Maintel Regulatory News (MAI)

12 Mar 2007 07:01

Maintel Holdings PLC12 March 2007 Maintel Holdings Plc Preliminary results for the year ended 31 December 2006 Maintel Holdings Plc, the telecoms services company, announces preliminaryresults for the year ended 31 December 2006. Financial highlights Turnover up 33% to £16.166m (2005: £12.197m) with underlying growth across thegroup, supplemented by £1.1m London Probation Board VoIP contract announced inFebruary 2006 Voice and data division gross profit grown by 38% over 2005 Profit before tax and amortisation of goodwill up 16% to £2.202m (2005: £1.904m) Earnings per share before amortisation of goodwill up 24% to 12.4p (2005:10.0p). After amortisation, earnings per share increased by 14%, to 11.4p (2005:10.0p) Interim dividend of 2.1p per share paid in September; final dividend of 2.9p pershare proposed Cash balances at year-end of £2.234m (2005: £3.625m), after acquisition ofDistrict Group for net £877,000, share buy-backs costing £832,000 and dividendpayments of £591,000 Operational highlights Investment in sales and account management resulting in increased equipmentsales including large scale VoIP equipment sales into existing customersincluding the London Probation Board project Enhanced network services portfolio has resulted in significant growth in thevoice and data division Contracted maintenance revenues running at record levels, following the signingof a number of larger new contracts, and the acquisition of District HoldingsLimited Efficient integration of District Holdings Limited, acquired in June 2006 John Booth, Chairman, said: "Our planned focus on top line sales has boosted turnover and contributed tostrong earnings per share growth for the year. 2006's investment in sales andengineering capacity, combined with the District acquisition enable us to embarkwith confidence on 2007 as a larger and stronger presence in our industry." For further information please contact: Tim Mason, Chief Executive 020 7401 4601Dale Todd, Finance Director 020 7401 0562Chairman's statement In 2006 our focus on building turnover has been successful. It is pleasing toreport top line growth of 33% to £16.2m (2005: £12.2m). Profit before tax andamortisation of goodwill increased by 16% to £2.2m from £1.9m and earnings pershare before amortisation of goodwill increased by 24% to 12.4p (2005: 10.0p).Our profit margin before interest and goodwill amortisation reduced from 14.4%to 12.8% reflecting increased investment in our sales and engineering teams,lower profitability of certain larger contracts won and the addition of lowermargin, bolt-on services in our voice and data business. Maintel Europe, our maintenance and equipment division, grew turnover by 19%with equipment sales growing by 57%. Highlights of this growth were our work forthe London Probation Board and a number of other sizeable new clients, and theacquisition at mid-year of District Holdings Limited. This boost to turnoverrequired increased investment in sales capacity, and the expanded team continuesto perform well. We are also adding to our engineering resources, reinforcingour nationwide presence and further strengthening our capabilities, especiallyon Nortel products. Maintel Voice and Data's turnover grew by 57% to £3.4m with gross profits up38%. Our increased sales capacity now enables us to offer network services toall appropriate existing customers and we have further expanded the range ofproducts offered. Customer churn in this business remains satisfactorily low. Our cash balances remain healthy at £2.234m (2005: £3.625m), having spent£591,000 on dividend payments and £832,000 on share buy-backs during the yearand £877,000 net on the acquisition of District Holdings Limited. We areproposing a final dividend for 2006 of 2.9p per share, up from 2.5p in 2005 andgiving a total for the year of 5p (2005: 4p), an increase of 25%. Future prospects Maintel's engineering team has consolidated its nationwide reach and has thecapacity to service further new business wins. Our recent appointment as NortelGold Partner recognises our expansion in this key growth area and positions uswell for the future. We expect margins to rebound gradually during 2007 ascapacity is utilised efficiently and further economies of scale are realised. The industry continues to consolidate and our recently completed acquisitions ofPinnacle and District Holdings demonstrate our ability to identify valueenhancing non-organic growth opportunities and integrate these quickly andsmoothly. We will continue to seek out appropriate acquisitions as well aspursuing the steady organic growth that our sales team achieves day to day. During 2006, we introduced a SIP scheme to enable employees to buy shares in theCompany in a tax efficient way. The early signs are encouraging and I am pleasedto welcome our new shareholders. Finally, and on behalf of our Board and shareholders, I would like to thank allour staff for their energetic commitment to the business in 2006. J D S BoothChairman 9 March 2007 Business review I am pleased to be able to report that Maintel has achieved further growthduring 2006, with profit before tax and before amortisation of goodwillincreasing by 16% to £2.2m, and earnings per share before