Final Results
Maintel Holdings PLC
17 March 2008
Maintel Holdings Plc
Preliminary results for the year to 31 December 2007
Maintel Holdings Plc, the telecoms services company, announces preliminary
results for the year to 31 December 2007. These are reported under International
Financial Reporting Standards ('IFRS'), with 2006 comparisons restated
accordingly.
Financial Highlights
Group revenue increased by 20% to £19.3m (2006: £16.2m)
Recurring revenue increased by 16% to £13.4m (2006: £11.5m)
Sales of equipment including VoIP solutions up 25% to £6.0m (2006: £4.8m)
Sales of broadband, call traffic and related products up 38% to £4.7m (2006:
£3.4m)
Cash balances of £2.1m (2006: £2.2m) after £448,000 cost of acquiring customer
base and £117,000 buy back of shares
Margin (profit before tax as a percentage of revenue) improved to 11.5% in H2 07
from 8.8% in H1 07
Profit before tax of £1.979m (2006: £2.012m)
Adjusted profit before tax of £2.302m (2006: £2.200m); adjusted profit before
tax is basic profit before tax of £1.979m (2006: £2.012m), adjusted for goodwill
impairment and intangible amortisation and one-off professional costs
Basic and diluted earnings per share of 11.1p (2006: 11.1p)
Adjusted earnings per share of 13.1p (2006: 12.4p); adjusted earnings per share
is basic earnings per share of 11.1p (2006: 11.1p), adjusted for goodwill
impairment and intangible amortisation and one-off professional costs
Final dividend proposed of 3.0p per share (2006: 2.9p), making 5.5p for the year
(2006: 5.0p)
Operational Highlights
Further investment in recruitment and training of Nortel technical team
Increased investment and training in customer account management
Important contract wins in varied business sectors including law, finance,
leisure, education and health.
Acquisition in August of a customer base from Callmaster Limited for £448,000
cash, satisfied from existing resources - annual contract value approx £850,000
Development of IT delivery and support for servers, networks and unified
communications
Winner of Nortel/Westcon Enterprise Achievement Award 2007
Tim Mason, Chief Executive said:
'Group recurring revenues are running at a high of £13.4m representing 69% of
annual revenue.'
For further information please contact:
Tim Mason, Chief Executive 020 7401 4601
Dale Todd, Finance Director 020 7401 0562
Chairman's statement
Maintel's revenue in 2007 continued to grow at a very satisfactory rate, by 20%
from £16.2m to £19.3m, with network services and VoIP equipment sales putting in
especially good performances. Our recurring revenues increased by 16% from
£11.5m to £13.4m during the year.
We are reporting our results under IFRS for the first time. Group profit before
tax was £2.0m (2006: £2.0m). Adjusted IFRS profit before tax (IFRS profit before
tax, but adjusting for IFRS goodwill impairment and intangible amortisation and
one-off professional costs) increased from £2.0m to £2.3m and IFRS earnings per
share were 11.1p, the same as in 2006. As these figures demonstrate, margin
pressure continued over the year as a whole. It was a key objective of 2007 to
improve margins as the year progressed and more detailed analysis of 2006 and
2007 comparisons show that margins improved sharply in the second half of 2007:
H1 06 H2 06 2006 H1 07 H2 07 2007
£000 £000 £000 £000 £000 £000
Revenue 7,063 9,103 16,166 8,910 10,419 19,329
PBT 916 1,096 2,012 780 1,199 1,979
Margin* 13.0% 12.0% 12.4% 8.8% 11.5% 10.2%
* PBT as a % of Revenue
On the maintenance and equipment side of our business recent margin pressure has
come partly from our continuing investment in greater sales and engineering
resource as we have emphasised top line growth and built our platform for the
future, but also from the greater pricing power enjoyed by the bigger corporate
and institutional clients from whom we have increasingly won business. The
bigger end of the market remains competitive but our Nortel engineering capacity
is now fully built and trained to the highest standards to take advantage of the
huge installed base of Nortel systems we are targeting as clients. Rebuilding
margins in this part of our business continues to be a priority as we enter 2008
and further efficiencies have been identified.
Network services grew turnover by 38% to £4.7m with gratifyingly low customer
attrition. This division's size means that it is now well positioned to tender
for bigger contracts. We have added to our sales force here too and believe the
business is well positioned for significant growth in 2008.
Cash flow from operations remained strong at £1.1m for the year (2006: £1.0m)
and cash balances at year-end were £2.1m (2006: £2.2m) after dividends of
£672,000 and share buy backs of £117,000. We also acquired Callmaster's contract
base for £448,000 during the year, continuing our practice of funding
acquisitions out of cash. We are proposing a final dividend of 3p giving a total
of 5.5p for the year, an increase of 10%.
We enter the new year with a strong pipeline of business and a robust platform
for future growth. It remains for me to thank all our staff for their continuing
hard work and commitment as we build on our achievements in 2008.
J D S Booth
Chairman
14 March 2008
Business review
IFRS (International Financial Reporting Standards)
This is the first year for which the Group, as described in note 2, is required
to report under IFRS, the main effects of which are to alter the treatment of
goodwill and its impairment, and to create a provision for accrued holiday pay.
Prior period accounts have been restated under IFRS, and reconciliations between
UK GAAP and IFRS are shown in note 9.
Results
The revenue growth highlighted at the half year has been sustained in the second
half, so that Group revenue for the year amounted to £19.3m, an increase of
£3.2m (20%) over that of 2006.
