TIDMMAI
RNS Number : 0572I
Maintel Holdings PLC
19 March 2018
Maintel Holdings Plc
("Maintel", the "Company" or the "Group")
Final audited results for the year to 31 December 2017
Maintel Holdings Plc, the cloud and managed services provider,
announces its results for the twelve month period to 31 December
2017.
The reported results for the period include a full twelve month
contribution from Azzurri Communications Limited ("Azzurri") and
five months of Intrinsic Technology Limited ("Intrinsic"), the
acquisition of which completed on 1 August 2017.
Financial highlights
-- Group revenue increased 23% to GBP133.1m (2016: GBP108.3m)([1])
-- Group gross profit increased 11% to GBP38.8m (2016: GBP34.9m)
-- Group adjusted EBITDA decreased 1% to GBP12.5m (2016: GBP12.6m)
-- Basic earnings per share increased 36% to 21.7p (2016: 16.0p)
-- Adjusted earnings per share([2]) decreased 14% to 66.7p
(2016: 78.0p), partially as a result of the increased number of
shares in issue following the issue of new equity at the time of
the Azzurri acquisition in May 2016
-- Period end net debt([3]) of GBP27.7m, equivalent to 2.2x adjusted EBITDA
-- Proposed final dividend per share of 19.1p (2016: 17.4p),
taking full year dividend per share to 33.8p (2016: 30.8p), an
increase of 10% on the prior year
Operational highlights
-- Acceleration in the rate of adoption of our cloud products
and services, with ICON Communicate contracted cloud seats up 80%
on the prior year
-- Integration of Intrinsic largely complete, with the full
GBP2m of annualised synergies identified at the time of the
acquisition now realised
-- Encouraging cross sell of Intrinsic products into the Group's existing customer base
-- Increased success on Public Sector Network Services
frameworks, winning 24 new contracts in the year
Key Financial Information
Audited results for 12 months Increase/
ended 31 December: 2017 2016 (decrease)
Group revenue GBP133.1m GBP108.3m 23%
Adjusted profit before tax([4]) GBP10.9m GBP11.1m (2)%
Adjusted earnings per share([2]) 66.7p 78.0p (14)%
Final dividend per share
proposed 19.1p 17.4p 10%
Commenting on the Group's results, Eddie Buxton, CEO, said:
"Following the challenges faced in 2017, notably prolonged
delays with several large projects, the Group has entered 2018 well
placed to capitalise on future growth opportunities.
The Group has seen customer orders for Avaya installations
recover through the initial months of 2018, with a promising
pipeline developing, which is expected to have a positive impact on
Managed Services and Technology revenues in 2018.
In addition, we are seeing good growth across our suite of ICON
cloud services, which is very encouraging, as Maintel cements its
transformation to a cloud and managed services provider in the
mid-market and enterprise space.
The acquisition of Intrinsic enhances Maintel's already strong
capability in LAN networking and the fast-growing network security
sector, and we are already seeing encouraging cross-sell into our
existing customer base.
As a result, the Board remains confident in delivering
substantial growth in revenue and EBITDA in the full year to 31
December 2018.
We remain committed to maximising shareholders' returns whilst
reducing net debt and maintaining a strong balance sheet. Moving
forward it is our intention to return to a dividend pay-out ratio
of at least 40% of adjusted net income. Based on our confident
outlook for the business, it is our expectation that the total
dividend paid annually will remain progressive in absolute
terms."
Notes
[1] 2016 includes 8 months of Azzurri, which was acquired on 4
May 2016.
[2] Adjusted earnings per share is basic earnings per share of
21.7p (2016: 16.0p), adjusted for intangibles amortisation,
exceptional costs 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 increased to 14.2m
(2016:13.1m) arising from the equity raise in May 2016 to support
the Azzurri acquisition.
[3] Interest bearing debt (excluding issue costs of debt) minus
cash.
[4] Adjusted profit before tax of GBP10.9m (2016: GBP11.1m) is
basic profit before tax, adjusted for intangibles amortisation and
exceptional costs.
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) 020 7220 0500
Stephen Norcross (Corporate Broking)
Oakley Advisory (Financial Advisors)
Christian Maher / Victoria Boxall 020 7766 6900
Strategic report
Chairman's statement
The Group delivered revenue growth of 23% in 2017, with revenues
increasing to GBP133.1m, underpinned by a full twelve months'
contribution from Azzurri and five months' contribution from
Intrinsic, the business we acquired in August 2017. Excluding
Intrinsic, but including the full twelve months contribution from
Azzurri, the Group's core business grew by 15% year on year in a
highly competitive market.
Adjusted profit before tax decreased by 2% to GBP10.9m (2016:
GBP11.1m) and adjusted EPS decreased by 14% to 66.7p (2016: 78.0p)
reflecting the increase in shares outstanding following the Azzurri
acquisition.
Recurring contracted revenue made up 71% of 2017 revenues (2016:
73%) including the contribution from Intrinsic which has a lower
level of recurring revenues than the Group overall.
The Group has made pleasing progress in the period on its
transition to a cloud and managed services provider in the
mid-market and enterprise space and, as a result, has entered 2018
well placed to capitalise on future growth opportunities. In the
period, the Group continued to invest in key growth areas, such as
our cloud proposition, and focused on diversification of the
product offering, through the acquisition of Intrinsic, which
brings key strategic benefits.
Managed service and technology revenues increased by 24% year on
year to GBP79.4m, with managed services revenue up 20% and
technology revenue up 29%, both benefiting from the contribution
from Intrinsic. The underlying Maintel business, excluding
Intrinsic, grew by 11% to GBP71.1m (2016: GBP64.1m) reflecting a
full year's contribution from Azzurri.
Group gross profit increased by GBP1.7m compared with 2016.
Excluding Intrinsic, gross profit remained flat year on year, with
gross margins declining by 3% to 30%. This reduction was driven by
three main factors: the impact of 3 large low gross margin
contracts won in 2016 but recognised to revenue in 2017, the
increased mix of lower gross margin public sector business in the
year and the reduction in very high margin legacy maintenance
business, particularly one previously highlighted customer that
left in early 2017.
Network services revenue increased by 25% year on year (23%
excluding Intrinsic) driven by the full year contribution from
Azzurri. Revenue from legacy fixed line calls fell by 8% reflecting
the overall market decline and Maintel's sales focus on growing
cloud and managed services. Data revenues increased by 38% year on
year driven by the high growth of our ICON cloud suite of services,
demand for which continues to grow ,in particular ICON Communicate,
our unified communication service, which delivered growth of c.80%
in contracted seats over the previous year.
Mobile revenue was flat at GBP6.9m delivering gross profit of
GBP3.3m with margins broadly unchanged.
The board proposes to pay a final dividend of 19.1p per share,
resulting in a total ordinary dividend for the year of 33.8p per
share (2016: 30.8p per share), an increase of 10% year on year.
We remain committed to maximising shareholders' returns whilst
reducing net debt and maintaining a strong balance sheet. Moving
forward it is our intention to return to a dividend payout ratio of
at least 40% of adjusted net income. Based on our confident outlook
for the business, we expect that the total dividend paid annually
will remain progressive in absolute terms.
As a result of the major acquisitions completed in the last two
years, the Group has undergone significant transformation and now
employs more than 600 highly qualified professionals. The
successful integration of these acquisitions, in sometimes
challenging market conditions, was made possible by the hard work
and focus of our excellent team. I want to thank them on behalf of
shareholders and the Board for last year's achievements, which
leave us well positioned for the year ahead.
J D S Booth
Chairman
16 March 2018
Strategic report
Maintel overview
Maintel is a cloud and managed services company with a focus on
communications. Maintel helps its customers to improve their
businesses through digital transformation by:
1. Enabling their organisations to be more effective and
efficient through the use of digital workplace technology;
2. Improving their relationships with customers by deploying customer experience technology; and
3. Connecting their employees and customers to their applications and their data through secured connectivity.
This is delivered by providing a range of cloud and on-premises
technology offers, complemented by consultancy, professional and
managed services.
Digital Workplace
Maintel helps businesses to be competitive in the digital
economy. Maintel's digital workplace offering includes unified
communications ("uc"), meeting technology, collaboration services,
mobile devices & services, document management and digital
print management.
Customer Experience
Maintel helps businesses deliver compelling customer experiences
on-line, in the contact centre and in-store; helping them to
improve customer acquisition and retention. Maintel's customer
experience is centred around omni-channel contact centre
technology, self-service channels and analytics.
Secured Connectivity
Maintel securely connects businesses to their employees,
customers, applications and data, whether they are in an office
location, on the road, at home or in the cloud. Maintel's
connectivity portfolio covers wide and local area networking,
public and private cloud access and security products and
services.
ICON
ICON is Maintel's strategic delivery platform for cloud
services, and the business is increasingly transitioning its
customer base from on-premises telephony platforms to cloud
delivered via the ICON platform. A key differentiator for the
Group, Maintel's ICON offer comprises a broad range of cloud
connected and managed services, the key services being:
-- ICON Connect - next generation, cloud-optimised managed wide-area network service
-- ICON Secure - Network security as a Service
-- ICON Communicate - Unified communications as a service
-- ICON Contact - Contact centre as a service
-- ICON Mobilise - Mobile device and application management as a service
ICON represents a significant revenue stream for Maintel and is
increasing as a part of the overall product mix. Currently over 50%
of our near-term major project pipeline is for ICON services.
Revenue generated from the ICON platform is of high quality,100%
recurring and provides the Group with a long-term client base.
Partner strategy
Maintel partners with leading vendors across its portfolio,
always aiming to be in the highest category of partner
accreditation for strategic parts of the portfolio.
The Group continues to review its partner strategy as technology
changes and markets evolve, but always seeks to partner with more
than one vendor in any given technology to ensure independence and
appropriate choice for customers.
Key partners across the main product areas are:
Digital Workplace - Avaya, Mitel, Cisco, Microsoft, VMWare,
Canon, O2, Citrix
Customer Experience - Avaya, Genesys, Callmedia, Mitel,
Semafone, Gamma, Nice, Verint
Secured Connectivity - Cisco, Fortinet, Extreme, Palo Alto, Talk
Talk Business, Level 3 Communications, BT Wholesale, SSE
Telecom
Go-to-market strategy
Direct business
Maintel's direct sales team is focussed on UK public and private
sector organisations, typically with between 250 and 10,000
employees. The strategy is threefold for this team:
1. Commercial and enterprise customer development - Maintel has
an enviable customer base in the UK mid-market and enterprise
space, and there is considerable opportunity to develop this base,
increase product penetration, and migrate existing customers to
next generation technology such as cloud-delivery. There are teams
focussed solely on existing customers, and there is considerable
opportunity for growth in this segment.
2. Commercial and enterprise new customer acquisition - Maintel
has a new business sales team focussed on "new logo" customer
acquisition. The customer development team then oversees project
delivery and completion.
3. Public sector - Maintel has a strong presence in the UK
public sector, with a particular focus on primary healthcare
trusts, local authorities, tertiary education, government agencies
and social housing. There are two teams entirely focussed on this
market - one responsible for new customer acquisition, and one
focussed on customer development. Customer acquisition is via both
a variety of public sector procurement frameworks and traditional
proposal / contract.
Indirect business
Relationships with channel partners, predominantly national and
global systems integrators and telecommunications services
providers, allow the provision of Maintel's full set of products
and services more widely, both in the UK and internationally.
Typically, this business focusses on the enterprise market of 5,000
employee organisations and above, although there is some wider
historic managed service business predominantly providing on-site
and remote support services on legacy unified communications (UC),
contact centre and networking equipment. Maintel Partner Services
has a dedicated channel management team, reporting to an
independent sales director to avoid channel conflict.
Business development strategy
Organic growth
Following a period of consolidation and integration throughout
2016 and 2017 after the acquisitions of Azzurri Communications and
Intrinsic Technology, the focus is now on an increase in organic
growth, both through new customer acquisition and through
increasing product penetration in the existing customer base.
The significant growth in ICON delivered during 2017 will
continue through 2018 and beyond as organisations embrace cloud. As
a result, the ICON platform grows in importance, and Maintel
continues to invest in the platform to support that growth. The
Group has appointed a Cloud services director to deliver that
investment and to direct the Group's evolution towards an
increasingly cloud-delivered set of products and services. 2018
will see the biggest investment in the platform to date with
increased capex aimed not just at capacity increases, but also at
performance optimisation, increasing automation and enhancing the
product offers.
M&A
Having made two major acquisitions in recent years, which
together more than trebled the size of the business, Maintel now
operates at a significant scale. The Group will continue to
consider selective acquisitions, where appropriate, to drive
shareholder value and to continue to develop the business to
maintain its competitive positioning; however, the primary focus of
any near-term acquisitions will be on enhancing capability and
diversifying product offering.
Product & service strategy
Maintel continues to aim to be a market leader, both in new
product and service offerings and in its existing portfolio.
Digital workplace
Maintel anticipates a continuation of the significant growth
seen to date in the number of contracted seats on its ICON
Communicate platform. The platform now offers managed
communications services from Avaya (both Aura and IP Office), Mitel
and Microsoft and all four platforms are expected to show
substantial growth during 2018 and beyond. The addition of Avaya
Aura to the ICON Communicate portfolio is expected to be
particularly significant in terms of seat count growth, with many
existing and new customers looking to migrate their current
environments into the cloud.
In addition to traditional UC and collaboration tools, Maintel
expects to deliver an increasing number of meeting tools,
collaboration devices and broader team collaboration software.
Mobility remains a key component of Maintel's portfolio, with an
increased focus on managed-mobility services and the support of
collaboration services on mobile devices.
Customer experience
Omni-channel customer experience technology is a key focus for
many Maintel customers, whether deployed as public cloud, private
cloud or on-premises technology. Maintel has a strong practice in
workforce optimisation and the use of analytics to improve customer
journeys and to provide insight into company and product
performance.
Maintel will invest significantly in its own multi-channel
contact centre platform, Callmedia, while continuing to partner
with global leaders in the customer experience sector, such as
Avaya, Genesys, Verint and NICE. Maintel has also made significant
investment in its professional services capability around customer
interaction automation, an area identified for continued
development, and in integration skills around the new Avaya
portfolio.
Although contact centre technology has trailed UC in cloud
adoption, the customer experience pipeline is increasingly for
cloud-based delivery.
Secured connectivity
With the acquisition of Intrinsic Technology in August 2017,
Maintel has significantly bolstered its capability in local area
networking, both wired and wireless. Combined with Maintel's
existing capability in that space, and with the significant
capability and customer base for wide area networks based on
Maintel's ICON Connect service, Maintel now has a managed
connectivity offer across all areas of connectivity and network
security.
Developments in 2017 included the addition of on-net
public-cloud connectivity to providers such as Microsoft Azure and
AWS, and in early 2018, Maintel will launch a Software Defined WAN
(SD-WAN) capability within ICON Connect.
ICON Secure, Maintel's security as a service offer, has also
been improved with additional capabilities and products from the
Intrinsic acquisition, and security is increasingly a core
competence.
Maintel will continue to develop the connectivity offerings to
keep pace with the increased demands of cloud access, high
bandwidth services and to support the growth of Internet of Things
(IoT) projects.
People strategy
As a cloud and managed services company, the acquisition,
development and retention of talent is imperative. During 2017,
Maintel appointed a Chief people officer to define and deliver its
people strategy in line with the Group culture and values, which
were developed and re-launched during the year. These reflect how
the people, the teams and the corporate entity behave, and the
culture the Group wants to develop and nurture.
We play it straight - Honesty, transparency and integrity in our
dealings with each other, our partners and our customers.
We enjoy what we do and work as a team - Enjoying being at work,
being serious without taking ourselves too seriously. Valuing each
and every individual, while putting what's right for the team
first.
We are pioneering - Being courageous and resourceful, developing
our business by improving those of our customers, anticipating
change and challenging the status quo.
We are empowered and accept accountability - Doing what is right
and taking responsibility. Being accountable for our targets,
actions and commitments
We are agile and flexible - Flexible and agile people, processes
and services - able to adapt quickly.
We constantly learn and grow - Always learning - never standing
still.
Business review
Results for the year
During the year, Maintel has continued its transition from a
traditional telecoms service provider towards a cloud and managed
services provider. The acquisition of Intrinsic on August 1 2017
further strengthens the Group's product portfolio in data
networking and network security through the addition of Cisco
expertise. Maintel is now one of the UK's leading Cisco Gold
partners.
Reported numbers for the year include a full twelve months'
contribution from Azzurri, compared to eight months' contribution
in the prior year, and five months contribution from Intrinsic,
acquired in August 2017.
Group revenues increased by 23% to GBP133.1m (2016: GBP108.3m)
with adjusted EBITDA of GBP12.5m down 1% (2016: GBP12.6m). Adjusted
profit before tax decreased by 2% to GBP10.9m (2016: GBP11.1m).
Adjusted earnings per share (EPS) decreased by 14% to 66.7p (2016:
78.0p), in part due to the increased number of shares in issue
following the issue of new shares in 2016 as part of the Azzurri
transaction.
The proportion of Maintel revenue being generated from recurring
products and services (being all revenue excluding one-off
projects) remained high at 71% of total revenue, with a marginal
reduction on the prior year (2016: 73%) as a result of the
contribution from Intrinsic, which has a higher proportion of
project based, non-recurring revenue.
On an unadjusted basis, profit before tax increased by 67% to
GBP3.5 m (2016: GBP2.1m) and basic EPS by 36% to 21.7p (2016:
16.0p). This includes GBP1.5m of exceptional costs associated with
the Intrinsic acquisition and related restructuring activities
(2016: GBP4.2m relating to the Azzurri acquisition), and
intangibles amortisation of GBP5.9m (2016: GBP4.7m), the increase
in the latter due mainly to the acquired Intrinsic intangible
assets and a 12 month charge relating to the Azzurri acquired
intangible assets.
