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RNS
Manx Telecom PLC  -  MANX   

Final Results

Released 07:00 15-Mar-2017

RNS Number : 4796Z
Manx Telecom PLC
15 March 2017
 

 

15 March 2017

Manx Telecom Plc

Results for the year ended 31 December 2016

Manx Telecom Plc (AIM:MANX), ("Manx Telecom" or the "Company") the leading communication solutions provider on the Isle of Man, announces its results for the year ended 31 December 2016.

Financial Highlights

•         Revenues up 1.5% to £80.8m (2015: £79.6m)

-       Fixed Line, Broadband and Data revenues were broadly stable at £31.6m (2015: £32.0m),  with good take-up of high speed broadband

-       Mobile revenues up 0.5%, with H2 revenues up 4.5% on H1 levels

-       As anticipated, Data Centre revenues fell due to a decline in low margin kit sales and the impact of customer consolidation that occurred in H1

-       Global Solutions revenues up 10.2% year on year, driven by Strongest Signal Mobile and international traveller SIMs

•         Underlying EBITDA* maintained at £27.7m (2015: £27.7m). Reported EBITDA at £22.7m (2015: £27.7m), primarily reflecting £4.3m costs relating to the Transformation Programme

•         Underlying Profit Before Tax of £16.3m (2015: £16.2m). Reported Profit Before Tax of £8.8m (£16.6m)

•         Underlying free cash flow** up 5.1% at £16.4m (2015: £15.6m). Reported free cash flow of £14.1m (2015: £15.6m)

•         Net debt at the period end of £52.4m (2015: £52.2m), maintaining net debt/EBITDA ratio of 1.9x

•         Final dividend of 7.2p (2015: 6.9p) making 10.9p for the full year (2015: 10.4p), in line with the Company's progressive dividend policy

Operational Highlights

•      Launch of Vannin Ventures, a 100% owned subsidiary to identify new business opportunities

Acquisition of Partitionware in December to support development of innovative products and services

•      Launch of Transformation Programme aimed at improving competitiveness and the customer experience

•      Good traction with international traveller market:

Launch of 4G roaming to our customers travelling off the Isle of Man and those visiting

Agreement signed with China Unicom to provide connectivity for its UK mobile and roaming product

•      World's first medical technology trial to help those with hearing loss through the use of software to fine tune phone calls

•      Continued investment in the network and operational systems:

Additional infrastructure for VDSL high speed broadband network

Investment in mobile network for 4G roaming and LTE

Upgraded CRM, billing and charging platform

Gary Lamb, Chief Executive Officer, said:

"2016 has been another solid year for Manx Telecom and is in line with the Board's expectations.  The core business remains highly cash generative and we continue to see growth across many parts of the Company.  Operationally it was a strong year with good take up of our broadband products; mobile returning to growth in H2 and strong growth in Global Solutions offsetting the expected declines in the Data Centre business.

"We have undertaken a number of initiatives in the year aimed at generating future growth. We launched a business designed to identify new opportunities, we commenced a Transformation Programme to reshape the Company and, finally, we have continued to invest in our infrastructure and operational systems. Combined, these steps put us in a better place to grow Manx Telecom in the future.  

"Looking ahead, we remain confident in the outlook for the group, reflected in our commitment to maintain our progressive dividend policy. We continue to generate strong cash flow, which enables us to create value for shareholders and support our ongoing investment in the Isle of Man."

 

Underlying results

 

 

Reported results

 

2016***^

2015^

Change

 

 

2016

2015

 

£m

£m

 

 

 

£m

£m

 

 

 

 

 

 

 

 

Revenue

80.8

79.6

1.5%

 

 

80.8

79.6

EBITDA

27.7

27.7

-

 

 

22.7

27.7

Margin

34.2%

34.7%

 

 

 

28.1%

34.7%

Operating Profit

18.5

18.6

(0.1%)

 

 

13.6

18.6

Margin

22.9%

23.3%

 

 

 

16.8%

23.3%

Cash generated from operations

22.6

25.4

(11%)

 

 

22.0

25.4

Capital Expenditure (excl intangibles)

6.0

7.9

 

 

 

6.0

7.9

Free cash flow

16.4

15.6

 5.1%

 

 

14.1

15.6

 

 

 

 

 

 

 

 

Profit before and after tax

16.3

16.2

0.6%

 

 

8.8

16.6

Basic earnings per share

14.44p

14.38p

0.4%

 

 

7.82p

14.65p

Diluted earnings per share

14.26p

14.25p

0.1%

 

 

7.72p

14.53p

Final dividend per share

7.20p

6.90p

4.3%

 

 

7.20p

6.90p

Total dividend per share

10.90p

10.40p

4.8%

 

 

10.90p

10.40p

                 

