REG - Maintel Holdings PLC - Final Results
RNS Number : 0919TMaintel Holdings PLC18 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.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.ENDFR SFIEFIFUSELD
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