Final Results

RNS Number : 0919T
Maintel Holdings PLC
18 March 2019
 

 

 

 

Maintel Holdings Plc

("Maintel", the "Company" or the "Group") 

 

 

Final audited results for the year to 31 December 2018

 

Maintel Holdings Plc, a leading provider of communications cloud and managed services, is pleased to announce its results for the twelve month period to 31 December 2018.  

The full year accounts for 2017 have been restated throughout this announcement to reflect the adoption of IFRS 15. Please refer to note 2 of the financial statements for details of the impact of the change in accounting policies.

 

 

Financial highlights

·      Group revenue up 8% to £136.5m (2017: £126.8m) with recurring revenue at 69%

·      Group adjusted EBITDA[1] increased 17% to £12.7m (2017: £10.9m)

·      Basic earnings per share increased 33% to14.4p (2017: 10.8p)

·      Adjusted earnings per share[2]  at 65.5p, an increase of 20% (2017: 54.7p)

·      Strong underlying cash conversion[3] of 84%  of adjusted EBITDA[1]

·      Period end net debt[4] of £25.5m, equivalent to 2.0x adjusted EBITDA[1] (2017: 2.5x adjusted EBITDA[1])

·      Proposed final dividend per share of 19.5p (2017: 19.1p), taking full year dividend per share to 34.5p (2017: 33.8p), an increase of 2%

 

Operational highlights

 

·      Maintel's transition to a cloud and managed services business continues with ICON cloud seats up 38% on the prior year to c.61,000 in total

·      Managed service base at £44m at the year end, an increase of 10% year on year, underpinned by the acquisition of a customer base from Atos on 1st July 2018

 

Key Financial Information

 

Audited results for 12 months ended 31 December:

  2018

  2017

Increase

 

 

 

 

Group revenue

£136.5m

£126.8m

8%

Adjusted profit before tax[5] 

£10.8m

£9.3m

16%

Adjusted earnings per share[2] 

65.5p

54.7p

20%

Final dividend per share proposed

19.5p

19.1p

2%

 

 

Commenting on the Group's results, Eddie Buxton, CEO, said:

 

"During the year we have delivered significant increases in all our key financial metrics, notwithstanding the challenging market backdrop, whilst continuing to make progress in our continued transformation to a cloud and managed services business. Growth in contracted seats on our ICON platform accelerated in the fourth quarter of the year and we have delivered several exciting new customer wins, including two multi-year public sector contracts with the NHS, which on implementation will be our largest cloud contracts to date.

 

In addition, we continue to invest in developing and improving our platform and services offering, to increase our addressable market going forward.

 

As a result, the Board remains confident in delivering growth in revenue and EBITDA in the full year to 31 December 2019, in line with expectations."

 

Notes

[1] Adjusted EBITDA is EBITDA of £10.7m (2017: £9.2m), adjusted for interest, tax, depreciation and amortisation, exceptional costs and share based payments (note 12).

[2] Adjusted earnings per share is basic earnings per share of 14.4p (2017: 10.8p), adjusted for intangibles amortisation, exceptional costs, interest charge on deferred consideration, share based payments and deferred tax charges related to loss reliefs from previous acquisitions of Datapoint and Azzurri (note 11). The weighted average number of shares in the period was 14.2m (2017: 14.2m).

[3] Cash conversion calculated as operating cash flow (being adjusted EBITDA plus working capital) to adjusted EBITDA.

[4] Interest bearing debt (excluding issue costs of debt) minus cash.

[5] Adjusted profit before tax of £10.8m (2017: £9.3m) is basic profit before tax, adjusted for intangibles amortisation, exceptional costs and share based payments.

 

 

 

For further information please contact:

 

 

Eddie Buxton, Chief Executive                           

020 7401 4601

Mark Townsend, Chief Financial Officer  

020 7401 4663

 

 

finnCap

 

Jonny Franklin-Adams / Emily Watts (Corporate Finance)

Richard Chambers (Corporate Broking)

 

020 7220 0500

Oakley Advisory (Financial Advisors)

Christian Maher / Victoria Boxall

 

 

020 7766 6900

 

 

 

Strategic report
                                                                Chairman's statement                     

 

I am pleased to report that in the year ended 31 December 2018 Maintel made considerable progress on its strategic transition to a cloud and managed services company, delivering increases in all its key financial metrics.

The Group's revenue grew by 8% to £136.5m with growth in gross profit of 7% to £39.1m and growth in adjusted EBITDA of 17% to £12.7m. Adjusted earnings per share increased 20% to 65.5p and we are proposing a final dividend per share of 19.5p, up 2% on last year, giving a 2% increase in the dividend for the year.

Price pressure on some of our traditional support revenues, combined with changing dynamics in our sector, led to growth being slower than our expectations at the start of 2018.  In response to the changing marketplace, the Group has focused on developing its cloud and managed services base in order to future proof our customer offering and improve our revenue mix.

The number of subscribers on our cloud platform climbed by 38% in the year, coming from both public and private sector clients, while our managed services base grew by around 10%. Cloud related revenues were £20.7m for the year and grew significantly throughout 2018 - a 68% increase from H1 2018 to H2 2018 - and now account for 15% of Group revenues. We are continuing to win cloud contracts from both our existing base of on-premise customers (52% of cloud customers) and from new customers to the Group (48%) and are pleased to have won two of our largest ever cloud contracts in the fourth quarter of the year.

Our managed service base now stands at £44m, boosted by the acquisition of a customer base from Atos on 1 July 2018. Together with our other contracted revenues (cloud, network services and mobile), recurring revenues make almost 70% of the Group's income.

The Group has a strong base of customers which continues to provide both recurring revenues and project work. This base is increasingly transitioning to cloud and next generation services, supporting the growth in cloud revenues at the expense of some traditional support income. This change in sales mix is expected to increase the proportion of recurring revenue and levels of customer retention.

We have brought together our cloud and software engineering teams in our new Technology Centre in Fareham to incubate and accelerate our growth in those areas and we have invested significantly in our ICON cloud suite to add both capacity and capability, with offerings now across several high-growth markets. We continue to invest for the future in our people, our products and our IT platforms, positioning ourselves to take advantage of the changing marketplace.

In the current uncertain economic and political environment, we remain focused on reducing net debt and maintaining a strong balance sheet. Based on our outlook for the business, we expect that the total dividend paid annually will remain progressive and propose a 2018 final dividend per share of 19.5p (2017: 19.1p), taking full year dividend per share to 34.5p (2017: 33.8p), an increase of 2%.

The commitment and hard work of our excellent employees have enabled us to deliver growth at the same time as significant business transformation and on behalf of the Board and our shareholders, I would like to thank them for this achievement, building our platform for success for the years ahead.

 

 

J D S Booth

Chairman

 

 

15 March 2019

 

 

 

Our future

 

These are exciting and fast moving times for the communications sector with a rapid pace of innovation in technology development and adoption.

We have an enviable client base of both public and private sector clients, which is driving much of our growth in cloud and other next-generation services. Approximately 55% of our cloud growth is coming from that installed base, with the balance from new customer acquisition, and we still have more than 75% of our managed services base to take on the cloud journey. With analyst reports for the UCaaS market typically reporting between 11% and 25% compound annual growth rate ("CAGR") to 2025, there is plenty of market to go after for our flagship ICON services. In January 2019 we launched a mid-market oriented UCaaS service, ICON Now, which will enable us to pursue the 100 to 1,000 seat market much more effectively, while ICON Communicate will remain the flagship enterprise managed service for larger organisations or those with more complex requirements.

Contact centre technology, driven by organisations wishing to differentiate themselves by offering an improved customer experience and by consumers wishing to interact with their suppliers and service providers via an increasing number of digital channels, is also experiencing significant growth, with CAGRs of 25.2% and 25.9%  cited in two recent analyst reports. As with unified communications, contact centre operators are steadily migrating their technology to the cloud. Maintel's ICON Contact offer is positioned to support customers in that transition. The market is being further enriched by the use of Artificial Intelligence ("AI") and Machine Learning technologies to improve outcomes for customers - either by ensuring the best possible match of available agents to queuing customers, or by supporting a significantly improved experience using self-service channels, AI is driving a lot of product evaluation and pilot projects.

Our secure networks offer is also positioned to capture three significant business trends: our ICON Connect service is optimised to support customers as they transition not just their communication services but all their business applications to the cloud. ICON Connect SD-WAN is positioned to take advantage of the 40% to 60% CAGRs being talked about by vendors - although as early stage technology, these figures represent growth from a low base, and much of it will be substitutional from traditional WAN technologies. Finally, ICON Secure's cyber security service serves a market currently seeing 10% CAGR and in particular a Managed Security Services CAGR of 14% to 2022.

At Maintel, we seek to have a product portfolio that is at the head of the market, not behind - an aim that is assured by our product and strategy team, led by our Chief technology and strategy officer. Our customers trust us to bring them innovation and new technology that will improve their businesses, make them more competitive and help them to reduce their own costs.

 
Results for the year
 
We have continued to make progress in our transformation to a cloud and managed services business and delivered significant increases in all our key financial metrics.

 

Group revenues increased by 8% to £136.5m (2017: £126.8m) with adjusted EBITDA of £12.7m representing an increase of 17% (2017: £10.9m). Adjusted profit before tax increased by 16% to £10.8m (2017: £9.3m). Adjusted earnings per share (EPS) increased by 20% to 65.5p (2017: 54.7p).

 

On an unadjusted basis, profit before tax increased by 40% to £2.2m (2017: £1.6m) and basic EPS by 33% to14.4p (2017: 10.8p). This includes £1.7m of exceptional costs associated with the integration of the Intrinsic acquisition and related restructuring activities (2017: £1.5m relating to the Azzurri acquisition), and intangibles amortisation of £6.5m (2017: £5.9m), the increase in the latter due mainly to the acquired Atos base related intangible assets during 2018 and an additional 7 month charge relating to the Intrinsic acquired intangible assets.

 

 

 

 

(restated)

 

 


 

2018
£000

 

2017
£000

 

 Increase

 

 

 

 

 

 

Revenue

136,459

 

126,780

 

8%

 

 

 

 

 

 

Profit before tax

2,248

 

1,609

 

40%

Add back intangibles amortisation

6,479

 

5,892

 

 

Exceptional items mainly relating to the acquisition of Intrinsic (2017: Azzurri) and associated restructuring activities

1,647

 

1,454

 

 

Share based remuneration

392

 

296

 

 

Adjusted profit before tax

10,766

 

9,251

 

16%

 

 

 

 

 

 

Adjusted EBITDA(a)

12,740

 

10,913

 

17%

Basic earnings per share

14.4p

 

10.8p

 

33%

Diluted

14.1p

 

10.6p

 

33%

 

 

 

 

 

 

Adjusted earnings per share(b)

65.5p

 

54.7p

 

20%

Diluted 

64.3p

 

53.6p

 

20%

 

(a) Adjusted EBITDA is EBITDA of £10.7m (2017: £9.2m) less exceptional costs and share based remuneration (note 12)

(b) Adjusted profit after tax divided by weighted average number of shares (note 11)

 

New IFRS implementation

 

Maintel has adopted IFRS 15 - Revenue from Contracts with Customers and IFRS 9 - Financial Instruments for the financial year ending 31 December 2018.

 

To reflect the adoption of IFRS 15, 2017 figures have been restated throughout this document. The effect of adopting IFRS 15 primarily impacts on the following areas:

 

Technology revenues/margins recognised under contracts with customers, which include both the supply of technology goods and installation services, representing one performance obligation under IFRS 15 result in revenue recognition at a point in time, which is different to the previous treatment whereby the supply of goods and professional services were treated as separate sale arrangements (refer note 2).There is no impact on managed services revenues, mobile revenues or network services revenues.

 

The adoption of IFRS 15 has resulted in an increase in 2018 revenue and profit before tax of £2.5m and £0.2m respectively (2017: IFRS 15 adjustments resulted in a reduction of £6.3m and £1.9m respectively). In addition, opening reserves at 1 January 2017 are £1.0m lower than the amount reported in the 2017 financial statements. These amounts are based on the Group applying the retrospective method in transitioning to IFRS 15 (refer note 1).

 

The adoption of IFRS 15 has not altered total contract values or timing of cash flows.

 

The impact of IFRS 9 is to reduce the Group's opening reserves at 1 January 2018 and trade receivables by £0.1m. These amounts are based on applying the retrospective method. There has not been a material impact on 2018 reported numbers as a result of adopting IFRS 9.

 

 

Cash performance

The Group generated net cash flows from operating activities of £8.6m (2017: £4.4m) resulting in a cash conversion (c) of 84% for the full year (2017: 54%). As reported last year, 2017 was negatively impacted by the unwind from strong trading in H2 2016, and also by the success of our ICON service offering, which resulted in both reduced upfront project billing and a need for increased capital investment in additional capacity.

 

Atos customer base acquisition

 

On 1 July 2018, the Group announced a strategic partnership with Atos and the acquisition of certain UK customer contracts for a total net consideration of £5.1 million. The consideration is payable over a period of four and a half years and will be satisfied using the Group's existing cash resources. Following the acquisition, Maintel has become a new channel partner of Atos.

 

The Atos customer base has underpinned the growth in our managed service business. The expectation is that this base of customers will increase our project revenues in 2019 and it is on track to be accretive in the first full year of ownership.

 

 

Review of operations

The following table shows the performance of the three operating segments of the Group. The 2018 results include a full twelve months' contribution from Intrinsic compared to five months' contribution in 2017. On 1 January 2018, the Intrinsic trading entity was hived up into Maintel Europe Ltd so that for 2018 the UK operations were managed and controlled as one entity.

 

 

 

 

(restated)

 

 

Revenue analysis

2018

 

2017

 

Increase/

 

£000

 

£000

 

(decrease)

 

 

 

 

 

 

Managed services related

47,418

 

41,440

 

14%

Technology(d)

42,470

 

31,647

 

34%

Managed services and technology division

89,888

 

73,087

 

23%

Network services division

40,946

 

46,795

 

(12)%

Mobile division

5,625

 

6,898

 

(18)%

Total Maintel Group

136,459

 

126,780

 

8%

 

 

 

 

 

 

(d) Technology includes revenues from hardware, software, professional services and other sales

 

Gross profit for the Group increased to £39.1m (2017: £36.7m) with gross margin of 29% at the same level as 2017. Detailed divisional performance is described further below.

 

 

 

Managed services and technology division

 

 

2018

 

(restated)

2017

 

Increase

 

£000

 

£000

 

 

 

 

 

 

 

 

Division revenue 

89,888

 

73,087

 

23%

Division gross profit

26,364

 

20,995

 

26%

Gross margin (%)

29%

 

29%

 

 

 

 

The managed services and technology division provides the management, service and support of unified communications, contact centres and local area networking technology on customer premises and in the cloud, across the UK and internationally, on a contracted basis. It also supplies and installs project-based technology, professional and consultancy services, to our direct clients and through our partner relationships.

 

Revenue in this division increased by 23% to £89.9m with gross profit increasing by 26% to £26.4m (2017: £21.0m). Gross margin was flat year on year at 29%, but as predicted, we saw gross margin increase in H2 2018.

 

In the year Maintel continued to see pressure on its high margin legacy maintenance business as customers move to newer technology with a higher software support mix. This newer technology and the move to cloud services will have an impact on our organisational model as it increasingly reduces the need for a large field based engineering team over the medium term.

 

As highlighted previously, both technology and managed service revenues in the period were adversely affected by the customer driven delays in specific projects, in particular a large NHS contract and 2 large contact centre upgrades, one for a major utility and the other for a large business process outsourcing customer.

