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Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
---|---|---|---|---|---|
Maintel Holdings Plc | LSE:MAI | London | Ordinary Share | GB00B046YG73 | ORD 1P |
Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|---|---|
-2.00 | -0.82% | 243.00 | 240.00 | 246.00 | 245.00 | 240.00 | 240.00 | 1,500 | 12:53:05 |
Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
---|---|---|---|---|---|
Tele & Telegraph Apparatus | 101.26M | -5.35M | -0.3726 | -6.52 | 35.19M |
TIDMMAI
RNS Number : 1238K
Maintel Holdings PLC
19 September 2016
Maintel Holdings Plc
("Maintel", the "Company" or the "Group")
Interim results for the 6 months to 30 June 2016
Maintel Holdings Plc, the leading systems integrator and managed services provider, is pleased to announce its interim results for the 6 month period to 30 June 2016.
Highlights
-- Group revenue increased 54% to GBP38.1m (H1 2015: GBP24.8m), including GBP15.4m contribution from Azzurri([1])
-- Increase in recurring revenue to 75% (H1 2015: 71%) -- Group gross profit increased 38% to GBP13.1m (H1 2015: GBP9.5m)
-- Group adjusted EBITDA increased 23% to GBP4.4m (H1 2015: GBP3.6m), including GBP1.7m contribution from Azzurri
-- Adjusted earnings per share([2]) at 26.6p (H1 2015: 27.4p) -- Robust cash performance, with underlying cash conversion ([3]) of 88% -- Net debt ([4]) of GBP27.1m, better than board expectations -- Strong order backlog for H2, on track to meet full year profit expectations -- Progressive dividend policy reiterated:
o Interim dividend per share at 13.4p (H1 2015: 12.8p)
o Full year 2016 dividend to grow 5% year on year, with 10% growth for FY17
-- Acquisition of Azzurri remains on track to be earnings enhancing in this financial year
Operational Highlights
-- Transformational acquisition of Azzurri completed 4 May 2016
-- Pleasing performance post-acquisition with notable contract wins and delivery of synergy plan on track
Key Financial Information
Unaudited results for 6 Increase/ months ended 30 June: 2016 2015 (decrease) Group revenue GBP38.1m GBP24.8m 54% Adjusted profit before tax([5]) GBP3.9m GBP3.3m 17% Adjusted earnings per share([1]) 26.6p 27.4p (3%) Interim dividend per share proposed 13.4p 12.8p 5%
Commenting on the Group's results, Eddie Buxton, CEO, said:
"The highlight of the period was the acquisition of Azzurri which was transformational for Maintel, adding significantly to our offering both in terms of products and services, specifically in the highly profitable growth areas of managed and cloud based services, and also its highly complementary customer base.
Excluding Azzurri, trading in the underlying Maintel business was slower than expected due to delays in the timing of four large contracts. All of these contracts closed successfully at the end of Q2 2016 and as such we enter the second half with a strong order book as well as a full pipeline of opportunities. Our growth prospects remain positive and we are confident of delivering a profit performance for the year in line with market expectations."
Notes
[1] Azzurri Communications Limited (Azzurri) is the principal trading operation for Warden Holdco Limited, which was acquired on 4 May 2016 (note 5).
[2] Adjusted earnings per share is basic (loss)/earnings per share of (8.2p) (H1 2015: 16.8p), adjusted for intangibles amortisation, exceptional costs relating to the acquisition of Azzurri (H1 2015: Proximity) and deferred tax charges on Datapoint and Azzurri profits (note 3). The weighted average number of shares in the period increased to 12.0m (H1 2015:10.7m) arising from the equity raise in May 2016 to support the Azzurri acquisition.
[3] Cash conversion is adjusted EBITDA to operating cash flow excluding acquisition costs.
[4] Interest bearing debt (excluding issue costs of debt) minus cash.
[5] Adjusted profit before tax of GBP3.9m (H1 2015: GBP3.3m) is basic profit before tax, adjusted for intangibles amortisation and the Azzurri exceptional costs (H1 2015: Proximity).
For further information please contact:
Eddie Buxton, Chief Executive 020 7401 4601 Mark Townsend, Chief Financial Officer 020 7401 4663 FinnCap Jonny Franklin-Adams / Emily Watts 020 7220 0500
Chairman's statement
I am pleased to be able to report a satisfactory set of results for the period, with reported revenue having increased by 54%, compared with H1 2015, to GBP38.1m and adjusted profit before tax increasing by 17% to GBP3.9m (H1 2015: GBP3.3m), incorporating 2 months' contribution from the Azzurri business acquired in May 2016. Adjusted earnings per share (EPS) decreased by 3% to 26.6p (H1 2015: 27.4p) as a result of the additional shares issued to support the Azzurri acquisition.
The overall gross margin of the Group slightly declined to 34% (H1 2015: 38%). This reduction is due to the inclusion of the lower margin Azzurri business, with a small decrease in the underlying business due to the lower contribution of higher margin professional services to the mix, which we expect to recover in H2 assisted by the large backlog of orders.
Recurring contracted revenue made up 75% of H1 2016 revenues (H1 2015: 71%; FY 2015: 69%) including the contribution from Azzurri which, as anticipated, brought a higher level of recurring revenue to the Group (Azzurri standalone business is 79% recurring).
Revenues in the managed services and technology division increased by 24% to GBP23.8m, with managed services related revenue up 18% compared with H1 2015 and technology (equipment sales) up 34%, including the contribution from Azzurri. The historic Maintel business showed an 8% decrease, due to four large multi-year contracts only being signed at the end of Q2. This is expected to have a positive impact on the division's growth in H2. The pipeline here remains strong and in particular we are seeing an increase in public sector opportunities.
The network services division showed an encouraging 173% growth in revenue to GBP11.7m (H1 2015: GBP4.3m) driven by a significant contribution from Azzurri, in particular in data revenues. Excluding Azzurri, divisional gross margin increased by 2% to 28%. Maintel's underlying revenues declined by 2%, after excluding a one-off equipment sale in H1 2015, performing better than the market trend.
The mobile division's revenue increased 90% to GBP2.7m (H1 2015: 1.4m). Maintel's historic mobile division saw a reduction in revenue of 17% over the previous year, due partly to the changes in roaming charges but mainly due to the reduction in small business customer acquisition and retention. We have taken the decision to reduce our presence in the small business space and refocus activity in line with the other product propositions targeting the mid-market sector.
As part of this review, the Group closed the Azzurri small business mobile operation in East Kilbride and is in the process of migrating these customers from the base. While the combined Group will continue to benefit from real scale in mobile, our exposure is expected to be under 9% of Group turnover moving forward.
In May 2016, the Group completed the transformational acquisition of Azzurri for an enterprise value of GBP48.5m. In order to fund this, the Group secured banking facilities of GBP36.0m and issued GBP24m of new equity.
Azzurri brings additional scale, a wider product capability and a large and complementary customer base to the Maintel Group. The combined Group now has a comprehensive and compelling services portfolio including managed, data and cloud based services. Our offering will also allow customers to choose public or private hosted cloud services and will accelerate the shift in business mix to these high growth areas of the market. The early signs are positive, with year on year growth of 83% in our hosted unified communications offering and two further new contracts signed in Q2, which have added an additional 4,500 hosted seats onto our platform.
