Interim Results

Maintel Holdings PLC 10 September 2007 Maintel Holdings Plc Interim results for the six months to 30 June 2007 Maintel Holdings Plc, the telecoms services company, announces interim unaudited results for the six months to 30 June 2007. These are reported under International Financial Reporting Standards ('IFRS'), with 2006 comparisons restated accordingly. Financial Highlights Group turnover increased by 26% to Â£8.9m (2006 H1: Â£7.1m) Maintenance related revenue increased by 16% to Â£4.3m (2006 H1: Â£3.7m) Sales of equipment including VoIP solutions up 43% to Â£2.6m (2006 H1: Â£1.8m) Sales of broadband, call traffic and related products up 32% to Â£2.0m (2006 H1: Â£1.5m) Cash increased by Â£411,000 in H1 after paying a dividend of Â£361,000 and Â£258,000 taxation Adjusted profit before tax of Â£905,000 (2006 H1: Â£916,000); adjusted profit before tax is basic profit before tax of Â£780,000 (2006 H1: Â£916,000), adjusted for goodwill impairment and intangible amortisation Adjusted earnings per share of 5.1p (2006 H1: 5.0p); adjusted earnings per share is basic earnings per share of 4.3p (2006 H1: 5.0p), adjusted for goodwill impairment and intangible amortisation Interim dividend proposed of 2.5p per share (2006: 2.1p) Operational Highlights Increased investment in recruitment and training of Nortel technical team Increased investment and training in sales resource Significant order for VoIP roll out for major city law firm for H2 delivery Acquisition in August of a customer base from Callmaster Limited for up to Â£442,000 cash, satisfied from existing resources - annual contract value approx Â£850,000 Order book of Â£1.4m at 31 August Winner of Nortel/Westcon Enterprise Achievement Award 2007 John Booth, Chairman said: 'Growth was particularly strong in sales of new VoIP and data equipment as our maintained customers continue to invest in new technology. This has resulted in us entering the second half of 2007 with a large order book of work to be completed and a healthy prospect list.' For further information please contact: Tim Mason, Chief Executive 020 7401 4601 Dale Todd, Finance Director 020 7401 0562 Chairman's statement I am pleased to report continued robust performance by your company for the first half of 2007 with turnover up 26% on the equivalent period in 2006. Growth was particularly strong in sales of new VoIP and data equipment as our maintained customers continue to invest in new technology. This has resulted in us entering the second half of 2007 with a large order book of work to be completed and a healthy prospect list. In August we completed the purchase of the contract base of Callmaster Limited reinforcing Maintel's ability to supplement organic growth with valuable acquisitions. We are confident that these developments will lead to continued growth in the second half of the year. For the first half of the current year, adjusted earnings per share increased slightly reflecting the significant investment made in our technical capability to support the requirements of our customers and continuing growth of our sales engine. Dividend In light of expectations in the second half, we are proposing an interim dividend of 2.5p per share, up from 2.1p last year, to be paid on 5 October 2007 to shareholders on the register at 21 September 2007. J D S Booth Chairman 7 September 2007 Business review IFRS (International Financial Reporting Standards) This is the first reporting period for which the Group is required to report under IFRS, the main effects of which are to alter the treatment of goodwill and its amortisation, and to create a provision for accrued holiday pay. Prior period accounts have been restated under IFRS, and reconciliations between UK GAAP and IFRS are shown on pages 16 to 23. Results The first half of 2007 has seen another solid performance from the Maintel Group, with revenues increasing 26% compared with the first half of 2006. As predicted in the annual report issued in March, profit has remained steady primarily due to the investment in engineering resource during the later stages of 2006 and the cost of retraining existing engineers in new product lines, together with further investment in sales resource in early 2007. Before goodwill impairment, intangibles amortisation and the IFRS holiday pay accrual, profit before tax was Â£964,000, compared with Â£965,000 in the first half of 2006, however share buy backs during 2006 and the absorption of residual tax losses from the District group, mean that adjusted earnings per share have increased from 5.0p to 5.1p. UK GAAP profitability (Â£000) 30 June 2007 30 June 2006 31 Dec 2006 IFRS profit before tax 780 916 2,012 Add back goodwill impairment and intangibles amortisation 125 - 188 Add back holiday pay accrual 59 49 2 UK GAAP profit before tax, before goodwill amortisation 964 965 2,202 The revenue growth has derived mostly from another strong performance from the Network services division, VoIP equipment sales in Maintel Europe and from customers of the District group, which was acquired in June 2006. Cash balances have increased by Â£411,000 since the year end, to Â£2.6m, representing the profit in the period less Â£258,000 tax, Â£361,000 in dividend payments, Â£63,000 capital expenditure and a Â£110,000 positive movement in working capital. Maintenance and equipment division Revenue analysis (Â£000) 30 June 2007 30 June 2006 31 Dec 2006 Maintenance related 4,339 3,753 8,073 Equipment, installations and other 2,551 1,784 4,754 Total maintenance and equipment 6,890 5,537 12,827 The maintenance and equipment division has returned a Â£1.35m increase in revenue compared with the first half of 2006, an estimated Â£500,000 