 

We continue to be successful on the government procurement frameworks, with further awards of two large NHS contracts in Q4 2018, for implementation in 2019.

 

While we have seen a lengthening of the sales cycle, particularly with larger organisations across both the public and private sectors, there is currently no evidence of projects being cancelled and the sales pipeline remains healthy.

 

At 31 December 2018, the managed service base including the acquired Atos base stood at c. £45m, up c.10% on 2017.

 

 

Network services division

 

The network services division sells a portfolio of connectivity and communications services, including managed MPLS networks, security as a service, internet access services, SIP telephony services, inbound and outbound telephone calls and hosted IP telephony solutions. These services complement the on-premise and cloud solutions offered by the managed service and technology division and the mobile division's services.

 

2018

 

(restated)

2017

 

Increase/

 

£000

 

£000

 

(decrease)

 

 

 

 

 

 

Call traffic

5,567

 

6,173

 

(10)%

Line rental

9,733

 

11,495

 

(15)%

Data connectivity services

25,215

 

28,726

 

(12)%

Other

431

 

401

 

7%

 

Total division

40,946

 

46,795

 

(12)%

Division gross profit

9,836

 

12,396

 

(21)%

Gross margin (%)

24%

 

26%

 

 

 

Network services revenues decreased by 12% year on year impacted by the full year effect of the previously highlighted loss of two large legacy WAN customers (not on the ICON platform) that had particularly high margins.

 

Traditional call traffic and line rental revenues decreased 14% to £15.3m (2017: £17.7m), which is a reflection of the overall market decline, although Maintel's rate of decline slowed in H2 2018.

 

Data connectivity revenues declined by 12% over the previous year, driven by a full year's impact of the loss of the two large WAN customers. Excluding this impact, underlying data revenues grew by 2%, as we started to see a positive impact of new contract wins coming through.

 

We have a significant order back log on data, as customer driven delays on the implementation of two new WANs for a national retailer and national health company will now be delivered during 2019.

 

Our revenues from cloud customers in the year are £20.7m (15% of total Group revenues) and accelerated in H2 2018 with an increase of 68% on H1 2018. The growth of our ICON cloud services, was underpinned by ICON Communicate, our Unified Communications service, which delivered growth of c. 38% in contracted seats over the previous year. We continue to see the movement of mission critical services into ICON Communicate - from large (multiple thousand employees) hospital trusts to contact centres for financial services institutions. Our sales pipeline for both Unified Communications and Contact Centre continues to be dominated by cloud-based services as the market moves to that delivery model.

 

We have also seen continued growth of ICON Secure, our Managed Security-as-a-Service offer - with the number of customers on the platform doubling over the previous year.

 

As highlighted previously, we have set up a new Technology Centre in Fareham bringing together our cloud and software engineering teams to better foster and accelerate our growth as we continue to invest in all aspects of the ICON platform.  Product and service enhancements are being added as well as the capacity expansion required to deliver the growth. We launched a managed SD-WAN service late in the year to position us for the growth in that technology, and have further enhanced our PCI secure payment capability.

 

 

Mobile division

 

Maintel mobile derives its revenue primarily from commissions received under its dealer agreements with Vodafone and O2 and from value added services such as mobile fleet management and mobile device management.

 

 

 

2018

 

(restated)

2017

 

 

 

£000

 

£000

 

    Decrease

 

 

 

 

 

 

Revenue

5,625

 

6,898

 

(18)%

Gross profit

2,918

 

3,281

 

(11)%

Gross margin (%)

52%

 

48%

 

 

 

 

 

 

 

 

Number of customers

1,233

 

1,516

 

(19)%

Number of connections

31,935

 

42,108

 

(24)%

 

The strategic review of our mobile business in 2016, and the action taken to reduce our exposure to mobile, is now complete. We are now focused on the mid-market, and therefore better aligned with the rest of our product propositions. Following this process, mobile revenues decreased by 18% versus the previous year to £5.6m (2017: £6.9m) with the customer base reducing by 19%. This reduction has stabilised when compared to H1 2018, and we expect the full impact to have run through in 2019.

Gross margin increased to 52% (2017: 48%) as the focus has moved to mid-market customers who require a managed service proposition.

O2 remains our largest network partner with 92% of connections.

The introduction of new sales resource has led to the customer sales pipeline steadily growing across both brand new customers and the existing Group customer base, through cross-selling opportunities.  

 

Other operating income

 

Other operating income of £476,000 (2017: £155,000) includes monies associated with the recovery of an R&D tax credit of £320k (2017: £Nil) and a full year rental income from the sub-letting of a part of the Group's London premises of £155k (2017: £155k). The sub-lease runs until November 2020.

 

Administrative expenses

 

 

2018

 

(restated)

2017

 

 

Administrative expenses(e)

£000

 

£000

 

Increase

 

 

 

 

 

 

Total sales expenses

14,380

 

14,149

 

2%

Total other administrative expenses

13,185

 

12,528

 

5%

 

 

 

 

 

 

Total administrative expenses

27,565

 

26,677

 

3%

 

(e) Excluding intangibles amortisation, exceptional expenses and share based remuneration

 

Total administrative expenses for the Group increased by 3% to £27.6m (2017: £26.7m) driven in part by the inclusion of twelve months of Intrinsic (2017: five months) and some additional employees recruited as a result of the Atos customer base acquisition. Total administrative expenses as a percentage of total revenue have reduced to 20% from 21% in 2017.

 

We reported in our interim results that, as a result of the integration of Intrinsic and an ongoing review of operational efficiencies, £2.4m of annualised savings were delivered in H1 2018 from the Group's total overhead base, the full run rate impact of which has come through in H2 2018.

 

The Group's headcount as at 31 December 2018 was 624 (31 December 2017: 670), reflecting a reduction of 6% as a result of the Group's ongoing review of its operational structure.

 

Facility costs in 2018 reduced by £0.7m resulting from the changes made to the Group's property estate in 2017 and 2018.

 

Costs relating to accounting for share options increased to £0.4m (2017: £0.3m).

 

The level of the Group's administrative expenses will continue to be tightly controlled in 2019 and we expect to deliver further cost savings in 2019 as our operational model evolves.

 

Exceptional costs

 

A breakdown of the exceptional costs of £1.6m (2017: £1.5m) shown in the income statement is provided in note 13. The main elements are staff related restructuring costs associated with the integration of the Intrinsic business and the ongoing review of the Group's operating cost base (£1.1m) and the creation of an onerous property lease provision relating to the Haydock office premises (£0.2m).

 

 

Intangibles amortisation

 

The intangibles amortisation charge increased in the year due to a full year's charge in respect of Intrinsic compared to 5 months in 2017 and a 6 months' charge relating to the Atos customer base acquired. Impairment and amortisation charges are discussed further below.

 

Foreign exchange

 

The Group's reporting currency is Sterling; however, it trades in other currencies, notably the Euro, and has assets and liabilities in those currencies. The Euro rate moved from €1.13 = £1 at 31 December 2017 to €1.11 = £1 at 31 December 2018 and the US Dollar rate moved from $1.36 = £1 at 31 December 2017 to $1.28 = £1 at 31 December 2018. The effect of this and other movements in the period was a net loss to the income statement of £10,000 (2017: £149,000 gain), which is included in other administrative expenses.

The exchange difference arising on the retranslation at the reporting date of the equity of the Group's Irish subsidiary, whose functional currency is the Euro, is recorded in the translation reserve as a separate component of equity, being a charge of £Nil in the period (2017: £9,000).

 

Interest

 

The Group recorded a net interest charge of £1.3m in the year (2017: £0.9m), an increase of £0.4m due to a combination of interest rate increases during the year; impact of borrowings taken on to fund the acquisition of Intrinsic in August 2017; and £0.1m of interest on the deferred consideration relating to the customer base acquisition from Atos in July 2018.

 

Taxation

 

The consolidated statement of comprehensive income shows a tax charge of £0.2m (2017: £0.1m) on a profit before tax of £2.2m (2017: £1.6m) reflecting a tax rate of 9%, for the reasons described below.

 

Each of the Group companies is taxed at 19% (2017: 19.25%) with the exception of Maintel International Limited, which is taxed at 12.5% (2017: 12.5%). Certain expenses that are disallowable for tax raise the underlying effective rate above this. 

 

The tax charge in the period benefitted from a deferred tax credit of £0.5m, reflecting an increase in the deferred tax asset based on the directors' assessment that more tax losses, arising originally from the Datapoint acquisition, are likely to be useable in the future. This was offset by a deferred tax charge of £0.3m associated with an intangible asset relating to software licences.

 

This is described further in note 22.

 

Dividends and adjusted earnings per share

 

A final dividend for 2017 of 19.1p per share (£2.7m in total) was paid on 11 May 2018. An interim dividend for 2018 of 15.0p (£2.1m) was paid on 4 October 2018. The board is pleased to confirm an increase in the full year dividend of 2% for the financial year ending 31 December 2018, resulting in a final dividend of 19.5p per share being proposed. This would take the total dividend payment for 2018 to 34.5p.

 

In accordance with accounting standards, the final dividend is not accounted for in the financial statements for the period under review, as it had not been committed as at 31 December 2018.

                                                                      

 

Consolidated statement of financial position

 

Net assets decreased by £2.5m in the year to £22.0m at 31 December 2018 (31 December 2017: £24.5m) with the key movements explained below. 

 

Intangible assets valued at £69.4m, increased by £1.9m, driven by intangibles arising on the acquisition of the customer base from Atos (see note 14) and capitalised development costs associated with the Group's contact centre software, Callmedia, offset by the amortisation charge in the year of £6.5m (2017: £5.9m).  

 

The net book value of property, plant and equipment increased by £0.5m to £2.0m (2017: £1.5m) primarily due to continued investment in our ICON platform and general IT infrastructure amounting to £1.2m, offset by the depreciation charge of £0.7m.  

 

Inventories are valued at £8.3m, a decrease of £2.3m in the year, mainly as a result of a reduction in the value of stock held for resale of £2.1m. This was due to the timing of customer deliveries, with some large projects at year-end 2017 not being replicated at year-end 2018. Maintenance service stock reduced by £0.2m due mainly to the results of regular revaluation.

 

The asset held for sale related to the freehold property in Burnley, which was sold in 2018 for the fair value carried at 31 December 2017 of £1.5m (see note 18).

 

Trade receivables increased by £1.4m in the year to £20.4m. The increase is due to the net effect of a number of phasing differences in both technology and managed service invoicing spanning the year-end.

 

Prepayments and accrued income amounted to £13.0m (2017: £14.0m). The decrease of £1m was mostly due to : (a) lower level of deferred costs (£1.1m)driven in particular by the unwinding of one large order; (b) decrease in prepaid costs relating to hardware funds from the mobile business (£0.5m); both of which were partly offset by a higher level of accrued income (£0.5m).

 

Corporation tax of £0.8m (2017: £0.8m) reflects the estimated liability associated with the profits derived from FY 2018 and FY 2017 trading activities offset by the utilisation of historical tax losses and unused capital allowances. Due to the hive up of Datapoint's UK businesses into Maintel Europe in Q4 2016, the Group is currently accounting for relief of the historic Datapoint losses on a streamed basis, for those open tax periods of assessment, against the profits of the trade that was transferred from the previous Datapoint UK businesses.

 

Trade payables increased by £1.3m in the year to £14.8m (2017: £13.5m) with a number of different supplier and delivery timing factors affecting the balance.

 

Other tax and social security liability has increased by £0.4m to £3.9m (2017: £3.5m), due to a higher VAT liability because of increased Q4 customer invoicing in 2018 compared to 2017.

 

Accruals amounted to £7.5m (2017: £6.7m), the £0.8m increase due to a combination of £0.5m relating to a higher level of accrued costs associated with several large projects in progress at 2018 year-end, and others £0.3m.

 

Other payables are £4.0m compared to £3.4m in 2017, an increase of £0.6m, primarily due to a set-up of an onerous lease provision of £0.2m, a reduced level of hardware funds and cash advances of £0.1m, linked to the mobile business, and others £0.3m.

 

Deferred managed service income is £18.5m (2017: £19.5m). Excluding the incremental effect associated with the acquired customer base of £1.6m, the underlying movement is a decrease of £2.6m. This was in the main due to invoice timing differences and the effect of some lower value renewals due to technology refreshes.

 

Other deferred income amounted to £8.2m, a decrease of £3.9m, primarily due to the completion of two large projects which resulted in revenue being recognised and which were deferred under IFRS 15 at year-end 2017.

 

The deferred consideration of £0.6m relates to the current element that is due in the next 12 months arising from the customer base acquisition from Atos (see note 14).

 

Non-current other payables are £4.9m (2017: £1.5m), an increase of £3.4m due to the deferred consideration of £3.8m relating to the acquisition of the customer base from Atos (see note 14), offset by a decrease in intangible licences and dilapidation provisions of £0.4m.

 

The deferred tax liability increased by £1.0m to £3.3m (2017: £2.3m), predominantly due to an additional deferred tax liability of £1.3m associated with the intangibles acquired from the Atos acquisition, offset by the net effect of other movements (£0.3m).

 

Intangible assets

 

The Group has two intangible asset categories: (i) an intangible asset represented by customer contracts and relationships, brand value, product platforms and software acquired from third party companies, and (ii) goodwill relating to historic acquisitions.

 

The intangible assets represented by purchased customer contracts and relationships, brand value, product platforms and software were carried at £29.2m at the period end (2017:  £27.8m). The intangible assets are subject to an average amortisation charge of 18% of cost per annum in respect of the managed service and technology division, 13% per annum in respect of the network services division and 16% per annum in respect of the mobile customer relationships, with £6.5m being amortised in 2018 (2017: £5.9m), the increase being attributable to a full 12 months' charge (2017: 5 months) relating to the Intrinsic intangibles acquired in August 2017 and 6 months' charge relating to the Atos intangibles acquired in July 2018.

 

Goodwill of £40.2m (2017: £39.7m) is carried in the consolidated statement of financial position, which is subject to an impairment test at each reporting date. The increase of £0.5m is because of the Atos customer base acquisition. No impairment has been charged to the consolidated statement of comprehensive income in 2018 (2017: £Nil).

 

Property

 

We reported at the end of 2017 significant progress in management's ongoing review and consolidation of its property locations, leading to the Weybridge lease being assigned to a new tenant with Maintel sub-letting a much reduced space and the closure of the Thatcham and Manchester offices resulting in annualised savings of £0.7m. As of February 2019 we have now also exited from the Weybridge lease.

 

A review was also undertaken of the Burnley freehold property in Q4 2017 resulting in a decision to market the property, consolidate the warehousing requirements in Haydock and to lease more modern alternative office premises. The sale of the freehold property was successfully concluded for £1.5m in February 2018, and a new lease was signed in July 2018 for office premises located in Blackburn with minimal net incremental ongoing operating costs to the Group.

 

Following the sub lease of the Haydock office premises to a new tenant in Q4 2018, which will deliver annualised savings of £0.2m, the Group now operates from 4 office locations being London, Fareham, Aldridge and Blackburn in addition to our warehouse facilities located in Haydock.

 

Cash flow

 

As at 31 December 2018 the Group had net debt of £25.5m, excluding issue costs of debt, (31 December 2017: £27.7m), equating to a net debt: adjusted EBITDA ratio of 2.0x (2017: 2.5x).

 

An explanation of the £2.2m reduction in net debt is provided below.

