Interim Results
Maintel Holdings PLC
10 September 2007
Maintel Holdings Plc
Interim results for the six months to 30 June 2007
Maintel Holdings Plc, the telecoms services company, announces interim unaudited
results for the six months to 30 June 2007. These are reported under
International Financial Reporting Standards ('IFRS'), with 2006 comparisons
restated accordingly.
Financial Highlights
Group turnover increased by 26% to £8.9m (2006 H1: £7.1m)
Maintenance related revenue increased by 16% to £4.3m (2006 H1: £3.7m)
Sales of equipment including VoIP solutions up 43% to £2.6m (2006 H1: £1.8m)
Sales of broadband, call traffic and related products up 32% to £2.0m (2006 H1:
£1.5m)
Cash increased by £411,000 in H1 after paying a dividend of £361,000 and
£258,000 taxation
Adjusted profit before tax of £905,000 (2006 H1: £916,000); adjusted profit
before tax is basic profit before tax of £780,000 (2006 H1: £916,000), adjusted
for goodwill impairment and intangible amortisation
Adjusted earnings per share of 5.1p (2006 H1: 5.0p); adjusted earnings per share
is basic earnings per share of 4.3p (2006 H1: 5.0p), adjusted for goodwill
impairment and intangible amortisation
Interim dividend proposed of 2.5p per share (2006: 2.1p)
Operational Highlights
Increased investment in recruitment and training of Nortel technical team
Increased investment and training in sales resource
Significant order for VoIP roll out for major city law firm for H2 delivery
Acquisition in August of a customer base from Callmaster Limited for up to
£442,000 cash, satisfied from existing resources - annual contract value approx
£850,000
Order book of £1.4m at 31 August
Winner of Nortel/Westcon Enterprise Achievement Award 2007
John Booth, Chairman said:
'Growth was particularly strong in sales of new VoIP and data equipment as our
maintained customers continue to invest in new technology. This has resulted in
us entering the second half of 2007 with a large order book of work to be
completed and a healthy prospect list.'
For further information please contact:
Tim Mason, Chief Executive 020 7401 4601
Dale Todd, Finance Director 020 7401 0562
Chairman's statement
I am pleased to report continued robust performance by your company for the
first half of 2007 with turnover up 26% on the equivalent period in 2006. Growth
was particularly strong in sales of new VoIP and data equipment as our
maintained customers continue to invest in new technology. This has resulted in
us entering the second half of 2007 with a large order book of work to be
completed and a healthy prospect list.
In August we completed the purchase of the contract base of Callmaster Limited
reinforcing Maintel's ability to supplement organic growth with valuable
acquisitions. We are confident that these developments will lead to continued
growth in the second half of the year.
For the first half of the current year, adjusted earnings per share increased
slightly reflecting the significant investment made in our technical capability
to support the requirements of our customers and continuing growth of our sales
engine.
Dividend
In light of expectations in the second half, we are proposing an interim
dividend of 2.5p per share, up from 2.1p last year, to be paid on 5 October 2007
to shareholders on the register at 21 September 2007.
J D S Booth
Chairman
7 September 2007
Business review
IFRS (International Financial Reporting Standards)
This is the first reporting period for which the Group is required to report
under IFRS, the main effects of which are to alter the treatment of goodwill and
its amortisation, and to create a provision for accrued holiday pay. Prior
period accounts have been restated under IFRS, and reconciliations between UK
GAAP and IFRS are shown on pages 16 to 23.
Results
The first half of 2007 has seen another solid performance from the Maintel
Group, with revenues increasing 26% compared with the first half of 2006. As
predicted in the annual report issued in March, profit has remained steady
primarily due to the investment in engineering resource during the later stages
of 2006 and the cost of retraining existing engineers in new product lines,
together with further investment in sales resource in early 2007. Before
goodwill impairment, intangibles amortisation and the IFRS holiday pay accrual,
profit before tax was £964,000, compared with £965,000 in the first half of
2006, however share buy backs during 2006 and the absorption of residual tax
losses from the District group, mean that adjusted earnings per share have
increased from 5.0p to 5.1p.
UK GAAP profitability (£000) 30 June 2007 30 June 2006 31 Dec 2006
IFRS profit before tax 780 916 2,012
Add back goodwill impairment and
intangibles amortisation 125 - 188
Add back holiday pay accrual 59 49 2
UK GAAP profit before tax, before
goodwill amortisation 964 965 2,202
The revenue growth has derived mostly from another strong performance from the
Network services division, VoIP equipment sales in Maintel Europe and from
customers of the District group, which was acquired in June 2006.
Cash balances have increased by £411,000 since the year end, to £2.6m,
representing the profit in the period less £258,000 tax, £361,000 in dividend
payments, £63,000 capital expenditure and a £110,000 positive movement in
working capital.
Maintenance and equipment division
Revenue analysis (£000) 30 June 2007 30 June 2006 31 Dec 2006
Maintenance related 4,339 3,753 8,073
Equipment, installations and other 2,551 1,784 4,754
Total maintenance and equipment 6,890 5,537 12,827
The maintenance and equipment division has returned a £1.35m increase in revenue
compared with the first half of 2006, an estimated £500,000 of this deriving
from the District acquisition. Both maintenance and equipment sales have
therefore shown good underlying growth, maintenance related revenues having
increased by 16% to £4.3m in the first half of 2007.