of this deriving from the District acquisition. Both maintenance and equipment sales have therefore shown good underlying growth, maintenance related revenues having increased by 16% to Â£4.3m in the first half of 2007. Equipment sales are showing a reduction compared with the second half of 2006 due to that period incorporating Â£866,000 of revenue in respect of the London Probation Board ('LPB') contract - a project for which Maintel Europe earned the Nortel/Westcon Enterprise Achievement Award. The second half of 2007 will benefit from a Â£380,000 equipment sale signed in August with a major law firm which, together with an exceptionally large order book gives us confidence that equipment sales for the year will exceed 2006. Division gross profit (Â£000) 2,623 2,302 5,038 The division showed a slight fall in profitability compared with the second half of 2006, primarily a result of the investment in engineering, sales resource and training noted earlier, and the LPB contract in 2006. It is anticipated that increased utilisation of the engineering resource, and the effects of the increased sales resource will be seen in the second half. Average headcount during the period 30 June 2007 30 June 2006 31 Dec 2006 Sales, marketing and customer service 58 42 54 Engineers 86 63 72 Network services division In the first half of 2007, the division has seen significant growth in its primary revenue streams of call traffic and line rental, with the former up 23% on the first half of 2006 and the latter up 118%. This change in revenue mix - line rental earning lower margins than call traffic - together with some price pressure on call traffic margins, has caused the division's overall gross margin to drop from 29% in 2006 to 26% in the first half of 2007, although gross profit has continued to grow, from Â£505,000 in the second half of 2006 to Â£523,000 in the period under review. As anticipated in the year end business review, the division has received notice of cancellation from one of its larger but lower margin customers. The reduction in revenue will be seen from August 2007, but this will be tempered by a significant first half new signing which will go some way to compensating for the loss. Attrition otherwise remained low. Revenue analysis (Â£000) 30 June 2007 30 June 2006 31 Dec 2006 Call traffic 1,396 1,138 2,426 Line rental 462 212 586 Other 162 176 327 Total Maintel Voice and Data 2,020 1,526 3,339 Division gross profit (Â£000) 523 456 961 Administrative expenses As already noted, investment in our sales team increased in the first half of 2007, with a net 16 increase in headcount over the same period last year. The largest increase has been in the account management team which has been achieving significant sales into our customer base. Administrative expenses (Â£000) 30 June 2007 30 June 2006 31 Dec 2006 Sales expenses 1,152 908 1,878 Other administrative expenses (excluding goodwill impairment and intangibles amortisation) 1,148 1,012 1,844 District sales and admin costs - - 211 Total other administrative expenses 2,300 1,920 3,933 Administrative expenses increased, albeit at a reduced rate compared with revenue, largely due to the increase in overall headcount and increase in revenues impacting on variable overheads. 30 June 2007 30 June 2006 31 Dec 2006 Average Group headcount during the period 171 149 160 Group revenue 8,910 7,063 16,166 Taxation The income statement shows a tax rate of 30.9%. The two main trading companies are taxed at 30%, so that with disallowables the effective rate is above this, increased further by the goodwill impairment charge which does not attract tax relief. In the period under review, however, the unused portion of District's tax losses has reduced the charge. Intangible assets Following the adoption of IFRS, the Group has three intangible assets - goodwill arising on the acquisition of Maintel Network Services Limited (previously Pinnacle Voice and Data Limited) and an intangible asset represented by customer contracts and relationships acquired from District Holdings Limited, together with goodwill relating to that acquisition. The goodwill is subject to an impairment test at each reporting date. No impairment charge is required at 30 June 2007 and the carrying value is Â£544,000 at that date. The intangible is subject to an amortisation charge of 20% of cost per annum, Â£96,000 having been amortised in the first half, leaving a carrying value of Â£772,000. Balance sheet The balance sheet remains solid, with Â£2.6m of cash, as noted above, facilitating continued growth in equipment sales and network services from existing resources. No significant expenditure has been required on plant and equipment, or on stock, during the period. The deferred tax liability arises from the application of IFRS, whereby a liability of Â£290,000 was created on the establishment of the intangible asset relating to District. This is partially offset by deferred tax assets, and is likely to be impaired in parallel with the amortisation of the intangible. Acquisition of contract base On 1 August 2007, the Group acquired a contract base of maintenance, call traffic, line rental and VoIP hosted service customers from Callmaster Limited, for a consideration of up to Â£442,000. Two of Callmaster's engineers joined the Group at the same time. The annual value of the contracts at the date of acquisition was around Â£850,000. Once again I would like to extend my gratitude to all Maintel employees for their continued hard work and support which has produced another excellent result for the Group. Tim Mason Chief Executive 7 September 2007 Maintel Holdings Plc Consolidated interim income statement for the six