13th Mar 2019 07:01
13 March 2019
Manx Telecom Plc
Results for the year ended 31 December 2018
Manx Telecom Plc (AIM:MANX), ("Manx Telecom" or the "Company"), the leading Isle of Man-based communications solutions provider, announces its results for the year ended 31 December 2018, showing good progress with its strategy of strengthening its on-island telecoms business, while investing for growth in the international business Vannin Ventures.
Financial Highlights
· Revenues of £81.5m (2017: £78.5m)
- Fixed Line, Broadband and Data revenues stable at £30.8m (2017: £31.5m).
- Mobile revenues increased 11.9% year on year.
- Continued growth in Global Solutions with revenue increasing 5.4% year on year.
- Data Centre revenues consistent at £4.7m (2017: £4.7m).
- Other revenues increased by 7.4% to £6.3m (2017: £5.9m), driven primarily by non-mobile kit sales.
· Underlying EBITDA increased slightly to £27.2m (2017: £27.1m). Reported EBITDA, including the final costs related to the Transformation Programme and investment in Goshawk Communications ("Goshawk"), increased to £23.3m (2017: £23.1m).
· Underlying Profit Before Tax reduced slightly to £14.8m (2017: £15.1m) due to increased interest payments, with reported Profit Before Tax of £11.6m (2017: £11.9m).
· Strong underlying Free Cash Flow (FCF) at £18.0m (2017: £20.0m) with 2017 being exceptionally high having the benefit of cash from the completion of a very popular share save scheme. Reported FCF up 5.1% at £9.5m (2017: £9.1m) due to improvements in working capital.
· An increase in net debt to £63.0m at the year end (2017: £56.9m) was driven by cash investment in our Transformation Programme and growth initiatives across the business, including Goshawk, resulting in a net debt/underlying EBITDA ratio of 2.3x (2017: 2.1x).
· Final dividend of 7.9p (2017: 7.5p) making 12.0p for the full year (2017: 11.4p).
Operational Highlights
· In the Group's domestic business, the roll-out of Fibre to the Premise ("FTTP") has continued, with over 10% of the Island's premises passed by year end. There has been a 13.5% take up of the service to date.
· Successful year for Vannin Ventures, our international growth business, including the launch on the Isle of Man of Goshawk Communications' innovative proposition, "MT clearSound", a new personal mobile phone service which dramatically improves the clarity of mobile phone calls for those with hearing loss. Goshawk recently announced the brand name for the mobile phone proposition it will launch in the UK market in the summer of 2019 as "Audacious".
Gary Lamb, Chief Executive Officer, said:
"2018 was another year of robust performance for Manx Telecom. Thanks to the hard work of our people, our on-island telecoms business has remained stable - with a solid performance in Fixed Line, Broadband and Data Services, and growth in Mobile - while our international growth business, Vannin Ventures, has seen growth in Global Solutions and has put down strong foundations for the future. Goshawk Communications has made good progress, not least with our recently branded UK proposition "Audacious".
We remain positive in the outlook for the Group due to the solid underlying revenue, EBITDA and cash flow performance during the year, and are continuing to explore potential growth opportunities with the aim of identifying new products and services for a global audience."
| Underlying results2 |
| Reported results | ||||
| 2018 | 2017 | Change |
| 2018 | 2017 | Change |
| £m | £m |
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| £m | £m |
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Revenue1 | 81.5 | 78.5 | 3.8% |
| 81.5 | 78.5 | 3.8% |
EBITDA3 | 27.2 | 27.1 | 0.4% |
| 23.3 | 23.1 | 0.9% |
Margin | 33.4% | 34.5% |
|
| 28.6% | 29.4% |
|
Operating Profit | 17.5 | 17.4 | 0.6% |
| 13.7 | 13.4 | 2.2% |
Margin | 21.5% | 22.1% |
|
| 16.8% | 17.1% |
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Operating Cash Flow | 24.5 | 26.5 | (7.5%) |
| 20.5 | 20.0 | 2.1% |
Capital Expenditure (excl. intangibles) | 8.9 | 8.5 |
|
| 10.0 | 8.9 |
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Free Cash Flow3 | 18.0 | 20.0 | (10.0%) |
| 9.5 | 9.1 | 5.1% |
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Profit before and after tax | 14.8 | 15.1 | (2.0%) |
| 11.6 | 11.9 | (2.5%) |
Basic earnings per share | 12.88p | 13.28p | (3.0%) |
| 10.45p | 10.50p | 0.5% |
Diluted earnings per share | 12.82p | 13.15p | (2.5%) |
| 10.40p | 10.40p | 0.0% |
Final dividend per share | 7.90p | 7.50p | 5.3% |
| 7.90p | 7.50p | 5.3% |
Total dividend per share | 12.00p | 11.40p | 5.3% |
| 12.00p | 11.40p | 5.3% |
1 Results for the year ended 31 December 2018 are on an IFRS 15 basis unless indicated. Results for the year ended 31 December 2017 are on an IAS 18 basis. The implementation of IFRS 15 accounts for £1.3m in revenue. EBITDA effect for the full year 2018 has remained at H1 levels of £0.5m.
