MANX.L Regulatory News (MANX)

Manx Telecom Plc

Results for the six months ended 30 June 2017

Stable core performance and Global Solutions growth offsets expected data centre revenue decline. Remain on track to deliver the Board's expectations for the full year

Manx Telecom Plc (AIM: MANX), ("Manx Telecom", the "Company" or the "Group") the leading communication solutions provider on the Isle of Man, announces its results for the six months ended 30 June 2017.

Financial Highlights

- Revenues of £38.5m (H1 2016: £39.2m)

• Fixed Line, Broadband and Data revenues down 2.9%, with a decline in fixed line call revenue, partially offset by increased broadband revenue

• Mobile revenues up 3.6% due to increased inbound roaming revenue and an increase in post pay contracts revenue

• Continued strong growth in Global Solutions revenues, up 13.0%

• Data Centre revenues down 32.3%, due to previously reported customer consolidation. Adjusting for this, Data Centre revenue returned to growth in the period

• Group revenue excluding Data Centre and Other revenue up 2.4% year on year

- Underlying EBITDA £12.6m (H1 2016: £13.8m) primarily due to a shift in directory distribution date to H2 and Data Centre customer consolidation

- Underlying Profit Before Tax of £6.7m (H1 2016: £8.3m). Reported Profit Before Tax of £5.2m (H1 2016: £6.3m) reflecting planned costs of transformation programme

- Strong cash flow generation with Underlying operating cash flow of £10.2m (H1 2016: £10.1m) equating to increased cash conversion from Underlying EBITDA of 81.3% (H1 2016: 73.2%)

- Net debt increased to £61.7m (H1 2016; £53.1m), due primarily to costs associated with transformation programme. Net debt expected to improve in H2

- Interim dividend of 3.9p (H1 2016: 3.7p), in line with progressive dividend policy

Operational Highlights

- Group trading in line with Board expectations

- Demand in the core business of Fixed, Broadband, Data and Mobile remains robust

- Commenced initial investment in fibre to the premises ("FTTP"), which will provide ultrafast fibre broadband to 77 Island locations, for roll out in H2 2017

- Acquisition of majority stake in Goshawk Communication, which provides exciting technology for the hard of hearing

- Implementation of transformation programme proceeding well

Gary Lamb, Chief Executive Officer, said:

"We have had a solid six months of trading for the Group, in line with Board's expectations.

The core business continues to perform well with decent levels of growth in both Broadband and Mobile revenues, while we have continued to deliver double digit growth in our Global Solutions business. Our first half performance also reflects the anticipated impact of the customer consolidation in our Data Centre business and realignment of our directory revenues.

First half net debt was affected by the expected exceptional costs associated with the transformation programme, but I am pleased to say that underlying levels of cash flow remain strong and net debt is expected to fall in the second half as these costs reduce. Whilst it remains early days, we are pleased with the impact of the Transformation Programme thus far.

We are also excited to report another addition to the group in the form of Goshawk Communications whose technology will enhance the customer experience for those phone users with hearing loss. Recent trials showed that over 90% of users were pleased with the experience provided by the technology.

We remain confident in the long-term prospects of the business which continues to trade in line with the Board's expectations for the full year."

*Underlying EBITDA is defined as the group profit or loss before depreciation, amortisation, net finance expense and taxation, adjusted for the items specified below

**Underlying operating cash flow is defined as net cash generated from operating activities, adjusted for the cash impact of the items specified below

^ Underlying profits are before £0.4m gain (H1 2016: £2.0m loss) on revaluation of interest rate swaps

*** The Underlying profits for H1 2017 are additionally before £1.9m Transformation Programme costs and £0.1m acquisition costs

This announcement contains inside information for the purposes of Article 7 of Regulation (EU) No 596/2014.

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Introduction

The results for the first six months of 2017 showed a robust performance for the Group in line with the Board's expectations. Group revenues for the period were slightly lower as a result of the customer consolidation in our Data Centre business which occurred in 2016, and the decision to move directory sales to the latter half of the year. The lower revenues have been partially offset by continued strong growth in Global Solutions, whilst our Mobile and Broadband businesses also reported solid growth in the period. After adjusting for the effect of the Data Centre customer consolidation and change in directory timing, the Group delivered year on year revenue growth for the period.

The Company's revenues were £38.5m (H1 2016: £39.2m) and underlying EBITDA (1) was £12.6m (H1 2016: £13.8m), with reported EBITDA of £10.7m (H1 2016: £13.8m). Underlying profit before tax was £6.7m (H1 2016: £8.3m) with reported profit before tax at £5.2m (H1 2016: £6.3m). This impacted underlying diluted EPS at 5.9p (H1 2016: 7.3p) with reported diluted EPS at 4.6p (H1 2016: 5.5p).