months to 30 June 2007 Six months to Six months to Year ended 30 June 2007 30 June 2006 31 Dec 2006 Â£'000 Â£'000 Â£'000 (unaudited) (unaudited) (audited) Revenue 8,910 7,063 16,166 Cost of sales 5,764 4,305 10,167 ---------- ---------- ---------- Gross profit 3,146 2,758 5,999 Administrative expenses ------------------------- ---------- ---------- ---------- Goodwill impairment 29 - 91 Intangibles amortisation 96 - 97 Other administrative expenses 2,300 1,920 3,933 ------------------------- ---------- ---------- ---------- 2,425 1,920 4,121 ---------- ---------- ---------- Operating profit 721 838 1,878 Financial income 59 78 135 Financial charges - - (1) ---------- ---------- ---------- Profit before taxation 780 916 2,012 Taxation 241 270 592 ---------- ---------- ---------- ========== ========== ========== Profit after taxation attributable 539 646 1,420 to equity holders of the parent ========== ========== ========== === === === === === === Earnings per share ==================== === === === === === === Basic and diluted (note 3) 4.3p 5.0p 11.1p ============================ ========== ========== ========== Maintel Holdings Plc Consolidated balance sheet as at 30 June 2007 30 June 2007 30 June 2006 31 Dec 2006 Â£'000 Â£'000 Â£'000 (unaudited) (unaudited) (audited) Non current assets Intangible assets 1,316 1,482 1,441 Property, plant and equipment 223 287 238 ---------- ---------- ---------- 1,539 1,769 1,679 ---------- ---------- ---------- Current assets Inventories 733 1,332 705 Trade and other receivables 3,050 2,972 2,861 Cash and cash equivalents 2,645 3,573 2,234 ---------- ---------- ---------- 6,428 7,877 5,800 ---------- ---------- ---------- Total assets 7,967 9,646 7,479 ---------- ---------- ---------- Current liabilities Trade and other payables 5,598 7,250 5,271 Current tax liabilities 415 344 380 ---------- ---------- ---------- Total current liabilities 6,013 7,594 5,651 ---------- ---------- ---------- Non current liabilities Deferred tax liability 165 229 217 ---------- ---------- ---------- Total net assets 1,789 1,823 1,611 ========== ========== ========== Equity Issued share capital 124 128 124 Share premium 628 628 628 Capital redemption reserve 12 8 12 Retained earnings 1,025 1,059 847 ---------- ---------- ---------- Total shareholders' equity 1,789 1,823 1,611 ========== ========== ========== Maintel Holdings Plc Consolidated cash flow statement for the six months to 30 June 2007 Six months to Six months to Year ended 30 June 2007 30 June 2006 31 Dec 2006 Â£'000 Â£'000 Â£'000 (unaudited) (unaudited) (audited) Operating activities Profit before taxation 780 916 2,012 Adjustments for: Goodwill impairment 29 - 91 Intangibles amortisation 96 - 97 Depreciation charge 78 65 136 Financial income (59) (78) (135) Financial charges - - 1 Loss on disposal of fixed assets - - 5 ---------- ---------- ---------- Operating profit before changes in working capital 924 903 2,207 (Increase)/decrease in inventories (28) (615) 12 Increase in trade and other receivables (189) (782) (671) Increase in trade and other payables 327 2,066 87 ---------- ---------- ---------- Cash generated from operating activities 1,034 1,572 1,635 Tax paid (258) (305) (603) ---------- ---------- ---------- Net cash flows from operating activities 776 1,267 1,032 ---------- ---------- ---------- Investing activities Purchase of plant and equipment (63) (83) (110) ------------------------- ---------- ---------- ---------- Purchase of subsidiary undertaking - (1,060) (1,207) Net cash acquired with subsidiary undertaking - 183 183 ------------------------- ---------- ---------- ---------- - (877) (1,024) Financial income 59 78 135 ---------- ---------- ---------- Net cash flows from investing activities (4) (882) (999) ---------- ---------- ---------- Financing activities Financial charges - - (1) Repurchase of own shares for cancellation - (114) (832) Equity dividends paid (361) (323) (591) ---------- ---------- ---------- Net cash flows from financing activities (361) (437) (1,424) ---------- ---------- ---------- Net increase/(decrease) in cash and cash equivalents 411 (52) (1,391) Cash and cash equivalents at start of period 2,234 3,625 3,625 ---------- ---------- ---------- Cash and cash equivalents at end of period 2,645 3,573 2,234 ========== ========== ========== Maintel Holdings Plc Consolidated statement of changes in equity for the period to 30 June 2007 Share capital Share premium Capital Retained Total redemption earnings reserve Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 At 1 January 2006 129 628 7 884 1,648 Changes in accounting policy - - - (34) (34) ------- -------- --------- -------- ------ Restated balance 129 628 7 850 1,614 Profit for the period* - - - 646 646 Dividend - - - (323) (323) In respect of purchase of own shares (1) - 1 - - Appropriated in respect of purchase of own shares - - - (114) (114) ------- -------- --------- -------- ------ At 30 June 2006 128 628 8 1,059 1,823 Profit for the period* - - - 774 774 Dividend - - - (268) (268) In respect of purchase of own shares (4) - 4 - - Appropriated in respect of purchase of own shares - - - (718) (718) ------- -------- --------- -------- ------ At 31 December 2006 124 628 12 847 1,611 Profit for the period* - - - 539 539 Dividend - - - (361) (361) ------- -------- --------- -------- ------ === === At 30 June 2007 124 628 12 1,025 1,789 ======= ======== ========= ======== ====== *Total recognised income and expenses for the period are the same as the profit for the period shown above. Maintel Holdings Plc Notes to the interim report 1. Accounting policies The transition to IFRS from UK GAAP has resulted in certain changes to the accounting policies of the