2 Underlying results are alternative performance measures which are relevant to an understanding of the Group's financial performance which are not defined in IFRS and are therefore termed 'non-GAAP' measures. Underlying results are adjusted for specific items, a full list of which is provided in note 5. See note 5 for further details, including definitions of terms and for reconciliations to the most comparable GAAP measure.
3 EBITDA and Free Cash Flow are non-GAAP measures and are defined in note 5.
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 636 100 |
Gary Lamb, CEO Iarla Hughes, CFO
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Liberum (Nominated Adviser and Corporate Broker) | +44 (0)20 3100 2000 |
Steve Pearce Joshua Hughes
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Oakley Advisory (Financial Advisor) | +44 (0) 20 7766 6900 |
Christian Maher Victoria Boxall
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Powerscourt Group (Public Relations) | +44 (0) 20 7250 1446 |
Elly Williamson Celine MacDougall
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About Manx Telecom
Manx Telecom is the leading Isle of Man-based communications solutions company. We provide a wide range of Fixed Line, Broadband, Mobile and Data Centre services to retail, business and public sector customers on the Island, as well as a growing portfolio of innovative solutions for global customers enabled by our telecommunications expertise and mobile technology.
We are strengthening our core domestic market position, providing outstanding customer experience, high-quality and high-availability networks achieving 99% 4G and 93% superfast Fibre broadband population coverage, and consistent first-to-local-market roll-out of new products for homes and businesses.
We are the only operator of a Fixed Line network and are currently investing in state of the art 1 Gbps Fibre to the Premise (FTTP) broadband for both our consumer and business customer bases. We operate three data centres, two of which are Tier 3 designed, plus international connectivity, and our operations are business-critical to the economic strategy of the Isle of Man.
We also explore new market opportunities on and off-island through our International growth business Vannin Ventures, which identifies and invests in new products, services and business opportunities for a global audience, and is home to the established Global Solutions product lines.
Manx Telecom is listed on the Alternative Investment Market of the London Stock Exchange (AIM: MANX). www.manxtelecom.com
Market Abuse Regulation
This announcement is released by Manx Telecom plc and contains inside information for the purposes of the Market Abuse Regulation (EU) 596/2014 ("MAR") and is disclosed in accordance with the Company's obligations under Article 17 of MAR. The person who arranged for the release of this announcement on behalf of Manx Telecom plc was Gary Lamb, CEO.
Chairman's Statement
I am pleased to present a solid set of full year results for 2018, with stable trading performance and continued strong underlying cash generation.
Our on-island business continues to perform well, with revenues in line with our expectations. A reduction in Fixed Line subscriptions, in line with broader market trends, has been partially offset by uptake in higher speed Fibre broadband, supporting our investment strategy in new technology.
Data Centre revenues for the year as a whole have remained consistent with the previous year and we continue to enhance and align our product set to market requirements.
Our Transformation Programme has made important improvements to our internal processes, organisation structure and IT systems, which will deliver financial benefits in future periods and enable us to deliver significant improvements to the customer experience.
Vannin Ventures continues to develop growth opportunities for the Company. This year, we saw the launch on the Isle of Man of "MT clearSound", Goshawk Communications' service which dramatically improves the clarity of mobile phone calls for those with hearing loss. We also signed an agreement with BT which will provide us with the ability to launch a number of MVNOs (Mobile Virtual Network Operators), the first of which will be the launch of our "Audacious" service in the UK in the summer of 2019.
During the year, we renegotiated our existing debt facilities, extending the term to 2023 and securing improved terms, including to the covenant structure and interest rate margin.
Outlook
The Company's strategic focus is on defending our core market position on the Isle of Man through high-quality customer service, while seeking off-island growth through our international business Vannin Ventures by identifying and developing new innovative products and services.
The Isle of Man economy remains stable and resilient with unemployment at only 0.9%. We continue to work with the Isle of Man Government on attracting business to the Island, and our telecommunications infrastructure and services play an essential part in the Island's continued success.
We expect that our core domestic business (Fixed Line, Broadband and Data) and Mobile revenue streams will be supported by the continued investment in our on-island network infrastructure, resulting in overall stable revenues in our core lines of business.
Our Data Centre business is anticipated to show growth in 2019 supported by new product development.
We remain positive about future progress in our Global Solutions business, building upon the successes of 2018 and with new opportunities also starting to contribute revenue.
Vannin Ventures has recently announced the launch of its UK proposition "Audacious", which is anticipated to contribute significantly to the Group's growth strategy over the medium and long term.
Dividend
The Board intends to declare a second interim dividend of 7.9p per share conditional on the scheme of arrangement to effect the Offer announced by Basalt Infrastructure Partners today being sanctioned by the court. The dividend will be paid by reference to a record date of the business day after court sanction of the scheme and will be paid shortly after the scheme is effective.
If the scheme lapses or is withdrawn then the Board would intend to declare a final dividend of 7.9p per share following such lapse or withdrawal.
The Board has operated a progressive dividend policy which has taken into account the profitability of the business and underlying growth in earnings of the Group as well as its cash flows and growth requirements. The Board expects to maintain the dividend level during the current financial year and aims to ensure that dividend cover is prudently maintained thereafter.
CEO's review
The Company has had a busy year operationally and continues to provide a wide range of telecommunications services to consumers, businesses and the public sector on the Isle of Man, as we demonstrate our commitment to the Island community. The business has been further strengthened during the year by the addition of key people to our senior leadership team, which positions us well to deliver on our growth strategy.
