Interim Results

RNS Number : 8028Y

Maintel Holdings PLC

10 September 2009

 



Maintel Holdings Plc

Interim results for the six months to 30 June 2009

Maintel Holdings Plc, the telecoms services company, announces unaudited interim results for the six months to 30 June 2009.  

Financial Highlights

Adjusted profit before tax of £1,128,000 (H108 - £811,000); adjusted profit before tax is basic profit before tax of £967,000 (H108 - £621,000), adjusted for goodwill impairment and intangibles amortisation

Adjusted earnings per share of 7.5p (H108 - 4.7p); adjusted earnings per share is basic and diluted earnings per share of 6.3p (H108 - 3.5p), adjusted for goodwill impairment and intangibles amortisation

Maintenance base increased to over £10m at 30 June 2009

Network services revenue and gross margin down only slightly on H108, with a large order in June benefiting the second half of 2009

Cash of £1.4m at 30 June 2009 (31 December 2008 - £1.0m) after paying a dividend of £334,000, taxation of £192,000 and share buy backs costing £30,000 

Interim dividend proposed of 3.1p per share (2008: 2.5p)

Operational Highlights

Significant maintenance order from a major customer announced in April, since grown to c£800,000 revenue per annum. A further order from the same customer for £700,000 per annum was announced recently

Further restructuring of engineering, sales and service resource in response to reduced equipment sales - financial benefits being seen in H2 2009

For further information please contact:

Eddie Buxton, Chief Executive     020 7401 4601

Dale Todd, Finance Director        020 7401 0562

Marc Young, FinnCap                 020 7600 1658

  Chairman's statement

I am pleased to report that Maintel achieved adjusted profit before tax of £1,128,000 for the first half of 2009, an increase of 39% over the comparable period last year (£811,000), giving an adjusted earnings per share figure up 60% at 7.5p (H108 - 4.7p). Turnover was slightly down at £9.401m (H108 - £9.777m) reflecting our planned reduction in low margin equipment sales and the termination of two large network services contracts towards the end of 2008. 82% of Group turnover during the period can be classified as recurring revenues compared with 76% for 2008 as a whole.

The reduction of our cost base continued in the early part of the period incurring one off restructuring charges of £123,000 but restoring margins to satisfactory and, we believe, sustainable levels. 

New business wins in our core area of maintenance have been pleasing and some key renewals of larger contracts have pushed our contracted base over £10m for the first time by the end of the period. The maintenance pipeline remains strong and we are well positioned for the second half of the year.

In network services, a large win has replaced much of the revenue lost in H208 but call traffic continues to be sensitive to economic conditions although other sources of revenue are growing. The new business picture here remains highly competitive and we are adding to our sales resource in this area.

The balance sheet remains strong with £1.4m cash at the end of the period and we are not so far seeing any noticeable deterioration in debt collection in spite of recessionary conditions. 

In view of the strength of the first half's results and our positive outlook for the balance of the year, we are raising our interim dividend by 24% to 3.1p per share. This will be paid on 2 October.

J D S Booth

Chairman

9 September 2009

Business review 

Results

The first half of 2009 has seen profit before impairment and amortisation up £317,000 on the first half of 2008. The 2009 figures include £123,000 in respect of restructuring the engineering and customer service resource to reflect the reduction in equipment sales - both planned and economy-driven - in the period; without these costs profit would also have been higher than in the second half of 2008.

Earnings per share have been enhanced by the buying back of 1,565,000 shares in 2008, most of these in the second half, and a further 40,000 in March 2009, so that both basic and adjusted EPS show an increase over the second half of 2008. 

		H1 2009		H1 2008		H2 2008				2008
		£000		£000		£000				£000
Revenue		9,401		9,777		9,638				19,415
Profit before tax		967		621		968				1,589
Add back goodwill impairment and intangibles amortisation		161		190		193				383
Adjusted profit before tax		1,128		811		1,161				1,972
Basic and diluted earnings per share		6.3p		3.5p		5.7p				9.2p
Adjusted earnings per share*		7.5p		4.7p		7.4p				12.1p

* Adjusted profit after tax divided by weighted average number of shares (note 3)

Revenue has reduced by £237,000 compared with the second half of 2008, with strong maintenance revenues benefiting from a large contract from a major customer - initially for £620,000pa, but since growing to c£800,000pa - partly offsetting the previously highlighted reduction in discretionary equipment sales and the termination by two larger customers of the network services division late in 2008. The maintenance base stood at a record high of over £10m at the end of the period.

