Maintel Regulatory News (MAI)

Preliminary results for the year to 31 December 2011

Maintel Holdings Plc, the telecoms and data services company, announces preliminary results for the year to 31 December 2011.

Financial highlights

Group revenue increase of 18% to £25.9m (2010: £22.0m), with organic growth of 5%

Adjusted[1] profit before tax up 30% to £3.946m (2010: £3.046m)

Adjusted[2] earnings per share up 35% to 27.5p (2010: 20.3p)

Year end cash of £2.953m (2010: £2.459m)

Final dividend proposed of 6.0p per share (2010: 4.6p), making 10.6p for the year (2010: 8.5p), an increase of 25% year-on-year

Operational highlights

Strong early trading at Totility Limited, a specialist UK mobile provider, since its acquisition in October 2011 with subscriber base increasing 12% to 13,387

Completed integration of the Redstone acquisition with cross selling of additional services proving successful

Strong growth in data services revenues including a large data network upgrade and expansion, demonstrating the success of our investment in Avaya and its technology

Launch of a new network monitoring service allowing real time proactive monitoring of voice and data networks enabling Maintel to offer a complete managed service to our customers

Notes

[1] adjusted profit before tax is basic profit before tax of £3.084m (2010 - £2.673m), adjusted for intangibles amortisation and non-trading adjustments relating to the Totility acquisition in October 2011 and the Redstone acquisition in 2010 shown in the business review

[2] adjusted earnings per share is basic earnings per share of 20.0p (2010 - 17.8p), adjusted for intangibles amortisation and the non-trading Totility and Redstone adjustments

For further information please contact:

Eddie Buxton, Chief Executive 020 7401 4601

Dale Todd, Finance Director 020 7401 0562

Chairman's statement

I am pleased to report that Maintel enjoyed a strong 2011 financial year. The Group grew its adjusted profit before tax by 30% to £3.946m and its adjusted earnings per share by 35% to 27.5p.

In a year of considerable economic uncertainty it is also satisfying to demonstrate organic revenue growth of 5% at the Group level. Both of our major divisions demonstrated similar levels of organic growth and our level of recurring revenues was over three quarters of the Group total. The year also showed the benefits of prior acquisitions, which added a further 13% to our revenue growth, for overall Group revenue growth of 18% during the period.

The Maintenance and Equipment division performed well with a particularly strong year for equipment sales, showing annual growth of 38%, including a number of new large Avaya Enterprise orders won on the back of the 2010 Redstone acquisition. Maintenance revenues saw a year of steady progress and our partnerships with major telecoms suppliers continued to broaden and bear fruit. Whilst the latter part of 2011 saw the division affected by the winding down of two short term contracts, I am pleased to report that the early signs of growth this year from the division are encouraging.

The Network services division also delivered steady organic growth in 2011, with particularly strong growth from data connectivity, which showed an annual increase in revenue of 11%. This continues to be an area of focus for future growth and possible acquisition.

Towards the end of the year we purchased Totility Limited, a mobile telecoms provider operating across the UK, holding agreements with Vodafone and O2. This adds further breadth to the range of products and services we can offer our customers and increases our cross selling opportunities. It is always good to add new capability where we are able to respond to customer demand and it is a pleasure to welcome Totility's staff and existing customers to our Group. 

Cash generation continues to be strong and we ended the year with net cash of £2.953m and no debt, having generated net cash flows from operating activities of £2.488m in 2011.

The Board proposes a final dividend for the year of 6.0p (2010: 4.6p), an increase of 30%, taking the total for the year to 10.6p (2010: 8.5p). This will be payable on 26 April 2012 to shareholders on the register at 23 March 2012.

I would like to thank my colleagues on behalf of all shareholders for the hard work and energy that has delivered this outstanding performance and to wish them well for the year ahead.