The primary areas of growth were the continued strong performance from the
network services division (assisted by the delayed termination of a major,
though low margin, client), VoIP equipment sales, and a full year's contribution
from customers of District Holdings Limited and its subsidiaries (the 'District
group') which was acquired in June 2006. In addition, the acquisition of a
contract base from Callmaster Limited contributed £270,000 revenue from 1 August
2007. An overview of Group revenue is as follows:
+------------------------------------+---------------+--------------+
|Revenue analysis (£000) | 2007| 2006|
+------------------------------------+---------------+--------------+
|Maintenance related | 8,756| 8,072|
+------------------------------------+---------------+--------------+
|Equipment, installations and other | 5,979| 4,801|
+------------------------------------+---------------+--------------+
|Total maintenance and equipment | | |
|division | | |
| | 14,735| 12,873|
+------------------------------------+---------------+--------------+
|Network services division | 4,682| 3,400|
+------------------------------------+---------------+--------------+
|Intercompany | (88)| (107)|
+------------------------------------+---------------+--------------+
|Total Maintel Group | 19,329| 16,166|
+------------------------------------+---------------+--------------+
Group recurring revenue (maintenance plus network services) has therefore
increased from £11.5m (71% of total Group revenue) in 2006 to £13.4m (69%) in
2007, providing a firm foundation for the Group.
Under IFRS, Group profit before tax in 2007 was £2.0m, £33,000 less than in
2006. Adjusted profit before tax (IFRS profit before tax, but adjusting for IFRS
goodwill impairment and intangible amortisation and one-off professional costs)
shows an increase from £2.0m in 2006 to £2.3m in 2007.
IFRS earnings per share were 11.1p in 2007, the same as in 2006, and adjusted
earnings per share (IFRS earnings per share adjusted for IFRS goodwill
impairment, intangible amortisation and one-off professional costs) were 13.1p
against 12.4p in 2006, the 2007 figures in each case benefiting from share buy
backs, and a reduced absorption of residual tax losses from the District Group
compared with 2006.
Cash flow from operating activities continues to be strong, at £1.1m in 2007
(2006 - £1.0m), and cash balances remained healthy at £2.1m (2006 - £2.2m) after
the acquisition of the Callmaster contract base for £448,000 in cash, dividend
payments of £672,000 and the use of £117,000 to buy back shares in the Company.
Divisional performance is described further below in conjunction with the
following KPIs.
Maintenance and equipment division
The maintenance and equipment division provides maintenance, service and support
of office-based voice and data equipment across the UK on a contracted basis. It
also supplies and installs voice and data equipment to maintenance customers.
The division's revenues increased from £12.9m in 2006 to £14.7m in 2007, as
shown in the table above.
We acquired two maintenance bases in the year, WGTS Limited (c£60,000 pa in
February 2007) for which negligible maintenance income was recognised in the
year and Callmaster Limited (c£135,000 pa in August 2007) for which we
recognised just under 6 months of revenue. These combined with organic growth
have seen our maintenance revenue grow by 8% against 2006. The annual value of
the maintenance base at the end of the year was at a record high of £8.5m.
There has been significant growth in sales of VoIP hardware solutions to our
customer base this year and to take advantage of this, further sales resource
was invested in account management teams to encourage and develop equipment
refresh programs within the base.
+------------------------------------+---------------+---------------+
|Division average headcount during | | |
|the year | | |
| | 2007| 2006|
+------------------------------------+---------------+---------------+
|Sales and customer service | 59| 54|
+------------------------------------+---------------+---------------+
|Engineers | 86| 72|
+------------------------------------+---------------+---------------+
This investment has produced equipment sales of £6.0m in 2007, a 25% increase on
2006 sales of £4.8m, with equipment sales now representing 41% (2006 - 37%) of
the division's sales.
As mentioned last year, Maintel is the supplier of choice to many larger
organisations but this has meant that our normal high margin model cannot always
be achieved and this is demonstrated by the division's gross profit % in 2007
being 3 percentage points down on 2006, although £318,000 up on last year.
+-----------------------------------+--------------+--------------+
| | 2007| 2006|
+-----------------------------------+--------------+--------------+
|Division gross profit (£000) | 5,403 (37%)| 5,085 (40%)|
+-----------------------------------+--------------+--------------+
A further factor impacting on the margin in the year was the continued
investment in employment and training of senior Nortel engineers. The large base
of Nortel systems installed by BT over the past 6 or 7 years gives us a huge
sales opportunity and we are increasing our resource to take advantage of this.
Although this has had a negative effect on our profitability in 2007 we
anticipate it will stand us in good stead for 2008. Maintel has always
positioned itself as one of the few organisations able to provide multi-product
support and we continue to invest in other product areas including Mitel,
Siemens and Avaya allowing us to tender for and win multisite mixed maintenance
opportunities.
Given the application of common resource across both maintenance and equipment
sales, it is not practical to quote definitive margin data on the separate
business sectors, however estimated management figures are used to monitor
results internally.
Net margin (operating profit as a percentage of revenue) from the division
reduced in line with gross margin, but remained strong at 11.4% (2006 - 13.0%),
the division's overheads remaining tightly controlled during the year.
Network services division
The network services division re-sells a portfolio of products providing the
interconnectivity between customers and their staff and offices as well as the
outside world. This includes call minutes, line rental, ADSL/Broadband, Wide
area IP networking and non-geographic numbers.
Increased emphasis has been placed on growing the recurring revenues of the
network services division as we have seen expansion in requirements for
interconnectivity from our customers. In particular the connection of head
offices to remote sites and home workers to provide flexible working and
centralised database and telephony applications. This has allowed the division
to have another successful year, increasing revenues to £4.7m, from £3.4m in
2006, a rise of 38%.