The second half will benefit from a full six months of the new contract - less than 3 months were billed in the first half - together with a further order for c£700,000 recently announced from the same customer, and costs will reduce following a scaling back in engineering and service resource in the first half in a further response to the fall in equipment sales. In competitive market conditions, a large new network services contract has been signed in the first half of 2009, which is expected to more than compensate for the loss of two mid-level customers in that division in the period.

We are therefore well positioned for the second half of 2009. 

The Group continues to be strongly cash generative, and cash balances remain healthy at 30 June 2009, at £1.4m (31 December 2008 - £1.0m), after corporation tax payments of £192,000, dividend payments of £334,000 and share buy backs at a cost of £30,000. The Group has no debt.

Maintenance and equipment division

Revenue analysis (£000)	Six months to 30 June 2009	Six months to 30 June 2008	Year ended 31 Dec 2008
Maintenance related	4,924	4,459	9,157
Equipment, installations and other	1,785	2,514	4,702
Total maintenance and equipment	6,709	6,973	13,859

Division gross profit (£000)

2,784 (41%)

2,412 (35%)

5,017 (36%)

Average headcount during the period
Sales, marketing and customer service	42	52	49
Engineers	81	86	84

Maintenance

As announced in April, we were awarded a significant maintenance contract by our largest customer, worth a minimum of £620,000 per annum in revenue at around normal gross margin levels, and in respect of seven end user companies, for a minimum one year term. This contract has since grown to around £800,000 per annum.

Other than that contract, sales effort has focussed on recurring revenue, including developing relationships with other leading telecoms industry players, and sales of maintenance contracts have exceeded budgeted levels in the first half whilst attrition, although slightly higher than the exceptionally low levels of 2008, remains encouragingly low compared with historical levels. The Group's second largest customer has re-signed for a further 3 years early in the second half, and numerous other large customers have also renewed their contracts with Maintel so far this year.

These factors have resulted in record maintenance-related revenues of £4.9m in the first half and, as noted earlier, we finished H109 with our highest ever annual contract base of over £10m.

Equipment Sales 

As explained in previous reports, the economic slowdown and our planned move away from lower margin, big ticket equipment orders resulted in a steady reduction in those sales during 2008. 2009 started slowly but equipment sales appear to have stabilised at slightly over £300,000 per month, giving £1.8m for H109 compared with £2.5m for the equivalent period last year and £2.2m in the second half of 2008. 

Margins on smaller sales are better, and this revenue stream also includes some profitable labour-only work in H109, so that the margin on equipment sales and labour charges has increased in H109. 

In anticipation of the lower levels of equipment sales, the Group's engineering resource was reduced in H108 and, given the continued trend during 2008, further reductions were made in January 2009. The financial benefits from these were not felt until later in H109 due to notice periods. The first half also benefited from earlier reductions in sales and equipment-related customer service resource.

Network Services

Revenue analysis (£000)	Six months to 30 June 2009	Six months to 30 June 2008	Year ended 31 Dec 2008
Call traffic	1,431	1,795	3,405
Line rental	936	772	1,645
Other	403	284	628
Total Maintel Voice and Data	2,770	2,851	5,678

Division gross profit (£000)

667 (24%)

705 (25%)

1,406 (25%)

Largely as a result of the loss of two major customers late in 2008 following their respective acquisition and withdrawal from the market, our network services division revenues were £57,000 less in H109 than in H208.  

Two medium-sized (primarily call traffic) customers cancelled during H109, which has been more than compensated by the signing of a larger line rental contract; however there has been a time lapse between contracts stopping and starting, leaving a net revenue shortfall. Despite this signing, new network services contracts have proved more difficult to secure during the first half, restricting growth, and the industry-wide reduction in call traffic due to the recession has also impacted the division's revenues, with call traffic revenues down by £179,000 compared with H208.

The increase in other revenue, £59,000 up on H208, is attributable to the growth in the division's data business.

Margins of the respective network services revenue streams remained relatively strong in H109 at 24%, compared with 25% in H208, with the replacement of higher margin call traffic with lower margin line rental being the primary cause of this slight reduction.

The divisional gross profit was £667,000 in the first half, compared with £701,000 in the second half of last year.