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

**Underlying free cash flow is defined as net cash generated from operating activities less net cash used in investing activities, adjusted for the acquisition or disposal of subsidiaries and the cash impact of the items specified below

^ Underlying profits are before £1.2m loss (2015: £0.3m profit) on revaluation of interest rate swaps

*** The Underlying profits for 2016 are additionally before £4.3m Transformation Programme costs, £1.3m property revaluation, £0.2m acquisition costs and £0.5m impairment of equipment

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

For further enquiries, please contact:

Manx Telecom plc

+44 (0) 1624 636400

Gary Lamb, CEO

Danny Bakhshi, CFO

 

 

Liberum Capital (Nominated Adviser and Corporate Broker)

+44 (0)20 3100 2000

Steve Pearce

Josh Hughes

Dominik Götzenberger

 

 

Oakley Capital (Financial Adviser)

+44 (0) 20 7766 6900

Christian Maher

Victoria Boxall

 

 

Powerscourt Group (Public Relations)

+44 (0) 20 7250 1446

Juliet Callaghan

Simon Compton

 

 

 

Chairman's Statement

 

The Group's operations delivered a solid performance in 2016 with full year results in line with the Board's expectations. Revenues increased to £80.8m (2015: £79.6m). Our underlying EBITDA was maintained at £27.7m (2015: £27.7m) and our underlying profit after tax marginally increased to £16.3m (2015: £16.2m). Underlying cash flow improved to £16.4m (2015: £15.6m).

 

We invested £4.3m on the first stage of the Transformation Programme aimed at improving competitiveness and the customer experience. After also making fair value adjustments of £3.0m (2015: £0.3m gain) and charging £0.2m acquisition costs, our full year reported profit after tax was £8.8m (2015: £16.6m). Net debt was little changed at £52.4m (2015: £52.2m).

 

The Company continues to provide a wide range of telecommunications services to consumers, businesses and the public sector on the Isle of Man, and we pride ourselves on our investment in the island. Our core domestic business performance in Fixed Line, Broadband, Data and Mobile remained solid during the year. Availability and take up of high speed broadband services continues to grow, our 4G network is performing well and mobile subscriber numbers are up year on year.

 

As anticipated by management and communicated in the interim results, revenue levels in our Data Centre business were lower than 2015 due to a decline in low margin kit sales and data centre usage following customer consolidation. This revenue reduction was largely offset by a return to good levels of growth in our Global Solutions business, driven by our Strongest Signal Mobile solution, machine to machine ("M2M") and international traveller propositions.   Our unique position as a smaller telecom player with good links to the UK means that we are well placed to help the international traveller market, where we are seeing a number of encouraging opportunities.

 

As part of a continual search for ways to deliver innovative products to our customers, we launched Vannin Ventures in H2 to act as an incubator for new products and services which we will offer existing and prospective customers across multiple territories. We made our first acquisition, Partitionware, in December 2016, to support our endeavours in this area.

 

The Isle of Man economy continues to perform well, with unemployment at 1.3%, 32 years of unbroken GDP growth and economic growth forecast to continue. We look to support the Isle of Man Government in attracting business to the Island, and our telecommunications infrastructure, plus the services we provide form an important part of the Island's continued success.

 

Our people

The Company performance in 2016 is once again underpinned by the dedication and professionalism of our people.  We are encouraged by the positive response from our colleagues to the Transformation Programme, which has been launched to improve our competitiveness and customer experience.

 

Danny Bakhshi joined us as Chief Financial Officer on 1 February 2016. Danny has an excellent track record in the industry and has proved to be a valuable addition to the Board.

 

Sir Miles Walker retired from our board at our Annual General Meeting in 2016. He served the business for 13 years, initially as a director and then as Chairman of Manx Telecom Holdings Ltd and subsequently as a Non-Executive Director after the IPO of Manx Telecom PLC in 2014.  In June 2015 we were pleased that Christopher Hall, who was Managing Director of Manx Telecom Ltd until April 2011, agreed to join us as an Independent Non-Executive Director. He brings strong local relations and an extensive and deep knowledge of telecommunications together with a broader knowledge of the technology and software sector.

 

Dividend

The Board has declared a final dividend of 7.2p per share to be paid on 30 June 2017.  This will bring the full year dividend to 10.9p (2015: 10.4p).  The shares will trade ex-dividend on 25 May 2017 and will have a record date of 26 May 2017.

 

Outlook

With our heightened focus on innovation and the Transformation Programme, we are building on our joint strategy of strengthening our position in our core market on the Isle of Man through high quality customer service and value for money offerings, whilst looking for growth on and off island by leveraging our mobile technology platform and exploring new products and services for existing and future customers.

 

We expect the trends experienced in the core domestic business (fixed line, broadband and data) and mobile to continue, resulting in overall stable revenues.  Our Data Centre business faces some short term challenges due to the customer consolidation which occurred in 2016, however, we remain positive about our longer-term prospects in this area.  We expect to make further progress in our Global Solutions business, building upon the successes of 2016.

