Maintel Regulatory News (MAI)

Maintel Holdings Plc

("Maintel", "the Company" or "the Group")

Final audited results for the year to 31 December 2015

Maintel Holdings Plc, the telecoms and data services company, is pleased to announce its final audited results for the 12 months to 31 December 2015.

Highlights

· Reported revenues up 21% to £50.6m (2014: £41.9m)

· Adjusted profit before tax[1] up 19% to £7.3m (2014: £6.1m)

· Adjusted earnings per share[2] up 29% to 60.3p (2014: 46.7p)

· Second interim dividend paid of 16.5p, an increase of 42% on the equivalent 11.6p final dividend paid last year, and giving a total dividend for the year of 29.3p (2014: 20.9p)

· Intention to increase dividend by 5% for FY16 and 10% for FY17

· Continuing strong cash generation, with net cash flow from operating activities of £6.8m (2014: £6.1m)

· Closing net debt of £3.2m, equating to a ratio of net debt to 2015 adjusted EBITDA of just 0.4x

· Recurring revenues of £34.9m at 69% of total Group revenue

· Datapoint and Proximity, the businesses acquired in September 2013 and October 2014 respectively, performing strongly:

o Contact centre business continues as a strong growth area within Datapoint

o Proximity now fully integrated, with further cost synergies realised during the year

o Up selling opportunities continue to provide growth opportunities within the existing customer base

Key Financial Information

Commenting on the Group's results, Eddie Buxton, CEO, said:

"2015 was another solid year for Maintel, with revenue and profit growth boosted by the full year impact of the 2014 acquisition of Proximity. Cash flow was particularly strong and we are pleased to announce closing net debt of just £3.2m or 0.4x 2015's Group adjusted EBITDA. With Proximity now fully integrated, we feel confident in an outlook for continued revenue growth, supported by the recent win of two significant new contracts in the insurance and utility sectors and an increasing new sales pipeline that now stands at a record level. In addition, we remain committed to considering suitable acquisition opportunities on the basis that they provide clear upside to shareholder value. The board is confident in the financial progression of the Group, as demonstrated by the payment of a second interim dividend of 50% of adjusted earnings per share in the second half of the year, and a fresh commitment to grow the dividend per share in both 2016 and 2017."

Notes

[1] Adjusted profit before tax is basic profit before tax of £4.2m (2014: £3.8m), adjusted for intangibles amortisation and exceptional costs, the latter primarily relating to the termination of property leases and the signing of new leases, together with acquisition-related redundancy costs (2014: legal and professional fees and acquisition-related redundancy costs).

[2] Adjusted earnings per share is basic earnings per share of 38.0p (2014: 27.6p), adjusted for intangibles amortisation and the exceptional costs.

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I am very pleased to be able to report another year of strong growth for the Group, with a full 12 months' contribution from Proximity underpinning a 21% increase in revenues to £50.6m (2014: £41.9m). Adjusted profit before tax increased by 19% to £7.3m (2014: £6.1m) and unadjusted profit before tax increased 9% to £4.2m (2014: £3.8m). Adjusted EPS consequently rose 29% to 60.3p (2014: 46.7p) and unadjusted EPS by 38% to 38.0p (2014: 27.6p).

The acquisition of Proximity in October 2014 has added a broad range of services and skills to the Group's portfolio, and increased the Group's ability to manage highly technical, major transformation projects. Reflecting this, in June the Group won its largest ever contract, with negotiations ongoing with a further two Proximity customers for particularly large contracts. The integration of Proximity is now complete and we realised additional cost synergies in the period which contributed to the Group's improvement in gross margin to 38% (2014: 37%).

The managed service and technology division delivered a 24% increase in revenues and 30% increase in gross profit, with good technology sales more than compensating for a £0.8m reduction in the managed service base over the year. This solid performance was achieved in spite of fluctuating levels of new sales throughout the year. As reported at the interim stage, the first half was slower than expected, probably due to uncertainty around the general election. New sales recovered in Q3, slowing again in the first part of Q4 before recovering strongly in December. The strong end to the year enabled us to begin 2016 with a substantial managed services backlog, giving us confidence in the stability of the base in the current financial year.

The Group's network services division performed particularly strongly in the period, with reported revenue growth of 17% and organic revenue growth (excluding the full year contribution from Proximity) of 11%. The growth was driven by a 111% increase in data revenues year on year, whilst the historical calls and lines revenues fell slightly as customers continued to transition to new technologies. This shift in mix resulted in a decline in gross margin; however gross profit increased by £0.2m. The data pipeline remains strong and is continuing to drive growth in this division.

Following a positive performance in 2014, the mobile division's performance was disappointing, with revenue down 3% and gross profit down 21%. This was due to the loss of some larger customers and further changes in the commission model resulting in profits now being realised towards the end of the contract life.

Cash generation was strong in the year, with net cash flow from operating activities of £6.8m (2014: £6.1m). As a result of this, net debt reduced by £3.5m, to £3.2m at the year end, after the payment of £2.6m in dividends, equating to a net debt to 2015 adjusted EBITDA ratio of just 0.4x.

In line with our stated intention to increase the dividend payout ratio to 50% of adjusted EPS by the time of the final 2015 dividend, we have paid a second interim dividend of 16.5p per share. This was paid on 5 April and took the full year dividend to 29.3p per share.

We continue to develop our areas of expertise in our chosen markets with up-selling the skills derived from recent acquisitions remaining a strategic priority. We were delighted by our recent win of Avaya's Technical Excellence award for the second time in 3 years, and we now have 285 Avaya accreditations across the Group.

As always, the Group's continuing success is dependent on the enthusiasm and effort shown by all Maintel employees, to whom I express the Board's appreciation. We look forward to building on these achievements in 2016.

Finally, the Company announces that Dale Todd has decided to step down as Finance Director and from the Board of Directors, effective immediately. He will remain as Company Secretary and the Board would like to thank Dale who has been a stalwart of Maintel since he joined in 2002. His steady hand on the financial tiller has contributed significantly to the Company's sustained success over the years. It is the Board's intention to appoint Mark Townsend who will take over from Dale as Chief Financial Officer, having worked with the Company since January of this year. Additionally the Board also intends to appoint Stuart Legg to the Board of Directors, with Stuart having acted as Group Sales & Marketing Director since he joined the Group as part of the Proximity acquisition in October 2014. A further announcement will be made in due course.