The integration of Azzurri is progressing very well, with the Group on track to achieve synergies of GBP1.9m in the current year and the GBP4.6m of annualised synergies from 2017 forecast at the time of the acquisition. The combined business will be integrated onto a common set of systems in early October 2016.
We ended the first half of the financial year with a healthy backlog of signed projects and enter the second half with a strong pipeline. Trading conditions remain good although there is evidence of sales cycles for larger customers becoming longer.
The Group continues to deliver strong cash generation with 88% of adjusted EBITDA converting to cash in the period and net debt standing at GBP27.1m at period-end, slightly ahead of board expectations. The Board proposes to pay an interim dividend of 13.4p, representing a 5% growth on the 2015 interim dividend, equivalent to 50% of adjusted earnings per share.
I would like to welcome new colleagues from Azzurri to the Group and thank all our staff for their hard work and commitment during the first half of 2016. It is also a pleasure to welcome new investors and thank them and our existing shareholders for their support.
J D S Booth
Chairman
16 September 2016
Business review
Results for the year
The first half of 2016 has seen an increase in revenue of 54% to GBP38.1m (H1 2015: GBP24.8m) and adjusted profit before tax (as described below) of 17% to GBP3.9m (H1 2015: GBP3.3m).
The period benefited from two months' contribution from Azzurri (see note 5), which was acquired in May 2016 and therefore made no contribution to the comparative period last year.
Adjusted earnings per share (EPS) decreased by 3% to 26.6p (H1 2015: 27.4p) based on an increased weighted average number of shares in the period of 11,992,977 (H1 2105: 10,739,299) following an equity raise in May 2016 to support the Azzurri acquisition. The acquisition of Azzurri remains on track to be earnings enhancing this financial year.
On an unadjusted basis, the Company generated a loss before tax of GBP0.7m (H1 2015: profit of GBP2.1m), equivalent to a loss per share of 8.2p (H1 2015: earnings of 16.8p). This includes GBP2.8m of exceptional costs associated with the Azzurri acquisition and related restructuring activities (H1 2015: GBP0.1m in respect of the Proximity acquisition) and intangibles amortisation of GBP1.8m (H1 2015: GBP1.1m), the increase in the latter due to the acquired Azzurri intangible.
6 months 6 months Year to 30 to 30 to 31 June June December Increase/ 2016 2015 2015 GBP000 GBP000 GBP000 (decrease) Revenue 38,060 24,750 50,623 54% --------- --------- ---------- ------------ (Loss)/profit before tax (696) 2,094 4,151 Add back intangibles amortisation 1,752 1,118 2,235 Exceptional items mainly relating to the acquisition of Azzurri (H1 2015: Proximity) 2,806 98 884 Adjusted profit before tax 3,862 3,310 7,270 17% --------- --------- ---------- ------------ Adjusted EBITDA(a) 4,352 3,552 7,725 23% --------- --------- ---------- ------------ Of which(b) : Maintel 2,634 3,552 7,725 (26%) Azzurri 1,718 - - Basic (loss)/earnings per share (8.2p) 16.8p 38.0p Diluted (8.2p) 16.6p 37.5p --------- --------- ---------- ------------ Adjusted earnings per share(c) 26.6p 27.4p 60.3p (3%) Diluted 26.1p 27.0p 59.5p (3%) --------- --------- ---------- ------------
(a) Excluding the exceptional costs (note 4)
(b) After management charges
(c) Adjusted profit after tax divided by weighted average number of shares (note 3)
Azzurri
Maintel completed the acquisition of Azzurri on 4 May 2016 for an aggregate cash consideration of GBP1 and with a commitment that the Company procure the repayment of Azzurri's then existing senior debt and other indebtedness immediately following completion. This equated to an enterprise value for Azzurri of GBP48.5m.
Azzurri was a transformational acquisition for Maintel, providing additional scale and product capability, with an attractive customer base. The combined Group now has a comprehensive and compelling services portfolio including managed, data and cloud based services. The enlarged Group offering will also allow customers to choose public or private hosted cloud services and will accelerate the shift in business mix to these high growth areas of the market.
Since acquisition the business has been performing well with some notable new customer wins, particularly with ICON Communicate, Azzurri's hosted unified communications proposition. Recent major wins include a large insurance company with 3,000 seats, a large charity with 1,600 seats and an expansion of the relationship with a major housing association. There has been an 83% increase in UCaaS seats on the ICON platform in the past twelve months.
We are continuing Azzurri's investment in the ICON platform; Microsoft's Skype for Business product has been added to Mitel's unified communications offering, and we will be launching an Avaya-based service before the year end, providing support for three of the recognised leading vendors in the Unified Communications market. We have also invested in increasing both the capacity and resilience of the platform, and gained certification to enable us to offer fully PCI compliant services, allowing us to offer a significant advantage for any organisation processing card payments.
The integration of Azzurri is on track and progressing well; the senior management team is in place, the sales team has been integrated and reorganised; and the back office re-organisation, including moving onto one set of systems across the Group, will have been completed by the end of the year. The anticipated 2016 in-year and 2017 annualised synergies of GBP1.9m and GBP4.6m respectively are in line with previously stated objectives.
As part of the integration planning, the board has undertaken a strategic review of its mobile business, resulting in the decision to reduce its exposure in the SME space. As a result Azzurri's East Kilbride operation was closed in May 2016. Consequently, the ongoing exposure to mobile is expected to account for under 9% of Group turnover.
As a consequence of the acquisition, significant legal and professional fees have been incurred, amounting to GBP2.5m. In addition, as part of the integration process, there have been a number of redundancies across the Group in H1. The cost of these redundancies along with other synergy related costs amounted to GBP0.3m. Both these costs have been disclosed as an exceptional item in the income statement. Further exceptional costs associated with the integration will be incurred in H2 but with cost savings thereafter.
Review of operations
The following table shows the performance of the three operating segments of the Group. The 2016 half year numbers include two months' contribution from Azzurri.
6 months 6 months Year to 30 to 30 to 31 June June December Revenue analysis 2016 2015 2015 Increase/ GBP000 GBP000 GBP000 (decrease) Maintel (excluding Azzurri) Managed services related 11,238 12,005 23,900 (6%) Technology(d) 6,408 7,175 15,714 (11%) ---------------------------- --------- --------- ---------- ----------- Managed services and technology division 17,646 19,180 39,614 (8%) Network services division 3,960 4,267 8,383 (7%) Mobile division 1,187 1,430 2,815 (17%) ---------------------------- --------- --------- ---------- ----------- Total Maintel (excluding Azzurri) 22,793 24,877 50,812 (8%) ---------------------------- --------- --------- ---------- ----------- Azzurri(e) Managed services related 2,908 - - - Technology(d) 3,228 - - - ---------------------------- --------- --------- ---------- ----------- Managed services and technology division 6,136 - - - Network services division 7,698 - - - Mobile division 1,523 - - - ---------------------------- --------- --------- ---------- ----------- Total Azzurri 15,357 - - - ---------------------------- --------- --------- ---------- ----------- Total Maintel Group Managed services related 14,146 12,005 23,900 18% Technology(d) 9,636 7,175 15,714 34% ----------------------- ------- ------- ------- ------ Managed services and technology division 23,782 19,180 39,614 24% Network services division 11,658 4,267 8,383 173% Mobile division 2,710 1,430 2,815 90% Intercompany (90) (127) (189) (29%) ----------------------- ------- ------- ------- ------ Total Maintel Group 38,060 24,750 50,623 54% ----------------------- ------- ------- ------- ------
(d) Technology includes revenues from hardware, software, professional services and other sales
(e) Azzurri was acquired on 4 May 2016, and therefore an estimated two months' of its financial performance has been considered post- acquisition
Excluding Azzurri, the Group experienced lower trading activity than expected in H1, with four major sales contracts taking longer to close than anticipated. All were closed at the end of Q2 and have contributed to our strong H2 order book.