Equipment sales are showing a reduction compared with the second half of 2006
due to that period incorporating £866,000 of revenue in respect of the London
Probation Board ('LPB') contract - a project for which Maintel Europe earned the
Nortel/Westcon Enterprise Achievement Award. The second half of 2007 will
benefit from a £380,000 equipment sale signed in August with a major law firm
which, together with an exceptionally large order book gives us confidence that
equipment sales for the year will exceed 2006.
Division gross profit (£000) 2,623 2,302 5,038
The division showed a slight fall in profitability compared with the second half
of 2006, primarily a result of the investment in engineering, sales resource and
training noted earlier, and the LPB contract in 2006. It is anticipated that
increased utilisation of the engineering resource, and the effects of the
increased sales resource will be seen in the second half.
Average headcount during the period 30 June 2007 30 June 2006 31 Dec 2006
Sales, marketing and customer
service 58 42 54
Engineers 86 63 72
Network services division
In the first half of 2007, the division has seen significant growth in its
primary revenue streams of call traffic and line rental, with the former up 23%
on the first half of 2006 and the latter up 118%. This change in revenue mix -
line rental earning lower margins than call traffic - together with some price
pressure on call traffic margins, has caused the division's overall gross margin
to drop from 29% in 2006 to 26% in the first half of 2007, although gross profit
has continued to grow, from £505,000 in the second half of 2006 to £523,000 in
the period under review.
As anticipated in the year end business review, the division has received notice
of cancellation from one of its larger but lower margin customers. The reduction
in revenue will be seen from August 2007, but this will be tempered by a
significant first half new signing which will go some way to compensating for
the loss. Attrition otherwise remained low.
Revenue analysis (£000) 30 June 2007 30 June 2006 31 Dec 2006
Call traffic 1,396 1,138 2,426
Line rental 462 212 586
Other 162 176 327
Total Maintel Voice and Data 2,020 1,526 3,339
Division gross profit (£000) 523 456 961
Administrative expenses
As already noted, investment in our sales team increased in the first half of
2007, with a net 16 increase in headcount over the same period last year. The
largest increase has been in the account management team which has been
achieving significant sales into our customer base.
Administrative expenses (£000) 30 June 2007 30 June 2006 31 Dec 2006
Sales expenses 1,152 908 1,878
Other administrative expenses
(excluding goodwill impairment and
intangibles amortisation) 1,148 1,012 1,844
District sales and admin costs - - 211
Total other administrative
expenses 2,300 1,920 3,933
Administrative expenses increased, albeit at a reduced rate compared with
revenue, largely due to the increase in overall headcount and increase in
revenues impacting on variable overheads.
30 June 2007 30 June 2006 31 Dec 2006
Average Group headcount during the
period 171 149 160
Group revenue 8,910 7,063 16,166
Taxation
The income statement shows a tax rate of 30.9%. The two main trading companies
are taxed at 30%, so that with disallowables the effective rate is above this,
increased further by the goodwill impairment charge which does not attract tax
relief. In the period under review, however, the unused portion of District's
tax losses has reduced the charge.
Intangible assets
Following the adoption of IFRS, the Group has three intangible assets - goodwill
arising on the acquisition of Maintel Network Services Limited (previously
Pinnacle Voice and Data Limited) and an intangible asset represented by customer
contracts and relationships acquired from District Holdings Limited, together
with goodwill relating to that acquisition.
The goodwill is subject to an impairment test at each reporting date. No
impairment charge is required at 30 June 2007 and the carrying value is £544,000
at that date.
The intangible is subject to an amortisation charge of 20% of cost per annum,
£96,000 having been amortised in the first half, leaving a carrying value of
£772,000.
Balance sheet
The balance sheet remains solid, with £2.6m of cash, as noted above,
facilitating continued growth in equipment sales and network services from
existing resources.
No significant expenditure has been required on plant and equipment, or on
stock, during the period.
The deferred tax liability arises from the application of IFRS, whereby a
liability of £290,000 was created on the establishment of the intangible asset
relating to District. This is partially offset by deferred tax assets, and is
likely to be impaired in parallel with the amortisation of the intangible.
Acquisition of contract base
On 1 August 2007, the Group acquired a contract base of maintenance, call
traffic, line rental and VoIP hosted service customers from Callmaster Limited,
for a consideration of up to £442,000. Two of Callmaster's engineers joined the
Group at the same time. The annual value of the contracts at the date of
acquisition was around £850,000.
Once again I would like to extend my gratitude to all Maintel employees for
their continued hard work and support which has produced another excellent
result for the Group.