J D S Booth

Chairman

7 April 2016

Maintel has continued to make significant progress in 2015 with reported revenues increasing by 21% to £50.6m (2014: £41.9m), adjusted profit before tax (as described below) increasing by 19% to £7.3m (2014: £6.1m), and adjusted EPS increasing by 29% to 60.3p (2014: 46.7p). The investment we have made in the acquisition of complementary businesses continues to deliver good results and puts us in a strong position for future growth.

On an unadjusted basis profit before tax increased by 9% to £4.2m (2014: £3.8m) and EPS by 38% to 38.0p (2014: 27.6p) which includes the effect of an additional £0.8m amortisation of intangibles relating to a full year charge in respect of Proximity and a £0.5m benefit from a deferred tax adjustment.

2015 included a full 12 months' contribution from Proximity, the business acquired in October 2014.

(a) Excluding the exceptional costs in the table above (note 12)

(b) Adjusted profit after tax divided by weighted average number of shares (note 11).

Strong cash performance

The Group delivered continued strong operating cash flows in the year, with net cash flows from operating activities of £6.8m (2014: £6.1m). The increase was primarily driven by increased profits and an improvement in working capital. As a result the Group ended the year with net debt of £3.2m (2014: £6.7m) or just 0.4x (2014: 1.0x) adjusted EBITDA. £4.0m of borrowings were repaid during the year, with the term loan drawn to finance the Proximity acquisition reduced to £3.5m at year end.

Acquisition of Proximity

The acquisition of Proximity in October 2014 added approximately 250 customers in the mid-market and enterprise space, as well as enhanced technical skills through its employees. Operational integration is complete and Proximity's business and assets were formally transferred to other Group companies on 1 January 2016. Reorganisation of the sales function occurred early in 2015, which involved a reallocation of customer accounts and sales responsibilities internally. As a result it is not meaningful to report on Proximity and the underlying business separately other than for its network services business.

Proximity's customers are typically larger and more complex than Maintel's historical customers, so customers are less likely to move. Consequently there was minimal churn in the acquired customer base during the year.

The acquisition of Proximity has added a broad range of services and skills to the Group's portfolio, and increased the Group's ability to manage highly technical, major transformation projects. For example, in June the Group won its largest contract to date, to transform an existing customer's contact centre infrastructure and provide bespoke applications. The initial part of this contract was delivered in the year, with further contracted revenue contributing to the 2016 financial year. Negotiations are ongoing with a further two Proximity customers for similar sized contracts, highlighting the Group's increasing ability to win larger, more complex contracts, following the Proximity acquisition and in line with our stated strategy.

As a result of the integration process there have been a number of redundancies across the Group and the cost of these, £0.2m, has been disclosed as an exceptional item in the income statement.

Review of operations

The table below summarises the revenue of the three operational divisions of Maintel. Proximity revenues are primarily derived from managed services and technology sales, with £0.5m revenue attributable to the network services division. Proximity revenue does not contribute to the Mobile division. The 2014 full year numbers included 9 weeks' contribution from Proximity.

The level of recurring revenue reduced to 69% (2014: 73%) due to a full year contribution of Proximity (2015 recurring revenues of 61%) with their increased weighting of technology revenues against managed service revenues in the period.

(c) Technology includes revenues from hardware, software, professional services and other sales

The managed service and technology division has shown strong growth with the inclusion of a full year's contribution from Proximity combined with strong technology sales.

As reported at the half year, the Group experienced lower levels of new sales in the lead-up to the UK general election in May, but then saw a strong recovery of new orders in May to July.

New sales in H2 were stronger due to increased momentum resulting in a particularly strong end to the year. The volatility in new sales throughout the course of the year is a direct result of the increased pipeline of larger projects with longer sales cycles and decision making timeframes.

The network services division continued to show impressive organic growth in the period, particularly through the increase in newer data and SIP products. Revenue was supplemented by the inclusion of a full year of Proximity's network services operations.

Mobile revenue fell slightly year on year with margins also dropping as the Group won additional new customers which had a higher associated cost of acquisition. No Mobile revenues were associated with the Proximity acquisition.

Group gross margin increased to 38% (2014: 37%) as a result of a shifting business mix towards professional and consultancy services. The reduction in gross margins in the network services division is a result of two new large long-term contracted data customers attracting lower margins, offset by the synergies realised through the integration of Proximity into the Group. These synergies included Maintel contracting for non-Avaya business that Proximity would historically have signed outside the Group, a number of redundancies and improved supplier terms from joint purchasing.

Divisional performance is described further below.

The managed services and technology division provides the management, maintenance, service and support of office-based voice and data equipment across the UK and internationally, on a contracted basis. It also supplies and installs voice and data equipment together with providing professional and consultancy services, both to our direct clients and through our partner relationships.

Revenue in this division increased by 24% to £39.6m, with managed services related revenue up 16% year on year and technology sales up 38%, both benefiting from the contribution from Proximity.

The fillip in mid-year sales orders saw encouraging orders from several large new private and public customers, and the initial order for a £2.6m transformation project to extend and upgrade an existing customer's call centres. In H2 one of our largest customers carried out a major upgrade to its data network.

The bulk of the new orders relate to contemporary or leading edge technology, further supporting the modernisation of the base as break-fix revenue is gradually replaced by a wider array of managed and monitoring service revenues.

Managed services

At the half year it was reported that the managed service base had reduced by £0.5m since the end of 2014; it is encouraging that it has fallen by only £0.3m since then, with a backlog of orders going into 2016 and a strong pipeline of public and private sector opportunities.

Technology

We previously highlighted the start of a major international roll-out for a pharmaceuticals company, an original Datapoint customer, in Q4 2014. This project gained traction during 2015 and regular sizeable orders were received from that customer throughout the year. We are experiencing an increase in the hosted/cloud unified communication opportunities where our Maintel Cloud proposition starts to gain traction.

Gross margin within the division increased to 40% in the period, driven by business mix and the realisation of synergies post the Proximity acquisition.

Gross profit has increased by £3.6m compared with 2014, with a full year of Proximity results included in 2015.