Underlying operating cash flow was £10.2m (H1 2016: £10.1m), with Underlying EBITDA cash conversion of 81.3% (H1 2016: 73.2%) aided by improved working capital versus the same period last year.

Reported operating cashflow, which takes into account the exceptional costs associated with the transformation programme and fees associated with acquisitions, was £5.4m (H1 2016: £10.1m).

The Board remains confident in the strength of the underlying cash flows of the Group and as such has declared an interim dividend of 3.9p, representing growth of 5.4% over the same period last year.

The Isle of Man economy continues to perform well, with unemployment at 1%, 33 years of uninterrupted GDP growth and economic growth forecast to continue. Manx Telecom continues to support the Isle of Man Government in attracting business to the Island, and the telecommunications infrastructure and services the Company provides form an important part of the Island's continued success.

During the period, we acquired a majority stake in Goshawk Communications who have developed technology which enhances the audio quality for phone users who suffer from hearing loss.

Our transformation programme, launched in October 2016 with the aim of improving competitiveness and our customer experience, remains on track and its implementation has begun well. A large proportion of the costs have now been incurred, including redundancy costs, with costs in H2 expected to be focused on investment in new IT systems to drive automation, efficiency and improved customer service.

Operational review

Fixed Line, Broadband and Data Services

Fixed Line, Broadband and Data Services provide fixed line voice, broadband and connectivity services for customers, connecting approximately 37,000 homes and 4,000 businesses on the Isle of Man. Collectively these remain our largest business, representing 40.5% of Company revenues in the period. H1 saw continued revenue growth of 4% in Broadband, as customers migrated to higher speed services. This was offset by the expected reduction of 3% in our Fixed Line revenue, as well as a reduction in Data Services revenue of 9% as the previously noted customer consolidation also affected this revenue stream. This resulted in a decrease in revenues of 2.9% to £15.6m (H1 2016: £16.0m).

In May 2017, we introduced changes to our Fixed Line and Broadband Tariff Charges. The price changes increased fixed line rental charges, but offered opportunity to deliver greater value for money to customers who subscribe to multiple services.

The Company continued to roll out high speed VDSL broadband services (up to 80mbps download) across the Island and in H1 2017 added a further 15 cabinets to extend the provision of our VDSL services ''Ultima'' and ''Ultima Plus''. Our Ultima broadband services now reach 93% of households, with 45% penetration (31 December 2016: 40%, 30 June 2016: 36%). The sale of Ultima and Ultima Plus has helped Broadband revenues to increase by 4% to £4.7m.

As part of the Company's ongoing investment in its network, a plan is in place to bring ultrafast fibre to the premises (FTTP) broadband to an initial 77 island locations. The new service will offer download speeds of up to 1Gbps and upload speeds of up to 200Mbps. The roll-out will begin during the second half of 2017 covering key business districts and industrial estates across the Island, the cost of which will be included within our normal capital expenditure plans

Mobile

Our award winning 4G network provides 99% population coverage at speeds 10 times faster than 3G services and is available to both our post-paid and pre-paid customers.

Revenue from Mobile accounts for 26.5% of our total revenues for the period. In line with our expectations, Mobile performed well during the period, with an increase in revenue from H1 2016 of 3.6%. This is primarily due to growth in our post-paid revenues which grew by 7% following increases in our subscriber base and continued migration of customers to higher ARPU 4G tariffs.

During the first half of 2017, we created a new mobile contract tariff proposition which provides customers with inclusive UK and EU roaming allowances, which launched successfully on 1 August 2017. Our inclusive roaming tariffs are the first of their kind in the Isle of Man and the initial customer response has been very positive.

Global Solutions

The Global Solutions business generates revenue from services which run on our domestic mobile technology platform and use our international roaming agreements. This enables us to offer a variety of products to UK and international partners who use our Global Solutions sim cards. There are four key revenue areas: wholesale SMS and voice, international traveler market, M2M and Strongest Signal Mobile (branded Chameleon).

Global Solutions continues to experience strong growth across much of the product portfolio, especially in M2M and Strongest Signal Mobile, with an increase in revenues of 13.0% during the period to £7.9m (H1 2016: £7.0m). Revenue from our partnership with China Unicom has been slow to arrive following delays in the project, but we remain excited by the partnership and expect a positive contribution in H2.

Data Centre

The Data Centre business offers co-location, managed hosting, cloud and disaster recovery services to an international and local corporate client base. These services are supplied by three data centres at Douglas North, Douglas Central and Greenhill Data Centre ("GDC"). The data centres at GDC and Douglas North are Tier III designed data centres (according to Telecommunications Industry Association standards). This provides high standards of data security, resilience, and expandable hosting capacity, including business continuity and distributed denial of service protection (DDoS).