Revenue growth in the period was driven by the upsell of mobile bolt-ons, continued growth across the Global Solutions portfolio, as well as strong take up of Fibre broadband in H2.
Underlying EBITDA improved to £27.2m (2017: £27.1m). Reported EBITDA was up for the year at £23.3m (2017: £23.1m) partially as a result of a reduction in the costs relating to the Transformation Programme compared with 2017. Underlying profit before and after tax decreased slightly to £14.8m (2017: £15.1m) as a result of increased finance costs. Underlying diluted earnings per share reduced to 12.82p (2017: 13.15p). Reported diluted earnings per share remained at 10.40p (2017: 10.40p). Reported profit before and after tax decreased marginally year-on-year to £11.6m (2017: £11.9m).
Cash performance in the year continued to be strong as a result of good control of our working capital. In 2018, the Company continued to invest in its infrastructure, specifically in the mobile network, increasing the availability of our Fibre broadband packages, and completing the upgrade of key back office systems as part of the Transformation Programme.
Revenue | 2018£m | %Total revenue | 2017£m | %Total revenue | Y-o-Y% |
Fixed Line, Broadband and Data | 30.8 | 37.9% | 31.5 | 40.1% | (2.0%) |
Mobile | 22.3 | 27.3% | 19.9 | 25.3% | 11.9% |
Data Centre | 4.7 | 5.7% | 4.7 | 6.0% | (1.5%) |
Global Solutions | 17.4 | 21.4% | 16.5 | 21.1% | 5.4% |
Other | 6.3 | 7.7% | 5.9 | 7.5% | 7.4% |
Total Revenue | 81.5 |
| 78.5 |
| 3.8% |
Fixed, Broadband and Data services
Fixed, Broadband and Data services includes revenue associated with 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 37.9% of all Company revenues. In 2018, revenue decreased marginally to £30.8m (2017: £31.5m), due to the decline in Fixed line subscribers, in line with wider market trends.
The continued roll-out of FTTP has supported increased take up of our high-speed Fibre broadband services, resulting in a slight growth in broadband revenues during the period, of 1%, to £9.4m.
Mobile
Our Mobile business performed well following successful promotions throughout the year and well-received additional complementary products. Competition continues to grow on the Isle of Man, however this has had minimal impact on our mobile revenue for 2018.
Our Mobile revenue business performed well following successful promotions throughout the year, well-received additional complementary products and a boost from the implementation of IFRS 15. Excluding the effect of IFRS 15, mobile revenue grew by £1.0m year on year.
Our award-winning 4G network, which provides 99% population coverage at speeds of up to ten times faster than 3G services, continues to perform well. Its performance enables us to continue to defend our market share whilst also delivering best network performance results for voice call completion, voice call set-up time, web browsing speed and video playout, overall voice performance on the Isle of Man, overall mobile broadband performance on the Isle of Man.
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").
Data Centre revenue during the year has been consistent with prior year at £4.7m with an increase in rack utilisation to 77.3% (2017: 75.9%) being offset by customers re-contracting at lower rates. The Group's co-location offering is the core contributor of Data Centre revenues and remains robust with opportunity to upsell to the existing customer base through new, high value managed services such as cloud and security. A new sales channel for Data centre services is being developed by a focused business development team to further drive this revenue stream.
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: international traveller market, M2M, strongest signal mobile (branded "Chameleon") and wholesale SMS and voice. This has been enhanced during 2018 with the signing of the new MVNE agreement with BT.
Global Solutions continues to perform well with increased year on year revenues, up 5.4% during the year to £17.4m (2017: £16.5m), with most of the product portfolio enjoying growth. We have some exciting new product opportunities which were progressed during the year and which we look forward to contributing to future growth, particularly in the IoT and strongest signal mobile areas.
Other revenues
Other revenue increased during the year by 7.4% to £6.3m (2017: £5.9m) due to higher hardware sales and the contribution from Vannin Ventures.
Vannin Ventures, a standalone business established to support the Company's medium to long-term growth strategy, continues to identify new and promising business opportunities in the telecoms and technology sectors, acting as an incubator to bring and scale innovative products and services to market. There is a dedicated team behind the new business with a view to fostering a creative environment and entrepreneurial ethos.
Part of the Vannin Ventures business includes Partitionware, an Isle of Man software developer specialising in telecommunication platforms, which has demonstrated continued success during the year and supported Vannin Ventures during the period as it seeks to acquire new businesses in line with our growth strategy.
Financial review
Our on-island business continues to perform solidly. As announced previously, revenue levels in 2018 are in line with management expectations, with a reduction in Fixed line subscriptions offset by uptake in higher speed Fibre broadband. Data Services revenues decreased by £0.2m, driven by migration to FTTP, marginal price reductions to maintain competitive advantage and new carrier ethernet network products offered to the market at lower price compared to the legacy ethernet services.
Mobile revenues increased by £2.4m year on year driven by upsell to include mobile bolt-on products. This was achieved despite increased competitor activity, and the loss of the Isle of Man Government mobile services contract.
The adoption of IFRS 15 has impacted favourably on revenue by £1.3m and £0.5m EBITDA, of which the most significant portion sits within Mobile revenues.