Overall, the division's operating profit has increased by 36%, compared with the increase in gross profit of 30%; a description of the main sales and administration cost savings is given below.

Given the application of common resource across both managed service and technology sales, profit breakdown within the division is not provided; however the shared resource cost is monitored closely 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, SIP trunking, internet access 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.

Network services revenue increased 17% year on year on a reported basis, with strong growth in underlying revenues of 11% to £7.8m (2014: £7.1m), excluding £0.5m of revenue from Proximity (2014: £0.1m). This was driven by a 111% increase in data revenue on the back of some significant contracts which are still being connected and so will deliver further benefit in 2016.

Data connectivity services revenue primarily consists of MPLS networks, internet access and access circuits to support SIP trunking and hosted telephony services. This revenue will continue to grow as we move our focus away from the legacy calls and lines services. Data and SIP trunking sales are strong in multiple sectors including health, education and charities and the success in being appointed as an official supplier to the new public sector framework agreement in July 2015 will further position us as a key partner in this sector.

Call traffic and traditional line rental revenue declined by 2% year on year but remains more resilient than expected given the market reduction in call volumes, regulatory price changes and the transition of customers to SIP trunking solutions with inclusive minute bundles. A significant line rental customer was also renewed in the summer at a reduced tariff which resulted in a reduction in line rental revenue in the second half of the year. A strong focus on customer satisfaction and retention has, however, helped the division keep attrition at a low level.

The shift from more commoditised traditional line rentals to SIP benefits our business through lower attrition levels associated with SIP, and plays to Maintel's professional service, solution design and engineering strengths. It also pulls through more data connectivity services. Over 80% of our new sales pipeline is made up of data, SIP and hosted opportunities as we move away from legacy products.

Divisional gross profit increased by 10% in the period (3% on an underlying basis), however the percentage margin reduced slightly to 27% (2014: 29%). This reduction was due to a large, lower margin data equipment order won in H1, which was to support the implementation of a new 90-site MPLS order, and the managed reduction in higher margin call traffic revenue being replaced by the stickier but lower margin data revenue.

Operating profit increased by 12%, with the business proving to be highly scalable on a relatively fixed overhead base.

Mobile division

Maintel Mobile derives its revenue primarily from commissions received under its dealer agreements with Vodafone and O2.

Mobile revenue fell 3% year on year to £2.8m (2014: £2.9m), and gross profit fell 21% to £1.2m (2014: £1.5m).

The reduction in revenue was as a result of two main factors: the churn of two larger customers and the impact of changes to commission payments. The churn of the larger customers, with consequent reduction in revenue share, was as a result of the customers moving to an alternative mobile network. The changes to commission payments has seen the move from up-front commissions to more of a revenue share model meaning that the benefit of new contracts and renewals is now experienced later in the typical 24 month mobile contract cycle. Mobile roaming tariff changes have had a small impact, however this has not been material in the year as our roaming revenues are relatively small and commission levels were historically already lower in this area.

We have continued to see good levels of new client wins and higher levels of customer renewals, including the renewal of our largest Vodafone client, which has resulted in the number of contracted subscribers increasing to over 80% with an increasing proportion of customers taking additional digital and fixed line services alongside their Maintel mobile service. This increased penetration of services into the base is expected to contribute to reductions in churn going forward as the base becomes stickier.

Gross profit decreased year on year as margins were impacted both by the network commission changes outlined above and by the higher cost of sale associated with winning new customers from outside the Group, with mobile contracts being used to acquire net new customers to the business.

Other operating income

This comprised rental income of £12,000 (2014: £Nil) generated as a result of sub-letting a part of the new London premises. The sub lease commenced in December 2015, and will generate £130,000 of annual rental income for at least three years.

Administrative expenses, excluding intangibles amortisation and exceptional expenses

As already noted, some of Proximity's inherited costs are now shared across the Group, and so the above figures reflect 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. The Proximity comparative figures are for 9 weeks.

Maintel sales expenses increased by £0.6m (16%) in the period, as a more robust infrastructure was developed to support the Group's ability to continue to grow revenue, including an expansion of the pre-sales team (£0.1m of this team's cost was recorded in cost of sale in 2014). Increased commissions on higher sales orders, together with increased marketing costs, also contributed to the higher sales costs in 2015.

Maintel's other administrative expenses fell £0.9m in the year. £0.2m of this was an increased management charge to Proximity, this being based on Proximity's higher revenues. The main external savings were due to a reduction in property costs following the termination of Brentford and Dublin office leases in the second half of the year as detailed below, and several residual redundancies related to the Datapoint acquisition.

Proximity administration costs are tightly controlled, with a number of elements, particularly premises, benefitting from regional costs compared with the London-based costs of most of the rest of the Group. Various savings have been seen during the year as Proximity has been integrated into the Group, including director costs, sales staff and marketing costs and the closure of its London office.

Exceptional costs

An analysis of the exceptional costs of £0.9m (2014: £0.8m) shown in the income statement is provided in note 12, the main elements being overlapping rent costs, lease termination penalties, property dilapidation costs and redundancies following the Datapoint and Proximity acquisitions.

The main factor behind the overlapping rent costs was the signing of the lease on new London premises with effect from 10 July 2015 whilst the pre-existing lease did not terminate until 31 December 2015 and occupation of the new premises did not take place until December. The costs of the new premises for H2 have therefore been treated as exceptional.

Redundancy costs were incurred primarily on the integration of the Proximity business together with some residual integration of the Datapoint business.

Intangible amortisation

The intangibles amortisation charge increased in the year due to a full year charge in respect of Proximity. Impairment and amortisation charges are discussed further below.

Foreign exchange

The Group's reporting currency is sterling; however it trades in other currencies, notably the euro, and has assets and liabilities in those currencies. The euro rate moved from €1.28 = £1 at 31 December 2014 to €1.36 = £1 at 31 December 2015. The effect of this and other movements in the period was a charge to the income statement of £44,000 (2014: £50,000), 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 £41,000 in the period (2014: £47,000).

Interest

The Group recorded a £0.3m interest charge in the year (2014: £0.1m), with £1,000 interest earned in the year (2014: £2,000). The increased charge reflects the increase in the Group's borrowings to finance the acquisition of Proximity in October 2014.