The division's two main revenue streams - call traffic and line rental - both
grew strongly in the year, the former up 25% and the latter 102%, including
revenues of £138,000 and £117,000 respectively from the Callmaster acquisition
on 1 August 2007.
+------------------------------------+---------------+---------------+
|Revenue analysis (£000) | 2007| 2006|
+------------------------------------+---------------+---------------+
|Call traffic | 3,120| 2,487|
+------------------------------------+---------------+---------------+
|Line rental | 1,185| 586|
+------------------------------------+---------------+---------------+
|Other | 377| 327|
+------------------------------------+---------------+---------------+
|Total network services | 4,682| 3,400|
+------------------------------------+---------------+---------------+
+-----------------------------------+--------------+-----------------+
| | 2007| 2006|
+-----------------------------------+----------------+---------------+
|Division gross profit (£000) | 1,232| 1,005|
+-----------------------------------+----------------+---------------+
The change in revenue mix - line rental earning lower margins than call traffic
- together with some price pressure on call traffic margins, has caused the
division's overall gross margin to drop from 30% in 2006 to 26% in 2007,
although overall gross profit has continued to grow, from £1.00m in 2006 to
£1.23m in 2007.
As noted in the interim report, the division has received notice of cancellation
from one of its larger but lower margin customers. The reduction in revenue from
this was anticipated to have commenced in August 2007, but the transfer from
Maintel has not yet begun, though is now thought to be imminent. Likewise, the
significant new customer highlighted at the half year has taken longer than
anticipated to migrate and contribute fully, and so the full effects of this
customer will be seen in 2008.
Attrition otherwise continues to be low in the division.
Sales and administrative costs continue to be closely controlled, though
naturally increased in 2007 to support the revenue growth. Further specialist
sales resource has been recruited in 2008, in particular to promote sales of
interconnectivity mentioned above, with administrative support to follow.
As the division grows, it is becoming able to tender for increasingly high value
business, although as with its existing large customers, this often comes with a
lower margin than its historical SME business which continues to provide a
profitable but competitive base.
Administrative expenses, excluding goodwill impairment and intangibles
amortisation
+------------------------------------+---------------+---------------+
|Administrative expenses (£000) | 2007| 2006|
+------------------------------------+---------------+---------------+
|Sales expenses | 2,290| 1,878|
+------------------------------------+---------------+---------------+
|Other administrative expenses | | |
|(excluding Goodwill impairment) | | |
| | 2,115| 1,844|
+------------------------------------+---------------+---------------+
|District sales and admin costs | -| 211|
+------------------------------------+---------------+---------------+
|Total other administrative expenses | 4,405| 3,933|
+------------------------------------+---------------+---------------+
Administrative expenses increased by £472,000 (12%) in the year, including a
full year (2006 - 61/2 months) of District costs, albeit the District costs were
at a reduced level. Sales headcount increased slightly, but with some higher
calibre individuals being employed and the increase in revenues impacting on
variable overheads, such as commission.
Otherwise administration costs, including corporate, service and admin staff,
remain controlled and we have re-signed our Head Office lease in Waterloo to
March 2010 providing us with flexible reasonably priced office space.
+-----------------------------------+--------------+--------------+
| | 2007| 2006|
+-----------------------------------+--------------+--------------+
|Average Group headcount during the | | |
|period | | |
| | 171| 160|
+-----------------------------------+--------------+--------------+
|Average sales and service headcount| 65| 64|
+-----------------------------------+--------------+--------------+
|Average corporate and admin | 20| 20|
|headcount | | |
+-----------------------------------+--------------+--------------+
|Group revenue (£000) | 19,329| 16,166|
+-----------------------------------+--------------+--------------+
Acquisition of contract base
On 1 August 2007, the Group acquired a contract base of maintenance, call
traffic, line rental and VoIP hosted service customers from Callmaster Limited,
for a cash consideration of £440,000 plus £8,000 costs. Two of Callmaster's
engineers joined the Group at the same time. The annual value of the contracts
at the date of acquisition was around £850,000, £715,000 in network services
revenue and £135,000 in maintenance revenue.
In February 2007, the Group acquired a maintenance contract base of c£60,000 per
annum from WGTS Limited. Negligible revenue was recognised from this arrangement
in 2007, but will be during 2008.
The Group continues to seek bolt-on customer bases at the right price, together
with suitable acquisitions to accelerate the ongoing development of its IT
capabilities which have allowed the Group to secure increasingly complex voice
and data contracts.
Taxation
The income statement shows a tax rate of 30.1% (2006 - 29.4%). The two main
trading companies are taxed at 30%, so that with disallowables the effective
rate is above this, increased further by an element of the goodwill impairment
charge which does not attract tax relief, but benefiting from the effect on
deferred tax of next year's reduction in the rate of corporation tax from 30% to
28%. In the year under review, use of the remaining portion of District's tax
losses has reduced the taxation charge by £15,000 (2006 - £49,000).
Dividends
A final dividend for 2006 of 2.9p per share (£361,000 in total) was paid on 25
April 2007, and an interim 2007 dividend of 2.5p per share (£311,000) was paid
on 5 October 2007.
It is proposed to pay a final dividend of 3.0p in respect of 2007, subject to
shareholder approval at the AGM, and payable on 30 April to shareholders on the
register at the close of business on 28 March. In accordance with accounting
standards, this dividend is not accounted for in the financial statements for
the period under review as it had not been committed to pay it as at 31 December
2007.
Balance sheet
The balance sheet remains solid, with £2.1m of cash, as noted above,
facilitating continued growth in equipment sales and network services from
existing resources.
No significant expenditure has been required on plant and equipment, or on
stock, during the period.