J D S Booth

Chairman

9 March 2012

Business review

Results

This has been a strong trading year with the Group achieving the highest recorded revenue and adjusted profits in its history. Adjusted profits before tax (as described below) increased by 30% to £3.946m, with unadjusted profit before tax increasing by 15% to £3.084m, derived from an 18% increase in revenues, to £25.9m.

Adjusted earnings per share (EPS) have consequently increased by 35% from 20.3p in 2010 to 27.5p in 2011, with basic EPS increased by 12%, from 17.8p in 2010 to 20.0p in 2011.

The Group's cash flows remain strong, with net cash flows from operating activities of £2.488m in the year, leaving the Group with net cash at the year end of £2.953m.

* Adjusted profit after tax divided by weighted average number of shares (note 4).

The Group's two established divisions - maintenance and equipment, and network services - each recorded solid organic revenue growth in the year, reporting organic growth of 5% and 4% respectively and a combined 5%. This was against a difficult economic backdrop and also a challenging time for the industry as a whole. In the latter part of 2011, the Group added a third division - mobile - contributing revenues of £601,000 and profit before tax of £175,000 since its acquisition.

The Group acquired 100% of the share capital of Totility Limited, a specialist UK mobile telecoms provider, on 21 October 2011, for an initial consideration of £2.822m, with a further consideration of up to £4.0m dependent on Totility's performance in the 12 (in certain limited circumstances 13) months post-acquisition. The initial consideration consisted of £2.435m in cash, and the issue of 177,778 shares which had a mid-market price of 217.5p on 28 September 2011. Under the terms of the acquisition, further consideration of £986,000 was paid to the Totility shareholders after the year end, representing the net asset value of Totility at the date of acquisition. Further details of the acquisition are shown in note 7.

The 2010 partnership agreement with Westcon and the acquisition of certain business and assets from Redstone Converged Solutions Limited and Marcom Communications Limited (a Redstone subsidiary) (together the "Redstone acquisition") have proven successful both in terms of their financial impact and in allowing the Group to develop its Avaya and wider data offerings to existing and new customers and we were awarded Avaya's Service Expert status in the first half of 2011. Further maintenance contracts have been won as a result of the acquisition - some in conjunction with Redstone - and cross selling has also been successful, including a £150,000 network services contract into the acquired Redstone base. As expected, due to the acquired customers' billing cycles, the Redstone acquisition did not achieve its full cash generation potential until Q3 2011, and so 2012 will be the first year to experience its full effect. As described last year, 2010 saw the recognition, as prescribed by accounting standards, of £105,000 of deferred income net of deferred costs for which no cash flows were received by the Group, with a further (and final) £141,000 being recognised in 2011. The £141,000 has been deducted in calculating adjusted profit, as this represents a more accurate picture of underlying trading.

Total recurring revenue (maintenance, network services and mobile) increased by 12% in the year to £19.6m (76% of total revenues), providing good visibility of revenues across the Group.

Net cash flows from operating activities continued to be strong, at £2.488m, in 2011 (2010 - £3.295m) and cash at the year end amounted to £2.953m (2010 - £2.459m). Cash flow movements are described later in the business review. The Group has no debt.

Divisional performance is described further below.

The maintenance and equipment division provides maintenance, service and support of office-based voice and data equipment across the UK on a contracted basis. It also supplies and installs voice and data equipment to maintenance customers, both to our direct clients and into our partner customers.

The division's revenues increased by 19% in the year as shown in the table above, maintenance related revenue growing by 11% and equipment sales by 38%, despite the economic downturn. The Redstone acquisition in October 2010 contributed £219,000 revenues in that year, and £2.390m in 2011, so that even excluding this, the organic revenue growth in the division was 5% year on year.

Maintenance

Maintenance revenues grew strongly during the year by 11% (1% organic, excluding the Redstone effect). This represented a robust performance in a stagnant overall market.