Global Solutions revenue increased by £0.9m (5.4%) due to continued growth in revenue from wholesale messaging, the Chameleon business and other business development opportunities.
Data Centre revenues remained stable at £4.7m, with an increase in revenue in the second half of the year from new business helping to offset the loss of a customer who ceased to trade early in the year. Co-location revenue was stable, with a marginal reduction in yield due to customers re-contracting during the year offset by an increase in occupancy.
Other revenues increased by £0.4m to £6.3m (2017: £5.9m) due to increased revenues from hardware sales and from our Vannin Ventures subsidiaries.
The Group generated £27.2m of underlying EBITDA, slightly higher than the 2017 figure of £27.1m. Reported EBITDA for the year was £23.3m (2017: £23.1m). The Group's underlying EBITDA margin was slightly lower at 33.4% (2017: 34.5%) as increased revenue was offset by a proportionally higher increase in costs across the business and an increase in revenue from lower margin kit sales.
Depreciation and amortisation remained consistent in the year at £9.7m (2017: £9.7m).
Underlying operating profit increased by 0.6% to £17.5m (2017: £17.4m). Reported operating profit increase by 2.2% to £13.7m (2017: £13.4m).
Reported profit before tax decreased marginally from the prior year to £11.6m (2017: £11.9m) primarily due to an increase in finance costs. Underlying profit before tax decreased to £14.8m (2017: £15.1m).
Underlying diluted EPS was lower at 12.82p (2017: 13.15p). Reported diluted EPS was 10.40p (2017: 10.40p).
The Company paid an interim dividend of 4.1p per share in November 2018 and intends to declare a second interim dividend of 7.9p per share conditional on the scheme of arrangement to effect the Offer announced by Basalt Infrastructure Partners today being sanctioned by the court.
If the scheme lapses or is withdrawn then the Board would intend to declare a final dividend of 7.9p per share following such lapse or withdrawal.
Costs
The business had another solid EBITDA performance and delivered underlying EBITDA margins of 33.4% (2017: 34.5%) in the year. Cost of Sales have increased by 12.7% to £35.4m (2017: £31.4m) in line with management expectations due to increased revenue and a change of product mix. The increased Roaming costs included wholesale messaging costs of £0.6m, offset by a reduction in Interconnect costs of £1.0m. Maintenance costs increased by £0.8m as we move away from a capex model to a licence model. Other costs of sales have increased by £1.6m, of which an increase of £0.9m was due to the treatment of post-paid handset costs which changed as a part of IFRS 15 implementation.
Administrative Expenses for 2018 were 3.9% lower at £32.4m (2017: £33.7m). The main component of administrative expenses is pay, the cost of which decreased by £1.0m due to a reduction in headcount resulting from the voluntary redundancies made in 2017 as part of the Transformation Programme.
Net finance costs
Finance costs increased in 2018 to £2.8m (2017: £2.4m) due to an increase in LIBOR during 2018. There was an unrealised gain of £0.6m on interest rate swaps during the year (2017: £0.8m). This does not form part of the underlying results and has no impact on cash.
Taxation
There is no corporate taxation payable on our profits for either 2018 or the comparative year. We have the benefit of an Isle of Man 0% corporate tax rate.
Cash flow
Underlying cash flow from operations decreased by 7.5% to £24.5m (2017: £26.5m). Reported cash flow from operations increased by 2.1% to £20.5m (2017: £20.0m).
| 2018 | 2017 |
| £'000 | £'000 |
Reported operating cash flow | 20,452 | 20,023 |
Transformation Programme operating costs | 1,706 | 6,419 |
Product launch costs | 2,339 | - |
Acquisition costs | - | 30 |
Underlying operating cash flow | 24,497 | 26,472 |
Reported operating cash flow conversion | 66.8% | 86.9% |
Underlying operating cash flow conversion | 71.5% | 97.9% |
Underlying free cash flow was down 10.0% at £18.0m (2017: £20.0m). Reported free cash flow increased to £9.5m (2017: £9.1m).
| 2018£'000 | 2017£'000 |
Reported free cash flow | 9,533 | 9,074 |
Transformation Programme operating costs | 1,706 | 6,419 |
Transformation Programme capital expenditure | 3,297 | 2,480 |
Product launch costs Property renovation | 2,339 1,124 | - - |
Acquisition costs | - | 30 |
Acquisition of Subsidiary | - | 2,007 |
Underlying free cash flow | 17,999 | 20,010 |
Capital expenditure
Capital additions were £11.0m (2017: £8.6m), including £3.3m on improvements to our internal information systems under the Transformation Programme and £1.1m on property renovation. The remaining capital expenditure was spread across several business areas including network development for the Global Solutions products, off-island connectivity and Data Centre capital spend. Depreciation remained consistent with the prior year at £9.7m.
Balance sheet
The total net book value of Property, Plant and Equipment increased during the year by £0.4m to £59.7m (2017: £59.3m). This increase is due to increased additions from the Transformation Programme and Goshawk during the year.
We retain goodwill of £87.9m on the balance sheet; £84.3m arising from the purchase of Manx Telecom from Telefónica in 2010, and £3.6m from the purchase of Partitionware Limited in 2016, both of which are 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 net liability of £1.8m (2017: £3.8m net liability). There was a 2.7% negative return on scheme assets during the period. Scheme liabilities decreased by £2m mainly due to £1.4m remeasurement effects recognised in other comprehensive income and the £0.6m employer contributions in the year.