Tim Mason
Chief Executive
7 September 2007
Maintel Holdings Plc
Consolidated interim income statement
for the six months to 30 June 2007
Six months to Six months to Year ended
30 June 2007 30 June 2006 31 Dec 2006
£'000 £'000 £'000
(unaudited) (unaudited) (audited)
Revenue 8,910 7,063 16,166
Cost of sales 5,764 4,305 10,167
---------- ---------- ----------
Gross profit 3,146 2,758 5,999
Administrative expenses
------------------------- ---------- ---------- ----------
Goodwill impairment 29 - 91
Intangibles amortisation 96 - 97
Other administrative expenses 2,300 1,920 3,933
------------------------- ---------- ---------- ----------
2,425 1,920 4,121
---------- ---------- ----------
Operating profit 721 838 1,878
Financial income 59 78 135
Financial charges - - (1)
---------- ---------- ----------
Profit before taxation 780 916 2,012
Taxation 241 270 592
---------- ---------- ----------
========== ========== ==========
Profit after taxation attributable 539 646 1,420
to equity holders of the parent
========== ========== ==========
=== === ===
=== === ===
Earnings per share
==================== === === ===
=== === ===
Basic and diluted (note 3) 4.3p 5.0p 11.1p
============================ ========== ========== ==========
Maintel Holdings Plc
Consolidated balance sheet
as at 30 June 2007
30 June 2007 30 June 2006 31 Dec 2006
£'000 £'000 £'000
(unaudited) (unaudited) (audited)
Non current assets
Intangible assets 1,316 1,482 1,441
Property, plant and equipment 223 287 238
---------- ---------- ----------
1,539 1,769 1,679
---------- ---------- ----------
Current assets
Inventories 733 1,332 705
Trade and other receivables 3,050 2,972 2,861
Cash and cash equivalents 2,645 3,573 2,234
---------- ---------- ----------
6,428 7,877 5,800
---------- ---------- ----------
Total assets 7,967 9,646 7,479
---------- ---------- ----------
Current liabilities
Trade and other payables 5,598 7,250 5,271
Current tax liabilities 415 344 380
---------- ---------- ----------
Total current liabilities 6,013 7,594 5,651
---------- ---------- ----------
Non current liabilities
Deferred tax liability 165 229 217
---------- ---------- ----------
Total net assets 1,789 1,823 1,611
========== ========== ==========
Equity
Issued share capital 124 128 124
Share premium 628 628 628
Capital redemption reserve 12 8 12
Retained earnings 1,025 1,059 847
---------- ---------- ----------
Total shareholders' equity 1,789 1,823 1,611
========== ========== ==========
Maintel Holdings Plc
Consolidated cash flow statement
for the six months to 30 June 2007
Six months to Six months to Year ended
30 June 2007 30 June 2006 31 Dec 2006
£'000 £'000 £'000
(unaudited) (unaudited) (audited)
Operating activities
Profit before taxation 780 916 2,012
Adjustments for:
Goodwill impairment 29 - 91
Intangibles amortisation 96 - 97
Depreciation charge 78 65 136
Financial income (59) (78) (135)
Financial charges - - 1
Loss on disposal of fixed assets - - 5
---------- ---------- ----------
Operating profit before changes in
working capital 924 903 2,207
(Increase)/decrease in inventories (28) (615) 12
Increase in trade and other
receivables (189) (782) (671)
Increase in trade and other
payables 327 2,066 87
---------- ---------- ----------
Cash generated from operating
activities 1,034 1,572 1,635
Tax paid (258) (305) (603)
---------- ---------- ----------
Net cash flows from operating
activities 776 1,267 1,032
---------- ---------- ----------
Investing activities
Purchase of plant and equipment (63) (83) (110)
------------------------- ---------- ---------- ----------
Purchase of subsidiary undertaking - (1,060) (1,207)
Net cash acquired with subsidiary
undertaking - 183 183
------------------------- ---------- ---------- ----------
- (877) (1,024)
Financial income 59 78 135
---------- ---------- ----------
Net cash flows from investing
activities (4) (882) (999)
---------- ---------- ----------
Financing activities
Financial charges - - (1)
Repurchase of own shares for
cancellation - (114) (832)
Equity dividends paid (361) (323) (591)
---------- ---------- ----------
Net cash flows from financing
activities (361) (437) (1,424)
---------- ---------- ----------
Net increase/(decrease) in cash
and cash equivalents 411 (52) (1,391)
Cash and cash equivalents at start
of period 2,234 3,625 3,625
---------- ---------- ----------
Cash and cash equivalents at end
of period 2,645 3,573 2,234
========== ========== ==========
Maintel Holdings Plc
Consolidated statement of changes in equity
for the period to 30 June 2007
Share capital Share premium Capital Retained Total
redemption earnings
reserve
£'000 £'000 £'000 £'000 £'000
At 1 January
2006 129 628 7 884 1,648
Changes in
accounting
policy - - - (34) (34)
------- -------- --------- -------- ------
Restated
balance 129 628 7 850 1,614
Profit for the
period* - - - 646 646
Dividend - - - (323) (323)
In respect of
purchase of
own shares (1) - 1 - -
Appropriated
in respect of
purchase of
own shares - - - (114) (114)
------- -------- --------- -------- ------
At 30 June 2006 128 628 8 1,059 1,823
Profit for the
period* - - - 774 774
Dividend - - - (268) (268)
In respect of
purchase of
own shares (4) - 4 - -
Appropriated
in respect of
purchase of
own shares - - - (718) (718)
------- -------- --------- -------- ------
At 31 December
2006 124 628 12 847 1,611
Profit for the
period* - - - 539 539
Dividend - - - (361) (361)
------- -------- --------- -------- ------
=== ===
At 30 June 2007 124 628 12 1,025 1,789
======= ======== ========= ======== ======
*Total recognised income and expenses for the period are the same as the profit
for the period shown above.
