annual report
& accounts
2007
Maintel Holdings Plc
102
Page
1
2
3
9
Directors, Company details and advisers
Chairman’s statement
Business review
Board of directors
10 Report on corporate governance
12 Report of the remuneration committee
14 Report of the directors
17 Statement of directors’ responsibilities
18 Independent auditor’s report
20 Consolidated income statement
21 Consolidated balance sheet
22 Consolidated statement of changes in equity
23 Consolidated cash flow statement
24 Notes forming part of the financial statements
49 Balance sheet of Maintel Holdings Plc
50 Notes forming part of the financial statements of Maintel Holdings Plc
53 Notice of annual general meeting
Maintel Holdings Plc
Annual report and financial statements for the year ended 31 December 2007
www.maintel.co.uk
1
Directors, Company details and advisers
Directors
J D S Booth
Chairman, Non-Executive Director
T T Mason
Chief Executive
A J McCaffery
Sales and Marketing Director
W D Todd
Finance Director
N J Taylor
Non-Executive Director
Secretary and registered office
W D Todd, 61 Webber Street, London SE1 0RF
Company number
3181729
Auditors
BDO Stoy Hayward LLP, 55 Baker Street, London W1U 7EU
Nominated broker and nominated adviser
KBC Peel Hunt Ltd, 111 Old Broad Street, London EC2N 1PH
Registrars
Computershare Investor Services PLC, The Pavilions,
Bridgwater Road, Bristol BS99 6ZY. & 0870 707 1182
2
Chairman’s statement
Maintel’s revenue in 2007 continued to grow at a very satisfactory rate, by 20% from
£16.2m to £19.3m, with network services and VoIP equipment sales putting in especially
good performances. Our recurring revenues increased by 16% from £11.5m to £13.4m
during the year.
We are reporting our results under IFRS for the first time. Group profit before tax
was £2.0m (2006: £2.0m). Adjusted IFRS profit before tax (IFRS profit before tax,
but adjusting for IFRS goodwill impairment and intangible amortisation and one-off
professional costs) increased from £2.0m to £2.3m and IFRS earnings per share were
11.1p, the same as in 2006. As these figures demonstrate, margin pressure continued
over the year as a whole. It was a key objective of 2007 to improve margins as the year
progressed and more detailed analysis of 2006 and 2007 comparisons show that margins
improved sharply in the second half of 2007:
H1 06
£000
H2 06
£000
2006
£000
H1 07
£000
H2 07
£000
2007
£000
Revenue
7,063
9,103
16,166
8,910
10,419 19,329
PBT
916
1,096
2,012
780
1,199
1,979
Margin*
13.0%
12.0%
12.4%
8.8%
11.5% 10.2%
* PBT as a % of Revenue
On the maintenance and equipment side of our business recent margin pressure has come
partly from our continuing investment in greater sales and engineering resource as we
have emphasised top line growth and built our platform for the future, but also from the
greater pricing power enjoyed by the bigger corporate and institutional clients from whom
we have increasingly won business. The bigger end of the market remains competitive but
our Nortel engineering capacity is now fully built and trained to the highest standards to
take advantage of the huge installed base of Nortel systems we are targeting as clients.
Rebuilding margins in this part of our business continues to be a priority as we enter 2008
and further efficiencies have been identified.
Network services grew turnover by 38% to £4.7m with gratifyingly low customer attrition.
This division’s size means that it is now well positioned to tender for bigger contracts.
We have added to our sales force here too and believe the business is well positioned for
significant growth in 2008.
Cash flow from operations remained strong at £1.1m for the year (2006: £1.0m) and cash
balances at year-end were £2.1m (2006: £2.2m) after dividends of £672,000 and share
buy backs of £117,000. We also acquired Callmaster’s contract base for £448,000 during
the year, continuing our practice of funding acquisitions out of cash. We are proposing a
final dividend of 3p giving a total of 5.5p for the year, an increase of 10%.
We enter the new year with a strong pipeline of business and a robust platform for
future growth. It remains for me to thank all our staff for their continuing hard work and
commitment as we build on our achievements in 2008.
J D S Booth
Chairman
14 March 2008
Maintel Holdings Plc
Annual report and financial statements for the year ended 31 December 2007
www.maintel.co.uk
3
Business review
IFRS (International Financial Reporting Standards)
This is the first year for which the Group, as described in note 1 to the accounts, is
required to report under IFRS, the main effects of which are to alter the treatment of
goodwill and its impairment, and to create a provision for accrued holiday pay. Prior period
accounts have been restated under IFRS, and reconciliations between UK GAAP and IFRS
are shown in note 27.
Results
The revenue growth highlighted at the half year has been sustained in the second half, so
that Group revenue for the year amounted to £19.3m, an increase of £3.2m (20%) over
that of 2006.
The primary areas of growth were the continued strong performance from the network
services division (assisted by the delayed termination of a major, though low margin,
client), VoIP equipment sales, and a full year’s contribution from customers of District
Holdings Limited and its subsidiaries (the “District group”) which was acquired in June
2006. In addition, the acquisition of a contract base from Callmaster Limited contributed
£270,000 revenue from 1 August 2007. An overview of Group revenue is as follows:
Revenue analysis (£000)
Maintenance related
Equipment, installations and other
Total maintenance and equipment division
Network services division
Intercompany
Total Maintel Group
2007
8,756
5,979
14,735
4,682
(88)
19,329
2006
8,072
4,801
12,873
3,400
(107)
16,166
Group recurring revenue (maintenance plus network services) has therefore increased
from £11.5m (71% of total Group revenue) in 2006 to £13.4m (69%) in 2007, providing a
firm foundation for the Group.
Under IFRS, Group profit before tax in 2007 was £2.0m, £33,000 less than in 2006.
Adjusted profit before tax (IFRS profit before tax, but adjusting for IFRS goodwill
impairment and intangible amortisation and one-off professional costs) shows an increase
from £2.0m in 2006 to £2.3m in 2007.
IFRS earnings per share were 11.1p in 2007, the same as in 2006, and adjusted earnings
per share (IFRS earnings per share adjusted for IFRS goodwill impairment, intangible
amortisation and one-off professional costs) were 13.1p against 12.4p in 2006, the 2007
figures in each case benefiting from share buy backs, and a reduced absorption of residual
tax losses from the District Group compared with 2006.
Cash flow from operating activities continues to be strong, at £1.1m in 2007 (2006 -
£1.0m), and cash balances remained healthy at £2.1m (2006 - £2.2m) after the acquisition
of the Callmaster contract base for £448,000 in cash, dividend payments of £672,000 and
the use of £117,000 to buy back shares in the Company.
Divisional performance is described further below in conjunction with the following KPIs.
4
Business review
(continued)
Maintenance and equipment division
The maintenance and equipment division provides maintenance, service and support
of office-based voice and data equipment across the UK on a contracted basis. It also
supplies and installs voice and data equipment to maintenance customers.
The division’s revenues increased from £12.9m in 2006 to £14.7m in 2007, as shown in the
table above.
We acquired two maintenance bases in the year, WGTS Limited (c£60,000 pa in February
2007) for which negligible maintenance income was recognised in the year and Callmaster
Limited (c£135,000 pa in August 2007) for which we recognised just under 6 months of
revenue. These combined with organic growth have seen our maintenance revenue grow
by 8% against 2006. The annual value of the maintenance base at the end of the year was
at a record high of £8.5m.
There has been significant growth in sales of VoIP hardware solutions to our customer
base this year and to take advantage of this, further sales resource was invested in
account management teams to encourage and develop equipment refresh programs within
the base.
Division average headcount during the year
Sales and customer service
Engineers
2007
59
86
2006
54
72
This investment has produced equipment sales of £6.0m in 2007, a 25% increase on 2006
sales of £4.8m, with equipment sales now representing 41% (2006 – 37%) of the division’s
sales.