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 be released in parallel with the
amortisation of the intangible and is partially offset by deferred tax assets.
Intangible assets
Following the adoption of IFRS, the Group has three intangible assets - goodwill
arising on the acquisition of Maintel Network Services Limited (previously
Pinnacle Voice and Data Limited) and an intangible asset represented by customer
contracts and relationships acquired from District Holdings Limited and
Callmaster, together with goodwill relating to the District acquisition.
The Maintel Network Services goodwill is subject to an impairment test at each
reporting date. Impairment of £18,000 has been charged to the income statement
in 2007 (2006 - £62,000), and the carrying value is £294,000 at that date.
The intangible assets represented by the customer contracts and relationships
are subject to an amortisation charge of 20% of cost per annum in respect of
maintenance contract relationships and 14.2% per annum in respect of network
services contracts, £222,000 having been amortised in 2007, leaving a carrying
value of £1,094,000.
The goodwill relating to the District acquisition has been subject to an
impairment charge of £58,000 in 2007 (2006 - £29,000), leaving a carrying value
of £203,000.
Purchase of own shares
Further to the authority granted at the last AGM, the Company repurchased and
cancelled 70,000 of its own shares in December 2007, at a price of 166p, at a
total cost of £117,000 and 240,000 shares in 2008 at 161.5p at a total cost of
£391,000. The share price at 31 December 2007 was 167p.
Cash flow
At 31 December 2007 the group had cash and bank balances of £2.109m (2006 -
£2.234m), all of it unrestricted. Net cash inflow from operating activities in
the year was £1.103m, Callmaster contracts were acquired for £448,000 net cash,
£672,000 was paid in dividends, £117,000 used to buy back shares in the Company,
and £759,000 corporation tax was paid.
The group invests its surplus cash in high interest, low risk accounts or funds.
Outlook
Following on from a steady performance in 2007 we are pleased to report a solid
start to 2008 with a number of material sales including a large support win and
another two major prospects.
The Group also continues to develop its IT capabilities to expand its target
market and encompass further constituent parts of larger contracts which might
otherwise be outsourced, including 24/7 network and server monitoring, remote
backup and application development with Microsoft Communications Server.
Margin on equipment sales continues to improve from 2007 and we look forward to
the remainder of the year with confidence.
Tim Mason
Chief Executive
14 March 2008
Maintel Holdings Plc
Consolidated interim income statement
for the year to 31 December 2007
2007 2006
note £'000 £'000
Revenue 3 19,329 16,166
Cost of sales 12,762 10,167
Gross profit 6,567 5,999
Administrative expenses
Goodwill impairment 76 91
Intangibles amortisation 222 97
Other administrative expenses 4,405 3,933
4,703 4,121
Operating profit 3 1,864 1,878
Financial income 115 135
Financial charges - (1)
Profit before taxation 1,979 2,012
Taxation 595 592
Profit after taxation attributable
to equity holders of the parent 1,384 1,420
Earnings per share
Basic and diluted (note 4) 4 11.1p 11.1p
Maintel Holdings Plc
Consolidated balance sheet
as at 31 December 2007
2007 2006
note £'000 £'000
Non current assets
Intangible assets 7 1,591 1,441
Property, plant and equipment 208 238
1,799 1,679
Current assets
Inventories 829 705
Trade and other receivables 3,928 2,861
Cash and cash equivalents 2,109 2,234
6,866 5,800
Total assets 8,665 7,479
Current liabilities
Trade and other payables 6,025 5,271
Current tax liabilities 295 380
Total current liabilities 6,320 5,651
Non current liabilities
Deferred tax liability 139 217
Total net assets 2,206 1,611
Equity
Issued share capital 124 124
Share premium 628 628
Capital redemption reserve 12 12
Retained earnings 1,442 847
Total shareholders' equity 2,206 1,611
Maintel Holdings Plc
Consolidated statement of changes in equity
for the period to 31 December 2007
+-------------------+--------+--------+----------+---------+-------+
| | | | Capital| | |
| | | |redemption| | |
| | Share| Share| reserve| Retained| |
| | capital| premium| | earnings| |
| | | | | | Total|
+-------------------+--------+--------+----------+---------+-------+
| | £'000| £'000| £'000| £'000| £'000|
+-------------------+--------+--------+----------+---------+-------+
|At 1 January 2006 | 129| 628| 7| 850| 1,614|
| | | | | |
+-------------------+--------+--------+----------+---------+-------+
|Profit for the year| -| -| -| 1,420| 1,420|
|* | | | | | |
+-------------------+--------+--------+----------+---------+-------+
|Dividend | -| -| -| (591)| (591)|
+-------------------+--------+--------+----------+---------+-------+
|Movements in | | | | | |
|respect of purchase| | | | | |
|of own shares | (5)| -| 5| (832)| (832)|
+-------------------+--------+--------+----------+---------+-------+
|At 31 December 2006| 124| 628| 12| 847| 1,611|
+-------------------+--------+--------+----------+---------+-------+
|Profit for the | -| -| -| 1,384| 1,384|
|period* | | | | | |
+-------------------+--------+--------+----------+---------+-------+
|Dividend | -| -| -| (672)| (672)|
+-------------------+--------+--------+----------+---------+-------+
|Movements in | | | | | |
|respect of purchase| | | | | |
|of own shares | -| -| -| (117)| (117)|
|-------------------+--------+--------+----------+---------+-------+
|At 31 December 2007| 124| 628| 12| 1,442| 2,206|
+-------------------+--------+--------+----------+---------+-------+
*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 year to 31 December 2007
2007 2006
£'000 £'000
Operating activities
Profit before taxation 1,979 2,012
Adjustments for:
Goodwill impairment 76 91
Intangibles amortisation 222 97
Depreciation charge 136 136
Interest received (115) (135)
Other interest paid - 1
Loss on disposal of fixed assets - 5
Operating profit before changes in working 2,298 2,207
capital
(Increase)/decrease in inventories (124) 12
Increase in trade and other receivables (1,067) (671)
Increase in trade and other payables 755 87
Cash generated from operating activities 1,862 1,635
Tax paid (759) (603)
Net cash flows from operating activities 1,103 1,032
Investing activities
Purchase of plant and equipment (106) (110)
Purchase of subsidiary undertaking net of cash - (1,024)
acquired
Purchase of base of customer relationships (448) -
Interest received 115 135
Net cash flows from investing activities (439) (999)
Financing activities
Other interest paid - (1)
Repurchase of own shares for cancellation (117) (832)
Equity dividends paid (672) (591)
Net cash flows from financing activities (789) (1,424)
Net decrease in cash and cash equivalents (125) (1,391)
Cash and cash equivalents at start of period 2,234 3,625
Cash and cash equivalents at end of period 2,109 2,234
Maintel Holdings Plc
Notes to the preliminary statement
1. The abridged financial information set out in this document has been
extracted from financial statements approved by the directors on 14 March 2008
and which will be delivered to the Registrar of Companies following the
Company's annual general meeting. The Group's auditors have reported on the
financial statements and their report is unqualified and did not contain
statements under sections 273 (2) or (3) of the Companies Act 1985. The above
financial information does not constitute statutory accounts as defined in
section 240 of the Companies Act 1985.