Group. The policies adopted in the preparation of the interim financial information are as follows: (a) Basis of preparation of interim financial information The financial information included in this report does not constitute statutory accounts as defined in section 240 of the Companies Act 1985, and is unaudited. The comparative figures for the year ended 31 December 2006 do not constitute the Group's statutory accounts for that financial year. Those accounts, which were prepared under UK GAAP, have been reported on by the Company's auditors and delivered to the Registrar of Companies. The auditor's report on those statutory accounts was unqualified, did not include references to any matters to which the auditors drew attention without qualifying their report, and did not contain a statement under section 237(2) or (3) of the Companies Act 1985. The Group is required to report its consolidated financial statements under International Financial Reporting Standards ('IFRS'), as adopted by the European Union, for all accounting periods beginning on or after 1 January 2007. Comparative information for 2006, previously reported under UK GAAP, has been restated under IFRS. This interim report has been prepared using those policies the Group expects to be endorsed and applicable when the financial statements are prepared for the year ending 31 December 2007. The related standards are subject to ongoing review and endorsement by the European Union or possible amendment by interpretive guidance from the International Accounting Standards Board and the International Financial Reporting Interpretations Committee and are, therefore, still subject to change. The financial effects of the transition from reporting under UK GAAP are shown in note 5, which includes reconciliations of equity and profit for the comparative periods. The presentation of the Group's financial statements has also changed, in accordance with IAS 1 'Presentation of Financial Statements' and IAS 7 'Cash Flow Statements'. The restated IFRS financial information provided for the year ended 31 December 2006 does not constitute statutory accounts as defined in section 240 of the Companies Act 1985, however it is anticipated to form the comparative period for the statutory accounts for the year ending 31 December 2007, the Group's first annual financial statements to be prepared under IFRS. The preparation of the consolidated interim financial information in accordance with IFRS has resulted in changes to the accounting policies as compared with the most recent annual financial statements prepared under UK GAAP. The accounting policies set out below have been applied consistently to all periods presented in these consolidated interim financial statements and have been applied in preparing an opening IFRS balance sheet at 1 January 2006 for the purposes of the transition to IFRS, as required by IFRS 1. (b) Transition to International Financial Reporting Standards IFRS 1 'First-time Adoption of International Financial Reporting Standards' sets out the rules for first time adoption of IFRS and the optional exemptions which may be used in applying the standards retrospectively to comparative periods. The Group has used the following exemption in adopting IFRS. IFRS 3 'Business Combinations' has only been applied to acquisitions completed after the date of transition, 1 January 2006. As a result, the carrying value of goodwill in the UK GAAP balance sheet at 31 December 2005, which relates to the acquisition of Maintel Network Solutions Limited (previously Pinnacle Voice and Data Limited) in December 2005, is brought forward to the IFRS opening balance sheet without adjustment. (c) Basis of consolidation The financial statements consolidate the results of Maintel Holdings Plc and each of its subsidiaries. The results of the subsidiaries acquired are included within the consolidated income statement and balance sheet from the effective date of acquisition, applying uniform accounting policies pursuant to IAS 27 'Consolidated and separate financial statements'. The results of disposed subsidiaries are included in the consolidated income statement up to the effective date of disposal. All intra-group transactions and balances are eliminated on consolidation. Acquisitions are accounted for using the acquisition method of accounting. Subsidiaries are all entities over which the Group has the power to govern their financial and operating policies, and a shareholding of more than fifty percent of the company's voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. (d) Revenue Revenue represents sales to customers at invoiced amounts less value added tax. Revenue from sales of equipment, chargeable works carried out and network services, is recognised when the goods or services are provided. Amounts invoiced in advance in respect of maintenance contracts are deferred and released to the income statement over the period covered by the invoice. Revenue and profit on long term contracts is recognised dependent on the stage of and costs to completion of each contract. (e) Intangible assets Goodwill Purchased goodwill represents the difference between the cost of the acquisition and the fair value of the net identifiable asset, liabilities and contingent liabilities. Cost comprises the fair value of assets given, liabilities assumed and equity instruments issued, plus any direct costs of acquisition. Goodwill is capitalised as an intangible asset. Other intangible assets Intangible assets are stated at cost less accumulated amortisation and consist of customer lists. Where these assets have been acquired through a business combination, the cost will be the fair value allocated