Three of the contracts are multi-year managed services contracts with a total value of over GBP11.0m. While these contract wins have had no impact on H1 revenues they will have a significant positive impact on H2 results.
Recurring contracted revenue made up 75% of H1 2016 revenues (H1 2015: 71%) including the 2 months' contribution from Azzurri which, as anticipated, brought a higher level of recurring revenue to the Group (Azzurri standalone business is 79% recurring in the period since acquisition).
Overall gross margin for the Group reduced to 34% (H1 2015: 38%) driven by the lower margin contribution from Azzurri in this period.
Detailed divisional performance is described further below.
Managed services and technology division
The managed services and technology division provides the management, maintenance, service and support of both on premise and off premise voice and data equipment across the UK and internationally, on a contracted basis. It also supplies and installs voice and data equipment together with providing professional services, both to our direct clients and through our partner relationships.
Revenues in this division increased by 24% to GBP23.8m, with managed services related revenue up 18% compared with H1 2015 and technology (equipment and professional services sales) up 34%, both significantly boosted by the contribution from Azzurri. The underlying Maintel business excluding Azzurri declined by 8%, with managed services related revenue reducing by 6% and technology revenue by 11%, due to the timing of new contracts completing, as detailed above.
The division's sales pipeline remains strong in both private and public sectors and we are starting to see significant growth in the hosted/cloud opportunities as a proportion of the pipeline.
6 months 6 months Year to 30 to 30 to 31 June June December 2016 2015 2015 Increase/ GBP000 GBP000 GBP000 (decrease) Maintel (excluding Azzurri) Divisional revenue 17,646 19,180 39,614 (8%) Division gross profit 6,666 7,749 15,749 (14%) Gross margin (%) 38% 40% 40% -------------------- --------- --------- ---------- ------------ Azzurri Divisional revenue 6,136 - - - Division gross - profit 1,878 - - Gross margin (%) 31% - - -------------------- --------- --------- ---------- ------------ Total Maintel Group Divisional revenue 23,782 19,180 39,614 24% Division gross profit 8,544 7,749 15,749 10% Gross margin (%) 36% 40% 40% --------------------- ------- ------- ------- ----
Managed services
Excluding Azzurri, revenue declined by 6% due to the delay in signing the previously highlighted large contracts which completed during June. As a result the managed service base grew to GBP26m, a 6% increase over December 2015; this will have a significant benefit to H2 results.
H1 2016 continued to see a reduction in the legacy maintenance base as the Group focuses on winning larger managed service contracts with newer technology and a wider suite of services to support these contracts.
The pipeline for new managed services opportunities is growing; however, the greater complexity of these opportunities has resulted in a lengthening of sales cycles and the on-boarding process compared to traditional maintenance contracts.
Technology
Excluding Azzurri, the first half of 2016 was soft for technology sales which held back headline revenue growth year on year in this area.
As with managed services, the backlog of sales moving into H2 is healthy, with a GBP0.9m project to upgrade a data network for a public sector client and a GBP1.8m contract for a large construction group, being delivered in August/September.
The public sector framework is providing a significant source of new opportunities particularly in healthcare and local government. We are, however, starting to see some impact of cloud based opportunities on equipment sales and we see this trend continuing, and we are well placed with Azzurri's ICON platform to take advantage of this.
Network services division
The network services division sells a portfolio of services which includes telephone line rental, inbound and outbound telephone calls, data connectivity, internet access and hosted IP telephony solutions. These services complement those offered by the managed service and technology division and the mobile division.
6 months 6 months Year to 30 to 30 to 31 June June December 2016 2015 2015 Increase/ GBP000 GBP000 GBP000 (decrease) Maintel (excluding Azzurri)(f) Call traffic 1,242 1,288 2,589 (4%) Line rental 1,441 1,655 3,185 (13%) Data connectivity services 1,265 1,309 2,566 (3%) Other 12 15 43 (20%) ----------- --------- ---------- ------------ Total division 3,960 4,267 8,383 (7%) Division gross profit 1,095 1,121 2,284 (2%) Gross margin (%) 28% 26% 27% -------------------- ----------- --------- ---------- ------------ Azzurri Call traffic 1,132 - - - Line rental 2,029 - - - Data connectivity services 4,473 - - - Other 64 - - - ------- ------ ------ ----- Total division 7,698 - - - Division gross profit 2,102 - - - Gross margin (%) 27% - - - --------------------- ------- ------ ------ ----- Total Maintel Group Call traffic 2,374 1,288 2,589 84% Line rental 3,470 1,655 3,185 110% Data connectivity services 5,738 1,309 2,566 338% Other 76 15 43 407% ------- ------ ------ ----- Total division 11,658 4,267 8,383 173% Division gross profit 3,197 1,121 2,284 185% Gross margin (%) 27% 26% 27% --------------------- ------- ------ ------ -----
(f) VoIP of GBP214,000 (30 June 2015: GBP161,000; 31 December 2015: GBP370,000) and Inbound calls of GBP90,000 (30 June 2015: GBP89,000; 31 December 2015: GBP182,000) have been reclassified from Other to Data connectivity services and Call traffic respectively.
Network services revenues increased by 173% year on year, driven by the contribution from Azzurri.
Excluding Azzurri, Maintel revenues declined by 7%, but excluding a one off GBP235,000 equipment sale associated with a WAN optimisation project in H1 2015, underlying revenue only declined by 2%. Divisional gross margin increased by 2% to 28% partly due to the H1 2015 equipment sale being at low margin.
Call minutes revenue was 4% down on the prior year driven by a major customer re-signing at lower volumes as they implement a Skype for Business roll out, which also impacted legacy line rental revenue. Call revenue has been more resilient than expected given the combination of the market reduction in call volumes, regulatory price reductions and bundled free minute packages.
Legacy line rental revenues decreased by 13%, impacted by a combination of the above and our continued pro-active transitioning of customers onto newer SIP based voice technology, which has seen year on year growth of 33%.
As we continue to see this move away from legacy calls and lines services to newer data and SIP technology, our underlying data services revenue has grown by a healthy 18% year on year, excluding the one off project installation in H1 2015 previously noted.
Moving forward, the acquisition of Azzurri strengthens our position in this sector with ICON Connect, our Data Network proposition.
Mobile division
Maintel Mobile derives its revenues primarily from commissions received under its dealer agreements with Vodafone and O(2) , whilst Azzurri derives most of its revenues from dealer agreements with O(2) .