As mentioned last year, Maintel is the supplier of choice to many larger organisations but
this has meant that our normal high margin model cannot always be achieved and this is
demonstrated by the division’s gross profit % in 2007 being 3 percentage points down on
2006, although £318,000 up on last year.
Division gross profit (£000)
5,403 (37%)
5,085 (40%)
2007
2006
A further factor impacting on the margin in the year was the continued investment in
employment and training of senior Nortel engineers. The large base of Nortel systems
installed by BT over the past 6 or 7 years gives us a huge sales opportunity and we are
increasing our resource to take advantage of this. Although this has had a negative effect
on our profitability in 2007 we anticipate it will stand us in good stead for 2008. Maintel
has always positioned itself as one of the few organisations able to provide multi-product
support and we continue to invest in other product areas including Mitel, Siemens and
Avaya allowing us to tender for and win multisite mixed maintenance opportunities.
Given the application of common resource across both maintenance and equipment
sales, it is not practical to quote definitive margin data on the separate business sectors,
however estimated management figures are used to monitor results internally.
Net margin (operating profit as a percentage of revenue) from the division reduced in line
with gross margin, but remained strong at 11.4% (2006 – 13.0%), the division’s overheads
remaining tightly controlled during the year.
Maintel Holdings Plc
Annual report and financial statements for the year ended 31 December 2007
www.maintel.co.uk
5
Business review
(continued)
Network services division
The network services division re-sells a portfolio of products providing the
interconnectivity between customers and their staff and offices as well as the outside
world. This includes call minutes, line rental, ADSL/Broadband, Wide area IP networking
and non-geographic numbers.
Increased emphasis has been placed on growing the recurring revenues of the network
services division as we have seen expansion in requirements for interconnectivity from
our customers. In particular the connection of head offices to remote sites and home
workers to provide flexible working and centralised database and telephony applications.
This has allowed the division to have another successful year, increasing revenues to
£4.7m, from £3.4m in 2006, a rise of 38%.
The division’s two main revenue streams – call traffic and line rental – both grew strongly
in the year, the former up 25% and the latter 102%, including revenues of £138,000 and
£117,000 respectively from the Callmaster acquisition on 1 August 2007.
Revenue analysis (£000)
Call traffic
Line rental
Other
Total network services
Division gross profit (£000)
2007
3,120
1,185
377
4,682
1,232
2006
2,487
586
327
3,400
1,005
The change in revenue mix – line rental earning lower margins than call traffic – together
with some price pressure on call traffic margins, has caused the division’s overall gross
margin to drop from 30% in 2006 to 26% in 2007, although overall gross profit has
continued to grow, from £1.00m in 2006 to £1.23m in 2007.
As noted in the interim report, the division has received notice of cancellation from one of
its larger but lower margin customers. The reduction in revenue from this was anticipated
to have commenced in August 2007, but the transfer from Maintel has not yet begun,
though is now thought to be imminent. Likewise, the significant new customer highlighted
at the half year has taken longer than anticipated to migrate and contribute fully, and so
the full effects of this customer will be seen in 2008.
Attrition otherwise continues to be low in the division.
Sales and administrative costs continue to be closely controlled, though naturally
increased in 2007 to support the revenue growth. Further specialist sales resource has
been recruited in 2008, in particular to promote sales of interconnectivity mentioned
above, with administrative support to follow.
As the division grows, it is becoming able to tender for increasingly high value business,
although as with its existing large customers, this often comes with a lower margin than
its historical SME business which continues to provide a profitable but competitive base.
6
Business review
(continued)
Administrative expenses, excluding goodwill impairment and
intangibles amortisation
Administrative expenses (£000)
Sales expenses
Other administrative expenses
(excluding goodwill impairment)
District sales and admin costs
Total other administrative expenses
2007
2,290
2,115
-
4,405
2006
1,878
1,844
211
3,933
Administrative expenses increased by £472,000 (12%) in the year, including a full year
(2006 - 6½ months) of District costs, albeit the District costs were at a reduced level.
Sales headcount increased slightly, but with some higher calibre individuals being
employed and the increase in revenues impacting on variable overheads, such as
commission.
Otherwise administration costs, including corporate, service and admin staff, remain
controlled and we have re-signed our Head Office lease in Waterloo to March 2010
providing us with flexible reasonably priced office space.
Average Group headcount during the period
Average sales and service headcount
Average corporate and admin headcount
2007
171
65
20
2006
160
64
20
Group revenue (£000)
19,329
16,166
Acquisition of contract base
On 1 August 2007, the Group acquired a contract base of maintenance, call traffic,
line rental and VoIP hosted service customers from Callmaster Limited, for a cash
consideration of £440,000 plus £8,000 costs. Two of Callmaster’s engineers joined the
Group at the same time. The annual value of the contracts at the date of acquisition was
around £850,000, £715,000 in network services revenue and £135,000 in maintenance
revenue.
In February 2007, the Group acquired a maintenance contract base of c£60,000 per
annum from WGTS Limited. Negligible revenue was recognised from this arrangement in
2007, but will be during 2008.
The Group continues to seek bolt-on customer bases at the right price, together with
suitable acquisitions to accelerate the ongoing development of its IT capabilities which
have allowed the Group to secure increasingly complex voice and data contracts.
Taxation
The income statement shows a tax rate of 30.1% (2006 – 29.4%). The two main trading
companies are taxed at 30%, so that with disallowables the effective rate is above this,
increased further by an element of the goodwill impairment charge which does not attract
tax relief, but benefiting from the effect on deferred tax of next year’s reduction in the
rate of corporation tax from 30% to 28%. In the year under review, use of the remaining
portion of District’s tax losses has reduced the taxation charge by £15,000 (2006 -
£49,000).
Maintel Holdings Plc
Annual report and financial statements for the year ended 31 December 2007
www.maintel.co.uk
7
Business review
(continued)
Dividends
A final dividend for 2006 of 2.9p per share (£361,000 in total) was paid on 25 April 2007,
and an interim 2007 dividend of 2.5p per share (£311,000) was paid on 5 October 2007.
It is proposed to pay a final dividend of 3.0p in respect of 2007, subject to shareholder
approval at the AGM, and payable on 30 April to shareholders on the register at the close
of business on 28 March. In accordance with accounting standards, this dividend is not
accounted for in the financial statements for the period under review as it had not been
committed to pay it as at 31 December 2007.
Balance sheet
The balance sheet remains solid, with £2.1m of cash, as noted above, facilitating
continued growth in equipment sales and network services from existing resources.
No significant expenditure has been required on plant and equipment, or on stock, during
the period.
The deferred tax liability arises from the application of IFRS, whereby a liability of
£290,000 was created on the recognition of the intangible asset relating to District. This
is likely to be released in parallel with the amortisation of the intangible and is partially
offset by deferred tax assets.
Intangible assets
Following the adoption of IFRS, the Group has three intangible assets – goodwill arising on
the acquisition of Maintel Network Services Limited (previously Pinnacle Voice and Data
Limited) and an intangible asset represented by customer contracts and relationships
acquired from District Holdings Limited and Callmaster, together with goodwill relating to
the District acquisition.
The Maintel Network Services goodwill is subject to an impairment test at each reporting
date. Impairment of £18,000 has been charged to the income statement in 2007 (2006 -
£62,000), and the carrying value is £294,000 at that date.
The intangible assets represented by the customer contracts and relationships are subject
to an amortisation charge of 20% of cost per annum in respect of maintenance contract
relationships and 14.2% per annum in respect of network services contracts, £222,000
having been amortised in 2007, leaving a carrying value of £1,094,000.
The goodwill relating to the District acquisition has been subject to an impairment charge
of £58,000 in 2007 (2006 - £29,000), leaving a carrying value of £203,000.
Purchase of own shares
Further to the authority granted at the last AGM, the Company repurchased and cancelled
70,000 of its own shares in December 2007, at a price of 166p, at a total cost of £117,000
and 240,000 shares in 2008 at 161.5p at a total cost of £391,000. The share price at 31
December 2007 was 167p.