Taxation

The consolidated statement of comprehensive income shows a particularly low tax rate of 1.7% (2014: 22.7%) for the reasons described below. Each of the Group companies is taxed at 20.25%, other than Maintel International Limited, which is taxed at 12.5% (2014: 21.5%; 12.5%). Certain recurring expenses that are disallowable for tax raise the effective rate above this.

The tax charge in the period benefited from some adjustments, including (a) tax relief on the exercise of share options for which there is no income statement charge in the period (£62,000), (b) relief claimed on certain 2014 costs which were deemed disallowed in that period but are now allowed following further investigation (£71,000), (c) the release of a historical provision no longer required (£65,000), and (d) a £0.5m credit to the income statement on a reappraisal of the ability to use Datapoint tax losses.

The tax charge in the year includes a deferred tax charge relating to the tax losses of the Datapoint companies, whereby the UK companies do not currently pay corporation tax on their profits, but a tax asset in respect of the historic losses is charged to the income statement as the losses are used. The deferred tax charge in the year was £0.5m (2014: £0.2m) in relation to the brought forward losses. There is, however, also a £0.5m deferred tax credit included in the income statement, reflecting an increase in the deferred tax asset based on the directors' assessment that more tax losses are likely to be useable than was assumed at the date of Datapoint's acquisition. This is described further in note 21.

Dividends and adjusted earnings per share

A final dividend for 2014 of 11.6p per share (£1.243m in total) was paid on 1 May 2015, and an interim dividend for 2015 of 12.8p (£1.378m) was paid on 7 October 2015.

In line with the announcement made on the 25 February 2016, a second interim dividend of 16.5p per share, representing a 42% increase on the final dividend for 2014, was paid on 5 April 2016 to shareholders on the register on 4 March 2016. The associated ex-dividend date was 3 March 2016. The second interim dividend represents 50% of H2 2015 adjusted EPS, in line with the Group's stated dividend policy.

This takes the total dividend payment for the full year 2015 to 29.3p.

The second interim dividend was paid in lieu of the normal final dividend in order that payment could be made prior to the introduction on 6 April 2016 of new income tax legislation relating to dividends. 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 2015.

It is the Board's current intention to increase the dividend per share by 5% and 10% for the financial years ending 31 December 2016 and 31 December 2017, respectively.

Consolidated statement of financial position

Net assets increased by £1.6m in the year to £6.6m at 31 December 2015.

Intangible assets are £2.2m less than at 31 December 2014, this being the amortisation of the customer contract intangible.

The net book value of property, plant and equipment has increased by £0.4m since last year end, including £0.3m expenditure on fitting out the new London and Dublin offices, and £0.1m on establishing a resilient network in a datacentre environment, net of a depreciation charge of £0.2m.

Trade receivables reduced by £0.8m in the year, being the net effect of a number of phasing differences in both technology and managed service invoicing spanning the year end.

Prepayments reduced by £0.6m, most of this being a reduction in prepaid subcontractor costs, including the loss of a particular subcontractor-dependent contract and some previously subcontracted work now managed in-house, together with a reduction in property prepayments on the termination of leases.

The value of inventories has reduced by £0.1m in the year, to £1.3m. The value of stock held for resale fell slightly due to the timing of customer deliveries, and provisioning continues to be applied to older maintenance stock.

Trade payables have increased by £0.3m since 31 December 2014, with a number of different supplier and delivery timing factors affecting the balance.

Other tax and social security liability has reduced by £0.2m, the VAT liability being less due to lower Q4 customer invoicing in 2015 than in 2014.

Accruals have increased by £0.4m year on year, the bulk of the increase being attributable to the accounting effects of the new property leases, including rent free periods and a capital contribution received, less accrual releases on previous leases. This was partially offset by a reduction in other accruals, including redundancy and operational accruals.

Deferred managed service income has reduced by £1.4m due to invoice timing differences and to a lesser extent the reduction in size of the customer base.

Other deferred revenue has increased by £0.3m due to invoice timing differences.

Corporation tax liabilities have reduced by £0.6m due to a higher proportion of profit emanating from the Datapoint companies with their associated historical tax losses, the payment of Proximity's 2014 tax liability of £0.2m and the credits noted in the taxation section above.

The deferred tax liability has decreased by £0.4m in the year as a result of the application of £0.5m of deferred tax asset to Datapoint profits in the year and £0.1m deferred tax arising on capital expenditure, net of a £0.4m credit to the income statement relating to the intangibles amortisation charge as shown in note 21 and the £0.5m additional asset established in relation to the projected use of Datapoint tax losses.

Intangible assets

The Group has two intangible asset categories: (i) an intangible asset represented by customer contracts and relationships acquired from third party companies, and (ii) goodwill relating to those acquisitions.

The intangible assets represented by purchased customer contracts and relationships were carried at £8.3m at the period end (2014: £10.5m). The intangible assets are subject to an amortisation charge of 16.7% of cost per annum in respect of managed service and maintenance contract relationships, and 14.2% per annum in respect of network services contracts and Maintel Mobile customer relationships, with £2.2m being amortised in 2015 (2014: £1.5m), the increase attributable to a full year's amortisation of the Proximity customer relationships.

Goodwill of £9.9m (2014: £9.9m) is carried in the consolidated statement of financial position, which is subject to an impairment test at each reporting date. No impairment has been charged to the consolidated statement of comprehensive income in 2015 (2014: £Nil).

Cash flow

The Group had net debt of £3.2m at 31 December 2015 (2014: £6.7m), equating to a net debt: adjusted EBITDA ratio of 0.4x (2014: 1.0x). An explanation of the £3.5m improvement in net debt is provided below.

Cash generated from operating activities in 2015 of £7.8m (2014: £7.1m) derives from the Group's increased profitability, together with £1.0m from favourable working capital movements, £4.0m of the inflow being applied in reducing borrowings, with higher than usual capital expenditure due to the fitting out of the new office premises.

The Group incurred an exceptional cost of £0.9m during 2015 (2014: £0.8m), primarily redundancy costs and property costs (described above and in note 12).

Further details of the Group's term loan, RCF and overdraft facility are given in note 20.