2017 2016 Increase/
GBP000 GBP000 (decrease)
Revenue 133,079 108,296 23%
-------- -------- ------------
Profit before tax 3,516 2,107 67%
Add back intangibles
amortisation 5,892 4,733
Exceptional items mainly
relating to the acquisition
of Intrinsic (2016: Azzurri)
and associated restructuring
activities 1,454 4,240
Adjusted profit before
tax 10,862 11,080 (2)%
-------- -------- ------------
Adjusted EBITDA(a) 12,524 12,598 (1)%
-------- -------- ------------
Of which (b) : Maintel 12,246 12,598 (3)%
Intrinsic 278 - -
Basic earnings per share 21.7p 16.0p 36%
Diluted 21.3p 15.8p 35%
-------- -------- ------------
Adjusted earnings per
share(c) 66.7p 78.0p (14)%
Diluted 65.5p 76.8p (15)%
-------- -------- ------------
(a) Adjusted profit before tax after adding back net finance
expense and depreciation
(b) After management charges
(c) Adjusted profit after tax divided by weighted average number
of shares (note 11)
Cash performance
The Group generated net cash flows from operating activities of
GBP4.4m (2016: GBP10.6m).
As detailed in the interim results, cash flow in the first half
was negatively impacted by the unwind from strong trading in H2
last year, and also by the success of our ICON service offering,
which resulted in both reduced upfront project billing and a need
for capital investment in additional capacity.
As anticipated cash flow improved materially in the second half,
with cash conversion(d) in the second half of 96%. The net outflow
in working capital because of the unwind in H1 detailed above,
resulted in cash conversion(d) at 35% for the full year (2016:
84%).
Acquisition of Intrinsic
Maintel acquired Intrinsic Technology Ltd ("Intrinsic") on 1
August 2017 on a cash-free, debt-free basis for a consideration of
GBP5.25m, reduced to GBP4.90m through price adjustment mechanisms,
payable in cash. 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, has been increased by GBP6
million to GBP42 million.
The acquisition of Intrinsic makes compelling strategic and
financial logic. As one of the UK's leading Cisco Gold partners it
significantly enhances Maintel's already strong capability in LAN
networking and the fast growing network security sector. In
addition, as a top-level Avaya Diamond partner Intrinsic will
further strengthen Maintel's managed service base.
Intrinsic's customers are predominantly medium to large
enterprises and it has a strong presence in public sector
organisations, particularly in the NHS, local authorities,
education and blue light services that enhances Maintel's growth in
the public sector.
The acquisition brings significant mutual cross-sell
opportunities, both in terms of offering Maintel's existing
portfolio to Intrinsic's customers, in particular our ICON suite of
cloud and managed services and in terms of Intrinsic's Cisco
services to Maintel's customer base. We are pleased with the
performance of the business in the period since acquisition, with
good cross-sell opportunities already being realised. Cisco
cross-sell business since acquisition is c. GBP2.0m, including a
GBP0.5m technology project with a local authority customer and a
GBP0.4m managed service contract with a large property services
customer.
Annualised synergies of GBP2.0m were identified at the time of
the acquisition, which have been realised in full within the period
and we expect Intrinsic to contribute positive EBITDA and be
earnings enhancing in the financial year to 31 December 2018.
(d) Being net cash flows from operating activities as a % of
adjusted EBITDA
Review of operations
The following table shows the performance of the three operating
segments of the Group. The 2017 results include a full twelve
months' contribution from Azzurri compared to eight months'
contribution in 2016. On 1 January 2017, as part of the corporate
restructuring of the Group, the Azzurri trading entity was hived up
into Maintel Europe Ltd so that for 2017 the UK operations were
managed and controlled as one entity.
Excluding Intrinsic, Maintel generated GBP124.1m of revenue, an
increase of 15% over the previous year.
Revenue analysis 2017 2016 Increase/
GBP000 GBP000 (decrease)
Maintel (excluding Intrinsic)
Managed services related 37,129 34,630 7%
Technology(e) 33,950 29,479 15%
------------------------------- -------- -------- -----------
Managed services and
technology division 71,079 64,109 11%
Network services division 46,111 37,395 23%
Mobile division 6,898 6,947 (1)%
Intercompany - (155) (100)%
------------------------------- -------- -------- -----------
Total Maintel (excluding
Intrinsic) 124,088 108,296 15%
------------------------------- -------- -------- -----------
Intrinsic(f)
Managed services related 4,311 - -
Technology(e) 3,996 - -
------------------------------- -------- -------- -----------
Managed services and
technology division 8,307 - -
Network services division 684 - -
Mobile division - - -
------------------------------- -------- -------- -----------
Total Intrinsic 8,991 - -
------------------------------- -------- -------- -----------
Total Maintel Group
Managed services related 41,440 34,630 20%
Technology(e) 37,946 29,479 29%
------------------------------- -------- -------- -----------
Managed services and
technology division 79,386 64,109 24%
Network services division 46,795 37,395 25%
Mobile division 6,898 6,947 (1)%
Intercompany - (155) (100)%
------------------------------- -------- -------- -----------
Total Maintel Group 133,079 108,296 23%
------------------------------- -------- -------- -----------
(e) Technology includes revenues from hardware, software,
professional services and other sales.
(f) Intrinsic was acquired on 1 August 2017, and therefore 5
months' of its financial performance has been recognised
post-acquisition.
Gross margin for the Group reduced to 29% from 32% in 2016,
driven by the reduction in gross margin in the managed services and
technology division, as detailed below, and 5 months' contribution
from the lower gross margin Intrinsic operations. Excluding
Intrinsic, gross margin was 30%.
The level of recurring revenue decreased to 71% (2016: 73%), as
a result of the inclusion of Intrinsic. Intrinsic's standalone
business was 56% recurring in the period since acquisition.
Detailed divisional performance is described further below.
Managed services and technology division
2017 2016 Increase
GBP000 GBP000
Maintel (excluding Intrinsic)
Divisional revenue 71,079 64,109 11%
Division gross profit 21,353 21,408 -
Gross margin (%) 30% 33%
------------------------------- ------- ------- ---------
Intrinsic
Divisional revenue 8,307 - -
Division gross profit 1,759 - -
Gross margin (%) 21% -
------------------------------- ------- ------- ---------
Total Maintel Group
Divisional revenue 79,386 64,109 24%
Division gross profit 23,112 21,408 8%
Gross margin (%) 29% 33%
------------------------------- ------- ------- ---------
The managed services and technology division provides the
management, maintenance, service and support of unified
communications, contact centres and local area networking
technology both 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 24% to GBP79m with
Intrinsic contributing GBP8m. Excluding Intrinsic, growth was 11%,
with managed services related revenue up 7% year on year and
technology up 15%, both revenue streams boosted by a full 12
months' contribution from Azzurri.
Group gross profit increased by GBP1.7m compared with 2016.
Excluding Intrinsic, gross profit remained flat year on year, but
with gross margins declining by 3% to 30% compared to 33% in 2016.
The gross margin decline was driven by three main factors: the
impact of 3 large low gross margin contracts won in 2016 but
recognised to revenue in 2017; the increased mix of lower gross
margin public sector business in the year; and the reduction in
very high margin legacy maintenance business, particularly one
previously highlighted customer that left in early 2017.
Technology sales in the period were adversely affected by the
previously highlighted delays in customer projects. Technology
revenues in the second half were 15% lower than the same period in
the prior year, which was a particularly strong comparator period
due to several large contracts falling into the second half of
2016. This masked a strong performance from our new public sector
team, with Maintel winning 24 new contracts on the public sector
network services framework in 2017, particularly in the NHS
sector.
An increasing number of public sector organisations are
contracting services on our cloud platform. The acquisition of
Intrinsic, which has a particularly strong footprint in the public
sector, further strengthens our position in this area.
As previously explained, we are seeing some negative impact on
the level of in year technology sales as our customers look to move
large scale projects off-premises and into the cloud.
In the year, Maintel continued to see a reduction in the legacy
break / fix maintenance base, as the Group's focus continues to
shift towards winning larger, multi-year managed service contracts
with newer technology and a wider suite of supporting products
including software support, network monitoring and productivity
services. This newer technology and the move to cloud services
reduces the need for a large field based engineering team and
Maintel's business model and organisation structure will continue
to evolve to address this change in technology.
At 31 December 2017, the managed service base including
Intrinsic stood at GBP41.5m up c.15% on 2016.
The near term sales pipeline is strong and we are particularly
pleased to note that Avaya, our core vendor, has become a listed
business with a strong product strategy focusing on cloud services.
Q1 20I8 has seen a significant increase in our Avaya project
pipeline and Maintel looks forward to working closely with Avaya on
these opportunities.
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-premises and
cloud solutions offered by the managed service and technology
division and the mobile division's services.
2017 2016 Increase/
GBP000 GBP000 (decrease)
Maintel (excluding Intrinsic)
Call traffic 6,173 6,690 (8)%
Line rental 11,495 10,093 14%
Data connectivity services 28,042 20,282 38%
Other 401 330 22%
------- ------- -----------
Total division 46,111 37,395 23%
Division gross profit 12,286 10,257 20%
Gross margin (%) 27% 27%
------------------------------- ------- ------- -----------
Intrinsic
Call traffic - - -
Line rental - - -
Data connectivity services 684 - -
Other - - -
------- ------- -----------
Total division 684 - -
Division gross profit 110 - -
Gross margin (%) 16% -
------------------------------- ------- ------- -----------
Total Maintel Group
Call traffic 6,173 6,690 (8)%
Line rental 11,495 10,093 14%
Data connectivity services 28,726 20,282 42%
Other 401 330 22%
------- ------- -----------
Total division 46,795 37,395 25%
Division gross profit 12,396 10,257 21%
Gross margin (%) 26% 27%
------------------------------- ------- ------- -----------
Network services revenues increased by 25% year on year.
Excluding Intrinsic, growth was 23%. Divisional gross margin
decreased by 1% to 26%, but excluding Intrinsic was unchanged at
27% (2016: 27%).
Traditional call traffic revenues decreased 8% to GBP6.2m (2016:
GBP6.7m), which is a reflection of the overall market decline of
call traffic, and a shift in the sales focus of the Group to meet
the higher demand for cloud and managed services. During the year,
a large low margin customer contract was not renewed and this
customer has now migrated away.
The Group continues to migrate customers proactively to the
replacement SIP based service. During the year, the number of SIP
lines has increased by 3% overall. In 2018, we expect to see
accelerated growth of SIP channels as we move more customers onto
our cloud platform.
Data connectivity revenues increased by 38% over the previous
year, driven by the high growth of our ICON cloud suite of
services. We have previously highlighted the quicker than expected
migration away of two large legacy WAN customers (not on the ICON
platform) in the second half of the year, which had a material
impact on Maintel's performance in this division.
The growth of our ICON cloud services continued throughout the
year, particularly ICON Communicate, our unified communications
service, which delivered growth of c.80% in contracted seats over
the previous year. The trend of larger customers moving to the
cloud accelerated, with a major utility company moving its Avaya
enterprise unified communications and contact centre services onto
the ICON platform. This customer will also benefit from moving to
ICON Secure, our cloud-based network security proposition that
continues to gain traction.
Over 50% of our near term sales prospect pipeline of unified
communications and contact centre opportunities are cloud based, a
significant increase over the previous period.
As highlighted previously, the Group continued to invest in the
ICON platform throughout the year to ensure it is well positioned
to capitalise on the significant opportunity for ICON cloud
services. As part of this focus, the Group has appointed a Cloud
services director, reporting to the CEO, and increased the size of
the cloud services team, to drive the expansion and delivery of our
cloud platform and services. Planned new developments include our
Software Defined WAN (SD-WAN) product, currently being trialed, a
cloud based payment card industry compliant secure payment product
(PCI) to be launched shortly with a major insurance company, health
and social care network (HSCN) connectivity/compliance and enhanced
automation across all elements of the ICON platform to speed up
customer on-boarding, reporting and the end to end customer
experience.
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.
2017 2016
GBP000 GBP000 Decrease
Maintel (excluding Intrinsic)(g)
Revenue 6,898 6,947 (1)%
Gross profit 3,281 3,385 (3)%
Gross margin (%) 48% 49%
---------------------------------- ------- ------- ------------
Total Maintel Group
Number of customers 1,516 2,476 (39)%
Number of connections 42,108 51,935 (19)%
---------------------------------- ------- ------- ------------
(g) Intrinsic had GBPNil of mobile revenues in 2017.
As highlighted in the 2016 annual report, as part of integrating
Azzurri, the Group undertook a strategic review of its mobile
business, resulting in the decision to reduce its presence in the
small business space. This reduces the Group's exposure to mobile
and re-focuses our sales activity in line with the other product
propositions in the target mid-market sector.
This activity is now complete and as a result, the customer base
and number of connections have reduced by 39% and 19%
respectively.
Following this process, mobile revenues have now stabilised with
only a small decrease of 1% over the previous year to GBP6.9m
(2016: GBP6.9m). The average number of handsets per customer has
increased by c.30%, as the Group's focus has successfully moved
towards the mid-market sector.
Gross profit of GBP3.3m was delivered, with gross margin
reducing slightly to 48% from 49% in 2016. However, on an adjusted
basis removing one off contributions received in 2016 for divesting
the small customer base, the underlying gross margin has remained
broadly flat.
Our sales focus is on cross-selling into our existing customer
base, and with fewer than 20% of our customers currently taking our
mobile offer, this remains a significant opportunity, with the
acquisition of Intrinsic offering further cross-selling
opportunities.
O2 remains our largest network partner with 84% of connections
being on their network.
During 2018, it is planned to launch a wholesale proposition to
complement our dealer arrangements, allowing increased flexibility
on customer tariffs, and opening up opportunities not currently
available to the Group.
Other operating income
Other operating income of GBP155,000 (2016: GBP151,000)
constitutes a full year rental income from the sub-letting of a
part of the Group's London premises. The sub-lease runs until
November 2020 with a break option in December 2018.
Administrative expenses, excluding intangibles amortisation and
exceptional expenses
2017 2016
Administrative expenses(h) GBP000 GBP000 Increase
Maintel (excluding Intrinsic)
Maintel sales expenses 13,363 12,056 11%
Maintel other administrative
expenses 12,317 11,008 12%
------- ------- ---------
Maintel (excluding Intrinsic)
total administrative
expenses 25,680 23,064 11%
-------------------------------- ------- ------- ---------
Intrinsic
Intrinsic sales expenses 996 - -
Intrinsic other administrative
expenses 507 - -
------- ------- ---------
Intrinsic total administrative
expenses 1,503 - -
-------------------------------- ------- ------- ---------
Total Maintel Group
Total sales expenses 14,359 12,056 19%
Total other administrative
expenses 12,824 11,008 16%
Total administrative
expenses 27,183 23,064 18%
---------------------------- ------- ------- ----
(h) Excluding intangibles amortisation, management recharges and
exceptional expenses.
Some of Intrinsic's inherited costs are now shared across the
Group, with the above figures reflecting the costs in respect of
the entity to which they are contracted, rather than the entity
which obtains the benefit, and as such are indicative only, with a
view to showing the control that continues to be exercised over
administrative expenses and the more significant movements.
Total administrative expenses for the Group increased to GBP27.2
m (2016: GBP23.1m). Excluding Intrinsic, Maintel's costs are 11%
higher at GBP25.7m from GBP23.1m in 2016 driven in the main by
twelve months inclusion of Azzurri. Total administrative expenses
as a percentage of total revenue have reduced to 20% from 21% in
2016.
Annualised savings of GBP5.0m had already been delivered as at
31 December 2016, as Azzurri was integrated into the Group, ahead
of the GBP4.6m of annualised synergies identified at the time of
the transaction.
In addition, as part of the integration of Intrinsic and an
ongoing review of operational efficiencies a further GBP3.0m of
annualised savings were delivered in Q4 2017 from the Group's total
overhead base.
The Group's headcount as at 31 December 2017 was 670 (31
December 2016: 655), reflecting a reduction of 12% after taking
into account Intrinsic's headcount of 103 at the date of its
acquisition.
Property costs in 2017 were reduced by GBP0.4m from the lease
assignment to a new tenant and the subsequent sub-let of space at
our Weybridge site.
Costs relating to accounting for share options increased to
GBP0.3m (2016: GBP0.1m).
As we progress further with our integration plan, total
administration costs will continue to be tightly controlled and we
expect to deliver further cost savings in H1 2018.
Exceptional costs
A breakdown of the exceptional costs of GBP1.5m (2016: GBP4.2m)
shown in the income statement is provided in note 12. The main
elements are legal and professional fees associated with the
acquisition of Intrinsic (GBP0.3m) and staff related restructuring
costs associated with the integration of the Intrinsic business and
the ongoing review of the Group's operating cost base
(GBP1.1m).
Intangibles amortisation
The intangibles amortisation charge increased in the year due to
a full year's charge in respect of Azzurri compared to 8 months in
2016 and 5 months' charge relating to Intrinsic. 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 EUR1.17 =
GBP1 at 31 December 2016 to EUR1.13 = GBP1 at 31 December 2017 and
the US Dollar rate moved from $1.24 = GBP1 at 31 December 2016 to
$1.36 = GBP1 at 30 December 2017. The effect of this and other
movements in the period was a net gain to the income statement of
GBP149,000 (2016: GBP33,000 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
GBP9,000 in the period (2016: GBP40,000).
Interest
The Group recorded a net interest charge of GBP0.9m in the year,
in line with 2016.
Taxation
The consolidated statement of comprehensive income shows a tax
rate of 12.3% with a tax charge of GBP0.4m (2016: GBP13,000) on a
profit before tax of GBP3.5m (2016: GBP2.1m) for the reasons
described below.
Each of the Group companies is taxed at 19.25%, with the
exception of Maintel International Limited, which is taxed at 12.5%
(2016: 20%; 12.5%) respectively. 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 GBP0.5m, 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 GBP0.2m
associated with the creation of an intangible asset relating to
software licences.
This is described further in note 21.
Dividends and adjusted earnings per share
A final dividend for 2016 of 17.4p per share (GBP2.5m in total)
was paid on 18 May 2017. An interim dividend for 2017 of 14.7p
(GBP2.1m) was paid on 5 October 2017. The board is pleased to
confirm an increase in the
full year dividend of 10% for the financial year ending 31
December 2017, resulting in a final dividend of 19.1p per share
being proposed. This would take the total dividend payment for 2017
to 33.8p.
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 2017.