in the acquisition accounting; where they have been acquired other than through a business combination, the initial cost is the aggregate amount paid and the fair value of any other consideration given to acquire the asset. Customer lists are amortised over their estimated useful lives of five years. Impairment of Goodwill and other intangible assets Impairment tests on goodwill and other intangible assets with indefinite useful economic lives are undertaken at each reporting date. Customer lists and other assets are subject to impairment tests whenever events or changes in circumstances indicate the carrying amount may not be recoverable. Where the carrying value of an asset exceeds its recoverable amount (being the higher of value in use and fair value less costs to sell), the asset is written down accordingly. Where it is not possible to estimate the recoverable amount of an individual asset, the impairment test is carried out on the asset's cash-generating unit (being the lowest group of assets in which the asset belongs for which there are separately identifiable cash flows). Goodwill is allocated on initial recognition to each of the Group's cash-generating units that are expected to benefit from the synergies of the combination giving rise to goodwill. Impairment charges are included in the administrative expenses line item in the income statement. (f) Property, plant and equipment Property, plant and equipment is stated at historic cost, less accumulated depreciation. Depreciation is provided to write off the cost, less estimated residual values, of all tangible fixed assets over their expected useful lives, at the following rates: Property, plant and machinery over the life of the lease to third parties Office and computer equipment 25% straight line Leasehold improvements over the remaining period of the lease (g) Inventories Inventories comprise (a) maintenance stock, being replacement parts held to service customers' telecommunications systems, and (b) work in progress, being stock purchased for customer orders which has not been installed at the end of the financial period. Inventories are valued at the lower of cost and net realisable value. (h) Cash and cash equivalents Cash and cash equivalents comprise cash balances and short term deposits with an original maturity of three months or less. Bank overdrafts that are repayable on demand and form an integral part of the Group's cash management procedures are also included as a component of cash and cash equivalents for the purposes of the cash flow statement. (i) Taxation Current tax is the expected tax payable on the taxable income for the year, together with any adjustments to tax payable in respect of previous years. Deferred tax is provided using the liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes, except for differences arising on: â€¢ the initial recognition of goodwill; â€¢ goodwill for which amortisation is not tax deductible; â€¢ the initial recognition of an asset or liability in a transaction which is not a business combination and at the time of the transaction affects neither accounting or taxable profit; and â€¢ investments in subsidiaries where the Group is able to control the timing of the reversal of the difference and it is probable that the difference will not reverse in the foreseeable future. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. The amount of the deferred tax asset or liability is determined using tax rates that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the deferred tax assets/liabilities are recovered/ settled. Deferred tax balances are not discounted. Deferred tax assets and liabilities are offset when the Group has a legally enforceable right to offset current tax assets and liabilities and the deferred tax assets and liabilities relate to taxes levied by the same tax authority on either: â€¢ the same taxable Group company; or â€¢ different Group entities which intend either to settle current tax assets and liabilities on a net basis, or to realise the assets and settle the liabilities simultaneously, in each future period in which significant amounts of deferred tax assets or liabilities are expected to be settled or recovered. (j) Employee benefits The Group contributes to a number of defined contribution pension schemes in respect of certain of its employees; the Group does not contribute and has not contributed to any defined benefit pension schemes. The amount charged in the income statement represents the employer contributions payable to the schemes in respect of the financial period. The assets of the schemes are held separately from those of the Group in independently administered funds. The cost of all short term employee benefits is recognised during the period the employee service is rendered. Holiday pay is expensed in the period in which it accrues. (k) 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. 