As communicated in previous results, following customer consolidation in 2016, Data Centre revenues reduced in H1 2017 by £1.1m. This decline has been partially offset by an increase in kit sales and increasing utilization of our rack space. We continue to market our remaining Data Centre capacity together with our managed and cloud services, securing some new customers for 2017, and have seen modest growth from a re-based position.

Other

Other revenues include the advertising revenue from our telephone directory, hardware equipment sales, inter-connection fees and managed services. Other revenue also includes revenue from our subsidiary, Partitionware Limited.

Other revenues during the period fell as expected to £2.5m (H1 2016: £2.9m) with the reduction mainly driven by the change in distribution date of our directories to every December.

Outlook

With a continued focus on innovation and early progress on the Transformation Programme encouraging, we are continuing to pursue our joint strategy of strengthening our position in our core market on the Isle of Man whilst looking for growth on and off island by leveraging our mobile technology platform and exploring new products and services for existing and future customers.

Current trading remains on course to deliver a result for the full year in line with the Board's expectations. We expect similar trends in the core business during the second half as we saw in the first six months of the year, with a continuation of growth in Mobile and Broadband balanced by moderate decline in Fixed Line and Data Services revenues. Following the loss of two major customers in our Data Centre business last year, the Group is expected to grow revenue from this lower base in H2, whilst we expect Global Solutions to continue to perform well.

We remain confident in the outlook for the Group, reflected in our commitment to maintain our progressive dividend policy. We continue to generate strong operating cash flow from our core business, which enables us to support our ongoing investment programme and to create further value for shareholders.

Financial review

Results Overview

Group revenue declined by 1.8% to £38.5m (H1 2016: £39.2m) with a reduction in Data Centre and Other revenue (driven by a change in our directory delivery date) partially offset by increased Global Solutions revenue.

The Fixed Line, Broadband and Data business declined by 2.9% to £15.6m (H1: 2016: £16.0) with reduced Fixed Line call revenue and a reduction in Data revenue partially offset by continued Broadband revenue growth from the increased uptake of our Ultima and Ultima Plus high speed products. Mobile showed steady revenue growth of 3.6% to £10.2m (H1 2016: £9.9m) as a result of a continued increase in post pay contract subscription revenue. The Global Solutions business grew strongly at 13.0% to £7.9m (H1 2016 £7.0m) with particularly encouraging levels of growth in our strongest signal mobile, M2M and international traveller propositions. Data Centre revenues fell to £2.3m (H1 2016 £3.4m) as a result of customer consolidation. Other revenues were down as expected by 14.1% to £2.5m (H1 2016 £2.9m) as the distribution of directories moved from H1 to H2.

The Group generated underlying EBITDA of £12.6m (H1 2016: £13.8m) and reported EBITDA of £10.7m (H1 2016: £13.8m). The lower underlying EBITDA was primarily due to the change in directory distribution to H2 and customer consolidation in the Data Centre business. Underlying EBITDA margin decreased to 32.7% (H1 2016 35.3%), while reported EBITDA margin was 27.7% (H1 2016: 35.3%).

Depreciation and amortisation was £4.8m (H1 2016: £4.4m) which increased as a result of additions made during 2016, particularly in relation to updated billing platforms.

Underlying operating profit decreased by 16.9% from £9.4m in H1 2016 to £7.8m in the current period, reflecting the decrease in underlying EBITDA and increased depreciation expense. Reported operating profit was £5.9m (H1 2016: £9.4m) due to the effect of the transformation programme costs of £1.9m.

Underlying profit before tax was £6.7m (H1 2016 £8.3m) which is calculated as profit before tax, adjusted for the transformation programme related expenses of £1.9m, acquisition costs of £0.1m and a £0.4m gain on re-measurement of interest rate swap liability. Before adjusting for these items, reported profit before tax was £5.2m (H1 2016: £6.3m).

Underlying diluted EPS was 5.88p (H1 2016: 7.26p) resulting from the lower underlying profit before tax. Reported diluted EPS was 4.57p (H1 2016: 5.53p).

The Company has declared an interim dividend of 3.9p, a 5.4% or 0.2p increase on last year.

Costs

Costs of sales increased by 4.1% to £15.5m (H1 2015 £14.9m), primarily due to the increased Global Solutions revenue which generates roaming costs as a cost of sale.

Administrative expenses increased by 14.7% to £17.1m (H1 2016: £14.9m) due to transformation programme costs and increased depreciation and amortisation costs resulting from additional billing platform fixed assets brought into use in 2016.