6 months 6 months Year to 30 to 30 to 31 June June December Increase/ 2016 2015 2015 GBP000 GBP000 GBP000 (decrease) Maintel (excluding Azzurri) Revenue 1,187 1,430 2,815 (17%) Gross profit 581 694 1,196 (16%) Gross margin (%) 49% 49% 42% -------------------- --------- --------- ---------- ------------ Azzurri Revenue 1,523 - - - Gross profit 859 - - - Gross margin (%) 56% - - - -------------------- --------- --------- ---------- ------------ Total Maintel Group Revenue 2,710 1,430 2,815 90% Gross profit 1,440 694 1,196 107% Gross margin (%) 53% 49% 42% --------------------- ------ ------ ------ ----- At 30 At 30 At 31 June June December Increase/ 2016 2015 2015 (decrease) Maintel (excluding Azzurri) Number of customers 773 770 830 -% Number of connections 11,643 12,662 12,011 (8%) Azzurri Number of customers 2,192 - - - Number of connections 48,000 - - - Total Maintel Group Number of customers 2,965 770 830 285% Number of connections 59,643 12,662 12,011 371%
Excluding Azzurri, the Mobile division saw a reduction in revenue of 17% over the previous year due partly to the changes in roaming charges but mainly due to the reduction in small business customer acquisition and retention as the Group refocused its investment into other areas of higher growth potential.
Gross margins of 49% were maintained at similar levels to H1 2015.
As highlighted earlier in the report, as part of integrating Azzurri, the Group has undertaken a strategic review of its mobile business, resulting in the decision to reduce its presence in the small business space. This reduces the exposure of mobile for the Group and re-focuses our sales activity in line with the other product propositions in the target mid-market sector. As a result, the ongoing exposure to mobile is expected to reduce to under 9% of Group turnover.
As part of this review, the Group closed the Azzurri small business mobile operation in East Kilbride and is in the process of removing these customers from the Azzurri base.
The combined Group will continue to benefit from real scale in mobile as well as Azzurri's greater experience and well-defined mobile managed service wrap that is attractive to larger customers.
Administrative expenses, excluding intangibles amortisation, management recharges and non-trading adjustments
6 months 6 months Year to 30 to 30 to 31 June June December 2016 2015 2015 Increase/ Administrative expenses(g) GBP000 GBP000 GBP000 (decrease) Maintel (excluding Azzurri) Maintel sales expenses 2,958 3,077 6,323 (4%) Maintel other administrative expenses 3,011 2,956 5,207 2% --------- --------- ----------- ----------- Maintel excluding Azzurri total administrative expenses 5,969 6,033 11,530 (1%) ------------------------------- --------- --------- ----------- ----------- Azzurri Azzurri sales expenses 1,614 - - Azzurri other administrative expenses 1,434 - - --------- --------- ----------- ----------- Azzurri total administrative expenses 3,048 - - ------------------------------- --------- --------- ----------- ----------- Total Maintel Group Total sales expenses 4,572 3,077 6,323 49% Total other administrative expenses 4,445 2,956 5,207 50% Total administrative expenses 9,017 6,033 11,530 49% (g) Excluding intangibles amortisation, management recharges and exceptional expenses.
Total administrative expenses increased by 49% to GBP9.0m. Excluding Azzurri, Maintel's costs are down 1% on last year at GBP6.0m, with lower underlying sales costs and headcount compensating for inflation increases. In addition, property costs are lower year on year, as a result of the office moves in H2 2015 which included the consolidation of two offices (Brentford and Webber Street) into our current Blackfriars HQ and the move to cheaper Dublin premises.
Following the Azzurri acquisition, headcount as at 30 June 2016 for the Group now stands at 727 (30 June 2015: 282).
As we progress with our integration plan, total administration costs will continue to be tightly controlled and we will deliver further cost savings in H2 in line with the integration plan produced at the time of the transaction.
The exceptional costs of GBP2.8m (H1 2015: GBP0.1m) shown in the income statement primarily relate to the legal and professional fees from the acquisition of Azzurri of GBP2.5m and redundancy costs incurred resulting from the acquisition and integration of GBP0.3m (H1 2015: Proximity of GBP0.1m).
The intangibles amortisation charge increased in the period due to the 2 month charge resulting from the Azzurri acquisition. Impairment and amortisation charges are discussed further below.
Foreign exchange
The Group's reporting currency is sterling; however it trades in other currencies, notably the euro, and has assets and liabilities in those currencies. The euro rate moved from EUR1.36 = GBP1 at 31 December 2015 to EUR1.21 = GBP1 at 30 June 2016. The effect of this and other movements in the period was a gain to the income statement of GBP92,000 (H1 2015 charge: GBP100,000), which is included in other administrative expenses.
The exchange difference arising on the retranslation at the reporting date of the equity of the Group's Irish subsidiary, whose functional currency is the euro, is recorded in the translation reserve as a separate component of equity, being GBP37,000 in the period (H1 2015: GBP54,000).
Interest
The increase in the net interest charge to GBP295,000 (H1 2015: GBP139,000) resulted from the additional borrowings taken on to finance the Azzurri acquisition, with net borrowings excluding issue costs of debt increasing to GBP27.1m at 30 June 2016 (30 June 2015: GBP8.8m) from a year end 2015 balance of GBP3.2m.
Taxation
The effective tax charge for H1 2016 was GBP290,000 against the loss of GBP696,000 (H1 2015 tax charge: GBP287,000), for the reasons described below. Each of the Group companies is taxed at 20%, with the exception of Maintel International Limited, which is taxed at 12.5% (H1 2015: 20.25%; 12.5%). Certain expenses that are disallowable for tax raise the underlying effective rate above this, and form the predominant reason why a tax charge was incurred on the period's loss.
The tax charge in the period was adversely impacted due to certain acquisition related costs deemed disallowable which amounted to GBP497,000. This was offset by the tax charge benefiting from some adjustments, including (a) relief claimed on certain 2015 costs which were deemed disallowed in that period but are now allowed following further investigation (GBP26,000), and (b) the difference in the rate at which deferred tax on the amortisation of the intangibles is released (GBP21,000).
The tax charge in the period includes a deferred tax charge relating to the tax losses of the Datapoint companies, whereby they do not currently pay corporation tax on their profits, but a tax asset in respect of the historic losses is charged to the income statement as the losses are used. This deferred tax charge in the period was GBP237,000 (H1 2015: GBP179,000).
The tax charge in the period also includes a deferred tax charge relating to the Azzurri profits, whereby they do not currently pay corporation tax on their profits, but a tax asset in respect of the historic capital allowances is charged to the income statement as the capital allowances are used. This deferred tax charge in the period was GBP311,000 in relation to the brought forward capital allowances.
Dividends and adjusted earnings per share
An interim dividend for 2015 of 12.8p (GBP1.4m) was paid on 7 October 2015 and a final dividend for 2015 of 16.5p per share (GBP1.8m) was paid on 5 April 2016, taking the total dividend declared in 2015 to 29.3 pence per share.
As previously highlighted, it is the board's intention to increase the dividend pence per share by 5% over 2015 total dividend pence per share and then growing progressively year on year by 10% for 2017.
As a result, the board proposes to pay an interim dividend of 13.4p in respect of 2016 on 12 October to shareholders on the register at the close of business on 30 September, which equates to a pay-out ratio as a percentage of adjusted earnings of 50%. The corresponding ex-dividend date will be 29 September. In accordance with accounting standards, this dividend is not accounted for in the financial statements for the period under review, as it had not been committed as at 30 June 2016.
Consolidated statement of financial position
Net assets increased by GBP20.4m to GBP27.0m from 31 December 2015 due to the inclusion of the acquired balance sheet of Azzurri.
Intangible assets at GBP64.4m, have increased by GBP46.3m from 31 December 2015, driven by intangibles arising on the acquisition of Azzurri (see note 5).