During the year, two large short term contracts began to wind down, resulting in a maintenance base of £12.2m at the year-end compared to £13.2m at the end of 2010. Moving into 2012 we expect the maintenance base to grow back in line with previous levels, with one of our significant partnerships already having delivered two new large maintenance contracts early in Q112.

Equipment sales

Equipment sales increased by £1.779m (38%) in the year of which £1.065m was attributed to the Redstone acquisition. Excluding this, organic equipment sales growth in the division was 16%.

A number of new large Avaya Enterprise orders were won on the back of the recent Redstone acquisition and our decision to invest in the vendor and its technology has proved successful.

The increase in the sales and customer service headcount across the division shown below has primarily arisen from the transfer to the Group of Redstone employees, though this increase in resource was far lower than the increase in revenues derived. The increase in average engineer headcount is in the main the result of the acquisition of Avaya skills through the Redstone acquisition and the recruitment of further data-led engineering resource, with a secondary post-acquisition review of resource having commenced in July 2011, resulting in some redundancies and the consequent reduction in headcount by 31 December 2011.

* excluding redundant Redstone employees

The division's gross profit margin dropped by 4 percentage points in the year as explained in the half year statement; while sales of high margin professional services remain buoyant, the change in the sales mix towards lower margin hardware sales has led to a reduction in the division's percentage gross margin over 2010. A number of new large Avaya Enterprise orders were won on the back of the Redstone acquisition and our decision to invest in the vendor and its technology, including new data services, has also affected margin as has the temporary excess of resource noted above. In addition, a £650,000 "pass-through" contract was signed during the year, whereby Maintel backs off supply and implementation of the project at low margin; part of this contract was delivered in H211 with the balance expected to be delivered in H112.

Given the application of common resource across both maintenance and equipment sales, it is not practical to quote definitive margin data on the separate business sectors; however management figures are used to monitor constituent elements internally.

Network services division

The network services division sells a portfolio of services which includes telephone line rental, inbound and outbound telephone calls, data connectivity, internet access and hosted IP telephony solutions. These services complement the services offered by the maintenance and equipment division.

The division's revenue increased by £220,000 or 4%, all organic. The trends of previous years continued with growth in line rental, data and other services outstripping the decline in call traffic revenues. This divisional revenue growth was achieved against a challenging backdrop for the sector as a whole. Data connectivity grew strongly during the period and now represents over 10% of this division's total revenue.

Although call minutes increased year on year, pressure on rates continued, exacerbated by the reduction in mobile termination rates, so that the net effect was a reduction in call traffic revenues of £77,000, or 3%. The increase in call volumes however was encouraging, especially against the continuing challenging economic environment and reflected the new orders signed in the year and the division's traditional underlying low levels of attrition and no major customers terminating.

As call rates continue to fall, the strategic shift towards providing customers with data connectivity, VoIP services and inbound call services will continue to be a focus for the division and 2012 is already showing significant progress being made in these areas.

Overall divisional gross margin increased from 26.6% to 28.4% during the year, through tight cost control and margin management particularly on the call traffic side of the business.

Mobile division

The Company acquired Totility Limited, a specialist UK mobile telecoms provider, on 21 October 2011, since when it has performed as follows:

Totility's revenues arise primarily from commissions received under its dealer agreements with Vodafone and O2, supplemented by revenue derived from ongoing customer monthly spend, with approximately 84% of such commissions being earned under the Vodafone agreement since acquisition, and 16% under the O2 agreement.

Totility fills a gap in our product portfolio where we had identified existing customer demand for mobile services. It is a well run customer service led business that has significantly lower churn than that typically seen across the industry.

At 31 December 2011, Totility managed around 13,400 connections, an increase of approximately 1,400 (c12%) since its acquisition. In addition to its own organic growth and continuing renewal of contracts, cross-selling of mobiles into the established Maintel base has proven successful so far, with several notable customers signed and a strong pipeline of further candidates in place for 2012.