 

Whilst the uncertainty over future Brexit negotiations may affect some external decision making, we take confidence in the Isle of Man's economy as it has remained remarkably resilient over the years. We are well capitalised with a net debt/underlying EBITDA ratio at year end of 1.9 times and £10m unutilised committed facilities.

 

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

 

CEO's review

 

Overview

It gives me great pleasure to present the annual results following my first full year as CEO of Manx Telecom. It has been another solid 12-month period for the business, with the overall financial performance of the group in line with our expectations. A number of developments and initiatives implemented towards the end of the year have positioned the group for future growth. These initiatives include the launch of Vannin Ventures and the acquisition of Partitionware and the implementation of the Transformation Programme to reshape the business.

 

Results overview

The Company's performance for the period was in line with the Board's expectations. Revenue was up slightly in part due to growth in Global Solutions, Broadband and Other revenue, which offset a reduction in Data Centre revenue.

 

Underlying EBITDA remained stable, with a minor reduction in margin following an increase in the lower margin Global Solutions business and a reduction in higher margin Data Centre revenue. Reported EBITDA was down due to the costs relating to the Transformation Programme and an impairment charge for obsolete assets following continued investment in the Group's mobile network and equipment and platforms used to support Data Centre services.

 

Underlying profit after tax increased marginally as a result of stable depreciation and marginally lower financing costs. This resulted in an incremental increase in underlying diluted earnings per share.  Reported profit after tax reduced year on year, primarily due to transformation costs relating to the Transformation Programme, an unrealised loss on interest rate swaps used to hedge interest rate risk, and a loss on revaluation of certain land and building assets.

 

We continue to generate strong cash flows, which support our investment in the Isle of Man and a progressive dividend for 2016.

 

In 2016 we continued to invest in the island, including the roll out of additional infrastructure to increase the reach of our VDSL high speed broadband network, investment in our mobile network for 4G roaming and LTE, as well as an upgrade of our CRM billing and charging platform.

 

 

Revenue

2016
£m

%
Total revenue

2015
£m

%
Total revenue

Y-o-Y
%

Fixed, Broadband and Data

31.6

39.1%

32.0

40.2%

-1.2%

Mobile

20.2

24.9%

20.1

25.2%

0.5%

Data Centre

5.9

7.3%

8.0

10.0%

-26.3%

Global Solutions

15.6

19.3%

14.1

17.7%

10.2%

Other

7.6

9.4%

5.4

6.8%

39.9%

Total Revenue

80.8

 

79.6

 

1.5%

 

 

Fixed, Broadband and Data services

Fixed, Broadband and Data Services provide fixed line voice, broadband and connectivity services for customers, connecting approximately 37,000 homes and 4,000 businesses on the Isle of Man. Fixed, Broadband and Data is our largest business, representing 39% of all Company revenues. In 2016 revenue decreased by 1.2% to £31.6m (2014: £32m), driven by reductions in fixed line voice revenues.

 

Investments in fibre rollout, vectoring and capacity underpinned increased high speed broadband revenue. Take up of these services, known as Ultima and Ultima plus, has grown broadband revenues by 4.6% during 2016 to £9.1m.

 

On 1 September 2015 we opened up our fixed network, providing a wholesale fixed line product to our competitors. To date, we have not experienced a significant loss of retail customers to competitors and our market share remains at 95% as at year end.

 

In September 2016, we continued a rebalancing of our wholesale fixed line and broadband tariffs, with fixed line tariffs increasing and VDSL broadband tariffs reducing, providing further incentives for customers to move to our higher speed broadband products. Fixed line revenues declined in the year, as increased revenue from line rental was more than offset by reductions in call revenue.

 

Mobile

Our Mobile business performed well in the face of reducing roaming revenues, which were unusually high last year on the back of increased demand at the time of the TT motorcycle race. Revenue for the year was up slightly at £20.2m (2015: £20.1m) supported by increased post-paid contract revenue and pre-paid revenue. We were pleased to note an improved performance in the second half of the year, with revenues up 4.5% compared to H1, or 2.9% compared to H2 2015.

 

Our 4G network, which provides 99% population coverage at speeds of up to ten times faster than 3G services, continued to perform well and mobile subscriber numbers are up year on year, with our promotions in the lead up to the Christmas period proving particularly successful.

 

The trend of increasing 4G adoption rates and general up-selling of data packages has continued in the past year, leading to a 13.3% increase in combined post-paid and prepaid revenue.

 

In May 2016 we launched 4G roaming to our customers so that our 4G service can be enjoyed by our customers travelling off the Isle of Man and those visiting. We continue to partner with global operators to increase our 4G roaming footprint around the world.