Administrative expenses, excluding goodwill impairment and intangibles amortisation 

Administrative expenses (£000)	Six months to 30 June 2009	Six months to 30 June 2008	Year ended 31 Dec 2008
Sales expenses	1,011	1,100	2,114
Other administrative expenses (excluding goodwill impairment and intangibles amortisation)	1,260	1,207	2,302
Total other administrative expenses	2,271	2,307	4,416

Continuing attention to costs - including, with a handful of pre-agreed exceptions, a salary freeze from 1 January 2009 - has meant that overall administrative expenses have increased only slightly over H208, with sales costs remaining static and increased commission compensating for reduced headcount.

Interest

The share buybacks in late 2008 and in March 2009 reduced the Group's cash reserves significantly at the time and, together with the poor rates of interest achievable on low risk deposits, this has resulted in minimal interest income in the period. 

Taxation

The income statement shows an effective tax rate of 29.5% (2008 - 31.1%) The two main trading companies are taxed at 28.0% in 2009 (2008 - 28.5%), so that with disallowables the effective rate is above this, increased further by the goodwill impairment charge which does not attract tax relief. 

Balance Sheet

The balance sheet remains strong, with £1.4m of cash (31 December 2008 - £1.0m) as noted above, after corporation tax payments of £192,000, dividend payments of £334,000 and share buy backs at a cost of £30,000. The Group has no debt.

No significant expenditure has been required on plant and equipment during the period, or on major stock purchases. A number of maintained phone systems are nearing the end of their useful lives and the parts held in stock associated with these have been further provided against in the period.

The deferred tax liability arises from the application of IFRS, whereby a liability of £290,000 was created on the recognition of the intangible asset relating to the acquisition of the District group in 2006.  

Intangible assets

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

Goodwill has been subject to an impairment charge of £30,000 in the period (full year 2008 - £120,000), leaving a carrying value of £347,000 (end-2008 - £377,000).

The intangible asset relating to customer contracts and relationships has been subject to an amortisation charge of £131,000 (full year 2008 - £263,000), leaving a carrying value of £700,000 (end-2008 - £831,000). 

Purchase of own shares

Further to the authority granted at the last AGM, the Company repurchased and cancelled 40,000 of its own shares in March 2009 at a price of 76p and a total cost of £30,000. 

Market Conditions and Outlook

The Group's maintenance base has grown significantly in the last year and our focus is to sustain this trend, both through direct client relationships and by continuing to build on our relationships with major players in the telecoms industry. We are also investing to restore growth in our network services division, where market conditions remain competitive.

The pipeline is good in both areas, as it is for equipment sales, although the targets for the latter are low and to a large extent achievable from incidental sales to customers rather than new sales being sought at stressed margins in the current economic environment. To an extent, this business could justifiably be described as recurring revenue.

Maintel's 'traditional' recurring revenue, however, derives from its maintenance and network services contracts, which represented £7.7m (82%) of our Group income in H109 (full year 2008 - £14.8m and 76%), giving good revenue visibility. 

We are well placed, therefore, for the second half of 2009, which has begun satisfactorily.

Dividend

Given the solid results in the first half of 2009 and our expectations for the second half, the board proposes an increased interim dividend of 3.1p per share (H108 - 2.5p).

Eddie Buxton

Chief Executive

9 September 2009

  Maintel Holdings Plc

Consolidated statement of comprehensive income

for the six months to 30 June 2009

	Six months to	Six months to	Year ended
	30 June 2009	30 June 2008	31 Dec 2008
	£'000	£'000	£'000
	(unaudited)	(unaudited)	(audited)
Revenue	9,401	9,777	19,415
Cost of sales	6,005	6,699	13,095
Gross profit	3,396	3,078	6,320
Administrative expenses
Goodwill impairment	30	59	120
Intangibles amortisation	131	131	263
Other administrative expenses	2,271	2,307	4,416
	2,432	2,497	4,799
Operating profit	964	581	1,521
Finance income	3	40	68
Profit before taxation	967	621	1,589
Taxation	285	197	495
Profit for the period and total comprehensive income for the period	682	424	1,094
Earnings per share
Basic and diluted (note 3)	6.3p	3.5p	9.2p

  Maintel Holdings Plc 

Consolidated statement of financial position  

as at 30 June 2009

	30 June 2009	30 June 2008	31 Dec 2008
	£'000	£'000	£'000
	(unaudited)	(unaudited)	(audited)
Non current assets
Intangible assets	1,046	1,401	1,208
Property, plant and equipment	223	201	200
	1,269	1,602	1,408
Current assets
Inventories	832	837	736
Trade and other receivables	4,073	3,993	3,164
Cash and cash equivalents	1,380	1,896	1,010
Total current assets	6,285	6,726	4,910
Total assets	7,554	8,328	6,318
Current liabilities
Trade and other payables	5,989	6,118	5,173
Current tax liabilities	310	226	193
Total current liabilities	6,299	6,344	5,366
Non current liabilities
Deferred tax liability	73	109	98
Total net assets	1,182	1,875	854
Equity
Issued share capital	108	121	108
Share premium	628	628	628
Capital redemption reserve	28	15	28
Retained earnings	418	1,111	90
Total equity	1,182	1,875	854

