Last checked at 10 Mar 2014 07:00
("Maintel", "the Company" or "the Group")
Preliminary results for the year to 31 December 2013
Maintel Holdings Plc, the telecoms and data services company, announces preliminary results for the year to 31 December 2013.
Financial highlights
Audited results for year ended 31 December: | 2013 | 2012 | Increase |
Group revenue | £31.1m | £28.2m | 10% |
Adjusted[1] profit before tax | £5.23m | £4.97m | 5% |
Adjusted[2] earnings per share | 37.6p | 35.1p | 7% |
Final dividend proposed | 9.0p | 7.3p | 23% |
Dividend for the year | 15.7p | 13.6p | 15% |
Operational highlights
· Acquisition of Datapoint's UK and Ireland operations in September
· Recurring revenues up to £24.0m, 77% of total revenue
· Increase in Group operating gross margin %
· Awarded Avaya Technical Partner of the year status
· 8% improvement in engineer productivity levels year on year
Notes
[1] adjusted profit before tax is basic profit before tax of £3.643m (2012 - £1.405m), adjusted for intangibles amortisation and exceptional costs relating to the acquisition of the Datapoint companies and, in 2012, non-trading adjustments relating to the acquisition of the mobile business in October 2011
[2] adjusted earnings per share is basic earnings per share of 25.0p (2012 - 3.4p), adjusted for intangibles amortisation and the Datapoint exceptional costs and, in 2012, the non-trading mobile business adjustments
For further information please contact:
Eddie Buxton, Chief Executive | 020 7401 4601 |
Dale Todd, Finance Director | 020 7401 0562 |
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FinnCap |
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Charlotte Stranner (Corporate Finance) | 020 7220 0500 |
Alexandra Clement (Corporate Broking) | 020 7220 0500 |
Chairman's statement
I am pleased to be able to report another satisfactory year for the Maintel Group, with organic adjusted profit before tax increasing by 1%, and the recently acquired Datapoint companies contributing their maiden profit.
Group revenues increased by 10% in the year, to £31.1m (2012 - £28.2m), producing a 5% increase in adjusted profits to £5.23m (2012 - £4.97m) and adjusted earnings per share of 37.6p, a 7% improvement on the 35.1p reported for 2012.
A highlight of the year was the acquisition in mid-September of the UK and Ireland operations of the Datapoint group for a consideration of £3.5m, paid in cash and partly funded by borrowings. The aggregate unaudited revenue of these companies in the year to 30 June 2013 was £15.8m, although it is envisaged that revenues will be approximately £2.0m lower in the current financial year due to lower levels of non-recurring business and a degree of attrition.
The Datapoint acquisition brings with it new and exciting skill sets which are allowing us to develop our business in new sectors, including the contact centre market where Maintel already has a presence but Datapoint has a much greater depth of knowledge and experience. It also has a significant international customer base and an Irish office, which will bring further opportunities to the Group.
Revenues from Maintel's managed service and maintenance and equipment sales division excluding Datapoint were 4% down on 2012, partly due to two delayed projects and the full year effects of the high managed service attrition in 2012. Customers transitioning to newer technologies, however, have allowed further reductions in the cost base, so that divisional margins excluding Datapoint were maintained at 38% and gross profit was only £0.2m down on 2012. With Datapoint's contribution to the division, revenues increased by £3.1m or 17% to £21.8m.
The network services division once again showed steady growth with revenues up 3% at £6.9m, gross profit up 6% and margins improving again from 29% to 30%.
The mobile division saw revenues of £2.6m in 2013, a reduction of £0.3m, as the focus was on improving margins - which increased from 54% to 63% - rather than connection numbers. Nevertheless, new sales during the year were below expectations and this is being addressed in 2014 with the addition of new sales resource.
Cash generation from trading remained strong with adjusted net cash flow from operating activities (as described in the Strategic report) of £2.6m despite having paid £1.2m of exceptionally delayed supplier payments from 2012. We ended the year with £0.5m in cash. The Datapoint acquisition was partly financed by way of a £3.0m loan, of which £2.75m was outstanding at year end.
Given the Company's strong cash generation, the board intends over the next two years to increase its dividend payout ratio to around 50% of adjusted earnings per share which it considers will be more in line with its peer group. We therefore propose to pay a final dividend for 2013 of 9.0p, bringing the total payable for the year to 15.7p (2012: 7.3p and 13.6p), which will be paid on 24 April to shareholders on the register on 21 March.
Our medium term focus is to realise the potential of the Datapoint acquisition across a number of fronts, but we will remain alert to value enhancing acquisitions of businesses or customer bases as these arise. We look forward to the coming year with enthusiasm and confidence.
2013 has been particularly eventful for the Group with the acquisition of Datapoint and I thank my colleagues, longstanding and newly arrived, for their dedication and hard work during the year.
J D S Booth
Chairman
7 March 2014
Strategic report
Results for the year
2013 was another year of solid performance for Maintel, with revenue increasing by 10% to £31.1m and adjusted profits (as described below) by 5% to £5.232m (2012 - £4.970m), with a consequent increase in adjusted EPS of 7% to 37.6p (2012 - 35.1p).
Unadjusted profits were £3.643m in the year (2012 - £1.405m) and unadjusted EPS 25.0p (2012 - 3.4p), the 2013 figure being impacted by the £691,000 costs of the acquisition of the Datapoint companies (described below), and the 2012 figure by the expensing under accounting standards of contingent consideration payments relating to the acquisition of the mobile division in October 2011. Both years experienced the regular amortisation of intangible assets, the 2013 charge being higher with the addition of a charge in respect of Datapoint.