 

 

 

 

2018

 

(restated)

2017

 

£000

 

£000

 

 

 

 

Cash generated from operating activities before acquisition costs

9,135

 

4,900

Taxation paid

(442)

 

(211)

Capital expenditure less proceeds of sale

(265)

 

(1,482)

Interest paid

(1,161)

 

(986)

 

 

 

 

Free cash flow

7,267

 

2,221

 

Dividends paid

 

(4,841)

 

 

(4,557)

Acquisition (net of cash acquired)

(181)

 

(4,895)

Acquisition costs paid

(44)

 

(273)

Proceeds from borrowings

-

 

9,000

Repayments of borrowings

(9,500)

 

(9,000)

Issue costs of debt

-

 

(60)

 

 

 

 

Decrease in cash and cash equivalents

(7,299)

 

(7,564)

Cash and cash equivalents at start of period

3,311

 

10,884

Exchange differences

 

 

(9)

 

 

 

 

Cash and cash equivalents at end of period

(3,988)

 

3,311

 

 

 

 

Bank borrowings

(21,500)

 

(31,000)

 

 

 

 

Net debt excluding issue costs of debt

(25,488)

 

(27,689)

 

 

 

 

 

 

 

 

Adjusted EBITDA

12,740

 

10,913

 

 

 

 

 

 

 

The Group generated £9.1m (2017: £4.9m) of cash from operating activities (excluding acquisition costs of £44,000 (2017: £273,000) and as disclosed in the Consolidated statement of cash flows operating cash flow before changes in working capital of £11.1m (2017: £9.6m). 

 

Cash conversion in 2018 remained strong at 84%(c) (2017: 54%) continuing the normalisation of cash conversion delivered in H2 2017. As reported last year, the full year cash conversion in 2017 was suppressed because of cash timing benefits from a strong trading performance in Q4 2016 combined with strong growth in our ICON cloud product offering, leading to a reduction in upfront project billing, which unwound in H1 2017.

 

The Group incurred exceptional costs of £1.6m during 2018 (2017: £1.5m), primarily covering restructuring and redundancy costs associated with the ongoing review of the Group's operating cost base and the integration of Intrinsic.

 

Capital expenditure of £0.3m (net of £1.5m of proceeds received from disposal of the Freehold property) comprised £1.8m ongoing investment in the ICON platform and IT infrastructure and continued development of Callmedia, the Group's contact centre product.

 

A more detailed explanation of the working capital movements is included in the analysis of the consolidated statement of financial position.

 

The net finance cost increased by £0.2m to £1.2m, due to a combination of an increase in borrowing rates, impact of a full year weighting of the additional debt taken on to fund the Intrinsic acquisition in August 2017and £0.1m relating to the deferred consideration associated with the Atos base acquisition.

 

In managing the Group's funding costs, we have used surplus cash and overdraft to reduce our utilised facility by £9.5m in the period, leaving a net cash and cash equivalents overdraft balance of £4.0 m at year-end (2017: cash balance of £3.3m).

 

Including the payment of dividends in 2018, amounting to £4.8m, and acquisition costs of £0.2m, the net effect when combined with a free cash flow of £7.3m is a decrease in the net debt position of £2.2m to £25.5m.

 

Further details of the Group's revolving credit and overdraft facilities are given in note 23.

 

IFRS 16 - Leases

 

IFRS 16 is required to be adopted for all accounting periods beginning on or after 1 January 2019. During Q4 2018, the Group carried out a detailed assessment of the impact that the adoption of IFRS 16 may have on the Group's financial statements. As an indication of the effect of IFRS 16 for the current reporting period, the Group would recognise a liability of £4.8m and a right of use asset of £4.8m. The impact on the consolidated statement of comprehensive income for 2018 will be that £0.9m which would have been shown as operating expense will now be shown as £0.8m of depreciation and £0.2m of interest.

 

A detailed explanation of the impact of IFRS 16 on the Group's accounting policies is provided in note 2.

 

(c) calculated as operating cash flow (being adjusted EBITDA plus working capital) to adjusted EBITDA

 

 

Outlook

 

We continue to invest in our ICON services and infrastructure, adding both capacity and capability to our platform and improving our customer offering. One example is the post-period end launch of our new mid-market, ICON Now unified communications proposition, which will extend our market reach into the lower end of the mid-market. As a result, we expect the acceleration of growth in this area to continue through the current financial year.

 

In addition, we will continue to invest in our people, wider product offering and IT platforms, future-proofing our business and positioning ourselves to take advantage of the changing marketplace.

 

The Board remains confident in delivering growth in both revenue and EBITDA for the current financial year, in line with current expectations, underpinned by the full year impact of the acquired Atos customer base and continued growth in the ICON cloud services, as well as the implementation of margin enhancing initiatives across the business.

 

Our dividend policy remains unchanged, with a commitment to pay-out at least 40% of adjusted net income per annum, however our aim is that the dividend will remain progressive in absolute terms.

 

The Company announced on 4 March 2019 that Mark Townsend, Chief financial officer, informed the Board of his intention to leave the Company for personal reasons. The Board is taking steps to identify a new Chief financial officer and will update the market when appropriate. The Board would like to thank Mark for his contribution and wish him well for the future.

 

 

On behalf of the board

 

 

 

 

E Buxton

Chief executive

 

 

15 March 2019

 

 

 

 

Financial statements 

Consolidated statement of comprehensive income

 for the year ended 31 December 2018

 

 

 

2018

 

2017

 

 

 

 

(restated)

 

Note

£000

 

£000

 

 

 

 

 

 

 

 

 

 

Revenue

4

136,459

 

126,780

 

 

 

 

 

Cost of sales

 

(97,341)

 

(90,108)

 

 

 

 

 

Gross profit

 

39,118

 

36,672

 

 

 

 

 

Other operating income

 

476

 

155

 

 

 

 

 

Administrative expenses

 

 

 

 

Intangibles amortisation

15

(6,479)

 

(5,892)

Exceptional costs

13

(1,647)

 

(1,454)

Share based remuneration

 

(392)

 

(296)

Other administrative expenses

 

(27,565)

 

(26,677)

 

 

(36,083)

 

(34,319)

 

 

 

 

 

 

 

 

 

 

Operating profit

7

3,511

 

2,508

 

 

 

 

 

Financial expense

8

(1,263)

 

(899)

 

 

 

 

 

Profit before taxation

 

2,248

 

1,609

 

 

 

 

 

Taxation expense

9

(206)

 

(72)

 

 

 

 

 

Profit for the period

 

2,042

 

1,537

 

 

 

 

 

Other comprehensive expense for the period

 

 

 

 

 

 

 

 

 

Exchange differences on translation of foreign operations

 

-

 

(9)

 

 

 

 

 

Total comprehensive income for the period

 

2,042

 

1,528

 

 

 

 

 

 

 

 

 

 

Earnings per share (pence)

 

 

 

 

Basic

11

14.4p

 

10.8p

Diluted

11

14.1p

 

10.6p

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial statements

Consolidated statement of financial position

 at 31 December 2018

 

 

 

31 December

31 December

 

31 December

31 December

 

1 January

1 January

 

 

2018

2018

 

2017

2017

 

2017

2017

 

 

 

 

 

(restated)

(restated)

 

(restated)

(restated)

 

Note

£000

£000

 

£000

£000

 

£000

£000

Non current assets

 

 

 

 

 

 

 

 

 

Intangible assets

15

 

69,389

 

 

67,495

 

 

63,152

Property, plant and equipment

17

 

 

2,046

 

 

 

1,471

 

 

 

3,293

 

 

 

 

 

 

 

 

 

 

 

 

 

71,435

 

 

68,966

 

 

66.445

Current assets

 

 

 

 

 

 

 

 

 

Inventories

19

8,267

 

 

10,638

 

 

7,877

 

Asset held for sale

18

-

 

 

1,500

 

 

-

 

Trade and other receivables

20

34,352

 

 

34,290

 

 

28,853

 

Cash and cash equivalents

 

-

 

 

3,311

 

 

10,884

 

 

 

 

 

 

 

 

 

 

 

Total current assets

 

 

42,619

 

 

49,739

 

 

47,614

 

 

 

 

 

 

 

 

 

 

Total assets

 

 

114,054

 

 

118,705

 

 

114,059

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

 

Trade and other payables

21

57,725

 

 

58,870

 

 

52,892

 

Short-term borrowings

23

3,988

 

 

-

 

 

-

 

Current tax liabilities

 

814

 

 

823

 

 

287

 

 

 

 

 

 

 

 

 

 

 
Total current liabilities

 

 

62,527

 

 

59,693

 

 

53,179

 

 

 

 

 

 

 

 

 

 
Non current liabilities

 

 

 

 

 

 

 

 

 

Other payables

21

4,943

 

 

1,549

 

 

943

 

Deferred tax liability

22

3,307

 

 

2,260

 

 

2,020

 

Borrowings

23

21,295

 

 

30,707

 

 

30,688

 

 

 

 

 

 

 

 

 

 

 

Total non-current liabilities

 

 

29,545

 

 

34,516

 

 

33,651

 

 

 

 

 

 

 

 

 

 

Total liabilities

 

 

92,072

 

 

94,209

 

 

86,830

 

 

 

 

 

 

 

 

 

 

Total net assets

 

 

21,982

 

24,496

 

 

27,229

Equity

 

 

 

 

 

 

 

 

 

Issued share capital

25

 

142

 

 

142

 

 

142

Share premium

26

 

24,354

 

 

24,354

 

 

24,354

Other reserves

26

 

70

 

 

70

 

 

79

Retained earnings

26

 

(2,584)

 

 

(70)

 

 

2,654

 

 

 

 

 

 

 

 

 

 

Total equity

 

 

21,982

 

 

24,496

 

 

27,229

 

 

 

 

 

 

 

 

 

 

The consolidated financial statements were approved and authorised for issue by the board on 15 March 2019 and were signed on its behalf by:

 

M Townsend

 

Director

 

 

 

 

Financial statements

Consolidated statement of changes in equity

for the year ended 31 December 2018

 

    

 

 

Share capital

 

Share premium

 

Other reserves

 

Retained earnings

 

 

Total

 

Note

£000

£000

£000

£000

£000

At 1 January 2017 (as previously stated)

 

142

24,354

79

3,676

28,251

Prior year adjustment - IFRS 15 Revenue from contracts with customers

 

-

-

-

(1,022)

(1,022)

 

 

 

 

 

 

 

At 1 January 2017 (restated) *

 

142

24,354

79

2,654

27,229

Profit for the period

 

-

-

-

1,537

1,537

Other comprehensive income:

 

 

 

 

 

 

Foreign currency translation differences

 

-

-

(9)

-

(9)

Total comprehensive income for the period

 

-

-

(9)

1,537

1,528

Dividend

10

-

-

-

(4,557)

(4,557)

Grant of share options

 

-

-

-

296

296

 

 

 

 

 

 

 

At 31 December 2017 (restated) *

 

142

24,354

70

(70)

24,496

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At 31 December 2017 (as previously stated)

 

142

24,354

70

2,497

27,063

Prior year adjustment - IFRS 15 Revenue from contracts with customers

 

-

-

-

(2,567)

(2,567)

 

 

 

 

 

 

 

At 31 December 2017 (restated) *

 

142

24,354

70

(70)

24,496

 

 

 

 

 

 

 

IFRS 9 (impairment charge for credit losses (to opening reserves)

 

-

-

-

(108)

(108)

 

 

 

 

 

 

 

Profit for the period

 

-

-

-

2,043

2,043

Other comprehensive income:

 

 

 

 

 

 

Foreign currency translation differences

 

-

-

-

-

-

Total comprehensive income for the period

 

-

-

-

2,043

2,043

Dividend

10

-

-

-

(4,841)

(4,841)

Grant of share options

 

-

-

-

392

392

 

 

 

 

 

 

 

At 31 December 2018

 

 

 

 

 

 

 

 

142

24,354

70

(2,584)

21,982

* Refer to note 2 for a summary of adjustments raised in relation to the change in accounting policy for IFRS 15 and the restatement of equity at 1 Jan 2017 and 31 December 2017.

 

 

 

 

Financial statements

Consolidated statement of cash flows

for the year ended 31 December 2018

 

 

2018

 

2017

 

 

 

(restated)

 

£000

 

£000

 

 

 

 

Operating activities

 

 

 

Profit before taxation

2,248

 

1,609

Adjustments for:

 

 

 

Intangibles amortisation

6,479

 

5,892

Share based payment charge

392

 

296

Loss on sale of property, plant and equipment

21

 

156

Depreciation charge

711

 

763

Interest payable

1,263

 

899

 

 

 

 

Operating cash flows before changes in working capital

11,114

 

9,615

 

 

 

 

Decrease / (Increase) in inventories

2,274

 

(2,630)

(Increase) / decrease in trade and other receivables

(125)

 

1,899

Decrease in trade and other payables

(4,172)

 

(4,257)

 

 

 

 

Cash generated from operating activities (see sub analysis below)

9,091

 

4,627

 

 

 

 

Cash generated from operating activities excluding exceptional costs and non cash credits

10,585

 

6,185

Exceptional cost - excluding acquisition legal and professional costs below (note 13)

(1,450)

 

(1,285)

Cash generated from operating activities excluding acquisition legal and professional costs

9,135

 

4,900

Exceptional cost - acquisition legal and professional costs

(44)

 

(273)

Cash generated from operating activities

9,091

 

4,627

 

 

 

 

Tax paid

(442)

 

(211)

 

 

 

 
Net cash flows from operating activities

8,649

 

4,416

 

 

 

 

Investing activities

 

 

 

Purchase of plant and equipment

(1,264)

 

(393)

Purchase of software

(501)

 

(1,089)

Proceeds from the disposal of asset held for sale

1,500

 

 

Purchase price in respect of business combination

(2,158)

 

(4,906)

Net cash acquired with subsidiary undertaking

1,977

 

11

 

(181)

 

(4,895)

 

 

 

 
Net cash flows from investing activities

(446)

 

(6,377)

 

 

 

 

 

 

 

 

2018

 

2017
 

 

 

(restated)
 

£000

 

£000
 

 

 

 
Financing activities

 

 

 

Proceeds from borrowings

-

 

9,000

Repayment of borrowings

(9,500)

 

(9,000)

Interest paid

(1,161)

 

(986)

Issue costs of debt

-

 

(60)

Equity dividends paid

(4,841)

 

(4,557)

 

 

 

 

Net cash flows from financing activities

(15,502)

 

(5,603)

 

 

 

 

Net decrease in cash and cash equivalents

(7,299)

 

(7,564)

 

 

 

 

Cash and cash equivalents at start of period

3,311

 

10,884

Exchange differences

-

 

(9)

 

 

 

 

Bank overdrafts / Cash and cash equivalents at end of period

(3,988)

 

3,311

 

The following cash and non-cash movements have occurred during the year in relation to financing activities from non-current liabilities

 

 

 

Reconciliation of liabilities from financing activities

 

Non-current loans and borrowings (Note 23)

 

 

 

 

2018

2017

 

 

£000

£000

 

 

 

 

 

At 1 January 2019 

30,707

30,688

 

Cash Flows

(9,500)

-

 

Non-cash movements (Amortised debt issue costs)

88

19

 

 

________

________

 

 

 

 

 

At 31 December

21,295

30,707

 

 

________

________

 

 

 

 

 

 

 

 

 

 

 

Financial statements

Notes forming part of the consolidated financial statements

for the year ended 31 December 2018

 

1

General information

 

 Maintel Holdings Plc is a public limited company incorporated and domiciled in the UK, whose shares are publicly traded on the Alternative Investment Market (AIM). Its registered office and principal place of business is 160 Blackfriars Road, London SE1 8EZ.

 

2

Accounting policies

 

The principal policies adopted in the preparation of the consolidated financial statements 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"), IFRIC interpretations and with those parts of the Companies Act 2006 applicable to companies preparing their accounts in accordance with adopted IFRSs.