Property

Three of the Group's four main property leases terminated in H2 2015:

· When acquired in September 2013, Datapoint's UK Brentford office was sparsely occupied due to the contraction of the business prior to Maintel's involvement with it. Post-acquisition, further rationalisation and some altered working practices meant that there was no rationale to retain the office and a break option was exercised with effect from 2 August 2015, saving approximately £0.5m per annum. The few residual occupants relocated to the Group's London headquarters.

· A break option was also exercised on Datapoint's (now renamed Maintel International Limited) Dublin office, with effect from 31 October 2015. This triggered a one year rent penalty which has been treated as an exceptional cost in the income statement. A lease has been negotiated on new premises, saving approximately £40,000 per annum.

· The lease on Maintel's long-term premises at Webber Street in Southwark terminated at the end of 2015. A lease was signed on new office space close to Webber Street, at 160 Blackfriars Road, at an increased cost (net of the sublet of some of the space) of £0.4m per annum reflecting not so much a premium rent payable on the new premises as the exceptionally economic rent paid historically. A short term lease has been signed on a part of the Webber Street premises to continue to accommodate the Group's London stores operation, whilst new storage premises are located.

The Brentford and Dublin offices incurred dilapidation costs on termination. Costs had been provided in respect of dilapidations, but a net Group charge of £11,000 was incurred and has been treated as an exceptional cost in the income statement.

Proximity's Thatcham premises are significantly less expensive than the new London offices and are located in the M4 "technology corridor". Whilst the core Maintel business will remain focused in London, there is space to grow in Thatcham and whilst we do not intend to actively relocate employees to Thatcham, we take the opportunity to do so as and when recruiting for new or replacement employees.

Overall, excluding the exceptional costs incurred in 2015, the Group's property costs in 2016 are expected to be virtually unchanged year on year.

The Group's objective is to maximise shareholder returns over the short, medium and long term through the provision of telecoms-related products and services. Historically these services were provided predominantly in the UK, however with the acquisition of the UK and Ireland operations of the Datapoint group in September 2013, the Group now also services a range of customers overseas.

The provision of these services is centred around the Group's managed services and technology division.

The Group has a contracted customer base of £25m per annum, and the provision of managed and break-fix services to this base creates the opportunity to sell in other services, primarily equipment and professional services, and the Group combines these revenue streams into a single business unit. The Group operates two other business units - network services and mobile - whose services are cross-sold into the managed services base and to external clients, mostly in the SME sector.

Organic growth in each business unit is targeted in each financial year, and will be supplemented by the acquisition of complementary companies or client bases where clear shareholder value creation can be achieved. Acquisitions may be funded out of cashflow, borrowings or the issue of shares, dependent on a range of factors considered at the time. Targeted acquisitions will also bring extended capabilities, such as the overseas customers and enhanced contact centre expertise acquired with Datapoint and further security, professional service and higher end Avaya expertise with Proximity.

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 has historically focused on a PBX core, which is gradually being replaced by hosted and cloud capabilities. Customers' acceptance of the new technologies moves at varying rates, however, so that legacy systems will continue to be serviced for some time to come. Maintel sells and maintains the replacement breed of unified communications and contact centre systems, and has had notable success with the transition to date. Managed service income from the new technology can be reduced when compared to traditional telephony although this is mitigated through reduced service delivery costs and promoting a managed service concept, retaining where possible the resultant enhanced calls and lines revenue and up-selling high value new products such as network monitoring and security, software assurance and mobile services. The acquisition of Datapoint and Proximity, with their broader range of associated business application skills in the unified communications contact centre high growth space, continues to accelerate Maintel's ability to drive new revenue streams.

VoIP technology is a potential threat to the reselling of call minutes with a particular type of customer. Recognising this potential risk, the Group has expanded its product portfolio to include SIP trunking and hosted IP technology, which is gaining traction, with these and related revenue growing significantly during 2015. The development of VoIP is constantly monitored so that the Group may take advantage of profitable business models as and when they appear.

The Group has a close partner relationship with O2/Telefonica, Vodafone and Capita, 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 time, necessitating a commensurate reduction in costs. Partnerships with other integrators continue to be developed to reduce the percentage weighting of business with these partners.

Maintel Mobile is a dealer for networks, primarily Vodafone and O2, and is reliant on its relationships with those companies. The Group more generally relies on its contracts with both suppliers and clients and, beyond contractual status, maintains strong relationships with them at various levels of the business, as well as striving to ensure that client expectations are met and, where possible, exceeded.

The Group's managed service contracts have a natural finite life, and are subject to competitive attack, so that there is an 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 pricing of the network services and mobile divisions' products and services can be affected by regulatory bodies in the UK and the EU. The Group is also potentially subject to new pricing strategies by both competitors and suppliers, whether due to their own internal policies or in response to technological change. The Group mitigates these risks by assessing anticipated regulations and pricing strategies and amending its own pricing policies accordingly.

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

The strategic acquisitions of Datapoint (2013) and Proximity (2014) are now fully integrated and have resulted in the business being able to offer a complete unified communications portfolio to mid-market and enterprise customers. We are well positioned in the sector and the skills and expertise in the Group have been recognised by our core vendor Avaya, which has awarded Maintel its Technical Excellence Award in 2016 as one of the most technically skilled partners globally.

While Q1 2016 initially saw a relatively slow start to the year, we feel confident in an outlook for continued revenue growth. This is supported by two new managed service wins in the insurance and utility sectors which are expected to generate a combined annualised revenue run rate of approximately £3.0m in due course. In addition, the Group is in advanced discussions over a single, large multi-million £ revenue contract that could yet benefit this year's turnover. With the sales pipeline now at record levels, the Board remains confident for the year ahead and looks forward to providing you with further updates in due course.

We remain committed to considering suitable and complementary acquisition opportunities, on the basis that they provide clear value to our shareholders.

The board remains confident in the progression of the business, demonstrated by the pay out of a second interim dividend of 50% of adjusted earnings per share in the second half of the year.

On behalf of the board

E Buxton

Chief Executive

7 April 2016

Eddie Buxton, Chief executive

Eddie has over 20 years' experience in the telecommunications sector and was appointed Chief Executive in February 2009. He joined Maintel from Redstone Plc where he was Managing Director of the telecoms division. Prior to that Eddie was Business Customer Director at Centrica Telecommunications (Onetel) which was successfully sold in 2005 to Carphone Warehouse, and held Sales Director roles at ntl and Cable & Wireless.