Net finance costs at £1.1m were the same as prior period (H1 2016: £1.1m) which is in line with expectations as no significant changes were made to lending arrangement terms.

We recorded an unrealised gain of £0.4m (H1 2016: unrealised loss £2.0m) on interest rate swaps due to improvements in market forward interest rates.

There is no corporation tax payable on the Company's profits for H1 2017 or last year. The Company enjoys the benefit of an Isle of Man 0% corporation tax rate.

Cash flow and Capital Expenditure

Cash generated from underlying operating activities increased by 1.0% to £10.2m (H1 2016: £10.1m). This represents an underlying EBITDA cash conversion of 81.3% (H1 2016: 73.2%) with year on year progress boosted by improved working capital management and reduced pension contributions to the Group's defined benefit pension scheme, resulting from reduced annual funding obligations for 2017 onwards, down from £1.2m per annum to £0.6m per annum. Underlying operating cash flow includes adjustments for the following specific items;

Acquisition costs relate to the acquisition of Partitionware and Goshawk Communications (UK) Limited.

Reported free cash flow after investing activities was a cash outflow of £0.1m (H1 2016: £8.0m cash inflow) again primarily due to transformation programme payments and deferred payments relating to the acquisition of Partitionware in December 2016. After adjusting for these items, underlying free cash flow was £7.3m (H1 2016: £8.0m), the reduction being due to increased capital expenditure in the period as a result of phasing of spend throughout the year.

Balance Sheet

Property, plant and equipment decreased to £58.5m (H1 2016: £60.5m). Capital additions were £2.8m in H1 2017 compared with £1.0m in H1 2016. Depreciation at £4.7m has increased from the prior year (H1 2016: £4.3m) as a result of a billing platform upgrade in 2016.

Goodwill of £87.9m increased from £84.3m in H1 2016 as a result of the purchase of Partitionware in December 2016. The original balance of goodwill arose from the purchase of Manx Telecom from Telefonica in 2010 and is robustly supported by current valuations.

Current assets increased to £35.7m (H1 2016: £35.5m). Cash held at the end of the period decreased to £7.5m down from £15.8m at H1 2016 following cash outflows on the transformation programme and final payments in relation to the acquisition of Partitionware in 2016.

Trade and other receivables increased from £19.1m H1 2016 to £27.7m in H1 2017, offset by an increase in current liabilities from £20.1m H1 2016 to £26.1m H1 2017. Both were largely a result of higher unsettled roaming balances. The fair value of the interest rate swaps reduced to a liability of £1.5m at H1 2017 (H1 2016: £2.7m).

Net debt increased to £61.7m (H1 2016 £53.1m) as a result of cash flows described above. Given the higher level of exceptional costs in the first half, both due to the transformation programme and final payments associated with the acquisition of Partionware, net debt is expected to fall in H2.

_____________________________________________________________________________________

(1) The Directors of the Group have presented a number of additional performance measures in the Statement of Comprehensive Income and financial review which they believe are relevant to an understanding of the Group's financial performance which are not defined in IFRS and are therefore termed 'non-GAAP' measures. See note 3 for further information.

(2) Reported operating Cash Flow is referred to as Net cash generated from operating activities in the Condensed Interim Consolidated Statement of Cash Flows

Condensed Interim Consolidated Statement of Comprehensive Income

Condensed Interim Consolidated Statement of Financial Position

The notes on pages 14 to 28 form an integral part of these condensed interim financial statements.

These financial statements were approved by the Board of Directors and were signed on its behalf by:

Gary Lamb

Director

11 September 2017

Condensed Interim Consolidated Statement of Changes in Equity

The notes on pages 14 to 28 form an integral part of these condensed interim financial statements.

Condensed Interim Consolidated Statement of Cash Flows

The notes on pages 14 to 28 form an integral part of these financial statements.

1 General information

Manx Telecom plc (the "Company") and its subsidiaries (together "the Group") supply of a broad range of telecommunications services to the Isle of Man.

The Company is a public limited company, which is listed on the Alternative Investment Market of the London Stock Exchange ("AIM") and is incorporated and domiciled in the Isle of Man. The address of its registered office is 33-37 Athol Street, Douglas, Isle of Man, IM1 1LB.

These condensed interim consolidated financial statements were approved for issue on 11 September 2017. The interim report will be available from 11 September 2017 on the group's website www.manxtelecom.com and from the registered office.

2 Basis of preparation

The annual financial statements of the Group are prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union. These condensed interim financial statements have been prepared in accordance with IAS 34 "Interim Financial Reporting". They do not include all the information required for a complete set of financial statements prepared in accordance with International Financial Reporting Standards as adopted by the European Union. However, explanatory notes are included to explain events and transactions that are significant to an understanding of the changes in the Group's financial position and performance since the last annual consolidated financial statements as at and for the year ended 31 December 2016. These condensed interim financial statements should be read in conjunction with the last annual consolidated financial statements as at and for the year ended 31 December 2016.