 

(b) Basis of consolidation

 

The consolidated financial statements present the results of the Company and its subsidiaries ("the Group") as if they formed a single entity. Intercompany transactions and balances between Group companies are therefore eliminated in full.

 

Where the Company has control over an investee, it is classified as a subsidiary. The Company controls an investee if all three of the following elements are present: power over the investee, exposure to variable returns from the investee, and the ability of the investor to use its power to affect those variable returns. Control is reassessed whenever facts and circumstances indicate that there may be a change in any of these elements of control.

 

The consolidated financial statements incorporate the results of business combinations using the acquisition method. In the consolidated statement of financial position, the acquiree's identifiable assets, liabilities and contingent liabilities are initially recognised at their fair values at the acquisition date. The acquisition related costs are included in the consolidated statement of comprehensive income on an accruals basis. The results of acquired operations are included in the consolidated statement of comprehensive income from the date on which control is obtained.

 

(c) Revenue

 

Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and can be reliably measured.

 

Revenue represents sales to customers at invoiced amounts and commissions receivable from suppliers, less value added tax.

 

Managed services and technology

 

Managed services revenues are recognised over time, over the relevant contract term, on the basis that the customer simultaneously receives and consumes the benefits provided by the Group's performance of the services over the contract term. Where the Group's performance of its obligations under a contract exceeds amounts received, accrued income or a trade receivable is

recognised depending on Group's billing rights. Where the Group's performance of its obligations under a contract is less than amounts received, deferred income is recognised.

 

Technology revenues for contracts with customers, which include both supply of technology goods and installation services, represent in substance one performance obligation and result in revenue recognition at a point in time, when the Group has fulfilled its performance obligations under the relevant customer contract. Under these contracts, the Group performs a significant integration service which results in the technology goods and the integration service being one performance obligation.  Over the course of the contract, the technology goods, which comprise both hardware and software components are customised through the integration services to such an extent that the final customised technology goods installed on completion are substantially different to their form prior to the integration service.   Revenue is recognised when the integrated technology equipment and software has been installed and accepted by the customer.

 

Network services

 

Revenues for network services are comprised of call traffic, line rentals and data services, which are recognised over time, for services provided up to the reporting date, on the basis that the customer simultaneously receives and consumes the benefits provided by the Group's performance of the services over the contract term. Amounts received in advance of the performance of the call traffic, line rentals and data services are recognised as performance obligations and released to revenue as the Group performs the services under the contract. Where the Group's performance of its obligations under a contract are less than amounts received, deferred income is recognised.

 

Mobile

 

Connection commission received from the mobile network operators on fixed line revenues, are allocated primarily to two separate performance obligations,  being (i) the obligation to provide a hardware fund to end users for the supply of handsets and other hardware kit - revenues are recognised under these contracts at a point in time when the hardware goods are delivered to the customer and the customer has control of the assets; and (ii) ongoing service obligations to the customer - revenues are spread over the course of the customer contract term. In the case of (i) revenues are recognised based on the fair value of the hardware goods provided to the customer on delivery and for (ii) the residual amounts, representing connection commissions less the hardware revenues are recognised as revenues over the customer contract term.

 

Customer overspend and bonus payments are recognised monthly at a point in time when the Group's performance obligations have been completed; these are also payable by the network operators on a monthly basis.

 

(d) Operating leases

 

Where substantially all of the risks and rewards incidental to ownership are not transferred to the Group (an "operating lease"), the total rentals payable under the lease are charged to the consolidated statement of comprehensive income on a straight-line basis over the lease term. The aggregate benefit of lease incentives is recognised as a reduction of the rental expense over the lease term on a straight-line basis.

 

Rentals receivable under operating leases are credited to the consolidated statement of comprehensive income on a straight-line basis over the term of the lease. The aggregate cost of lease incentives offered is recognised as a reduction of the rental income over the lease term on a straight-line basis.

 

(e) Employee benefits

 

The Group contributes to a number of defined contribution pension schemes in respect of certain of its employees, including those established under auto-enrolment legislation. The amount charged in the consolidated statement of comprehensive income 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.

 

(f) Redundancy costs

 

Redundancy costs are those costs incurred from the date of communication of the restructuring decision and the at risk consultation process has been started with the relevant employee or group of employees affected.

 

(g) Interest

 

Interest income and expense is recognised using the effective interest rate basis.

 

 

(h) 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 balance sheet 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;

·       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 nor 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 and taxable temporary differences will be available against which the asset can be utilised.

 

Management judgement is used in determining the amount of deferred tax asset that can be recognised, based upon the likely timing and level of future taxable profits together with future tax planning strategies.

 

The amount of the deferred tax asset or liability is measured on an undiscounted basis and is determined using tax rates that have been enacted or substantively enacted by the date of the consolidated statement of financial position and are expected to apply when the deferred tax assets/liabilities are recovered/settled. 

 

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.

 

(i) Dividends

 

Dividends unpaid at the reporting 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

consolidated financial statements.

 

(j) Intangible assets

 

Goodwill

Goodwill represents the excess of the fair value of the consideration of a business combination over the acquisition date fair value of the identifiable assets, liabilities and contingent liabilities acquired; the fair value of the consideration comprises the fair value of assets given. Direct costs of acquisition are recognised immediately as an expense. 

 

Goodwill is capitalised as an intangible asset and carried at cost with any impairment in carrying value being charged to the consolidated statement of comprehensive income.

 

Customer relationships

Customer relationships are stated at fair value where acquired through a business combination, less accumulated amortisation.

 

Customer relationships are amortised over their estimated useful lives of (i) six years to eight years in respect of managed service contracts, and (ii) seven years or eight years in respect of network services and mobile contracts. 

 

Product platform

The product platform is stated at fair value where acquired through a business combination less accumulated amortisation.

 

The product platform is amortised over its estimated useful life of eight years.

 

Brand

Brands are stated at fair value where acquired through a business combination less accumulated amortisation.

 

Brands are amortised over their estimated useful lives, being eight years in respect of the ICON brand.

 

Software (Microsoft licences and Callmedia)

Software is stated at cost less accumulated amortisation. Where these assets have been acquired through a business combination, the cost is the fair value allocated in the acquisition accounting.

 

Software is amortised over its estimated useful life of (i) three years in respect of the Microsoft licences, (ii) five years in respect of the Callmedia software. 

 

(k) Impairment of non current assets

 

Impairment tests on goodwill 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 in the administrative expenses line in the consolidated statement of comprehensive income and, in respect of goodwill impairments, the impairment is never reversed.

 

        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.

 

(l) Property, plant and equipment

 

Property, plant and equipment is stated at cost, less accumulated depreciation and any impairment in value.  Depreciation is provided to write off the cost, less estimated residual values, of all tangible fixed assets, other than freehold land, over their expected useful lives, at the following rates:

 

 

Office and computer equipment

-

25% straight line

 

Motor vehicles

-

25% straight line

 

Leasehold improvements

-

over the remaining period of the lease

 

Freehold building (2017 only)

-

2.5% straight line

 

Property, plant and equipment acquired in a business combination is initially recognised at its fair value.

 

(m) Inventories

 

Inventories comprise (i) maintenance stock, being replacement parts held to service customers' telecommunications systems, and (ii) stock held for resale, 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.

 

(n) Cash and cash equivalents

 

Cash and cash equivalents comprise cash balances and short term deposits with an original maturity of three months or less, held for meeting short term commitments.

 

(o) Financial assets and liabilities

 

The Group's financial assets and liabilities mainly comprise cash, borrowings, trade and other receivables and trade and other payables. 

 

Trade and other receivables are not interest bearing and are stated at their amortised cost as reduced by appropriate allowances for irrecoverable amounts or additional costs required to effect recovery.

 

The Group reviews the amount of credit loss associated with its trade receivables based on forward looking estimates that take into account current and forecast credit conditions. The Group has applied the Simplified Approach applying a provision matrix based on number of days past due to measure lifetime expected credit losses and after taking into account customer sectors with different credit risk profiles and current and forecast trading conditions. Trade and other payables are not interest bearing and are stated at their amortised cost.

 

(p) Borrowings

 

Interest bearing bank loans and overdrafts are initially recorded at the value of the amount received, net of attributable transaction costs. Interest bearing borrowings are subsequently stated at amortised cost with any difference between cost and redemption value being recognised in the consolidated statement of comprehensive income over the period of the borrowing using the effective interest method.

 

(q) Assets held for sale

 

Assets are classified as held for sale as a current asset from the date the Group has a clear plan to dispose of the asset and its sale is considered highly probable within a period of twelve months. Assets held for sale are stated at the lower of carrying value at the date the asset is designated as held for sale and fair value less costs of sale.

 

(r) Foreign currency

 

The presentation currency of the Group is Sterling. All Group companies have a functional currency of Sterling (other than Maintel International Limited ("MIL") which has a functional currency of the Euro) consistent with the presentation currency of the Group's consolidated financial statements. Transactions in currencies other than Sterling are recorded at the rates of exchange prevailing on the dates of the transactions.

 

On consolidation, the results of MIL are translated into Sterling at rates approximating those ruling when the transactions took place. All assets and liabilities of MIL, including goodwill arising on its acquisition, are translated at the rate ruling at the reporting date. Exchange differences on retranslation of the foreign subsidiary are recognised in other comprehensive income and accumulated in a translation reserve.

 

(s) Accounting standards issued

 

IFRS 15 Revenue from Contracts with Customers

 

An analysis of the key changes that IFRS 15 has on the Group's revenue streams, taking into account the move from the recognition of revenue on the transfer of risks and rewards to the transfer of control are summarised below: 

 

-     Technology revenues: certain contracts with customers, which include both supply of technology goods and installation services, represent in substance one performance obligation under IFRS 15 and result in revenue recognition at a point in time. This is different to the previous treatment, whereby the supply of goods and professional services were treated as separate sale arrangements. In relation to these contracts, the Group performs a significant

integration service which results in the technology goods and the integration service being one performance obligation under IFRS 15. Under IAS 18, the installation was judged to be separable, as it was possible for a customer to obtain equipment and kit from one party and obtain installation services from another. In addition, associated commission payments to sales staff are capitalised as an asset and will be released to profit and loss when the performance obligation has been satisfied. The effect of these adjustments on the comparative periods are disclosed further below.

 

-     Mobile business: connection commission revenues received from mobile network operators on fixed line revenues were previously spread over the term of the customer contract. Under IFRS 15 the Group's mobile contracts with customers include a number of performance obligations. Typically, these include an obligation to provide a hardware fund to the end users. Under IFRS 15 revenues for the supply of handsets and other hardware kit are recognised under these contracts at a point in time when the hardware goods are delivered to the customer. This is different to the previous treatment of spreading the associated revenue over the course of the customer contract. The financial effect of the change in policy did not have a material impact for the current and comparative periods, no adjustments were required to the current or comparative periods.

 

The Group's new accounting policy for revenue recognition is explained in detail in note 2(c).

 

        IFRS 9 Financial instruments

 

In adopting IFRS 9, the only changes made from the previous reporting period is in relation to the impairment of financial assets. The Group now reviews the amount of credit loss associated with its trade receivables based on forward looking estimates that take into account current and forecast credit conditions as opposed to relying on past historical default rates. In adopting IFRS 9 the Group has applied the Simplified Approach applying a provision matrix based on number of days past due to measure lifetime expected credit losses and after taking into account customer sectors with different credit risk profiles and current and forecast trading conditions. The Group has elected to adopt the initial application date of 1 Jan 2018 and therefore has chosen not to restate comparatives.

The effect of IFRS 9 is an increase to the provision of £108,000 and an adjustment to opening reserves at 1 Jan 2018 of £108,000. The effect on the current year was immaterial.

 

Accounting standards issued (not yet mandatory)

 

The Group also notes IFRS16 Leases, which takes effect and will be adopted in 2019. The Group has elected to take the fully retrospective approach. As a result of the new standard the Group will recognise a lease liability and a right of use asset at 1 January 2019 for leases previously classified as operating leases applying IAS 17. The Group has calculated that the right of use asset to be recognised at 1 January 2019 will be £4.8m and there will be a corresponding liability of £4.8m. An estimation of the expected depreciation charge against the right of use asset in 2018 has been calculated to be £0.8m, with an interest charge of £0.2m, which compares to an operating lease charge within operating expenses of £0.9m. Details of the Group's operating lease commitments are disclosed in note 29.

 

The table below shows the effect of IFRS 15 on the restated Consolidated statement of comprehensive income for the year ended 31 December 2017:

 

Impact of IFRS 15 on Consolidated statement of comprehensive income

for the 12 months ended 31 December 2017

 

 

 

 

 

 

As previously reported

£000

 

Adjustment

for IFRS 15

£000

 

 

(restated)

£000
 

 

 

 

 

 

 

 

Revenue

 

 

 

 

133,079

(6,299)

126,780

Cost of sales

 

 

 

 

(94,290)

4,182

(90,108)

Gross profit

 

 

 

 

38,789

(2,117)

36,672

 

 

 

 

 

 

 

 

Other operating income

 

 

 

 

155

-

155

Administrative expenses

 

 

 

 

(34,529)

210

(34,319)

 

 

 

 

 

 

 

 

Operating profit

 

 

 

 

4,415

(1,907)

2,508

 

 

 

 

 

 

 

 

EBITDA

 

 

 

 

11,070

(1,907)

9,163

 

 

 

 

 

 

 

 

Profit before taxation for the period

 

 

 

 

 

3,516

(1,907)

1,609

Taxation expense

 

 

 

 

(434)

362

(72)

Profit for the period and attributable to owners of the parent

 

 

 

 

3,082

(1,545)

1,537

 

The adjustments under IFRS 15 include the following items:

-     Technology supply and installation contract revenues of £6.3m have been reversed with the corresponding adjustments recognised through accrued income (other receivables) or Other deferred income;

-     Cost of sales of £4.2m in connection with equipment for supply and installation contract revenues have been reversed and recognised as an asset in Inventories;

-     Commission costs in respect supply and installation contract billings of £0.2m have been reversed and recognised as an asset;

-     Taxation expense has been adjusted for the current tax effect of the above adjustments to profit before tax.

 

The tables below show the effect of IFRS 15 on the restated Consolidated statement of financial position as at 31 December 2017 and Consolidated statement of cash flows for the 12 months ended 31 December 2017:

 

Impact of IFRS 15 on Consolidated statement of financial position

as at 31 December 2017

 

 

 

 

As previously reported

£000

 

 

Adjustment

for IFRS 15

£000

 

 

As

restated

£000

 

 

 

 

 

 

 

Non-current assets

 

 

68,966

-

68,966

 

 

 

 

 

 

Current assets

 

 

 

 

 

Inventories

 

 

3,251

7,387

            10,638

Asset held for sale

 

 

1,500

-

1,500

Trade and other receivables

 

 

37,257

(2,967)

34,290

Cash and cash equivalents

 

 

3,311

-

3,311

 

 

 

 

 

 

Total current assets

 

 

45,319

4,420

49,739

 

 

 

 

 

 

Total assets

 

 

114,285

4,420

118,705

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

Trade and other payables

 

 

51,367

7,590

58,957

Current tax liabilities

 

 

1,426

(603)

823

 

 

 

 

 

 
Total current liabilities

 

 

52,793

6,987

59,780

 

 

 

 

 

 

Non-current liabilities

 

 

34,429

-

34,429

 

 

 

 

 

 

Total liabilities

 

 

87,222

6,987

94,209

 

 

 

 

 

 

Total net assets

 

 

27,063

(2,567)

24,496

 

 

 

 

 

 

Equity

 

 

 

 

 

Issued share capital

 

 

142

-

142

Share premium

 

 

24,354

-

24,354

Other reserves

 

 

70

-

70

Retained earnings

 

 

2,497

(2,567)

(70)

 

 

 

 

 

 

Total equity

 

 

27,063

(2,567)

24,496

 

 

 

 

 

 

 

The adjustments under IFRS 15 include the following items:

 

-     Inventories: the costs for technology equipment and sales commissions in connection with supply and installation contract revenues reversed for FY 2017 and prior periods have been recognised as an asset;

-     Accrued income: accrued income of £3.0m recognised previously on technology supply and installation contract revenues have been reversed;

-     Trade and other payables: additional deferred revenues of £7.6m have been recognised in relation to technology supply and installation contracts where the revenues have been reversed;

-     Current tax liabilities: these have decreased to account for lower taxes payable in relation to lower profits assessed to corporation tax as a result of the IFRS 15 adjustments.

