same as the profit for the period shown above.

  Maintel Holdings Plc

Consolidated cash flow statement

for the six months to 30 June 2008

	Six months to	Six months to	Year ended
	30 June 2008	30 June 2007	31 Dec 2007
	£'000	£'000	£'000
	(unaudited)	(unaudited)	(audited)
Operating activities
Profit before taxation	621	780	1,979
Adjustments for:
Goodwill impairment	59	29	76
Intangibles amortisation	131	96	222
Depreciation charge	61	78	136
Interest received	(40)	(59)	(115)
Loss on disposal of fixed assets	1	-	-
Operating cash flows before changes in working capital	833	924	2,298
Increase in inventories	(8)	(28)	(124)
Increase in trade and other receivables	(65)	(189)	(1,067)
Increase in trade and other payables	93	327	755
Cash generated from operating activities	853	1,034	1,862
Tax paid	(296)	(258)	(759)
Net cash flows from operating activities	557	776	1,103
Investing activities
Purchase of plant and equipment	(58)	(63)	(106)
Purchase of base of customer relationships	-	-	(448)
Disposal of plant and equipment	3	-	-
Interest received	40	59	115
Net cash flows from investing activities	(15)	(4)	(439)
Financing activities
Repurchase of own shares for cancellation	(391)	-	(117)
Equity dividends paid	(364)	(361)	(672)
Net cash flows from financing activities	(755)	(361)	(789)
Net (decrease)/increase in cash and cash equivalents	(213)	411	(125)
Cash and cash equivalents at start of period	2,109	2,234	2,234
Cash and cash equivalents at end of period	1,896	2,645	2,109

  Maintel Holdings Plc

Notes to the interim report

1.      Basis of preparation

These condensed consolidated interim financial statements, for the 6 months ended 30 June 2008, have been prepared in accordance with the accounting policies set out in the Company's 2007 Annual Report and were approved by the board on 11 September 2008. The policies have been consistently applied to all the periods presented.

The financial information included in this report does not constitute statutory accounts as defined in section 240 of the Companies Act 1985, and is unaudited. The comparative figures for the year ended 31 December 2007 do not constitute the Group's statutory accounts for that financial year. Those accounts have been reported on by the Company's auditors and delivered to the Registrar of Companies. The auditor's report on those statutory accounts was unqualified, did not include references to any matters to which the auditors drew attention without qualifying their report, and did not contain a statement under section 237(2) or (3) of the Companies Act 1985.

2.      Segmental analysis

Six months to 30 June 2008	Maintenance and equipment	Network services	Central/ intercompany	Total
(unaudited)	£'000	£'000	£'000	£'000
Revenue	6,973	2,851	(47)	9,777
Included in telephone system maintenance revenue above is £5,000 of leasing income.
Revenue is wholly attributable to the principal activities of the Group and, other than
insignificant sales to EU countries, arises predominantly within the United Kingdom.
Operating profit	533	220	(172)	581
Interest income				40
Profit before taxation				621
Taxation				(197)
Profit after taxation				424
Balance sheet
Assets	6,391	1,449	488	8,328
Liabilities	(5,301)	(1,146)	(6)	(6,453)
Total	1,090	303	482	1,875
Other
Capital expenditure	58	-	-	58
Depreciation	61	-	-	61
Amortisation and impairment	11	24	155	190

2.      Segmental analysis (continued)

Six months to 30 June 2007	Maintenance and equipment	Network services	Central/ intercompany	Total
(unaudited)	£'000	£'000	£'000	£'000
Revenue	6,904	2,054	(48)	8,910
Included in telephone system maintenance revenue above is £68,000 of leasing income.
Revenue is wholly attributable to the principal activities of the Group and, other than
insignificant sales to EU countries, arises predominantly within the United Kingdom.
Operating profit	653	211	(143)	721
Interest income				59
Profit before taxation				780
Taxation				(241)
Profit after taxation				539
Balance sheet
Assets	6,094	847	1,026	7,967
Liabilities	(5,265)	(691)	(222)	(6,178)
Total	829	156	804	1,789
Other
Capital expenditure	63	-	-	63
Depreciation	78	-	-	78
Amortisation and impairment	-	-	125	125

The above presentation differs from that in the 30 June 2007 interim results, now being disclosed in the format adopted in the 2007 annual report.