While the financial information included in this preliminary announcement has
been prepared in accordance with the recognition and measurement criteria of
International Financial Reporting Standards (IFRSs), this announcement itself
does not contain sufficient information to comply with IFRSs. As described
above, the Group expects to publish full financial statements which comply with
IFRSs, in March 2008.
2. Accounting policies
The consolidated financial statements have been prepared under the historical
cost convention, and the principal policies adopted in their preparation are as
follows:
(a) Basis of preparation
The consolidated financial statements have been prepared in accordance with
International Financial Reporting Standards, International Accounting Standards
and Interpretations (collectively IFRS) issued by the International Accounting
Standards Board (IASB) as adopted by the European Union ('adopted IFRSs') and
are in accordance with IFRS as issued by the IASB, and with those parts of the
Companies Act
1985 applicable to companies preparing their accounts in accordance with adopted
IFRSs. This is the first time the Group has prepared its annual financial
statements in accordance with adopted IFRSs, having previously prepared them in
accordance with UK accounting standards. Details of how the transition from UK
accounting standards to adopted IFRSs has affected the Group's reported
financial position, financial performance and cash flows are given in note 9.
(b) Transition to International Financial Reporting Standards
IFRS 1 'First-time Adoption of International Financial Reporting Standards' sets
out the rules for first time adoption of IFRS and the optional exemptions which
may be used in applying the standards retrospectively to comparative periods.
The Group has used the following exemption in adopting IFRS.
IFRS 3 'Business Combinations' has only been applied to acquisitions completed
after the date of transition, 1 January 2006. As a result, the carrying value of
goodwill in the UK GAAP balance sheet at 31 December 2005, which relates to the
acquisition of Maintel Network Solutions Limited (previously Pinnacle Voice and
Data Limited) in December 2005, is brought forward to the IFRS opening balance
sheet without adjustment.
(c) Basis of consolidation
The financial statements consolidate the results of Maintel Holdings Plc and
each of its subsidiaries (the 'Group'). The results of subsidiaries acquired are
included within the consolidated income statement and balance sheet from the
effective date of acquisition, applying uniform accounting policies pursuant to
IAS 27 'Consolidated and separate financial statements'. The results of disposed
subsidiaries are included in the consolidated income statement up to the
effective date of disposal. All intra-group transactions and balances are
eliminated on consolidation. Acquisitions are accounted for using the
acquisition method of accounting.
Subsidiaries are all entities over which the Group has the power to govern their
financial and operating policies.
(d) Revenue
Revenue represents sales to customers at invoiced amounts less value added tax.
Revenue from sales of equipment, chargeable works carried out and network
services, is recognised when the goods or services are provided. Amounts
invoiced in advance in respect of maintenance contracts are deferred and
released to the income statement over the period covered by the invoice. Revenue
and profit on long term supply and/or installation contracts is recognised
dependent on the stage of and costs to completion of each contract.
(e) Intangible assets
Goodwill
Goodwill represents the difference between the cost of the acquisition and the
fair value of the net identifiable assets, liabilities and contingent
liabilities. Cost comprises the fair value of assets given, liabilities assumed
and equity instruments issued, plus any direct costs of acquisition. Goodwill is
capitalised as an intangible asset, with any impairment in carrying value being
charged to the income statement.
Other intangible assets
Intangible assets are stated at cost less accumulated amortisation and consist
of customer relationships. Where these assets have been acquired through a
business combination, the cost will be the fair value allocated in the
acquisition accounting; where they have been acquired other than through a
business combination, the initial cost is the aggregate amount paid and the fair
value of any other consideration given to acquire the asset.
Customer relationships are amortised over their estimated useful lives of (i)
five years in respect of maintenance contracts, and (ii) seven years in respect
of network services contracts.
Impairment of goodwill and other intangible assets
Impairment tests on goodwill with an indefinite useful economic life are
undertaken annually on 31 December. Customer relationships and other assets are
subject to impairment tests whenever events or changes in circumstances indicate
the carrying amount may not be recoverable. Where the carrying value of an asset
exceeds its recoverable amount (being the higher of value in use and fair value
less costs to sell), the asset is written down accordingly.