Inventories increased by £0.6m to £1.4m as at 31 December 2018 due to an increased activity in handset sales. Trade & Other Receivables increased 25.3% to £35.7m largely due to a timing in settlement of positions with several of our Roaming partners.
Contract Assets of £4.1m were recognised for the first time on application of IFRS 15.
Cash and Cash Equivalents ended the year at £6.6m, down from £12.3m at 31 December 2017. Underlying operations are highly cash generative with cash used to fund capital expenditure, pay interest on lending arrangements, make pension contributions and make a dividend payment. Cash generated from underlying operating activities decreased by 7.5% to £24.5m (2017: £26.5m).
Trade & Other Payables increased to £40.4m (2017: £30.1m). The increase was a result of an increase of roaming creditors as a result of increased traffic from Telefónica Europe (including O2 UK) following the launch of the 4G roaming services for O2 customers roaming on Manx Telecom network. Accrued expenses increased by £5m to £22.7m. Of this £10.1m was attributable to accrued roaming discounts payable expenses and £5.5m to accrued roaming expenses. Again, the increase is due mainly as a result of increased traffic from Telefónica Europe. Deferred income decreased from £1.4m to £0.8m following the reclassification of deferred connection fees from deferred income to a contract liability under IFRS 15.
Non-current liabilities fell by £2.0m to £71.9m (2017: £73.9m), largely due to the reduction in the defined benefit pension scheme liability to £1.8m (2017: £3.8m). Interest bearing loans and borrowings remained relatively unchanged at £69.6m (2017: £69.3m).
During the year we renegotiated our bank loan agreement such that it now matures on 30 June 2023. As at December 2018, the Group had one interest rate swap maturing in June 2020. As at 31 December 2018, the fair value of the interest rate swap maturing in June 2020 has improved to a £0.5m liability (2017: £0.8m). The fair value of the swap that matured in June 2018 was £0.3m (2017: £0.3m).
The Group contributed cash of £0.6m to the Manx Telecom Combined Pension Scheme. The scheme benefitted by a return on plan assets greater than the discount rate and an actuarial gain due to actuarial financial assumption changes leading to the discount rate being 2.7% (2017: 2.4%).
Net debt for the year increased to £63.0m (2017: £56.9m) mainly as a result of the Transformation Programme, investment in on-island Fibre roll-out and Goshawk product development and launch costs. Period end Net Debt was equivalent to 2.3x underlying EBITDA (2017: 2.1x).
Consolidated Statement of Comprehensive Income
| 2018£'000 | 2017£'000 |
Revenue | 81,474 | 78,491 |
Cost of sales | (35,393) | (31,395) |
Gross profit | 46,081 | 47,096 |
Administrative expenses | (32,420) | (33,735) |
Operating profit | 13,661 | 13,361 |
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Underlying EBITDA | 27,191 | 27,051 |
Depreciation and amortisation | (9,666) | (9,695) |
Underlying operating profit | 17,525 | 17,356 |
Impairment of equipment | - | (102) |
Transformation Programme costs | (1,706) | (3,863) |
Product launch costs | (2,158) | - |
Acquisition costs | - | (30) |
Operating profit | 13,661 | 13,361 |
Other income | 46 | 110 |
Financial income | 7 | 10 |
Finance costs | (2,785) | (2,382) |
Net profit on interest rate swaps | 637 | 777 |
Profit before tax | 11,566 | 11,876 |
Taxation | - | - |
Profit for the year attributable to: |
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Owners of the Group | 12,002 | 11,938 |
Non-Controlling Interest | (436) | (62) |
Underlying Profit before Tax | 14,793 | 15,094 |
Impairment of equipment | - | (102) |
Transformation Programme | (1,706) | (3,863) |
Product Launch costs | (2,158) | - |
Acquisition costs | - | (30) |
Net profit on interest rate swaps | 637 | 777 |
Profit before tax | 11,566 | 11,876 |
Other comprehensive income - items that will never be reclassified to profit or loss |
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Remeasurement of defined benefit pension scheme liability | 1,395 | 1,100 |
Total comprehensive profit for the year attributable to: | 12,961 | 12,976 |
Owners of the Company | 13,397 | 13,038 |
Non-Controlling Interest | (436) | (62) |
Earnings per share from continuing operations |
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Basic | 10.45p | 10.50p |
Diluted | 10.40p | 10.40p |
Underlying basic | 12.88p | 13.28p |
Underlying diluted | 12.82p | 13.15p |
The Directors consider that all results are derived from continuing operations.