Revenue increased by 10% over the previous year to £31.1m (2012 - £28.2m) with Datapoint's £3.8m revenue more than compensating for a £0.9m (3%) reduction in the base Maintel revenue. As in 2012, most of the reduction was seen in the managed service and equipment division, in part due to the delay in earning revenue from two material signed contracts. Revenues in the mobile division also reduced but this was the result of an active policy of churning lower revenue customers, which translated into an increase in gross profit. The network services division continued its steady growth in the year. The Datapoint business brings with it an annualised contract base of c£8.2m, with £2.5m of this recognised in the period since acquisition, so that total recurring revenue (managed services, network services and mobile) increased by 10% in the year from £21.7m to £23.8m (77% of total revenues; 2012 - 77%).
H1 2013 | H2 2013 | 2013 | 2012 | |||
£000 | £000 | £000 | £000 | Increase | ||
Revenue | 13,565 | 17,559 | 31,124 | 28,171 | 10% | |
Profit before tax | 2,000 | 1,643 | 3,643 | 1,405 | 259% | |
Add back customer relationship intangibles amortisation | 359 | 539 | 898 | 731 | ||
Exceptional items relating to the acquisition of Datapoint | - | 691 | 691 | - | ||
Contingent consideration re Maintel Mobile treated as remuneration (note 7) | - | - | - | 2,834 | ||
Adjusted profit before tax |
2,359 | 2,873 | 5,232 | 4,970 |
5% | |
Of which: Maintel^ | 2,359 | 2,668 | 5,027 | 4,970 | 1% | |
Datapoint^ | - | 205 | 205 | - | ||
2,359 | 2,873 | 5,232 | 4,970 |
5% | ||
Basic earnings per share | 14.4p | 10.6p | 25.0p | 3.4p |
| |
Diluted | 14.2p | 10.5p | 24.7p | 3.4p | ||
Adjusted earnings per share* | 16.9p | 20.7p | 37.6p | 35.1p | 7% | |
Diluted | 16.7p | 20.4p | 37.1p | 34.7p | 7% |
* Adjusted profit after tax divided by weighted average number of shares (note 4).
^ Before management charges
The Group's cash flows remained robust, with adjusted (as explained below) net cash flows from operating activities of £2.554m (2012 - £3.678m) in the period, the main reduction from last year being due to a £1.2m reversal of creditor payments deferred at 31 December 2012, paid in 2013. The Group ended the year with cash of £544,000. The Group borrowed £3.0m during the year to finance the acquisition of the Datapoint companies and £2.75m of this remained due at the year end.
Acquisition of the Datapoint companies
On 13 September 2013, the Group acquired Datapoint Customer Solutions Limited, Datapoint Global Services Limited and Datapoint Communications Limited ("Datapoint") for a consideration of £3.5m. This acquisition represents a key component of the Group's strategy to diversify its revenue base and significantly increase its presence in new markets.
The Datapoint companies provide managed services in Unified Communications to a base of approximately 100 customers, with a particularly strong presence in the contact centre sector. Other services include consulting, professional services and equipment sales. Whilst the core business acquired is UK and Ireland based, some customers have subsidiary operations in other countries, whose service is coordinated from the UK and Ireland operations.
Review of operations
The table below summarises the revenues of the three operational divisions of Maintel. The Datapoint results are reviewed by the board as part of the managed services and equipment division and aggregate figures will be reported in future periods, however they are stated separately in this report to show the organic movements year on year.
Revenue analysis (£000) | 2013 Maintel | 2013 Datapoint | 2013 Total |
2012 | Increase/ (decrease) |
Managed services related | 11,966 | 2,511 | 14,477 | 12,246 | 18% |
Equipment, installations and other |
5,993 |
1,294 |
7,287 |
6,435 |
13% |
Total managed services and equipment division |
17,959 |
3,805 |
21,764 |
18,681 |
17% |
Network services division | 6,938 | - | 6,938 | 6,730 | 3% |
Mobile division | 2,597 | - | 2,597 | 2,941 | (12)% |
Intercompany | (175) | - | (175) | (181) | |
Total Maintel Group | 27,319 | 3,805 | 31,124 | 28,171 | 10% |
Divisional performance is described further below.
Managed services and equipment division
The managed services and equipment division provides the management, maintenance, service and support of office-based voice and data equipment across the UK and Ireland on a contracted basis. It also supplies and installs voice and data equipment to managed services customers, both to our direct clients and into our partner customers. In previous reporting periods this division was referred to as the maintenance and equipment division, however an increasing proportion of the division's operations encompass the management of customers' systems and networks. This trend has been augmented by the inclusion of Datapoint's revenues within this division.
Excluding Datapoint the division's revenues were £17.959m in 2013, a reduction of 4% in the year with managed services related revenue down 2% and equipment sales down 7%. Both revenue streams were flat in H2 2013 compared with H1 2013. H2 equipment sales were adversely affected by two large projects being delayed by customers, though both of these will be fully installed during Q1 2014 and the pipeline for new orders remains very healthy. Despite competitive pressure, gross margins were maintained at 38% prior to inclusion of the lower margin Datapoint sales.
Managed services
(a) Maintel, excluding Datapoint
It was noted in the half year that the transitioning of the customer base to newer IP technology was altering the managed services business model, with a higher proportion of third party and vendor software support contracts and network monitoring services resulting in the need for fewer lower skilled field engineers. As a result, Maintel (excluding Datapoint) engineer productivity improved with engineer numbers reducing from 87 at last year end to 79 at 31 December 2013.