 

During the year we also trialled 4G+, a service which provides download speeds up to 40% faster than 4G.  The trial was a resounding success, and a staged rollout of service to selected areas commenced in 2016 and will continue in 2017.

 

Data Centre

The Data Centre business offers co-location, managed hosting, cloud and disaster recovery services to an international and local corporate client base. These services are supplied by three data centres at Douglas North, Douglas Central and Greenhill Data Centre ("GDC"). The data centres at GDC and Douglas North are Tier 3 designed data centres providing high standards of data security, resilience, and expandable hosting capacity, including business continuity and distributed denial of service protection ('DDoS').

 

As previously flagged, during H12016, one of our customers informed us they would be rationalising their data centre usage and moving away from the Isle of Man in order to capitalise on acquisition synergies following recent consolidation.  This has resulted in the release of some capacity in our data centre portfolio, reducing the combined occupancy rates of our data centres to 70.5% (2015: 78.5%). As expected, Data Centre revenue declined during the period by 26.3% to £5.9m (2015: £8.0m). It should also be noted that in 2015 there were higher than normal levels of one off low margin kit sales as new data centre customers arrived and, as expected, this revenue stream declined during the year.

 

We are actively seeking to re-populate capacity in our data centres, with a focus on managed service business to better utilise our investment.

 

Global Solutions

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

 

Global Solutions has performed well this year following a re-organisation in 2015 and increased investment, particularly in the sales team.  Revenues increased by 10.2% during the year to £15.6m (2015: £14.1m) with growth across much of the product portfolio.

 

In December we signed an agreement with China Unicom Global Limited, a subsidiary of China Unicom Group, the world's fourth largest mobile service provider by subscriber base.  Manx Telecom will provide the connectivity to facilitate China Unicom's 'CUniq' UK mobile and roaming product: a service that will provide outbound travellers from China, diaspora communities living in the UK and enterprise customers, with one SIM card that allows them to have a UK, China and Hong Kong local service along with global roaming across 45 countries and regions.  Manx Telecom is providing local UK connectivity via its relationship with Telefonica.

 

Our pipeline of opportunities in this area remains strong, and we are positive regarding growth opportunities in this area of the business in 2017.

 

Other revenues

Other revenues include the advertising revenue from our telephone directory, hardware equipment sales, interconnection fees and managed services.

 

Other revenue increased by 39.9% during the year to £7.6m (2015: £5.4m), primarily due to a resurgence in hardware equipment sales and realignment of Directory revenues such that these will now be recognised in Q4 of each financial year.

 

Vannin Ventures

In August 2016, we launched Vannin Ventures, a new standalone business which has been established to support the Company's long term growth strategy. Wholly owned by Manx Telecom, its purpose is to identify new and promising business opportunities in the telecoms and technology sectors, acting as an incubator to bring innovative products and services to market. There is an autonomous team behind the new business with a view to fostering a creative environment and entrepreneurial ethos.  

 

In December, Vannin Ventures announced the acquisition of Partitionware, an Isle of Man software developer specialising in telecommunication platforms, and will be supporting Vannin Ventures' development of new products for our various markets. Combined with our network expertise we will be able to offer enhanced innovation and flexibility to our Global Solutions customers, and the business is already working with Manx Telecom on and the business is already working with Manx Telecom to provide China Unicom Group's UK mobile and roaming solution.

 

Transformation Programme

In October 2016 the Company launched a programme aimed at improving competitiveness and the customer experience. 

 

The first stage of the programme is to undertake a review of our business processes and organisational structure.  The programme is expected to last for up to two years as we reshape the business and make a significant investment in technology to aid this transformation. We expect to incur transformation costs of approximately £10m over a two year period with £4.3m charged to profit before tax in 2016 and the balance expected to be charged in 2017 financial year.  Most of the financial benefits are expected to start accruing in 2018. In 2016, cash of £0.5m was spent on the Transformation Programme.

 

Financial review

 

I was delighted to be appointed CFO of Manx Telecom on 1 February 2016 and am pleased to present my first financial review to shareholders following a full year in role.

 

Revenue

The Fixed Line, Broadband and Data business had a solid performance, with a marginal reduction in revenue of 1.2% to £31.6m (2015: £32.0m). As anticipated by management, the Data Centre business saw a decrease in revenue to £5.9m (2015: £8.0m), due to a decline in low margin kit sales and data centre usage driven by some customer consolidation. Mobile revenues were up marginally year on year at £20.2m (2015: £20.1m) as increased post-paid contract revenue and pre-paid revenue offset a reduction in roaming revenues. Global Solutions had a successful 2016, with full year revenue of £15.6m (2015: £14.1m), an increase of 10.2%, driven by growth in our Strongest Signal Mobile solution, branded Chameleon, M2M and international traveller propositions. Other revenues were up 39.9% to £7.6m (2015: £5.4m) due to additional one-off revenues for hardware equipment sales and as we also brought forward the date on which we delivered the 2017 directory.