  Maintel Holdings Plc

Consolidated statement of changes in equity

for the period to 30 June 2009 (unaudited)

	Share capital	Share premium	Capital redemption reserve	Retained earnings	Total
	£'000	£'000	£'000	£'000	£'000
At 1 January 2008	124	628	12	1,442	2,206
Total comprehensive income	-	-	-	424	424
Dividend	-	-	-	(364)	(364)
Movements in respect of purchase of own shares	(3)	-	3	(391)	(391)
At 30 June 2008	121	628	15	1,111	1,875
Total comprehensive income	-	-	-	670	670
Dividend	-	-	-	(300)	(300)
Movements in respect of purchase of own shares	(13)	-	13	(1,391)	(1,391)
At 31 December 2008	108	628	28	90	854
Total comprehensive income	-	-	-	682	682
Dividend	-	-		(334)	(334)
Share based payment credit	-	-	-	10	10
Movements in respect of purchase of own shares	-	-	-	(30)	(30)
At 30 June 2009	108	628	28	418	1,182

  Maintel Holdings Plc

Consolidated cash flow statement

for the six months to 30 June 2009

	Six months to	Six months to	Year ended
	30 June 2009	30 June 2008	31 Dec 2008
	£'000	£'000	£'000
	(unaudited)	(unaudited)	(audited)
Operating activities
Profit before taxation	967	621	1,589
Adjustments for:
Goodwill impairment	30	59	120
Intangibles amortisation	131	131	263
Share based payments	10	-	-
Depreciation charge	50	61	118
Interest received	(3)	(40)	(68)
Loss on disposal of fixed assets	-	1	2
Operating cash flows before changes in working capital	1,185	833	2,024
(Increase)/decrease in inventories	(96)	(8)	93
(Increase)/decrease in trade and other receivables	(909)	(65)	764
Increase/(decrease) in trade and other payables	816	93	(852)
Cash generated from operating activities	996	853	2,029
Tax paid	(192)	(296)	(638)
Net cash flows from operating activities	804	557	1,391
Investing activities
Purchase of plant and equipment	(73)	(58)	(115)
Disposal of plant and equipment	-	3	3
Interest received	3	40	69
Net cash flows from investing activities	(70)	(15)	(43)
Financing activities
Other interest paid	-	-	(1)
Repurchase of own shares for cancellation	(30)	(391)	(1,782)
Equity dividends paid	(334)	(364)	(664)
Net cash flows from financing activities	(364)	(755)	(2,447)
Net increase/(decrease) in cash and cash equivalents	370	(213)	(1,099)
Cash and cash equivalents at start of period	1,010	2,109	2,109
Cash and cash equivalents at end of period	1,380	1,896	1,010

  Maintel Holdings Plc

Notes to the interim results

1.    Basis of preparation

The financial information in these interim results is that of the holding company and all of its subsidiaries (the Group). It has been prepared in accordance with the recognition and measurement requirements of International Financial Reporting Standards as adopted for use in the EU (IFRSs). The accounting policies applied by the Group in this financial information are the same as those applied by the Group in its financial statements for the year ended 31 December 2008 and which will form the basis of the 2009 financial statements, except as described below.

A number of new and amended standards become effective for periods beginning on or after 1 January 2009. The principal changes that are relevant to the Group are:

IFRS 8 - Operating Segments

IFRS 8 is a disclosure standard only; there has been no effect on the reported results or previous financial position of the Group. The Group's reportable segments as reported under IAS 14 have remained unchanged following the adoption of this standard.

IAS 1 (revised 2007) - Presentation of Financial Statements

The revised standard has introduced a number of terminology changes (including revised titles for the condensed financial statements) and has resulted in a number of changes in presentation and disclosure. There has been no effect on the reported results or previous financial position of the Group.

None of the other new standards and amendments are expected to materially affect the Group.

The Group's results are not materially affected by seasonal variations.