It was noted at the half year that the higher than usual attrition rate of 2012 had resulted in a drop in managed services revenue. Despite much reduced attrition levels in 2013 this was not fully compensated for by new sales, and translated into a reduction in the annualised customer base from £12.3m at last year end, to £11.9m at 31 December 2013 and a consequent reduction in managed service revenues of 2% from the previous year.
(b) Datapoint
The Datapoint customer base had an annualised value of £8.2m at the year end. Synergies resulting from the joint servicing of the Datapoint and Maintel bases include duplicated management, sub-contracted support contracts which can be brought inhouse with the combined Group's extended skillsets, cost savings from joint purchasing and the termination in many cases of the parts replacement service currently outsourced by Datapoint. Progress in realising these synergies has been in line with expectations and further cost savings will be achieved over the course of 2014.
Equipment sales
(a) Maintel, excluding Datapoint
The half year report noted that a significant project had been substantially completed in H1 2013, but had reduced the divisional margin to 36%. The predicted improvement in H2 margin was achieved through an increased weighting towards professional services projects, including the implementation of a large Avaya data network, the upgrading of an IP telephony infrastructure across multiple sites and a significant contact centre upgrade. H2 revenues were slightly ahead of H1 and divisional margins recovered such that gross margin for the year as a whole matched the 38% achieved in 2012. We have recently won two significant technology upgrade projects in the health and communications sectors involving multiple large contact centres implementing our new video conferencing proposition across multiple sites, which is an encouraging start to the new year.
(b) Datapoint
As with the base Maintel business, equipment, professional services and other revenues are derived from Datapoint's managed service customers almost as a matter of course, with £1.294m of such revenue earned in the period since acquisition. The table below shows Datapoint having a lower gross profit percentage than the base Maintel business, largely because of the more extensive use of sub-contracted support contracts used by Datapoint. As noted above, these arrangements will be under review during 2014.
Headcount |
Average 2013 |
Average 2012 | At 31 December 2013 |
Sales and customer service - Maintel | 53 | 53 | 52 |
Sales and customer service - Datapoint* | 11 | - | 9 |
Engineers - Maintel | 84 | 90 | 79 |
Engineers - Datapoint* | 49 | - | 48 |
* average since acquisition
Division gross profit (£000) |
2013 |
2012 | Increase/ (decrease) |
Maintel | 6,790 (38%) | 7,017 (38%) | (3)% |
Datapoint | 1,254 (33%) | - | - |
Group | 8,044 (37%) | 7,017 (38%) | 15% |
Given the application of common resource across both managed service and equipment sales, it is not practical to quote definitive margin data on the separate business sectors; however management figures are used to monitor constituent elements internally.
Network services division
The network services division sells a portfolio of services which includes telephone line rental, inbound and outbound telephone calls, data connectivity, internet access and hosted IP telephony solutions. These services complement those offered by the managed service and equipment division and the mobile division.
Revenue analysis (£000) |
2013 |
2012 | Increase/ (decrease) |
Call traffic | 2,586 | 2,656 | (3)% |
Line rental | 3,179 | 2,979 | 7% |
Data services | 809 | 799 | 1% |
Other | 364 | 296 | 23% |
Total network services | 6,938 | 6,730 | 3% |
2013 | 2012 | Increase | |
Division gross profit (£000) | 2,055 (30%) | 1,945 (29%) | 6% |
The network services division has again shown steady growth, with revenues up 3% and gross profit up 6% on 2012.
Call minutes billed continued to increase year on year as new customers were signed and attrition remained at its historically low levels. However, continued pressure on call rates, including the reduction in mobile termination rates, resulted in call revenue reducing by 3%. 2013 was the final year of these regulatory decreases in mobile termination rates which were initiated by Ofcom in 2011. Line rental revenues continued to grow, increasing by 7% in the year with a full year's revenues from a large contract signed during 2012 outweighing the proactive transitioning of some larger customers from old technology to newer SIP technology and consolidating their estates. Although data connectivity revenues were restricted to a headline 1% increase, the 2012 revenue included a large one-off hardware sale, so that the underlying growth rate excluding this contract was a healthier 9%. Within the other services category, both VoIP and inbound services revenues showed particularly strong growth in the year.
We have seen a continued increase in the number of new customers taking multiple products and existing customers being cross-sold network services, particularly in the maturing SIP technology for a range of Enterprise and SME clients and with notable wins for our hosted telephony services in the latter part of the year.
Each of the primary network services revenue streams saw an increase in margins during the year, with overall divisional gross margin increasing from 29% to 30%, through tight cost control and margin management particularly on the call traffic side of the business.
Mobile division
Maintel Mobile derives its revenues primarily from commissions received under its dealer agreements with Vodafone and O2, supplemented by revenue derived from ongoing customer monthly spend, with approximately 75% of connections at the end of 2013 under the Vodafone agreement and 25% under the O2 agreement.
£000 |
2013 |
2012 | Increase/ (decrease) |
Revenue | 2,597 | 2,941 | (12)% |
Gross profit | 1,640 (63%) | 1,602 (54%) | 2% |
At 31 December 2013 | At 31 December 2012 |
Decrease | |
Number of customers | 952 | 1,042 | (9)% |
Number of connections | 13,178 | 13,859 | (5)% |
Whilst revenue in 2013 was down 12% on 2012, margins increased from 54% to 63%, so that gross profit increased by £38,000 or 2%. At 31 December 2013, the mobile division managed 13,178 (2012 - 13,859) connections, a decrease of 5% in the period, as we have continued to focus on margin rather than numbers of connections, proactively managing out many of the lower value customers from our base.