Maintel Holdings Plc
Notes to the interim report
1. Accounting policies
The transition to IFRS from UK GAAP has resulted in certain changes to the
accounting policies of the Group. The policies adopted in the preparation of the
interim financial information are as follows:
(a) Basis of preparation of interim financial information
The financial information included in this report does not constitute statutory
accounts as defined in section 240 of the Companies Act 1985, and is unaudited.
The comparative figures for the year ended 31 December 2006 do not constitute
the Group's statutory accounts for that financial year. Those accounts, which
were prepared under UK GAAP, have been reported on by the Company's auditors and
delivered to the Registrar of Companies. The auditor's report on those statutory
accounts was unqualified, did not include references to any matters to which the
auditors drew attention without qualifying their report, and did not contain a
statement under section 237(2) or (3) of the Companies Act 1985.
The Group is required to report its consolidated financial statements under
International Financial Reporting Standards ('IFRS'), as adopted by the European
Union, for all accounting periods beginning on or after 1 January 2007.
Comparative information for 2006, previously reported under UK GAAP, has been
restated under IFRS.
This interim report has been prepared using those policies the Group expects to
be endorsed and applicable when the financial statements are prepared for the
year ending 31 December 2007. The related standards are subject to ongoing
review and endorsement by the European Union or possible amendment by
interpretive guidance from the International Accounting Standards Board and the
International Financial Reporting Interpretations Committee and are, therefore,
still subject to change.
The financial effects of the transition from reporting under UK GAAP are shown
in note 5, which includes reconciliations of equity and profit for the
comparative periods. The presentation of the Group's financial statements has
also changed, in accordance with IAS 1 'Presentation of Financial Statements'
and IAS 7 'Cash Flow Statements'.
The restated IFRS financial information provided for the year ended 31 December
2006 does not constitute statutory accounts as defined in section 240 of the
Companies Act 1985, however it is anticipated to form the comparative period for
the statutory accounts for the year ending 31 December 2007, the Group's first
annual financial statements to be prepared under IFRS.
The preparation of the consolidated interim financial information in accordance
with IFRS has resulted in changes to the accounting policies as compared with
the most recent annual financial statements prepared under UK GAAP. The
accounting policies set out below have been applied consistently to all periods
presented in these consolidated interim financial statements and have been
applied in preparing an opening IFRS balance sheet at 1 January 2006 for the
purposes of the transition to IFRS, as required by IFRS 1.
(b) Transition to International Financial Reporting Standards
IFRS 1 'First-time Adoption of International Financial Reporting Standards' sets
out the rules for first time adoption of IFRS and the optional exemptions which
may be used in applying the standards retrospectively to comparative periods.
The Group has used the following exemption in adopting IFRS.
IFRS 3 'Business Combinations' has only been applied to acquisitions completed
after the date of transition, 1 January 2006. As a result, the carrying value of
goodwill in the UK GAAP balance sheet at 31 December 2005, which relates to the
acquisition of Maintel Network Solutions Limited (previously Pinnacle Voice and
Data Limited) in December 2005, is brought forward to the IFRS opening balance
sheet without adjustment.
(c) Basis of consolidation
The financial statements consolidate the results of Maintel Holdings Plc and
each of its subsidiaries. The results of the subsidiaries acquired are included
within the consolidated income statement and balance sheet from the effective
date of acquisition, applying uniform accounting policies pursuant to IAS 27
'Consolidated and separate financial statements'. The results of disposed
subsidiaries are included in the consolidated income statement up to the
effective date of disposal. All intra-group transactions and balances are
eliminated on consolidation. Acquisitions are accounted for using the
acquisition method of accounting.
Subsidiaries are all entities over which the Group has the power to govern their
financial and operating policies, and a shareholding of more than fifty percent
of the company's voting rights. The existence and effect of potential voting
rights that are currently exercisable or convertible are considered when
assessing whether the Group controls another entity.
(d) Revenue
Revenue represents sales to customers at invoiced amounts less value added tax.
Revenue from sales of equipment, chargeable works carried out and network
services, is recognised when the goods or services are provided. Amounts
invoiced in advance in respect of maintenance contracts are deferred and
released to the income statement over the period covered by the invoice. Revenue
and profit on long term contracts is recognised dependent on the stage of and
costs to completion of each contract.
(e) Intangible assets
Goodwill
Purchased goodwill represents the difference between the cost of the acquisition
and the fair value of the net identifiable asset, liabilities and contingent
liabilities. Cost comprises the fair value of assets given, liabilities assumed
and equity instruments issued, plus any direct costs of acquisition. Goodwill is
capitalised as an intangible asset.
Other intangible assets
Intangible assets are stated at cost less accumulated amortisation and consist
of customer lists. Where these assets have been acquired through a business
combination, the cost will be the fair value allocated in the acquisition
accounting; where they have been acquired other than through a business
combination, the initial cost is the aggregate amount paid and the fair value of
any other consideration given to acquire the asset.
Customer lists are amortised over their estimated useful lives of five years.