Consolidated Statement of Financial Position
| 2018£'000 | 2017£'000 |
Non-current assets |
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Property, plant and equipment | 59,711 | 59,294 |
Goodwill | 87,911 | 87,911 |
Intangible assets | 1,628 | 742 |
| 149,250 | 147,947 |
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Current assets |
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Inventories | 1,433 | 878 |
Trade and other receivables | 35,659 | 28,526 |
Contract assets | 4,123 | - |
Cash and cash equivalents | 6,576 | 12,341 |
| 47,791 | 41,745 |
|
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Current liabilities |
|
|
Trade and other payables | (40,432) | (30,094) |
Interest rate swaps | - | (290) |
Contract liabilities | (393) | - |
Provisions | - | (560) |
| (40,825) | (30,944) |
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Net current assets | 6,966 | 10,801 |
Non-current liabilities |
|
|
Interest-bearing loans and borrowings | (69,564) | (69,288) |
Interest rate swaps | (498) | (845) |
Retirement benefit liability | (1,800) | (3,795) |
| (71,862) | (73,928) |
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Net assets | 84,354 | 84,820 |
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|
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Equity attributable to the owners of the Group |
|
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Share capital | 231 | 230 |
Share premium | 1,808 | 1,265 |
Revaluation reserve | 1,159 | 1,159 |
Retained earnings | 81,664 | 82,238 |
Equity attributable to the owners of the Group | 84,862 | 84,892 |
Non-Controlling Interest | (508) | (72) |
Total equity | 84,354 | 84,820 |
Consolidated Statement of Changes in Equity
| Share capital£'000 | Share premium£'000 | Revalua-tion reserve£'000 | Non-Controlling Interest£'000 | Retained earnings£'000 | Totalequity£'000 |
Balance at 1 January 2017 | 226 | 84,366 | 1,159 | - | (2,794) | 82,957 |
Total comprehensive profit for the year |
|
|
|
|
|
|
(Loss)/Profit for the year | - | - | - | (62) | 11,938 | 11,876 |
Other comprehensive income | - | - | - | - | 1,100 | 1,100 |
Total comprehensive profit for the year | - | - | - | (62) | 13,038 | 12,976 |
|
|
|
|
|
|
|
Transactions with owners of the Group, recorded directly in equity |
|
|
|
|
|
|
Reclassification of share premium as retained earnings | - | (84,366) | - | - | 84,366 | - |
Adjustments arising from change in non-controlling interest | - | - | - | (10) | 10 | - |
Share-based payment transactions | - | - | - | - | 262 | 262 |
Issue of shares | 4 | 1,265 | - | - | - | 1,269 |
Dividend paid | - | - | - | - | (12,644) | (12,644) |
Total contributions by and distributions to the owners of the Group | 4 | (83,101) | - | (10) | 71,994 | (11,113) |
Balance at 31 December 2017 | 230 | 1,265 | 1,159 | (72) | 82,238 | 84,820 |
|
|
|
|
|
|
|
Balance at 1 January 2018 | 230 | 1,265 | 1,159 | (72) | 82,238 | 84,820 |
Adjustment from adoption of IFRS 15 | - | - | - | - | (585) | (585) |
Total comprehensive loss for the year |
|
|
|
|
|
|
(Loss)/Profit for the year | - | - | - | (436) | 12,002 | 11,566 |
Other comprehensive income | - | - | - | - | 1,395 | 1,395 |
Total comprehensive profit for the year | - | - | - | (436) | 13,397 | 12,961 |
|
|
|
|
|
|
|
Transactions with owners of the Group, recorded directly in equity |
|
|
|
|
|
|
Credit to Equity for Equity Settled Share Based Payments | - | - | - | - | (42) | (42) |
Issue of shares | 1 | 543 | - | - | - | 544 |
Dividend paid | - | - | - | - | (13,344) | (13,344) |
Total contributions by and distributions to the owners of the Group | 1 | 543 | - | - | (13,386) | (12,842) |
Balance at 31 December 2018 | 231 | 1,808 | 1,159 | (508) | 81,664 | 84,354 |
Consolidated statement of cash flows
| 2018 |
| 2017 | ||
| £'000 | £'000 |
| £'000 | £'000 |
Cash flows from operating activities |
|
|
|
|
|
Profit for the year |
| 11,566 |
|
| 11,876 |
Adjustments for: |
|
|
|
|
|
Depreciation of property, plant and equipment | 9,345 |
|
| 9,438 |
|
Amortisation of intangibles | 321 |
|
| 256 |
|
Impairment of property, plant and equipment | - |
|
| 102 |
|
Profit on disposal of property, plant and equipment | (46) |
|
| (100) |
|
Finance income | (7) |
|
| (10) |
|
Finance costs | 2,785 |
|
| 2,382 |
|
Net profit on interest rate swaps | (637) |
|
| (777) |
|
Negative goodwill released to income | - |
|
| (10) |
|
Equity-settled share-based payments transactions | (42) |
|
| 266 |
|
Pension contributions | (600) |
|
| (600) |
|
Changes in: |
|
|
|
|
|
Inventories | (555) |
|
| 27 |
|
Trade and other receivables | (10,522) |
|
| (5,296) |
|
Trade and other payables | 11,226 |
|
| 5,749 |
|
Provisions | (560) |
|
| (3,280) |
|
Contract assets | (2,224) |
|
| - |
|
Contract liabilities | 402 |
|
| - |
|
|
| 8,886 |
|
| 8,147 |
Net cash generated from operating activities |
| 20,452 |
|
| 20,023 |
|
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
|
Proceeds from sale of property, plant and equipment | 46 |
|
| 100 |
|
Purchase of property, plant and equipment | (10,016) |
|
| (8,935) |
|
Purchase of intangible assets | (956) |
|
| (117) |
|
Acquisition of subsidiary | - |
|
| (2,007) |
|
Interest received | 7 |
|
| 10 |
|
Net cash used in investing activities |
| (10,919) |
|
| (10,949) |
|
|
|
|
|
|
Cash flows from financing activities |
|
|
|
|
|
Proceeds on issue of shares | 544 |
|
| 1,269 |
|
Repayment of borrowings | (14) |
|
| (39) |
|
Interest paid | (2,485) |
|
| (1,993) |
|
Dividends paid | (13,343) |
|
| (12,644) |
|
Net cash used in financing activities |
| (15,298) |
|
| (13,407) |
|
|
|
|
|
|
Net decrease in cash and cash equivalents |
| (5,765) |
|
| (4,333) |
Cash and cash equivalents brought forward |
| 12,341 |
|
| 16,674 |
Cash and cash equivalents at 31 December |
| 6,576 |
|
| 12,341 |
Notes
1. Operating segments
The Group has five reportable revenue segments which management report and base their strategic decisions on:
| Group2018£'000 | Group2017£'000 |
Fixed Line, Broadband and Data | 30,833 | 31,476 |
Mobile | 22,251 | 19,878 |
Global Solutions | 17,427 | 16,533 |
Data Centre | 4,675 | 4,748 |
Other | 6,288 | 5,856 |
| 81,474 | 78,491 |
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.