Where it is not possible to estimate the recoverable amount of an individual
asset, the impairment test is carried out on the asset's cash-generating unit
(being the lowest group of assets in which the asset belongs for which there are
separately identifiable cash flows). Goodwill is allocated on initial
recognition to each of the Group's cash-generating units that are expected to
benefit from the synergies of the combination giving rise to goodwill.
Impairment charges are included in the administrative expenses line item in the
income statement.
(f) Property, plant and equipment
Property, plant and equipment is stated at historic cost, less accumulated
depreciation. Depreciation is provided to write off the cost, less estimated
residual values, of all tangible fixed assets over their expected useful lives,
at the following rates:
Property, plant and machinery over the life of the lease to third parties
Office and computer equipment 25% straight line
Motor vehicles 25% straight line
Leasehold improvements over the remaining period of the lease
(g) Inventories
Inventories comprise (i) maintenance stock, being replacement parts held to
service customers' telecommunications systems, and (ii) work in progress, being
stock purchased for customer orders which has not been installed at the end of
the financial period. Inventories are valued at the lower of cost and net
realisable value.
(h) Cash and cash equivalents
Cash and cash equivalents comprise cash balances and short term deposits with an
original maturity of three months or less. Bank overdrafts that are repayable on
demand and form an integral part of the Group's cash management procedures are
also included as a component of cash and cash equivalents for the purposes of
the cash flow statement.
(i) Taxation
Current tax is the expected tax payable on the taxable income for the year,
together with any adjustments to tax payable in respect of previous years.
Deferred tax is provided using the liability method, providing for temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for taxation purposes, except for
differences arising on:
• the initial recognition of goodwill;
• goodwill for which amortisation is not tax deductible;
• the initial recognition of an asset or liability in a transaction which
is not a business combination and at the time of the transaction affects
neither accounting or taxable profit; and
• investments in subsidiaries where the Group is able to control the
timing of the reversal of the difference and it is probable that the
difference will not reverse in the foreseeable future.
A deferred tax asset is recognised only to the extent that it is probable that
future taxable profits will be available against which the asset can be
utilised.
The amount of the deferred tax asset or liability is determined using tax rates
that have been enacted or substantively enacted by the balance sheet date and
are expected to apply when the deferred tax assets/liabilities are recovered/
settled. Deferred tax balances are not discounted.
Deferred tax assets and liabilities are offset when the Group has a legally
enforceable right to offset current tax assets and liabilities and the deferred
tax assets and liabilities relate to taxes levied by the same tax authority on
either:
• the same taxable Group company; or
• different Group entities which intend either to settle current tax
assets and liabilities on a net basis, or to realise the assets and settle
the liabilities simultaneously, in each future period in which significant
amounts of deferred tax assets or liabilities are expected to be settled or
recovered.
(j) Financial assets and liabilities
The Group's financial assets and liabilities mainly comprise cash, trade and
other receivables and trade and other payables. The Group's policy is, and has
been throughout the year, not to trade in financial instruments.
Cash comprises cash in hand and deposits held at call with banks.
Trade and other receivables are not interest bearing and are stated at their
nominal value as reduced by appropriate allowances for irrecoverable amounts or
additional costs required to effect recovery.
Trade and other payables are not interest bearing and are stated at their
nominal amount.
(k) Operating leases
Annual rentals payable are charged to the income statement on a straight-line
basis over the term of the lease.
Annual rentals receivable from third parties are credited to the income
statement on a straight line basis over the term of the lease. This income is
included in revenue.
(l) Employee benefits
The Group contributes to a number of defined contribution pension schemes in
respect of certain of its employees; the Group does not contribute and has not
contributed to any defined benefit pension schemes. The amount charged in the
income statement represents the employer contributions payable to the schemes in
respect of the financial period. The assets of the schemes are held separately
from those of the Group in independently administered funds.
The cost of all short term employee benefits is recognised during the period the
employee service is rendered.
Holiday pay is expensed in the period in which it accrues.
(m) Dividends
Dividends unpaid at the balance sheet date are only recognised as a liability at
that date to the extent that they are appropriately authorised and are no longer
at the discretion of the Company. Proposed but unpaid dividends that do not meet
these criteria are disclosed in the notes to the financial statements.