Administrative expenses, excluding intangibles amortisation and non-trading

adjustments

Sales expenses increased by £50,000 or 2% in the year and, adjusting for Totility's sales expenses, the underlying costs fell slightly year on year, with sales headcount being realigned to best match the current sales opportunities.

Administrative costs continue to be monitored closely and rose by £156,000 or 6% in the year, and fell by £12,000 after adjusting for Totility's £89,000 administration costs and the £79,000 costs of the Totility acquisition.

Impairment and amortisation charges are discussed below.

The table below shows relevant headcount in relation to revenue.

* headcount figures exclude redundant Redstone employees in Q1 2011

Interest

Net interest receivable reduced from £29,000 to £23,000 in 2011, with average cash balances being lower in 2011 due to the cost of the Redstone and Totility acquisitions in October 2010 and October 2011 and the continuing low rates of interest achievable from acceptable financial institutions.

Taxation

The consolidated statement of comprehensive income shows a tax rate of 31.7% (2010 - 28.6%). Each of the Group companies other than Totility is taxed at 26.5% (2010 - 28.0%), with Totility taxed at 26% in 2011. Certain recurring expenses that are disallowable for tax raise the effective rate above this. The rate is also inflated in the year by the adjustments for (a) the £67,000 adjustment to the Redstone consideration, (b) the £366,000 contingent consideration relating to the Totility acquisition, and (c) the £79,000 costs of the Totility acquisition not being tax-relievable, as is a proportion of the amortisation of the intangible relating to the District customer relationships.

Dividends

A final dividend for 2010 of 4.6p per share (£482,000 in total) was paid on 28 April 2011, and an interim dividend for 2011 of 4.6p (£483,000) was paid on 7 October 2011.

It is proposed to pay a final dividend of 6.0p in respect of 2011 on 26 April to shareholders on the register at the close of business on 23 March, representing a 30% increase on the 2010 final dividend. The corresponding ex-dividend date will be 21 March. In accordance with accounting standards, this dividend is not accounted for in the financial statements for the period under review as it had not been committed as at 31 December 2011.

Consolidated statement of financial position

The consolidated statement of financial position remains sound, with £2.953m of cash (£986,000 of this payable to the Totility shareholders as described below) and no debt at 31 December 2011.

Trade receivables have increased by £148,000 over the year, with the inclusion of £296,000 of Totility trade receivables offsetting a net reduction in the existing Group companies. Other receivables have reduced by £159,000 with the £175,000 indemnity from Redstone at the previous year end having been partly settled and partly expensed. Prepayments have increased by £469,000 due to the inclusion of Totility prepayments and accrued income relating to equipment installations spanning the year end.

The value of maintenance stock has reduced by £29,000 in the year, to £592,000, the net result of purchases, disposals and provisioning The value of stock held for resale has fallen from £380,000 to £130,000 reflecting different stages of invoicing and completion of cross-period installations year to year.

Trade payables have reduced by £175,000 despite the inclusion of Totility trade payables of £87,000, largely due to a different phasing in equipment purchasing and a change in a services provider to one which requires a month end direct debit. Other tax and social security liability has decreased by £173,000 largely due to a change in HMRC regime, whereby monthly VAT payments are now made, with inclusion of an £82,000 Totility VAT liability partly countering this.

Accruals have increased £1.488m year on year, with the accrual of the £986,000 payment due in respect of Totility's net assets together with around two months' worth (£366,000) of the expected Totility earnout, the latter accrual being expensed in the income statement.

Deferred maintenance income has reduced by £209,000, due mainly to the 2010 figure including the £141,000 in respect of the Redstone performance obligation liability adjustment which has been released to the income statement in 2011, together with the effects of the reduced maintenance base. Other deferred income has reduced by £297,000 mirroring the reduction in stock arising from the year end installation profile.