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 and M2M (machine to machine).
Data Centre includes revenues from hosting services provided.
Other includes kit sales, directory revenues, managed service rental charges and revenues generated from the provision of mobile telecommunications software.
2. Operating profit
The operating profit is stated after charging the following:
| 2018£'000 | 2017£'000 |
Staff costs | 13,427 | 15,330 |
Depreciation of property, plant and equipment - owned assets | 9,349 | 9,438 |
Amortisation of software licences - intangibles | 326 | 256 |
Impairment of property, plant and equipment | - | 102 |
Net operating lease rentals payable - property | 412 | 289 |
Acquisition costs | - | 30 |
Transformation Programme | 1,706 | 3,863 |
Trade receivables impairment | 562 | 81 |
Product launch costs | 2,158 | - |
Net profit on interest rate swaps | 637 | 777 |
Audit services |
|
|
statutory audit | 140 | 145 |
non-audit service fees | 55 | 89 |
3. Finance income and expense
Recognised in profit or loss
| 2018£'000 | 2017£'000 |
Finance income |
|
|
Other interest receivable | 7 | 10 |
Net interest on pension asset | - | - |
| 7 | 10 |
|
|
|
Finance costs |
|
|
Interest on borrowings | (2,493) | (1,986) |
Finance lease interest | (2) | (6) |
Net interest on pension liabilities | - | (100) |
Amortisation of loan transaction costs | (290) | (290) |
Total financial expense | (2,785) | (2,382) |
|
|
|
Net total finance expense | (2,778) | (2,372) |
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 2017 | 11,938 | 113,664 | 10.50p | 114,810 | 10.40p |
31 December 2018 | 12,002 | 114,838 | 10.45p | 115,371 | 10.40p |
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 the specific items as outlined in note
| Earnings£'000 | Thousands of shares (Basic) | Basic earnings per share | Thousands of shares (Diluted) | Diluted earnings per share |
31 December 2017 | 15,094 | 113,664 | 13.28p | 114,810 | 13.15p |
31 December 2018 | 14,793 | 114,838 | 12.88p | 115,675 | 12.82p |
5. Alternative performance measures
The Directors of the Group have presented a number of additional performance measures which they believe are relevant to an understanding of the Group's financial performance which are not defined in IFRS and are therefore termed 'non-GAAP' measures. The Group's definition of these terms may not be comparable with similarly titled performance measures and disclosures by other entities. Such non-GAAP measures should not be viewed in isolation or as an alternative to the equivalent GAAP measure.
EBITDA
EBITDA is defined as the Group profit or loss before depreciation, amortisation, net finance expense and taxation. Underlying EBITDA is defined as EBITDA, adjusted for specific items listed below. EBITDA is a common measure used by investors and analysts to evaluate the operating financial performance of companies, particularly in the telecommunications sector. The Directors consider EBITDA and underlying EBITDA to be useful measures of operating performance. This presentation is consistent with the way that financial performance is measured by management and reported internally and assists in providing a meaningful analysis of the trading results of the Group.
A reconciliation from Group Operating Profit, the most directly comparable IFRS measure, to EBITDA and Underlying EBITDA is provided below.
| 2018£'000 | 2017£'000 |
Operating Profit | 13,661 | 13,361 |
Depreciation and Amortisation | 9,666 | 9,695 |
Reported EBITDA | 23,327 | 23,056 |
Impairment of Equipment | - | 102 |
Transformation Programme costs | 1,706 | 3,863 |
Product launch costs | 2,158 | - |
Acquisition costs | - | 30 |
Underlying EBITDA | 27,191 | 27,051 |
Underlying operating profit and underlying profit before/after tax
Underlying operating profit and underlying profit before/after tax are based on equivalent IFRS reported measures from the consolidated statement of comprehensive income, adjusted for specific items listed below.