Angus McCaffery, Director

Angus co-founded Maintel in 1991 and was the Group Sales and Marketing director until this role was assumed by Stuart Legg in late 2014. He now focuses on finding larger organic and inorganic opportunities as well as maintaining the relationships with our larger partners and the overall development of Maintel. Angus is also a non-executive director of Nasstar plc, an AIM Listed hosted desktop provider.

Kevin Stevens, Group operations director

Kevin was appointed to the board on 1 January 2014. He joined the Group in June 2010 and has been a director of the main trading company, Maintel Europe Limited, since December 2011. He has worked in the communications and IT industry since 1981, holding senior operations and general management positions with Genesis Telecommunications, Xpert Communications, Redstone and Westcon Convergence, with a focus on improving business operations, efficiencies, process and customer service.

Dale Todd, Finance director

Dale qualified as a chartered accountant with Thomson McLintock (now KPMG) in 1982 and joined the Group in March 2002. Prior to this he held positions as group finance director at Rolfe & Nolan Plc, Best International Group Plc and HS Publishing Group Ltd.

John Booth, Non-executive chairman

John was appointed chairman of Maintel in 1996. He also chairs or acts as a non-executive director of several private companies in investment management, telecoms and media and is a consultant to Herald Venture Partners. John's earlier career was spent in equity investment and broking where he held various senior positions including Head of Equities at Bankers Trust and co-founder and executive chairman until 2011 of the Link Group, acquired by ICAP plc in 2008. He is a Fellow of Merton College, Oxford and a trustee of several charities in which role he serves on a number of investment committees.

Annette Nabavi, Non-executive director

Annette was appointed to the board on 30 June 2014. She is also a non-executive director on the board of IPSE, the Association of Independent Professionals and the Self Employed, a director of Women in Telecoms & Technology (WiTT) Ltd and a member of the Advisory Board of the National Media Museum. Annette undertakes corporate finance advisory work with AHV Associates LLP and previously held the positions of Global Head of Telecoms Business Development at ING Barings, Managing Director of XchangePoint Holdings Ltd and she was a Senior Partner at the PA Consulting Group.

Nicholas Taylor, Non-executive director

Nicholas has extensive experience of working with growing organisations, principally in the media and communications industries. He has worked as a consultant and in-house, in both an executive and non-executive capacity and has held senior positions in both private and public businesses and in the not for profit sector. He is also non-executive chairman of Linstock Communications, a public relations consultancy.

As a company listed on the Alternative Investment Market of the London Stock Exchange, Maintel Holdings Plc is not required to comply with the UK Corporate Governance Code ("the Code"). However, the board of directors recognises the importance of, and is committed to, ensuring that proper standards of corporate governance operate throughout the Group. A description of the main governance policies and procedures adopted by the Group is set out below.

Board of directors

The board consists of four executive directors and three non-executive directors, the latter being John Booth, who is chairman, Annette Nabavi and Nicholas Taylor. Darren Boyce, previously CEO of Proximity, was appointed a non-executive director on an initial one year term to 24 November 2015, on which date he resigned. The chairman is responsible for the effective running of the board and the chief executive is ultimately responsible for all operational matters and the financial performance of the Group.

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 2015 Anchusa Consulting Limited, a company owned by Mrs Nabavi, provided consultancy support on specific projects; however, given the limited nature of these engagements, the board does not consider it to have compromised her independence.

In light of the length of time Mr Taylor has served on the board, Mrs Nabavi replaced him as the senior independent director at the end of 2015.

The board is satisfied that each of the non-executive directors commits sufficient time to the fulfilment of their duties as a director of the Company.

The executive directors are Eddie Buxton who is Chief executive, Dale Todd Finance director, Kevin Stevens Operations director and Angus McCaffery who has responsibility for business development.

The directors' biographies above demonstrate the range and depth of experience they bring to the Group.

The board meets regularly, normally monthly, and both reviews operations and assesses future strategy for the operating subsidiaries and for the Group as a whole. It operates to a schedule of matters specifically reserved for its decision.

 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 Company has purchased insurance to cover its directors and officers against any costs they may incur in defending themselves in any legal proceedings instigated against them as a direct result of duties carried out on behalf of the Company. The insurance does not provide cover in the event that a director is proved to have acted fraudulently or dishonestly.

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 committees deal with specific aspects of the Group's affairs:

Audit committee

The audit committee is chaired by Nicholas Taylor with John Booth and Annette Nabavi being the other members throughout the year, together with Darren Boyce until his resignation on 24 November 2015. 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 has such knowledge and experience.

The remit of the committee is to:

· consider 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;

· liaise with the external auditors in relation to the nature and scope of the audit;

· review the form and content of the financial statements and any other financial announcements issued by the Company;

· review any comments and recommendations received from the external auditors;

· review the Company's statements on internal control systems and the policies and process for identifying and assessing business risks and the management of those risks by the Company.

The audit committee convenes at least twice a year to review the 6 monthly and annual financial statements and at these meetings in 2015 Eddie Buxton, Dale Todd (who acted as secretary to the committee) and the external auditors attended by invitation.

In 2015 it also liaised informally with the executive directors in relation to published financial information and other audit-related matters. Nicholas Taylor and Annette Nabavi also met separately with the external auditors in the absence of executive management.

The principal issues addressed by the committee during the year were:

· the external auditors' year-end report for 2014, the review of the Group's preliminary results in 2015 and the disclosures in the 2014 annual report.

· the external audit plan for the 2015 financial statements which included a review of the audit objectives, scope, timetable and deliverables.

· the re-appointment of BDO LLP as external auditors, their independence and objectivity and their fee.

· consideration of the external auditors' observations on the internal financial controls arising from their annual audit.

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 twice during the year. The committee's report to shareholders on directors' remuneration is set out below.

Nomination committee

The nomination committee had two members during 2015, both non-executive, being John Booth, chairman, and Nicholas Taylor. The committee meets as required and met twice in 2015, Annette Nabavi also attending each meeting by invitation. Its terms of reference include:

· reviewing the structure, size and composition of the board;

· identifying and nominating suitable candidates to fill vacancies on the board.

Board attendances

The following table shows the attendance of the directors at meetings of the board and the Audit, Remuneration and Nomination committees during the year.