The comparative financial information presented herein for the year ended 31 December 2008 does not constitute full statutory accounts for that period. The Group's annual report and accounts for the year ended 31 December 2008 have been delivered to the Registrar of Companies. The Group's independent auditor's report on those statutory accounts was unqualified, did not include references to any matters to which the auditors drew attention without qualifying their report, and did not contain a statement under section 237(2) or (3) of the Companies Act 1985.

The financial information for the half-years ended 30 June 2009 and 30 June 2008 is unaudited.

2.    Segmental analysis

Six months to 30 June 2009	Maintenance and equipment	Network services	Central/ intercompany	Total
(unaudited)	£'000	£'000	£'000	£'000
Revenue	6,709	2,770	(78)	9,401
Included in telephone system maintenance revenue above is £1,000 of leasing income.
Revenue is wholly attributable to the principal activities of the Group and, other than
insignificant sales to EU countries, arises predominantly within the United Kingdom.
Operating profit	927	195	(158)	964
Interest income				3
Profit before taxation				967
Taxation				(285)
Profit after taxation				682
Balance sheet
Assets	6,192	1,408	(46)	7,554
Liabilities	(5,397)	(1,117)	142	(6,372)
Total	795	291	96	1,182
Other
Capital expenditure	73	-	-	73
Depreciation	50	-	-	50
Amortisation and impairment	11	24	126	161

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

Year to 31 December 2008	Maintenance and equipment	Network services	Central/ intercompany	Total
	£'000	£'000	£'000	£'000
Revenue	13,859	5,678	(122)	19,415
Included in telephone system maintenance revenue above is £8,000 of leasing income.
Other than equipment sales of £34,000 to EU countries, revenue is wholly attributable to the principal activities of the Group and arises predominantly within the United Kingdom.
Operating profit	1,433	472	(384)	1,521
Interest income				68
Profit before taxation				1,589
Taxation				(495)
Profit after taxation				1,094
Balance sheet
Assets	4,594	1,308	416	6,318
Liabilities	(4,462)	(1,158)	156	(5,464)
Total	132	150	572	854
Other
Capital expenditure	115	-	-	115
Depreciation	118	-	-	118
Amortisation and impairment	22	48	313	383

3.    Earnings per share

Earnings per share have been calculated using the weighted average number of shares in issue during the period. This and earnings, being profit after tax, are as follows. An adjusted earnings per share figure - excluding the impairment of goodwill and amortisation of intangibles and, in 2008, one-off professional costs - is also shown in order to provide a clearer picture of the trading performance of the Group.

	Six months to	Six months to	Year ended
	30 June 2009	30 June 2008	31 Dec 2008
	£'000	£'000	£'000
	(unaudited)	(unaudited)	(audited)
Earnings used in basic and diluted EPS, being profit after tax	682	424	1,094
Goodwill impairment and intangible amortisation, less tax thereon	123	151	305
One-off professional costs, less tax thereon	-	-	35
Adjusted earnings, being profit after tax, before goodwill impairment and intangible amortisation and one-off professional costs	805	575	1,434
Weighted average number of shares	10,798	12,168	11,832
Basic and diluted EPS	6.3p	3.5p	9.2p
Adjusted EPS	7.5p	4.7p	12.1p

4.    Dividends

	Six months to	Six months to	Year ended
	30 June 2009	30 June 2008	31 Dec 2008
	£'000	£'000	£'000
	(unaudited)	(unaudited)	(audited)
Dividends paid
Final 2007, paid 30 April 2008
- 3.0p per share	-	364	364
Interim 2008, paid 10 October 2008
- 2.5p per share	-	-	300
Final 2008, paid 29 April 2009
- 3.1p per share	334	-	-
	334	364	664

The directors propose to pay an interim dividend of 3.1p per share on 2 October 2009 to shareholders on the register at 18 September 2009.

Independent review report to Maintel Holdings Plc

Introduction 

We have been engaged by the company to review the financial information in the interim results for the six months ended 30 June 2009 which comprises the consolidated statement of comprehensive income, the consolidated statement of financial position, the consolidated statement of changes in equity, the consolidated cash flow statement, and related explanatory notes.

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

Directors' responsibilities

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

Our responsibility

Our responsibility is to express to the company a conclusion on the condensed set of financial statements in the interim results based on our review.

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

Scope of review

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

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the financial information in the interim results for the six months ended 30 June 2009 is not prepared, in all material respects, in accordance with the rules of the London Stock Exchange for companies trading securities on the Alternative Investment Market.

BDO STOY HAYWARD LLP

Chartered Accountants and Registered Auditors

London

9 September 2009

 

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