3. Segmental analysis
+-----------------------------------------+-----------+-----------+
| | 2007| 2006|
+-----------------------------------------+-----------+-----------+
| | £'000| £'000|
+-----------------------------------------+-----------+-----------+
|Revenue | | |
+-----------------------------------------+-----------+-----------+
|Maintenance and equipment | 14,735| 12,873|
+-----------------------------------------+-----------+-----------+
|Network services | 4,682| 3,400|
+-----------------------------------------+-----------+-----------+
|Intercompany | (88)| (107)|
|-----------------------------------------|-----------|-----------|
| | 19,329| 16,166|
+-----------------------------------------+-----------+-----------+
|Operating profit | | |
+-----------------------------------------+-----------+-----------+
|Telephone system maintenance and | 1,680| 1,678|
|equipment sales | | |
+-----------------------------------------+-----------+-----------+
|Telephone network services | 477| 400|
+-----------------------------------------+-----------+-----------+
|Central/intercompany | (293)| (200)|
+-----------------------------------------+-----------+-----------+
| | 1,864| 1,878|
+-----------------------------------------+-----------+-----------+
|Interest (net) | 115| 134|
+-----------------------------------------+-----------+-----------+
|Profit before taxation | 1,979| 2,012|
+-----------------------------------------+-----------+-----------+
|Taxation | (595)| (592)|
+-----------------------------------------+-----------+-----------+
|Profit after taxation | 1,384| 1,420|
+-----------------------------------------+-----------+-----------+
4. Earnings per share
Earnings per share is calculated by dividing the profit after tax for the period
by the weighted average number of shares in issue for the period, these figures
being as follows:
+-----------------------------------------+-----------+-----------+
| | 2007| 2006|
+-----------------------------------------+-----------+-----------+
| | £'000| £'000|
+-----------------------------------------+-----------+-----------+
|Weighted average number of shares | 12,452| 12,783|
+-----------------------------------------+-----------+-----------+
|Earnings used in basic and diluted EPS, | | |
|being profit after tax | | |
| | 1,384| 1,420|
+-----------------------------------------+-----------+-----------+
|Goodwill impairment and intangibles | | |
|amortisation, less tax thereon | | |
| | 231| 159|
| | | |
+-----------------------------------------+-----------+-----------+
|One-off professional costs, less tax | 18| -|
|thereon | | |
+-----------------------------------------+-----------+-----------+
|Adjusted earnings | 1,633| 1,579|
+-----------------------------------------+-----------+-----------+
|Basic and diluted EPS | 11.1p| 11.1p|
+-----------------------------------------+-----------+-----------+
|Adjusted EPS | 13.1p| 12.4p|
+-----------------------------------------+-----------+-----------+
The adjustment above in respect of goodwill impairment, intangibles
amortisation, one-off professional costs and tax thereon has been made in order
to provide a clearer picture of the trading performance of the Group.
5. Dividends
2007 2006
£'000 £'000
Dividends paid
Final 2005, paid 24 April 2006
- 2.5p per share - 323
Interim 2006, paid 29 September 2006
- 2.1p per share - 268
Final 2006, paid 25 April 2007
- 2.9p per share 361 -
Interim 2007, paid 5 October 2007
- 2.5p per share 311 -
672 591
The directors propose to pay a final dividend of 3.0p (2006 - 2.9p) per share on
30 April 2008 to shareholders on the register at 28 March 2008.
6. Purchase of own shares
Pursuant to the authority granted at the last AGM, the Company repurchased and
cancelled 70,000 of its own 1p ordinary shares during 2007, at 166p each, at a
total cost of £117,000. The purchase represents 0.6% of the Company's issued
share capital as at 31 December 2007.
On 16 January 2008, the Company repurchased and cancelled 240,000 of its 1p
ordinary shares at 161.5p per share. The purchase represents 1.9% of the
Company's issued share capital as at 31 December 2007.
7. Acquisitions and intangible assets
In February 2007, the Group acquired a maintenance contract base of c£60,000 per
annum from WGTS Limited at nil cost, the vendor being paid a subsequent
commission to re-sign the contracts on a longer term basis. Given the nil cost,
this contract base has not been incorporated as an intangible asset.
The Group acquired a base of customer relationships from Callmaster Limited on 1
August 2007, for a consideration, including costs, of £448,000. These
relationships are estimated to have a useful life of five (maintenance
contracts) or seven (network services contracts) years and are therefore
amortised over those periods and subject to annual impairment review. The 2007
amortisation charge is £29,000 and the estimated contribution to Group profits
in the year resulting from the acquisition is £90,000.
Customer
relationships
Goodwill Total
£'000 £'000 £'000
Cost
At 31 December 2006 664 965 1,629
Acquisition of customer - 448 448
relationships
At 31 December 2007 664 1,413 2,077
Amortisation and impairment
At 31 December 2006 91 97 188
Amortisation in the year - 222 222
Impairment in the year 76 - 76
At 31 December 2007 167 319 486
Net book value
At 31 December 2007 497 1,094 1,591
At 31 December 2006 573 868 1,441
For the purposes of impairment review, the estimated life of a relationship is
five or seven years as noted above. Projected operating margins are based on
current trends, and a discount rate of 17.6% is applied to the resultant
projected cash flows.
8. The annual report and accounts will be posted to shareholders in due course
and copies will also be available on the Group's web site www.maintel.co.uk and
on request from the Company's registered office at 61 Webber Street, London SE1
0RF.
9. Transition to International Financial Reporting Standards
The Group's reported financial performance and position is altered as described
below as a result of the adoption of IFRS and the accounting policies detailed
in note 2 above.
The following table summarises the impact of the adoption of IFRS on the Group's
profit after tax for the year ended 31 December 2006.
2006
£'000
Profit after tax - under UK GAAP 1,459
Reversal of goodwill amortisation 122
Amortisation of intangible assets
and goodwill impairment (188)
Staff costs - holiday pay (2)
Deferred tax on amortisation of intangible 29
assets
Profit after tax - under IFRS 1,420
The following table summarises the impact of the adoption of IFRS on the Group's
total equity as at 1 January 2006 and 31 December 2006.
1 January 31 December
2006 2006
£'000 £'000
Total equity - under UK GAAP 1,648 1,684
Reversal of goodwill amortisation - 122
Amortisation of intangible assets and
goodwill impairment
- (159)
Staff costs - holiday pay net of deferred (34) (36)
tax
Total equity - under IFRS 1,614 1,611
More detailed disclosure of the effects of IFRS on the UK GAAP financial
statements is shown in the following tables.