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 Chairman's statement and the Strategic report above include 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 Company's results, to keep them informed about the performance and objectives of the business. Nicholas Taylor and Annette Nabavi also attended certain shareholder meetings during 2015, representing the non-executive directors, to better understand the shareholders' views and to ensure there is an independent channel for their views, should that be necessary.

The annual general meeting provides a further forum for shareholders to communicate with the board.

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 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.

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 board undertakes a rolling review of known and potential risks, and addresses newly identified risks as they arise, with controls put in place to minimise their potential effect on the Group.

The key operational functions of the Group are subject to processes established and externally audited under ISO9001, ISO20000 and ISO27001, which the directors consider to be a valuable additional internal and external control tool of the business.

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 at weekly management meetings and on an ad hoc basis - to discuss day-to-day operational matters.

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. Acquisitions and significant unbudgeted capital expenditure are reviewed by the board as they arise.

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. The Group's approach to financial risk management is further explained in note 22 to the financial statements.

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.

The remuneration committee's remit is to measure the performance of, and determine remuneration policy relating to, directors and senior employees. To support this responsibility it has access to professional and other advice external to the Group. Taking these factors into account, it then makes recommendations to the board.

The committee consists of three non-executive directors, Annette Nabavi (chair of the committee), Nicholas Taylor and John Booth, and met twice during 2015.

Remuneration policy

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 executive director remuneration package consists of up to four elements:

(a) Basic salary

An executive director's basic salary is determined by the remuneration committee at the beginning of each year. In deciding appropriate levels the committee considers the relative responsibilities of each of the directors. The basic salary of the executive directors was increased with effect from 1 February 2016.

(b) Pension contributions and other benefits

Executive directors are entitled to employer pension contributions of 3% of basic salary, or additional salary in lieu thereof.

They also receive a car allowance and membership of private health, permanent health and life assurance schemes.

(c) Bonus

The executive directors are eligible to receive bonuses, dependant on Group profitability and other performance criteria.

(d) Share options

Eddie Buxton, Kevin Stevens and Dale Todd 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

John Booth and Nicholas Taylor each have a three month rolling contract. Annette Nabavi has a contract which expires in normal circumstances on 26 June 2017 but which is 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 in 1 February 2016. The non-executives receive no payment or benefits other than their fees and associated auto-enrolment pension contributions, although Mrs Nabavi was a beneficiary of consultancy fees during the year as described below (2014: Mrs Nabavi and Mr Taylor).

Directors remuneration

The remuneration of the directors in office during the year was as follows:

(1) Excluding social security costs in respect of the above amounting to £102,000 (2014: £109,000), and excluding gains on the exercise of share options in the year of £291,000 (2014: £182,000).

(2) Total 2014 remuneration of £881,000 includes bonuses of £120,000, employer pension contributions of £16,000 and benefits of £55,000, so that salaries amounted to £690,000.

(3) In addition to his fees as a director stated above, Proximity Communications Ltd paid £64,000 (2014: £14,000 plus £1,000 expenses) to a company of which Mr Boyce is a shareholder and director in respect of consultancy services provided to Proximity following its acquisition.

(4) In addition to her fees as a director stated above, the Company paid £11,000 (2014: £13,000) to a company of which Mrs Nabavi is a shareholder and director in respect of consultancy services provided to the Company during the year.

(5) In 2014, in addition to his fees as a director stated above, the Company paid £20,000 (2015: £Nil) to a company of which Mr Taylor is a shareholder and director in respect of consultancy services provided to the Company during that year.

The directors are the only employees of the Company.

Directors' interests in ordinary shares

The directors' interests in the ordinary shares of the Company are shown in the report of the directors below. These include holdings under the Company's Share Incentive Plan, to which all of the directors subscribe apart from non-executive director Mrs Nabavi.

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:

All options have vested.

The following table illustrates the number and weighted average exercise prices (WAEP) of, and movements in, share options during the year:

The Company's mid-market share price at 31 December 2015 was 760p per share, and the high and low prices during the year were 807.5p and 600p respectively.

In 2006 the Company established the Maintel Holdings Plc Share Incentive Plan ("SIP"). The SIP is open to all employees with at least 6 months' continuous service with a Group company, and allows employees and directors to subscribe for existing shares in the Company at open market price out of their gross salary. The employees 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 2015 there were 86,670 shares held by the SIP, representing 0.8% of the issued share capital of the Company (2014: 89,747 and 0.8%).

The report of the remuneration committee was approved by the board on 7 April 2016.

A P Nabavi

Chair of the remuneration committee

Report of the directors

for the year ended 31 December 2015

The directors present their annual report together with the audited financial statements for the year ended 31 December 2015.

Principal activities

The principal activities of the Group continue to be the provision of contracted managed services, the sale and installation of telecommunications systems and the provision of fixed line, mobile and data telecommunications services, predominantly to the enterprise business sector.

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 11.6p per ordinary share in respect of the 2014 financial year, amounting to £1.243m (2014: 9.0p, amounting to £961,000), and an interim dividend in respect of 2015 of 12.8p per share, amounting to £1.378m (2014: 9.3p and £993,000 respectively). A second interim dividend in respect of 2015 of 16.5p per share was paid on 5 April 2016, at a cost of £1.777m.

A review of the business and future developments of the Group is set out in the Strategic report above.

Directors

The directors of the Company as at 31 December 2015 and their interests in the ordinary shares of the Company at that date were as follows:

D Boyce was a director of the Company until his resignation on 24 November 2015. He had no interest in the ordinary shares of the Company during that time.

J D S Booth is a shareholder in Herald Investment Trust plc which has an interest in 610,000 1p ordinary shares in the Company; this is in addition to Mr Booth's beneficial holding above.

The 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 1,021 shares in total, including 60 in respect of K Stevens. There were no other changes in the directors' shareholdings between 31 December 2015 and 7 April 2016.

In addition to the directors' shareholdings, at 7 April 2016 the Company had been notified of the following shareholdings of 3% or more in the ordinary share capital of the Company:

Details of the share capital of the Company are shown in note 23 of the financial statements.

53,909 shares were issued in the year on the exercise of share options; no shares were repurchased during the year.