2. Segmental analysis Six months to Six months to Year ended 30 June 2007 30 June 2006 31 Dec 2006 Â£'000 Â£'000 Â£'000 (unaudited) (unaudited) (audited) Turnover Telephone system maintenance and equipment sales 6,890 5,537 12,827 Telephone network services 2,020 1,526 3,339 ---------- ---------- ---------- 8,910 7,063 16,166 ========== ========== ========== Gross profit Telephone system maintenance and equipment sales 2,623 2,302 5,038 Telephone network services 523 456 961 ---------- ---------- ---------- 3,146 2,758 5,999 ========== ========== ========== Profit before taxation Telephone system maintenance and equipment sales 692 737 1,797 Telephone network services 213 179 403 Goodwill impairment and intangible amortisation (125) - (188) ---------- ---------- ---------- 780 916 2,012 ========== ========== ========== 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 - 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 2007 30 June 2006 31 Dec 2006 Â£'000 Â£'000 Â£'000 (unaudited) (unaudited) (audited) Earnings used in basic and diluted EPS, being profit after tax 539 646 1,420 Goodwill impairment and intangible amortisation, less tax thereon 96 - 159 ---------- ---------- ---------- Adjusted earnings, being profit after tax, before goodwill impairment and intangible amortisation 635 646 1,579 ========== ========== ========== Weighted average number of shares 12,457 12,930 12,783 ========== ========== ========== Basic and diluted EPS 4.3p 5.0p 11.1p ========== ========== ========== Adjusted EPS 5.1p 5.0p 12.4p ============== ========== ========== ========== 4. Dividends Six months to Six months to Year ended 30 June 2007 30 June 2006 31 Dec 2006 Â£'000 Â£'000 Â£'000 (unaudited) (unaudited) (audited) Dividends paid Final 2005, paid 24 April 2006 - 2.5p per share - 323 323 Interim 2006, paid 29 September 2006 - 2.1p per share - - 268 Final 2006, paid 25 April 2007 - 2.9p per share 361 - - ---------- ---------- ---------- 361 323 591 ========== ========== ========== The directors propose to pay an interim dividend of 2.5p per share on 5 October 2007 to shareholders on the register at 21 September 2007. 5. Transition to International Financial Reporting Standards The Group's reported financial performance and position is altered as described below as a result of the adoption of IFRS and the accounting policies detailed in note 1 above. The following table summarises the impact of the adoption of IFRS on the Group's operating profit for the six months to 30 June 2006 and the year ended 31 December 2006. Six months to Year ended 30 June 2006 31 Dec 2006 Â£'000 Â£'000 Operating profit - under UK GAAP 871 1,946 ================================== Reversal of goodwill amortisation 16 122 Amortisation of intangible assets - (188) =================================== and goodwill impairment ========================= Staff costs - holiday pay (49) (2) ---------- ---------- Operating profit - under IFRS 838 1,878 ========== ========== The following table summarises the impact of the adoption of IFRS on the Group's total equity as at 1 January 2006, 30 June 2006 and 31 December 2006. 1 January 2006 30 June 2006 31 Dec 2006 Â£'000 Â£'000 Â£'000 Total equity - under UK GAAP 1,648 1,875 1,684 ============================== Reversal of goodwill amortisation - 16 122 Amortisation of intangible assets and goodwill impairment - - (159) ================================= Staff costs - holiday pay net of deferred tax (34) (68) (36) ----------- ---------- ---------- Total equity - under IFRS 1,614 1,823 1,611 =========== ========== ========== A brief explanation of the adjustments is as follows: Staff costs - holiday pay IAS 19 requires that a liability for holiday pay is recorded for all accrued entitlement at each balance sheet date. The Group's primary holiday year end is 31 December, in line with its financial year end, and most employees are entitled to carry forward a maximum of 10 days' holiday to the following holiday year. As at 30 June, therefore, there tends to be a larger accrual (and therefore expense in the income statement) required than is the case at 31 December. Business combinations Under UK GAAP, the cost of an acquisition over and above the value of the net assets acquired was deemed to be goodwill. IFRS 3 requires that each acquisition is considered separately and a value attributed to any identifiable other intangible assets such as customer lists. The goodwill cost is therefore the difference between the consideration paid for the investment after deducting the value of net assets including other intangible assets. IFRS 1 provides for an exemption from restating the acquisition of Maintel Network Solutions Limited (previously Pinnacle Voice and Data Limited) on this basis as the acquisition took place on 5 December 2005 - before the Group's IFRS transition date of 1 January 2006 - and so the historical goodwill of Â£374,000 relating to that company has been retained. In such circumstances, IFRS 3 requires that this goodwill, being an asset of indefinite life, is not amortised but is tested for impairment at each reporting date, and any such impairment is applied in accordance with IAS 36. The directors have considered the acquisition of District Holdings Limited - acquired on 12 June 2006 - and attributed a value of Â£965,000 to the customer contracts and associated relationships of District. This intangible asset will be amortised over its useful life, this being deemed to be 5 years, and subjected to an impairment review at each reporting date. Reversal of goodwill amortisation Under UK GAAP, the goodwill arising on the acquisitions of Maintel Network Solutions Limited and District Holdings Limited was amortised over a 7 year period. Under IAS 38 the intangible asset in relation to District is being amortised over a 5 year period and tested for impairment at each reporting date. The effect of adopting IFRS is to reverse the District goodwill amortisation charge in 2006 and to replace it with an intangible amortisation charge and to reverse the amortisation charge in respect of Maintel Network Solutions Limited and replace it, where necessary, with an impairment charge. Deferred taxation On the establishment of the Â£965,000 intangible asset relating to District, IFRS requires that a deferred tax liability be created and a liability of Â£290,000 has accordingly been incorporated in the balance sheet. As the intangible asset is amortised, there is a proportionate tax credit to the income statement