Maintel Holdings Plc
Reconciliation of the Group's consolidated income statement
for the year to 31 December 2006
2006 Holiday 2006
pay
UK GAAP Goodwill IFRS
£'000 £'000 £'000 £'000
(notes a, (note c)
b)
Revenue 16,166 - - 16,166
Cost of sales 10,167 - - 10,167
Gross profit 5,999 - - 5,999
Administrative expenses
Goodwill amortisation 122 (122) - -
Goodwill impairment - 91 - 91
Intangibles amortisation - 97 - 97
Other administrative 3,931 2 3,933
expenses
4,053 66 2 4,121
Operating profit 1,946 (66) (2) 1,878
Financial income 135 - - 135
Financial charges (1) - - (1)
Profit before taxation 2,080 (66) (2) 2,012
Taxation 621 (29) - 592
Profit after taxation
attributable to equity
holders of the parent 1,459 (37) (2) 1,420
Earnings per share
Basic and diluted 11.4p 11.1p
Maintel Holdings Plc
Reconciliation of the Group's consolidated balance sheet
as at 1 January 2006 (the opening IFRS balance sheet)
31 December 31 December
2005 2005
Holiday
UK GAAP pay IFRS
£'000 £'000 £'000
(note c)
Non current assets
Intangible assets 227 - 227
Property, plant and equipment 240 - 240
Deferred tax asset 30 15 45
497 15 512
Current assets
Inventories 585 - 585
Trade and other receivables 1,917 - 1,917
Cash and cash equivalents 3,625 - 3,625
6,127 - 6,127
Total assets 6,624 15 6,639
Current liabilities
Trade and other payables 4,613 49 4,662
Current tax liabilities 363 - 363
Total liabilities 4,976 49 5,025
Total net assets 1,648 (34) 1,614
Equity
Issued share capital 129 - 129
Share premium 628 - 628
Capital redemption reserve 7 - 7
Retained earnings 884 (34) 850
Total shareholders' equity 1,648 (34) 1,614
Maintel Holdings Plc
Reconciliation of the Group's consolidated balance sheet
as at 31 December 2006
31 December 31 December
2006 2006
Holiday
UK GAAP pay IFRS
Goodwill
£'000 £'000 £'000 £'000
(notes a, (note c)
b)
Non current assets
Intangible assets 1,217 224 - 1,441
Property, plant and
equipment 238 - - 238
1,455 224 - 1,679
Current assets
Inventories 705 - - 705
Trade and other 2,861 - - 2,861
receivables
Cash and cash 2,234 - - 2,234
equivalents
5,800 - - 5,800
Total assets 7,255 224 - 7,479
Current liabilities
Trade and other 5,220 - 51 5,271
payables
Current tax 380 - - 380
liabilities
Total liabilities 5,600 - 51 5,651
Non current
liabilities
Deferred tax liability (29) 261 (15) 217
Total net assets 1,684 (37) (36) 1,611
Equity
Issued share capital 124 - - 124
Share premium 628 - - 628
Capital redemption 12 - - 12
reserve
Retained earnings 920 (37) (36) 847
Total shareholders'
equity 1,684 (37) (36) 1,611
Maintel Holdings Plc
Explanatory notes to the UK GAAP to IFRS reconciliations
(a) Business combinations, goodwill and intangible assets
Under UK GAAP, the cost of an acquisition over and above the fair value of the
net assets acquired was deemed to be goodwill. IFRS 3 requires that for each
acquisition a fair value is attributed to any identifiable other intangible
assets such as customer relationships. The goodwill cost is therefore the
difference between the consideration paid for the investment after deducting the
fair value of net assets including other intangible assets.
IFRS 1 provides for an exemption from restating the acquisition of Maintel
Network Solutions Limited (previously Pinnacle Voice and Data Limited) on this
basis as the acquisition took place on 5 December 2005 - before the Group's IFRS
transition date of 1 January 2006 - and so the historical goodwill of £374,000
relating to that company has been retained. In such circumstances, IFRS 3
requires that this goodwill, being an asset of indefinite life, is not amortised
but is tested for impairment annually, and any such impairment is applied in
accordance with IAS 36.
The directors have considered the acquisition of District Holdings Limited -
acquired on 12 June 2006 - and attributed a value of £965,000 to the customer
contracts and associated relationships of District. This intangible asset will
be amortised over its useful life, this being deemed to be 5 years, and
subjected to an impairment review at each reporting date.
Under UK GAAP goodwill was capitalised and amortised over its estimated useful
life, which under Maintel's accounting policies was 7 years. Goodwill impairment
of £122,000 which was charged to the profit and loss account for the year ended
31 December 2006 has been reversed, and the replacement charges under IFRS
consist of goodwill impairment of £91,000 and intangibles amortisation of
£97,000.
(b) Deferred tax
Under IAS 12 'Income taxes', deferred tax is recognised on the basis of
temporary differences between the carrying value of assets and liabilities in
the balance sheet, and their tax bases. A deferred tax liability (at 30%) of
£290,000 has accordingly been created in respect of the £965,000 intangible
asset recognised as at the date of the acquisition of District Holdings Limited,
with subsequent releases of the deferred tax liability to the income statement
as impairment of the intangible is recognised.
An equal and opposite amount of £290,000 is included as goodwill as required by
IFRS, this and the deferred tax of £290,000 being amortised over 5 years,
subject to annual impairment review.
The effect of adopting this standard is shown under the goodwill column in the
reconciliation tables above.
(c) Holiday pay accrual
IAS 19 requires that a liability for holiday pay is recorded for all accrued
entitlement at each balance sheet date. The Group's primary holiday year end is
31 December, in line with its financial year end, and most employees are
entitled to carry forward a maximum of 10 days' holiday to the following holiday
year. As at 30 June, therefore, there tends to be a larger accrual (and
therefore expense in the income statement) required than is the case at 31
December.
(d) Cash flow statements
The only changes to the cash flow statement are presentational, the principal
ones being classifying tax cash flows as relating to operating activities and
equity dividends as relating to financing activities.
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