3 Accounting policies

The accounting policies adopted are consistent with those of the previous financial year. The Group has not adopted any new accounting policies in the period to 30 June 2017. Other amendments to IFRSs effective for the financial year ending 31 December 2017 are not expected to have a material impact on the Group.

Going concern

The Directors are satisfied that the Group has sufficient resources to continue in operation for the foreseeable future, a period of not less than 12 months from the date of this report. Accordingly, they continue to adopt the going concern basis in preparing the condensed financial statements.

Non-GAAP measures

The Directors of the Group have presented a number of additional performance measures which they believe are relevant to an understanding of the Group's financial performance which are not defined in IFRS and are therefore termed 'non-GAAP' measures. These terms include EBITDA, underlying EBITDA, underlying operating profit, underlying profit before tax, underlying operating cash flow and underlying free cash flow, which are not defined performance measures in IFRS. The Group's definition of these terms may not be comparable with similarly titled performance measures and disclosures by other entities. Such non-GAAP measures should not be viewed in isolation or as an alternative to the equivalent GAAP measure.

EBITDA is defined as the Group profit or loss before depreciation, amortization, net finance expense and taxation. Underlying EBITDA is defined as EBTIDA, adjusted for specific items. EBITDA is a common measure used by investors and analysts to evaluate the operating financial performance of companies, particularly in the telecommunications sector. The Directors consider EBITDA and underlying EBITDA to be useful measures of operating performance. This presentation is consistent with the way that financial performance is measured by management and reported internally and assists in providing a meaningful analysis of the trading results of the Group.

Underlying operating profit and underlying profit before tax are based on equivalent IFRS reported measures from the consolidated statement of comprehensive income, adjusted for specific items. Underlying operating cash flow is based on the equivalent reported measure from the consolidated statement of cash flows, adjusted for the cash impact of specific items. Free cash flow is defined as net cash generated from operating activities less net cash used in investing activities. Underlying free cash flow is defined as free cash flow, adjusted for the cash impact of specific items. Free cash flow represents the cash that the Group is able to generate from operations after taking into account cash outflows required to maintain or expand its asset base. The Directors consider free cash flow and underlying free cash flow to be important performance measures as they determine the amount of cash available for strategic investments, repayment of debt or distribution to shareholders in the form of dividends.

Specific items are identified by virtue of their size, nature, or incidence. In determining whether an event or transaction is specific, management considers quantitative as well as qualitative factor such as the frequency or predictability of occurrence.

The adjustments made to reported profit before tax and operating profit are income and charges that are one-off in nature, significant and distort the Group's underlying performance. For the period ended 30 June 2017 these adjustments included:

- Transformation Programme. As part of the Transformation Programme, launched in 2016, the Group incurred costs of £1,902,000 during the period to 30 June 2017 relating to employee termination benefits, consulting fees and other programme-related costs.

- Acquisition Costs. Costs of £30,000 were incurred in relation to the acquisition of Goshawk Communications (UK) Limited in May 2017 and the acquisition of Partitionware in December 2016.

- Unrealised gains and losses on interest rate swaps. During the period to 30 June 2017, the Group made an unrealized gain of £428,000 on interest rate swap fair value movements, while for the period ended 30 June 2016, the Group made a loss of £1,976,000. See note 11 for further information.

Additionally, there are the following adjustments to reported cash flows from operating activities and free cash flow that are one off in nature, significant and distort the Group's underlying performance:

- Transformation Programme. The Group made operating cash outflows of £4,790,000 and investing cash outflows of £541,000 in the first six months of 2017 in relation to the Transformation Programme expenses described above.

- Acquisition of Subsidiary. The net cash outflow of £2,007,000 in relation to the second consideration payment in respect of the acquisition of Partitionware in December 2016 was made in the period. In addition the Group also made cash outflows of £30,000 in relation to acquisition costs of both Partitionware and Goshawk Communications (UK) Limited.

New currently effective requirements and forthcoming requirements

The following new and revised Standards and Interpretations have been adopted in the current period. Their adoption has not had any significant impact on the amounts reported in these financial statements.

At the date of authorization of these financial statements, the following Standards and Interpretations which have not been applied in these financial statements were in issue but not yet effective (and in some cases had not yet been adopted by the EU):

The Directors do not expect that the adoption of the Standards and Interpretations listed above will have a material

impact on the financial statements of the Group in future periods, except as that:

-- IFRS 15 may have a material impact on the amounts of revenue reported and disclosures made in the Group's

consolidated financial statements; and

-- IFRS 16 may require the Group to recognise new assets and liabilities in respect of its operating leases and replace

operating lease expenses with depreciation.