 

Impact of IFRS 15 on Consolidated statement of cash flows

for the 12 months ended 31 December 2017

 

 

 

As previously

reported

 

 

Adjustment for IFRS 15

 

 

 

(restated)
 

£000

 

£000

 

£000

 
Operating activities

 

 

 

Profit before taxation

3,516

(1,907)

1,609

Operating cash flows before changes in working

capital

11,522

(1,907)

9,615

Decrease / (increase) in inventories

1,762

(4,392)

(2,630)

(Increase) / decrease in trade and other receivables

(550)

2,449

1,899

(Decrease) in trade and other payables

(8,107)

3,850

(4,257)

 

 

 

 

Cash generated from operating activities

4,627

-

4,627

 

 

 

 

Impact of IFRS 15 on opening balance sheet at 1 January 2017

 

 

 

 

As previously reported

£000

 

 

Adjustment

for IFRS 15

£000

 

 

 

(restated)

£000

 

 

 

 

 

 

 

 

 

Non-current assets

 

 

66,445

-

66,445

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

Inventories

 

 

4,882

2,995

7,877

 

Asset held for sale

 

 

-

-

-

 

Trade and other receivables

 

 

29,371

(518)

28,853

 

Cash and cash equivalents

 

 

10,884

-

10,884

 

 

 

 

 

 

 

 

Total current assets

 

 

45,137

2,477

47,614

 

 

 

 

 

 

 

 

Total assets

 

 

111,582

2,477

114,059

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

Trade and other payables

 

 

49,153

3,739

52.892

 

Current tax liabilities

 

 

527

(240)

287

 

 

 

 

 

 

 

 
Total current liabilities

 

 

49,680

3,499

53,179

 

 

 

 

 

 

Non-current liabilities

 

 

33,651

-

33,651

 

 

 

 

 

 

 

 

Total liabilities

 

 

83,331

3,499

86,830

 

 

 

 

 

 

 

 

Total net assets

 

 

28,251

(1,022)

27,229

 

 

 

 

 

 

 

 

Equity

 

 

 

 

 

 

Issued share capital

 

 

142

-

142

 

Share premium

 

 

24,354

-

24,354

 

Other reserves

 

 

79

-

79

 

Retained earnings

 

 

3,676

(1,022)

2,654

 

 

 

 

 

 

 

 

Total equity

 

 

28,251

(1,022)

27,229

 

 

 

 

 

 

 

 
               

 

3

Accounting estimates and judgements

 

In the process of applying the Group's accounting policies, management has made various estimates, assumptions and judgements, with those likely to contain the greatest degree of uncertainty being summarised below:

 

Deferred tax asset relating to brought forward losses

At 31 December 2018, the directors have had to assess the validity of the carrying value of tax losses attributable to the Datapoint UK companies that might be used against future profits, shown in note 22, which involves estimating the profitability for the Datapoint businesses, which are now reported within Maintel Europe Ltd. The company recognises the deferred tax asset for Datapoint tax losses on a streamed basis against forecast future taxable profits, which are expected to be generated by the former Datapoint businesses.

 

Impairment of non-current assets

The Group is required to test, on annual basis, whether goodwill has suffered any impairment. The Group is also required to test other finite life intangible assets for impairment where impairment indicators are present. The recoverability of assets subject to impairment reviews is assessed based on whether the carrying value of assets can be supported by the net present value of future cash flows derived from such assets, using cash flow projections which have been discounted at an appropriate rate. In calculating the net present value of the future cash flows, certain assumptions are required to be made in respect of uncertain matters.

 

In particular, management exercises estimation in determining assumptions for revenue growth rates and gross margins for future periods which are important components of future cash flows, and also in determining the appropriate discount rates which are used across the Group's cash generating units (refer to note 15).

 

 

4
Segment information

 

Year ended 31 December 2018

 

For management reporting purposes and operationally, the Group consists of three business segments: (i) telecommunications managed service and technology sales, (ii) telecommunications network services, and (iii) mobile services. Each segment applies its respective resources across inter-related revenue streams, which are reviewed by management collectively under these headings. The businesses of each segment and a further analysis of revenue are described under their respective headings in the strategic report.

 

The chief operating decision maker has been identified as the board, which assesses the performance of the operating segments based on revenue and gross profit.

 

 

 

 

Managed service and technology

 

Network services

 

 

Mobile

Central/

inter-

company

 

 

Total

 

 

£000

£000

£000

£000

£000

 

 

 

 

 

 

 

 

 

Revenue

89,888

40,946

5,625

-

136,459

 

 

 

 

 

 

 

 

 

 

Gross profit

26,364

9,836

2,918

-

39,118

 

 

 

 

 

 

 

 

 

 

Other operating income

 

 

 

 

476

 

 

 

 

 

 

 

 

 

 

Other administrative expenses

 

 

 

 

(27,565)

 

 

 

 

 

 

 

 

 

 

Share based remuneration

 

 

 

 

(392)

 

 

 

 

 

 

 

 

 

 

Intangibles amortisation

 

 

 

 

(6,479)

 

 

 

 

 

 

 

 

 

 

Exceptional costs

 

 

 

 

(1,647)

 

 

 

 

 

 

 

 

 

 

Operating profit

 

 

 

 

3,511

 

 

 

 

 

 

 

 

 

 

Interest payable

 

 

 

 

(1,263)

 

 

 

 

 

 

 

 

 

 

Profit before taxation

 

 

 

 

2,248

 

 

 

 

 

 

 

 

 

 

Taxation expense

 

 

 

 

(206)

 

 

 

 

 

 

 

 

 

 

Profit after taxation

 

 

 

 

2,042

 

 

 

 

 

 

 

 

 
                     

 

 

 

Revenue is wholly attributable to the principal activities of the Group and other than sales of £4.7m to EU countries and £0.8m to the rest of the world (2017: £8.2m to EU countries, and £1.8m to the rest of the world), arises within the United Kingdom.

 

In 2018 the Group had no customer (2017: None) which accounted for more than 10% of its revenue.

 

The board does not regularly review the aggregate assets and liabilities of its segments and accordingly an analysis of these is not provided.

 

 

 

Managed service and technology

 

Network services

 

 

Mobile

Central/

inter-

company

 

 

Total

 

 

£000

£000

£000

£000

£000

 

Other

 

 

 

 

 

 

Intangibles amortisation

-

-

-

(6,479)

(6,479)

 

Exceptional costs

1,647

-

-

-

1,647

 

 

 

 

 

 

Year ended 31 December 2017 (restated)

 

 

 

Managed service and technology

 

Network services

 

 

Mobile

Central/

inter-

company

 

 

Total

 

 

£000

£000

£000

£000

£000

 

 

 

 

 

 

 

 

 

Revenue

73,087

46,795

6,898

-

126,780

 

 

 

 

 

 

 

 

 

 

Gross profit

20,995

12,396

3,281

-

36,672

 

 

 

 

 

 

 

 

 

 

Other operating income

 

 

 

 

155

 

 

 

 

 

 

 

 

 

 

Share based remuneration

 

 

 

 

(296)

 

 

 

 

 

 

 

 

 

 

Other administrative expenses

 

 

 

 

(26,677)

 

 

 

 

 

 

 

 

 

 

Intangibles amortisation

 

 

 

 

(5,892)

 

 

 

 

 

 

 

 

 

 

Exceptional costs

 

 

 

 

(1,454)

 

 

 

 

 

 

 

 

 

 

Operating profit

 

 

 

 

2,508

 

 

 

 

 

 

 

 

 

 

Interest payable

 

 

 

 

(899)

 

 

 

 

 

 

 

 

 

 

Profit before taxation

 

 

 

 

1,609

 

 

 

 

 

 

 

 

 

 

Taxation expense

 

 

 

 

(72)

 

 

 

 

 

 

 

 

 

 

Profit after taxation

 

 

 

 

1,537

 

 

 

 

 

 

 

 

 
                     

 

 

Year ended 31 December 2017 (restated)

 

 

 

Managed service and technology

 

Network services

 

 

Mobile

Central/

inter-

company

 

 

Total

 

 

£000

£000

£000

£000

£000

 

Other

 

 

 

 

 

 

Intangibles amortisation

-

-

-

(5,892)

(5,892)

 

Exceptional costs

(1,454)

-

-

-

(1,454)

 

 

5

Employees

 

 

 

2018

2017
 
 
Number
Number

 

The average number of employees, including directors, during the year was:

 

 

 

 

 

 

 

Corporate and administration

93

101

 

Sales and customer service

220

253

 

Technical and engineering

292

298

 

 

________

________

 

 

 

 

 

 

605

652

 

 

________

________

 

 

 

 

 

Staff costs, including directors, consist of:

£000

£000

 

 

 

 

 

Wages and salaries 

33,427

33,502

 

Social security costs

3,726

3,913

 

Pension costs

809

799

 

 

________

________

 

 

 

 

 

 

37,961

38,214

 

 

________

________
         

 

The Group makes contributions to defined contribution personal pension schemes for employees and directors. The assets of the schemes are separate from those of the Group. Pension contributions totalling £ 166,000 (2017: £138,000) were payable to the schemes at the year-end and are included in other payables.

 

 

 

 

6

Directors' remuneration

 

The remuneration of the Company directors was as follows:

 

 

2018

2017

 

 

£000

£000

 

 

 

 

 

Directors' emoluments

1,138

1,136

 

Pension contributions

31

30

 

 

________

________

 

 

 

 

 

 

1,169

1,166

 

 

________

________

 

Included in the above is the remuneration of the highest paid director as follows:

 

 

 

2018

2017

 

 

£000

£000

 

 

 

 

 

Directors' emoluments 

314

309

 

Pension contributions

5

5

 

 

________

________

 

 

 

 

 

 

319

314

 

 

________

________

 

The Group paid contributions into defined contribution personal pension schemes in respect of 7 directors during the year, 3 of whom were auto-enrolled at minimal contribution levels, and 1 was on both (2017: 7, 3 auto-enrolled).

 

Further details of director remuneration are shown in the Remuneration committee report.

 

 

 

7

Operating profit

 

 

 

 

2018

2017

 

 

£000

£000

 

This has been arrived at after charging/(crediting):

 

 

 

 

 

 

 

Depreciation of property, plant and equipment

711

763

 

Amortisation of intangible fixed assets

6,479

5,892

 

Operating lease rentals payable:

 

 

 

- property

1,104

1,101

 

- plant and machinery

315

402

 

Operating lease rentals receivable - property

(154)

(155)

 

Research and development tax credit

(321)

-

 

Fees payable to the Company's auditor for the audit of the Company's annual accounts

15

14

 

Fees payable to the Company's auditor for other services:

 

 

 

- due diligence and other acquisition costs

4

149

 

- audit of the Company's subsidiaries pursuant to legislation

173

192

 

- audit-related assurance services

-

35

 

- tax compliance services

19

18

 

Fees payable to other auditors

-

29

 

Foreign exchange movement

10

(149)

 

Loss on sale of property plant and equipment

21

156

 

 

________

________

 

 

8

Financial income and expense

 

 

 

 

 

2018

2017

 

 

£000

£000

 

 

 

 

 

 

 

 

 

Interest payable on bank loans and deferred consideration

1,263

899

 

 

________

________
           

 

 

 

9

Taxation

 

 

 

 

2018

2017

(restated)

 

 

£000

£000

 

UK corporation tax

 

 

 

Corporation tax on profits of the period

924

746

 

Adjustment for prior year

(491)

-

 

 

________

________

 

 

 

 

 

 

433

746

 

 

 

 

 

Deferred tax (note 22)

 

 

 

Current year

(678)

(674)

 

Adjustment for prior year

451

-

 

 

________

________

 

 

 

 

 

Taxation on profit on ordinary activities 

206

72

 

 

________

________

 

The standard rate of corporation tax in the UK for the period was 19.00%, and therefore the Group's UK subsidiaries are taxed at that rate. Reductions in UK tax rate to 19% with effect from 1 April 2017 and 17% from 1 April 2020 were substantively enacted on 15 September 2017. The differences between the total tax shown above and the amount calculated by applying the standard rate of UK corporation tax to the profit before tax are as follows:

 

 

 

2018

2017

(restated)

 

 

£000

£000

 

 

 

 

 

Profit before tax

2,248

1,609

 

 

________

________

 

 

 

 

 

Profit at the standard rate of corporation tax in the UK of 19% (2017: 19.25%)

427

310

 

 

 

 

 

Effect of:

 

 

 

Expenses not deductible for tax purposes, net of reversals

54

57

 

Capital allowances less than depreciation

135

44

 

Effects of change in tax rates

(1)

11

 

Effects of overseas tax rates

(7)

(14)

 

Adjustments relating to prior years

(41)

-

 

Decrease / (Increase) in deferred tax asset relating to Datapoint tax losses (note 21)

(500)

(500)

 

Increase in deferred tax liability relating to intangible assets

139

164

 

 

________

________

 

 

 

 

 

 

207

72

 

 

________

________

 

 

 

10

Dividends paid on ordinary shares

 

 

 

2018

2017

 

 

£000

£000

 

 

 

 

 

Final 2016, paid 18 May 2017 - 17.4 p per share

-

2,470

 

Interim 2017, paid 5 October 2017 -   14.7 p per share

-

2,087

 

Final 2017, paid 11 May 2018 - 19.1 p per share

2,712

-

 

Interim 2018, paid 4 October 2018 - 15.0 p per share

2,129

-

 

 

________

________

 

 

 

 

 

 

4,841

4,557

 

 

________

________
         

 

The directors propose the payment of a final dividend for 2018 of 19.5p (2017: 19.1p) per ordinary share, payable on 16 May 2019 to shareholders on the register at 29 March 2019. The cost of the proposed dividend, based on the number of shares in issue as at 15 March 2019, is £ 2,768,000 (2017: £2,712,000).

 

 

11
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:

 

 

 

2018

2017

(restated)
 
 
£000
£000
 
 
 
 

 

Earnings used in basic and diluted EPS, being profit after tax

2,042

1,537

 

 

 

 

 

Adjustments:

 

 

 

Intangibles amortisation (note 15)

6,099

5,386

 

Exceptional costs (note 13)

1,647

1,454

 

Share based remuneration

392

296

 

Tax relating to above adjustments

(1,518)

(1,372)

 

Deferred tax charge on utilisation of Datapoint tax losses

475

392

 

Interest charge on deferred consideration

84

-

 

Increase in deferred tax asset in respect to Datapoint tax losses

(500)

(500)

 

Deferred tax charge on capital allowances acquired from Azzurri

441

403

 

Increase/(decrease) in deferred tax liability of intangible assets

139

164

 

 

________

________

 

 

 

 

 

Adjusted earnings used in adjusted EPS

9,301

7,760

 

 

________

________

 

 

Datapoint has brought forward historic tax losses, which the Group will benefit from in respect of its 2018 taxable profits. On acquisition a deferred tax asset was recognised in respect of a proportion of its tax losses, and a deferred tax charge of £475,000 was calculated on a streamed basis and was recognised in the income statement for 2018 (2017: £392,000). As this does not reflect the reality and benefit to the Group of the non-taxable profits, the deferred tax charge is adjusted above. An increase of £500,000 (2017: £500,000) in the deferred tax asset relating to Datapoint useable losses was reflected in the income statement and similarly adjusted for above.