which reduces the deferred tax liability in the balance sheet. More detailed disclosure of the effects of IFRS on the UK GAAP financial statements is shown in the following tables. The only changes to the cash flow statement are presentational, the principal ones being classifying tax cash flows as relating to operating activities and equity dividends as relating to financing activities. Maintel Holdings Plc Unaudited reconciliation of the Group's consolidated income statement for the six months to 30 June 2006 Six months to Six months to 30 June 2006 30 June 2006 Under UK GAAP Goodwill Holiday pay Restated under IFRS Â£'000 Â£'000 Â£'000 Â£'000 (note 1) (note 3) Revenue 7,063 7,063 Cost of sales 4,305 4,305 ---------- -------- -------- ---------- Gross profit 2,758 2,758 Administrative expenses ---------------- ---------- -------- -------- ---------- Goodwill amortisation 16 (16) - Other administrative expenses 1,871 49 1,920 ---------------- ---------- -------- -------- ---------- 1,887 (16) 49 1,920 ---------- -------- -------- ---------- Operating profit 871 16 (49) 838 Financial income 78 78 Financial charges - - ---------- -------- -------- ---------- Profit before taxation 949 16 (49) 916 Taxation 285 (15) 270 ---------- -------- -------- ---------- Profit after taxation attributable to equity holders of the parent 664 16 (34) 646 ========== ======== ======== ========== Earnings per share ==================== === === === === Basic and diluted 5.1p 5.0p =================== ========== ======== ======== ========== Maintel Holdings Plc Unaudited reconciliation of the Group's consolidated income statement for the year to 31 December 2006 Year to Year to 31 December 31 December 2006 2006 Under UK GAAP Goodwill Holiday pay Restated under IFRS Â£'000 Â£'000 Â£'000 Â£'000 (notes 1, 2) (note 3) Revenue 16,166 16,166 Cost of sales 10,167 10,167 ---------- -------- ------- ---------- Gross profit 5,999 5,999 Administrative expenses ---------------- ---------- -------- ------- ---------- Goodwill amortisation 122 (122) - Goodwill impairment - 91 91 Intangibles amortisation - 97 97 Other administrative expenses 3,931 2 3,933 ---------------- ---------- -------- ------- ---------- 4,053 66 2 4,121 ---------- -------- ------- ---------- Operating profit 1,946 (66) (2) 1,878 Financial income 135 135 Financial charges (1) (1) ---------- -------- ------- ---------- Profit before taxation 2,080 (66) (2) 2,012 Taxation 621 (29) - 592 ---------- -------- ------- ---------- Profit after taxation attributable to equity holders of the parent 1,459 (37) (2) 1,420 ========== ======== ======= ========== Earnings per share ==================== === === === === Basic and diluted 11.4p 11.1p =================== ========== ======== ======= ========== Maintel Holdings Plc Unaudited reconciliation of the Group's consolidated balance sheet As at 1 January 2006 (the opening IFRS balance sheet) 31 December 31 December 2005 2005 Under UK Holiday pay Restated under GAAP IFRS Â£'000 Â£'000 Â£'000 (note 3) Non current assets Intangible assets 227 227 Property, plant and equipment 240 240 Deferred tax asset 30 15 45 ---------- -------- ---------- 497 15 512 ---------- -------- ---------- Current assets Inventories 585 585 Trade and other receivables 1,917 1,917 Cash and cash equivalents 3,625 3,625 ---------- -------- ---------- 6,127 6,127 ---------- -------- ---------- Total assets 6,624 15 6,639 ---------- -------- ---------- Current liabilities Trade and other payables 4,613 49 4,662 Current tax liabilities 363 363 ---------- -------- ---------- Total liabilities 4,976 49 5,025 ---------- -------- ---------- Total net assets 1,648 (34) 1,614 ========== ======== ========== Equity Issued share capital 129 129 Share premium 628 628 Capital redemption reserve 7 7 Retained earnings 884 (34) 850 ---------- --------- ---------- Total shareholders' equity 1,648 (34) 1,614 ========== ========= ========== Maintel Holdings Plc Unaudited reconciliation of the Group's consolidated balance sheet As at 30 June 2006 30 June 2006 30 June 2006 Under UK Goodwill Holiday pay Restated under GAAP IFRS Â£'000 Â£'000 Â£'000 Â£'000 (notes 1, 2) (note 3) Non current assets Intangible assets 1,176 306 1,482 Property, plant and equipment 287 287 ---------- -------- -------- ---------- 1,463 306 1,769 ---------- -------- -------- ---------- Current assets Inventories 1,332 1,332 Trade and other receivables 2,972 2,972 Cash and cash equivalents 3,573 3,573 ---------- -------- -------- ---------- 7,877 7,877 ---------- -------- -------- ---------- Total assets 9,340 306 9,646 ---------- -------- -------- ---------- Current liabilities Trade and other payables 7,152 98 7,250 Current tax liabilities 344 344 ---------- -------- -------- ---------- Total liabilities 7,496 98 7,594 ---------- -------- -------- ---------- Non current liabilities Deferred tax liability (31) 290 (30) 229 ---------- -------- -------- ---------- Total net assets 1,875 16 (68) 1,823 ========== ======== ======== ========== Equity Issued share capital 128 128 Share premium 628 628 Capital redemption reserve 8 8 Retained earnings 1,111 16 (68) 1,059 ---------- --------- --------- ---------- Total shareholders' equity 1,875 16 (68) 1,823 ========== ========= ========= ========== Maintel Holdings Plc Unaudited reconciliation of the Group's consolidated balance sheet As at 31 December 2006 31 December 31 December 2006 2006 Under UK Goodwill Holiday pay Restated under GAAP IFRS Â£'000 Â£'000 Â£'000 Â£'000 (notes 1, 2) (note 3) Non current assets Intangible assets 1,217 224 1,441 Property, plant and equipment 238 238 ---------- -------- -------- ---------- 1,455 224 1,679 ---------- -------- -------- ---------- Current