 

The Group generated underlying EBITDA of £27.7m (2015: £27.7m), in line with expectations. Underlying EBITDA is defined as the group profit or loss before depreciation, amortisation, net finance expense and taxation, adjusted for specific items including Transformation Programme costs, acquisition costs and impairment charges.  Reported EBITDA for the year was £22.7m (2015: £27.7m). The Group's underlying EBITDA margin was slightly lower at 34.2% (2015: 34.7%) due to an increase in the lower margin Global Solutions business and a reduction in higher margin Data Centre revenue.

 

Depreciation and amortisation was stable at £9.1m (2015: £9.1m).

 

Underlying operating profit was also steady at £18.5m (2015: £18.6m) due to the year on year consistency in EBITDA and depreciation and amortisation. Reported operating profit was £13.6m (2015: £18.6m).

 

Underlying profit before tax increased slightly to £16.3m (2015: £16.2m) due to steady EBITDA and depreciation, and lower interest charges following a full year of benefit of improved terms following the renegotiation of the lending facility effective from 30 June 2015. Underlying profit before tax is before a £1.2m loss (2015: £0.3m profit) on revaluation of interest rate swaps as well as the specific adjustments to EBITDA above.  Reported profit before tax was £8.8m (2015:£16.6m).

 

Underlying diluted EPS was level at 14.26p (2015: 14.25p). Reported diluted EPS was 7.72p (2015: 14.54p).

 

The Company paid an interim dividend of 3.7p per share in November 2016 and declared a final dividend for 2016 of 7.2p per share on 15 March 2017 resulting in a full year dividend for 2016 of 10.9p per share, a 4.8% increase from 2015.

 

Costs

Costs of sales increased by 0.9% in the year as a result of increased Global Solutions revenue and an associated increase in roaming and interconnect costs, together with an increase in maintenance costs.

 

Energy costs were down 0.5% during 2016, as increased energy use from running our GDC phase 2 facility for a full year was offset by reductions arising from customer consolidation. Mobile handset costs were 7% higher following a successful Christmas trading period, driven by an increase in post-paid contract subscribers and upsell of customers on legacy tariffs to smartphone tariffs.

 

Administrative expenses increased by 20.5% to £35.0m (2015: £29.1m), however a significant proportion of this increase is due to Transformation Programme costs of £4.3m, an impairment charge of £0.5m and acquisition costs of £0.2m. Excluding these items, administrative expenses were up 3.4%. The main component of administrative costs is staff, the cost of which increased by 6.9% in the period, but which will reduce in 2017 following voluntary redundancy as part of the Transformation Programme.

 

Net finance costs

Net finance costs reduced to £2.3m (2015: £2.4m). Included in this figure is the cost of interest at £2.1m (2015: £2.3m), the reduction being due to a full year of benefit from lower interest rates secured from the renegotiation of external lending facilities in June 2015.

 

We recorded an unrealised loss of £1.2m on interest rate swaps (2015: £0.3m gain), primarily due to decreases in market interest rates following the BREXIT referendum. No swaps have been exited during the year, therefore there are no realised gains or losses. This charge does not form part of the underlying results and had no impact on cash.

 

Taxation

There is no corporate taxation payable on our profits for either 2016 or the comparative year. We have the benefit of an Isle of Man 0% corporate tax rate.

 

Cash flow

Underlying operating cash flow decreased by 11.3% to £22.6m (2015: £25.4m) due to a combination of lower reported profit together with a larger year end debtor balance due to timing differences. These balances have since reversed in the early part of the current financial year.  Underlying cash flow includes adjustments for the following specific items:

 

Cash flow

2016
£'000

2015
£'000

Operating cash flow

21,963

25,449

Transformation Programme costs

495

-

Acquisition costs

110

-

Underlying operating cash flow

22,568

25,449

 

Our reported free cash flow after investing activities was 9.4% lower at £14.1m (2015: £15.6m), out of which we serviced our borrowings and paid our dividend to shareholders. Underlying free cash flow, defined as net cash generated from operating activities less cash used in investing activities and adjusted for specific items, was up 5.2% at £16.4m.  Underlying free cash flow excluded the following specific items:

 

Cash flow

2016
£'000

2015
£'000

Free cash flow

14,120

15,590

Transformation Programme costs

495

-

Acquisition of subsidiary

1,668

-

Acquisition costs

110

-

Underlying free cash flow

16,393

15,590

 

Our solid underlying levels of cash generation enabled us to maintain our net debt at comparable levels year on year, with net debt at £52.4m (2015: £52.2m), equivalent to 1.9 times underlying EBITDA in both 2016 and 2015.

 

Capital expenditure

The 2016 capital expenditure, including intangibles, was £6.7m (2015: £8.0m). In addition to this, the Group acquired a subsidiary, Partitionware, in December 2016.