 

Azzurri has brought forward capital allowances and on acquisition, a deferred tax asset was acquired in respect of its capital allowances. A deferred tax charge of £441,000 has been recognised in the income statement in respect of the period's profits. As this does not reflect the reality and benefit to the Group of the non-taxable profits, the deferred tax charge is adjusted above.

 

An increase of £139,000 (2017: £164,000) in the deferred tax liability relating to intangible assets was reflected in the income statement in 2018 and similarly adjusted for above.

 

 

 

2018

2017
 
 
Number
Number

 

 

(000s)

(000s)

 

 

 

 

 

Weighted average number of ordinary shares of 1p each

14,197

14,197

 

Potentially dilutive shares

274

275

 

 

________

________

 

 

 

 

 

 

14,471

14,472

 

 

________

________
 
 
 
 
 
Earnings per share
 
 

 

Basic

14.4p

10.8p

 

Diluted

14.1p

10.6p

 

Adjusted - basic but after the adjustments in the table above

65.5p

54.7p

 

Adjusted - diluted after the adjustments in the table above

64.3p

53.6p

 

The adjustments above have been made in order to provide a clearer picture of the trading performance of the Group. 

 

In calculating diluted earnings per share, the weighted average number of ordinary shares in issue is adjusted to assume conversion of all dilutive potential ordinary shares. The Group has one category of potentially dilutive ordinary share, being those share options granted to employees where the exercise price is less than the average price of the Company's ordinary shares during the period.

 

 

 

12.  Earnings before interest, tax, depreciation and amortisation (EBITDA)

 

 

 

 

 2018

 

 2017

 

 

 

(restated)

 

 

£000

£000

 

 

 

 

 

Profit before tax

 

2,248

1,609

Net interest

 

1,263

899

Depreciation of property, plant and equipment

 

711

763

Amortisation of intangibles

 

6,479

5,892

 

 

 

 

EBITDA

 

10,701

9,163

Share based remuneration

 

392

296

Exceptional costs (note 13)

 

1,647

1,454

 

 

 

 

Adjusted EBITDA

 

12,740

10,913

 

 

 

13

Exceptional costs

 

Most of the exceptional costs incurred in the year were related to the restructuring and reorganisation of the Group's operational structure, covering associated legal and professional fees, redundancy costs, integration project costs and corporate restructuring fees. These and the other costs analysed below have been shown as exceptional costs in the income statement as they are not normal operating expenses:

 

 

 

2018

2017

 

 

£000

£000

 

 

 

 

 

Property-related legal and professional costs

5

83

 

Acquisition and restructuring related redundancy costs

1,129

1,138

 

Costs relating to a vacant property

43

-

 

Costs relating to an onerous property lease

245

-

 

Costs relating to the closure of the Dublin office

99

-

 

Fees and integration costs relating to the acquisition of a customer base

44

-

 

Legal and professional fees relating to Intrinsic integration

-

60

 

Systems integration costs

76

 

 

Legal and professional fees relating to the acquisition of Intrinsic

-

273

 

Impairment of freehold property

-

17

 

Net effect of release of provisions relating to Azzurri

-

(121)

 

Other property related and legal and professional costs

6

4

 

 

 

 

 

 

________

________

 

 

 

 

 

 

1,647

1,454

 

 

________

________

 

 

 

14

Business combinations

 

On 1 July 2018, certain customer contracts owned by Atos, were acquired at the following provisional fair value amounts. This constitutes a purchase of a trade and assets.

 

 

£000

 

Purchase consideration

 

 

Cash

2,158

 

Deferred consideration

4,380

 

 

________

 

 

6,538

 

Assets and liabilities acquired

 

 

Cash

1,977

 

Working capital

(52)

 

Deferred managed service income

(2,091

 

Other receivables

____166

 

 

-

 

Intangible assets

 

 

Customer relationships

7,336

 

Deferred tax liability on intangible assets

(1,275)

 

 

________

 

 

 

 

Net assets and liabilities acquired

6,061

 

 

________

 

 

 

 

Goodwill

      477

________

 

 

 

 

 

 

Cash flows arising from the acquisition were as follows:

£000

 

 

 

 

Purchase consideration settled in cash

 

 

Direct acquisition costs (note 13)

(2,158)

 

Cash balances acquired

(44)

 

 

       1,977

 

 

 

 

 

(225)

 

 

___      __

 

On 1st July 2018 Maintel entered into a strategic alliance with Atos and completed the acquisition of certain UK customer contracts for a total net consideration of £5.1 million. The consideration of the acquisition is payable over a period of four and a half years across a number of payment instalments and will be satisfied using the Company's existing cash resources.

 

Maintel acquired a customer base which has been divested in order for Atos to focus on a growth strategy through its partners and large customer accounts. Following the Acquisition, Maintel will become a new channel partner of Atos.

 

The customer relationships are estimated to have a useful life of eight years based on the directors' experience of comparable intangibles, and are therefore amortised over this period.

 

A deferred tax liability of £1.3m has been recognised above which is being credited to the income statement pro rata to the amortisation of the intangibles. The Atos customer relationship related amortisation charge in 2018 is £0.5m.

 

Since its acquisition, the Atos acquired base has contributed revenues of £2.9m to the results of the Group.

 

The total consideration of £7m comprised of £2.1m, which was settled in cash during the year ending 31 December 2018. The residual monies are treated as deferred consideration payable over the period until 31 December 2022. The net consideration of £5.1m comprises total consideration of £7m net of cash acquired (£1.9m). Purchase consideration disclosed of £6,538,000 represents the present value of the deferred consideration.

 

 

 

 

 

 

 

On the 1 August 2017, the Company acquired the entire share capital of Intrinsic Technology Limited at the following provisional fair value amounts:

 

 

£000

 

Purchase consideration

 

 

Cash

4,906

 

 

________

 

Assets and liabilities acquired

 

 

Tangible fixed assets

220

 

Inventories

130

 

Trade and other receivables

7,317

 

Cash

11

 

Trade and other payables

(11,005)

 

 

________

 

 

(3,327)

 

Intangible assets

 

 

Customer relationships

5,600

 

Deferred tax asset

160

 

Deferred tax liability on intangible assets

(1,073)

 

 

________

 

 

 

 

Net assets and liabilities acquired

1,360

 

 

________

 

 

 

 

Goodwill

3,546

 

 

________

 

 

 

 

Cash flows arising from the acquisition were as follows:

£000

 

 

 

 

Purchase consideration settled in cash

(4,906)

 

Direct acquisition costs (note 13)

(273)

 

Cash balances acquired

11

 

 

________

 

 

 

 

 

5,168

 

 

________

 

 

 

 

Maintel acquired Intrinsic Technology Ltd ("Intrinsic") on 1 August 2017 on a cash-free, debt-free basis for a consideration of £5.25m, reduced to £4.9m through price adjustment mechanisms, payable in cash.

 

Intrinsic, as one of the UK's leading Cisco Gold partners significantly enhances Maintel's already strong capability in LAN networking and the fast growing network security sector. Its acquisition will complement and extend further the Group's existing offerings of telecommunications and data services and enable further cross selling to and from other Group operations, as further described in the strategic report. The goodwill is attributable to the workforce of the acquired business, cross selling opportunities and cost synergies that are expected to be achieved from sharing the expertise and resource of Maintel with that of Intrinsic and vice versa .

 

 

The acquisition was funded by an extension to, and draw-down under, the Company's existing Revolving Credit Facility with the Royal Bank of Scotland Plc (the "RCF"). The RCF, originally secured in April 2016 was increased by £6 million to £42 million.

 

The customer relationships are estimated to have a useful life of eight years based on the directors' experience of comparable intangibles, and are therefore amortised over this period.

 

A deferred tax liability of £1.1m has been recognised above which is being credited to the income statement pro rata to the amortisation of the intangibles. The Intrinsic related amortisation charge in 2017 is £0.3m.

 

In 2017, Intrinsic contributed the following to the results of the Group before management charges of £0.1m:

 

 

 

£000

 

Revenue

8,991

 

 

________

 

 

 

 

Loss before tax

(21)

 

 

________

 

 

Intrinsic's revenue for the period 1 January 2017 to 31 December 2017 was £25.1m and its loss before tax, exceptional items and interest costs was (£0.2m)

 

The Group incurred £0.3m of third party costs related to this acquisition. These costs are included in administrative expenses in the consolidated statement of comprehensive income.

 

 

 

15

Intangible assets

 

 

 

Goodwill

Customer relationships

Brands

Product platform

Software

Total
 
 
£000
£000
£000
£000
£000
£000

 

Cost

 

 

 

 

 

 

 

At 1 January 2017

36,434

31,282

3,480

1,299

2,682

75,177

 

Acquired in the year

3,546

5,600

-

-

-

9,146

 

Additions

-

-

-

-

1,089

1,089

 

 

_______

_______

_______

_______

_______

_______

 

 

 

 

 

 

 

 

 

At 31 December 2017 (note 14)

39,980

36,882

3,480

1,299

3,771

85,412

 

Acquired in the year

477

7,336

-

-

-

7,813

 

Additions

59

-

-

34

467

560

 

 

_______

_______

_______

_______

_______

_______

 

 

 

 

 

 

 

 

 

At 31 December 2018

40,516

44,218

3,480

1,333

4,238

93,785

 

 

_______

_______

_______

_______

_______

_______

 

 

 

 

 

 

 

 

 

Amortisation and Impairment

 

 

 

 

 

 

 

At 1 January 2017

317

10,606

408

108

586

12,025

 

Amortisation in the year

-

4,439

477

162

814

5,892

 

 

_______

_______

_______

_______

_______

_______

 

 

 

 

 

 

 

 

 

At 31 December 2017

317

15,045

885

270

1,400

17,917

 

Amortisation in the year

-

5,223

410

167

679

6,479

 

 

_______

_______

_______

_______

_______

_______

 

 

 

 

 

 

 

 

 

At 31 December 2018

317

20,268

1,295

437

2,079

24,397

 

 

_______

_______

_______

_______

_______

_______

 

 

 

 

 

 

 

 

 

Net book value

 

 

 

 

 

 

 

At 31 December 2018

40,199

23,950

2,185

896

2,159

69,389

 

 

_______

_______

_______

_______

_______

_______

 

 

 

 

 

 

 

 

 

At 31 December 2017

39,663

21,837

2,595

1,029

2,371

67,495

 

 

_______

_______

_______

_______

_______

_______

 

Amortisation charges for the year have been charged through administrative expenses in the statement of comprehensive income.

 

Goodwill

The carrying value of goodwill is allocated to the cash generating units as follows:

 

 

 

2018

2017

 

 

£000

£000

 

 

 

 

 

Network services division

21,134

21,134

 

Managed service and technology division

15,758

15,222

 

Mobile division

3,307

3,307

 

 

________

________

 

 

 

 

 

 

40,199

39,663

 

 

________

________

 

For the purposes of the impairment review of goodwill, the net present value of the projected future cash flows of the relevant cash generating unit are compared with the carrying value of the net assets for that unit; where the recoverable amount of the cash generating unit is less than the carrying amount of the net assets, an impairment loss is recognised. Projected operating margins for this purpose are based on a five-year horizon which use the approved budget amounts for year 1 and 3% rate of growth thereafter, and a pre-tax discount rate of 14% is applied to the resultant projected cash flows. For the comparative period, the same assumptions were used. The Group's impairment assessment at 31 December 2018 indicates that there is significant headroom for each unit. 

 

The discount rate is based on conventional capital asset pricing model inputs and varies to reflect the relative risk profiles of the relevant cash generating units. Sensitivity analysis using reasonable variations in the assumptions shows no indication of impairment. 

 

 

 

16

Subsidiaries

 

The Company owns investments in subsidiaries including a number which did not trade during the year. The following were the principal subsidiary undertakings at the end of the year:

 

Maintel Europe Limited

Maintel International Limited

 

Maintel Europe Limited provides goods and services in the managed services and technology and network services sectors. Maintel Europe Limited is the sole provider of the Group's mobile services. Maintel International Limited provides goods and services in the managed services and technology sector predominantly in Ireland.

 

 

 

 

 

In addition the following subsidiaries of the Company were dormant as at 31 December 2018:

 

Maintel Voice and Data Limited

Datapoint Global Services Limited

Maintel Finance Limited

District Holdings Limited

Maintel Network Solutions Limited

Datapoint Customer Solutions Limited

Intrinsic Technology Limited (hived up into Maintel Europe Limited on 1 January 2018)

Maintel Mobile Limited

Azzurri Holdings Limited

Warden Holdco Limited

Azzurri Communications Limited

Warden Midco Limited

 

 

 

 

 

 

 

Each subsidiary company is wholly owned and, other than Maintel International Limited, is incorporated in England and Wales. Maintel International Limited is incorporated in the Republic of Ireland.

 

Each subsidiary, other than Maintel International Limited, has the same registered address as the parent. The registered address of Maintel International Limited is Beaux Lane House, Mercer Street Lower, Dublin 2.

 

17
Property, plant and equipment

 

 

 

Freehold building

Leasehold Improvements

Office and  computer  equipment

Motor vehicles

Total
 
 
£000
£000
£000
£000
£000
 
 
 
 
 
 
 

 

Cost or valuation

 

 

 

 

 

 

At 1 January 2017

1,768

1,562

7,451

47

10,828

 

Transfer

(36)

-

(21)

-

(57)

 

Additions

-

6

387

-

393

 

On acquisition of Intrinsic

-

229

1,847

-

2,076

 

Disposals

-

-

(156)

-

(156)

 

Transfer to assets

 

 

 

 

 

 

held for sale

(1,732)

-

-

-

(1,732)

 

Exchange differences

-

2

-

-

2

 

 

________

________

________

________

________

 

 

 

 

 

 

 

 

At 31 December 2017

-

1,799

9,508

47

11,354

 

Transfer

-

54

-

-

54

 

Additions

-

-

1,264

-

1,264

 

Disposals

-

(19)

(3,349)

-

(3,368)

 

Exchange differences

-

-

-

-

-

 

 

________

________

________

________

________

 

 

 

 

 

 

 

 

At 31 December 2018

-

1,834

7,423

47

9,304

 

 

________

________

________

________

________

 

 

 

 

 

 

 

 

Depreciation

 

 

 

 

 

 

At 1 January 2017

164

1,016

6,309

47

7,535

 

Transfer

26

-

(83)

-

(57)

 

On acquisition of

 

 

 

 

 

 

Intrinsic

-

199

1,657

-

1,856

 

Provided in year

24

54

685

-

763

 

Transfer to assets

 

 

 

 

 

 

held for sale

(214)

-

-

-

(214)

 

 

________

________

________

________

________

 

 

 

 

 

 

 

 

At 31 December 2017

-

1,269

8,568

47

9,883

 

Transfer

-

54

-

-

54

 

Fair value adjustment

-

(113)

69

-

(44)

 

Disposals

-

(5)

(3,342)

-

(3,347)

 

Provided in year

-

71

640

-

712

 

 

________

________

________

________

________

 

 

 

 

 

 

 

 

At 31 December 2018

-

1,276

5,935

47

7,258

 

 

________

________

________

________

________

 

 

 

 

 

 

 

 

Net book value

 

 

 

 

 

 

At 31 December 2018

-

558

1,488

-

2,046

 

 

________

________

________

________

________

 

 

 

 

 

 

 

 

At 31 December 2017

-

530

940

-

1,471

 

 

________

________

________

________

________
               

 

 

 

 

 

 

Following a decision to market the freehold property for sale in December 2017, the freehold building was reclassified from tangible fixed assets to assets held for sale within current assets. (see note 17)

 

 

 

18

Assets held for sale

 

 

On 1 December 2017, the board announced its intention to market the Group's freehold property in Burnley for sale. The sale was concluded on 23 February 2018.