Cash flow
At 31 December 2007 the group had cash and bank balances of £2.109m (2006 -
£2.234m), all of it unrestricted. Net cash inflow from operating activities in the year was
£1.103m, Callmaster contracts were acquired for £448,000 net cash, £672,000 was paid in
dividends, £117,000 used to buy back shares in the Company, and £759,000 corporation
tax was paid.
The group invests its surplus cash in high interest, low risk accounts or funds.
8
Business review
(continued)
Outlook
Following on from a steady performance in 2007 we are pleased to report a solid start to
2008 with a number of material sales including a large support win and another two major
prospects.
The Group also continues to develop its IT capabilities to expand its target market
and encompass further constituent parts of larger contracts which might otherwise be
outsourced, including 24/7 network and server monitoring, remote backup and application
development with Microsoft Communications Server.
Margin on equipment sales continues to improve from 2007 and we look forward to the
remainder of the year with confidence.
Tim Mason
Chief Executive
14 March 2008
Maintel Holdings Plc
Annual report and financial statements for the year ended 31 December 2007
www.maintel.co.uk
9
Board of directors
Dale Todd, 49
Finance director
Dale qualified as a chartered accountant
with Thomson McLintock (now KPMG) in
1982 and joined the Group in March 2002.
Prior to this he held positions as group
finance director at Rolfe & Nolan Plc, Best
International Group Plc and HS Publishing
Group Ltd.
Nicholas Taylor, 41
Non-executive director
Nicholas has extensive experience of
working with growing companies, in both
an executive and non-executive capacity.
A former management consultant, he
joined Luther Pendragon Limited, a
communications consultancy, in 1995,
where he rose to become Managing
Partner, before leaving in 2000 to become
Chief Executive of WPP subsidiary Metro
Broadcast Limited. After two years in the
not-for profit sector, as a director of the
Royal Institute of British Architects, he
is currently Chief Operating Officer of EU
affairs consultancy, G Plus Limited.
John Booth, 49
Non-executive chairman
John was appointed chairman of Maintel
in 1996. He is also chairman of Integrated
Asset Management plc, a non-executive
director of several other private companies
and consultant to Herald Venture Partners.
John spent twelve years in investment
banking where he held various senior
positions culminating as managing director
and head of international equities at
Bankers Trust Co. He is currently executive
chairman of Link Asset & Securities Co.
Tim Mason, 43
Chief executive
Tim has an extensive knowledge of both
communications and IT systems. He started
his career in the telecommunications
industry in 1989 as a sales consultant for
Lynton Europe Limited where he progressed
to sales manager. In 1991 he co-founded
Maintel Europe and became chief executive
of the Group in 1996.
Angus McCaffery, 41
Sales director
Angus joined Lynton Europe Limited on
the same day as Tim Mason in 1989. He
co-founded Maintel Europe in 1991 and was
appointed sales director of Maintel Holdings
in 1996. His role with the Group has been
to develop its sales strategy and promote
the Maintel brand within the industry.
10
Report on corporate governance
themselves in any legal proceedings
instigated against them as a direct result
of duties carried out on behalf of the
Company.
The directors are able to seek independent
professional advice as necessary, for
the furtherance of their duties, at the
Company’s expense within designated
financial limits.
The following committees deal with specific
aspects of the Group’s affairs:
Audit committee
The audit committee is chaired by Nicholas
Taylor with John Booth being the other
member. Tim Mason and Dale Todd (who
acts as secretary to the committee) attend
meetings by invitation, as do the external
auditors.
The remit of the committee is to:
• consider the continued appointment of
the external auditors, and their fees.
• liaise with the external auditors in
relation to the nature and scope of the
audit.
• review the financial statements and any
other financial announcements issued by
the Company.
• review any comments and
recommendations received from the
external auditors.
• review the Company’s statements
on internal control systems and the
policies and process for identifying
and assessing business risks and the
management of those risks by the
Company.
The audit committee convenes at least
twice a year.
Remuneration committee
The remuneration committee is chaired by
Nicholas Taylor, its other member being
John Booth. The committee meets at least
once a year. The committee’s report to
shareholders on directors’ remuneration is
set out on page 12.
As a company listed on the Alternative
Investment Market of the London Stock
Exchange, Maintel Holdings Plc is not
required to comply with the Financial
Reporting Council Combined Code (“the
Code”). However, the board of directors
recognises the importance of, and is
committed to, ensuring that proper
standards of corporate governance operate
throughout the Group and has taken
steps to comply with it insofar as it can be
applied practically, given the size of the
Group and the nature of its operations.
The directors have applied the principles
and provisions of the Code in the following
manner:
Board of directors
The board includes two non-executives -
John Booth, who is chairman, and Nicholas
Taylor. It is not considered necessary,
given the Company’s size and stage of
development, to actively seek a further
non-executive director.
Other than in respect of their shareholdings
in the Company, both non-executive
directors are independent of management
and are free from any business or other
relationship which could materially interfere
with the exercise of their independent
judgement.
The board also consists of three executive
directors, of whom Tim Mason is chief
executive, Angus McCaffery is Sales and
Marketing Director and Dale Todd is Finance
Director.
The directors’ biographies on page 9
demonstrate the range and depth of
experience they bring to the Group.
The board meets regularly, normally on a
monthly basis, and both reviews operations
and assesses future strategy for the two
operating subsidiaries and for the Group
as a whole. It operates to a schedule
of matters specifically reserved for its
decision.
The Company’s articles of association
require that Tim Mason and Angus
McCaffery retire by rotation at the
forthcoming annual general meeting; both
offer themselves for re-election at the
annual general meeting.
The Company has purchased insurance
to cover its directors and officers against
any costs they may incur in defending
Maintel Holdings Plc
Annual report and financial statements for the year ended 31 December 2007
www.maintel.co.uk
11
Report on corporate governance
(continued)
The executive directors monitor key
performance indicators on a monthly basis,
management of these being delegated to
the Group’s senior management.
The board undertakes a rolling review of
known and potential risks, and addresses
newly identified risks as they arise, with
controls put in place to minimise their
potential effect on the Group.
Operating control
Each executive director has defined
responsibility for specific aspects of
the Group’s operations. The executive
directors, together with key senior
executives, meet regularly to discuss day-
to-day operational matters.
Investment appraisal
Capital expenditure is controlled via the
budgetary process, the budget being
approved by the board. Expenditure
is approved as required by the chief
executive.
Risk management
The board is responsible for identifying the
major business risks faced by the Group
and for determining the appropriate course
of action to manage these risks.
Compliance statement
Although not subject to the Code given
its AIM-listed status, the board considers
that, where relevant, it has adhered to the
principles of the Code throughout the year,
with the exception of not having a third
non-executive director.
Going concern
After making enquiries, the directors
have formed a judgement at the time of
approving the annual financial statements
that there is a reasonable expectation
that the Group has adequate resources
to continue in operational existence for
the foreseeable future. For this reason,
the directors continue to adopt the going
concern basis in preparing the financial
statements.
Nomination committee
The nomination committee has at least
three members, the majority being non-
executive, and is currently comprised of
John Booth, chairman, Nicholas Taylor
and Tim Mason. The committee meets as
required under the terms of its remit.
The committee’s remit includes:
• regularly reviewing the structure, size
and composition of the board.
• identifying and nominating suitable
candidates to fill vacancies on the board.
Relationship with shareholders
The chairman’s statement and the
business review on pages 2 to 8 include a
detailed review of the business and future
developments.
The directors meet with institutional
and other shareholders when possible,
usually following the announcement of the
Company’s results, to keep them informed
about the performance and objectives of
the business.
The annual general meeting provides
a further forum for shareholders to
communicate with the board. Details of
resolutions to be proposed at the annual
general meeting are set out in the notice of
meeting.