Consolidated statement of financial position
Net assets, including Intrinsic, decreased by GBP1.1m in the
year to GBP27.1m at 31 December 2017 (31 December 2016: GBP28.2m)
due to the comprehensive income earned in the period and grant of
share options offset by dividends paid.
Intangible assets valued at GBP67.5m, increased by GBP4.3m,
driven by intangibles arising on the acquisition of Intrinsic (see
note 14) and software licences purchased, offset by the
amortisation charge in the year of GBP5.9m (2016: GBP4.7m).
The net book value of property, plant and equipment decreased by
GBP1.8m to GBP1.5m (2016: GBP3.3m). This was primarily driven by
the reclassification of the Burnley freehold property, valued at
GBP1.5m, to current assets as a result of the decision taken to
market the property for sale (see note 17 for further details). The
additional GBP0.3m decrease was the net effect of additions of
GBP0.4m, including acquired assets from Intrinsic of GBP0.2m,
offset by the depreciation charge of GBP0.7m.
Trade receivables increased by GBP1.6m in the year to GBP19.0m,
with GBP1.1m attributable to Intrinsic. Excluding Intrinsic, the
increase of GBP0.5m 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 increased by GBP5.4m to GBP17.0m.
Excluding Intrinsic, the increase was GBP2.2m, most of this being
driven by: (a) higher level of accrued income (GBP0.9m), associated
with one large project; (b) increase in prepaid costs relating to
hardware funds from the mobile business (GBP0.3m); and (c) lower
level of revenue deferrals (GBP1.0m), driven by a fewer number of
large scale projects at year end 2017 compared to year end
2016.
Assets held for resale of GBP1.5m relates to the freehold
property in Burnley, following the decision to market the property
for sale (see note 17).
Inventories are valued at GBP3.3m, a decrease of GBP1.6m in the
year, notwithstanding Intrinsic contributing GBP0.1m. The value of
stock held for resale reduced by GBP1.4m due to the timing of
customer deliveries, with some large projects at year-end 2016 not
being replicated at year-end 2017. Maintenance service stock
reduced by GBP0.2m due mainly to the results of regular
revaluation.
Trade payables increased by GBP3.6m in the year to GBP13.5m
(2016: GBP9.9m). Excluding Intrinsic, trade payables have increased
by GBP1.5m with a number of different supplier and delivery timing
factors affecting the balance.
Other tax and social security liability has decreased by
GBP1.2m, notwithstanding a GBP0.7m increase attributable to
Intrinsic. Excluding Intrinsic, the other tax and social liability
for Maintel decreased by GBP1.9m. This was due to a lower VAT
liability because of reduced Q4 customer invoicing in 2017 compared
to 2016 and the unwinding of timing differences on VAT payments due
to a change in Group registration in FY 2016.
Accruals are GBP6.7m (2016: GBP8.5m) and excluding Intrinsic
have decreased by GBP1.8m year on year. The decrease is
attributable to a combination of a higher level of accrued costs
associated with several large projects in progress at 2016 year-end
(GBP1.8m), bank interest (GBP0.2m), and others GBP0.2m.
Other payables are GBP3.4m compared to GBP3.6m in 2016, a
decrease of GBP0.2m, primarily due to a reduced level of hardware
funds and cash advances of GBP0.1m, linked to the mobile business,
offset by others of GBP0.1m.
Deferred managed service income increased to GBP19.2m, with
GBP4.1m attributable to Intrinsic. Excluding Intrinsic the balance
has decreased by GBP0.9m, in the main due to invoice timing
differences driven in particular by one large legacy customer that
left early in Q1 2017.
Other deferred income amounted to GBP4.8m, but excluding
Intrinsic decreased by GBP2.0m due to the unwinding of two
significant legacy WAN contracts in Q4 2017.
Corporation tax liabilities increased by GBP0.9m to GBP1.4m
(2016: GBP0.5m), reflecting the estimated liability associated with
the profits derived from FY 2017 trading activities offset by the
utilisation of its 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 against
the profits of the trade that was transferred from the previous
Datapoint UK businesses.
Non current other payables are GBP1.5m (2016: GBP0.9m) an
increase of GBP0.6m due to increase in intangible licences.
The deferred tax liability increased by GBP0.2m to GBP2.2m
(2016: GBP2.0m). This is partly due to the creation of a deferred
tax liability of GBP1.1m associated with the intangibles acquired,
offset by an asset of GBP0.2m associated with unused capital
allowances of Intrinsic. The remaining movement of GBP0.7m is due
to : (a) GBP0.8m application of deferred tax assets relating to
historic losses and capital allowances and (b) GBP0.1m relating to
purchase of licences , offset by credits : (a) a GBP1.1m
intangibles amortisation charge, and (b) a GBP0.5m relating to an
additional asset established in relation to the projected use of
historic Datapoint losses.
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 GBP27.8m at the period end (2016:
GBP27.0m). 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 GBP5.9m being amortised in
2017 (2016: GBP4.7m), the increase being attributable to a full 12
months' charge relating to the Azzurri intangibles acquired in May
2016 and 5 months' charge relating to the Intrinsic intangibles
acquired in August 2017.
Goodwill of GBP39.7m (2016: GBP36.1m) is carried in the
consolidated statement of financial position, which is subject to
an impairment test at each reporting date. The increase of GBP3.5m
is because of the Intrinsic acquisition. No impairment has been
charged to the consolidated statement of comprehensive income in
2017 (2016: GBPNil).
Property
Following the acquisition of Intrinsic, the Group benefits from
three additional property leases for office and warehouse premises
located in Haydock, with lease terms to 2020 and 2022 respectively,
at a combined annual rental of GBP0.2m.
As part of management's ongoing review and consolidation of its
existing property locations, the following changes have been made
in 2017:
(a) In March 2017, the lease of the Weybridge property was
assigned to a new tenant and Maintel has sub-let a much-reduced
space. The estimated saving over the remaining term of the lease is
approximately GBP1.0m, of which GBP0.4m benefited the 2017
results.
(b) In Q4 2017, the Group terminated property leases associated
with its Thatcham and Manchester premises, generating annualised
savings of GBP0.1m. Dilapidation costs of GBP0.1m were incurred on
exit from the Thatcham office.
(c) A review was undertaken of the Burnley freehold property,
which identified significant repairs to be incurred in the future,
resulting in a decision to market the property, consolidate the
warehousing requirements in Haydock and to lease more modern
alternative office premises.
On 23 February 2018, a sale of the freehold property was
successfully concluded for GBP1.5m and the premises leased back for
up to twelve months whilst new offices are sought.
Cash flow
The Group had net debt of GBP27.7m, excluding issue costs of
debt, at 31 December 2017 (31 December 2016: GBP20.1m), equating to
a net debt: adjusted EBITDA ratio of 2.2x (2016: 1.6x).
An explanation of the GBP7.6m increase in net debt is provided
below.
2017 2016
GBP000 GBP000
Cash generated from operating
activities before acquisition
costs 4,900 13,339
Taxation (211) (236)
Capital expenditure less proceeds
of sale (1,482) (570)
Finance cost (net) (986) (625)
--------- ---------
Free cashflow 2,221 11,908
Dividends paid (4,557) (3,679)
Acquisition (net of cash acquired) (4,895) (45,433)
Acquisition costs paid (273) (2,515)
Proceeds from borrowings 9,000 31,000
Repayments of borrowings (9,000) (6,000)
Issue of new ordinary shares - 24,000
Share issue costs - (781)
Issue costs of debt (60) (360)
--------- ---------
(Decrease)/increase in cash and
cash equivalents (7,564) 8,140
Cash and cash equivalents at start
of period 10,884 2,784
Exchange differences (9) (40)
--------- ---------
Cash and cash equivalents at end
of period 3,311 10,884
Bank borrowings (31,000) (31,000)
--------- ---------
Net debt excluding issue costs
of debt (27,689) (20,116)
Adjusted EBITDA 12,524 12,598
The Group generated GBP4.9m of cash from operating activities
(excluding acquisition costs of GBP0.3m), and operating cash flow
before changes in working capital of GBP11.5m (2016: GBP8.5m).
As reported at H1 2017, the effects of the positive cash timing
benefits from a strong trading performance in Q4 2016, which
unwound in H1 2017, combined with strong growth in our ICON cloud
product offering, leading to a reduction in upfront project
billing, contributed to a working capital outflow of GBP6.9m in the
year.
As a result, conversion of operating cash flow from adjusted
EBITDA was 35% (2016: 84%). This was despite a strong H2 2017 cash
performance which produced a strong cash conversion rate of 96%
based on an H2 adjusted EBITDA of GBP5.5m and a net cash flow from
operating activities of GBP5.2m.
The Group incurred exceptional costs of GBP1.5m during 2017
(2016: GBP4.2m), primarily covering acquisition, restructuring and
redundancy costs associated with the acquisition of Intrinsic and
an ongoing review of the Group's operating cost base.
Capital expenditure of GBP1.5m was comprised of intangibles
relating to software licences of GBP0.9m and capitalised Callmedia
project costs of GBP0.2m plus tangible assets of GBP0.4m.
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 of GBP1.0m includes GBP0.3m of interest
relating to Q4 2016, which was paid post year-end 2016.
In managing the Group's funding costs, we have used surplus cash
to reduce our utilised facility by GBP9.0m in the period, leaving a
cash and cash equivalents balance of GBP3.3m at year-end (2016:
GBP10.9m).
Including the payment of dividends in 2017 amounting to GBP4.6m
and acquisition costs of GBP5.2m, the net effect when combined with
a free cash flow of GBP2.2m, is an increase in the net debt
position of GBP7.6m, to GBP27.7m.
Further details of the Group's revolving credit and overdraft
facilities are given in note 22.
IFRS 15 -Revenue from contracts with customers and IFRS 9
Financial instruments
IFRS 15 is required to be adopted for all accounting periods
beginning on or after 1 January 2018. During H2 2017, the Group
carried out a detailed assessment of the impact that adoption of
IFRS 15 may have on the Group's revenue streams. If IFRS 15 was
adopted for the current reporting period, reported revenue and
profit before tax would be reduced by GBP6.3m and GBP2.2m
respectively. IFRS 15 will have no impact on the cash position of
the Group.
IFRS 9 is required to be adopted for all accounting periods
beginning on or after 1 January 2018.
A detailed explanation of the impact of both IFRS 15 and 9 on
the Group's accounting policies is provided in note 2 (s).
Principal risks and uncertainties
The directors consider that the principal risks to the Group
relate to technological advance, marketplace relationships, pricing
strategies and integration risk. Some risks may be unknown to the
Group and others may be more, or less, material than currently
envisaged by the directors, and so the following may not give a
comprehensive view of all the risks and uncertainties affecting the
business.
Telecommunications hardware continues to be replaced by
telecommunications software offering services that extend the
traditional PBX capability towards unified communications and
collaboration. This continues a trend that started 15 years ago
with the transition from proprietary signalling to the use of
existing IP networks, and the trend is now underway for customers
to transition their traditional on-premises deployments to hosted
and cloud services.
Maintel is well positioned to capitalise on that change, having
invested in the skills of its people and in adding capability
through a number of acquisitions in recent years. In particular,
the acquisition of Azzurri in 2016 brought with it strong
capability in unified communications as a service, cloud and
managed services.
Offering these cloud services places a responsibility on the
Group to ensure the continuous operations of the platforms from
which they are delivered. Investment during the previous year in
additional data centre and network capacity now means that the
whole of the ICON platform is fully resilient and capable of
withstanding catastrophic failure in any of the core data centres.
During 2018, the Group will further invest in the platform,
providing additional redundancy. The platform, and the networks
that support it, are monitored 24/7 by the in-house network
operations centre for rapid response to any outage.
Maintel has also invested in its product development function,
under the direction of the Chief technology and strategy officer,
to ensure that the product portfolio is competitively positioned
and anticipates technological change. Product roadmaps and
initiatives are regularly discussed with analyst houses to test
assumptions with respected third parties, and maintain strong
networks with the consultant and vendor communities.
The Group has also sought to protect its high levels of
recurring revenues by offering increasingly differentiated and
value added services to its clients, enabling them to transfer
responsibility for the management of their core communications
platforms to Maintel, including the inherent risk. The Group has
developed a comprehensive set of managed service offers including
managed cyber security, PCI compliance and system and mobile fleet
management that ensure its service offerings remain relevant and
compelling.
In telecommunications, regulation plays a key role in the
setting of prices and tariffs, particularly in the mobile area. To
that end, the Group has reduced its dependency on revenue from
mobile voice and data services, replacing it with cloud and managed
service revenues. In addition to regulatory activity, fixed and
mobile pricing and margins can also be impacted by the activities
of both competitors and suppliers. These are mitigated by assessing
anticipated regulatory and technology change, and its impact on
pricing strategies, amending the Group's own pricing policies
accordingly. Multiple supplier relationships are also maintained
across both the fixed and mobile sector, to ensure continued access
to competitive services. In telecommunications, the transition from
traditional PSTN and ISDN services towards SIP continues, a
migration considered to increase value for the Group.
The Group has a number of key vendor relationships in both
network services, unified communications, contact centre and
connectivity. The failure of one of these businesses, or the
acquisition of a key partner by a competitor which then
significantly re-positions that partner's strategy, would represent
a risk to the Group. These key partner relationships are reviewed
monthly under the direction of the Chief technology & strategy
officer, and the Group maintains key senior relationships with all
these businesses to ensure there is early indication of any
prospective change.
The Group has close partner relationships with organisations
such as O2/Telefonica, such that these companies and their clients
constitute a significant share of its managed service base. Should
these relationships be terminated, the managed service base would
reduce to that extent over a period, necessitating a commensurate
reduction in costs. Partnerships with other integrators continue to
be developed to reduce the percentage weighting of business with
these partners.
The Group's managed service contracts have a natural finite
life, and are subject to competitive attack, so that there is
inevitable customer churn. The directors monitor the rate and
causes of churn, and implement strategies with the objective of
minimising attrition and growing the customer base organically and
by way of acquisition if cost effective.
The Group has stated that it will acquire suitable companies,
which fit certain criteria, and recognises that there is a risk of
operational disturbance in the course of integrating acquired
companies into the Group's existing operations. The Group mitigates
this risk by way of due diligence and detailed planning involving
senior management, drawing on the experience of previous
acquisitions.
Outlook
Following the challenges faced in 2017, notably prolonged delays
with several large projects, the Group has entered 2018 well placed
to capitalise on future growth opportunities. We have had a
promising start to the year and we continue to see a strong sales
pipeline, particularly on the Avaya product portfolio and our suite
of ICON cloud services. The Group has invested in core growth areas
within the business, such as our successful cloud offering, and
completed the acquisition of Intrinsic, which brings key strategic
benefits.
Our ICON suite of cloud services continues to grow strongly,
underpinning our transformation to a cloud and managed services
provider in the mid-market and enterprise space.
The integration of Intrinsic is largely completed and on track
to deliver the planned synergies for the Group. As a Cisco Gold
partner, Intrinsic enhances Maintel's product portfolio,
particularly in LAN network security, offering our customers access
to a broader range of products and services, and we have seen
encouraging levels of cross-selling into the customer base.
The first few weeks of the year has seen Maintel continue its
strong performance in the public sector, with several contracts
being awarded.
As indicated earlier, we have returned to a dividend policy
based on a pay-out ratio of at least 40% of adjusted net income.
Our confidence in the business leads us to expect that the annual
dividend will remain progressive in absolute terms.
On behalf of the board
E Buxton
Chief executive
16 March 2018
Corporate governance
Board of directors
_______________________ _______________________ _______________________ _______________________
John Booth Annette Nabavi Nicholas Taylor Eddie Buxton
Non-executive Senior independent Independent Chief executive
chairman non-executive non-executive
director director
Date of appointment
------------------------ ------------------------ ------------------------ ------------------------------
7 June 1996 30 June 2014 1 January 2 February
2006 2009
Previous experience
------------------------ ------------------------ ------------------------ ------------------------------
John's career Annette's Nick has extensive Eddie has
has been spent earlier career experience over 20 years'
in equity was spent of working experience
investment in strategy with growing in the telecommunications
and broking consulting organisations, sector. He
where he has and banking. principally joined Maintel
held a number She has held in the media from Redstone
of senior the positions and communications Plc where
positions of Global industries. he was Managing
including head of telecoms Having started director of
Head of Equities business development his career the telecoms
at Bankers at ING Barings, as a management division.
Trust and Managing director consultant Prior to that
co-founder of XchangePoint working for Eddie was
and Executive Holdings Ltd a US strategy Business customer
Chairman of and she was boutique, director at
the Link Group, a Senior partner he went on Centrica Telecommunications
acquired by at the PA to hold a (Onetel) which
ICAP Plc in Consulting number of was successfully
2008. He has Group where senior positions sold in 2005
extensive she focussed - including to Carphone
venture capital on strategy both CFO and Warehouse,
experience and marketing CEO - spanning and held Sales
and holds in the TMT private and director roles
a number of sector. quoted businesses at NTL and
non-executive as well as Cable & Wireless.
directorships the not-for-profit
in investment sector.
management
also chairing
The London
Theatre Company
and Natilik
Ltd. He is
a trustee
of several
charities
and also serves
on their investment
committees.
External appointments
------------------------ ------------------------ ------------------------ ------------------------------
John chairs Annette is Nick undertakes None
or acts as a non-executive a variety
a non-executive director on of consultancy
director of the boards work through
several private of IPSE, the his company,
companies Association Hopton Hill,
in investment of Independent and is non-executive
management, Professionals chairman of
telecoms and and the Self Focus Group,
media and Employed, a telecoms
is a consultant and Gemserv business,
to Herald Ltd, a director and a non-executive
Venture Partners. of Women in director of
Telecoms & Zinc Media
Technology Plc.
(WiTT) Ltd
and a member
of the Advisory
Board of the
National Science
and Media
Museum. Annette
also undertakes
corporate
finance advisory
work with
AHV Associates
LLP.