 

The criteria required to recognise a non-current asset held for sale, as disclosed in note 2, were all met on the announcement date.

 

 

 

2018

2017

 

 

£000

£000

 

 

 

 

 

Transfer from Property, plant & equipment on 1 December 2017

-

1,518

 

Fair value adjustment - impairment charge through profit and loss

-

(18)

 

 

________

________

 

 

 

 

 

 

Closing value  - at fair value

-

1,500

 

 

________

________

 

 

The fair value was obtained from an independent property valuation firm. Standard property valuation techniques were used, which include consideration of the property location and size, current property market conditions, and comparable property sales. Management consider this to be a level 3 fair value assessment in terms of the IFRS 13 Fair Value Measurement hierarchy.

 

 

19

Inventories

 

 

 

2018

2017

(restated)

 

 

£000

£000

 

 

 

 

 

Maintenance stock

1,511

1,746

 

Stock held for resale

6,756

8,892

 

 

________

________

 

 

 

 

 

 

8,267

10,638

 

 

________

________

 

 

 

 

 

Cost of inventories recognised as an expense

26,052

17,309

 

 

________

________
         

 

Provisions of £610,000 were made against the maintenance stock in 2018 (2017: £460,000).

 

 

 

20

Trade and other receivables

 

 

 

 

2018

2017

(restated)

 

 

£000

£000

 

 

 

 

 

Trade receivables

20,444

19,018

 

Other receivables

920

1,277

 

Prepayments and accrued income            

12,988

13,995

 

 

________

34,352

________

________

34,290

________

All amounts shown above fall due for payment within one year.

 

In adopting IFRS 9, the Group now reviews the amount of credit loss associated with its trade receivables based on forward looking estimates that take into account current and forecast credit conditions as opposed to relying on past historical default rates. In adopting IFRS 9 the Group has applied the Simplified Approach applying a provision matrix based on number of days past due to measure lifetime expected credit losses and after taking into account customer sectors with different credit risk profiles and current and forecast trading conditions. 

 

Movements in contract assets and liabilities were as follows:

-Trade receivables increased from £19m in 2017 to £20.4m at the reporting date;

-Accrued income increased from £2.3m in 2017 to £5.3m at the reporting date;

-Deferred Income decreased from £31.6m in 2017 to £26.7m at the reporting date; and

-Deferred costs have decreased from £6.2m in 2017 to £3.5m at the reporting date.

 

The corresponding adjustments for these movements represents Revenues and costs recognised in the income statement in FY 2018, as a result of the completion of some large technology projects which were in progress at the FY 2017 reporting date.

 

 

 

21

Trade and other payables

 

 

 

 

2018

2017

(restated)

 

Current trade and other payables

£000

£000

 

 

 

 

 

Trade payables

14,797

13,491

 

Other tax and social security

3,885

3,505

 

Accruals

7,485

6,662

 

Other payables

3,992

3,417

 

Provision for dilapidations and deferred rent incentive

247

196

 

Deferred managed service income (note 2(c))

18,495

19,471

 

Other deferred income (note 2(c))

8,185

12,128

 

Deferred consideration in respect of business combination

639

-

 

 

________

________

 

 

 

 

 

 

57,725

58,870

 

 

________

________

 

 

Non-current other payables

2018

2017

 

 

£000

£000

 

 

 

 

 

Deferred consideration in respect of business combination

3,825

-

 

Provision for dilapidations and deferred rent incentive

695

920

 

Intangible licences payables

379

561

 

Advanced mobile commissions

44

68

 

 

________

________

 

 

 

 

 

 

4,943

1,549

 

 

________

________

 

22

Deferred taxation

 

 

 

Property,

 

 

 

 

 

 

plant and

Intangible

Tax

 

 

 

 

equipment

assets

losses

Other

Total

 

 
£000
£000
£000
£000
£000

 

Net liability at 1 January 2017

(1,823)

4,800

(949)

(8)

2,020

 

Liability established against intangible assets acquired during the year

-

1,073

-

-

1,073

 

Asset established against fixed assets acquired in the year

(160)

-

-

-

(160)

 

Charge/(credit) to consolidated statement of comprehensive income

403

(968)

392

-

(173)

 

Credit to consolidated statement of comprehensive income in respect of anticipated further use of tax losses

-

-

(500)

-

(500)

 

 

________

________

________

________

________

 

Net liability at 31 December 2017

(1,580)

4,905

(1,057)

(8)

2,260

 

 

 

 

 

 

 

 

Liability established against intangible assets acquired during the year

-

1,412

-

-

1,412

 

Charge/(credit) to consolidated statement of comprehensive income

441

(1,232)

475

-

(316)

 

 

 

 

 

 

 

 

Adjustment to prior year to consolidated statement of comprehensive income

-

-

451

-

451

 

Credit to consolidated statement of comprehensive income in respect of anticipated further use of tax losses

-

-

(500)

-

(500)

 

 

________

________

________

________

________

 

Net liability at 31 December 2018

(1,139)

5,085

(631)

(8)

3,307

 

 

________

________

________

________

________

 

 

 

 

 

The deferred tax liability represents a liability established under IFRS on the recognition of an intangible asset in relation to the Maintel Mobile, Datapoint, Proximity, Azzurri, Intrinsic and Atos acquisitions.

 

The deferred tax asset relates to (a) the anticipated use in the future of tax losses within the Datapoint companies which were acquired in 2013, based on estimates of those companies' future profitability and relevant tax rates, and (b) the amount of the tax value of capital allowances claimed below depreciation provided in the accounts at the reporting date, and is calculated using the tax rates at which the liabilities are expected to reverse.

 

The tax losses used to date for Datapoint are in excess of those envisaged at the time of acquisition, and the directors have therefore increased the deferred tax asset by £0.5m in the year to reflect their expectation that more tax losses will be used in the future. A change in tax rates in the future would increase or decrease the value of this asset.

 

The asset relating to the use of tax losses is based on the directors' judgement of a range of factors influencing their anticipated use. A further undiscounted deferred tax asset of £0.3m (2017: £0.8m) relating to tax losses has not been recognised because there is insufficient evidence that the asset will be recoverable; should the Datapoint business generate higher profits than the anticipated future profits and/or an increase in corporate tax rates occur, these would increase use of these unrecognised losses.

 

Changes in tax rates and factors affecting the future tax charge

As described in note 9, the corporation tax rate reduced from 20% to 19% with effect from 1 April 2017 and will reduce to 17% from 1 April 2020. The deferred tax liability balance at 31 December 2018 has been calculated on the basis that the associated assets and liabilities will unwind at the rate prevailing at the time of the amortisation charge.

 

23

Borrowings

 

 

 

 

2018

2017

 

 

£000

£000

 

 

 

 

 

Current bank overdraft - secured

3,988

-

 

Non-current bank loan - secured

21,295

30,707

 

 

On 8 April 2016, the Group entered into new facilities with the Royal Bank of Scotland Plc to support the acquisition of Azzurri. These consisted of a revolving credit facility totalling £36m (the "RCF") in committed funds on a reducing basis for a five year term (with an option to borrow up to a further £20m in uncommitted accordion facilities).

 

On 1 August 2017, the acquisition of the entire share capital of Intrinsic Technology Limited was completed for a consideration of £4.9m on a cash-free, debt-free basis. The acquisition was funded by an extension to, and drawdown under, the Company's existing RCF with the Royal Bank of Scotland Plc. As a result, the RCF increased by £6m to £42m.

 

Under the terms of the facility agreement, the committed funds reduce to £31m on the three year anniversary, and to £26m on the four year anniversary from the date of signing.

 

The non current bank loan above is stated net of unamortised issue costs of debt of £0.2m (31 December 2017: £0.3m).

 

The facilities are secured by a fixed and floating charge over the assets of the Company and its subsidiaries. Interest is payable on amounts drawn on the revolving credit facility and overdraft facility at a covenant-depending tiered rate of 1.70 % to 2.85% per annum over LIBOR, with a reduced rate payable on undrawn facility.

 

Covenants based on adjusted EBITDA to net finance charges, net debt to EBITDA and operating cashflow to debt service ratios are tested on a quarterly basis. The company was in compliance with its covenants ratios tests throughout the year ended 31 December 2018.

 

The directors consider that there is no material difference between the book value and fair value of the loan.

 

24

Financial instruments

 

The Group's financial assets and liabilities mainly comprise cash, borrowings, trade and other receivables and trade and other payables.

 

 

Financial assets measured at amortised cost

 

 

2018

2017

(restated)

 

 

£000

£000

 

Current financial assets

 

 

 

Trade receivables

20,444

19,018

 

Cash and cash equivalents

-

3,311

 

Other receivables

920

1,277

 

 

________

________

 

 

 

 

 

 

21,364

23,606

 

 

________

________

 

 

 

Financial liabilities

measured at amortised cost

 

 

2018

2017

(restated)

 

 

£000

£000

 

Non current financial liabilities

 

 

 

Other payables

423

629

 

Secured bank loan

21,295

30,707

 

Deferred consideration in respect of business combination

3,825

-

 

 

________

________

 

 

 

 

 

 

25,543

31,336

 

 

________

________

 

 

 

 

 

Current financial liabilities

 

 

 

Trade payables

14,797

13,491

 

Short-term borrowings

3,988

-

 

Other payables

3,992

3,417

 

Accruals

7,485

6,662

 

Deferred consideration in respect of business combination

639

-

 

 

________

________

 

 

 

 

 

 

30,901

23,570

 

 

________

________

 

The maximum credit risk for each of the above is the carrying value stated above. The main risks arising from the Group's operations are credit risk, currency risk and interest rate risk, however other risks are also considered below.

 

Credit risk

Management has a credit policy in place and the exposure to credit risk is monitored on an ongoing basis.  Credit evaluations are performed on customers as deemed necessary based on, inter alia, the nature of the prospect and size of order. The Group does not require collateral in respect of financial assets.

 

 

 

At the reporting date, the largest exposure was represented by the carrying value of trade and other receivables, against which £439,000 is provided at 31 December 2018 (2017: £337,000). The provision represents an estimate of potential bad debt in respect of the year-end trade receivables, a review having been undertaken of each such year-end receivable. The largest individual receivable included in trade and other receivables at 31 December 2018 owed the Group £2.1m including VAT (2017: £1.0m). The Group's customers are spread across a broad range of sectors and consequently it is not otherwise exposed to significant concentrations of credit risk on its trade receivables.

 

The movement on the provision is as follows:

 

 

2018

2017

 

 

£000

£000

 

 

 

 

 

Provision at start of year

337

416

 

IFRS 9 alignment

108

-

 

Acquired provision of Intrinsic

-

70

 

Provision used

228

(66)

 

Provision reversed

(234)

(83)

 

 

________

________

 

 

 

 

 

Provision at end of year

439

337

 

 

________

________

 

A debt is considered to be bad when it is deemed irrecoverable, for example when the debtor goes into liquidation, or when a credit or partial credit is issued to the customer for goodwill or commercial reasons. The Group has applied the Simplified Approach applying a provision matrix based on number of days past due to measure lifetime expected credit losses and after taking into account customer sectors with different credit risk profiles and current and forecast trading conditions. The Group's provision matrix is as follows:

 

 

Current

< 30 days

31-60 days

> 60 days

Total
 
31 December 2018
 
 
 
 
 

 

Expected credit loss % range

0%-1%

2%-5%

3%-10%

5%-30%

 

 

Gross debtors (£'000)

16,826

3,025

753

279

20,883

 

Expected credit loss rate (£'000)

(171)

(83)

(76)

(109)

(439)

 

 

 

 

 

 

________

 

 

 

 

 

 

 

 

 

 

 

 

 

20,444

 

 

 

 

 

 

________

 

 

Current

< 30 days

31-60 days

> 60 days

Total
 
 
 
 
 
 
 
 
31 December 2017
 
 
 
 
 

 

Expected credit loss % range

0%-1%

2%-5%

3%-10%

5%-30%

 

 

Gross debtors (£'000)

15,236

3,093

837

189

19,355

 

Expected credit loss rate (£'000)

(91)

(146)

(50)

(50)

(337)

 

 

 

 

 

 

________

 

 

 

 

 

 

 

 

 

 

 

 

 

19,018

 

 

 

 

 

 

________

 

 

Cash and cash equivalents at both 2018 and 2017 year-ends are represented by cash and short term deposits, primarily with Royal Bank of Scotland Plc and HSBC Bank Plc.

 

Foreign currency risk

The functional currency of all Group companies is Sterling apart from Maintel International Limited, which is registered in and operates from the Republic of Ireland and whose functional currency is the Euro. The consolidation of the results of that company is therefore affected by movements in the Euro/Sterling exchange rate. In addition, some Group companies transact with certain customers and suppliers in Euros or dollars, and those transactions are affected by exchange rate movements during the year but are not deemed material in a Group context.

 

Interest rate risk

The Group had borrowings of £21.5m at 31 December 2018 (2017: £31.0m), together with a £5.0m overdraft facility (2017: £5.0m). The interest rate charged is related to LIBOR and bank rate respectively and will therefore change as those rates change. If interest rates had been 0.5% higher/lower during 2018, and all other variables were held constant, the Group's profit for the year would have been £192,000 (2017: £190,000) higher/lower due to the variable interest element on the loan.

 

The Group expects to be in a net borrowing position in the immediate future, and received £Nil interest during the year (2017: £Nil).

 

Liquidity risk

Liquidity risk represents the risk that the Group will not be able to meet its financial obligations as they fall due.  This risk is managed by balancing the Group's cash balances, banking facilities and reserve borrowing facilities in the light of projected operational and strategic requirements.

 

 

The following table details the contractual maturity of financial liabilities based on the dates the liabilities are due to be settled:

 

Financial liabilities:

 

 

0 to 6 months

6 to 12 months

2 to 5 Years

Total
 
£000
£000
£000
£000

 

 

 

 

 

Trade payables

14,797

-

-

14,797

Other payables

4,067

303

44

4,414

Accruals

6,914

192

379

7,485

Borrowings (including future interest)

449

415

22,279

23,143

Deferred consideration

64

575

3,825

4,464

 

______

______

______

______

 

 

 

 

 

At 31 December 2018

26,291

1,485

26,527

54.303

 

______

_______

_______

_______

 

 

0 to 6 months

6 to 12 months

2 to 5 Years

Total
 
£000
£000
£000
£000

 

 

 

 

 

Trade payables

13,491

-

-

13,491

Other payables

3,741

237

68

4,046

Accruals

5,961

140

561

6,662

Borrowings (including future interest)

520

520

32,379

33,419

 

______

______

______

______

 

 

 

 

 

At 31 December 2017

23,713

897

33,008

57,618

 

______

_______

_______

_______

 

Market risk

As noted above, the interest payable on borrowings is dependent on the prevailing rates of interest from time to time.

 

Capital risk management

The Group's objective when managing capital is to safeguard its ability to continue as a going concern in order to provide returns to shareholders. Capital comprises all components of equity- share capital, capital redemption reserve, share premium, translation reserve and retained earnings. Typically returns to shareholders will be funded from retained profits, however in order to take advantage of the opportunities available to it from time to time, the Group will consider the appropriateness of issuing shares, repurchasing shares, amending its dividend policy and borrowing, as is deemed appropriate in the light of such opportunities and changing economic circumstances.