Impairment of Goodwill and other intangible assets
Impairment tests on goodwill and other intangible assets with indefinite useful
economic lives are undertaken at each reporting date. Customer lists and other
assets are subject to impairment tests whenever events or changes in
circumstances indicate the carrying amount may not be recoverable. Where the
carrying value of an asset exceeds its recoverable amount (being the higher of
value in use and fair value less costs to sell), the asset is written down
accordingly.
Where it is not possible to estimate the recoverable amount of an individual
asset, the impairment test is carried out on the asset's cash-generating unit
(being the lowest group of assets in which the asset belongs for which there are
separately identifiable cash flows). Goodwill is allocated on initial
recognition to each of the Group's cash-generating units that are expected to
benefit from the synergies of the combination giving rise to goodwill.
Impairment charges are included in the administrative expenses line item in the
income statement.
(f) Property, plant and equipment
Property, plant and equipment is stated at historic cost, less accumulated
depreciation. Depreciation is provided to write off the cost, less estimated
residual values, of all tangible fixed assets over their expected useful lives,
at the following rates:
Property, plant and machinery over the life of the lease to third parties
Office and computer equipment 25% straight line
Leasehold improvements over the remaining period of the lease
(g) Inventories
Inventories comprise (a) maintenance stock, being replacement parts held to
service customers' telecommunications systems, and (b) work in progress, being
stock purchased for customer orders which has not been installed at the end of
the financial period. Inventories are valued at the lower of cost and net
realisable value.
(h) Cash and cash equivalents
Cash and cash equivalents comprise cash balances and short term deposits with an
original maturity of three months or less. Bank overdrafts that are repayable on
demand and form an integral part of the Group's cash management procedures are
also included as a component of cash and cash equivalents for the purposes of
the cash flow statement.
(i) Taxation
Current tax is the expected tax payable on the taxable income for the year,
together with any adjustments to tax payable in respect of previous years.
Deferred tax is provided using the liability method, providing for temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for taxation purposes, except for
differences arising on:
• the initial recognition of goodwill;
• goodwill for which amortisation is not tax deductible;
• the initial recognition of an asset or liability in a transaction which
is not a business combination and at the time of the transaction affects
neither accounting or taxable profit; and
• investments in subsidiaries where the Group is able to control the
timing of the reversal of the difference and it is probable that the
difference will not reverse in the foreseeable future.
A deferred tax asset is recognised only to the extent that it is probable that
future taxable profits will be available against which the asset can be
utilised.
The amount of the deferred tax asset or liability is determined using tax rates
that have been enacted or substantially enacted by the balance sheet date and
are expected to apply when the deferred tax assets/liabilities are recovered/
settled. Deferred tax balances are not discounted.
Deferred tax assets and liabilities are offset when the Group has a legally
enforceable right to offset current tax assets and liabilities and the deferred
tax assets and liabilities relate to taxes levied by the same tax authority on
either:
• the same taxable Group company; or
• different Group entities which intend either to settle current tax
assets and liabilities on a net basis, or to realise the assets and settle
the liabilities simultaneously, in each future period in which significant
amounts of deferred tax assets or liabilities are expected to be settled or
recovered.
(j) Employee benefits
The Group contributes to a number of defined contribution pension schemes in
respect of certain of its employees; the Group does not contribute and has not
contributed to any defined benefit pension schemes. The amount charged in the
income statement represents the employer contributions payable to the schemes in
respect of the financial period. The assets of the schemes are held separately
from those of the Group in independently administered funds.
The cost of all short term employee benefits is recognised during the period the
employee service is rendered.
Holiday pay is expensed in the period in which it accrues.
(k) Dividends
Dividends unpaid at the balance sheet date are only recognised as a liability at
that date to the extent that they are appropriately authorised and are no longer
at the discretion of the Company. Proposed but unpaid dividends that do not meet
these criteria are disclosed in the notes to the accounts.
2. Segmental analysis
Six months to Six months to Year ended
30 June 2007 30 June 2006 31 Dec 2006
£'000 £'000 £'000
(unaudited) (unaudited) (audited)
Turnover
Telephone system maintenance and
equipment sales 6,890 5,537 12,827
Telephone network services 2,020 1,526 3,339
---------- ---------- ----------
8,910 7,063 16,166
========== ========== ==========
Gross profit
Telephone system maintenance and
equipment sales 2,623 2,302 5,038
Telephone network services 523 456 961
---------- ---------- ----------
3,146 2,758 5,999
========== ========== ==========
Profit before taxation
Telephone system maintenance and
equipment sales 692 737 1,797
Telephone network services 213 179 403
Goodwill impairment and intangible
amortisation (125) - (188)
---------- ---------- ----------
780 916 2,012
========== ========== ==========
3. Earnings per share
Earnings per share have been calculated using the weighted average number of
shares in issue during the period. This and earnings, being profit after tax,
are as follows. An adjusted earnings per share figure - excluding the impairment
of goodwill and amortisation of intangibles - is also shown in order to provide
a clearer picture of the trading performance of the Group.