The value of property, plant and equipment has increased by GBP3.0m to GBP3.6m from 31 December 2015. This includes a freehold property valued at GBP1.6m and plant and equipment and leasehold improvements of GBP1.3m resulting from the acquisition of Azzurri. Post-acquisition, Azzurri incurred GBP0.2m of expenditure relating to the ICON platform and expanding capacity in its data centre infrastructure. Maintel incurred minimal capital expenditure in H1 2016 with its tangible asset value in line with the year end 2015 balance at GBP0.7m.
Trade and other receivables increased by GBP24.5m in the period to GBP35.5m with GBP21.2m attributable to Azzurri. Excluding Azzurri, Maintel trade and other receivables increased by GBP3.3m, the main elements being (a) an increase in trade receivables driven by two orders for equipment and licences amounting to GBP3.5m, both of which were settled in August, offsetting the impact of a high level of seasonal renewals at the end of 2015 and (b) higher prepaid support costs covering several contracts signed in H1 2016.
Inventories are valued at GBP2.7m at 30 June, an increase of GBP1.4m from 31 December 2015, with Azzurri contributing GBP1.5m. Excluding Azzurri, Maintel inventories have reduced marginally by GBP0.1m compared to year end 2015 to GBP1.2m, as a result of strong control over the levels of managed service stock; there was little movement in the stock held for resale.
Trade and other payables amounted to GBP49.6m, an increase of GBP29.3m in the period. Excluding Azzurri, trade and other payables were at GBP19.8m reflecting a GBP0.6m reduction when compared to the year end 2015 value of GBP20.3m. The main drivers were the weighting of customer contract renewals to H2 2015 so that a higher level of deferred income is carried at December than at June, together with a lower VAT liability caused by lower equipment sales and the impact of acquisition costs. These were offset by an increase in trade payables and accruals due to the impact of the remaining acquisition costs settled in July, vendor costs associated with a large equipment deal in June and accrued bank interest.
Corporation tax liabilities have reduced by GBP0.1m due to lower profits emanating from Maintel's trading activities in H1 2016. As noted in the Taxation section above, no corporation tax provision has been made for Azzurri's profit contribution since acquisition, as there are sufficient brought forward capital allowances to offset any corporation tax provision required.
The deferred tax liability has increased by GBP2.1m in the first half to GBP2.9m resulting from (a) the creation of a deferred tax liability of GBP4.3m associated with the Azzurri intangibles of GBP23.2m and (b) the deferred tax adjustment related to the Datapoint and Azzurri historical tax losses and capital allowances respectively of GBP0.6m in aggregate offset by (a) a deferred tax asset of GBP2.5m resulting from the acquisition of Azzurri (see note 5), and (b) the unwinding of intangibles amortisation related deferred tax liabilities from Azzurri and previous acquisitions of GBP0.3m.
Intangible assets
The Group has two intangible asset categories: (i) an intangible asset represented by customer contracts and relationships, brand value, product platforms and software acquired from third party companies, and (ii) goodwill relating to those acquisitions.
The intangible assets represented by purchased customer contracts and relationships, brand value, product platforms and software were carried at GBP29.7m at the period end (31 December 2015: GBP8.3m). The intangible assets are subject to an average amortisation charge of 18% of cost per annum in respect of the managed service and technology division, 13% per annum in respect of the network services division and 16% per annum in respect of the mobile customer relationships, with GBP1.8m being amortised in H1 2016 (H1 2015: GBP1.1m), the increase being attributable to the Azzurri intangibles acquired in May 2016.
Goodwill of GBP34.7m (31 December 2015: GBP9.9m) increased by GBP24.8m as a result of the Azzurri acquisition. No impairment has been charged to the consolidated statement of comprehensive income in H1 2016 (H1 2015: GBPnil).
Cash flow
The Group had net debt (excluding issue costs of debt) of GBP27.1m at 30 June 2016, compared with GBP3.2m at 31 December 2015, and an explanation of the GBP23.9m increase is set out below.
6 months 6 months Year to 30 to 30 to 31 June June December 2016 2015 2015 GBP000 GBP000 GBP000 Cash generated from/(consumed by) operating activities before acquisition costs 3,826 (113) 7,829 Taxation (231) (761) (1,048) Capital expenditure less proceeds of sale (250) (49) (554) Finance cost (net) (295) (139) (264) --------- --------- ---------- Free cashflow 3,050 (1,062) 5,963 Dividends (1,777) (1,243) (2,621) Acquisition (net of cash (45,433) - - acquired) Acquisition costs paid (2,514) - - Proceeds from borrowings 31,000 - - Repayments of borrowings (6,000) (800) (4,000) Issue of new ordinary shares 24,000 54 54 Share issue costs (781) - - Issue costs of debt (348) - - --------- --------- ---------- Increase/(decrease) in cash and cash equivalents 1,197 (3,051) (604) Cash and cash equivalents at start of period 2,784 3,347 3,347 Exchange differences (37) 54 41 --------- --------- ---------- Cash and cash equivalents at end of period 3,944 350 2,784 Bank borrowings (31,000) (9,200) (6,000) --------- --------- ---------- Net debt excluding issue costs of debt (27,056) (8,850) (3,216) Adjusted EBITDA (note 4) 4,352 3,552 7,725
The Group generated GBP3.8m of cash from operating activities excluding acquisition costs, with a GBP0.3m negative working capital impact in the period, compared with GBP0.1m consumed in the comparative period. This was underpinned by a high cash conversion rate of 88% of adjusted EBITDA to operating cash flow excluding acquisition costs.
The net effect of the equity raised and new borrowing facilities associated with the acquisition of Azzurri together with repaying existing borrowing facilities, acquisition related costs and settlement of the 2015 final dividend consumed GBP1.9m in cash and cash equivalents.
The increase in the net debt position compared with December 2015 is a result of the borrowings acquired in May 2016 to fund the acquisition of Azzurri (see note 8).
Outlook
Notwithstanding the softer than anticipated trading in the Maintel business excluding Azzurri, the first half was a very positive period for Maintel as a Group. The highlight of the period was the acquisition of Azzurri, which in the two months' since completion performed well and in line with expectations, including the signing of several substantial contracts which have contributed to our order backlog for the second half. Our integration plan is on track, with significant further cost savings to be made in the second half. As stated at the time of the acquisition of Azzurri, we expect the acquisition to be earnings enhancing this financial year.
In the underlying Maintel business, the signing of the four delayed contracts at the end of Q2 will have a positive impact on growth in H2 and we enter the second half with a strong order book and a full pipeline of opportunities.
With our service offering now broader and more attractive than previously, we can expect a greater proportion of opportunities to be successfully converted, albeit that with larger customers, multi service contracts are more complex, resulting in longer sales cycles.
We therefore remain confident for the second half of the financial year, and of delivering a profit outcome for the full year in line with the market expectations.
The Group continues to deliver good cash generation and the focus is on maintaining a progressive dividend policy whilst simultaneously reducing the debt levels, in line with the board's target of 2x adjusted EBITDA by the end of the financial year.