As noted in the half year report, revenue was affected by a mid term renewal cap imposed by one of our network suppliers in the first quarter of the year, which temporarily limited our ability to re-sign customers and so restricted this revenue stream.
With this restriction removed, H2 saw a creditable 12% improvement in revenue over H1, however new connections in the year didn't meet our expectations and this is a focus of our attention for 2014 and we have recruited additional sales resource to support this.
We did see an increase in the volume of upsells and bolt-on packages into the base - which attract higher margins - and this further supported the increase in the division's gross profit compared to the previous year. Cross-selling our mobile proposition into the customer base continues to gain traction and we signed two higher value contracts late in H2 in the IT and commodities sectors including one that added 666 connections, which started billing early in 2014.
As previously highlighted, one of our network suppliers has implemented changes to its commission arrangements from August 2013 which over the course of two years from that date will result in a reduction in recurring commissions from that supplier of approximately 10%.
Administrative expenses, excluding intangibles amortisation and non-trading adjustments
Administrative expenses (£000) | 2013 | 2012 | Increase/(decrease) |
Sales expenses | 2,408 | 2,606 | (8)% |
Other administrative expenses (excluding intangibles amortisation, exceptional expenses, and in 2012 an adjustment to acquisition consideration) |
2,780 |
2,837 |
(2)% |
Maintel excluding Datapoint | 5,188 | 5,443 | (5)% |
Datapoint administrative expenses | 1,148 | - | |
Total other administrative expenses | 6,336 | 5,443 | 16% |
Total other administrative expenses excluding Datapoint were reduced by £255,000 (5%) in the year, with a saving from the departure in October 2012 of the vendor of the acquired mobile business, and a range of other cost savings secured during the year. The Datapoint administrative expenses are shown above from the date of acquisition.
The exceptional costs of £691,000 shown in the income statement relate to legal and professional fees incurred in respect of the acquisition of the Datapoint companies and £120,000 of redundancy costs resulting from the combining of certain operations following the acquisition.
The intangible amortisation charge increased in the year due to the charge applying to the Datapoint intangible acquired during the year. Impairment and amortisation charges are discussed further below.
The table below shows relevant headcount in relation to revenue in respect of the Maintel (excluding Datapoint) business.
2013 |
2012 | Increase/ (decrease) | |
Average Group headcount during the period | 176 | 182 | (3)% |
Average sales and service headcount | 69 | 69 | -% |
Average corporate and admin headcount | 23 | 23 | -% |
Group revenue excluding Datapoint (£000) | 27,319 | 28,171 | (3)% |
The reduction in average Group headcount above resulted from redundancies in the engineering force, as noted earlier.
Equivalent figures for Datapoint were:
2013 | |
Average Datapoint headcount since acquisition |
72 |
Datapoint revenue since acquisition (£000) | 3,805 |
Datapoint's higher revenue per head reflects its greater use of third party and manufacturer support contracts, as noted earlier, reflecting the greater complexity of the services it provides.
Interest
Interest receivable reduced from £9,000 to £2,000 in 2013, with average cash balances being lower in 2013 as described below, combined with the continuing low rates of interest achievable from acceptable financial institutions.
The Group recorded a £32,000 interest charge in 2013 (2012 - £Nil) on the borrowings secured to acquire the Datapoint companies.
Taxation
The consolidated statement of comprehensive income shows a tax rate of 27% (2012 - 74%). Each of the Group companies is taxed at 23.25% (2012 - 24.5%). Certain recurring expenses that are disallowable for tax raise the effective rate above this, partly offsetting Datapoint profits which are free of tax due to brought forward tax losses. The rate is inflated in the year by the £571,000 costs of the Datapoint acquisition not being an allowable deduction for tax, and in 2012 by a disallowable adjustment for £2.834m contingent consideration relating to the Maintel Mobile acquisition; excluding these the tax rate would be 23.2% in 2013 and 24.6% in 2012.
Dividends
A final dividend for 2012 of 7.3p per share (£779,000 in total) was paid on 25 April 2013, and an interim dividend for 2013 of 6.7p (£715,000) was paid on 11 October 2013.
It is proposed to pay a final dividend of 9.0p in respect of 2013 on 24 April to shareholders on the register at the close of business on 21 March, representing a 23% increase on the 2012 final dividend. The corresponding ex-dividend date will be 19 March. In accordance with accounting standards, this dividend is not accounted for in the financial statements for the period under review as it had not been committed as at 31 December 2013.
The Business model section below describes the board's dividend policy.
Consolidated statement of financial position
The consolidated statement of financial position remains sound, with £544,000 of cash at 31 December 2013 (2012 - £1.941m) and the £2.75m loan, £250,000 of the principal on the loan having been repaid in December 2013. Cash flow is described further below.
Trade receivables have increased by £1.724m in the year, the main reason being the inclusion of £1.187m of Datapoint trade receivables at the date of acquisition, and the increase in that balance to £2.211m at the year end due to the timing of invoicing of several larger customers. This is partly offset by Maintel's improved trade receivable position at the end of 2013, 2012 debtors having been artificially high due to back-billing.
Prepayments have increased by £1.445m, with the Datapoint acquisition accounting for £1.052m of this and most of the rest being increased accrued income due to late crediting to the mobile division by network services suppliers resulting in revenue being accrued.
The value of maintenance stock has increased by £62,000 in the year, to £640,000, primarily due to the maintenance stock acquired with Datapoint. The value of stock held for resale has increased from £114,000 to £205,000 reflecting different stages of invoicing and completion of cross-period installations year to year.
Trade payables have increased by only £398,000 since 31 December 2012, despite the addition of £1.294m of Datapoint payables at acquisition, primarily due to the reversal of the December 2012 delay in paying £1.165m to three suppliers for operational reasons, as highlighted in last year's report.