IFRS 15 sets out the requirements for recognising revenue from contracts with customers. The standard requires

entities to apportion revenue earned from contracts to individual promises, or performance obligations, on a relative

standalone selling price basis, based on a five-step model.

The Group is still in the process of quantifying the implications of this Standard, however we expect the following

indicative impacts:

- Under the current accounting policy, revenue recognised in relation to equipment and mobile handsets is based on the corresponding customer charge when the asset is transferred to the customer. Generally, customer premises equipment is provided for free, and mobile handsets are either provided for free or for a small upfront charge. Under IFRS 15, additional revenue will be allocated to all equipment and handsets with reference to the asset's relative standalone value within the contract, regardless of contract pricing. As a result, on adoption of IFRS 15, there will be an acceleration of revenue for these items, with a corresponding reduction in ongoing service revenue over the contract period. The difference between the revenue and the customer charge will be recognised as a contract asset - a receivable arising from secured cash flows - on the balance sheet.

- Sales commissions resulting directly from securing contracts with customers are currently expensed when incurred. IFRS 15 will require these costs of acquiring contracts to be recognised as an asset when incurred, to be expensed over the associated contract period.

- IFRS 15 will also result in some contract fulfilment costs which are currently expensed at a point in time to be deferred on the balance sheet where they relate to a performance obligation which is satisfied over time. The Group is continuing its analysis of the expected impacts of transition to IFRS 15. Beyond the information above, it is not practicable to provide a reasonable estimate of the effect of these Standards until a detailed review has been completed.

4 Estimates

The preparation of these condensed interim financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates.

In preparing these condensed interim financial statements, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements for the year ended 31 December 2016.

5 Financial risk management and financial instruments

5.1 Financial risk factors

The Group's operations expose it to a variety of financial risks including credit risk, currency risk, interest rate risk and liquidity risk. The Group's overall risk management policies focus on the unpredictability of financial markets and seek to minimise potential adverse effects on the Group's financial performance and net assets.

These condensed interim financial statements do not include all financial risk management information and disclosures required in the annual financial statements; they should be read in conjunction with the Group's annual financial statements as at 31 December 2016.

5.2 Liquidity risk

The Group's liquidity profile is unchanged during the period (see note 12).

5.3 Fair value estimation

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants

at the measurement date, regardless of whether that price is directly observable or estimated using another valuation technique.

In estimating the fair value of an asset or liability, the Group takes into account the characteristics of the asset or liability at the measurement date. Fair value for measurement and/or disclosure purposes in these consolidated financial states is determined on such a basis, except for share based payments within the scope of IFRS 2, leasing transactions that are within the scope of IAS 17, and measurements that have some similarities to fair value but are not fair value, such as net realisable value in IAS 2 or value in use in IAS 36.

In addition, for financial reporting purposes, fair value measurements are categorised into Level 1, 2 or 3 based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety, which are described as follows:

Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;

Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly; and

Level 3: inputs for the asset or liability that are not based on observable market data.

The table below analyses financial instruments carried at fair value at 30 June 2017, grouped into Levels 1 to 3 based on the degree to which the fair value is observable. Interest rate swaps are valued using discounted cash flows, under which future cash flows are estimated based on forward interest rate yields (from observable yield curves at the end of the reporting period) and contract interest rates.

The following table presents the group's assets and liabilities that are measured at fair value at 30 June 2016.

The following table presents the group's assets and liabilities that are measured at fair value at 31 December 2016.

There were no transfers between levels during the current or prior periods.

6 Operating segment information

The Group has five reportable revenue segments which management report on and base their strategic decisions on:

The segmental analysis shows revenue classified according to market source. However, the group is not structured on a divisional basis and has functional departments, processes, assets and obligations which serve each of these revenue streams. These are not allocated in the financial reports received by the Board and its decisions are not routinely based on any such identification. Consequently, the analysis shown above does not extend to any segmentation of profits and net assets.

There is no inter-segmental trading.

The products and services included within each of the five segments are as follows:

Fixed line, broadband and data includes revenues from ADSL and VDSL rental and connection charges, fixed line call charges, fixed line rental and connection charges, and private circuit rental and connection charges.

Mobile includes revenues from mobile calls, SMS and data charges, mobile rental charges, mobile handset and accessory sales, and roaming.

Global solutions includes revenues from mobile termination, products such as Chameleon, strongest signal mobile and M2M (machine to machine).

Data centre includes revenues from hosting services provided.

Other includes kit sales, directory revenues and managed service rental charges.