Board committees
------------------------ ------------------------ ------------------------ ------------------------------
Nomination Remuneration Audit - chairman None
- chairman - chairman Nomination
Audit Audit Remuneration
Remuneration
_______________________ _______________________ _______________________ _______________________
Angus McCaffery Kevin Stevens Stuart Legg Mark Townsend
Director Group integration Group sales CA
and transformation and marketing Chief financial
director director officer
Date of appointment
------------------------ ------------------------ ---------------------------- ------------------------
7 June 1996 1 January 7 April 2016 7 April 2016
2014
Previous experience
------------------------ ------------------------ ---------------------------- ------------------------
Angus co-founded Kevin joined Stuart has Mark is a
Maintel in the Group over 23 years' Chartered
1991 and was in June 2010 experience Accountant
the Group and has been in the telecommunications having qualified
sales and a director industry, with Price
marketing of the main focusing on Waterhouse
director until trading company, delivering (now PWC)
this role Maintel Europe applications in 1988. He
was assumed Limited, since for Nortel, has extensive
by Stuart December 2011. Cisco and operational
Legg in late He has worked Avaya portfolios. and commercial
2014. He now in the communications He was part experience
focuses on and IT industry of the senior across FMCG,
finding larger since 1981, management retail, construction
organic and holding senior team who sold and rental
inorganic operations Mettoni to sectors. Previously
opportunities and general Enghouse in he was Group
as well as management 2010 and was finance director
maintaining positions a board member at Livingston
relationships with Genesis of Proximity Ltd. During
with our larger Telecommunications, prior to its his time there,
partners and Xpert Communications, acquisition he assisted
the overall Redstone and by the Company in a successful
development Westcon Convergence, in 2014. sale of the
of Maintel. with a focus business to
on improving a PE-backed
business operations, acquirer.
efficiencies, Prior to Livingston
process and he was Group
customer service. finance director
at Brogan
Group for
5 years and
has held senior
finance positions
with Oriflame
Cosmetics
SA and Pitney
Bowes Ltd.
External appointments
------------------------ ------------------------ ---------------------------- ------------------------
None None None None
Board committees
------------------------ ------------------------ ---------------------------- ------------------------
None None None None
Corporate governance
Report on corporate governance
The board's overriding objective is to produce long-term value
for its shareholders.
The directors recognise the importance of sound corporate
governance in achieving that objective and have developed
governance policies appropriate for the size of the Group, with
reference to the main provisions of the Corporate Governance Code
for Small and Mid-Size Quoted Companies published by the Quoted
Companies Alliance ("the QCA Code"). Whilst the QCA Code has not
been adopted in its entirety at this time, the directors note the
recently announced change to the AIM Rules requiring that, from 28
September 2018, all AIM-listed companies must adopt a recognised
code of corporate governance and include on their websites details
of how they have complied with it together with reasons for any
non-compliance.
A description of the main governance policies and procedures
adopted by the Group is set out below.
Board of directors
The Group is led by an effective board which comprises five
executive directors and three non-executive directors, the latter
being John Booth, who is chairman, Annette Nabavi and Nicholas
Taylor. The chairman is responsible for the effective running of
the board, which reviews its effectiveness on an ongoing basis. The
chief executive is ultimately responsible for all operational
matters and the financial performance of the Group. Mrs Nabavi is
the senior independent director.
Other than in respect of Mr Booth's and Mr Taylor's
shareholdings in the Company, the non-executive directors are
independent of management and are free from any business or other
relationship which could materially interfere with the exercise of
their independent judgement. During 2016 and 2017 Anchusa
Consulting Limited, a company owned by Mrs Nabavi, and Hopton Hill
Limited, a company owned by Mr Taylor, provided consultancy support
related to the acquisitions of Azzurri and Intrinsic; however,
given the limited nature of these engagements, the board does not
consider it to have compromised their independence.
The board is satisfied that the broad range and depth of the
executive and non-executive experience of each of the non-executive
directors underpins their individual strength of character and
ability to exercise independent judgement and apply unbiased rigour
to board decisions. It is also satisfied that they commit
sufficient time to the fulfilment of their duties as directors of
the Company.
The executive directors are Eddie Buxton who is Chief executive
officer, Stuart Legg (Group sales and marketing director), Kevin
Stevens (Group integration and transformation director), Mark
Townsend (Chief financial officer) and Angus McCaffery who has
responsibility for business development.
The directors' biographies demonstrate the experience they bring
to the Group.
The board meets regularly, normally monthly, and both reviews
operations and assesses future strategy for the operating
activities and for the Group as a whole. It operates to a schedule
of matters specifically reserved for its decision. This schedule
requires that specific matters are referred to the board for
consideration and approval, including those relating to the overall
leadership and management of the Group, budgets, strategy,
performance against objectives, significant capital expenditure and
contracts, external financial reporting, dividend and treasury
policies, overall systems of internal controls and risk management,
remuneration and governance, along with any significant proposed
changes to business operations or to the structure or capital of
the Company.
The full schedule of matters reserved for the board's decision
is available from the company secretary.
During the year, the Chairman also held meetings with the other
non-executive directors in the absence of the executive directors,
and with the CEO in the absence of the other non-executive
directors. Mrs Nabavi and Mr Taylor also met in the absence of the
Chairman.
The directors are required by the Company's articles to retire
on a three-year rotational basis, and are
required to stand for reappointment by shareholders at the
annual general meeting. Although not required to retire this year
in accordance with the articles, corporate governance guidance
recommends that non-executive directors with more than 9 years'
service are re-elected annually, and John Booth and Nicholas
Taylor, having been directors since 1996 and 2006 respectively,
offer themselves for re-election. The board's view is that both
directors bring a valuable external contribution to the board,
remain independent and effectively challenge as well as support the
executive directors.
In accordance with its articles, the Company provides an
indemnity in respect of all of the Company's directors in respect
of all losses arising out of or in connection with the execution of
their powers, duties and responsibilities as directors. The Group
also maintained insurance cover during the year for its directors
and officers and those of subsidiary companies under a directors'
and officers' liability insurance policy against liabilities that
may be incurred by them while carrying out their duties. In each
case, the directors remain liable in the event of their negligence,
default, breach of duty or breach of trust.
The directors are able to seek independent professional advice
as necessary, for the furtherance of their duties, at the Company's
expense within designated financial limits.
The following board committees deal with specific aspects of the
Group's affairs, reporting their deliberations and conclusions to
the board as appropriate:
Audit and Risk committee
Membership of the Audit and Risk committee is restricted to
non-executive directors and comprises Nicholas Taylor (Chairman),
John Booth and Annette Nabavi.
The board is satisfied that for the year under review and
thereafter Mr Taylor has adequate recent and relevant commercial
and financial knowledge and experience to chair the committee, it
also considers that Mrs Nabavi and Mr Booth have such knowledge and
experience.
The remit of the committee includes:
-- considering the continued appointment of the external
auditors, and their fees, terms of engagement and independence,
including the appointment of the auditors to undertake non-audit
work;
-- liaising with the external auditors in relation to the nature and scope of the audit;
-- reviewing the form and content of the financial statements
and any other financial announcements issued by the Group,
including consideration of significant issues, judgements, policies
and disclosures;
-- reviewing any comments and recommendations received from the
external auditors and considering any other matters which might
have a financial impact on the Group;
-- reviewing the Group's risk management reporting processes
that identify, report and monitor corporate level risks and
considering annually the requirement for an internal audit
function;
-- reviewing the Group's statements on internal control systems and risk management processes.
The Audit and Risk committee convened twice during 2017, to
review the half-year and annual financial statements. Attendees at
committee meetings held in 2017 included the Chief financial
officer, Chief executive officer, Group financial controller and
representatives of the external auditors. All of these attended at
the invitation of the chairman of the committee to facilitate the
conduct of the meetings.
In 2017, it also liaised informally with the executive directors
in relation to published financial information, the Azzurri and
Intrinsic acquisitions and other audit-related matters. Nicholas
Taylor also met separately with the external auditors during the
year in the absence of executive management.
The principal issues addressed by the committee during the year
were:
-- the external auditors' year-end report for 2016, the review
of the Group's 2016 results and the disclosures in the 2016 annual
report;
-- the announcement of the half-year results and interim trading update;
-- the external audit plan for the 2017 financial statements,
which included a review of the audit objectives, scope, timetable
and deliverables;
-- accounting matters and compliance with IFRS 3 (Business
combinations) associated with the acquisitions of Azzurri and
Intrinsic;
-- Initial assessment of the implications of IFRS 15 (Revenue from contracts with customers);
-- assessment of the carrying value of intangible assets in the
light of the Group's 2016 results;
-- the re-appointment of BDO LLP as external auditors, their
independence and objectivity and their fees;
-- consideration of the external auditors' observations on the
internal financial controls arising from their annual audit;
-- overseeing the establishment of a more formal risk reporting
process, regularly reviewing its output and its operation.
BDO LLP is retained to perform audit and audit-related work for
the Group. The committee monitors the nature and extent of
non-audit work undertaken by the auditors, including reviewing the
letter of independence provided by the auditors annually, which
includes details of audit and non-audit work undertaken. The
committee is satisfied that there are adequate controls in place to
ensure auditor independence and objectivity. Details of audit and
non-audit fees for the period under review are shown in note 7 of
the financial statements.
Remuneration committee
Annette Nabavi is chair of the Remuneration committee, its other
members being John Booth and Nicholas Taylor. The committee met
three times during the year.
Nomination committee
The Nomination committee had two members during 2017, both
non-executive, being John Booth, chairman, and Nicholas Taylor.
Annette Nabavi, the senior independent director, was appointed to
the committee on 28 February 2018 to provide it with further depth.
The committee's terms of reference include:
-- reviewing the structure, size and composition of the board; and
-- identifying and nominating suitable candidates to fill vacancies on the board.
The committee meets as required and met once in 2017, Eddie
Buxton also attending the meeting by invitation, to consider the
reappointment of Annette Nabavi as a non-executive director
following the expiry of her fixed term appointment; the
reappointment was agreed, on a continuing basis subject to three
months' notice.
The Nomination committee regularly informally assesses the
structure of the board and its performance and is satisfied that
the present board is suitably diverse and well balanced to deliver
the Company's current strategic goals. The board acknowledges that
some directors have served for many years, but considers that this
brings valuable experience and teamwork to the board. It also
acknowledges that John Booth (the non-executive chairman) and Angus
McCaffery (executive director) have significant shareholdings in
the Company, but considers that this aligns their interests with
those of shareholders as a whole.
Board attendances
The following table shows the attendance of the directors at
meetings of the board and the Audit and Risk, Remuneration and
Nomination committees during the year.
Audit Remuneration Nomination
Board & risk committee committee
committee
Number of meetings in
the year
J Booth 20 2 3 1
E Buxton 20 - - -
S Legg 18 - - -
A McCaffery 16 - - -
A Nabavi 20 2 3 -
K Stevens 20 - - -
N Taylor 20 2 3 1
M Townsend 19 - - -
In addition to the regular monthly meetings, additional meetings
were held during the year relating to the acquisition of Intrinsic,
the transfer of Intrinsic's share capital to Maintel Europe Limited
and amendments to banking arrangements.
Conflicts of interest
The Group has established procedures for the disclosure and
review of any conflicts, or potential conflicts, of interest which
the directors may have and for the authorisation of such conflict
matters by the board. The board considers that these procedures are
operating effectively.
Relationship with shareholders
The Strategic report above, incorporating the Chairman's
statement, includes a detailed review of the business and future
developments.
In addition to regular financial reporting, significant matters
relating to trading or development of the business are released to
the market by way of Stock Exchange announcements as required.
The directors meet with institutional and other shareholders
when possible, usually following the announcement of the Group's
results, to keep them informed about the performance and objectives
of the business. Annette Nabavi also attended certain shareholder
meetings during 2017, representing the non-executive directors, to
better understand the shareholders' views and to ensure there is
an
independent channel to the board, should that be necessary.
The annual general meeting provides a further forum for
shareholders to communicate with the board. Details of resolutions
to be proposed at the annual general meeting are set out in the
notice of meeting.
Internal control
The board is ultimately responsible for the Group's systems of
internal control, and for reviewing their effectiveness. Such
systems can provide reasonable, but not absolute, assurance against
material misstatement or loss. The board believes that the Group
has internal control systems in place appropriate to the size and
nature of its business.
The Group maintains a comprehensive process of financial
reporting. The annual budget is reviewed and approved by the board
before being formally adopted, following which the board receives
at least monthly financial reports of the Group's performance
compared to the budget, with explanations of significant variances.
Monthly cash flow forecasts are provided to the board, as are
budget reforecasts if deemed appropriate.
The executive directors monitor key performance indicators on a
monthly basis, management of these being delegated to the Group's
senior management.
The key operational functions of the Group are subject to
processes established and externally audited under ISO9001,
ISO20000, ISO18001 and ISO27001, which the directors consider to be
a valuable additional internal and external control tool of the
business.
The directors do not consider that an internal audit function is
required, given the size and nature of the business at this time.
This situation is reviewed annually.
Operating control
Each executive director has defined responsibility for specific
aspects of the Group's operations. The executive directors,
together with key senior executives, meet regularly - both
informally and at monthly operational board meetings - to discuss
operational matters.
Risk management
The board is responsible for identifying the major business
risks faced by the Group and for determining the appropriate course
of action to manage these risks. It reviews a dynamic risk report
at each board meeting, the process behind which is monitored by the
Audit and Risk committee. The Group's approach to financial risk
management is further explained in note 23 to the financial
statements.
Bribery Act 2010
The board performs an ongoing assessment of the risk environment
and maintains a framework to ensure that the Group trades in
compliance with the UK Bribery Act 2010.
Investment appraisal
Capital expenditure is controlled via the budgetary process, the
budget being approved by the board. Expenditure is approved as
required by the chief executive officer. The board reviews
acquisitions and significant unbudgeted capital expenditure as they
arise.
Going concern
The Group has a sound financial record including strong
operating cash flows derived from a substantial level of recurring
revenue across a range of sectors and as a consequence, and after
reviewing cash balances, borrowing facilities and projected cash
flows, the directors have a reasonable expectation that the Company
and the Group have adequate resources to continue in operational
existence for the foreseeable future. Accordingly, they continue to
adopt the going concern basis in preparing the financial
statements.
Corporate governance
Report of the remuneration committee
Scope of the report
The remuneration report summarises the Remuneration committee's
activities during the year, the outcomes for directors'
remuneration and the Group's remuneration policy. The report also
describes how the Group applies the principles of good corporate
governance in relation to directors' remuneration.
The Remuneration committee
The Remuneration committee is appointed by the board and
comprises only non-executive directors. The committee meets at
least annually to determine, on behalf of the board, the framework
of executive remuneration.
During the year, the membership of the committee comprised three
non-executive directors, Annette Nabavi (chairman), John Booth and
Nicholas Taylor.
The board approves the committee's terms of reference. These are
available for inspection from the Company secretary. The members of
this committee do not have any conflicts from cross-directorships
that relate to the business of the committee. The members do not
have any day-to-day involvement in the running of the Group.
The Remuneration committee's remit is to review and determine
the broad policy regarding remuneration of the executive directors
and of any management receiving an annual remuneration, excluding
commission, of more than GBP150,000. In the case of the executive
directors, it is to determine the entire individual remuneration
and incentive packages, including the setting and monitoring of any
bonus or share scheme performance conditions. To support this
responsibility it has access to professional and other advice
external to the Group. Considering these factors, it then makes
recommendations to the board.
During the year, the committee met on three occasions.
To assist the work of the committee, the views of the chief
executive officer are also invited where appropriate. However, he
does not participate in any decision related to his own
remuneration.
Remuneration policy
The Group is committed to the governing objective of maximising
shareholder value over time. Each year the remuneration framework
and the packages of the directors are reviewed to ensure they
continue to achieve this objective.
The Group operates in large competitive markets with areas of
significant growth potential. The Group's executive director
remuneration policy is designed to attract and retain directors of
the calibre required to maintain the Group's position in its
marketplace.
The key features of remuneration and the policy for each element
of the packages for executive directors are shown in the table
below:
Element of Purpose and link Policy and approach
remuneration to strategy
-------------- ------------------------- -----------------------------------
Base salary To pay a competitive Reviewed annually by the
sustainable level committee in January. Salary
of fixed remuneration, increases will normally
taking into account be in line with pay review
experience and levels across the whole
personal contribution Group. However, reference
to the Group's is also made to changes
strategy. Intended in role and responsibility.
to attract and Reference is also made
retain the talent to comparisons with companies
(management and of similar size and complexity.
technical) required
to execute the
strategy.
-------------- ------------------------- -----------------------------------
Benefits These complement Benefits comprise pension
an executive's contribution (typically
basic salary 3% of basic salary except
and are designed in the case of Mark Townsend
to ensure the who receives a fixed sum
well-being of of GBP10,000 per annum),
employees. car allowance, and membership
of private health, permanent
health and life assurance
schemes.
-------------- ------------------------- -----------------------------------
Bonus A cash bonus Goals and objectives are
designed to incentivise set individually with a
specific short-term significant weight being
goals and objectives, put on meeting annual budget
both financial in terms of both revenue
and non-financial. and adjusted EBITDA targets.
Other objectives include
KPIs designed to increase
the overall productivity
of the Group and KPIs focussed
on ensuring the Group's
move to cloud-based solutions
is achieved.
For Stuart Legg, the majority
of his bonus derives from
his sales commission. The
commission payments were
based on the achievement
of gross profit for the
Group as a whole. Stuart
was also targeted with
a small variable bonus
of up to GBP10,000, in
addition to his sales commission,
based on the achievement
of revenue and adjusted
EBITDA targets for the
Group.
Apart from Stuart Legg,
whose commission was set
at a maximum of 94% of
base salary, executive
directors' bonuses are
set at between 20% and
35% of base salary. All
the KPIs and financial
targets have to be met
for an executive director
to receive a full bonus.
-------------- ------------------------- -----------------------------------
Long term To encourage All share-based incentives
incentive and reward delivery offered to executive directors
plan (LTIP) of the Group's have 3-year retention schedules.
long-term growth Grants made under the Company
objectives and share option plan (CSOP)
provide alignment are at market price at
with shareholders the date of grant. Grants
through the use made so far under the LTIP
of share based are provided as zero cost
incentives. options with strict performance
conditions based mainly
on the achievement of EPS
growth and upper quartile
valuation metrics. Vesting
is also subject to continuing
employment. New LTIP grants
will use performance conditions
of adjusted EPS growth
as before, but substitute
share price growth for
upper quartile valuation
because of the issues around
suitable comparators.