 

Significant capital expenditure in the period included a £1.1m investment in upgrading our CRM billing and charging platform which went live in 2016, £1.4m in the roll out of additional infrastructure to increase the reach of our VDSL high speed broadband network and investment in our mobile network for 4G roaming and LTE of £0.6m.

 

The remaining capital expenditure was spread across a number of business areas including network development for our Global Solutions products, off-island connectivity and Data Centre maintenance capital spend.

 

Balance sheet

Property, plant and equipment decreased during the year by £3.6m to £60.3m. Capital additions were £6.0m (2015: £7.9m), as described above. Depreciation was level year on year at £8.9m.

 

We retain goodwill of £84.3m on the balance sheet arising from the purchase of Manx Telecom from Telefónica in 2010, which is robustly supported by current valuations.

 

The Group operates two pension schemes, a defined benefit scheme, and a defined contribution plan. During 2014 the defined benefit scheme was closed to future accruals, and all current members transferred to a defined contributions scheme. In 2016, the Group completed a triennial revaluation of the scheme and as part of this process agreed reduced annual funding obligations to the scheme for 2017 onwards, down from £1.2m per annum to £0.6m per annum. Under accounting standard IAS 19 the defined benefit scheme is shown as a liability of £5.4m (2015: £0.4m asset), despite a £14.5m increase in scheme assets. Scheme liabilities increased by £21.5m mainly due to a reduction in the discount rate tied to deteriorating corporate bond yields.

 

Current assets increased to £40.8m (2015: £36.4m). Cash held at the end of the period increased to £16.7m (2015: £16.6m). Trade and other receivables increased by £3.9m, of which other receivables increased by £3.6m, due an increase in roaming discount receivables compared to prior year. A large outstanding amount of the roaming discount receivables was settled in January 2017.

 

Current liabilities increased to £30.6m (2015: £24.9m), largely due to provisions for transformation costs of £3.8m.

 

Non-current liabilities increased to £76.3m (2015: £69.6m), largely due to the movement in the defined benefit pension scheme asset to a liability of £5.4m. Interest bearing loans and borrowings were relatively unchanged at £69.0m (2015: £68.8m), the movement due to the amortisation of borrowing costs. Our loan facility matures on 30 June 2020. The Group has entered into two interest rate swaps, one maturing in June 2018 and one maturing in June 2020. As at 31 December 2016, the fair value of the interest rate swap maturing in June 2018 was a £0.9m liability (2015: £0.8m), while fair value of the interest rate swap maturing in June 2020 was a £1.0m liability (2015: £0.1m asset).

 

Net debt at the period end was £52.4m (2015: £52.2m), resulting in net debt to underlying EBITDA being maintained at 1.9 times (2015: 1.9 times).

 

consolidated statement of comprehensive income

for the year ended 31 december 2016

 

 

Note

2016
£'000

2015
£'000

Revenue

1

80,823

79,598

Cost of sales

 

(32,229)

(31,943)

Gross profit

 

48,594

47,655

Administrative expenses

 

(35,027)

(29,080)

Operating profit

2

13,567

18,575

 Underlying EBITDA

 

27,669

27,654

 Depreciation and amortisation

 

(9,142)

(9,079)

 Underlying operating profit

 

18,527

18,575

 Impairment of equipment

2

(464)

-

  Transformation Programme

2

(4,335)

-

  Acquisition costs

2

(161)

-

 Operating profit

 

13,567

18,575

Other income

 

36

50

Financial income

 

72

170

Finance costs

3

(2,342)

(2,576)

Loss on property revaluation

 

(1,274)

-

Net (loss)/profit on interest rate swaps

 

(1,238)

334

Profit before tax

 

8,821

16,553

Taxation

 

-

-

Profit for the year attributable to the owners of the Group

 

   8,821

16,553

 

 

 

 

 Underlying Profit before Tax

 

16,293

16,219

 Impairment of equipment

2

(464)

-

  Transformation Programme

2

(4,335)

-

  Acquisition costs

2

(161)

-

  Loss on property revaluation

2

(1,274)

-

  Net (loss)/profit on interest rate swaps

2

(1,238)

334

 Profit before tax

 

8,821

16,553

Other comprehensive income - items that will never be reclassified to profit or loss

 

 

 

Remeasurement of defined benefit pension scheme asset

 

(7,000)

(3,100)

Gains on property revaluation

 

1,159

-

Total comprehensive profit for the year attributable to the owners of the Group

 

2,980

13,453

Earnings per share from continuing operations

 

 

 

Basic

4

7.82p

14.65p

Diluted

4

7.72p

14.53p

Underlying basic

4

14.44p

14.38p

Underlying diluted

4

14.26p

14.25p

 

The Directors consider that all results are derived from continuing operations.