Six months to Six months to Year ended
30 June 2007 30 June 2006 31 Dec 2006
£'000 £'000 £'000
(unaudited) (unaudited) (audited)
Earnings used in basic and diluted
EPS, being profit after tax 539 646 1,420
Goodwill impairment and intangible
amortisation, less tax thereon 96 - 159
---------- ---------- ----------
Adjusted earnings, being profit
after tax, before goodwill
impairment and intangible
amortisation 635 646 1,579
========== ========== ==========
Weighted average number of shares 12,457 12,930 12,783
========== ========== ==========
Basic and diluted EPS 4.3p 5.0p 11.1p
========== ========== ==========
Adjusted EPS 5.1p 5.0p 12.4p
============== ========== ========== ==========
4. Dividends
Six months to Six months to Year ended
30 June 2007 30 June 2006 31 Dec 2006
£'000 £'000 £'000
(unaudited) (unaudited) (audited)
Dividends paid
Final 2005, paid 24 April 2006
- 2.5p per share - 323 323
Interim 2006, paid 29 September 2006
- 2.1p per share - - 268
Final 2006, paid 25 April 2007
- 2.9p per share 361 - -
---------- ---------- ----------
361 323 591
========== ========== ==========
The directors propose to pay an interim dividend of 2.5p per share on 5 October
2007 to shareholders on the register at 21 September 2007.
5. Transition to International Financial Reporting Standards
The Group's reported financial performance and position is altered as described
below as a result of the adoption of IFRS and the accounting policies detailed
in note 1 above.
The following table summarises the impact of the adoption of IFRS on the Group's
operating profit for the six months to 30 June 2006 and the year ended 31
December 2006.
Six months to Year ended
30 June 2006 31 Dec 2006
£'000 £'000
Operating profit - under UK GAAP 871 1,946
==================================
Reversal of goodwill amortisation 16 122
Amortisation of intangible assets - (188)
===================================
and goodwill impairment
=========================
Staff costs - holiday pay (49) (2)
---------- ----------
Operating profit - under IFRS 838 1,878
========== ==========
The following table summarises the impact of the adoption of IFRS on the Group's
total equity as at 1 January 2006, 30 June 2006 and 31 December 2006.
1 January 2006 30 June 2006 31 Dec 2006
£'000 £'000 £'000
Total equity - under UK GAAP 1,648 1,875 1,684
==============================
Reversal of goodwill
amortisation - 16 122
Amortisation of intangible
assets and goodwill impairment - - (159)
=================================
Staff costs - holiday pay net of
deferred tax (34) (68) (36)
----------- ---------- ----------
Total equity - under IFRS 1,614 1,823 1,611
=========== ========== ==========
A brief explanation of the adjustments is as follows:
Staff costs - holiday pay
IAS 19 requires that a liability for holiday pay is recorded for all accrued
entitlement at each balance sheet date. The Group's primary holiday year end is
31 December, in line with its financial year end, and most employees are
entitled to carry forward a maximum of 10 days' holiday to the following holiday
year. As at 30 June, therefore, there tends to be a larger accrual (and
therefore expense in the income statement) required than is the case at 31
December.
Business combinations
Under UK GAAP, the cost of an acquisition over and above the value of the net
assets acquired was deemed to be goodwill. IFRS 3 requires that each acquisition
is considered separately and a value attributed to any identifiable other
intangible assets such as customer lists. The goodwill cost is therefore the
difference between the consideration paid for the investment after deducting the
value of net assets including other intangible assets.
IFRS 1 provides for an exemption from restating the acquisition of Maintel
Network Solutions Limited (previously Pinnacle Voice and Data Limited) on this
basis as the acquisition took place on 5 December 2005 - before the Group's IFRS
transition date of 1 January 2006 - and so the historical goodwill of £374,000
relating to that company has been retained. In such circumstances, IFRS 3
requires that this goodwill, being an asset of indefinite life, is not amortised
but is tested for impairment at each reporting date, and any such impairment is
applied in accordance with IAS 36.
The directors have considered the acquisition of District Holdings Limited -
acquired on 12 June 2006 - and attributed a value of £965,000 to the customer
contracts and associated relationships of District. This intangible asset will
be amortised over its useful life, this being deemed to be 5 years, and
subjected to an impairment review at each reporting date.
Reversal of goodwill amortisation
Under UK GAAP, the goodwill arising on the acquisitions of Maintel Network
Solutions Limited and District Holdings Limited was amortised over a 7 year
period. Under IAS 38 the intangible asset in relation to District is being
amortised over a 5 year period and tested for impairment at each reporting date.
The effect of adopting IFRS is to reverse the District goodwill amortisation
charge in 2006 and to replace it with an intangible amortisation charge and to
reverse the amortisation charge in respect of Maintel Network Solutions Limited
and replace it, where necessary, with an impairment charge.
Deferred taxation
On the establishment of the £965,000 intangible asset relating to District, IFRS
requires that a deferred tax liability be created and a liability of £290,000
has accordingly been incorporated in the balance sheet.
As the intangible asset is amortised, there is a proportionate tax credit to the
income statement which reduces the deferred tax liability in the balance sheet.
More detailed disclosure of the effects of IFRS on the UK GAAP financial
statements is shown in the following tables.
The only changes to the cash flow statement are presentational, the principal
ones being classifying tax cash flows as relating to operating activities and
equity dividends as relating to financing activities.