Other tax and social security liability has increased by £389,000 largely due to the Datapoint liability acquired.
Accruals have increased by £615,000 year on year, with the accruals related to Datapoint being only partly offset by the payment during the year of the final £900,000 Totility (now Maintel Mobile) consideration that was accrued at 31 December 2013.
Deferred managed service income has increased by £2.908m, with £3.191m attributable to Datapoint at year end, partly offset by a reduction in Maintel reflecting the slightly lower managed service base. Other deferred revenue has increased by £539,000, £459,000 attributable to Datapoint.
No significant expenditure has been required on plant and equipment during the period, with the depreciation charge including a £33,000 charge in respect of Datapoint; the main expenditure was as usual on IT and routine office refurbishment.
Intangible assets
The Group has two intangible asset categories: (i) an intangible asset represented by customer contracts and relationships acquired from District Holdings Limited, Callmaster Limited, Redstone, Maintel Mobile and Datapoint, and (ii) goodwill relating to the Maintel Network Services, District, Redstone, Maintel Mobile and Datapoint acquisitions.
Goodwill of £4.702m (2012 - £1.026m) is carried in the consolidated statement of financial position, which is subject to an impairment test at each reporting date. The £3.676m increase in the year relates to the acquisition of the Datapoint companies. No impairment has been charged to the consolidated statement of comprehensive income in 2013 (2012 - £Nil).
The intangible assets represented by purchased customer contracts and relationships were valued at £6.286m at 31 December 2013 (2012 - £3.489m). £3.695m of value was added in the year relating to the acquisition of the Datapoint companies. The intangible assets are subject to an amortisation charge of 17-20% 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 £898,000 being amortised in 2013 (2012 - £731,000), the increase attributable to the Datapoint customer relationships acquired.
Cash flow
At 31 December 2013 the Group had cash and bank balances of £544,000 (2012 - £1.941m), all unrestricted save for the charge held by Lloyds Bank over the assets of the Group generally.
Net cash flows from operating activities in 2013 at £963,000 (2012 - £1.378m) were affected by non-recurring transactions, as they were in the previous year, as follows:
(a) At 31 December 2012, £900,000 was accrued in respect of the final payment due in respect of the consideration payable for the acquisition of Maintel Mobile. In the 2013 cash flow statement, this is shown as a working capital movement and is therefore adjusted below.
(b) The Group incurred an exceptional cost of £691,000 during 2013, £571,000 in respect of legal and professional fees and £120,000 in respect of redundancy costs, both in relation to the Datapoint acquisition.
(c) In 2012, £2.3m was paid during the year in respect of contingent consideration relating to the acquisition of Maintel Mobile and under accounting rules this was expensed in the income statement. This is also adjusted below.
In the Chairman's statement and Strategic report these payments have been added back to the cash flows shown in the statement of cash flows as follows, in order to give a more meaningful picture of the Group's operational cash flows:
Unadjusted | Adjusted | |
Cash generated from operating activities - 2013 | £2.111m | £3.702m |
- 2012 | £2.880m | £5.180m |
Net cash flows from operating activities - 2013 | £0.963m | £2.554m |
- 2012 | £1.378m | £3.678m |
Adjusted cash generated from operating activities before tax reduced in the year to £3.702m (2012 - £5.180m), primarily due to the payment of £1.165m of deferred supplier payments noted earlier. Unadjusted cash generated from operations was £2.111m, with payment of £1.494m dividends, £1.148m in corporation tax, and £3.497m on the Datapoint acquisition less a net £2.750m of associated loan financing, producing a net overall outflow of £1.397m in the year (2012 - outflow of £1.012m).
The Group had no debt at 31 December 2012, but drew a loan of £3.0m from Lloyds Bank plc on 13 September 2013 to finance the acquisition of Datapoint; further details of the loan are given in note 8. At the same time, the Group secured an overdraft facility of £1m with Lloyds. The Group invests its surplus cash with mainstream banking organisations.
The Group established a revolving credit facility of £1.5m in October 2011 with J D S Booth, the Group's chairman, however no monies were drawn against this and the facility expired on 30 June 2013.
Business model and strategy
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 have been 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 based around the Group's managed services and equipment division. Historically this division was known as the maintenance and equipment division, the bulk of its support revenues deriving from a break-fix contract with customers. However the signing of an increasing number of higher end customers requiring a more holistic, managed service, together with the acquisition of the Datapoint companies, has seen the balance of revenues move more to a managed service, and the maintenance element of the business has been renamed as such.
The provision of break-fix and managed services creates the opportunity to sell other services into clients, 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 each financial year, and is 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.
The Group has historically paid dividends equivalent to approximately 40% of its adjusted earnings per share. To reflect the Group's confidence in future cash flows, the directors are of the view that this should be increased to approximately 50% over the course of the next two years. To mark a transition to this policy, the directors are proposing a final dividend of 9.0p for financial year 2013, which when combined with the interim 2013 dividend of 6.7p per share gives a full year dividend of 15.7p, equivalent to 42% of adjusted earnings per share.
Principal risks and uncertainties
The directors consider that the principal risks to the Group relate to technological advance, marketplace relationships and pricing strategies.
Telecommunications hardware has historically focused on a PBX core, which is gradually being replaced, at least at the higher end, by hosted and cloud based IP 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 costs in delivering our service 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, software assurance and mobile services. The acquisition of Datapoint, with its broader range of associated business application skills in the unified communications contact centre high growth space, will 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. In addition line rental and data revenues have continued to grow significantly during 2013. 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 and to a diminishing extent Vodafone (incorporating Cable & Wireless Worldwide), such that these companies and their clients constitute a significant share of its managed service base. The extent of the relationship with O2 has grown with the acquisition of the Datapoint companies and the work they carry out for O2. Should the 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 its suppliers, 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.