 

consolidated statement
of financial position

as at 31 december 2016

 

 

 

Note


2016
£'000


2015
£'000

Non-current assets

 

 

 

Property, plant and equipment

 

60,328

63,968

Goodwill

 

87,911

84,277

Intangible assets

 

881

364

Retirement benefit asset

 

-

400

Interest rate swaps

 

-

103

 

 

149,120

149,112

Current assets

 

 

 

Inventories

 

905

594

Trade and other receivables

 

23,230

19,235

Cash and cash equivalents

 

16,674

16,601

 

 

40,809

36,430

Current liabilities

 

 

 

Trade and other payables

 

(26,784)

(24,933)

Provisions

 

(3,840)

-

 

 

(30,624)

(24,933)

Net current assets

 

10,185

11,497

 

Non-current liabilities

 

 

 

Non-current liabilities

 

 

 

Interest-bearing loans and borrowings

 

(69,036)

(68,785)

Interest rate swaps

 

(1,912)

(777)

Retirement benefit liability

 

(5,400)

-

 

 

(76,348)

(69,562)

Net assets

 

82,957

91,047

Equity attributable to the owners of the Group

Equity attributable to the owners of the Group and Company

 

 

 

Share capital

 

226

226

Share premium

 

84,366

84,347

Revaluation reserve

 

1,159

-

Retained (losses)/earnings

 

(2,794)

6,474

Total equity

 

82,957

91,047

 

consolidated statement of
changes in equity

for the year ended 31 december 2016

 

 

Share capital
£'000

Share premium
 £'000

Revaluation reserve
£'000

Retained earnings
£'000

Total equity
£'000

Balance at 1 January 2015

226

84,343

-

3,749

88,318

Total comprehensive profit for the year

 

 

 

 

 

Profit for the year

-

-

-

16,553

16,553

Other comprehensive (loss)

-

-

-

(3,100)

(3,100)

Total comprehensive profit for the year

-

-

-

13,453

13,453

Transactions with owners of the Group, recorded directly in equity

 

 

 

 

 

Share-based payment transactions

-

-

-

681

681

Issue of shares

 -

4

-

-

4

Dividend paid

-

-

-

(11,409)

(11,409)

Total contributions by and distributions to the owners of the Group

-

4

-

(10,728)

(10,724)

Balance at 31 December 2015

226

84,347

-

6,474

91,047

 

 

 

 

 

 

Balance at 1 January 2016

226

84,347

-

6,474

91,047

Total comprehensive profit for the year

 

 

 

 

 

Profit for the year

-

-

-

8,821

8,821

Other comprehensive (loss)

-

-

1,159

(7,000)

(5,841)

Total comprehensive profit for the year

-

-

1,159

1,821

2,980

Transactions with owners of the Group, recorded directly in equity

 

 

 

 

 

Share-based payment transactions

-

-

-

887

887

Issue of shares

-

19

-

-

19

Dividend paid

-

-

-

(11,976)

(11,976)

Total contributions by and distributions to the owners of the Group

-

19

-

(11,089)

(11,070)

Balance at 31 December 2016

226

84,366

1,159

(2,794)

82,957

 

consolidated statement of cash flows

for the year ended 31 december 2016

 

 

Note

 

2016

£'000

 

2015

£'000

Cash flows from operating activities

 

 

 

 

 

Profit for the year

 

 

8,821

 

16,553

Adjustments for:

 

 

 

 

 

 Depreciation of property, plant and equipment

 

8,934

 

8,886

 

 Amortisation of intangibles

 

208

 

193

 

 Impairment of property, plant and equipment

 

464

 

-

 

 Profit on disposal of property, plant and equipment

 

(36)

 

(50)

 

 Finance income

 

(72)

 

(170)

 

 Finance costs

 

2,342

 

2,576

 

  Loss on property revaluation

 

1,274

 

 

 

 Net loss/(profit) on interest rate swaps

 

1,238

 

(334)

 

 Equity-settled share-based payments transactions

 

887

 

681

 

Pension contributions

 

(1,200)

 

(1,200)

 

Changes in:

 

 

 

 

 

 Inventories

 

(311)

 

200

 

 Trade and other receivables

 

(3,709)

 

(2,527)

 

 Trade and other payables

 

(717)

 

641

 

  Provisions

 

3,840

 

-

 

 

 

 

13,142

 

8,896

Net cash generated from operating activities

 

 

21,963

 

25,449

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

Proceeds from sale of property, plant and equipment

 

178

 

228

 

Purchase of property, plant and equipment

 

(5,700)

 

(10,116)

 

Purchase of intangible assets

 

(725)

 

(41)

 

Acquisition of subsidiary

 

(1,668)

 

-

 

Interest received

 

72

 

70

 

Net cash used in investing activities

 

 

(7,843)

 

(9,859)

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

Proceeds on issue of shares

 

19

 