The Group corporation tax liability increased by £642,000 in the year, to £1.008m, reflecting the increased profits of the Group, and including a £510,000 liability relating to Totility, which was not required to pay in instalments and so has a relatively high liability at the year end.

No significant expenditure has been required on plant and equipment during the period, with additions broadly matching depreciation, the main expenditure having been on IT and routine office refurbishment.

Intangible assets

The Group has four intangible assets - (i) goodwill relating to the acquisition of Maintel Network Services Limited, (ii) an intangible asset represented by customer contracts and relationships acquired from District Holdings Limited, Callmaster Limited, Redstone and Totility, (iii) goodwill relating to the District, Redstone and Totility acquisitions, and (iv) a licence for billing software.

£551,000 was added to Goodwill during the year, in respect of the Totility acquisition. Goodwill is subject to an impairment test at each reporting date. No impairment has been charged to the consolidated statement of comprehensive income in 2011 (2010 - £Nil), and the carrying value is £1.026m at 31 December 2011 (2010 - £475,000).

The intangible assets represented by purchased customer contracts and relationships were supplemented by the addition of contracts valued at £2.998m arising from the Totility acquisition during the year. The intangible assets are subject to an amortisation charge of 17-20% of cost per annum in respect of maintenance contract relationships, and 14.2% per annum in respect of network services contracts and Totility customer relationships. £491,000 was amortised in 2011 (2010 - £303,000), leaving a carrying value of £4.220m (2010 - £1.713m).

The billing software is amortised over a three year period and is subject to an annual impairment review. The amortisation charge in the period was £32,000, leaving a carrying value of £11,000 (2010 - £43,000) at year end.

Cash flow

At 31 December 2011 the Group had cash and bank balances of £2.953m (2010 - £2.459m), unrestricted other than £986,000 of this - representing the net assets of Totility at the date of acquisition - subsequently paid to the sellers of Totility in accordance with the terms of the acquisition.

Cash generated from operating activities in the year was £3.314m, out of which £965,000 was paid in dividends, £826,000 in corporation tax and a net £927,000 (£2.435m gross less £1.508m cash acquired with the company) on the Totility acquisition (excluding £79,000 of expenses).

The Group has no debt and invests its surplus cash with mainstream banking organisations.

The Group established a revolving credit facility of £1.5m in October 2011 with JDS Booth, the Group's chairman, however no monies have been drawn against this. Any amounts drawn would be unsecured, carry an interest rate of 6.5 per cent and be repayable by 28 February 2013.

Outlook

All 3 divisions of the Group are currently trading in line with expectations and we have a healthy pipeline of new business opportunities. We are also working on a number of new developments with our system integrator partners that have the potential to generate further new business opportunities in 2012.

We are encouraged by our cross-selling opportunities with many of our existing customers expressing an interest in taking a multi-product offering from Maintel, in particular our new portfolio of mobile and network monitoring services.

With the market consolidating at a renewed pace, we remain alert to acquisition opportunities that can enhance our service offering.

Notwithstanding the broader macro-economic environment, the Board remains confident in the financial outlook for the year ahead. 

Eddie Buxton

Chief Executive

9 March 2012

Maintel Holdings Plc

Consolidated statement of comprehensive income

for the year to 31 December 2011

Maintel Holdings Plc

Consolidated statement of financial position

as at 31 December 2011

Maintel Holdings Plc

Consolidated statement of changes in equity

for the year to 31 December 2011

Maintel Holdings Plc

Consolidated statement of cash flows

for the year to 31 December 2011

Maintel Holdings Plc

Notes to the preliminary statement

1. Basis of preparation

The financial information set out in these preliminary results does not constitute the company's statutory accounts for 2010 or 2011.

Statutory accounts for the years ended 31 December 2011 and 31 December 2010 have been reported on by the Independent Auditors. The Independent Auditors' Report on the Annual Report and Financial Statements for 2011 was unqualified, did not draw attention to any matters by way of emphasis, and did not contain a statement under 498(2) or 498(3) of the Companies Act 2006.