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'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 gender, race, age and disability.
Periodic newsletters 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.
Environment
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, a focus on the replacements during 2013 being on energy saving technologies, with the new vehicles consequently attracting zero road tax. 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.
Outlook
Overall, whilst competition levels remain high, we are seeing market conditions moderately improve with businesses engaging in discussions to increase investment in their communications infrastructure.
We remain alert and well positioned to consider further acquisitions in a market that we anticipate will see further consolidation. However our short-term focus will be on the integration and successful synergy realisation from Datapoint and realising the opportunity it has brought to the Group to diversify our revenues and significantly increase our presence in new markets.
We remain cautiously optimistic in our outlook for the year ahead having started the new financial year on track, with confidence that our investment in the Datapoint business will deliver clear cost benefits and growth in due course. In the light of this outlook, the Board intends to increase the dividend pay out to approximately 50% of adjusted earnings per share over the course of the next two years.
On behalf of the board
E Buxton
Chief Executive
7 March 2014
Maintel Holdings Plc
Consolidated statement of comprehensive income
for the year to 31 December 2013
|
|
|
|
|
| 2013 | 2012 |
| note | £'000 | £'000 |
|
|
|
|
|
|
|
|
Revenue | 3 | 31,124 | 28,171 |
|
|
|
|
Cost of sales |
| 19,526 | 17,756 |
|
|
|
|
Gross profit |
| 11,598 | 10,415 |
|
|
|
|
Administrative expenses |
|
|
|
Intangibles amortisation |
| 898 | 742 |
Exceptional expenses | 6 | 691 | - |
Contingent consideration treated as remuneration |
7 |
- |
2,834 |
Other administrative expenses |
| 6,336 | 5,443 |
|
| 7,925 | 9,019 |
|
|
|
|
|
|
|
|
Operating profit | 3 | 3,673 | 1,396 |
|
|
|
|
Financial income |
| 2 | 9 |
Financial expense |
| (32) | - |
|
|
|
|
Profit before taxation |
| 3,643 | 1,405 |
|
|
|
|
Taxation |
| 978 | 1,043 |
|
|
|
|
Profit and total comprehensive income attributable to owners of the parent |
|
2,665 |
362 |
|
|
|
|
Earnings per share | |||
Basic | 4 | 25.0p | 3.4p |
Diluted | 4 | 24.7p | 3.4p |
Maintel Holdings Plc
Consolidated statement of financial position
as at 31 December 2013
|
|
| |
| 2013 | 2012 | |
£'000 | £'000 | ||
Non current assets | |||
Intangible assets | 10,988 | 4,515 | |
Property, plant and equipment | 289 | 216 | |
11,277 | 4,731 | ||
Current assets | |||
Inventories | 845 | 692 | |
Trade and other receivables | 8,961 | 5,793 | |
Cash and cash equivalents | 544 | 1,941 | |
10,350 | 8,426 | ||
Total assets | 21,627 | 13,157 | |
Current liabilities | |||
Trade and other payables | 15,211 | 9,203 | |
Current tax liabilities | 638 | 665 | |
| Total current liabilities | 15,849 | 9,868 | |
| Non current liabilities | |||
Deferred tax liability | 149 | 581 | |
Borrowings | 1,750 | - | |
Total net assets | 3,879 | 2,708 | |
Equity | |||
Issued share capital | 107 | 107 | |
Share premium | 1,028 | 1,028 | |
Capital redemption reserve | 31 | 31 | |
Retained earnings | 2,713 | 1,542 | |
Total equity | 3,879 | 2,708 | |
Maintel Holdings Plc
Consolidated statement of changes in equity
for the year to 31 December 2013
|
Share capital |
Share premium | Capital redemption reserve |
Retained earnings |
Total |
£'000 | £'000 | £'000 | £'000 | £'000 | |
At 1 January 2012 | 107 | 1,013 | 31 | 2,492 | 3,643 |
| |||||
Profit and total comprehensive income for the year |
- |
- |
- |
362 |
362 |
Dividend | - | - | - | (1,312) | (1,312) |
Issue of new ordinary shares |
- |
15 |
- |
- |
15 |
| |||||
At 31 December 2012 | 107 | 1,028 | 31 | 1,542 | 2,708 |
| |||||
Profit and total comprehensive income for the year |
- |
- |
- |
2,665 |
2,665 |
Dividend | - | - | - | (1,494) | (1,494) |
At 31 December 2013 | 107 | 1,028 | 31 | 2,713 | 3,879 |
Maintel Holdings Plc
Consolidated statement of cash flows
for the year to 31 December 2013
|
| |
2013 | 2012 | |
£'000 | £'000 | |
Operating activities | ||
Profit before taxation | 3,643 | 1,405 |
Adjustments for: | ||
Intangibles amortisation | 898 | 742 |
Depreciation charge | 135 | 124 |
Interest received | (2) | (9) |
Interest payable | 32 | - |
Operating cash flows before changes in working capital |
4,706 |
2,262 |
(Increase)/decrease in inventories | (36) | 30 |
Increase in trade and other receivables | (1,253) | (1,774) |
(Decrease)/increase in trade and other payables | (1,306) | 2,362 |
Cash generated from operating activities | 2,111 | 2,880 |
Tax paid | (1,148) | (1,502) |
| Net cash flows from operating activities | 963 | 1,378 |
Investing activities | ||
Purchase of plant and equipment | (89) | (116) |
Purchase price in respect of business combination | (3,500) | (986) |
Net cash acquired with subsidiary undertaking | 3 | - |
(3,497) | (986) | |
Interest received | 2 | 9 |
| Net cash flows from investing activities | (3,584) | (1,093) |
| Financing activities | ||
Proceeds from borrowings | 3,000 | - |
Repayment of borrowings | (250) | - |
Interest payable | (32) | - |
Issue of new ordinary shares | - | 15 |
Equity dividends paid | (1,494) | (1,312) |
Net cash flows from financing activities | 1,224 | (1,297) |
Net decrease in cash and cash equivalents | (1,397) | (1,012) |
|
|
|
Cash and cash equivalents at start of period | 1,941 | 2,953 |
|
|
|
Cash and cash equivalents at end of period | 544 | 1,941 |
|
|
|
Maintel Holdings Plc
Notes to the preliminary statement
1. Basis of preparation
The financial information set out in these preliminary results does not constitute the company's statutory accounts for 2012 or 2013.