When granting options,
the committee takes into
account the potential value
that will be created under
the performance conditions
attached to the grant.
At the discretion of the
Remuneration committee,
payments may be made to
participants on the exercise
of share options (other
than a market value option)
equivalent to the value
of dividends declared since
the date of grant on the
number of shares they acquire.
-------------- ------------------------- -----------------------------------
The Remuneration committee considers that the levels of bonus
and LTIP payable are sufficient, but not excessive, to motivate the
directors whilst being proportionate to the value created for the
benefit of shareholders.
Eddie Buxton, Mark Townsend, Stuart Legg, Kevin Stevens, Rufus
Grig and James Stevenson have been granted share options, details
of which are shown below.
Directors' service agreements
Executive directors' service agreements, which include details
of remuneration, will be available for inspection at the annual
general meeting. Each executive director has a six-month rolling
service agreement.
Non-executive directors
The non-executive directors each have a contract terminable on 3
months' notice.
The remuneration of the non-executive directors is agreed by the
executive directors, and is based upon the level of fees paid at
comparable companies and taking account of the directors' evolving
responsibilities. Taking these factors into account, the
remuneration of the non-executive directors was reviewed on 1
February 2018. The non-executives receive no payment or benefits
other than their fees and associated auto-enrolment pension
contributions, although Mrs Nabavi and Mr Taylor were beneficiaries
of consultancy fees during the year and in 2016, as described
below.
Directors remuneration
The remuneration of the directors in office during the year was
as follows:
Salaries/ Pension Total Total
fees Benefits Bonus([5]) contributions 2016([1,
2017([1]) 2])
Non-executive
directors
J D S Booth 47 - - - 47 42
A P Nabavi
([3]) 35 - - - 35 30
N J Taylor
([4]) 35 - - - 35 31
Executive directors
E Buxton 231 16 - 7 254 272
S Legg 298 11 - 5 314 235
A J McCaffery 92 22 - 3 117 210
K Stevens 154 11 - 5 170 186
W D Todd - - - - - 50
M Townsend 169 15 - 10 194 152
________ ________ ________ ________ ________ ________
1,061 75 - 30 1,166 1,208
___ _______ _______ _______ ____ _______
[1] Excluding social security costs in respect of the above
amounting to GBP145,000 (2016: GBP152,000).
[2] Total 2016 remuneration of GBP1,208,000 includes bonuses of
GBP150,000, employer pension contributions of GBP27,000 and
benefits of GBP66,000, so that salaries amounted to GBP965,000.
[3] In addition to her fees as a director stated above, the
Company paid GBP4,000 (2016: GBP57,000) to a company of which Mrs
Nabavi is a shareholder and director in respect of consultancy
services provided to the Company during the year.
[4] In addition to his fees as a director stated above, the
Company paid GBP7,000 (2016: GBP61,000) to a company of which Mr
Taylor is a shareholder and director in respect of consultancy
services provided to the Company during the year.
[5] No bonus was paid to any executive director in respect of
2017 performance except commissions paid to Stuart Legg, which are
included in his salary.
Directors' interests in ordinary shares
The directors' interests in the ordinary shares of the Company
are shown below in the report of the directors. These include the
holdings of all executive directors under the Company's Share
Incentive Plan.
Share options
On 18 May 2009, the directors of the Company approved the
adoption of the Maintel Holdings Plc 2009 Option Plan. The
following options remain outstanding under the Plan:
Option Number of Date of grant Option Expiry of
holder shares price option
Eddie Buxton 107,818 18 May 2009 200p 18 May 2019
Eddie Buxton 107,818 18 May 2009 300p 18 May 2019
Dale Todd 10,000 17 April 2013 345p 17 April 2023
19 December 19 December
Dale Todd 10,000 2013 525p 2023
Kevin Stevens 10,000 29 May 2014 530p 29 May 2024
All options above have vested.
On 20 August 2015, the directors of the Company approved the
adoption of the Maintel 2015 Long-Term Incentive Plan. The
following options remain outstanding under the Plan:
Number Normal Option Expiry of
Option of shares Date of vesting price option
holder grant date
As CSOP
options
27 April 27 April 27 April
Eddie Buxton 3,409 2016 2019 880p 2026
27 April 27 April 27 April
Stuart Legg 3,409 2016 2019 880p 2026
27 April 27 April 27 April
Kevin Stevens 3,409 2016 2019 880p 2026
27 April 27 April 27 April
Mark Townsend 3,409 2016 2019 880p 2026
These options are not subject to any performance conditions.
Subject to performance conditions
Stuart Legg 27 April 27 April 27 April
([1]) 25,000 2016 2019 1p 2026
Kevin Stevens 27 April 27 April 27 April
([2]) 15,000 2016 2019 1p 2026
Mark Townsend 27 April 27 April 27 April
([3]) 15,000 2016 2019 1p 2026
Eddie Buxton 10 April 10 April 10 April
([4]) 10,000 2017 2020 1p 2027
Rufus Grig 10 April 10 April 10 April
([5]) 8,000 2017 2020 1p 2027
Stuart Legg 10 April 10 April 10 April
([1]) 25,000 2017 2020 1p 2027
Kevin Stevens 10 April 10 April 10 April
([6]) 5,000 2017 2020 1p 2027
James Stevenson 10 April 10 April 10 April
([7]) 8,000 2017 2020 1p 2027
Mark Townsend 10 April 10 April 10 April
([3]) 15,000 2017 2020 1p 2027
[1] Full vesting for the LTIP grants made to Stuart Legg are
subject to three performance conditions being satisfied: (a) a
minimum EPS growth in the period before the option vests, (b) The
Company's EV/EBITDA ratio being in excess of its peer group for the
majority of the 6 months prior to the option vesting, and (c)
achievement of the Group sales target as set in the budget agreed
by the board each year. The sales target condition attaching to the
options granted on 27 April 2016 was achieved and in respect of
those granted on 10 April 2017 was partially achieved.
[2] In the case of Kevin Stevens, full vesting is subject to the
achievement of a minimum level of synergies following the
acquisition of Azzurri, which has been achieved, so that these
options will vest in full on 27 April 2019.
[3] In the case of Mark Townsend, full vesting is subject to two
performance conditions being satisfied:
(a) a minimum EPS growth in the period before the option vests,
and (b) the Company's EV/EBITDA ratio being in excess of its peer
group for the majority of the 6 months prior to the option
vesting.
[4] In the case of Eddie Buxton, full vesting is subject to two
performance conditions being satisfied:
(a) a minimum EPS growth in the period before the option vests,
and (b) the Company's EV/EBITDA ratio being in excess of its peer
group for the majority of the 6 months prior to the option
vesting.
[5] In the case of Rufus Grig, full vesting is subject to two
performance conditions being satisfied:
(a) a minimum EPS growth in the period before the option vests,
and (b) achievement of a defined growth in the number of users of
the Group's cloud services.
[6] In the case of Kevin Stevens, full vesting is subject to
three performance conditions being satisfied: (a) a minimum EPS
growth in the period before the option vests, (b) the Company's
EV/EBITDA ratio being in excess of its peer group for the majority
of the 6 months prior to the option vesting, and (c) delivery of
defined transformation projects during 2017. The transformation
project target for 2017 has been partially achieved.
[7] In the case of James Stevenson, full vesting is subject to
two performance conditions being satisfied:
(a) a minimum EPS growth in the period before the option vests,
and (b) progressive improvement in defined SLAs in the period
before the option vests.
If the performance conditions are not fully satisfied at the end
of the vesting date, then the options will vest proportionately
against the achievement of certain threshold criteria; any portion
that has not vested as a consequence of the performance conditions
not being satisfied in full or on a threshold basis will lapse.
The following table illustrates the number and weighted average
exercise prices (WAEP) of, and movements in, share options during
the year:
2017 2017 2016 2016
Number Number
of options WAEP of options WAEP
Outstanding at the
beginning of the year 314,272 254p 245,636 276p
Granted during the
year 71,000 1p 68,636 176p
_______ _______ _______ _______
Outstanding at the
end of the year 385,272 208p 314,272 254p
___ ___ ___ ___
The Company's mid-market share price at 31 December 2017 was
630p per share, and the high and low prices during the year were
1040p and 615p respectively.
Share Incentive Plan
In 2006, the Company established the Maintel Holdings Plc Share
Incentive Plan ("SIP"), which was updated in 2016. The SIP is open
to all employees with at least 6 months' continuous service with a
Group company, and allows employees and executive directors to
subscribe for existing shares in the Company at open market price
out of their gross salary. The subscribers 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. At 31 December 2017, there
were 65,564 shares held by the SIP, representing 0.5% of the issued
share capital of the Company (2016: 62,151 and 0.4%).
The report of the Remuneration committee was approved by the
board on 16 March 2018.
A P Nabavi
Chair of the Remuneration committee
Corporate governance
Report of the directors
The directors present their annual report together with the
audited financial statements for the year ended 31 December
2017.
Results and dividends
The consolidated statement of comprehensive income is set out
below and shows the profit of the Group for the year.
During the year the Company paid a final dividend of 17.4p per
ordinary share in respect of the 2016 financial year, amounting to
GBP2.5m (2016: a second interim dividend of 16.5p, amounting to
GBP1.8m), and an interim dividend in respect of 2017 of 14.7p per
share, amounting to GBP2.1m (2016: 13.4p and GBP1.9m respectively).
A final dividend for 2017 is proposed of 19.1p per share with a
payment date of 11 May 2018.
Directors
The directors of the Company during the year and their interests
in the ordinary shares of the Company at 31 December 2017 were as
follows:
Number of 1p ordinary shares
2017 2017 2016 2016
Beneficial Non-beneficial Beneficial Non-beneficial
J D S Booth 3,332,123 4,000 3,332,123 4,000
E Buxton 5,178 60,386 4,813 57,338
S D Legg 321 - 130 -
A J McCaffery 2,199,454 - 2,198,959 -
A P Nabavi 198 - 198 -
K Stevens 3,220 - 2,939 -
N J Taylor 16,315 65,564 16,315 62,151
M V Townsend 214 - 208 -
John Booth is a shareholder in Herald Investment Trust Plc,
which has an interest in 804,217 1p ordinary shares in the Company;
this is in addition to Mr Booth's beneficial holding above.
John Booth also holds 4,000 non-beneficial shares which are held
in a charitable foundation of which he is a trustee.
The other non-beneficial holdings above relate to holdings of
the Share Incentive Plan, of which the respective directors are
trustees.
Since the year-end, the Share Incentive Plan has acquired a net
increased holding of 1,092 shares in total, including 64 in respect
of S Legg and 65 in respect of K Stevens. There were no other
changes in the directors' shareholdings between 31 December 2017
and 16 March 2018.
Substantial shareholders
In addition to the directors' shareholdings, at 16 March 2018
the Company had been notified of the following shareholdings of 3%
or more in the ordinary share capital of the Company:
Number % of issued
of
1p ordinary ordinary
shares shares
Hargreave Hale Ltd 2,295,649 16.2%
J A Spens 2,088,314 14.7%
Herald Investment Trust Plc 804,217 5.7%
Share capital
Details of the share capital of the Company are shown in note 24
of the financial statements.
No shares were issued or repurchased during the year.
The existing authority for the repurchase of the Company's
shares is for the purchase of up to 2,128,139 shares. A fresh
authority, for the purchase of up to 2,128,139 shares, will be
sought at the forthcoming annual general meeting.
Employees
Maintel's success is dependent on the knowledge, experience and
motivation of its employees, and the ability to attract and retain
those staff. The Group offers competitive compensation packages,
including bonus structures where appropriate, to align employee
interest with that of the Group. The Group's management ensures
that there is continual investment in external and internal
training of employees, and monitors compliance with both statutory
regulation and best practice with regard to equal
opportunities.
The Group gives full and fair consideration to applications for
employment from disabled persons, having regard to their particular
aptitudes and abilities and to their training and career
development. This includes, where applicable and possible, the
retraining and retention of staff who become disabled during their
employment.
The Group runs an apprenticeship programme into which it has
continued to recruit apprentices during 2017. The value of this
programme has been recognised across the business where apprentices
have successfully transitioned into permanent roles.
A weekly update is emailed to employees covering various aspects
of the Group and its employees, and a Group intranet is core to
open communication amongst employees; this continues to be
developed.
An employee forum - Maintel Matters, consisting of employees
from across the business - exists, to promote two-way communication
between the board and employees, and its mode of operation
continually develops. This communication is supplemented by the use
of regular employee surveys, with action taken on the results where
practicable.
The Company established a Share Incentive Plan in 2006, allowing
employees and executive directors to invest tax effectively in its
shares, and so aligning employee interests with those of
shareholders. Under the plan, shares are acquired by employees out
of pre-tax salary, with ownership vesting at that time, and are
held by trustees on behalf of the employees. The plan is therefore
separate from the assets of the Group.
The Group has recently published its first Gender Pay Gap
report, the key results of which are shown below,
together with the board's observations on them:
-- The mean hourly pay difference was 31%.
-- The median hourly pay difference was 39%.
-- The source data was collected on 5 April 2017; at that date,
the Group employed 430 men and 170 women. This highlights that the
gender pay gap of 31% is likely to be because of the gender
diversity of the organisation itself and the types of roles, which
women currently take in Maintel's sector, which is heavily
non-technical.
The telecoms industry in general employs significantly more men
than women and so Maintel is therefore representative of the talent
pool that it can select from. The board accepts that it needs to
play its part in attracting more women into both the sector more
broadly and into specific careers such as engineering and sales,
which are generally well paid but are predominantly chosen by men,
and it is committed to doing this.
The Group also has a significantly higher number of men than
women in senior roles; in fact, the board itself is representative
of this with only one female director. To alter this balance across
the Group, the board acknowledges that it must have more women
being promoted up through the organisation and an increase in the
underlying talent pool will help it to do this.
The number of apprentices entering the industry is male
dominated and, whilst Maintel does have some female success stories
in this area, it needs to support schools and colleges to encourage
both male and female students into future apprenticeship schemes;
clearly, this will help to balance the gender split of the talent
pools in the future.
Environment
The Group acknowledges its responsibilities for environmental
matters and where practicable adopts environmentally sound policies
in its working practices, such as recycling paper and packaging
waste and using specialist recyclers of scrap telecommunications
and IT equipment. A major consideration when replacing company cars
is their impact on the environment. The Group also makes use of
in-house video-conferencing facilities to reduce the need for
regional meetings and operates flexible working practices where
possible, reducing the environmental impact of commuting. The Group
has ISO14001:2004 accreditation for its environmental management
systems.
Modern Slavery Act policy
The Modern Slavery Act became law in 2015. The Act consolidates
slavery and trafficking offences and introduces tough penalties and
sentencing for breaches of the Act.
The Group has a zero-tolerance approach to modern slavery and
will not knowingly support or deal with any business which is
involved in slavery and/or human trafficking.
This policy reflects our commitment to maintaining ethical
practices in all of our supply chains and across all of our
business, and as part of this commitment we are undertaking various
steps to help us manage the risks outlined by this legislation.
These steps are detailed in our modern slavery statement and, as
required by the act, are published annually on our website at
www.maintel.co.uk.
Future developments
Refer to outlook section of the Strategic report above.
Financial instruments
Details of the use of financial instruments by the Group are
contained in note 23 of the financial statements.
Annual General Meeting
The Annual General Meeting of the Company will be held at its
London offices on 8 May at 10.00 am.
The Company's Articles include a provision allowing the Company
to issue scrip dividends to shareholders as an elected alternative
to cash dividends, provided shareholders have previously approved
this by ordinary resolution, for a given period of up to five years
following the passing of such a resolution. In order to provide the
Company with this flexibility without having to call a separate
general meeting, the AGM notice of meeting includes a resolution
that would permit the Company to offer, alongside a cash dividend,
an alternative scrip dividend facility, for a period of three years
following the date of the AGM. The board has no present intention
of offering this facility, but believes that it would be beneficial
to have this option available to it.
Auditors
All of the current directors have taken all the steps that they
ought to have taken to make themselves aware of any information
needed by the Company's auditors for the purposes of their audit
and to ensure that the auditors are aware of that information. The
directors are not aware of any relevant audit information of which
the auditors are unaware.
A resolution proposing the re-appointment of BDO LLP as auditors
of the Company will be proposed at the forthcoming annual general
meeting.
On behalf of the board
E Buxton
Director
16 March 2018
Corporate governance
Statement of directors' responsibilities
Directors' responsibilities
The directors are responsible for preparing the annual report
and financial statements in accordance with applicable law and
regulations.
Company law requires the directors to prepare financial
statements for each financial year. Under that law, the directors
have elected to prepare the Group financial statements in
accordance with International Financial Reporting Standards (IFRSs)
as adopted by the European Union and the Company financial
statements in accordance with United Kingdom Generally Accepted
Accounting Practice (United Kingdom Accounting Standards) and
applicable law. Under company law, the directors must not approve
the financial statements unless they are satisfied that they give a
true and fair view of the state of affairs of the Group and Company
and of the profit or loss of the Group for that period. The
directors are also required to prepare financial statements in
accordance with the rules of the London Stock Exchange for
companies trading securities on the Alternative Investment
Market.
In preparing these financial statements, the directors are
required to:
-- select suitable accounting policies and then apply them consistently;
-- make judgements and accounting estimates that are reasonable and prudent;
-- state whether they have been prepared in accordance with
IFRSs as adopted by the European Union (FRS101 in the case of the
Parent company ), subject to any material departures disclosed and
explained in the financial statements; and
-- prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Company will
continue in business.
The directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company's
transactions and disclose with reasonable accuracy at any time the
financial position of the Company and enable them to ensure that
the financial statements comply with the requirements of the
Companies Act 2006. They are also responsible for safeguarding the
assets of the Company and hence for taking reasonable steps for the
prevention and detection of fraud and other irregularities.
Website publication
The directors are responsible for ensuring the annual report and
the financial statements are made available on a website. Financial
statements are published on the Company's website in accordance
with legislation in the United Kingdom governing the preparation
and dissemination of financial statements, which may vary from
legislation in other jurisdictions. The maintenance and integrity
of the Company's website is the responsibility of the directors.