assets Inventories 705 705 Trade and other receivables 2,861 2,861 Cash and cash equivalents 2,234 2,234 ---------- -------- -------- ---------- 5,800 5,800 ---------- -------- -------- ---------- Total assets 7,255 224 7,479 ---------- -------- -------- ---------- Current liabilities Trade and other payables 5,220 51 5,271 Current tax liabilities 380 380 ---------- -------- -------- ---------- Total liabilities 5,600 51 5,651 ---------- -------- -------- ---------- Non current liabilities Deferred tax liability (29) 261 (15) 217 ---------- -------- -------- ---------- Total net assets 1,684 (37) (36) 1,611 ========== ======== ======== ========== Equity Issued share capital 124 124 Share premium 628 628 Capital redemption reserve 12 12 Retained earnings 920 (37) (36) 847 ---------- --------- --------- ---------- Total shareholders' equity 1,684 (37) (36) 1,611 ========== ========= ========= ========== Maintel Holdings Plc Explanatory notes to the UK GAAP to IFRS reconciliations 1. Goodwill and intangible assets Under UK GAAP goodwill was capitalised and amortised over its estimated useful life, which under Maintel's accounting policies was 7 years. The Company has elected to adopt the exemption permitted by IFRS 1 'First time adoption of International Financial Reporting Standards' not to alter this policy in respect of goodwill arising before the IFRS transition date of 1 January 2006, and so no adjustment to the historical accounts has been made in respect of the goodwill arising on the acquisition of Maintel Network Solutions Limited (previously Pinnacle Voice and Data Limited). Goodwill previously amortised in respect of Maintel Network Solutions Limited has been reversed, and the balance subjected to an impairment review at each reporting date. The treatment of the goodwill arising on the acquisition of District Holdings Limited has, however, been amended in accordance with IFRS 3 'Business combinations' and IAS 38 'Intangible assets'. The goodwill arising under UK GAAP on the acquisition of District has been reversed, and an intangible asset of equal value created, representing customer contracts and relationships, which is being amortised over 5 years and is subject to an impairment review at each reporting date. 2. Deferred tax Under IAS 12 'Income taxes', deferred tax is recognised on the basis of temporary differences between the carrying value of assets and liabilities in the balance sheet, and their tax bases. A deferred tax liability has accordingly been created in respect of intangible assets as at the date of the acquisition of District Holdings Limited, with subsequent releases as impairment of the intangible is recognised. The effect of adopting this standard is shown under the goodwill column in the reconciliation tables above. 3. Holiday pay accrual Under IAS 19 'Employee benefits', an accrual has been made for the full monetary value of holiday to which the Group's employees are entitled but, at the balance sheet date, had not been taken. Employees are permitted to carry forward a limited amount of holiday entitlement at 31 December, such that the accrual at 30 June is significantly higher than that at 31 December. 4. Cash flow statements The only changes to the cash flow statement are presentational, the principal ones being classifying tax cash flows as relating to operating activities and equity dividends as relating to financing activities. Independent review report to the shareholders of Maintel Holdings Plc Introduction We have been instructed by the Company to review the financial information for the six months ended 30 June 2007 on pages 7 to 23. We have read the other information contained in the interim report and considered whether it contains any apparent misstatements or material inconsistencies with the financial information. 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. Directors' responsibilities The interim report, including the financial information contained therein, is the responsibility of, and has been approved by the directors. The directors are responsible for preparing the interim report in accordance with the rules of the London Stock Exchange for companies trading securities on the Alternative Investment Market which require that the half-yearly report be presented and prepared in a form consistent with that which will be adopted in the Company's annual accounts having regard to the accounting standards applicable to such annual accounts. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999/4 issued by the Auditing Practices Board for use in the United Kingdom by auditors of fully listed companies. A review consists principally of making enquiries of group management and applying analytical procedures to the financial information and underlying financial data and based thereon, assessing whether the accounting policies and presentation have been consistently applied unless otherwise disclosed. A review excludes audit procedures such as tests of controls and verification of assets, liabilities and transactions. It is substantially less in scope than an audit performed in accordance with United Kingdom Auditing Standards and therefore provides a lower level of assurance than an audit. Accordingly we do not express an audit opinion on the financial information. Review conclusion On the basis of our review we are not aware of any material modifications that should be made to the financial information as presented for the six months ended 30 June 2007. BDO STOY HAYWARD LLP Chartered Accountants London 7 September 2007 This information is provided by RNS The company news service from the London Stock Exchange

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