7 Finance income and expense recognised in profit or loss

8 Provisions

During 2016, the Group committed to a plan to restructure the business as part of the Transformation Programme. The restructuring provision at 31 December 2016 related to redundancy costs, consulting fees and other costs of the transformation programme. Estimated costs were based on the terms of relevant contracts. During the period, a substantial proportion of the restructuring provision was utilised as planned, as affected employees had left the Group and received payment. Additional provisions were made during the period, primarily relating to consulting costs.

9 Property, plant and equipment

Fixed asset additions during the period relate principally investment in the Group's fixed voice network, billing systems and building facilities.

The carrying value of land and buildings held under the revaluation model is the same as if it were held under the historical cost model. There were no changes in valuation techniques during the period.

10 Goodwill

On 29 June 2010, the Group acquired all of the ordinary shares in Manx Telecom Trading Limited (previously Manx Telecom Limited) for £133.8m satisfied in cash.

On 1 December 2016, the Group acquired all of the ordinary shares in Partitionware Limited for £4,007,000 satisfied in cash, giving rise to goodwill of £3,634,000.

Goodwill is deemed to have an indefinite life and so is not subject to amortisation.

The cash generating unit of the Group is considered to be the operations of Manx Telecom Trading Limited in its entirety due to the structure of the Company which operates as one telecommunications business. Goodwill is considered to be impaired if the carrying amount exceeds the recoverable amount.

A review for indicators of impairment since 31 December 2016 has been performed with no such indicators identified.

 11 Share capital

The table below sets out the amounts recorded in equity:

The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of the Company.

On 24 November 2015, the Company made a block listing application to the London Stock Exchange for admission of 30,000 Ordinary Shares of 0.2p each in the Company to trading on AIM. The shares will be issued from time to time pursuant to the exercise of share options under the Company's Save As You Earn share option scheme and will rank pari passu in all respects with the existing ordinary shares of the Company. On 10 December 2015, 3,214 shares were issued in respect of options exercised under this scheme, on 28 January 2016, 9,285 shares were issued in respect of options exercised under this scheme and on 17 May 2016 4,285 shares were issued in respect of options exercised under this scheme. During the period to 30 June 2017, a further 4,284 shares have been exercised under this scheme.

On 28 March 2017, the Company made a block listing application to the London Stock Exchange for admission of 250,000 Ordinary Shares of 0.2p each in the Company to trading on AIM. The shares will be issued from time to time pursuant to the exercise of share options under the Company's Save As You Earn share option scheme and will rank pari passu in all respects with the existing ordinary shares of the Company. During the period to 30 June 2016, 60,383 shares were issued in respect of options exercised under this scheme.

On 14 June 2017, by way of a special resolution passed at the Annual General Meeting of the Company, it was resolved that share premium of £84,366,271 be cancelled and reclassified as retained earnings.

 12 Interest-bearing loans and borrowings

The Group has a £80m revolving credit facility in place with Barclays Bank plc, Lloyds Bank plc and The Royal Bank of Scotland PLC, of which the Group has drawn down £70m. In 2015, the Group extended the term of the existing revolving credit facility by a further 2 years from 30 June 2018 to 30 June 2020. Transaction costs incurred as part of the original debt facility and the extension were capitalised and will be amortised over the loan period.

As at 30 June 2016, 31 December 2016 and 30 June 2017 the margin applicable to the interest rate on the facility was 1.5%.

Amounts drawn under the Facility Agreement are to be repaid on the last day of each applicable interest period unless the relevant borrower elects otherwise and amounts repaid will (subject to certain drawdown conditions) remain available for re-drawing unless cancelled.

The loan is secured by way of a debenture in favour of the security agent providing a fixed and floating charge over certain of the Group's assets, including the shares of Manx Telecom Holdings Limited and Manx Telecom Trading Limited and property, plant and equipment of the Group.

To mitigate the Group's exposure to interest rate risk, the Group has entered into interest swap agreements:

13 Earnings per share

The calculation of the basic and diluted earnings per share is based on the following data:

13.1 Reported Earnings per Share

The calculation of the Reported Earnings per Share has been based on the weighted average number of shares outstanding during the period (as above) and the Profit/(loss) for the period after tax attributable to the owners of the Group ("Earnings").

13.2 Underlying Earnings per Share

The calculation of Underlying Earnings per Share has also been included to enable shareholders to assess the results of the Group excluding income and charges that are one-off in nature, significant and distort the Group's underlying performance.

Underlying earnings of £6,721k are attributable to the Parent of the Group and have been calculated as underlying profit before Tax less the loss of £12k attributable to the Non-Controlling Interest.