A reconciliation from Group operating profit, the most directly comparable IFRS measure, to underlying operating profit and a reconciliation from Group profit before tax, the most directly comparable IFRS measure, to underlying profit before tax is provided below.
| 2018£'000 | 2017£'000 |
Operating Profit | 13,661 | 13,361 |
Impairment of Equipment | - | 102 |
Acquisition costs | - | 30 |
Transformation Programme costs | 1,706 | 3,863 |
Product launch costs | 2,158 | - |
Underlying operating profit | 17,525 | 17,356 |
| 2018£'000 | 2017£'000 |
Profit before/after tax | 11,566 | 11,876 |
Impairment of Equipment | - | 102 |
Acquisition costs | - | 30 |
Transformation Programme costs | 1,706 | 3,863 |
Product launch costs | 2,158 | - |
Net profit/(loss) on interest rate swaps | (637) | (777) |
Underlying profit before/after tax | 14,793 | 15,094 |
Underlying operating cash flow
Underlying operating cash flow is based on the equivalent reported measure from the consolidated statement of cash flows, cash flow from operating activities, adjusted for the cash impact of specific items listed below.
| 2018 | 2017 |
| £'000 | £'000 |
Reported operating cash flow | 20,452 | 20,023 |
Transformation Programme operating costs | 1,706 | 6,419 |
Product launch costs | 2,339 | - |
Acquisition costs | - | 30 |
Underlying operating cash flow | 24,497 | 26,472 |
Free cash flow
Free cash flow is defined as net cash generated from operating activities less net cash used in investing activities. Underlying free cash flow is defined as free cash flow, adjusted for the cash impact of specific items listed below. Free cash flow represents the cash that the Group is able to generate from operations after taking into account cash outflows required to maintain or expand its asset base. The Directors consider free cash flow and underlying free cash flow to be important performance measures as they determine the amount of cash available for strategic investments, repayment of debt or distribution to shareholders in the form of dividends.
A reconciliation from net cash flow from operating activities, the most directly comparable IFRS measure, to underlying operating cash flow, free cash flow and underlying free cash flow is provided below.
| 2018£'000 | 2017£'000 |
Reported free cash flow | 9,533 | 9,074 |
Transformation Programme operating costs | 1,706 | 6,419 |
Transformation Programme capital expenditure | 3,297 | 2,480 |
Product launch costs Property renovation | 2,339 1,124 | - - |
Acquisition of Subsidiary | - | 2,007 |
Acquisition costs | - | 30 |
Underlying free cash flow | 17,999 | 20,010 |
Net debt
Net debt is not a term defined by IFRS but consists of interest bearing loans and borrowings, less cash and cash equivalents, both of which are captions which exist on the statement of financial position. Net debt provides a single measure of the Group's indebtedness and provides an indication of the overall balance sheet strength.
A reconciliation from loans and other borrowings and cash and cash equivalents, the IFRS measures used to calculate Net Debt is provided below.
| 2018£'000 | 2017£'000 |
Loans and other borrowings | 69,564 | 69,288 |
Cash and cash equivalents | (6,576) | (12,341) |
Net Debt | 62,988 | 56,947 |
Cash conversion
Operating cash flow conversion and free cash flow conversion, both underlying and reported, are not terms defined by IFRS.
Reported operating cash flow conversion is calculated as reported operating cash flow as a percentage of Reported EBITDA. Underlying operating cash flow conversion is calculated as underlying operating cash flow as a percentage of underlying EBITDA.
Reported free cash flow conversion is calculated as reported free cash flow as a percentage of reported Profit before/after tax. Underlying free cash flow is calculated as underlying free cash flow as a percentage of underlying profit before/after tax.
Underlying earnings per share
Earnings per share, both basic and diluted, are terms which are defined in IFRS. Underlying earnings per share, both basic and diluted are not terms defined by IFRS. They are calculated based upon underlying profit before tax (defined above) and the basic and diluted number of shares as determined for use in the terms defined in IFRS. Note 4.2 provides the components used in the calculation.
Specific items
Specific items are identified by virtue of their size, nature or incidence. In determining whether an event or transaction is specific, management considers quantitative as well as qualitative factors such as the frequency or predictability of occurrence.
Adjusting measures for specific items assists with comparability of measures between reporting periods, as well as removing volatility or distortions from significant events.
The adjustments made to reported profit before tax and operating profit are income and charges that are unpredictable in nature, significant and distort the Group's underlying performance. For the year ended 31 December 2018 these adjustments included:
· Transformation ProgrammeIn 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, restructuring costs of £1.7m were incurred to 31 December 2018 (2017: £3.9m) relating to employee termination benefits, consulting fees and other programme-related costs.
· Unrealised gains and losses on interest rate swapsIn 2018, the Group made an unrealised gain on interest rate swap fair value movements of £637k (2017: £777k gain).
· Acquisition costsIn May 2017, £30,000 were incurred in the acquisition of Goshawk Communications (UK) Limited in May 2017. No such costs were incurred in the current period.
· Product launch costsDuring 2018, Goshawk Communications incurred £2,158k (2017: nil) of expenses which relate to the fundamental development and launch of its hearing enhancement service. Such costs are not deemed to be recurring operating costs and inclusion of them would distort the underlying performance of the Group.
· Property renovation costsDuring 2018, one-off property renovation capital expenditure amounted to £1,129k (2017: nil) relating to the refurbishment of the headquarters building. The inclusion of these would distort the underlying cash flow performance of the Group.
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