On behalf of the board
E Buxton
Chief Executive
16 September 2016
Maintel Holdings Plc
Consolidated statement of comprehensive income
for the 6 months ended 30 June 2016 (unaudited)
6 months 6 months Year to 30 to 30 to 31 June June December 2016 2015 2015 note GBP000 GBP000 GBP000 (unaudited) (unaudited) (audited) Revenue 2 38,060 24,750 50,623 Cost of sales (24,961) (15,268) (31,571) ------------ ------------ ----------- Gross profit 13,099 9,482 19,052 Other operating income 75 - 12 Administrative expenses ---------------------------- ----- ------------ ------------ ----------- Intangibles amortisation (1,752) (1,118) (2,235) Exceptional costs 7 (2,806) (98) (884) Other administrative expenses (9,017) (6,033) (11,530) ---------------------------- ----- ------------ ------------ ----------- (13,575) (7,249) (14,649) Operating (loss)/profit (401) 2,233 4,415 Finance income 3 - 1 Financial expense (298) (139) (265) (Loss)/profit before taxation (696) 2,094 4,151 Taxation expense (290) (287) (69) ------------ ------------ ----------- (Loss)/profit for the period and attributable to owners of the parent (986) 1,807 4,082 Other comprehensive (expense)/income for the period Exchange differences on translation of foreign operations (37) 54 41 ------------ ------------ ----------- Total comprehensive (loss)/income for the
period (1,023) 1,861 4,123 ============ ============ =========== (Loss)/earnings per share Basic 3 (8.2p) 16.8p 38.0p Diluted 3 (8.2p) 16.6p 37.5p ============ ============ ===========
Maintel Holdings Plc
Consolidated statement of financial position
at 30 June 2016 (unaudited)
30 June 30 June 31 December 2016 2015 2015 Note GBP000 GBP000 GBP000 (unaudited) (unaudited) (audited) Non current assets Intangible assets 64,402 19,249 18,132 Property, plant and equipment 3,631 262 673 68,033 19,511 18,805 ------------ ------------ ------------ Current assets Inventories 2,704 1,386 1,298 Trade and other receivables 35,539 12,578 11,040 Cash and cash equivalents 3,944 350 2,784 ------------ ------------ ------------ 42,187 14,314 15,122 ------------ ------------ ------------ Total assets 110,220 33,825 33,927 Current liabilities Trade and other payables 49,555 17,353 20,276 Current tax liabilities 116 396 257 Borrowings 8 - 2,000 2,000 Total current liabilities 49,671 19,749 22,533 Non current liabilities Deferred tax liability 2,894 1,200 834 Borrowings 8 30,652 7,200 4,000 ------------ ------------ ------------ Total net assets 27,003 5,676 6,560 ============ ============ ============ Equity Issued share capital 142 108 108 Share premium 24,354 1,169 1,169 Capital redemption reserve 31 31 31 Share based remuneration 24 - - reserve Translation reserve 51 101 88 Retained earnings 2,401 4,267 5,164 Total equity 27,003 5,676 6,560 ============ ============ ============
Maintel Holdings Plc
Consolidated statement of changes in equity
for the 6 months ended 30 June 2016 (unaudited)
Share Capital Translation Share Retained capital Share redemption reserve based earnings Total premium reserve remuneration reserve GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 At 1 January 2015 107 1,116 31 47 - 3,703 5,004 Profit for the period - - - - - 1,807 1,807 Other comprehensive income: foreign currency translation differences - - - 54 - - 54 --------------------- ---------- ---------- ------------ ------------- -------------- ----------- --------- Total comprehensive income for the period - - - 54 - 1,807 1,861 Dividend - - - - - (1,243) (1,243) Issue of new ordinary shares 1 53 - - - - 54 At 30 June 2015 108 1,169 31 101 - 4,267 5,676 Profit for the period - - - - - 2,275 2,275 Other comprehensive income: foreign currency translation differences - - - (13) - - (13) --------------------- ---------- ---------- ------------ ------------- -------------- ----------- --------- Total comprehensive income for the period - - - (13) - 2,275 2,262 Dividend - - - - - (1,378) (1,378) At 31 December 2015 108 1,169 31 88 - 5,164 6,560 Loss for the period - - - - - (986) (986) Other comprehensive income: foreign currency translation differences - - - (37) - - (37) --------------------- ---------- ---------- ------------ ------------- -------------- ----------- --------- Total comprehensive loss for the period - - - (37) - (986) (1,023) Dividend - - - - - (1,777) (1,777) Issue of new ordinary shares 34 23,966 - - - - 24,000 Share issue costs - (781) - - - - (781) Grant of share options - - - - 24 - 24 At 30 June 2016 142 24,354 31 51 24 2,401 27,003
Maintel Holdings Plc
Consolidated statement of cash flows
for the 6 months ended 30 June 2016 (unaudited)
6 months 6 months Year to 30 to 30 June to 31 June 2015 December 2016 2015 GBP000 GBP000 GBP000 (unaudited) (unaudited) (audited) Operating activities (Loss)/profit before taxation (696) 2,094 4,151 Adjustments for: Intangibles amortisation 1,752 1,118 2,235 Share based payment charge 24 - - (Loss)/profit on sale of fixed asset - (2) 4 Depreciation charge 195 103 191 Interest received (3) - (1) Interest payable 298 139 265 Operating cash flows before changes in working capital 1,570 3,452 6,845 Decrease in inventories 22 50 138 (Increase)/decrease in trade and other receivables (3,971) (159) 1,379 Increase/(decrease) in trade and other payables 3,691 (3,456) (533) ------------ ------------ ---------- Cash generated from/(consumed by) operating activities (see sub analysis below) 1,312 (113) 7,829 Cash generated from/(consumed by) operating activities excluding acquisition costs 3,826 (113) 7,829 Exceptional cost - acquisition costs (2,514) - - ------------ ------------ ---------- Cash generated from/(consumed by) operating activities 1,312 (113) 7,829 ------------------------------------- ------------ ------------ ---------- Tax paid (231) (761) (1,048) ------------ ------------ ---------- Net cash flows from operating activities 1,081 (874) 6,781 ------------ ------------ ---------- Investing activities Purchase of plant and equipment (250) (51) (554) Proceeds from disposal of - 2 - plant and equipment ------------------------------------- ------------ ------------ ---------- Purchase price in respect (47,028) - - of business combination
Net cash acquired with subsidiary undertaking 1,595 (45,433) - - Interest received 3 - 1 Net cash flows from investing activities (45,680) (49) (553) ------------ ------------ ---------- Financing activities Proceeds from borrowings 31,000 - - Repayment of borrowings (6,000) (800) (4000) Interest payable (298) (139) (265) Issue of new ordinary shares 24,000 54 54 Share issue costs (781) - - Issue costs of debt (348) - - Equity dividends paid (1,777) (1,243) (2,621) Net cash flows from financing activities 45,796 (2,128) (6,832) ------------ ------------ ---------- Net increase/(decrease) in cash and cash equivalents 1,197 (3,051) (604) Cash and cash equivalents at start of period 2,784 3,347 3,347 Exchange differences (37) 54 41 ------------ ------------ ---------- Cash and cash equivalents at end of period 3,944 350 2,784 ============ ============ ==========
Maintel Holdings Plc
Notes to the interim financial information
1. Basis of preparation
The financial information in these interim results is that of the holding company and all of its subsidiaries (the Group). It has been prepared in accordance with the recognition and measurement requirements of International Financial Reporting Standards as adopted for use in the EU (IFRSs) but does not include all of the disclosures that would be required under IFRSs. Except for the revised revenue recognition policy adopted in the Mobile segment, the accounting policies applied by the Group in this financial information are the same as those applied by the Group in its financial statements for the year ended 31 December 2015 and are those which will form the basis of the 2016 financial statements.