4

 

Transaction costs related to loans and borrowings

 

-

 

(438)

 

Repayment of borrowings

 

(40)

 

(40)

 

Interest paid

 

(2,050)

 

(2,262)

 

Dividends paid

 

(11,976)

 

(11,409)

 

Net cash used in financing activities

 

 

(14,047)

 

(14,145)

Net increase in cash and cash equivalents

 

 

73

 

1,445

Cash and cash equivalents brought forward

 

 

16,601

 

15,156

Cash and cash equivalents at 31 December

 

 

16,674

 

16,601

 

 

 

notes

 

1 Operating segments

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

 

 

Group
2016
£'000

Group
2015
£'000

Fixed Line, Broadband and Data

31,633

32,027

Mobile

20,155

20,058

Global Solutions

15,565

14,122

Data Centre

5,862

7,951

Other

7,608

5,440

 

80,823

79,598

 

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

 

There is no inter-segmental trading.

 

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

 

Fixed Line, Broadband and Data includes revenues from ADSL and VDSL rental and connection charges, fixed line call charges, fixed line rental and connection charges, and private circuit rental and connection charges.

 

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

 

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

 

Data Centre includes revenues from hosting services provided.

 

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

 

 

 

2 Operating profit

The operating profit is stated after charging the following:

 

 

2016
£'000

2015
£'000

Staff costs

15,675

14,670

Depreciation of property, plant and equipment - owned assets

8,934

8,886

Amortisation of software licences - intangibles

208

193

Impairment of property, plant and equipment

464

-

Net operating lease rentals payable - property

233

254

Acquisition costs

161

-

Transformation Programme

4,335

-

Trade receivables impairment

130

723

Audit services - statutory audit

129

106

 

      - non-audit service fees

14

12

       

 

 

Non-GAAP measures

The adjustments made to reported profit before tax and operating profit are income and charges that are one-off in nature, significant and distort the Group's underlying performance. For the year ended 31 December 2016 these adjustments included:

·   Transformation Programme. In 2016 the Group commenced a programme to transform the business, aimed at improving competitiveness and the customer experience by reshaping the organisation, streamlining processes and investing in supporting technology. As part of this programme, costs of £4,335,000 were incurred to 31 December 2016 relating to employee termination benefits, consulting fees and other programme related costs.

·   Acquisition costs. Costs of £161,000 were incurred in the acquisition of Partitionware Limited, see note 25 for further information.

·   Unrealised gains and losses on interest rate swaps. In 2016, the Group made an unrealised loss on interest rate swap fair value movements of £1,238,000, while in 2015 the Group made a gain of £334,000. See notes 14 and 17 for further information.

·   Other gains and losses. During the year the Group revalued land and buildings, with the revaluation of some properties resulting in a loss on revaluation of £1,274,000. See note 7 for further information.

·   Impairment of property, plant and equipment. Following continued investment in the Group's mobile network and equipment and platforms used to support Data Centre services, the Group made impairments of certain property, plant and equipment no longer in use, resulting in an expense of £464,000.

 

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

·   Transformation Programme. The Group made cash outflows of £495,000 in 2016 in relation to Transformation Programme costs described above.

·   Acquisition of subsidiary. The net cash outflow on acquisition of Partitionware Limited was £1,668,000 as detailed in note 25. In addition, the Group also made cash outflows of £110,000 in relation to acquisition costs.

 

3 Finance income and expense

Recognised in profit or loss

 

 

2016
£'000

2015
£'000

Finance income

 

 

Other interest receivable

72

70

Net interest on pension asset

-

100

 

72

170

 

 

 

Finance costs

 

 

Interest on borrowings

(2,044)

(2,256)

Finance lease interest

(6)

(6)

Amortisation of loan transaction costs

(292)

(314)

Total financial expense

(2,342)

(2,576)

 

 

 

Net total finance expense

(2,270)

(2,406)

 

4 Earnings per share

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

 

4.1 Reported earnings per share

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

 

 

Earnings
£'000

Thousands of shares (Basic)

Basic earnings per share

Thousands of shares (Diluted)

Diluted earnings per share

31 December 2015

16,553

112,824

14.65p

113,829

14.53p

31 December 2016

8,821

112,841

7.82p

114,259

7.72p

 

4.2 Underlying earnings per share

The calculation of underlying earnings per share has also been included to enable shareholders to assess the results of the Group excluding income and charges detailed in note 2 that are one-off in nature, significant and distort the Group's underlying performance.

 

 

Earnings
£'000

Thousands of shares (Basic)

Basic earnings per share

Thousands of shares (Diluted)

Diluted earnings per share

31 December 2015

16,219

112,824

14.38p

113,829

14.25p

31 December 2016

16,293

112,841

14.44p

114,259

14.26p

 


This information is provided by RNS
The company news service from the London Stock Exchange
 
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