Maintel Holdings Plc
Unaudited reconciliation of the Group's consolidated income statement
for the six months to 30 June 2006
Six months to Six months to
30 June 2006 30 June 2006
Under UK GAAP Goodwill Holiday pay Restated under
IFRS
£'000 £'000 £'000 £'000
(note 1) (note 3)
Revenue 7,063 7,063
Cost of sales 4,305 4,305
---------- -------- -------- ----------
Gross profit 2,758 2,758
Administrative expenses
---------------- ---------- -------- -------- ----------
Goodwill
amortisation 16 (16) -
Other
administrative
expenses 1,871 49 1,920
---------------- ---------- -------- -------- ----------
1,887 (16) 49 1,920
---------- -------- -------- ----------
Operating
profit 871 16 (49) 838
Financial
income 78 78
Financial charges - -
---------- -------- -------- ----------
Profit before
taxation 949 16 (49) 916
Taxation 285 (15) 270
---------- -------- -------- ----------
Profit after
taxation
attributable to
equity holders
of the parent 664 16 (34) 646
========== ======== ======== ==========
Earnings per share
==================== === === === ===
Basic and
diluted 5.1p 5.0p
=================== ========== ======== ======== ==========
Maintel Holdings Plc
Unaudited reconciliation of the Group's consolidated income statement
for the year to 31 December 2006
Year to Year to
31 December 31 December
2006 2006
Under UK GAAP Goodwill Holiday pay Restated under
IFRS
£'000 £'000 £'000 £'000
(notes 1, 2) (note 3)
Revenue 16,166 16,166
Cost of sales 10,167 10,167
---------- -------- ------- ----------
Gross profit 5,999 5,999
Administrative expenses
---------------- ---------- -------- ------- ----------
Goodwill
amortisation 122 (122) -
Goodwill
impairment - 91 91
Intangibles
amortisation - 97 97
Other
administrative
expenses 3,931 2 3,933
---------------- ---------- -------- ------- ----------
4,053 66 2 4,121
---------- -------- ------- ----------
Operating
profit 1,946 (66) (2) 1,878
Financial
income 135 135
Financial
charges (1) (1)
---------- -------- ------- ----------
Profit before
taxation 2,080 (66) (2) 2,012
Taxation 621 (29) - 592
---------- -------- ------- ----------
Profit after
taxation
attributable to
equity holders
of the parent 1,459 (37) (2) 1,420
========== ======== ======= ==========
Earnings per share
==================== === === === ===
Basic and
diluted 11.4p 11.1p
=================== ========== ======== ======= ==========
Maintel Holdings Plc
Unaudited reconciliation of the Group's consolidated balance sheet
As at 1 January 2006 (the opening IFRS balance sheet)
31 December 31 December
2005 2005
Under UK Holiday pay Restated under
GAAP IFRS
£'000 £'000 £'000
(note 3)
Non current assets
Intangible assets 227 227
Property, plant and equipment 240 240
Deferred tax asset 30 15 45
---------- -------- ----------
497 15 512
---------- -------- ----------
Current assets
Inventories 585 585
Trade and other receivables 1,917 1,917
Cash and cash equivalents 3,625 3,625
---------- -------- ----------
6,127 6,127
---------- -------- ----------
Total assets 6,624 15 6,639
---------- -------- ----------
Current liabilities
Trade and other payables 4,613 49 4,662
Current tax liabilities 363 363
---------- -------- ----------
Total liabilities 4,976 49 5,025
---------- -------- ----------
Total net assets 1,648 (34) 1,614
========== ======== ==========
Equity
Issued share capital 129 129
Share premium 628 628
Capital redemption reserve 7 7
Retained earnings 884 (34) 850
---------- --------- ----------
Total shareholders' equity 1,648 (34) 1,614
========== ========= ==========
Maintel Holdings Plc
Unaudited reconciliation of the Group's consolidated balance sheet
As at 30 June 2006
30 June 2006 30 June 2006
Under UK Goodwill Holiday pay Restated under
GAAP IFRS
£'000 £'000 £'000 £'000
(notes 1, 2) (note 3)
Non current assets
Intangible assets 1,176 306 1,482
Property, plant and
equipment 287 287
---------- -------- -------- ----------
1,463 306 1,769
---------- -------- -------- ----------
Current assets
Inventories 1,332 1,332
Trade and other
receivables 2,972 2,972
Cash and cash
equivalents 3,573 3,573
---------- -------- -------- ----------
7,877 7,877
---------- -------- -------- ----------
Total assets 9,340 306 9,646
---------- -------- -------- ----------
Current liabilities
Trade and other
payables 7,152 98 7,250
Current tax
liabilities 344 344
---------- -------- -------- ----------
Total liabilities 7,496 98 7,594
---------- -------- -------- ----------
Non current liabilities
Deferred tax
liability (31) 290 (30) 229
---------- -------- -------- ----------
Total net assets 1,875 16 (68) 1,823
========== ======== ======== ==========
Equity
Issued share capital 128 128
Share premium 628 628
Capital redemption
reserve 8 8
Retained earnings 1,111 16 (68) 1,059
---------- --------- --------- ----------
Total shareholders'
equity 1,875 16 (68) 1,823
========== ========= ========= ==========
Maintel Holdings Plc
Unaudited reconciliation of the Group's consolidated balance sheet
As at 31 December 2006
31 December 31 December
2006 2006
Under UK Goodwill Holiday pay Restated under
GAAP IFRS
£'000 £'000 £'000 £'000
(notes 1, 2) (note 3)
Non current assets
Intangible assets 1,217 224 1,441
Property, plant and
equipment 238 238
---------- -------- -------- ----------
1,455 224 1,679
---------- -------- -------- ----------
Current assets
Inventories 705 705
Trade and other
receivables 2,861 2,861
Cash and cash
equivalents 2,234 2,234
---------- -------- -------- ----------
5,800 5,800
---------- -------- -------- ----------
Total assets 7,255 224 7,479
---------- -------- -------- ----------
Current liabilities
Trade and other
payables 5,220 51 5,271
Current tax
liabilities 380 380
---------- -------- -------- ----------
Total liabilities 5,600 51 5,651
---------- -------- -------- ----------
Non current liabilities
Deferred tax
liability (29) 261 (15) 217
---------- -------- -------- ----------
Total net assets 1,684 (37) (36) 1,611
========== ======== ======== ==========
Equity
Issued share capital 124 124
Share premium 628 628
Capital redemption
reserve 12 12
Retained earnings 920 (37) (36) 847
---------- --------- --------- ----------
Total shareholders'
equity 1,684 (37) (36) 1,611
========== ========= ========= ==========
Maintel Holdings Plc
Explanatory notes to the UK GAAP to IFRS reconciliations
1. Goodwill and intangible assets
Under UK GAAP goodwill was capitalised and amortised over its estimated useful
life, which under Maintel's accounting policies was 7 years.