Statutory accounts for the years ended 31 December 2013 and 31 December 2012 have been reported on by the Independent Auditors. The Independent Auditors' Report on the Annual Report and Financial Statements for 2013 was unqualified, did not draw attention to any matters by way of emphasis, and did not contain a statement under 498(2) or 498(3) of the Companies Act 2006.
Statutory accounts for the year ended 31 December 2012 have been filed with the Registrar of Companies. The statutory accounts for the year ended 31 December 2013 will be delivered to the Registrar in due course.
2. Accounting policies
The financial information set out in these preliminary results has been prepared using the recognition and measurement principles of International Accounting Standards, International Financial Reporting Standards and Interpretations adopted for use in the European Union (collectively Adopted IFRSs). The accounting policies adopted in this results announcement have been consistently applied to all the years presented and are consistent with the policies used in the preparation of the statutory accounts for the period ended 31 December 2013. The principal accounting policies adopted are unchanged from those used in the preparation of the statutory accounts for the period ended 31 December 2012.
3. Segmental analysis
For management reporting purposes and operationally, the Group consists of three business segments: (i) telecommunications managed service and equipment 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 Datapoint business is reported under the managed service and equipment division as it is managed and measured as part of that division.
Year to 31 December 2013
| Managed service and equipment |
Network services |
Mobile | Central/ inter- company |
Total |
| £'000 | £'000 | £'000 | £'000 | £'000 |
| |||||
Revenue | 21,764 | 6,938 | 2,597 | (175) | 31,124 |
|
|
|
|
|
|
Operating profit before customer relationship intangibles amortisation and exceptional expenses |
3,246 |
1,101 |
931 |
(16) |
5,262 |
Customer relationship intangibles amortisation |
(251) |
(49) |
- |
(598) |
(898) |
Exceptional expenses | (120) | - | - | (571) | (691) |
|
|
|
|
|
|
Operating profit | 2,875 | 1,052 | 931 | (1,185) | 3,673 |
Interest (net) |
|
|
|
| (30) |
Profit before taxation |
|
|
|
| 3,643 |
Taxation |
|
|
|
|
(978) |
Profit after taxation |
|
|
|
| 2,665 |
|
|
|
|
|
|
Revenue is wholly attributable to the principal activities of the Group and other than sales of £973,000 to EU countries and £151,000 to the rest of the world (2012 - £23,000 to EU countries), arises within the United Kingdom.
Managed service and equipment revenue consists of managed service related revenue of £14.477m and equipment, installation and other revenue of £7.287m (2012 - £12.246m and £6.435m). Network services revenue consists of call traffic revenue of £2.586m, line rental revenue of £3.179m, data services revenue of £0.809m and other revenue of £0.364m (2012 - £2.656m, £2.979m, £0.799m and £0.296m). Mobile revenue consists principally of commissions receivable from network operators.
Intercompany trading consists of telecommunications services, and recharges of sales, engineering and rent costs, £90,000 (2012 - £90,000) attributable to the managed service and equipment segment, £82,000 (2012 - £85,000) to the network services segment and £3,000 (2012 - £6,000) to the mobile segment.
In 2013 the Group had two customers (2012 - One) which accounted for more than 10% of its revenue, one accounting for £5.419m and the other £4.258m (2012 - £4.224m).