Internal control
The board is ultimately responsible for the
Group’s systems of internal control, and for
reviewing their effectiveness. Such systems
can provide reasonable, but not absolute,
assurance against material misstatement
or loss. The Board believes that the Group
has internal control systems in place
appropriate to the size and nature of its
business.
The directors do not consider that an
internal audit function is required, given the
size and nature of the business at this time.
This situation will be reviewed annually.
The Group maintains a comprehensive
process of financial reporting. The annual
budget is reviewed and approved by the
board before being formally adopted,
following which the board receives at least
monthly financial reports of the Group’s
performance compared to the budget,
with explanations of significant variances.
Monthly cash flow forecasts are provided
to the board, as are budget reforecasts if
deemed appropriate.
12
Report of the remuneration committee
The committee consists of the two non-executive directors, Nicholas Taylor (chairman of
the committee) and John Booth.
The committee’s remit is to measure the performance of, and determine remuneration
policy relating to directors and certain senior employees.
The committee consults with the chief executive with regard to his proposals and
has access to professional and other advice external to the Group, then makes
recommendations to the board.
Remuneration policy
The Group’s executive director remuneration policy is designed to attract and retain
directors of the calibre required to maintain the Group’s position in its marketplace.
The executive director remuneration package consists of two elements:
(a) Basic salary
An executive director’s basic salary is determined by the remuneration committee at the
beginning of each year. In deciding appropriate levels the committee considers the relative
responsibilities of each of the directors.
Basic salaries were reviewed in January 2008, with increases effective 1 January 2008.
Executive directors’ service agreements, which include details of remuneration, will be
available for inspection at the annual general meeting.
(b) Pension contributions and other benefits
Executive directors are entitled to employer pension contributions of 3% of basic salary, or
additional salary in lieu thereof.
They also receive a car allowance and membership of private health, permanent health
and life assurance schemes.
Directors’ service agreements
Each executive director has a six month rolling service agreement.
Non-executive directors
Each of the non-executive directors has a three month rolling contract.
The remuneration of the non-executive directors is determined by the executive directors,
and is based upon the level of fees paid at comparable companies. The non-executives
receive no payment or benefits other than their fees.
Directors’ remuneration
J D S Booth
N J Taylor
T T Mason
A J McCaffery
W D Todd
Salaries/
fees
£000
30
18
116
109
111
384
Benefits
Pension
Contributions
£000
-
£000
-
-
15
16
-
4
3
11
-
42
7
Total
2007(1)
£000
30
18
135
128
122
433
Total
2006(1,2)
£000
27
17
127
120
115
406
(1) Social security costs in respect of the above amounted to £50,000 (2006 - £46,000).
(2) Including employer pension contributions of £7,000 and benefits of £42,000, so that salaries amounted to £357,000.
The directors are the only employees of the Company.
Maintel Holdings Plc
Annual report and financial statements for the year ended 31 December 2007
www.maintel.co.uk
13
Report of the remuneration committee
(continued)
Directors’ interests in ordinary shares
The directors’ interests in the ordinary shares of the Company are shown in the directors’
report on page 15.
Share Incentive Plan
In 2006 the Company established the Maintel Holdings Plc Share Incentive Plan (“SIP”).
The SIP is open to all employees with at least 6 months’ continuous service with a Group
company, and allows employees to subscribe for existing shares in the Company at open
market price out of their gross salary. The employees own the shares from the date of
purchase, but must continue to be employed by a Group company and hold their shares
within the SIP for 5 years to benefit from the full tax benefits of the plan.
The Report of the remuneration committee was approved by the Board on 14 March 2008.
N J Taylor
Chairman of the remuneration committee
14
Report of the directors
for the year ended 31 December 2007
The directors present their report together with the audited financial statements for the
year ended 31 December 2007.
Principal activities
The principal activities of the Group are the provision of contracted maintenance services
to, and the sale of, fixed line telecommunications systems, the resale of voice and data
minutes, line rentals and other telecommunications products.
Results and dividends
The consolidated income statement is set out on page 20 and shows the profit of the
Group for the period.
During the period the Company paid a final dividend of 2.9p per ordinary share in
respect of the 2006 financial year, amounting to £361,000 (2006 – 2.5p and £323,000
respectively) and an interim dividend in respect of 2007 of 2.5p per share, amounting
to £311,000 (2006 – 2.1p and £268,000 respectively). The directors recommend the
payment of a final dividend in respect of 2007 of 3.0p per share.
Business review
A review of the business and future developments is set out in the Business review on
pages 3 to 8.
Principal risks
The directors consider that the principal risks to the Group relate to technological advance
and marketplace pricing strategies.
Telecommunications hardware has historically focused on a PBX core, which is gradually
being replaced, at least at the higher end, by Voice over Internet Protocol (VoIP)
capabilities. Customers’ acceptance of the new technologies moves at varying rates,
however, so that legacy systems will continue to be serviced for some time to come.
Maintel continues to address the technological shift by positioning itself to sell and
maintain the new breed of telephone system, and has had notable success with this
transition to date. As highlighted in the business review, maintenance income from this
new technology can be reduced when compared to traditional telephony although every
effort is made to counter this effect through reduced costs.
VoIP technology is also a potential threat to the reselling of call minutes. In practice,
however, this technology is proving slow to be adopted, largely due to performance issues
which are an important consideration for Maintel’s business customers. Recognising the
potential risk, however, the Group is ensuring that it expands its product portfolio with,
for example, line rental continuing to grow significantly during 2007. The development of
VoIP is constantly monitored so that the Group may take advantage of profitable business
models as and when they appear.
The Group is potentially subject to new pricing strategies by both competitors and
suppliers, whether due to their own internal policies, in response to technological change
or, in the case of call minutes and line rentals, potential regulatory change. The directors
monitor margins closely and take action where appropriate. During 2007, pricing pressure
was particularly felt with larger customers and public sector tenders often resulted in
lower margins than traditional SME business.
The Group’s maintenance contracts have a natural finite life, and are subject to
competitive attack, so that there is an inevitable customer churn. The directors monitor
this and implement strategies with the objective of minimising attrition and growing the
customer base organically and by way of acquisition.
Financial instruments
Details of the use of financial instruments by the Group are contained in note 16 of the
financial statements.
Maintel Holdings Plc
Annual report and financial statements for the year ended 31 December 2007
www.maintel.co.uk
15
Report of the directors
for the year ended 31 December 2007 (continued)
Directors
The directors of the Company and their interests in the ordinary shares of the Company at
the period end were as follows:
Number of 1p ordinary shares
2007
2006
Beneficial Non-beneficial Beneficial Non-beneficial
2,750,781
-
2,750,000
-
2,045,862
13,373
2,045,862 3,047
2,162,688
-
2,162,688
-
7,716
12,657
7,000 3,047
- 13,373
-
3,047
J D S Booth
T T Mason
A J McCaffery
N J Taylor
W D Todd
J D S Booth is a shareholder in Herald Investment Trust plc which holds 510,000 1p
ordinary shares in the Company.
The non-beneficial holdings above relate to holdings of the Share Incentive Plan, of which
the respective directors are trustees.
Since the year end, J D S Booth has acquired 893 ordinary shares in the Company under
the Company’s Share Incentive Plan, and the Share Incentive Plan has acquired 4,748
shares in total. There were no other changes in the directors’ shareholdings between 31
December 2007 and 13 March 2008.
The Company has purchased insurance to cover its directors and officers against any
costs they may incur in defending themselves in any legal proceedings instigated against
them as a direct result of duties carried out on behalf of the Company.
Details of the changes in the Company’s share capital during the year are given in note 18.
Substantial shareholders
In addition to the directors’ shareholdings, at 13 March 2008 the Company had been
notified of the following shareholdings of 3% or more in the ordinary share capital of the
Company:
J A Spens
Octopus Investments Limited
Herald Investment Trust plc
Marlborough Special Situations Fund
Number of
1p ordinary shares
% of issued
ordinary shares
1,557,330
811,810
510,000
465,000
12.82%
6.68%
4.20%
3.83%
The Company’s mid-market share price at 31 December 2007 was 167p per share, and the
high and low prices during the year were 221.5p and 166p respectively.