The directors' responsibility also extends to the ongoing integrity
of the financial statements contained therein.
Financial statements
Independent auditor's report
Independent auditor's report to the members of Maintel Holdings
Plc
Opinion
We have audited the financial statements of Maintel Holdings Plc
(the 'parent company') and its subsidiaries (the 'group') for the
year ended 31 December 2017 which comprise the consolidated
statement of comprehensive income, the consolidated statement of
financial position, the consolidated statement of changes in
equity, the consolidated statement of cashflows, the company
balance sheet, the company reconciliation of movements in
shareholders' funds and notes to the financial statements,
including a summary of significant accounting policies.
The financial reporting framework that has been applied in the
preparation of the group financial statements is applicable law and
International Financial Reporting Standards (IFRSs) as adopted by
the European Union. The financial reporting framework that has been
applied in the preparation of the parent company financial
statements is applicable law and United Kingdom Accounting
Standards (United Kingdom Generally Accepted Accounting
Practice).
In our opinion:
-- the financial statements give a true and fair view of the
state of the group's and of the parent company's affairs as at 31
December 2017 and of the group's profit for the year then
ended;
-- the group financial statements have been properly prepared in
accordance with IFRSs as adopted by the European Union;
-- the parent company financial statements have been properly
prepared in accordance with United Kingdom Generally Accepted
Accounting Practice; and
-- the financial statements have been prepared in accordance
with the requirements of the Companies Act 2006.
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our
responsibilities under those standards are further described in the
Auditor's responsibilities for the audit of the financial
statements section of our report. We are independent of the parent
company and the group in accordance with the ethical requirements
that are relevant to our audit of the financial statements in the
UK, including the FRC's Ethical Standard as applied to listed
entities, and we have fulfilled our other ethical responsibilities
in accordance with these requirements. We believe that the audit
evidence we have obtained is sufficient and appropriate to provide
a basis for our opinion.
Use of our report
This report is made solely to the company's members, as a body,
in accordance with Chapter 3 of Part 16 of the Companies Act 2006.
Our audit work has been undertaken so that we might state to the
company's members those matters we are required to state to them in
an auditor's report and for no other purpose. To the fullest extent
permitted by law, we do not accept or assume responsibility to
anyone other than the company and the company's members as a body,
for our audit work, for this report, or for the opinions we have
formed.
Conclusions relating to going concern
We have nothing to report in respect of the following matters in
relation to which the ISAs (UK) require us to report to you
where:
-- the directors' use of the going concern basis of accounting
in the preparation of the financial statements is not appropriate;
or
-- the directors have not disclosed in the financial statements
any identified material uncertainties that may cast significant
doubt about the group's or the parent company's ability to continue
to adopt the going concern basis of accounting for a period of at
least twelve months from the date when the financial statements are
authorised for issue.
Key audit matters
Key audit matters are those matters that, in our professional
judgment, were of most significance in our audit of the financial
statements of the current period and include the most significant
assessed risks of material misstatement (whether or not due to
fraud) we identified, including those which had the greatest effect
on: the overall audit strategy, the allocation of resources in the
audit; and directing the efforts of the engagement team. These
matters were addressed in the context of our audit of the financial
statements as a whole, and in forming our opinion thereon, and we
do not provide a separate opinion on these matters.
Matter How we addressed the matter
in our audit
---------------------------------------------------------- ----------------------------------
Revenue recognition for
Managed Services and Technology
sales
We assessed whether the
The Group has a number of revenue recognition policies
revenue streams. Details adopted by the Group comply
of the accounting policies with IFRSs as adopted by
applied during the period the European Union and industry
are given in note 2 (c) standard practices. The
to the financial statements. relevant IFRS is International
Accounting Standard 18 Revenue.
Management make certain
judgements in relation to In relation to Managed Services
revenue recognition for and Technology revenues,
Managed Services and Technology we reviewed a sample of
sales and the treatment contracts to assess whether
of contractual arrangements the revenue had been recognised
entered into by trading in accordance with the Group's
entities in the group. accounting policy, whether
it was recognised appropriately
These include determining from a timing perspective
as at the reporting date: and whether any other terms
* whether risks and rewards of ownership have within the contract had
transferred to the customer for the supply of any material accounting
hardware and software, and or disclosure implications.
In making our assessment
* an estimate of the stage of completion for each of compliance with the Group's
project in progress. accounting policy we tested
whether hardware and software
had been delivered to the
customer.
There is a potential risk
that revenue is recorded To determine the stage of
incorrectly from a timing completion we considered
perspective and that revenue how many hours had been
is inappropriately recognised. incurred against budgeted
hours, and the achievement
of milestones.
---------------------------------------------------------- ----------------------------------
Matter How we addressed the matter
in our audit
--------------------------------------- --------------------------------------------
Acquisition accounting
As detailed in note 13 to The judgements and estimates
the financial statements, in this area include:
the Group acquired Intrinsic * underlying cash flow projections,
Technology Ltd ("Intrinsic")
during the year.
* discount rates applied, and
Consequently, management
had to exercise judgement
in considering the fair * long term growth rates.
value of the assets and
liabilities acquired.
Management recognised on We challenged the assumptions
acquisition a separately underpinning the significant
identifiable intangible judgements and estimates
asset in respect of customer made by management in the
relationships, exercising assessment of the fair value
judgment in estimating its of the separately identifiable
fair value. intangible asset acquired
by comparison to industry
There is a risk that this data and our knowledge of
estimate may be materially the business.
misstated.
In addition, with the assistance
of our valuations specialists,
we reviewed the methodology
deployed.
We also considered the completeness
of the separately identifiable
intangible assets with reference
to our understanding of
the business and the key
reasons for executing the
transaction from the acquirer's
perspective.
--------------------------------------- --------------------------------------------
Goodwill and intangible
asset impairment risk
We considered whether there
In accordance with IAS 36 were any indications of
and as detailed in the accounting impairment in respect of
policies (note 2 (k)), goodwill intangible assets.
is tested for impairment
annually, and customer relationships We reviewed the integrity
and other intangible assets of the impairment models
with finite lives are tested prepared by management and
for impairment whenever challenged the appropriateness
an indicator of impairment of the key inputs and assumptions
arises. used in them, by comparison
to industry data, historic
Management performed impairment trading, and macro-economic
reviews over all goodwill factors. The key inputs
and intangible assets at and assumptions are forecast
31 December 2017. growth rates, operating
cash flows and the discount
Impairment reviews require rate.
significant judgement from
management and are inherently Our audit procedures relating
based on assumptions in to the review of operating
respect of future profitability. cash flows included, amongst
other procedures, comparing
The value in use of the the forecasts to recent
goodwill and intangible financial performance and
assets for each of the Group's budgets approved by the
three cash generating units Board.
(Managed services and technology,
Network services and Mobile) We also performed sensitivity
was assessed as being higher analysis over the key valuation
than their carrying value inputs.
at the reporting date.
Management concluded that
the goodwill and intangible
assets were not impaired
at the reporting date.
--------------------------------------- --------------------------------------------
Our application of materiality
We apply the concept of materiality both in planning and
performing our audit, and in evaluating the effect of
misstatements. For planning, we consider materiality to be the
magnitude by which misstatements, including omissions, could
influence the economic decisions of reasonable users that are taken
on the basis of the financial statements. In order to reduce to an
appropriately low level the probability that any misstatements
exceed materiality, we use a lower materiality level, performance
materiality, to determine the extent of testing needed.
Importantly, misstatements below these levels will not necessarily
be evaluated as immaterial as we also take account of the nature of
identified misstatements, and the particular circumstances of their
occurrence, when evaluating their effect on the financial
statements as a whole.
Level of materiality applied and rationale
We consider adjusted profit before tax (profit before tax,
exceptional items and amortisation) to be the critical performance
measure for the Group. Using this benchmark, we set materiality at
GBP516,000 (2016 - GBP625,000) which represents 5% of adjusted
profit before tax (2016 - 5% of Earnings before interest, tax,
exceptional items, depreciation and amortisation). Our materiality
level is lower than the previous year reflecting the change in
benchmark to adjusted profit before tax in the current year. We set
parent company materiality at GBP438,600 (2016 - GBP460,000) which
is group component materiality.
Performance materiality
The application of materiality at the individual account or
balance level is set at an amount to reduce to an appropriately low
level the probability that the aggregate of uncorrected and
undetected misstatements exceeds materiality.
On the basis of our risk assessment together with the Group's
overall control environment, our judgement was that overall
performance materiality for the Group should be 75%. As such,
performance financial statement materiality was set at GBP387,000
(2016 - GBP468,750). Performance materiality for the parent company
was set at 75% of materiality, being GBP328,000 (2016 -
GBP345,000).
Component materiality
We set materiality for each component of the Group based on a
percentage of materiality dependent on the size and our assessment
of the risk of material misstatement of that component. Component
materiality ranged from GBP400,000 to GBP438,600.
Reporting Threshold
We agreed with the Audit Committee that we would report to them
all audit differences individually in excess of GBP25,800 (2016 -
GBP31,250). We also agreed to report audit differences below those
thresholds that,
in our view, warranted reporting on qualitative grounds. For the
parent company we agreed to report all differences in excess of
GBP21,930 (2016 - GBP23,000).
An overview of the scope of our audit
All of the Group's Revenue (100%), Total Assets (100%) and
Adjusted profit before tax (100%) were subject to full scope
audits. All trading entities in the group, including the company
and its wholly owned subsidiaries Maintel Europe Limited ("MEL"),
Maintel International Limited ("MIL") and Intrinsic Technology
Limited ("Intrinsic") were subject to full scope audits.
The Group audit team performed the audits of Maintel Holdings
Plc (both the Company and Consolidated Entity), MEL and MIL. The
audit of Intrinsic was performed by a component auditor who is not
a member of the BDO network. Detailed instructions were issued and
discussed with the component auditor, and these covered the
significant risks to be addressed by the component auditor. The
Group audit team was actively involved in directing the audit
strategy of the Intrinsic audit, reviewed in detail the findings
and considered the impact of these upon the Group audit
opinion.
Other information
The directors are responsible for the other information. The
other information comprises the information included in the annual
report, other than the financial statements and our auditor's
report thereon. Our opinion on the financial statements does not
cover the other information and, except to the extent otherwise
explicitly stated in our report, we do not express any form of
assurance conclusion thereon.
In connection with our audit of the financial statements, our
responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent
with the financial statements or our knowledge obtained in the
audit or otherwise appears to be materially misstated. If we
identify such material inconsistencies or apparent material
misstatements, we are required to determine whether there is a
material misstatement in the financial statements or a material
misstatement of the other information. If, based on the work we
have performed, we conclude that there is a material misstatement
of this other information; we are required to report that fact. We
have nothing to report in this regard.
Opinions on other matters prescribed by the Companies Act
2006
In our opinion, based on the work undertaken in the course of
the audit:
-- the information given in the strategic report and the
directors' report for the financial year for which the financial
statements are prepared is consistent with the financial
statements; and
-- the strategic report and the directors' report have been
prepared in accordance with applicable legal requirements.
Matters on which we are required to report by exception
In the light of the knowledge and understanding of the group and
the parent company and its environment obtained in the course of
the audit, we have not identified material misstatements in the
strategic report or the directors' report.
We have nothing to report in respect of the following matters in
relation to which the Companies Act 2006 requires us to report to
you if, in our opinion:
-- adequate accounting records have not been kept, or returns
adequate for our audit have not been received from branches not
visited by us; or
-- the parent company financial statements are not in agreement
with the accounting records and returns; or
-- certain disclosures of directors' remuneration specified by law are not made; or
-- we have not received all the information and explanations we require for our audit.
Responsibilities of directors
As explained more fully in the directors' responsibilities
statement set out above, the directors are responsible for the
preparation of the financial statements and for being satisfied
that they give a true and fair view, and for such internal control
as the directors determine is necessary to enable the preparation
of financial statements that are free from material misstatement,
whether due to fraud or error.
In preparing the financial statements, the directors are
responsible for assessing the group's and the parent company's
ability to continue as a going concern, disclosing, as applicable,
matters related to going concern and using the going concern basis
of accounting unless the directors either intend to liquidate the
group or the parent company or to cease operations, or have no
realistic alternative but to do so.
Auditor's responsibilities for the audit of the financial
statements
Our objectives are to obtain reasonable assurance about whether
the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an
auditor's report that includes our opinion. Reasonable assurance is
a high level of assurance, but is not a guarantee that an audit
conducted in accordance with ISAs (UK) will always detect a
material misstatement when it exists.
Misstatements can arise from fraud or error and are considered
material if, individually or in the
aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of these financial
statements.
A further description of our responsibilities for the audit of
the financial statements is located on the Financial Reporting
Council's website at: www.frc.org.uk/auditorsresponsibilities. This
description forms part of our auditor's report.
Julian Frost (senior statutory auditor)
For and on behalf of BDO LLP, statutory auditor
London
United Kingdom
16 March 2018
BDO LLP is a limited liability partnership registered in England
and Wales (with registered number OC305127).
Financial statements
Consolidated statement of comprehensive income
for the year ended 31 December 2017
2017 2016
Note GBP000 GBP000
Revenue 4 133,079 108,296
Cost of sales (94,290) (73,383)
--------- ---------
Gross profit 38,789 34,913
Other operating income 155 151
Administrative expenses
------------------------------- ----- --------- ---------
Intangibles amortisation 14 (5,892) (4,733)
Exceptional costs 12 (1,454) (4,240)
Other administrative expenses (27,183) (23,064)
------------------------------- ----- --------- ---------
(34,529) (32,037)
Operating profit 7 4,415 3,027
Financial expense (net) 8 (899) (920)
Profit before taxation 3,516 2,107
Taxation expense 9 (434) (13)
--------- ---------
Profit for the period 3,082 2,094
Other comprehensive expense
for the period
Exchange differences on
translation of foreign
operations (9) (40)
--------- ---------
Total comprehensive income
for the period 3,073 2,054
========= =========
Earnings per share
Basic 11 21.7p 16.0p
Diluted 11 21.3p 15.8p
========= =========
The notes below form part of these consolidated financial
statements
Financial statements
Consolidated statement of financial position
at 31 December 2017
2017 2017 2016 2016
Note GBP000 GBP000 GBP000 GBP000
Non current assets
Intangible assets 14 67,495 63,152
Property, plant
and equipment 16 1,471 3,293
68,966 66,445
Current assets
Inventories 18 3,251 4,882
Asset held for
sale 17 1,500 -
Trade and other
receivables 19 37,257 29,371
Cash and cash equivalents 3,311 10,884
------- -------
Total current assets 45,319 45,137
-------- --------
Total assets 114,285 111,582
-------- --------
Current liabilities
Trade and other
payables * 20 51,367 49,153
Current tax liabilities 1,426 527
Total current liabilities 52,793 49,680
Non current liabilities
Other payables
* 20 1,462 943
Deferred tax liability 21 2,260 2,020
Borrowings 22 30,707 30,688
------- -------
Total non-current
liabilities 34,429 33,651
-------- --------
Total liabilities 87,222 83,331
-------- --------
Total net assets 27,063 28,251
======== ========
Equity
Issued share capital 24 142 142
Share premium 25 24,354 24,354
Other reserves 25 70 79
Retained earnings 25 2,497 3,676
Total equity 27,063 28,251
======== ========
* Comparative restated
(See note 20)
The consolidated financial statements were approved and
authorised for issue by the board on 16 March 2018 and were signed
on its behalf by:
M Townsend
Director
The notes below form part of these consolidated financial
statements
Financial statements
Consolidated statement of changes in equity
for the year ended 31 December 2017
Share Other Retained
capital Share reserves earnings Total
premium
Note GBP000 GBP000 GBP000 GBP000 GBP000
At 1 January 2016 108 1,169 119 5,164 6,560
------------------------------ ----- ---------- ---------- ----------- ----------- --------
Profit for the period - - - 2,094 2,094
Other comprehensive
income:
Foreign currency translation
differences - - (40) - (40)
------------------------------ ----- ---------- ---------- ----------- ----------- --------
Total comprehensive
income for the period - - (40) 2,094 2,054
Dividend 10 - - - (3,679) (3,679)
Issue of new ordinary
shares 24 34 23,966 - - 24,000
Share issue costs - (781) - - (781)
Grant of share options - - - 97 97
---------- ---------- ----------- ----------- --------
At 31 December 2016 142 24,354 79 3,676 28,251
------------------------------ ----- ---------- ---------- ----------- ----------- --------
Profit for the period - - - 3,082 3,082
Other comprehensive
income:
Foreign currency translation
differences - - (9) - (9)
------------------------------ ----- ---------- ---------- ----------- ----------- --------
Total comprehensive
income for the period - - (9) 3,082 3,073
Dividend 10 - - - (4,557) (4,557)
Grant of share options - - - 296 296
At 31 December 2017 142 24,354 70 2,497 27,063
The notes below form part of these consolidated financial
statements
Financial statements
Consolidated statement of cash flows
for the year ended 31 December 2017
2017 2016
GBP000 GBP000
Operating activities
Profit before taxation 3,516 2,107
Adjustments for:
Intangibles amortisation 5,892 4,733
Share based payment charge 296 97
Loss on sale of property, plant 156 -
and equipment
Depreciation charge 763 598
Interest received - (3)
Interest payable 899 923
Operating cash flows before
changes in working capital 11,522 8,455
Decrease / (increase) in inventories 1,762 (949)
(Increase) / decrease in trade
and other receivables (550) 990
(Decrease) / increase in trade
and other payables (8,107) 2,328
-------- ---------
Cash generated from operating
activities (see sub analysis
below) 4,627 10,824
Cash generated from operating
activities excluding exceptional
costs and non cash credits 6,185 15,064
Exceptional cost - excluding
acquisition legal and professional
costs below (note 12) (1,285) (1,725)
-------- ---------
Cash generated from operating
activities excluding acquisition
legal and professional costs 4,900 13,339
Exceptional cost - acquisition
legal and professional costs (273) (2,515)
-------- ---------
Cash generated from operating
activities 4,627 10,824
-------------------------------------- -------- ---------
Tax paid (211) (236)
-------- ---------
Net cash flows from operating
activities 4,416 10,588
-------- ---------
Investing activities
Purchase of plant and equipment (393) (438)
Purchase of software (1,089) (132)
Purchase price in respect of
business combination (4,906) (47,028)
Net cash acquired with subsidiary
undertaking 11 1,595
(4,895) (45,433)
Interest received - 3
Net cash flows from investing
activities (6,377) (46,000)
-------- ---------
2017 2016
GBP000 GBP000
Financing activities
Proceeds from borrowings 9,000 31,000
Repayment of borrowings (9,000) (6,000)
Interest paid (986) (628)
Issue of new ordinary shares - 24,000
Share issue costs - (781)
Issue costs of debt (60) (360)
Equity dividends paid (4,557) (3,679)
Net cash flows from financing
activities (5,603) 43,552
-------- --------
Net increase in cash and cash
equivalents (7,564) 8,140
Cash and cash equivalents at
start of period 10,884 2,784
Exchange differences (9) (40)
-------- --------
Cash and cash equivalents at
end of period 3,311 10,884
======== ========
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 22)
GBP000
At 1 January 2017 30,688
Cash flows -
Non cash movements (Amortised debt
issue costs) 19
_______
At 31 December 2017 30,707
________
The notes below form part of these consolidated financial
statements
Financial statements
Notes forming part of the consolidated financial statements
for the year ended 31 December 2017
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
Amounts invoiced in advance in respect of managed service
contracts are deferred and released to the consolidated statement
of comprehensive income on a straight line basis over the period
covered by the invoice.