 

25

Share capital

 

 

 

Allotted, called up and fully paid

 

 

2018

2017

2018

2017

 

 

Number

Number

£000

£000

 

 

 

 

 

 

 

Ordinary shares of 1p each

14,197,059

14,197,059

142

142

 

 

_________

_________

_________

_________

 

The Company adopted new Articles on 27 April 2016, which dispensed with the need for the Company to have an authorised share capital.

 

No shares were issued in the year (2017: Nil). No shares were repurchased during the year (2017: Nil).

 

 

26

Reserves

 

Share premium, translation reserve, and retained earnings represent balances conventionally attributed to those descriptions.

 

The capital redemption reserve represents the nominal value of ordinary shares repurchased and cancelled by the Company and is undistributable in normal circumstances.

 

The Group having no regulatory capital or similar requirements, its primary capital management focus is on maximising earnings per share and therefore shareholder return.

 

 The directors propose the payment of a final dividend in respect of 2018 of 19.5p per share; this dividend is not provided for in these financial statements.

 

 

27

Share Incentive Plan

 

The Company established the Maintel Holdings Plc Share Incentive Plan ("SIP") in 2006, which was updated in 2016. The SIP is open to all employees and executive directors with at least 6 months' continuous service with a Group company, and allows them to subscribe for existing shares in the Company out of their gross salary. The shares are bought by the SIP on the open market. The employees and directors own the shares from the date of purchase, but must continue to be employed by a Group company and hold their shares within the SIP for 5 years to benefit from the full tax benefits of the plan.

 

28

Share based payments

 

On 18 May 2009 the directors of the Company approved the adoption of the Maintel Holdings Plc 2009 Option Plan and on 20 August 2015 they approved the Maintel 2015 Long-term Incentive Plan.

 

The Remuneration committee's report describes the options granted over the Company's ordinary shares. 

 

In aggregate, options are outstanding over 3.0% of the current issued share capital. The number of shares under option and the vesting and exercise prices may be adjusted at the discretion of the remuneration committee in the event of a variation in the issued share capital of the Company. 

 

29

Operating leases

 

As at 31 December, the Group had future minimum rentals payable under non-cancellable operating leases as set out below:

 

 

2018

2018

2017

2017
 
 
Land and
 
Land and
 

 

 

buildings

Other

buildings

Other

 

 

£000

£000

£000

£000

 

The total future minimum lease

 

 

 

 

 

payments are due as follow:

 

 

 

 

 

 

 

 

 

 

 

Not later than one year

1,130

239

1,110

222

 

Later than one year and not later than five years

3,326

224

3,297

234

 

Later than five years

888

-

1,479

-

 

 

________

________

________

________

 

 

 

 

 

 

 

 

5,344

463

5,886

456

 

 

________

________

________

________

 

The commitment relating to land and buildings is in respect of the Group's London, Aldridge, Haydock, Blackburn and Fareham offices and Haydock warehouse facility. The remaining commitment relates to contract hired motor vehicles (which are typically replaced on a 3 year rolling cycle), office equipment, datacentre space rental, licencing of billing software and office supplies.

 

The Haydock offices and part of the London premises, have been sublet, with future minimum rentals receivable under non-cancellable operating leases as set out below:

 

 

 

2018

2017
 
 
Land and
Land and

 

 

Buildings

buildings

 

 

£000

£000

 

The total future minimum lease payments are due as follow:

 

 

 

 

 

 

 

Not later than one year

234

155

 

Later than one year and not later than five years

376

-

 

 

________

________

 

 

 

 

 

 

610

155

 

 

________

________

 

 

 

 

 

 

30

Related party transactions

 

Transactions with key management personnel

The Group has a related party relationship with its directors and executive officers. The remuneration of the individual directors is disclosed in the Remuneration committee report. The remuneration of the directors and other key members of management during the year was as follows:

 

 

 

2018

2017

 

 

£000

£000

 

 

 

 

 

Short term employment benefits

1,767

1,787

 

Contributions to defined contribution pension schemes

68

50

 

 

________

________

 

 

 

 

 

 

1,835

1,837

 

 

________

________

 

Other transactions

The Group traded in the year with A J McCaffery, transactions in 2018 and 2017 amounting in aggregate to less than £2,500. The Group traded with K Stevens in the year, transactions amounting to less than £1,000 (2017: Nil).

 

In 2018, the Group provided telecommunications services to Focus 4 U Limited, amounting to £2,000 (2017: £9,000) and to Zinc Media Group Plc £9,000 (2017: £9,000) companies of which N J Taylor is a director. In 2017, the Company paid fees of £7,000 (2018: £Nil) to Hopton Hill Limited, a company of which N J Taylor is a shareholder and director, in respect of consultancy services provided to the Company relating to the acquisition of Intrinsic).

 

In 2017, the Company paid fees of £4,000, (2018: £Nil) to Anchusa Consulting Limited, a company of which A P Nabavi is a shareholder and director, in respect of consultancy services provided to the Company relating to the acquisition of Intrinsic.

 

 

31

Post balance sheet events

 

 

There have been no events subsequent to the reporting date which would have a material impact on the financial statements.

 

 

 

 

Financial statements 

Company balance sheet

at 31 December 2018 - prepared under FRS101

 
Company number 3181729
Note
2018
2018
2017
2017

 

 

£000

£000

£000

£000

 

 

 

 

 

 

Fixed assets

 

 

 

 

 

Investment in subsidiaries

4

 

54,466

 

54,466

 

 

 

 

 

 

Current assets

 

 

 

 

 

Debtors

5

6,780

 

9,690

 

Cash at bank and in hand

 

-

 

359

 

 

 

________

 

________

 

 

 

 

 

 

 

 

 

6,780

 

10,049

 

Creditors: amounts falling due

within one year

 

 

 

 

 

Creditors

6

1,203

 

1,222

 

Short - term borrowings

7

4,569

 

-

 

 

 

________

 

________

 

Net current assets

 

 

1,008

 

8,827

 

 

 

 

 

 

Creditors: amounts falling due

 

 

 

 

 

after one year

 

 

 

 

 

Borrowings

7

 

21,295

 

30,707

 

 

 

________

 

________

Total assets less current liabilities

 

 

34,179

 

32,586

 

 

 

________

 

________

 

 

 

 

 

 

 

 

 

 

 

 

Capital and reserves

 

 

 

 

 

Called up share capital

8

 

142

 

142

Share premium

 

 

24,354

 

24,354

Capital redemption reserve

 

 

31

 

31

Profit and loss account

 

 

9,652

 

8,059

 

 

 

________

 

________

Shareholders' funds

 

 

34,179

 

32,586

 

 

 

________

 

________

 

 

The Company has taken advantage of the exemption under S408 of the Companies Act 2006 and has not presented its own profit and loss account in these financial statements. The profit for the year of the Company, after tax and before dividends paid, was £6.0m (2017: £6.8m). The auditors' remuneration for audit services to the Company in the year was £15,000 (2017: £14,000).

 

The Company financial statements were approved and authorised for issue by the board on 15 March 2019 and were signed on its behalf by:

 

M Townsend

Director

 

 

 

Financial statements

Reconciliation of movement in shareholders' funds

for the year ended 31 December 2018 - prepared under FRS101

 

 

 
 
 
 
Capital
Profit
 

 

 
 
Share
Share
redemption
and loss
 

 

 
 
capital
premium
reserve
account
Total

 

 

Note

£000

£000

£000

£000

£000

 

 

 

 

 

 

 

 

 

At 1 January 2017 

 

142

24,354

31

5,512

30,039

 

 

 

 

 

 

 

 

 

Profit and total comprehensive

 

 

 

 

 

 

 

income for year

 

-

-

-

6,808

6,808

 

Dividends paid

3

-

-

-

(4,557)

(4,557)

 

Grant of share options

 

-

-

-

296

296

 

 

 

________

________

________

________

______

 

 

 

 

 

 

 

 

 

At 31 December 2017

 

142

24,354

31

8,059

32,586

 

 

 

 

 

 

 

 

 

Profit and total comprehensive

 

 

 

 

 

 

 

income for year

 

-

-

-

6,042

6,042

 

Dividends paid

3

-

-

-

(4,841)

(4,841)

 

Grant of share options

 

-

-

-

392

392

 

 

 

________

________

________

________

______

 

 

 

 

 

 

 

 

 

At 31 December 2018

 

142

24.354

31

9,652

34,179

 

 

 

________

________

________

________

______

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial statements

Notes forming part of the Company financial statements

at 31 December 2018

 

1

Accounting policies

 

The Company financial statements have been prepared in accordance with Financial Reporting Standard 101 Reduced Disclosure Framework with effect from 1 January 2014. 

 

The principal accounting policies are summarised below; they have been applied consistently throughout the year and the preceding year.

 

(a)  Basis of preparation

 

The financial statements of the Company are presented as required by the Companies Act 2006. 

 

(b)   Investments

 

Investments in subsidiary undertakings are stated at cost unless, in the opinion of the directors, there has been impairment to their value, in which case they are written down to their recoverable amount.

 

(c)   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.

 

(d)   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 accounts.

 

(e)  Disclosure exemptions adopted

 

In preparing these financial statements the Company has taken advantage of disclosure exemptions conferred by FRS101. Therefore these financial statements do not include:

 

·        certain comparative information as otherwise required by EU endorsed IFRS;

·        certain disclosures regarding the Company's capital;

·        a statement of cash flows;

·        the effect of future accounting standards not yet adopted;

·        the disclosure of the remuneration of key management personnel; and

·        disclosure of related party transactions with other wholly owned members of the Group headed by Maintel Holdings Plc.

 

 

 

 

In addition, and in accordance with FRS101 further disclosure exemptions have been adopted because equivalent disclosures are included in the consolidated financial statements of Maintel Holdings Plc. These financial statements do not include certain disclosures in respect of:

 

·        share based payments;

·        impairment of assets.

 

(f) Judgements and key areas of estimation uncertainty

 

The Company makes certain estimates and assumptions regarding the future. Estimates and judgements are continually evaluated based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. In the future, actual experience may differ from these estimates and assumptions. The principal use of estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year relates to the potential impairment of the carrying value of investments.

 

The Company assesses at each reporting date whether there is an indication that its investments may be impaired. In undertaking such an impairment review, estimates are required in determining an asset's recoverable amount; those used are shown in note 15 of the consolidated accounts. These estimates include the asset's future cash flows and an appropriate discount to reflect the time value of money. The range of estimates reflects the relative risk profiles of the relevant cash generating units.

 

2

Employees

 

Staff costs, including directors, consist of:

2018

£000

2017

£000

 

 

 

Wages and salaries 

1,271

1,269

Social security costs

164

162

Pension costs

35

34

 

_______

_______

 

 

 

 

1,470

1,465

 

_______

_______

 

 

2018

2017
 
Number
Number

The average number of employees, including directors, during the year was:

 

9

_______

 

9

_______

 

 

 

 

3

Dividends paid on ordinary shares

 

 

 

Details of dividends paid and payable are shown in note 10 of the consolidated financial statements.

 

 

4

Investment in subsidiaries

 

 

 

Shares in

 

 

subsidiary

 

 

undertakings

 

 

£000

 

 

 

 

At 1 January 2017

49,640

 

Additions

4,906

 

 

________

 

 

 

 

At 31 December 2017 and 31 December 2018

54,546

 

Additions

-

 

 

________

 

 

 

 

At 31 December 2018

54,546

 

 

________

 

 

 

 

Provision for impairment

 

 

At 1 January 2017, 31 December 2017 and 31 December 2018

80

 

 

________

 

Net book value

 

 

At 31 December 2018

54,466

 

 

________

 

 

 

 

At 31 December 2017

54,466

 

 

________

 

On 1 August 2017 the Company acquired the entire share capital of Intrinsic Technology Limited, for a gross consideration of £4.9m, paid in cash.

 

Details of the Company's subsidiaries are shown in note 16 of the consolidated financial statements.

 

5

Debtors

 

 

 

 

2018

2017

 

 

£000

£000

 

 

 

 

 

Amounts owed by subsidiary undertakings

6,477

9,125

 

Other tax and social security

8

127

 

Prepayments and accrued income

14

16

 

Corporation tax recoverable 

281

422

 

 

________

________

 

 

 

 

 

 

6,780

9,690

 

 

________

________

 

All amounts shown under debtors fall due for payment within one year. 

 

 

6

Creditors

 

 

 

 

2018

2017

 

 

£000

£000

 

 

 

 

 

Amounts due to subsidiary undertakings

1,047

1,067

 

Trade creditors

41

56

 

Accruals and deferred income

115

99

 

 

________

________

 

 

 

 

 

 

1,203

1,222

 

 

________

________

 

 

7

Borrowings

 

 

 

 

2018

2017

 

 

£000

£000

 

 

 

 

 

Current bank overdraft - secured

4,569

-

 

Non-current bank loans - secured

21,295

30,707

 

On 8 April 2016 the Group entered into new facilities with the Royal Bank of Scotland Plc to support the acquisition of Azzurri. These consisted of a revolving credit facility totalling £36.0m (the "RCF") in committed funds on a reducing basis for a five year term (with an option to borrow up to a further £20.0m in uncommitted accordion facilities).

 

On 1 August 2017, the acquisition of the entire share capital of Intrinsic Technology Limited was completed for a consideration of £4.9m on a cash-free, debt-free basis. The acquisition was funded by an extension to, and draw-down under, the Company's existing RCF with the Royal Bank of Scotland Plc. As a result the RCF was increased by £6m to £42m.

 

Under the terms of the facility agreement, the committed funds reduce to £31.0m on the three year anniversary, and to £26.0m on the four year anniversary from the date of signing.

 

 

 

The non-current bank loan above is stated net of unamortised issue costs of debt of £0.2m (31 December 2017: £0.3m).

 

The facilities are secured by a fixed and floating charge over the assets of the Company and its subsidiaries. Interest is payable on amounts drawn on the revolving credit facility and overdraft facility at a covenant-depending tiered rate of 1.70 % to 2.85% per annum over LIBOR, with a reduced rate payable on undrawn facility.

 

Covenants based on adjusted EBITDA to net finance charges, net debt to EBITDA and operating cashflow to debt service ratios are tested on a quarterly basis. The company was in compliance with its covenants ratios tests throughout the year ended 31 December 2018.

 

The directors consider that there is no material difference between the book value and fair value of the loan.

 

8

Share capital

 

 

 

Allotted, called up and fully paid

 

 

2018

2017

2018

2017

 

 

Number

Number

£000

£000

 

 

 

 

 

 

 

Ordinary shares of 1p each

14,197,059

14,197,059

142

142

 

 

_________

_________

_________

_________

 

The Company adopted new Articles on 27 April 2017, which dispensed with the need for the Company to have an authorised share capital.

 

No shares were issued in the year (2017: Nil). No shares were repurchased during the year (2017: Nil).

 

 

9

Related party transactions

 

Transactions with other Group companies have not been disclosed as permitted by FRS101, as the Group companies are wholly owned.

 

 

10

Contingent liabilities

 

As security on the Group's loan and overdraft facilities, the Company has entered into a cross guarantee with its subsidiary undertakings in favour of Royal Bank of Scotland Plc. At 31 December 2018 each subsidiary undertaking had a net positive cash balance.

 

The Company has entered into an agreement with Maintel Europe Limited, guaranteeing the performance by Maintel Europe Limited of its obligations under the lease on its London premises.

 

 

 

 

 


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