Employees
Maintel’s success is dependent on the knowledge, experience and motivation of its
employees, and so on the attraction and retention of those staff. The Group’s management
monitors the compliance with both statutory regulation and best practice with regard to
gender, race, age and disability.
A Group intranet is core to open communication amongst employees, and this continues to
be developed.
The Company established a Share Incentive Plan in 2006, allowing employees to invest tax
effectively in its shares, and so aligning employee interests with shareholders. Under the
plan, shares are acquired by employees out of pre-tax salary, with ownership vesting at that
time, and are held by trustees on behalf of the employees. The plan is therefore separate
from the assets of the Group.
16
Report of the directors
for the year ended 31 December 2007 (continued)
Environment
The Group acknowledges its responsibilities to environmental matters and where
practicable adopts environmentally sound policies in its working practices, such as
recycling paper waste and using specialist recyclers of scrap telecommunications and IT
equipment. Maintel Europe Limited was accredited during the year with ISO 14001:2004
for its environmental management systems.
Purchase of own shares
Pursuant to the authority granted at the last AGM, the Company repurchased and
cancelled 70,000 of its own 1p ordinary shares during 2007, at 166p each at a total
cost of £117,000, and 240,000 shares in 2008 at 161.5p at a total cost of £391,000, the
directors considering that such purchases were in the best interests of the shareholders.
The purchases represent 2.5% of the Company’s issued share capital as at 31 December
2007. The existing authority is for the purchase of up to 1,867,274 shares, therefore the
unutilised authority is in respect of 1,557,274 shares. A fresh authority, in the amount of
1,820,805 shares, will be sought at the forthcoming annual general meeting.
Donations
The Group made charitable contributions of £Nil (2006 – £250) during the year. No
contributions were made to political organisations (2006 - £nil).
Creditor payment policy
The Group policy for suppliers is to fix terms of payment when agreeing the terms of
transactions, and to comply with those contractual arrangements. The Group’s average
creditor payment period at 31 December 2007 was 53 days (2006 – 40 days). The
Company’s average creditor payment period at 31 December 2007 was 6 days (2006
– 101 days), these figures being due to the irregular nature of the Company’s creditor
payments.
Auditors
All of the current directors have taken all the steps that they ought to have taken to make
themselves aware of any information needed by the company’s auditors for the purposes
of their audit and to ensure that the auditors are aware of that information. The directors
are not aware of any relevant audit information of which the auditors are unaware.
A resolution proposing the re-appointment of BDO Stoy Hayward LLP as auditors of the
Company will be proposed at the forthcoming annual general meeting.
On behalf of the Board
T T Mason
Director
14 March 2008
Maintel Holdings Plc
Annual report and financial statements for the year ended 31 December 2007
www.maintel.co.uk
17
Statement of directors’ responsibilities
Directors’ responsibilities
The directors are responsible for keeping proper accounting records which disclose with
reasonable accuracy at any time the financial position of the Group, for safeguarding the
assets of the Company, for taking reasonable steps for the prevention and detection of
fraud and other irregularities and for the preparation of a Directors’ Report which complies
with the requirements of the Companies Act 1985.
The directors are responsible for preparing the annual report and the financial statements
in accordance with the Companies Act 1985. The directors are also required to prepare
financial statements for the Group in accordance with International Financial Reporting
Standards as adopted by the European Union (IFRSs) and the rules of the London Stock
Exchange for companies trading securities on the Alternative Investment Market. The
directors have chosen to prepare financial statements for the Company in accordance with
UK Generally Accepted Accounting Practice.
Consolidated financial statements
International Accounting Standard 1 requires that financial statements present fairly for
each financial year the Group’s financial position, financial performance and cash flows.
This requires the faithful representation of the effects of transactions, other events
and conditions in accordance with the definitions and recognition criteria for assets,
liabilities, income and expenses set out in the International Accounting Standards Board’s
‘Framework for the preparation and presentation of financial statements’. In virtually
all circumstances, a fair presentation will be achieved by compliance with all applicable
IFRSs. A fair presentation also requires the directors to:
• consistently select and apply appropriate accounting policies;
• present information, including accounting policies, in a manner that provides relevant,
reliable, comparable and understandable information; and
• provide additional disclosures when compliance with the specific requirements in IFRSs
is insufficient to enable users to understand the impact of particular transactions, other
events and conditions on the entity’s financial position and financial performance.
Parent company financial statements
Company law requires the directors to prepare financial statements for each financial year
which give a true and fair view of the state of affairs of the Company and of the profit or
loss of the Company for that period. In preparing these financial statements, the directors
are required to:
• select suitable accounting policies and then apply them consistently;
• prepare the financial statements on the going concern basis unless it is inappropriate to
presume that the Company will continue in business;
• make judgements and estimates that are reasonable and prudent; and
• state whether applicable accounting standards have been followed, subject to any
material departures disclosed and explained in the financial statements.
Financial statements are published on the Group’s website in accordance with legislation in
the United Kingdom governing the preparation and dissemination of financial statements,
which may vary from legislation in other jurisdictions. The maintenance and integrity of
the Group’s website is the responsibility of the directors. The directors’ responsibility also
extends to the ongoing integrity of the financial statements contained therein.
18
Independent auditor’s report
to the shareholders of Maintel Holdings Plc
We have audited the consolidated and parent company financial statements (the
‘’financial statements’’) of Maintel Holdings Plc for the year ended 31 December 2007
which comprise the consolidated income statement, the consolidated and company
balance sheets, consolidated statement of changes in equity, the consolidated cash flow
statement, and the related notes. These financial statements have been prepared under
the accounting policies set out therein.
Respective responsibilities of directors and auditors
The directors’ responsibilities for preparing the consolidated financial statements in
accordance with applicable law and International Financial Reporting Standards (IFRSs)
as adopted by the European Union and for preparing the parent company financial
statements in accordance with applicable law and United Kingdom Accounting Standards
(United Kingdom Generally Accepted Accounting Practice) are set out in the statement of
directors’ responsibilities.
Our responsibility is to audit the financial statements in accordance with relevant legal and
regulatory requirements and International Standards on Auditing (UK and Ireland).
We report to you our opinion as to whether the financial statements give a true and fair
view and have been properly prepared in accordance with the Companies Act 1985 and
whether the information given in the directors’ report is consistent with those financial
statements. We also report to you if, in our opinion, the company has not kept proper
accounting records, if we have not received all the information and explanations we
require for our audit, or if information specified by law regarding directors’ remuneration
and other transactions is not disclosed.
We read other information contained in the annual report, and consider whether it is
consistent with the audited financial statements. This other information comprises only
the directors’ report, the chairman’s statement, the business review, the report of the
remuneration committee and the report on corporate governance. We consider the
implications for our report if we become aware of any apparent misstatements or material
inconsistencies with the financial statements. Our responsibilities do not extend to any
other information.
Our report has been prepared pursuant to the requirements of the Companies Act 1985
and for no other purpose. No person is entitled to rely on this report unless such a
person is a person entitled to rely upon this report by virtue of and for the purpose of
the Companies Act 1985 or has been expressly authorised to do so by our prior written
consent. Save as above, we do not accept responsibility for this report to any other person
or for any other purpose and we hereby expressly disclaim any and all such liability.
Basis of audit opinion
We conducted our audit in accordance with International Standards on Auditing (UK and
Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test
basis, of evidence relevant to the amounts and disclosures in the financial statements.
It also includes an assessment of the significant estimates and judgments made by the
directors in the preparation of the financial statements, and of whether the accounting
policies are appropriate to the group’s and company’s circumstances, consistently applied
and adequately disclosed.