Technology revenues from the supply of hardware and software are
recognised at the time the risks and rewards of ownership pass to
the customer. Professional services revenues are recognised based
on an estimate of stage of completion for each project at the
reporting date. The estimate is derived by the application of
judgement and tracked progress of work performed on each project at
the reporting date relative to the total value of each project.
Network services
Revenues for network services are comprised of call traffic,
line rentals and data services, which are recognised on an accruals
basis, for services provided up to the reporting date. Amounts
invoiced in advance relating to periods after the reporting date
are deferred and recognised as deferred income.
Mobile
Connection commission received from the mobile network operators
on fixed line revenues are spread over the course of the customer
contract term.
Customer overspend and bonus payments are recognised monthly;
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 a business
combination less accumulated amortisation.
Brands are amortised over their estimated useful lives 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 - 25% straight line
equipment
Motor vehicles - 25% straight line
Leasehold improvements - over the remaining period of
the lease
Freehold building - 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.
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
There are no new IFRSs that are effective for the first time
during the financial year that have a material effect on
recognition and measurement in the consolidated financial
statements.
However, the Group notes IFRS15 Revenue from Contracts with
Customers and IFRS9 Financial instruments, both of which are to be
adopted for accounting periods beginning on or after 1 January 2018
and will be adopted by the Group in 2018. The Company's interim
accounts for the period to 30 June 2018 will be prepared in
accordance with both IFRS 15 and IFRS 9.
IFRS 15 Revenue from Contracts with Customers
The Group has completed its assessment of the impact 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. An analysis on the key changes
under IFRS 15, which will be relevant to the group, include:
- Certain contracts with customers, which include both supply of
technology goods and installation services, represent one
performance obligation under IFRS 15 and result in revenue
recognition at a point in time, which is different to the current
treatment whereby the supply of goods and professional services are
treated as separate sale arrangements. In relation to these
contracts, the group performs a significant integration service
which results in the technology goods and 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.
- Mobile business: connection commission revenues received from
mobile network operators on fixed line revenues are currently
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. Revenue recognition under
IFRS 15 for the supply of handsets and other hardware kit under
these contracts will be at a point in time when the hardware goods
are delivered to the customer. This is different
to the current treatment of spreading the associated revenue
over the course of the customer contract.
Adoption of IFRS 15 is expected to have a material impact on the
Group's 2017 results, the company is currently estimating a
reduction in revenue and profit before tax of GBP6.3m and GBP2.2m
respectively from the amounts reported in the 2017 financial
statements. In addition, opening reserves at 1 January 2017 are
expected to be GBP1.1m lower than the amount reported in the 2017
financial statements. These amounts are based on the Company
applying the retrospective method in transitioning to IFRS 15.
Certain practical expedients have also been applied which
include:
a) Contracts which begin and end within the same annual
reporting period or which were completed contracts at 1 January
2017 have not been restated; and
b) For all contract modifications executed prior to 1 January
2017, the Group has applied hindsight and accounted for the
contracts under IFRS 15 applying the terms in place as at 1 January
2017.
IFRS 9 Financial instruments
This IFRS will require the Group to review 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 assessing the financial impact of IFRS 9 on trade receivables,
the Group has carried out a detailed review of its customer base
under 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.
As a result of this review it is expected that the adoption of IFRS
9 will lead to a higher level of impairment provisions being
recognised against trade receivables in the future.
The impact on the Group's opening reserves at 1 January 2018 and
trade receivables for these additional provisions' is expected to
be a reduction of GBP0.2m from the amount reported in the 2017
financial statements. These amounts are based on applying the
retrospective method applying an initial application date of 1
January 2018.
The Group also notes IFRS16 Leases, which takes effect and will
be adopted in 2019. Details of the Group's operating lease
commitments are disclosed in note 28. This IFRS will require the
Group to recognise the leases on its premises as both an asset and
a rental commitment in its consolidated statement of financial
position. It is not practical to provide a reasonable estimate in
relation to the effect of IFRS16 until a detailed review has been
completed.
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 2017, 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 21, 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.
4 Segment information
Year ended 31 December 2017
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.
In presenting the segment information below for 2017, the
operating segments for Intrinsic Technology have been aggregated
with the respective operating segments for Maintel on the basis the
segments have similar economic characteristics and the segments are
similar in nature of products and services provided to
customers.
Managed Central/
service Network inter-
and technology services Mobile company Total
GBP000 GBP000 GBP000 GBP000 GBP000
Revenue 79,386 46,795 6,898 - 133,079
================ =========== ========= ========= =========
Gross profit 23,112 12,396 3,281 - 38,789
---------------- ----------- --------- ---------
Other operating
income 155
Total administrative
expenses (27,183)
Intangibles amortisation (5,892)
Exceptional costs (1,454)
---------
Operating profit 4,415
Interest (net) (899)
---------
Profit before taxation 3,516
Taxation expense (434)
Profit after taxation 3,082
=========
Revenue is wholly attributable to the principal activities of
the Group and other than sales of GBP8.6m to EU countries and
GBP1.8m to the rest of the world (2016: GBP8.8m to EU countries,
and GBP1.0m to the rest of the world), arises within the United
Kingdom.
Intercompany trading consists of telecommunications services,
and recharges of sales, engineering and rent costs, GBPNil (2016:
GBP0.1m) attributable to the managed services and technology
segment, GBPNil (2016: GBP0.1m) to the network services segment and
immaterial amounts to the mobile segment in each year.
In 2017 the Group had no customer (2016: 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 Central/
service Network inter-
and technology services Mobile company Total
GBP000 GBP000 GBP000 GBP000 GBP000
Other
Intangibles amortisation - - - (5,892) (5,892)
Exceptional costs (1,454) - - - (1,454)
================ =========== ========= ========= ========
Year ended 31 December 2016
Managed Central/
service Network inter-
and technology services Mobile company Total
GBP000 GBP000 GBP000 GBP000 GBP000
Revenue 64,109 37,395 6,947 (155) 108,296
================ =========== ========= ========= =========
Gross profit 21,408 10,257 3,385 (137) 34,913
---------------- ----------- --------- ---------
Other operating
income 151
Total administrative
expenses (23,064)
Intangibles amortisation (4,733)
Exceptional costs (4,240)
---------
Operating profit 3,027
Interest (net) (920)
---------
Profit before taxation 2,107
Taxation (13)
Profit after taxation 2,094
=========
Managed Central/
service Network inter-
and technology services Mobile company Total
GBP000 GBP000 GBP000 GBP000 GBP000
Other
Intangibles amortisation 191 - - 4,542 4,733
Exceptional costs 2,305 - 76 1,859 4,240
================ =========== ========= ========= ========
5 Employees
2017 2016
Number Number
The average number of employees,
including directors, during the
year was:
Corporate and administration 101 100
Sales and customer service 253 199
Technical and engineering 298 249
________ ________
652 548
________ ________
Staff costs, including directors, GBP000 GBP000
consist of:
Wages and salaries 33,502 28,565
Social security costs 3,913 3,252
Pension costs 799 600
________ ________
38,214 32,417
________ ________
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 GBP138,000 (2016: GBP143,000) 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:
2017 2016
GBP000 GBP000
Directors' emoluments 1,136 1,181
Pension contributions 30 27
________ ________
1,166 1,208
________ ________
Included in the above is the remuneration of the highest paid
director as follows:
2017 2016
GBP000 GBP000
Directors' emoluments 309 266
Pension contributions 5 6
________ ________
314 272
________ ________
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 (2016: 2, 1 auto-enrolled).
Further details of director remuneration are shown in the
Remuneration committee above.
7 Operating profit
2017 2016
GBP000 GBP000
This has been arrived at after charging/(crediting):
Depreciation of property, plant
and equipment 763 598
Amortisation of intangible fixed
assets 5,892 4,733
Operating lease rentals payable:
- property 1,101 982
- plant and machinery 402 377
Operating lease rentals receivable
- property (155) (151)
Fees payable to the Company's auditor
for the audit of the Company's annual
accounts 14 16
Fees payable to the Company's auditor
for other services:
- due diligence and other acquisition
costs 149 434
- audit of the Company's subsidiaries
pursuant to legislation 192 229
- audit-related assurance services 35 58
- tax compliance services 18 44
Fees payable to other auditors 29 -
Foreign exchange movement (149) (33)
Loss on sale of property plant and
equipment 156 -
________ ________
8 Financial income and expense
2017 2016
GBP000 GBP000
Interest receivable on bank deposits - 3
________ ________
Interest payable on bank loans 899 923
________ ________
9 Taxation
2017 2016
GBP000 GBP000
UK corporation tax
Corporation tax on profits of the
period 1,108 512
Prior year adjustment - (5)
________ ________
1,108 507
Deferred tax (note 21) (674) (494)
________ ________
Taxation on profit on ordinary activities 434 13
________ ________
The standard rate of corporation tax in the UK for the period
was 19.25%, and therefore the Group's UK subsidiaries are taxed at
that rate. Reductions in rate to 19% with effect from 1 April 2017
and 17% from 1 April 2020 were substantively enacted on 15
September 2017 and the projected effect of these reductions on the
unwinding of deferred tax liabilities has been credited to the
income statement at GBP Nil (2016: GBP275,000). 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:
2017 2016
GBP000 GBP000
Profit before tax 3,516 2,107
________ ________
Profit at the standard rate of corporation
tax in the UK of 19.25% (2016: 20%) 677 421
Effect of:
Expenses not deductible for tax
purposes, net of reversals 57 510
Capital allowances less than / (in
excess of) depreciation 44 (26)
Effects of change in tax rates 6 (120)
Effects of overseas tax rates (14) (2)
Prior year adjustment - 5
Increase in deferred tax asset relating
to Datapoint tax losses (note 21) (500) (500)
Decrease in deferred tax liability
relating to intangible assets (note
21) - (275)
Increase in deferred tax liability 164 -
relating to intangible assets
________ ________
434 13
________ ________
10 Dividends paid on ordinary shares
2017 2016
GBP000 GBP000
Second interim 2015, paid 5 April
2016 - 16.5 p per share - 1,777
Interim 2016, paid 12 October 2016
- 13.4 p per share - 1,902
Final 2016, paid 18 May 2017 - 17.4 2,470 -
p per share
Interim 2017, paid 5 October 2017 2,087 -
- 14.7 p per share
________ ________
4,557 3,679
________ ________
The directors propose the payment of a final dividend for 2017
of 19.1p (2016: 17.4p) per ordinary share, payable on 11 May 2018
to shareholders on the register at 3 April 2018. The cost of the
proposed dividend, based on the number of shares in issue as at 16
March 2018, is GBP2,712,000 (2016: GBP2,470,000).
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:
2017 2016
GBP000 GBP000
Earnings used in basic and diluted
EPS, being profit after tax 3,082 2,094
Adjustments:
Intangibles amortisation (note 14) 5,892 4,733
Exceptional costs (note 12) 1,454 4,240
Tax relating to above adjustments (1,411) (1,333)
Deferred tax charge on utilisation
of Datapoint tax losses 392 504
Increase in deferred tax asset in
respect to Datapoint tax losses (500) (500)
Deferred tax charge on utilisation
of Azzurri tax losses - 642
Deferred tax charge on Azzurri profits 403 100
Increase/(decrease) in deferred
tax liability of intangible assets 164 (275)
________ ________
Adjusted earnings used in adjusted
EPS 9,476 10,205
________ ________
Datapoint has brought forward historic tax losses, which the
Group will benefit from in respect of its 2017 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
GBP392,000 was calculated on a streamed basis and was recognised in
the income statement for 2017 (2016: GBP504,000). 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
GBP500,000 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 GBP403,000 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 GBP164,000 in the deferred tax liability relating
to intangible assets was reflected in the income statement in 2017
and similarly adjusted for above.
2017 2016
Number Number
(000s) (000s)
Weighted average number of ordinary
shares of 1p each 14,197 13,092
Potentially dilutive shares 275 204
________ ________
14,472 13,296
________ ________
Earnings per share
Basic 21.7p 16.0p
Diluted 21.3p 15.8p
Adjusted - basic but after the adjustments
in the table above 66.7p 78.0p
Adjusted - diluted after the adjustments
in the table above 65.5p 76.8p
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 Exceptional costs
Most of the exceptional costs incurred in the year were related
to the acquisition and integration of the Intrinsic business and
the 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:
2017 2016
GBP000 GBP000
Property-related legal and professional
costs 83 13
Acquisition and restructuring related
redundancy costs 1,138 1,433
Cost of rebrand - 19
Legal and professional fees relating
to Azzurri integration - 260
Legal and professional fees relating
to the acquisition of Azzurri - 2,515
Legal and professional fees relating 60 -
to Intrinsic integration
Legal and professional fees relating 273 -
to the acquisition of Intrinsic
Impairment of freehold property 17 -
Net effect of release of provisions (121) -
relating to Azzurri
Other legal and professional costs 4 -
________ ________
1,454 4,240
________ ________
13 Business combinations
On the 1 August 2017, the Company acquired the entire share
capital of Intrinsic Technology Limited at the following
provisional fair value amounts:
GBP000
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 GBP000
were as follows:
Purchase consideration settled in cash 4,906
Direct acquisition costs (note 12) (273)
Cash balances acquired 11
________
4,644
________
Maintel acquired Intrinsic Technology Ltd ("Intrinsic") on 1
August 2017 on a cash-free, debt-free basis for a consideration of
GBP5.25m, reduced to GBP4.9m 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 has been increased by
GBP6 million to GBP42 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 GBP1.1m 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 GBP0.3m.
Since its acquisition, Intrinsic has contributed the following
to the results of the Group before management charges of
GBP0.1m:
GBP000
Revenue 8,991
________
Loss before tax (21)
________
Intrinsic's revenue for the period 1 January 2017 to 31 December
2017 was GBP25.1m and its loss before tax, exceptional items and
interest costs was (GBP0.2m)
The Group incurred GBP0.3m of third party costs related to this
acquisition. These costs are included in administrative expenses in
the consolidated statement of comprehensive income.
On 4 May 2016 the Company acquired the entire share capital of
Azzurri at the following provisional fair value amounts:
2016
GBP000
Purchase consideration
Cash 47,028
________
Assets and liabilities acquired
Tangible fixed assets 2,778
Inventories 2,635
Trade and other receivables 19,321
Cash 1,595
Trade and other payables (27,242)
________
(913)
Intangible assets
Customer relationships 16,030
Software 2,550
ICON brand 3,278
Azzurri brand 202
Product platform 1,299
Deferred tax asset 2,639
Deferred tax liability on intangible assets (4,319)
________
Net assets and liabilities acquired 20,766
________
Goodwill 26,262
________
Cash flows arising from the acquisition
were as follows:
Purchase consideration settled in cash (47,028)
Direct acquisition costs (note 12) (2,515)
Cash balances acquired 1,595
________
(47,948)
________
Azzurri was acquired to complement and extend 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 Azzurri and vice versa.
The acquisition of Azzurri Communications Limited was effected
by the acquisition of its parent company, Warden Holdco Limited for
a purchase consideration of GBP47.0m. Warden Holdco Limited is the
ultimate holding company of Azzurri Communications Limited and its
subsidiaries. Warden Midco Limited, Azzurri Holdings Limited and
Azzurri Capital Limited are intermediate holding companies of
Azzurri Communications Limited and its subsidiaries.
The business was acquired for a cash consideration of GBP1,
together with procurement of its senior debt facilities, loan
notes, and acquisition related fees of GBP20.5m, GBP24.0m, and
GBP2.5m respectively. These acquired liabilities were settled
immediately following acquisition, and therefore formed part of the
aggregate purchase consideration of GBP47.0m.
The purchase consideration quoted in the admission document for
the Azzurri acquisition was GBP48.5m, but this was reduced to
GBP47.0m through price adjustment mechanisms.
The customer relationships, software, brand and product
platforms are estimated to have a useful life of one to eight years
based on the directors' experience of comparable intangibles and
are therefore amortised over those periods and are subject to an
annual impairment review.
A deferred tax liability of GBP4.3m has been recognised above
which is being credited to the income statement pro rata to the
amortisation of the intangibles. The Azzurri related amortisation
charge in 2016 is GBP2.5m.
The trade and other receivables are stated net of impairment
allowances of GBP0.8m, which were the company's best estimate of
cash flows not collected.
In 2016, Azzurri contributed the following to the results of the
Group before management charges of GBP1.1m:
2016
GBP000
Revenue 57,783
________
Profit before tax 2,506
________
Azzurri's revenue for the period 1 January 2016 to 31 December
2016 was GBP86.0m and before management charges, its profit before
tax, including amortisation, exceptional and pre acquisition debt
costs was GBP0.4m.
The Group incurred GBP2.5m of third party costs related to this
acquisition. These costs are included in administrative expenses in
the consolidated statement of comprehensive income.