amortisation ofgoodwill by 24%, from 10.0p to 12.4p. Following on from the revenue growth reported for the first half of the year,this has continued in the second half, so that 2006 revenues were 33% ahead of2005, at £16.2m. As noted in the interim statement, equipment sales havecontributed substantially to this growth, with one particular contract - theLondon Probation Board ("LPB") - contributing £1.13m of this, albeit at lowerthan normal margins. The acquisition of District Holdings Limited in Junecontributed revenues of £845,000 and the voice and data division also grewstrongly in the year, increasing revenues by 57%, from £2.1m to £3.3m, including£53,000 of the District revenue. Cash flow from operating activities also continued to be strong, at £1.6m. Cashbalances remained healthy at year-end, at £2.2m (2005 - £3.6m), after theacquisition of District for £877,000 net cash payment, the use of £832,000 tobuy back shares in the Company and £591,000 of dividends paid. Operating structure Maintel operates through two principal subsidiaries, Maintel Europe Limited andMaintel Voice and Data Limited. Maintel Europe provides maintenance, service and support of office-based voiceand data equipment across the UK on a contracted basis. It also supplies andinstalls new and reconditioned voice and data equipment to maintenancecustomers. Maintel Voice and Data operates a telecommunications traffic business whichre-sells a portfolio of products including minutes, line rental andnon-geographic numbers primarily to Maintel Europe's existing maintenancecustomers and selected non-maintained customers. District Holdings Limited was acquired during the year. District's marketplaceis very similar to Maintel's and, whilst its results are separately reportedbelow, its operations were integrated with Maintel's two trading divisionsduring the year and the combined results will be reported in future periods. Maintel Europe The division grew its revenue by 19% in the year, to £12.1m. As shown below, thevalue of the maintenance base lifted slightly during 2006, with significantgrowth coming from robust equipment sales - up 57% on 2005 - following anincrease in equipment sales resource and the benefit of the £1.3m LPB contract,together with significant sales to a number of other major clients. The secondhalf of 2006 proved particularly successful with an increased aggregate turnoverof 20% over the first half of the year, including £600,000 more LPB revenue inthe second half than in the first. As we expanded our account management team,sales into our customer base improved, with a large amount of projectscompleting in the last two months of the year. Revenue analysis (£000) 2006 2005Maintenance related 7,693 7,375Equipment, installations and other 4,373 2,783Total Maintel Europe 12,066 10,158 Maintenance revenues, the bulk of which are underpinned by contracts of at leasta year in length, amounted to £7.7m (2005 - £7.4m) representing 64% (2005 - 73%)of the division's total revenues, the reduction in this percentage being due tothe change in the sales mix resulting from the high levels of equipment sales in2006. As anticipated in the interim report, there was a reduction in gross margin inthe year, from 43% to 38%, which was expected due to the signing of certainlarger contracts, including LPB, which contribute lower levels of profitability.The conscious drive to secure Nortel contracts as these become more accessiblewas highlighted as a strategy last year and this has been highly successful,though has also contributed to the margin reduction, maintenance of Nortelproducts initially being less profitable than the rest of the existing portfolioas a whole. We have also invested heavily in Nortel engineers to give us thecritical mass to be able to offer a robust nationwide service and to achieve thestatus of Nortel Gold partner. This has particularly impacted on margin in thesecond half of the year, but will have a reducing impact in 2007 as utilisationof the additional resource improves. The Group's investment in the Nortelproduct was rewarded, however, with the LPB project being awarded Nortel's "BestConvergence Solution" in October 2006. Given the cross training of engineers, and their time being spent on bothmaintenance and installation work, it is not practical to quote definitivemargin data on different business sectors, however estimated management figuresare used to monitor results internally. Net margin reduced in line with grossmargin, but remained a healthy 12.6% (2005 - 16.9%). Whilst central administration costs remained tightly under control, the salesand engineer headcount was expanded during the year, the cause and consequenceof the increased revenue: Average headcount during the year 2006 2005Sales and marketing 54 44Engineers 72 63 The ongoing development of the VoIP (Voice over Internet Protocol) marketcontinues to provide a considerable array of new opportunities although, asnoted last year, customers' acceptance of the new technologies moves at varyingrates, so that legacy systems will continue to be serviced for some time tocome. Cross training of engineers and recruitment of engineers with leading edgeskills to accommodate this scenario continues. The company's move into ITprovision and