We planned and performed our audit so as to obtain all the information and explanations
which we considered necessary in order to provide us with sufficient evidence to give
reasonable assurance that the financial statements are free from material misstatement,
whether caused by fraud or other irregularity or error. In forming our opinion we also
evaluated the overall adequacy of the presentation of information in the financial
statements.
Maintel Holdings Plc
Annual report and financial statements for the year ended 31 December 2007
www.maintel.co.uk
19
Independent auditor’s report
to the shareholders of Maintel Holdings Plc (continued)
Opinion
In our opinion:
• the consolidated financial statements give a true and fair view, in accordance with
IFRSs as adopted by the European Union, of the state of the group’s affairs as at 31
December 2007 and of its profit for the year then ended;
• the parent company financial statements give a true and fair view, in accordance with
United Kingdom Generally Accepted Accounting Practice, of the state of the parent
company’s affairs as at 31 December 2007;
• the financial statements have been properly prepared in accordance with the
Companies Act 1985; and
• the information given in the directors’ report is consistent with the financial statements.
BDO STOY HAYWARD LLP
Chartered Accountants
and Registered Auditors
London
14 March 2008
20
Consolidated income statement
for the year ended 31 December 2007
Revenue
Cost of sales
Gross profit
Administrative expenses
Goodwill impairment
Intangibles amortisation
Other administrative expenses
Operating profit
Financial income
Financial charges
Profit before taxation
Taxation
Profit after taxation attributable to equity holders of the parent
Earnings per share
Basic and diluted
The notes on pages 24 to 48 form part of these financial statements.
Note
2
10
10
5
6
6
7
20
9
2007
£000
19,329
12,762
6,567
76
222
4,405
4,703
1,864
115
-
1,979
595
1,384
2006
£000
16,166
10,167
5,999
91
97
3,933
4,121
1,878
135
(1)
2,012
592
1,420
11.1p
11.1p
Maintel Holdings Plc
Annual report and financial statements for the year ended 31 December 2007
www.maintel.co.uk
21
Consolidated balance sheet
at 31 December 2007
Non current assets
Intangible assets
Property, plant and equipment
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Total current assets
Total assets
Current liabilities
Trade and other payables
Current tax liabilities
Total current liabilities
Non current liabilities
Deferred tax liability
Total net assets
Equity
Issued share capital
Share premium
Capital redemption reserve
Retained earnings
Total equity
Note
2007
£000
829
3,928
2,109
10
12
13
14
15
17
18
19
19
19
2007
£000
1,591
208
1,799
6,866
8,665
6,025
295
6,320
139
2,206
124
628
12
1,442
2,206
2006
£000
705
2,861
2,234
2006
£000
1,441
238
1,679
5,800
7,479
5,271
380
5,651
217
1,611
124
628
12
847
1,611
The financial statements were approved and authorised for issue by the Board on 14 March 2008 and were signed on its
behalf by:
T T Mason
Director
The notes on pages 24 to 48 form part of these financial statements.
22
Consolidated statement of changes in equity
for the year ended 31 December 2007
At 1 January 2006
Profit for year*
Dividend
Movements in respect of
purchase of own shares
At 31 December 2006
Profit for year*
Dividend
Movements in respect of
purchase of own shares
At 31 December 2007
Share
Capital
£000
129
Share
premium
£000
628
-
-
(5)
124
-
-
-
124
-
-
-
628
-
-
-
628
Capital
redemption
reserve
£000
7
-
-
5
12
-
-
-
12
Retained
earnings
£000
850
1,420
(591)
Total
£000
1,614
1,420
(591)
(832)
(832)
847
1,611
1,384
(672)
1,384
(672)
(117)
(117)
1,442
2,206
* Total recognised income and expenses for the period are the same as the profit for the period shown above.
The notes on pages 24 to 48 form part of these financial statements.
Maintel Holdings Plc
Annual report and financial statements for the year ended 31 December 2007
www.maintel.co.uk
23
Consolidated cash flow statement
for the year ended 31 December 2007
Operating activities
Profit before taxation
Adjustments for:
Goodwill impairment
Intangibles amortisation
Depreciation charge
Interest received
Other interest paid
Loss on disposal of fixed assets
Operating cash flows before changes in working capital
(Increase)/decrease in inventories
Increase in trade and other receivables
Increase in trade and other payables
Cash generated from operating activities
Tax paid
Net cash flows from operating activities
Investing activities
Purchase of plant and equipment
Purchase of subsidiary undertaking net of cash acquired
Purchase of base of customer relationships
Interest received
Net cash flows from investing activities
Financing activities
Other interest paid
Repurchase of own shares for cancellation
Equity dividends paid
Net cash flows from financing activities
Net decrease in cash and cash equivalents
Cash and cash equivalents at start of period
Cash and cash equivalents at end of period
The notes on pages 24 to 48 form part of these financial statements
2007
£000
2006
£000
1,979
2,012
76
222
136
(115)
-
-
2,298
(124)
(1,067)
755
1,862
(759)
1,103
(106)
-
(448)
115
(439)
-
(117)
(672)
(789)
(125)
2,234
2,109
91
97
136
(135)
1
5
2,207
12
(671)
87
1,635
(603)
1,032
(110)
(1,024)
-
135
(999)
(1)
(832)
(591)
(1,424)
(1,391)
3,625
2,234
24
Notes forming part of the financial statements
for the year ended 31 December 2007
1 Accounting policies
The consolidated financial statements have been prepared under the historical cost convention, and the principal policies
adopted in their preparation are as follows:
(a) Basis of preparation
The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards,
International Accounting Standards and Interpretations (collectively IFRS) issued by the International Accounting Standards
Board (IASB) as adopted by the European Union (“adopted IFRSs”) and are in accordance with IFRS as issued by the IASB,
and with those parts of the Companies Act 1985 applicable to companies preparing their accounts in accordance with
adopted IFRSs. This is the first time the Group has prepared its annual financial statements in accordance with adopted
IFRSs, having previously prepared them in accordance with UK accounting standards. Details of how the transition from UK
accounting standards to adopted IFRSs has affected the Group’s reported financial position, financial performance and cash
flows are given in note 27. The Company has elected to prepare its parent company financial statements in accordance with
UK GAAP and these are presented on page 49.
(b) Transition to International Financial Reporting Standards
IFRS 1 “First-time Adoption of International Financial Reporting Standards” sets out the rules for first time adoption of IFRS
and the optional exemptions which may be used in applying the standards retrospectively to comparative periods. The
Group has used the following exemption in adopting IFRS.
IFRS 3 “Business Combinations” has only been applied to acquisitions completed after the date of transition, 1 January
2006. As a result, the carrying value of goodwill in the UK GAAP balance sheet at 31 December 2005, which relates to the
acquisition of Maintel Network Solutions Limited (previously Pinnacle Voice and Data Limited) in December 2005, is brought
forward to the IFRS opening balance sheet without adjustment.
(c) Basis of consolidation
The financial statements consolidate the results of Maintel Holdings Plc and each of its subsidiaries (the “Group”). The results
of subsidiaries acquired are included within the consolidated income statement and balance sheet from the effective date of
acquisition, applying uniform accounting policies pursuant to IAS 27 “Consolidated and separate financial statements”. The
results of disposed subsidiaries are included in the consolidated income statement up to the effective date of disposal. All
intra-group transactions and balances are eliminated on consolidation. Acquisitions are accounted for using the acquisition
method of accounting.
Subsidiaries are all entities over which the Group has the power to govern their financial and operating policies.
(d) Revenue
Revenue represents sales to customers at invoiced amounts less value added tax. Revenue from sales of equipment,
chargeable works carried out and network services, is recognised when the goods or services are provided. Amounts
invoiced in advance in respect of maintenance contracts are deferred and released to the income statement over the period
covered by the invoice. Revenue and profit on long term supply and/or installation contracts is recognised dependent on the
stage of and costs to completion of each contract.