From 1 January 2016, the Group has reviewed its Mobile revenue recognition policy, and concluded to change its policy relating to the recognition of advance commissions received from network operators. There is no material difference in the financial statements as a result of adopting the new revenue recognition policy.
A number of amendments to and interpretations of existing standards have become effective for periods beginning on 1 January 2016, but no new standards; none of these is expected to materially affect the Group.
The Group's results are not materially affected by seasonal variations.
The comparative financial information presented herein for the year ended 31 December 2015 does not constitute full statutory accounts for that period. The Group's annual report and accounts for the year ended 31 December 2015 have been delivered to the Registrar of Companies. The Group's independent auditor's report on those statutory accounts was unqualified, did not draw attention to any matters by way of emphasis, and did not contain a statement under 498(2) or 498(3) of the Companies Act 2006.
The financial information for the half-years ended 30 June 2016 and 30 June 2015 is unaudited but has been subject to a review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity".
In preparing the interim financial statements the directors have considered the Group's financial projections, borrowing facilities and other relevant financial matters, and the board is satisfied that there is a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason the directors continue to adopt the going concern basis in preparing the financial statements.
2. Segmental information
For management reporting purposes and operationally, the Group consists of three business segments: (i) telecommunications managed service and technology sales, (ii) telecommunications network services, and (iii) mobile services. Each segment applies its respective resources across inter-related revenue streams which are reviewed by management collectively under these headings. The businesses of each segment and a further analysis of revenue are described under their respective headings in the business review.
The chief operating decision maker has been identified as the board, which assesses the performance of the operating segments based on revenue and gross profit.
Six months to 30 June 2016 (unaudited)
Managed Central/ service Network inter- and technology services Mobile company Total GBP000 GBP000 GBP000 GBP000 GBP000 Revenue 23,782 11,658 2,710 (90) 38,060 ================ =========== ========= ========= ======== Gross profit 8,544 3,197 1,440 (82) 13,099 ---------------- ----------- --------- --------- Other operating income 75 Total administrative expenses (9,017) Intangibles amortisation (1,752) Exceptional costs (2,806) -------- Operating loss (401) Interest (net) (295) -------- Loss before taxation (696) Taxation expense (290) Loss after taxation (986) ========
Further analysis of revenue streams is shown in the business review.
Intercompany trading consists of telecommunications services, and recharges of sales, engineering and rent costs, GBP46,000 (H1 2015: GBP86,000) attributable to the managed service and technology segment, GBP41,000 (H1 2015: GBP38,000) to the network services segment and GBP3,000 (H1 2015: GBP3,000) to the mobile segment.
Managed service Central/ and Network inter- technology services Mobile company Total GBP000 GBP000 GBP000 GBP000 GBP000 Other Intangibles amortisation 111 - - 1,641 1,752 Exceptional costs 319 - - 2,487 2,806 ============ =========== ======== ========= =======
Six months to 30 June 2015 (unaudited)
Managed service Central/ and Network inter- technology services Mobile company Total GBP000 GBP000 GBP000 GBP000 GBP000 Revenue 19,180 4,267 1,430 (127) 24,750 ============ =========== ========= ========= ========= Gross profit 7,749 1,121 694 (82) 9,482 ------------ ----------- --------- --------- Total administrative expenses (6,033) Intangibles amortisation (1,118) Exceptional costs (98) --------- Operating profit 2,233 Interest (net) (139) --------- Profit before taxation 2,094 Taxation expense (287) Profit after taxation 1,807 ========= Managed service Central/ and Network inter- technology services Mobile company Total
GBP000 GBP000 GBP000 GBP000 GBP000 Other Intangibles amortisation 126 - - 992 1,118 Exceptional costs 98 - - - 98 ============ =========== ======== ========= =======
Year ended 31 December 2015 (audited)
Managed service Central/ and Network inter- technology services Mobile company Total GBP000 GBP000 GBP000 GBP000 GBP000 Revenue 39,614 8,383 2,815 (189) 50,623 ============ =========== ========= ========= ========= Gross profit 15,749 2,284 1,196 (177) 19,052 ------------ ----------- --------- --------- Other operating income 12 Total administrative expenses (11,530) Intangibles amortisation (2,235) Exceptional costs (884) --------- Operating profit 4,415 Interest (net) (264) --------- Profit before taxation 4,151 Taxation (69) Profit after taxation 4,082 ========= Managed service Central/ and Network inter- technology services Mobile company Total GBP000 GBP000 GBP000 GBP000 GBP000 Other Intangibles amortisation 251 - - 1,984 2,235 Exceptional costs 884 - - - 884 ============ =========== ======== ========= =======
Revenue is wholly attributable to the principal activities of the Group and other than sales of GBP4,282,000 to EU countries and GBP966,000 to the rest of the world, arises within the United Kingdom.
Intercompany trading consists of telecommunications services, and recharges of sales, engineering and rent costs, GBP90,000 attributable to the managed service and technology segment, GBP93,000 to the network services segment and GBP6,000 to the mobile segment.
3. Earnings per share
Earnings per share is calculated by dividing the (loss)/profit after tax for the period by the weighted average number of shares in issue for the period, these figures being as follows:
6 months 6 months Year to 30 to 30 to 31 June June December 2016 2015 2015 GBP000 GBP000 GBP000 (unaudited) (unaudited) (audited) Earnings used in basic and diluted EPS, being (loss)/profit after tax (986) 1,807 4,082 Adjustments: Amortisation of intangibles 1,752 1,118 2,235 Exceptional costs (note 7) 2,806 98 884 Tax relating to above adjustments (934) (264) (666) Deferred tax charge on Datapoint profits 239 179 451 Deferred tax charge on Azzurri 311 - - profits Increase in deferred tax asset - - (500) Adjusted earnings used in adjusted EPS 3,188 2,938 6,486 ------------ ------------ ----------------
The adjustments above have been made in order to provide a clearer picture of the trading performance of the Group.
Datapoint has brought forward tax losses, so that it will pay no tax in respect of its 2016 profits. On acquisition and subsequently in 2015, however, a deferred tax asset was recognised in respect of its tax losses, and a deferred tax charge has been recognised in the income statement in respect of the period's profits. As this does not reflect the reality and benefit to the Group of the non-taxable profits, the deferred tax charge is adjusted above.
Azzurri has brought forward tax capital allowances, so that it will pay no tax in respect of its 2016 profits. On acquisition, a deferred tax asset was acquired in respect of its capital allowances, and a deferred tax charge has been recognised in the income statement in respect of the period's profits. As this does not reflect the reality and benefit to the Group of the non-taxable profits, the deferred tax charge is adjusted above.
6 months 6 months Year to 30 to 30 to 31 June June December 2016 2015 2015 Number Number Number (000s) (000s) (000s) Weighted average number of ordinary shares of 1p each 11,993 10,739 10,754 Potentially dilutive shares 200 140 145 ---------- ---------- ----------- 12,193 10,879 10,899 ========== ========== =========== (Loss)/profit per share Basic (8.2p) 16.8p 38.0p Basic and diluted (8.2p) 16.6p 37.5p Adjusted - basic after the adjustments in the table above 26.6p 27.4p 60.3p Adjusted - basic and diluted after the adjustments in the table above 26.1p 27.0p 59.5p ======== ======== ======
In calculating diluted earnings per share, the weighted average number of ordinary shares in issue is adjusted to assume conversion of all dilutive potential ordinary shares. The Group has one category of potentially dilutive ordinary share, being those share options granted to employees where the exercise price is less than the average price of the Company's ordinary shares during the period.