support continues well with contract wins in both the public andprivate sector, and Maintel can now provide a seamless service for complex voiceand data installations. It continues to be our intention to purchase suitable maintenance bases atsensible prices as and when the opportunities arise, and integrate these intothe existing infrastructure, as was successfully achieved by the acquisition ofDistrict during the year. For example, the acquisition, for no consideration, ofa base of mostly Panasonic customers in Yorkshire was completed in February2007, and other similar acquisitions are being sought. Maintel Voice and Data Maintel Voice and Data saw significant growth during 2006, with revenues of£0.9m in the first half of 2005, to £1.2m in the second half, to £1.5m in thefirst half of 2006, to £1.8m in the second half of 2006, this in spite of a fallin call selling rates over the period. As expected, this growth has come from abroadening of the division's product offerings, as shown below: Revenue analysis (£000) 2006 2005Call traffic 2,446 1,969Line rental 586 87Other 327 90Total Maintel Voice and Data 3,359 2,146 Also as expected, the division's gross margin as a percentage of revenue hasreduced, to 30% (2005 - 34%), with the addition of lower profit products, linerental margin being around half that of call traffic, for example. Gross profitwas, however, up 38% over 2005, at £1.0m (2005 - £724,000) - the anticipatedbenefits of being able to offer a more comprehensive telecoms package are beingseen, with more customers taking more than one service from Maintel. Again, costs remain closely monitored, though the revenue growth and spread ofproducts has required some additional sales and administrative resource to beadded. Commission payments of around £90,000 have been saved in the periodfollowing the acquisition of Pinnacle - the previous recipient of these - inDecember 2005. The second and final tranche of consideration in respect of theacquisition of Pinnacle was made in December 2006, and amounted to £147,000. Attrition remained low in 2006, with no major customers leaving, reflecting therealistic pricing and reliable service provided by the company; it is likely,however, that a major customer will leave during 2007 due to it having beenacquired, although this is one of the company's lower margin customers. The target market remains SMEs, however we are seeing opportunities arise inproviding some of our larger maintenance customers with a one stop shopsolution, and will tailor our offerings to such opportunities subject,naturally, to overall contract profitability. District Holdings The District group was acquired on 12 June 2006, for £1.060m including costs;£183,000 of cash was acquired with the group, so that the net cash cost was£877,000, which was satisfied out of existing cash resources. The group operatesin virtually identical markets to Maintel, but adds another product offering -Samsung - to the Maintel portfolio. The District acquisition provided a fresh base of over 400 establishedcustomers, billing over £750,000 per annum in maintenance revenues, into whichto sell additional services, whilst increasing the recurring revenue platform ofthe Group. District had one significant voice and data client, billing around£180,000 per annum and this contract is now being managed by Maintel Voice andData. Otherwise, the customers represent a potentially lucrative stream of newcall traffic business. The integration of District's other operations intoMaintel was also completed promptly and efficiently and the bulk of the businesswill transfer to Maintel Europe from 1 January 2007. In its previous financial year, to 31 August 2005, the District group reportedrevenues of £1.636m and a profit before tax of £4,000. District's directors leftthe group on acquisition and a range of other synergies was achieved fromintegration of the two organisations' operations, such that we are able toreport revenues since acquisition of £845,000 and profit before tax of £263,000.The District group's remaining property leases expired at the end of 2006, sofurther cost savings of around £35,000 per annum are expected going forward inrespect of these. Central costs As already noted, the group has continued to tightly manage central costs and weare encouraged that administrative expenses, excluding District costs, haveincreased by only 8% to £1.842m (2005: £1.712m). In addition to future rentsavings, there will be further synergies in amalgamating various Districtadministration overheads with those of Maintel. Administrative expenses (£000) 2006 2005Sales expenses 1,878 1,544Other administrative expenses (excluding Goodwillamortisation) 1,842 1,712District sales and admin costs 211 -Total administrative expenses 3,931 3,256 Taxation The group previously benefited from a degree of marginal relief on the profitsof Maintel Voice and Data, however its profits now mean that it is taxed at 30%,with disallowable deductions taking the effective underlying rate of thepre-District Maintel group above that figure. Tax losses of approximately £215,000 were acquired on the acquisition ofDistrict, and around £165,000 of these have been used post acquisition, with aconsequent tax benefit on the Group accounts of £49,000 when calculated at 30%.Around £50,000 tax losses are therefore available for carry forward to 2007,however as these have not yet been agreed with HM Revenue & Customs they are nottreated as a deferred tax asset in the accounts. Dividends A final dividend for 2005 of 2.5p per share (£323,000 in total) was paid on 24April 2006, and an interim 2006 dividend of 2.1p per share (£268,000) was paidon 29 September 2006. It is proposed to pay a final dividend of 2.9p in respect of 2006, subject toshareholder approval at the AGM, and payable on 25 April to shareholders on theregister at the close of business on 23 March. In accordance with FRS 21, thisdividend is not accounted for in the financial statements for the period underreview as it had not been committed to pay it as at 31 December 2006. Purchase of own shares Further to the authority granted at the last AGM, the Company repurchased andcancelled 480,000 of its own shares during 2006, at prices between 141p and180p, at a total cost of £832,000. The share price at 31 December 2006 was 194p. Cash flow At 31 December 2006 the group had cash and bank balances of £2.234m (2005 -£3.625m), all of it unrestricted. Net cash inflow from operating activities inthe year was £1.635m, after the acquisition of District for £877,000 net cash,the use of £832,000 to buy back shares in the Company, £603,000 corporation taxpaid, £591,000 in dividends and the second tranche payment in respect ofPinnacle Voice and Data of £147,000. The group invests its surplus cash in high interest, low risk accounts or funds. IFRS (International Financial Reporting Standards) The directors will adopt IFRS reporting with effect from 1 January 2007. The main effect of IFRS reporting on the Group will be the creation andamortisation of intangible assets in lieu of the existing goodwill arising onthe acquisition of the District group. Outlook 2006 saw a significant increase in turnover, and a gearing up of technical andsales infrastructure to cope with it, particularly in the Nortel marketplace.Following additional investment in the first quarter, the board's objectiveduring 2007 is to grow revenues further, leveraging the existing infrastructureto the extent possible, with a view to increasing overall margin percentages aswell as revenues. Given the extent of the investment at the end of 2006 andbeginning of 2007, it is not expected that profitability will improvesignificantly in the first half. The focus remains on developing the Group's maintenance base through organicgrowth and acquisition, leading to sales of additional products and servicesinto that base. Finally, I am pleased to report that Maintel has been awarded Gold partnerstatus with Nortel which will allow further penetration into this importantmarket sector. Tim MasonChief Executive 9 March 2007 Maintel Holdings Plc Consolidated profit and loss accountfor the year ended 31 December 2006 2006 2005 £'000 £'000Turnover------------------------------ --------- ---------Existing operations 15,321 12,197Acquisitions 845 ------------------------------- --------- --------- 16,166 12,197 Cost of sales 10,167 7,188 --------- --------- Gross profit 5,999 5,009 Administrative expenses------------------------------ --------- ---------Goodwill amortisation 122 -Other administrative expenses 3,931 3,256------------------------------ --------- --------- 4,053 3,256Operating profit------------------------------ --------- ---------Existing operations 1,683 1,753Acquisitions 263 ------------------------------- --------- --------- 1,946 1,753 Interest receivable 135 153Interest payable and similar charges (1) (2) --------- ---------Profit on ordinary activities 2,080 1,904before taxation --------- ---------Taxation on profit on 621 577ordinary activities --------- ---------Profit on ordinary activities 1,459 1,327after taxation ========= ========= Earnings per shareBasic and diluted (note 3) 11.4p 10.0p ========= ========= The profit and loss account contains all gains and losses recognised in the yearand all amounts relate to continuing operations other than as indicated above. Maintel Holdings Plc Consolidated balance sheetas at 31 December 2006 2006 2006 2005 2005 £'000 £'000 £'000 £'000Fixed assetsIntangible assets 1,217 227Tangible assets 238 240 Current assetsStocks 705 585Debtors 2,890 1,947Cash at bank and in hand 2,234 3,625 -------- -------- 5,829 6,157 -------- --------Creditors: amounts 2,451 2,085falling due within one year -------- -------- Net current assets 3,378 4,072 Deferred income (3,149) (2,891) -------- -------- Net assets 1,684 1,648 ======== ======== Capital and reservesCalled up share capital 124 129Share premium 628 628Capital redemption reserve 12 7Profit and loss account 920 884 ---------- ---------- Shareholders' funds - equity 1,684 1,648 ========== ========== Maintel Holdings Plc Consolidated cash flow statementfor the year ended 31 December 2006 2006 2005 £'000 £'000 Reconciliation of operating profit to netcash inflow from operating activities Operating profit 1,946 1,753Goodwill amortisation 122 -Depreciation charge 136 143Loss on disposal of fixed assets 5 -Decrease in stocks 12 51(Increase)/decrease in debtors (671) 132Increase/(decrease) in creditors 85 (299) --------- ---------Net cash