The existing authority for the repurchase of the Company's shares is for the purchase of up to 1,606,115 shares. A fresh authority, for the purchase of up to 1,614,196 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 so on the attraction and retention of 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 the 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.

Periodic updates are distributed to employees, and a Group intranet is core to open communication amongst employees; this continues to be developed.

The Company established a Share Incentive Plan in 2006, allowing employees and 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 acknowledges its responsibilities to 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. Maintel Europe Limited has ISO14001:2004 accreditation for its environmental management systems.

Financial instruments

Details of the use of financial instruments by the Group are contained in note 22 of the financial statements.

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

7 April 2016

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), including FRS101 "Reduced Disclosure Framework" ("FRS101") 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, subject to any material departures disclosed and explained in the financial statements;

· 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.

Independent auditors' report

TO THE SHAREHOLDERS OF MAINTEL HOLDINGS PLC

We have audited the financial statements of Maintel Holdings Plc for the year ended 31 December 2015 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 cash flows, the company statement of financial position and the related notes. The financial reporting framework that has been applied in the preparation of the consolidated 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 preparation of the parent company financial statements is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice), including FRS101 'The Financial Reporting Standard applicable to the UK and Republic of Ireland'.

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.

Respective responsibilities of directors and auditors

As explained more fully in the statement of directors' responsibilities, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Financial Reporting Council's (FRC's) Ethical Standards for Auditors.

Scope of the audit of the financial statements

A description of the scope of an audit of financial statements is provided on the FRC's website at www.frc.org.uk/auditscopeukprivate.

Opinion on financial statements

In our opinion:

· the financial statements give a true and fair view of the state of the group's and the parent company's affairs as at 31 December 2015 and of the group's profit for the year then ended;

· the consolidated financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union;

· the parent company's 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.

Opinion on other matters prescribed by the Companies Act 2006

In our opinion 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.

Matters on which we are required to report by exception

We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion:

· adequate accounting records have not been kept by the parent company, 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.

Julian Frost (senior statutory auditor)

For and on behalf of BDO LLP, statutory auditor

London

United Kingdom

7 April 2016

BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).

Consolidated statement of comprehensive income

 for the year ended 31 December 2015

The notes following the consolidated statement of cash flows form part of these consolidated financial statements

Consolidated statement of financial position

 at 31 December 2015

The consolidated financial statements were approved and authorised for issue by the board on 7 April 2016 and were signed on its behalf by:

W D Todd

Director

The notes following the consolidated statement of cash flows form part of these consolidated financial statements

Consolidated statement of changes in equity

for the year ended 31 December 2015

The notes following the consolidated statement of cash flows form part of these consolidated financial statements

Consolidated statement of cash flows

for the year ended 31 December 2015

The notes below form part of these consolidated financial statements

Notes forming part of the consolidated financial statements

for the year ended 31 December 2015

 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.

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 results of acquired operations are included in the consolidated statement of comprehensive income from the date on which control is obtained. They are deconsolidated from the date on which control ceases.

(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. Revenue from sales of technology, professional services and network services is recognised when the goods or services are provided. 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. Connection commissions received from mobile network operators are recognised (a) where commission is payable in advance, when the customer contract has been accepted by the network operator and is therefore legally binding, less an allowance for expected future clawbacks, and (b) where commission is payable on a monthly basis, in the month to which commission relates.

(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 the redundancy decision is made.

(g) Interest

Interest income and expense is recognised on an accruals 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 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 more probable than not that future taxable profits 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. Contingent consideration is included in cost at its acquisition date fair value and, in the case of contingent consideration classified as a financial liability, remeasured subsequently through profit or loss. 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 cost, or fair value where acquired through a business combination, less accumulated amortisation. Where these assets have been acquired through a business combination, the cost will be the fair value allocated in the acquisition accounting.

Customer relationships are amortised over their estimated useful lives of (i) six years in respect of managed service contracts, (ii) seven years in respect of network services and mobile contracts.

(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 item 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 over their expected useful lives, at the following rates:

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.

(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 nominal value 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 nominal amount.

(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) 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.

(r) Accounting standards issued

There are no IFRSs that are effective for the first time during the financial year that have a material effect on the consolidated financial statements, nor are there any impending IFRSs that are expected to have a material effect on the Group's consolidated financial statements.

The Group notes IFRS15 Revenue from Contracts with Customers which takes effect and will be adopted in 2017. Having considered the Group's revenue streams and current recognition policies, as disclosed in (c) above, it is the directors' preliminary assessment that no material impact is expected following the move from recognition of revenue on the transfer of risks and rewards to the transfer of control given the nature of the goods and services provided by the Group and the relatively short periods over which they are typically provided.

The Group also notes IFRS16 Leases which takes effect and will be adopted in 2019. This IFRS will require the Group to recognise the lease on its premises as both an asset and a rental commitment in its consolidated statement of financial position, but is not expected to have any material effect on the Group's profitability.

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 2015 the directors have had to assess the validity of the carrying value of tax losses attributable to the Datapoint companies that might be used against future profits, shown in note 21, which involves estimating the companies' profitability and future tax rates.

Impairment

The Group assesses at each reporting date whether there is an indication that its intangible assets may be impaired and where such indicators exist, the Group performs an impairment review. In addition, the Group assesses the carrying value of goodwill annually for impairment. In undertaking such an impairment review, estimates are required in determining an asset's recoverable amount; those used are shown in note 14. These estimates include the asset's future cash flows and an appropriate discount to reflect the time value of money. The Group undertakes sensitivity analysis based on reasonably possible changes in assumptions by increasing the weighted average cost of capital and reducing future growth expectations in the model. The results of this analysis show no indication of impairment.

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, gross profit and operating profit.

Revenue is wholly attributable to the principal activities of the Group and other than sales of £4.3m to EU countries and £1.0m to the rest of the world (2014: £3.3m to EU countries, and £0.4m 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, £0.1m (2014: £0.1m) attributable to the managed services and technology segment, £0.1m (2014: £0.1m) to the network services segment and immaterial amounts to the mobile segment in each year.

In 2015 the Group had one customer (2014: two) which accounted for more than 10% of its revenue, amounting to £5.4m (2014: £5.3m and £4.3m).

The board does not regularly review the aggregate assets and liabilities of its segments and accordingly an analysis of these is not provided.