Statutory accounts for the year ended 31 December 2010 have been filed with the Registrar of Companies. The statutory accounts for the year ended 31 December 2011 will be delivered to the Registrar in due course.

2. Accounting policies

The financial information set out in these preliminary results has been prepared using the recognition and measurement principles of International Accounting Standards, International Financial Reporting Standards and Interpretations adopted for use in the European Union (collectively Adopted IFRSs). The accounting policies adopted in this results announcement have been consistently applied to all the years presented and are consistent with the policies used in the preparation of the statutory accounts for the period ended 31 December 2011. The principal accounting policies adopted are unchanged from those used in the preparation of the statutory accounts for the period ended 31 December 2010.

3. Segmental analysis

For management reporting purposes and operationally, the Group consists of three business segments: (i) telephone maintenance and equipment sales, (ii) telephone network services, and (iii) mobile services (this division having been acquired 21 October 2011). 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 Business review.

Year to 31 December 2011

Revenue is wholly attributable to the principal activities of the Group and other than sales of £20,000 (2010 - £10,000) to other EU countries arises predominantly within the United Kingdom.

Maintenance and equipment revenue consists of maintenance related revenue of £12.948m and equipment, installation and other revenue of £6.492m (2010 - £11.678m and £4.713m). Network services revenue consists of call traffic revenue of £2.613m, line rental revenue of £2.457m, data services revenue of £0.660m and other revenue of £0.306m (2010 - £2.690m, £2.282m, £0.594m and £0.250m). Mobile revenue consists principally of commissions receivable from network operators.

Intercompany trading consists of telecommunications services, and recharges of sales, engineering and rent costs, £48,000 (2010 - £48,000) attributable to the Maintenance and equipment segment and £115,000 (2010 - £151,000) to the Network services segment.

In 2011 the Maintenance and equipment division had one customer (2010 - One) which accounted for more than 10% of its revenue, totalling £5.021m (2010 - £5.201m).

Year to 31 December 2010

4. 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:

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

On 21 October 2011 the Company issued 177,778 ordinary shares as part of the consideration of the acquisition of Totility Limited.

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.

5. Dividends

The directors propose the payment of a final dividend for 2011 of 6.0p (2010 - 4.6p) per ordinary share, payable on 26 April 2012 to shareholders on the register at 23 March 2012. The cost of the proposed dividend, based on the number of shares in issue as at 9 March 2012, is £640,000 (2010 - £483,000).

6. Non-trading expenses arising in respect of the Redstone acquisition

Of the £175,000 indemnity for redundancy costs deducted from the consideration paid in October 2010 in respect of the Redstone acquisition, £108,000 was recovered from Redstone, the shortfall of £67,000 being an adjustment to consideration which has been expensed in the income statement.

£141,000 of the revenue from the performance obligation liabilities (being the net of the liability to service customers for which the Group has received no payment and equivalent deferred costs) has been included in revenue in 2011 (2010 - £105,000).

7. Acquisition of Totility

On 21 October 2011 the Company acquired the entire share capital of Totility Limited at the following valuations:

A contingent consideration is payable to the sellers of Totility dependent on the adjusted gross profit of the company in the 12 (in certain circumstances 13) months following its acquisition. The maximum contingent consideration payable is £4.0m, and based on the company's budgets the estimated consideration will be £2.0m. This payment in normal circumstances is conditional on the continued employment of T McKeever (one of the sellers) by Totility. Under IFRS3 (Revised) this amount is charged to the income statement over the earnout period as employee costs, rather than being treated as deferred consideration on acquisition, with a consequent charge to the income statement of £366,000 in 2011.

8. The annual report and accounts will be posted to shareholders in due course and copies will also be available on the Group's web site www.maintel.co.ukand on request from the Company's registered office at 61 Webber Street, London SE1 0RF.