(e) Intangible assets
Goodwill
Goodwill represents the difference between the cost of the acquisition and the fair value of the net identifiable assets,
liabilities and contingent liabilities. Cost comprises the fair value of assets given, liabilities assumed and equity instruments
issued, plus any direct costs of acquisition. Goodwill is capitalised as an intangible asset, with any impairment in carrying
value being charged to the income statement.
Maintel Holdings Plc
Annual report and financial statements for the year ended 31 December 2007
www.maintel.co.uk
25
Notes forming part of the financial statements
for the year ended 31 December 2007 (continued)
1 Accounting policies (continued)
Other intangible assets
Intangible assets are stated at cost less accumulated amortisation and consist of customer relationships. Where these assets
have been acquired through a business combination, the cost will be the fair value allocated in the acquisition accounting;
where they have been acquired other than through a business combination, the initial cost is the aggregate amount paid and
the fair value of any other consideration given to acquire the asset.
Customer relationships are amortised over their estimated useful lives of (i) five years in respect of maintenance contracts,
and (ii) seven years in respect of network services contracts.
Impairment of goodwill and other intangible assets
Impairment tests on goodwill with an indefinite useful economic life are undertaken annually on 31 December. Customer
relationships and other assets are subject to impairment tests whenever events or changes in circumstances indicate the
carrying amount may not be recoverable. Where the carrying value of an asset exceeds its recoverable amount (being the
higher of value in use and fair value less costs to sell), the asset is written down accordingly.
Where it is not possible to estimate the recoverable amount of an individual asset, the impairment test is carried out on the
asset’s cash-generating unit (being the lowest group of assets in which the asset belongs for which there are separately
identifiable cash flows). Goodwill is allocated on initial recognition to each of the Group’s cash-generating units that are
expected to benefit from the synergies of the combination giving rise to goodwill.
Impairment charges are included in the administrative expenses line item in the income statement.
(f) Property, plant and equipment
Property, plant and equipment is stated at historic cost, less accumulated depreciation. Depreciation is provided to write off
the cost, less estimated residual values, of all tangible fixed assets over their expected useful lives, at the following rates:
Property, plant and machinery
Office and computer equipment
Motor vehicles
Leasehold improvements
-
-
-
-
over the life of the lease to third parties
25% straight line
25% straight line
over the remaining period of the lease
(g) Inventories
Inventories comprise (i) maintenance stock, being replacement parts held to service customers’ telecommunications
systems, and (ii) work in progress, being stock purchased for customer orders which has not been installed at the end of the
financial period. Inventories are valued at the lower of cost and net realisable value.
(h) Cash and cash equivalents
Cash and cash equivalents comprise cash balances and short term deposits with an original maturity of three months or less.
Bank overdrafts that are repayable on demand and form an integral part of the Group’s cash management procedures are
also included as a component of cash and cash equivalents for the purposes of the cash flow statement.
26
Notes forming part of the financial statements
for the year ended 31 December 2007 (continued)
1 Accounting policies (continued)
(i) Taxation
Current tax is the expected tax payable on the taxable income for the year, together with any adjustments to tax payable in
respect of previous years.
Deferred tax is provided using the liability method, providing for temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts used for taxation purposes, except for differences
arising on:
• the initial recognition of goodwill;
• goodwill for which amortisation is not tax deductible;
• the initial recognition of an asset or liability in a transaction which is not a business combination and at the time of the
transaction affects neither accounting or taxable profit; and
• investments in subsidiaries where the Group is able to control the timing of the reversal of the difference and it is probable
that the difference will not reverse in the foreseeable future.
A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against
which the asset can be utilised.
The amount of the deferred tax asset or liability is determined using tax rates that have been enacted or substantively
enacted by the balance sheet date and are expected to apply when the deferred tax assets/liabilities are recovered/settled.
Deferred tax balances are not discounted.
Deferred tax assets and liabilities are offset when the Group has a legally enforceable right to offset current tax assets and
liabilities and the deferred tax assets and liabilities relate to taxes levied by the same tax authority on either:
• the same taxable Group company; or
• different Group entities which intend either to settle current tax assets and liabilities on a net basis, or to realise the
assets and settle the liabilities simultaneously, in each future period in which significant amounts of deferred tax assets or
liabilities are expected to be settled or recovered.
(j) Financial assets and liabilities
The Group’s financial assets and liabilities mainly comprise cash, trade and other receivables and trade and other payables.
The Group’s policy is, and has been throughout the year, not to trade in financial instruments.
Cash comprises cash in hand and deposits held at call with banks.
Trade and other receivables are not interest bearing and are stated at their nominal value as reduced by appropriate
allowances for irrecoverable amounts or additional costs required to effect recovery.
Trade and other payables are not interest bearing and are stated at their nominal amount.
(k) Operating leases
Annual rentals payable are charged to the income statement on a straight-line basis over the term of the lease.
Annual rentals receivable from third parties are credited to the income statement on a straight line basis over the term of the
lease. This income is included in revenue.
(l) Employee benefits
The Group contributes to a number of defined contribution pension schemes in respect of certain of its employees; the Group
does not contribute and has not contributed to any defined benefit pension schemes. The amount charged in the income
statement represents the employer contributions payable to the schemes in respect of the financial period. The assets of the
schemes are held separately from those of the Group in independently administered funds.
The cost of all short term employee benefits is recognised during the period the employee service is rendered.
Holiday pay is expensed in the period in which it accrues.
Maintel Holdings Plc
Annual report and financial statements for the year ended 31 December 2007
www.maintel.co.uk
27
Notes forming part of the financial statements
for the year ended 31 December 2007 (continued)
1 Accounting policies (continued)
(m) Dividends
Dividends unpaid at the balance sheet date are only recognised as a liability at that date to the extent that they are
appropriately authorised and are no longer at the discretion of the Company. Proposed but unpaid dividends that do not
meet these criteria are disclosed in the notes to the financial statements.
(n) Accounting standards issued but not adopted
The following new standards and interpretations, which have been issued by the IASB and IFRIC, are effective for future
periods and have not been adopted early in these financial statements. The directors do not anticipate that the adoption of
these standards and interpretations will have a material accounting impact on the Group’s financial statements in the period
of initial application although they may result in certain presentational changes.
Standard or Interpretation
IFRS 8 Operating Segments
Amendment to IAS 23 Borrowing costs
Amendments to IAS 1 Presentation of Financial
Statements – revised presentation
Revised IFRS 3 Business Combinations
Amendments to IAS 27 Consolidated and Separate
Financial Statements
Amendments to IAS32 Puttable Instruments and obligations
arising on liquidation
Amendment to IFRS 2 Share-based Payment:
Vesting Conditions and Cancellations
IFRIC 11 - IFRS 2 – Group and Treasury Share Transactions
IFRIC 12 Service Concession Arrangements
IFRIC 13 Customer Loyalty Programmes
IFRIC 14 - IAS 19 – The Limit on a Defined Benefit Asset,
Minimum Funding Requirements and their Interaction
Effective for periods
beginning
Endorsed for
use in the EU
1 January 2009
1 January 2009
1 January 2009
1 July 2009
1 July 2009
1 January 2009
1 January 2009
1 January 2008
1 January 2008
1 July 2008
1 January 2008
Yes
No
No
No
No
No
No
Yes
No
No
No
28
Notes forming part of the financial statements
for the year ended 31 December 2007 (continued)
2 Segment information
For management reporting purposes, the Group consists of two business segments: (i) telephone maintenance and
equipment sales, and (ii) telephone network services.
Revenue
Maintenance
and
equipment
£000
14,735
Year ended 31 December 2007
Network
services
£000
4,682
Central/
intercompany
£000
Total
£000
(88)
19,329
Included in telephone system maintenance revenue above is £97,000 of leasing income.
Other than equipment sales of £39,000 to EU countries, revenue is wholly attributable to the principal activities of the Group
and arises predominantly within the United Kingdom.