4. Earnings before interest, tax, depreciation and amortisation (EBITDA)
The following table shows the calculation of EBITDA and adjusted EBITDA:
6 months 6 months Year to 30 to 30 to 31 June June December 2016 2015 2015 GBP000 GBP000 GBP000 (unaudited) (unaudited) (audited) (Loss)/Profit before tax (696) 2,094 4,151 Net interest payable 295 139 264 Depreciation of property, plant and equipment 195 103 191 Amortisation of customer relationship intangibles 1,752 1,118 2,235 ------------ ------------ ---------- EBITDA 1,546 3,454 6,841 Exceptional costs 2,806 98 884 Adjusted EBITDA 4,352 3,552 7,725 ============ ============ ========== 5. Business combinations
On 4 May 2016 the Company acquired the entire share capital of Azzurri at the following provisional fair value amounts:
GBP000 Purchase consideration Cash 47,028 ________ Assets and liabilities acquired Tangible fixed assets 2,903 Inventories 1,428 Trade and other receivables 20,528 Cash 1,595 Trade and other payables (25,588) ________ 866 Intangible assets Customer relationships 16,030 Software 2,369 Brand 3,480 Product platform 1,299 Deferred tax asset 2,459 Deferred tax liability on Intangible assets (4,319) ________ Net assets and liabilities acquired 22,184
________ Goodwill 24,844 ________ Cash flows arising from the acquisition GBP000 were as follows: Purchase consideration settled in cash (47,028) Direct acquisition costs (note 7) (2,514) Cash balances acquired 1,595 ________ (47,947) ________
Azzurri was acquired to complement and extend the Group's existing offerings of telecommunications and data services and enable further cross-selling to and from other Group operations, as further described in the business review. The goodwill is attributable to the workforce of the acquired business, cross-selling opportunities and cost synergies that are expected to be achieved from sharing the expertise and resource of Maintel with that of Azzurri and vice versa.
The acquisition of Azzurri Communications Limited was effected by the acquisition of its parent company, Warden Holdco Limited for a purchase consideration of GBP47.0m. Warden Holdco Limited and Warden Midco Limited are the holding company and intermediate holding company of Azzurri Communications Limited and its subsidiaries.
The business was acquired for a cash consideration of GBP1, together with procurement of its senior debt facilities, loan notes, and acquisition related fees of GBP20.5m, GBP24.0m, and GBP2.5m respectively. These acquired liabilities were settled immediately following acquisition, and therefore formed part of the aggregate purchase consideration of GBP47.0m.
The purchase consideration quoted in the admission document for the Azzurri acquisition was GBP48.5m, but this was reduced to GBP47.0m through price adjustment mechanisms.
The customer relationships, software, brand and product platforms are estimated to have a useful life of one to eight years based on the directors' experience of comparable intangibles and are therefore amortised over those periods and are subject to an annual impairment review.
A deferred tax liability of GBP4.3m has been recognised above which is being credited to the income statement pro rata to the amortisation of the intangibles. The Azzurri related amortisation charge in 2016 is GBP0.5m.
The trade and other receivables are stated net of impairment.
Since its acquisition, Azzurri has contributed the following to the results of the Group before management charges of GBP0.2m:
GBP000 Revenue 15,357 ________ Profit before tax 1,116 ________
Azzurri's revenue for the period 1 January 2016 to 30 June 2016 was GBP43.6m and before management charges, its loss before tax, including exceptional and pre acquisition debt costs was GBP2.5m.
The Group incurred GBP2.5m of third party costs related to this acquisition. These costs are included in administrative expenses in the consolidated statement of comprehensive income.
6. Dividends 6 months 6 months Year to 30 to 30 to 31 June June December 2016 2015 2015 GBP000 GBP000 GBP000 (unaudited) (unaudited) (audited) Dividends paid Final 2014, paid 1 May 2015 - 11.6p per share - 1,243 1,243 Interim 2015, paid 7 October 2015 - 12.8p per share - - 1,378 Final 2015, paid 5 April 1,777 - - 2016 - 16.5p per share 1,777 1,243 2,621 ============ ============ ==========
The directors propose the payment of an interim dividend for 2016 of 13.4p (2015: 12.8p) per ordinary share, payable on 12 October 2016 to shareholders on the register at 30 September 2016. The cost of the proposed dividend, based on the number of shares in issue as at 15 September 2016, is GBP1.9m (2015: GBP1.4m).
7. Exceptional costs
On 4 May 2016 the Company acquired the entire issued share capital of Warden Holdco Limited whose principal trading entity is Azzurri Communications Limited. Legal and professional costs of GBP2.5m were incurred by Maintel in 2016 in relation to the acquisition, together with redundancy costs of GBP0.3m as a result of synergies achieved pre and post-acquisition. H1 2015 redundancy costs of GBP0.1m related to the acquisition of Proximity. These costs have been treated as exceptional in the income statement as they are not normal operating expenses.
8. Borrowings 30 June 30 June 31 December 2016 2015 2015 GBP000 GBP000 GBP000 (unaudited) (unaudited) (audited) Current bank loan - secured - 2,000 2,000 Non-current bank loan - secured 30,652 7,200 4,000 30,652 9,200 6,000 ============ ============ ============
On 8 April 2016 the Group entered into new facilities with the Royal Bank of Scotland plc to support the acquisition of Azzurri. These consist of a revolving credit facility totalling GBP36.0m in committed funds on a reducing basis for a five year term (with an option to borrow up to a further GBP20.0m in uncommitted accordion facilities) and replaced the Company's existing term and revolving credit facilities with Lloyds Bank plc which were fully repaid and terminated.
Under the terms of the facility agreement the committed funds reduce to GBP31.0m on the three year anniversary, and to GBP26.0m on the four year anniversary from the date of signing.
Non-current bank loan above is stated net of unamortised issue costs of debt of GBP0.3m.
Independent review report to Maintel Holdings Plc
Introduction
We have been engaged by the company to review the financial information in the interim results for the six months ended 30 June 2016 which comprises the consolidated statement of comprehensive income, the consolidated statement of financial position, the consolidated statement of changes in equity, the consolidated statement of cash flows, and explanatory notes.
We have read the other information contained in the interim results and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.
Directors' responsibilities
The interim results, including the financial information contained therein, are the responsibility of and have been approved by the directors. The directors are responsible for preparing the interim results in accordance with the rules of the London Stock Exchange for companies trading securities on AIM 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.
Our responsibility
Our responsibility is to express to the company a conclusion on the financial information in the interim results based on our review.
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 AIM 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.
Scope of review
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity", issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the financial information in the interim results for the six months ended 30 June 2016 is not prepared, in all material respects, in accordance with the rules of the London Stock Exchange for companies trading securities on AIM.
BDO LLP
Chartered Accountants and Registered Auditors
London
16 September 2016
BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127)
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR EQLFFQKFEBBV
(END) Dow Jones Newswires
September 19, 2016 02:00 ET (06:00 GMT)
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