inflow from operating activities 1,635 1,780 ========= ========= Cash flow statement--------------------- Net cash inflow from 1,635 1,780operating activities Returns on investments andservicing of financeNet interest received 134 151 TaxationCorporation tax (603) (494) Capital expenditure and financialinvestmentPayments to acquire tangible (110) (119)fixed assets Acquisitions and disposalsPurchase of subsidiary undertakings (1,207) (352)Net cash acquired with subsidiary undertaking 183 124 Equity dividends paid (591) (196) FinancingRepurchase of own shares for cancellation (832) (680) ---------- ----------(Decrease)/increase in cash in the year (1,391) 214 ========== ========== Maintel Holdings Plc Consolidated cash flow statementfor the year ended 31 December 2006 (continued) Reconciliation of net cash flow to movement in net cash 2006 2005 £'000 £'000 (Decrease)/increase in cash in the year (1,391) 214 Net cash at 1 January 2006 3,625 3,411 --------- ---------Net cash at 31 December 2006 2,234 3,625 ========= ========= Maintel Holdings Plc Notes to the preliminary statement 1. The abridged financial information set out above has been extracted fromfinancial statements approved by the directors on 9 March 2007, which receivedan unqualified report by the Company's auditors, and which will be delivered tothe Registrar of Companies following the Company's annual general meeting. Thefinancial information does not constitute statutory accounts as defined insection 240 of the Companies Act 1985, and has been prepared on the basis of theaccounting policies set out in the financial statements for the year ended 31December 2005. 2. Segmental analysis 2006 2005 £'000 £'000Turnover Telephone system maintenance and equipment sales 12,827 10,094Telephone network services 3,339 2,103 --------- --------- 16,166 12,197 ========= =========Gross profit Telephone system maintenance and equipment sales 5,038 4,313Telephone network services 961 696 ---------- ---------- 5,999 5,009 ========== ==========Profit before taxation Telephone system maintenance and equipment sales 1,799 1,691Telephone network services 403 213 ---------- ---------- 2,202 1,904 Goodwill amortisation (122) - ---------- ---------- 2,080 1,904 ========== ==========Net assets Telephone system maintenance and equipment sales 1,677 1,625Telephone network services 7 23 ---------- ---------- 1,684 1,648 ========== ========== 3. Earnings per share Earnings per share have been calculated using the weighted average number ofshares in issue during the period. This and earnings, being profit after tax,are as follows. An adjusted earnings per share figure - excluding theamortisation of goodwill - is also shown in order to provide a clearer pictureof the trading performance of the Group. 2006 2005 £'000 £'000 Earnings used in basic and diluted EPS, being profit 1,459 1,327after tax Goodwill amortisation 122 - --------- ---------Adjusted earnings, being profit after tax, beforegoodwill amortisation 1,581 1,327 ========= =========Weighted average number of shares 12,783 13,232 ========== ========== Adjusted basic and diluted 12.4p 10.0p============================ ========== ========== The weighted average in 2006 has been adjusted for the purchase of the Company'sshares noted below. There are no share options in existence which would resultin a dilution to basic earnings per share. 4. Purchase of own shares During 2006, and pursuant to the authority granted to it at its annual generalmeeting in April, the Company repurchased 480,000 of its own ordinary shares of1p each, at prices between 141p and 180p, at a total cost of £832,000. Theseshares were subsequently cancelled. 5. Dividends A final dividend of 2.9p per share is proposed, subject to shareholder approvalat the AGM. In accordance with FRS 21, the proposed interim dividend is notshown in the financial statements for the period under review as it had not beenresolved to pay it as at 31 December 2006. No dividend was paid in the sixmonths to 30 June 2005. 2006 2005 £'000 £'000Dividends paid Interim 2005, paid 26 September 2005 - 1.5p per share 196 Final 2005, paid 24 April 2006 - 2.5p per share 323 Interim 2006, paid 29 September 2006 - 2.1p per share 268 --------- --------- 591 196 ========= ========= 6. Acquisition On 12 June 2006 the Company acquired 100% of the issued share capital ofDistrict Holdings Limited. The consideration of £1,060,000 (£877,000 net of cashacquired), including £35,000 of professional costs and stamp duty, was fullysatisfied in cash. Based on the acquisition balance sheet, as amended for fairvalue adjustments, goodwill of £965,000 has been capitalised. 7. Statement of movement in reserves Capital Profit and redemption loss reserve account £'000 £'000 At 1 January 2006 7 884Profit for the period - 1,459Dividend - (591)In respect of purchaseof own shares 5 -Appropriated in respectof purchase of ownshares - (832) --------- ---------At 31 December 2006 12 920 ========= ========= 8. The annual report and accounts will be posted to shareholders on 28March 2007 and copies will also be available on request from the Company'sregistered office at 61 Webber Street, London SE1 0RF. This information is provided by RNS The company news service from the London Stock Exchange