The Company has elected to adopt the exemption permitted by IFRS 1 'First time
adoption of International Financial Reporting Standards' not to alter this
policy in respect of goodwill arising before the IFRS transition date of 1
January 2006, and so no adjustment to the historical accounts has been made in
respect of the goodwill arising on the acquisition of Maintel Network Solutions
Limited (previously Pinnacle Voice and Data Limited).
Goodwill previously amortised in respect of Maintel Network Solutions Limited
has been reversed, and the balance subjected to an impairment review at each
reporting date.
The treatment of the goodwill arising on the acquisition of District Holdings
Limited has, however, been amended in accordance with IFRS 3 'Business
combinations' and IAS 38 'Intangible assets'.
The goodwill arising under UK GAAP on the acquisition of District has been
reversed, and an intangible asset of equal value created, representing customer
contracts and relationships, which is being amortised over 5 years and is
subject to an impairment review at each reporting date.
2. Deferred tax
Under IAS 12 'Income taxes', deferred tax is recognised on the basis of
temporary differences between the carrying value of assets and liabilities in
the balance sheet, and their tax bases. A deferred tax liability has accordingly
been created in respect of intangible assets as at the date of the acquisition
of District Holdings Limited, with subsequent releases as impairment of the
intangible is recognised.
The effect of adopting this standard is shown under the goodwill column in the
reconciliation tables above.
3. Holiday pay accrual
Under IAS 19 'Employee benefits', an accrual has been made for the full monetary
value of holiday to which the Group's employees are entitled but, at the balance
sheet date, had not been taken. Employees are permitted to carry forward a
limited amount of holiday entitlement at 31 December, such that the accrual at
30 June is significantly higher than that at 31 December.
4. Cash flow statements
The only changes to the cash flow statement are presentational, the principal
ones being classifying tax cash flows as relating to operating activities and
equity dividends as relating to financing activities.
Independent review report to the shareholders of Maintel Holdings Plc
Introduction
We have been instructed by the Company to review the financial information for
the six months ended 30 June 2007 on pages 7 to 23. We have read the other
information contained in the interim report and considered whether it contains
any apparent misstatements or material inconsistencies with the financial
information.
Our report has been prepared in accordance with the terms of our engagement to
assist the Company in meeting the requirements of the rules of the London Stock
Exchange for companies trading securities on the Alternative Investment Market
and for no other purpose. No person is entitled to rely on this report unless
such a person is a person entitled to rely upon this report by virtue of and for
the purpose of our terms of engagement or has been expressly authorised to do so
by our prior written consent. Save as above, we do not accept responsibility for
this report to any other person or for any other purpose and we hereby expressly
disclaim any and all such liability.
Directors' responsibilities
The interim report, including the financial information contained therein, is
the responsibility of, and has been approved by the directors. The directors are
responsible for preparing the interim report in accordance with the rules of the
London Stock Exchange for companies trading securities on the Alternative
Investment Market which require that the half-yearly report be presented and
prepared in a form consistent with that which will be adopted in the Company's
annual accounts having regard to the accounting standards applicable to such
annual accounts.
Review work performed
We conducted our review in accordance with guidance contained in Bulletin 1999/4
issued by the Auditing Practices Board for use in the United Kingdom by auditors
of fully listed companies. A review consists principally of making enquiries of
group management and applying analytical procedures to the financial information
and underlying financial data and based thereon, assessing whether the
accounting policies and presentation have been consistently applied unless
otherwise disclosed. A review excludes audit procedures such as tests of
controls and verification of assets, liabilities and transactions. It is
substantially less in scope than an audit performed in accordance with United
Kingdom Auditing Standards and therefore provides a lower level of assurance
than an audit. Accordingly we do not express an audit opinion on the financial
information.
Review conclusion
On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the six months
ended 30 June 2007.
BDO STOY HAYWARD LLP
Chartered Accountants
London
7 September 2007
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