14 Retirement Benefit Obligations

The Group operates two pension schemes. The Manx Telecom Limited Combined Pension Scheme is a defined benefit scheme that is closed to new entrants and the Manx Telecom Employee Retirement Plan is a defined contribution plan.

At 30 June 2017, the net liability on the defined benefit scheme decreased to £4.5m from a net liability of £5.4m at 31 December 2016 (30 June 2016: £2.7m liability). The fair value of the assets at 30 June 2017 were £91.9m (31 December 2016: £90.9m, 30 June 2016: £85.0m). The defined benefit obligation at 30 June 2017 was £96.4m (31 December 2016 £96.3m, 30 June 2016: £96.4m).

The service cost for the six month period was £nil as the scheme was closed to future accrual in August 2014 (31 December 2016: £nil, 30 June 2016: £nil), the net interest expense on the defined benefit liability was £nil (31 December 2016: £nil, 30 June 2016: £nil) and employer contributions were £0.3m (31 December 2016: £1.2m, 30 June 2016: £0.6m) following reduced annual funding obligations for 2017 onwards, down from £1.2m per annum to £0.6m per annum.

The gain on remeasurement of the defined benefit pension scheme recognised in other comprehensive income for the six month period was £0.6m (31 December 2016: £7.0m loss, 30 June 2016: £3.7m loss). The gain on remeasurement of the defined benefit pension scheme is a combination of the loss based on changes in financial assumptions, offset by a return on scheme assets greater than the discount rate applied. The loss as a result of financial assumptions was £0.5m for the six month period to 30 June 2017 (31 December 2016: £21.5m, 30 June 2016: £12.6m).

The financial assumptions used were:

15 Related party transactions

There have been no related party transactions during the period other than the compensation of key management personnel.

16 Acquisition of subsidiary

On 5 May 2017, the Group's subsidiary, Goshawk Communications Limited, a Company incorporated in the Isle of Man, acquired 100% of the issued share capital of Goshawk Communications (UK) Limited ("Goshawk") in exchange for 33% of the issued share capital of Goshawk Communications Limited. As a result of the share for share exchange, the Group has a 67% shareholding in Goshawk Communications Limited, which in turn owns 100% of Goshawk.

Goshawk is a UK based company which develops and exploits technology-based solutions that enhance audio quality. Goshawk was acquired in order to support the Group's transformational growth strategy by developing disruptive technologies and bringing innovative products and services to the market.

The amounts recognised in respect of the identifiable assets acquired and liabilities assumed from the acquisition of Goshawk on 5 May 2017 are as set out in the table below:

The gain on bargain purchase arising from the acquisition is a result of a nil consideration transferred and the fair value of the identifiable net assets acquired.

Acquisition related costs incurred in the period related to the acquisition of Goshawk (included in administrative expenses) amounted to £12,000.

Goshawk contributed nil revenue and £34,000 of losses to the Group's consolidated profit for the period between the date of acquisition on 5 May 2017 and the balance sheet date of 30 June 2017.

If the acquisition of Goshawk had been completed on the first day of the financial period, Group revenues for the six month period to 30 June 2017 would have been £20,000 more and Group profit would have been £15,000 less.

 17 Non-Controlling Interest

Summarised consolidated financial information in respect of Goshawk Communications Limited, which has a material non-controlling interest, is set out below. The summarised financial information below consolidates Goshawk Communications (UK) Limited and represents amounts before other intragroup eliminations.

Goshawk Communications Limited

Goshawk Communications Limited was a newly formed company acquired by the Group on 2 May 2017 for the purpose of acquiring Goshawk, therefore there is no comparative information for the period ended 30 June 2016.

18 Dividends

The following amounts were recognised as distributions to equity holders in the period:

The final dividend for the year ended 31 December 2016 was declared on 14 March 2017 and paid on 30 June 2017. The interim dividend was declared on 11 September 2017 and has not been included as a liability in these condensed interim financial statements. The dividend is payable to all shareholders on the Register of Members on 13 October 2017. The total dividend to be paid is 3.9p per share. The payment of this dividend will not have any tax consequences for the Group.

19 Subsequent events

The following significant events occurred after the period end date of 30 June 2017 and prior to the signing of these interim financial statements on 11 September 2017:

- An interim dividend for the period ended 30 June 2017 was declared as detailed in note 18;

- On 7 July 2017, 448,144 share options were granted to Executive Directors of the Company and Directors of the subsidiary Manx Telecom Trading Limited under a third Long Term Incentive Plan approved by the Remuneration Committee on 14 June 2017; and

- On 6 July 2017, 61.020 new ordinary shares were issued of 0.2p each in respect of the Save As You Earn share option scheme.

Other than as noted above, there are no events after the balance sheet date which require disclosure.