2.      Segmental analysis (continued)

Year to 31 December 2007	Maintenance and equipment	Network services	Central/ intercompany	Total
	£'000	£'000	£'000	£'000
Revenue	14,735	4,682	(88)	19,329
Included in telephone system maintenance revenue above is £97,000 of leasing income.
Revenue is wholly attributable to the principal activities of the Group and, other than
equipment sales of £39,000 to EU countries, arises predominantly within the United Kingdom.
Operating profit	1,680	477	(293)	1,864
Interest income				115
Profit before taxation				1,979
Taxation				(595)
Profit after taxation				1,384
Balance sheet
Assets	6,007	1,485	1,173	8,665
Liabilities	(5,276)	(1,342)	159	(6,459)
Total	731	143	1,332	2,206
Other
Capital expenditure	106	-	-	106
Depreciation	136	-	-	136
Amortisation and impairment	9	20	269	298

3.      Earnings per share

Earnings per share have been calculated using the weighted average number of shares in issue during the period. This and earnings, being profit after tax, are as follows. An adjusted earnings per share figure - excluding the impairment of goodwill and amortisation of intangibles and, in 2007, one-off professional costs - is also shown in order to provide a clearer picture of the trading performance of the Group.

3.      Earnings per share (continued)

	Six months to	Six months to	Year ended
	30 June 2008	30 June 2007	31 Dec 2007
	£'000	£'000	£'000
	(unaudited)	(unaudited)	(audited)
Earnings used in basic and diluted EPS, being profit after tax	424	539	1,384
Goodwill impairment and intangible amortisation, less tax thereon	151	96	231
One-off professional costs, less tax thereon	-	-	18
Adjusted earnings, being profit after tax, before goodwill impairment and intangible amortisation and one-off professional costs	575	635	1,633
Weighted average number of shares	12,168	12,457	12,452
Basic and diluted EPS	3.5p	4.3p	11.1p
Adjusted EPS	4.7p	5.1p	13.1p

4.    Dividends

	Six months to	Six months to	Year ended
	30 June 2008	30 June 2007	31 Dec 2007
	£'000	£'000	£'000
	(unaudited)	(unaudited)	(audited)
Dividends paid
Final 2006, paid 25 April 2007
- 2.9p per share	-	361	361
Interim 2007, paid 5 October 2007
- 2.5p per share	-	-	311
Final 2007, paid 30 April 2008
- 3.0p per share	364	-	-
	364	361	672

The directors propose to pay an interim dividend of 2.5p per share on 10 October 2008 to shareholders on the register at 26 September 2008.

Independent review report to Maintel Holdings Plc

Introduction 

We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2008 which comprises the consolidated interim income statement, the consolidated balance sheet, the consolidated statement of changes in equity, the consolidated cash flow statement, and related explanatory notes.

We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

Directors' responsibilities

The interim report, including the financial information contained therein, is the responsibility of and has been approved by the directors. The directors are responsible for preparing the interim report in accordance with the rules of the London Stock Exchange for companies trading securities on the Alternative Investment Market which require that the half-yearly report be presented and prepared in a form consistent with that which will be adopted in the company's annual accounts having regard to the accounting standards applicable to such annual accounts.

Our responsibility

Our responsibility is to express to the company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

Our report has been prepared in accordance with the terms of our engagement to assist the company in meeting the requirements of the rules of the London Stock Exchange for companies trading securities on the Alternative Investment Market and for no other purpose. No person is entitled to rely on this report unless such a person is a person entitled to rely upon this report by virtue of and for the purpose of our terms of engagement or has been expressly authorised to do so by our prior written consent. Save as above, we do not accept responsibility for this report to any other person or for any other purpose and we hereby expressly disclaim any and all such liability

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, ''Review of Interim Financial Information Performed by the Independent Auditor of the Entity'', issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

  Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2008 is not prepared, in all material respects, in accordance with the rules of the London Stock Exchange for companies trading securities on the Alternative Investment Market.

BDO STOY HAYWARD LLP

Chartered Accountants and Registered Auditors

London

11 September 2008

 

END

 

 

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