| Managed service and equipment |
Network services |
Mobile | Central/ inter- company |
Total |
| £'000 | £'000 | £'000 | £'000 | £'000 |
Other |
|
|
|
|
|
Capital expenditure | 89 | - | - | - | 89 |
Depreciation | 133 | - | 2 | - | 135 |
Amortisation | 251 | 49 | - | 598 | 898 |
Year to 31 December 2012
| Managed service and equipment |
Network services |
Mobile | Central/ inter- company |
Total |
| £'000 | £'000 | £'000 | £'000 | £'000 |
|
|
|
|
|
|
Revenue | 18,681 | 6,730 | 2,941 | (181) | 28,171 |
|
|
|
|
|
|
Operating profit before customer relationship and software intangibles amortisation and adjustments |
3,272 |
983 |
813 |
(96) |
4,972 |
Customer relationship and software intangibles amortisation |
(264) |
(59) |
- |
(419) |
(742) |
|
|
|
|
|
|
Operating profit before adjustments | 3,008 | 924 | 813 | (515) | 4,230 |
Contingent consideration treated as remuneration (note 7) |
- |
- |
- |
(2,834) |
(2,834) |
Operating profit | 3,008 | 924 | 813 | (3,349) | 1,396 |
Interest income |
|
|
|
|
9 |
Profit before taxation |
|
|
|
| 1,405 |
Taxation |
|
|
|
|
(1,043) |
Profit after taxation |
|
|
|
| 362 |
|
|
|
|
|
|
| Managed service and equipment |
Network services |
Mobile | Central/ inter- company |
Total |
| £'000 | £'000 | £'000 | £'000 | £'000 |
Other |
|
|
|
|
|
Capital expenditure | 113 | - | 2 | - | 115 |
Depreciation | 121 | - | 3 | - | 124 |
Amortisation | 264 | 59 | - | 419 | 742 |
4. Earnings per share
Earnings per share is calculated by dividing the profit after tax for the period by the weighted average number of shares in issue for the period, these figures being as follows:
| 2013 | 2012 |
| £'000 | £'000 |
Earnings used in basic and diluted EPS, being profit after tax |
2,665 |
362 |
|
|
|
Adjustments: Amortisation of intangibles |
898 |
731 |
Exceptional expenses (note 6) | 691 | - |
Contingent consideration treated as remuneration (note 7) | - | 2,834 |
Tax relating to above adjustments | (244) | (185) |
Adjusted earnings used in adjusted EPS |
4,010 |
3,742 |
|
2013 |
2012 |
| Number (000s) | Number (000s) |
|
|
|
Weighted average number of ordinary shares of 1p each | 10,675 | 10,671 |
Potentially dilutive shares | 125 | 121 |
|
| |
| 10,800 | 10,792 |
Earnings per share | ||
Basic | 25.0p | 3.4p |
Basic and diluted | 24.7p | 3.4p |
Adjusted - basic but after the adjustments in the table above | 37.6p | 35.1p |
Adjusted - basic and diluted after the adjustments in the table above | 37.1p | 34.7p |
The adjustments above have been made in order to provide a clearer picture of the trading performance of the Group.
In calculating diluted earnings per share, the weighted average number of ordinary shares in issue is adjusted to assume conversion of all dilutive potential ordinary shares. The Group has one category of potentially dilutive ordinary share, being those share options granted to employees where the exercise price is less than the average price of the Company's ordinary shares during the period.
5. Dividends
| 2013 | 2012 |
| £'000 | £'000 |
Dividends paid | ||
Final 2011, paid 26 April 2012 | ||
- 6.0p per share | - | 640 |
Interim 2012, paid 5 October 2012 | ||
- 6.3p per share | - | 672 |
Final 2012, paid 25 April 2013 | ||
- 7.3p per share | 779 | - |
Interim 2013, paid 11 October 2013 | ||
- 6.7p per share | 715 | - |
1,494 | 1,312 |
The directors propose the payment of a final dividend for 2013 of 9.0p (2012 - 7.3p) per ordinary share, payable on 24 April 2014 to shareholders on the register at 21 March 2014. The cost of the proposed dividend, based on the number of shares in issue as at 7 March 2014, is £961,000 (2012 - £779,000).
6. Exceptional expenses
Legal and professional fees of £571,000 were incurred in relation to the acquisition of the Datapoint companies in September 2013. Redundancy costs of £120,000 have been incurred as a result of synergies achieved following the acquisition. These costs, totalling £691,000, have been shown as exceptional expenses in the income statement as they are not normal operating expenses.
7. Business combinations
On 13 September 2013 the Company acquired the entire share capital of Datapoint Customer Solutions Limited, Datapoint Global Services Limited and Datapoint Communications Limited at the following provisional aggregate valuations:
£000 | |
Purchase consideration | |
Cash | 3,500 |
Assets and liabilities acquired | |
Tangible fixed assets | 119 |
Trade and other receivables | 1,915 |
Cash | 3 |
Trade and other payables | (6,314) |
(4,277) | |
Customer relationships | 3,695 |
Deferred tax on customer relationships | (776) |
Deferred tax asset relating to historic tax losses | 1,065 |
Total assets and liabilities acquired |
(293) |
Fair value adjustment (see below) | 117 |
Net assets and liabilities acquired | (176) |
Goodwill |
3,676 |
The fair value adjustment relates to the inventories held by Datapoint at the date of acquisition, revalued to their fair market value.
Since their acquisition, the Datapoint companies have contributed the following to the results of the Group before exceptional redundancy costs of £69,000 and management charges of £100,000:
Revenue | 3,805 |
Profit before tax |
205 |
The deferred tax asset relating to the use of tax losses is based on the directors' judgment of a range of factors influencing their anticipated use. A further undiscounted deferred tax asset of £2.5m relating to Datapoint tax losses has not been recognised on the grounds that there is insufficient evidence that the asset will be recoverable; use of these unrecognised losses would be increased by the Datapoint companies making more than the anticipated future profits and/or an increase in corporate tax rates.
In 2012, £2.834m was expensed in the income statement in respect of contingent consideration relating to the acquisition of Maintel Mobile.
8. Borrowings
| 2013 | 2012 |
| £'000 | £'000 |
Non-current bank loan - secured | 1,750 | - |
Current bank loan - secured | 1,000 | - |
2,750 | - |
The bank loan is secured by a fixed and floating charge over the assets of the Company and its subsidiaries. Interest is payable at a variable rate of 3.05% per annum over LIBOR. The loan was drawn in September 2013 and is repayable in quarterly instalments over a 3 year period, the first instalment of £250,000 having been paid in December 2013. The directors consider that there is no material difference between the book value and fair value of the loan.
9. The annual report and accounts will be posted to shareholders in due course and copies will also be available on the Group's web site www.maintel.co.uk and on request from the Company's registered office at 61 Webber Street, London SE1 0RF.