14 Intangible assets
Customer Product
Goodwill relationships Brands platform Software Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Cost
At 1 January
2016 10,172 15,252 - - - 25,424
Acquired in the
year 26,262 16,030 3,480 1,299 2,550 49,621
Additions - - - - 132 132
_______ _______ _______ _______ _______ _______
At 31 December
2016 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 39,980 36,882 3,480 1,299 3,771 85,412
_______ _______ _______ _______ _______ _______
Amortisation
and Impairment
At 1 January
2016 317 6,975 - - - 7,292
Amortisation
in the year - 3,631 408 108 586 4,733
_______ _______ _______ _______ _______ _______
At 31 December
2016 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
_______ _______ _______ _______ _______ _______
Net book value
At 31 December
2017 39,663 21,837 2,595 1,029 2,371 67,495
_______ _______ _______ _______ _______ _______
At 31 December
2016 36,117 20,676 3,072 1,191 2,096 63,152
_______ _______ _______ _______ _______ _______
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:
2017 2016
GBP000 GBP000
Network services division 21,134 21,134
Managed service and technology division 15,222 11,676
Mobile division 3,307 3,307
________ ________
39,663 36,117
________ ________
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 2017 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.
Fully amortised intangibles with a combined cost of GBP3.1m
(2016: GBP2.9m) relating to the District Holdings Limited,
Callmaster Limited and Redstone acquisitions are included within
intangibles and are still used within the business.
15 Subsidiaries
The Company owns investments in several subsidiaries including
several 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
Intrinsic Technology Limited (acquired on 1 August 2018)
Both Maintel Europe Limited and Intrinsic Technology Limited
provide 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.
The acquisition of Azzurri Communications Limited was effected
by the acquisition of its parent company, Warden Holdco Limited on
4 May 2016. Warden Holdco Limited is the ultimate holding company
of Azzurri Communications Limited and its subsidiaries. Warden
Midco Limited, Azzurri
Holdings Limited and Azzurri Capital Limited are intermediate
holding companies of Azzurri Communications Limited and its
subsidiaries. Azzurri Communications Limited was hived up into
Maintel Europe Limited on 1 January 2017.All these companies were
active in 2017 but were not trading .
In addition the following subsidiaries of the Company were
dormant as at 31 December 2017:
Maintel Finance Limited District Holdings Limited
Maintel Network Solutions Unified Group Limited
Limited
Unified Professional Services Unified Networks Services
Limited Limited
Proximity Communications Maintel Voice and Data
Limited (hived up into Limited (hived up into
Maintel Europe Limited Maintel Europe Limited
on 1 January 2016) on 1 October 2016)
Datapoint Customer Solutions Datapoint Global Services
Limited (hived up into Limited (hived up into
Maintel Europe Limited Maintel Europe Limited
on 1 October 2016) on 1 October 2016)
Maintel Mobile Limited
(hived up into Azzurri
Communications Limited
on 1 October 2016)
The following subsidiaries of the Company were dormant and were
in the process of being dissolved as at 31 December 2017:
Unified Professional Services Unified Group Limited
Limited
(dissolved on 6 February (dissolved on 6 February
2018) 2018)
Unified Network Services Proximity Communications
Limited Limited
(dissolved 20 February
2018)
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 9 Clanwilliam Square, Grand
Canal Quay, Dublin 2, Ireland.
16 Property, plant and equipment
Office
Freehold Leasehold and computer Motor
building Improvements equipment vehicles Total
GBP000 GBP000 GBP000 GBP000 GBP000
Cost or valuation
At 1 January
2016 - 414 1,469 47 1,930
Additions - 18 420 - 438
On acquisition
of Azzurri 1,768 1,128 5,562 - 8,458
Exchange differences - 2 - - 2
________ ________ ________ ________ ________
At 31 December
2016 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
________ ________ ________ ________ ________
Depreciation
At 1 January
2016 - 72 1,140 46 1,257
On acquisition
of Azzurri 147 825 4,708 - 5,680
Provided in
year 17 119 461 1 598
________ ________ ________ ________ ________
At 31 December
2016 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
________ ________ ________ ________ ________
Net book value
At 31 December
2017 - 530 940 - 1,471
________ ________ ________ ________ ________
At 31 December
2016 1,604 547 1,142 - 3,293
________ ________ ________ ________ ________
Following a decision to market the freehold property for sale in
December 2017, this asset was reclassified from tangible fixed
assets to assets held for sale within current assets. (see note
17)
17 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 and has accordingly been disclosed as
a post-balance sheet event (note 30).
The criteria required to recognise a non-current asset held for
sale, as disclosed in Note 2, were all met on the announcement date
above.
2017
GBP000
Transfer from Property, Plant & Equipment
on 1 December 2017 1,518
Fair value adjustment - impairment charge
through profit and loss (18)
________
Closing value at 31/12/2017 - 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 considers this to be a level 3 fair value assessment in
terms of the IFRS 13 Fair Value Measurement hierarchy.
18 Inventories
2017 2016
GBP000 GBP000
Maintenance stock 1,746 1,970
Stock held for resale 1,505 2,912
________ ________
3,251 4,882
________ ________
Cost of inventories recognised as
an expense 21,491 17,274
________ ________
Provisions of GBP460,000 were made against the maintenance stock
in 2017 (2016: GBP542,000).
19 Trade and other receivables
2017 2016
GBP000 GBP000
Trade receivables 19,018 17,383
Other receivables 1,277 388
Prepayments and accrued income 16,962 11,600
________ ________
37,257 29,371
________ ________
All amounts shown above fall due for payment within one
year.
20 Trade and other payables Restated
2017 2016
Current trade and other payables GBP000 GBP000
Trade payables 13,491 9,909
Other tax and social security 3,505 4,658
Accruals 6,662 8,463
Other payables 3,417 3,616
Provision for dilapidations and
deferred rent incentive 283 483
Deferred managed service income 19,234 16,012
Other deferred income 4,775 6,012
________ ________
51,367 49,153
________ ________
Deferred managed service income relates to the unearned element
of managed service revenue that has been invoiced but not yet
recognised in the consolidated statement of comprehensive income.
Other deferred income relates to other amounts invoiced but not yet
recognised in the consolidated statement of comprehensive
income.
Restated
Non current other payables 2017 2016
GBP000 GBP000
Provision for dilapidations and
deferred rent incentive 833 789
Intangible licences payables 561 -
Advanced mobile commissions 68 154
________ ________
1,462 943
________ ________
During the current year the comparatives for the provision for
dilapidations, deferred rent incentive and advanced mobile
commissions payable were restated to show the correct proportion of
the liability between current and non current. The effect of the
changes were to decrease current liabilities by GBP943k for 2016
and to increase non current other payables by GBP943k for 2016.
21 Deferred taxation
Property,
plant Intangible Tax
and
equipment assets losses Other Total
GBP000 GBP000 GBP000 GBP000 GBP000
Net liability at
1 January 2016 89 1,704 (953) (6) 834
Liability established
against intangible
assets acquired
during the year - 4,319 - - 4,319
Asset acquired
with Azzurri (1,997) - (642) - (2,639)
Charge/(credit)
to consolidated
statement of comprehensive
income 85 (948) 1,146 (2) 281
Credit to consolidated
statement of comprehensive
income in respect
of anticipated
further use of
tax losses - - (500) - (500)
Credit to consolidated
statement of comprehensive
income in respect
of revaluation
of liability against
intangible assets - (275) - - (275)
_______ _______ ________ ________ _______
Net liability at
31 December 2016 (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
________ ________ ________ ________ ________
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 and Intrinsic
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 GBP0.5m 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
GBP0.8m (2016: GBP1.2m) 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 2017 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. Based on their projected rate of
unwinding and applying the reduced future rates would result in a
decreased deferred tax charge in the consolidated statement of
comprehensive income for the year, and an adjustment of GBPNil
(2016: GBP275,000) to revalue the liability was credited to the
income statement.
22 Borrowings
2017 2016
GBP000 GBP000
Non current bank loan - secured 30,707 30,688
Current bank loan - secured - -
________ ________
30,707 30,688
________ ________
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 GBP36.0m
(the "RCF") in committed funds on a reducing basis for a five year
term (with an option to borrow up to a further GBP20.0m 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
GBP4.9m 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 has been
increased by GBP6.0m to GBP42.0m.
Under the terms of the facility agreement, the committed funds
reduce to GBP31.0m on the three year anniversary, and to GBP26.0m
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 GBP0.3m (31 December 2016: GBP0.3m).
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 for 31 December 2017.
The directors consider that there is no material difference
between the book value and fair value of the loan.
23 Financial instruments
The Group's financial assets and liabilities mainly comprise
cash, borrowings, trade and other receivables and trade and other
payables.
Loans and receivables
2017 2016
GBP000 GBP000
Current financial assets
Trade receivables 19,018 17,383
Cash and cash equivalents 3,311 10,884
Other receivables 1,277 388
________ ________
23,606 28,655
________ ________
Financial liabilities
measured at amortised
cost
2017 2016
GBP000 GBP000
Non current financial liabilities
Other payables 629 154
Secured bank loan 30,707 30,842
________ ________
31,336 30,966
________ ________
Current financial liabilities
Trade payables 13,491 9,909
Other payables 3,417 3,616
Accruals 6,662 8,463
________ ________
23,570 21,988
________ ________
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
GBP337,000 is provided at 31 December 2017 (2016: GBP416,000). 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 2017 owed
the Group GBP1.0m including VAT (2016: GBP3.1m). 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:
2017 2016
GBP000 GBP000
Provision at start of year 416 157
Acquired provision of Azzurri - 766
Acquired provision of Intrinsic 70 -
Provision used (66) (442)
Provision reversed (83) (65)
________ ________
Provision at end of year 337 416
________ ________
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 had past due trade receivables not requiring
impairment as follows:
2017 2016
GBP000 GBP000
Up to 30 days overdue 2,947 2,258
31-60 days overdue 787 148
More than 60 days overdue 139 15
________ ________
3,873 2,421
________ ________
Cash and cash equivalents at 2017 year-end are represented by
cash and short term deposits, primarily with Royal Bank of Scotland
Plc and HSBC Bank Plc. The equivalent at 2016 year end was only
with Royal Bank of Scotland 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 GBP31.0m at 31 December 2017 (2016:
GBP31.0m), together with a GBP5.0m overdraft facility (2016:
GBP5.0m). 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 2017, and all
other variables were held constant, the Group's profit for the year
would have been GBP190,000 (2016: GBP139,000) 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 GBP Nil interest during the year
(2016: GBP3,000).
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 to 2 to
6 months 12 months 5 Years Total
GBP000 GBP000 GBP000 GBP000
Trade payables 13,491 - - 13,491
Other payables 3,180 237 629 4,046
Accruals 6,522 140 - 6,662
Borrowings (including
future interest) 520 520 32,379 33,419
______ ______ ______ ______
At 31 December 2017 23,713 897 33,008 57,618
______ _______ _______ _______
0 to 6 6 to 12 2 to 5
months months Years Total
GBP000 GBP000 GBP000 GBP000
Trade payables 9,909 - - 9,909
Other payables 3,336 280 154 3,770
Accruals 8,259 204 - 8,463
Borrowings (including
future interest) 454 445 33,400 34,299
______ ______ ______ ______
At 31 December 2016 21,958 929 33,554 56,441
______ _______ _______ _______
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.
24 Share capital
Allotted, called up and fully
paid
2017 2016 2017 2016
Number Number GBP000 GBP000
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 (2016: 3,428,572). No shares
were repurchased during the year (2016: Nil).
25 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 2017 of 19.1p per share; this dividend is not provided for in
these financial statements.
26 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.
27 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 above describes the options
granted over the Company's ordinary shares.
In aggregate, options are outstanding over 2.7% 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.
28 Operating leases
As at 31 December, the Group had future minimum rentals payable
under non-cancellable operating leases as set out below:
2017 2017 2016 2016
Land and Land and
buildings Other buildings Other
GBP000 GBP000 GBP000 GBP000
The total future
minimum lease
payments are due
as follow:
Not later than one
year 1,110 222 1,194 253
Later than one year
and not later than
five years 3,297 234 3,326 68
Later than five
years 1,479 - 2,071 -
________ ________ ________ ________
5,886 456 6,591 321
________ ________ ________ ________
The commitment relating to land and buildings is in respect of
the Group's London, Dublin, Weybridge, Aldridge, Haydock 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.
Part of the London premises has been sublet, with future minimum
rentals receivable under non-cancellable operating leases as set
out below:
2017 2016
Land and Land and
buildings buildings
GBP000 GBP000
The total future minimum lease payments
are due as follow:
Not later than one year 155 145
Later than one year and not later
than five years - 155
________ ________
155 300
________ ________
29 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:
2017 2016
GBP000 GBP000
Short term employment benefits 1,787 1,679
Contributions to defined contribution
pension schemes 50 37
________ ________
1,837 1,716
________ ________
Other transactions
The Group did not trade in the year with E Buxton or K Stevens
(2016: less than GBP1,200 in aggregate in each case). The Group
traded in the year with A J McCaffery, transactions in 2017 and
2016 amount in aggregate to less than GBP1,200.
In 2017, the Company paid fees of GBP7,000 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 (2016: acquisition
of Azzurri; GBP61,000). In 2017, the Group provided
telecommunications services to Focus 4 U Limited and to Zinc Media
Group Plc, companies of which N J Taylor is a director, amounting
to GBP9,000 in both cases. (2016: GBPNil).
The Company paid fees of GBP4,000 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 (2016: acquisition of Azzurri ;
GBP57,000).
30 Post balance sheet events
On 1 January 2018, as part of the integration of Intrinsic
Technology Limited, its business and assets were hived up into
Maintel Europe Limited.
On 23 February 2018, the sale of the freehold property in
Burnley was completed for GBP1.5m.
Financial statements
Company balance sheet
at 31 December 2017 - prepared under FRS101
Company number Note 2017 2017 2016 2016
3181729
GBP000 GBP000 GBP000 GBP000
Fixed assets
Investment in subsidiaries 4 54,466 49,560
Current assets
Debtors 5 9,690 10,298
Cash at bank and
in hand 359 1,499
________ ________
10,049 11,797
Creditors: amounts
falling due
within one year
Creditors 6 1,222 630
Borrowings 7 - -
________ ________
Net current assets 8,827 11,167
Creditors: amounts
falling due
after one year
Borrowings 7 30,707 30,688
________ ________
Total assets less
current liabilities 32,586 30,039
________ ________
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 8,059 5,512
________ ________
Shareholders' funds 32,586 30,039
________ ________
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 GBP6.8m
(2016: GBP0.7m). The auditors' remuneration for audit services to
the Company in the year was GBP14,000 (2016: GBP16,000).
The Company financial statements were approved and authorised
for issue by the board on 16 March 2018 and were signed on its
behalf by:
M Townsend
Director
The notes below form part of these financial statements.
Financial statements
Reconciliation of movement in shareholders' funds
for the year ended 31 December 2017 - prepared under FRS101
Capital Profit
Share Share redemption and
loss
capital premium reserve account Total
Note GBP000 GBP000 GBP000 GBP000 GBP000
At 1 January 2016 108 1,169 31 8,382 9,690
Profit and total
comprehensive
income for year - - - 712 712
Dividends paid - - - (3,679) (3,679)
Issue of new ordinary
shares 34 23,966 - - 24,000
Share issue costs - (781) - - (781)
Grant of share
options - - - 97 97
________ ________ ________ ________ ______
At 31 December
2016 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
________ ________ ________ ________ ______
The notes below form part of these financial statements.
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.
(e) Disclosure exemptions adopted
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 14 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, 2017 2016
consist of: GBP000 GBP000
Wages and salaries 1,269 1,181
Social security costs 162 152
Pension costs 34 27
_______ _______
1,465 1,360
2017 2016
Number Number
The average number of employees,
including directors, during the 9 9
year was: _______ _______
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
GBP000
At 1 January 2016 24,905
Additions 47,028
Intercompany disposals (22,293)
________
At 31 December 2016 49,640
Additions 4,906
________
At 31 December 2017 54,546
________
Provision for impairment
At 1 January 2016 2,680
Intercompany disposals during 2016 (2,600)
________
At 31 December 2017 and 31 December 2016 80
________
Net book value
At 31 December 2017 54,466
________
At 31 December 2016 49,560
________
On 1 August 2017 the Company acquired the entire share capital
of Intrinsic Technology Limited, for a gross consideration of
GBP4.9m, paid in cash.
Details of the Company's subsidiaries are shown in note 15 of
the consolidated financial statements.
5 Debtors
2017 2016
GBP000 GBP000
Amounts owed by subsidiary undertakings 9,125 9,993
Other tax and social security 127 46
Prepayments and accrued income 16 55
Corporation tax recoverable 422 204
________ ________
9,690 10,298
________ ________
All amounts shown under debtors fall due for payment within one
year.
6 Creditors
2017 2016
GBP000 GBP000
Amounts due to subsidiary undertakings 1067 294
Trade creditors 56 41
Accruals and deferred income 99 295
________ ________
1,222 630
________ ________
7 Borrowings
2017 2016
GBP000 GBP000
Non-current bank loans - secured 30,707 30,688
Current bank loans - secured - -
________ ________
30,707 30,688
________ ________
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 GBP36.0m
(the "RCF") in committed funds on a reducing basis for a five year
term (with an option to borrow up to a further GBP20.0m 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
GBP4.9m 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 has been
increased by GBP6m to GBP42m.
Under the terms of the facility agreement, the committed funds
reduce to GBP31.0m on the three year anniversary, and to GBP26.0m
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 GBP0.3m (31 December 2016: GBP0.3m).
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 for 31 December 2017.
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
2017 2016 2017 2016
Number Number GBP000 GBP000
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 (2016: 3,428,572). No shares
were repurchased during the year (2016: 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 2017 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 company news service from the London Stock Exchange
END
FR SFLFWMFASEID
(END) Dow Jones Newswires
March 19, 2018 03:00 ET (07:00 GMT)
Maintel (LSE:MAI)
Historical Stock Chart
From Apr 2024 to May 2024
Maintel (LSE:MAI)
Historical Stock Chart
From May 2023 to May 2024