Operating profit
Interest (net)
Profit before taxation
Taxation
Profit after taxation
Balance sheet
Assets
Liabilities
Total
Other
1,680
477
(293)
1,864
115
1,979
(595)
1,384
6,007
(5,276)
731
1,485
(1,342)
143
1,173
159
1,332
8,665
(6,459)
2,206
Capital expenditure
Depreciation
Amortisation and impairment
106
136
9
-
-
20
-
-
269
106
136
298
Maintel Holdings Plc
Annual report and financial statements for the year ended 31 December 2007
www.maintel.co.uk
29
Notes forming part of the financial statements
for the year ended 31 December 2007 (continued)
2 Segment information (continued)
Revenue
Maintenance
and
equipment
£000
12,873
Year ended 31 December 2006
Network
services
£000
3,400
Central/
intercompany
£000
Total
£000
(107)
16,166
Included in telephone system maintenance revenue above is £189,000 of leasing income.
Revenue is wholly attributable to the principal activities of the Group and arises predominantly within the United Kingdom.
Operating profit
Interest (net)
Profit before taxation
Taxation
Profit after taxation
Balance sheet
Assets
Liabilities
Total
Other
1,678
400
(200)
1,878
134
2,012
(592)
1,420
4,768
(4,441)
327
847
(840)
7
1,864
(587)
1,277
7,479
(5,868)
1,611
Capital expenditure
Depreciation
Amortisation and impairment
110
136
-
-
-
-
-
-
188
110
136
188
Notes forming part of the financial statements
for the year ended 31 December 2007 (continued)
30
3 Employees
The average number of employees, including directors, during the period was:
Corporate and administration
Sales and customer service
Technical and engineering
Staff costs, including directors, consist of:
Wages and salaries
Social security costs
Pension costs
2007
Number
2006
Number
20
65
86
171
6,728
768
129
7,625
20
64
76
160
5,742
648
79
6,469
The Group makes contributions to defined contribution personal pension schemes for employees and directors. The assets
of the schemes are separate from those of the Group. The pension cost charge represents contributions payable by the
Group to the schemes and amounted to £129,000 (2006 - £79,000). Contributions totalling £21,000 (2006 - £17,000) were
payable to the schemes at the year end and are included in creditors.
4 Directors’ remuneration
The remuneration of the Company directors is as follows:
Directors’ emoluments
Pension contributions
Included in the above is the remuneration of the highest paid director as follows:
Directors’ emoluments
Pension contributions
2007
£000
426
7
433
131
4
135
2006
£000
399
7
406
123
4
127
The Group paid contributions into defined contribution personal pension schemes in respect of 2 (2006 – 2) directors during
the year.
Maintel Holdings Plc
Annual report and financial statements for the year ended 31 December 2007
www.maintel.co.uk
31
Notes forming part of the financial statements
for the year ended 31 December 2007 (continued)
5 Operating profit
This has been arrived at after charging/(crediting):
Depreciation of property, plant and equipment
Amortisation of intangible fixed assets
Goodwill impairment charge
Loss on disposal of fixed assets
Operating lease rentals
- property
- plant and machinery
Auditors’ remuneration
- audit services – Company
- other services relating to taxation – Group
- other services relating to audit of subsidiary undertakings - Group
- audit services – Group
Leasing income
6 Financial income and expense
Finance income
Bank interest received
Finance expense
Other interest payable
7 Taxation
UK corporation tax
Corporation tax on profits of the period
Adjustment for underprovision in prior years
Deferred tax
Taxation on profit on ordinary activities
2007
£000
2006
£000
136
222
76
-
161
135
7
18
47
15
136
97
91
5
173
147
9
12
52
7
(97)
(189)
2007
£000
115
-
2007
£000
673
-
673
(78)
595
2006
£000
135
1
2006
£000
619
1
620
(28)
592
32
Notes forming part of the financial statements
for the year ended 31 December 2007 (continued)
7 Taxation (continued)
The differences between the total tax shown above and the amount calculated by applying the standard rate of UK
corporation tax to the profit before tax are as follows:
Profit on ordinary activities before tax
Profit on ordinary activities at the standard rate of corporation
tax in the UK of 30% (2006 – 30%)
Effect of:
Expenses not deductible for tax purposes
Depreciation in excess of capital allowances
Goodwill impairment
Intangible amortisation
Adjustment for prior year
Use of trading losses brought forward
Marginal tax rates
Change in tax rate affecting deferred tax liability
Other timing differences
8 Dividends paid on ordinary shares
Final 2005, paid 24 April 2006 – 2.5p per share
Interim 2006, paid 29 September 2006 – 2.1p per share
Final 2006, paid 25 April 2007 – 2.9p per share
Interim 2007, paid 5 October 2007 – 2.5p per share
2007
£000
1,979
2006
£000
2,012
594
11
2 6
23
-
-
(15)
-
(20)
-
595
2007
£000
-
-
361
311
672
604
14
(2)
29
1
(52)
(15)
-
7
592
2006
£000
323
268
-
-
591
The directors recommend the payment of a final dividend for 2007 of 3.0p (2006 – 2.9p) per ordinary share, payable on 30 April
2008 to shareholders on the register at 28 March 2008, subject to approval by shareholders at the Annual General Meeting.
Maintel Holdings Plc
Annual report and financial statements for the year ended 31 December 2007
www.maintel.co.uk
33
Notes forming part of the financial statements
for the year ended 31 December 2007 (continued)
9 Earnings per share
Earnings per share is calculated by dividing the profit after tax for the period by the weighted average number of shares in
issue for the period, these figures being as follows:
Weighted average number of ordinary shares of 1p each
Earnings used in basic and diluted EPS, being profit after tax
Goodwill impairment and intangibles amortisation, less tax thereon
One-off professional costs, less tax thereon
Adjusted earnings
Earnings per share
Basic and diluted
2007
Number
(000s)
12,452
2006
Number
(000s)
12,783
£000
1,384
231
18
£000
1,420
159
-
1,633
1,579
11.1p
11.1p
Adjusted – as above but excluding goodwill impairment and
intangibles amortisation and one-off professional costs, less tax thereon
13.1p
12.4p
The adjustment above in respect of goodwill impairment, intangibles amortisation, one-off professional costs and tax
thereon has been made in order to provide a clearer picture of the trading performance of the Group.
The one-off professional costs relate to the £25,000 cost of strategic advice incurred in 2007.
On 16 January 2008, the Company repurchased and cancelled 240,000 of its 1p ordinary shares at 161.5p per share. The
purchase represents 1.9% of the Company’s issued share capital as at 31 December 2007.
34
Notes forming part of the financial statements
for the year ended 31 December 2007 (continued)
10 Intangible assets
Cost
At 1 January 2006
Acquisition through business combinations
At 31 December 2006
Acquisition of customer relationships
At 31 December 2007
Amortisation and impairment
At 1 January 2006
Amortisation in the year
Impairment in the year
At 31 December 2006
Amortisation in the year
Impairment in the year
At 31 December 2007
Net book value
At 31 December 2007
At 31 December 2006
Goodwill
£000
Customer
relationships
£000
Total
£000
227
1,402
1,629
448
2,077
-
965
965
448
1,413
-
-
97
-
97
222
-
319
97
91
188
222
76
486
1,094
868
1,591
1,441
227
437
664
-
664
-
-
91
91
-
76
167
497
573
Amortisation and impairment charges for the year have been charged through administrative expenses in the consolidated
income statement.
Maintel Holdings Plc
Annual report and financial statements for the year ended 31 December 2007
www.maintel.co.uk
35
Notes forming part of the financial statements
for the year ended 31 December 2007 (continued)
10 Intangible assets (continued)
The carrying value of goodwill, calculated on a value in use basis, is allocated to cash generating units as follows:
Pinnacle Voice and Data Limited (now incorporated in Maintel Voice and Data Limited)
District Holdings Limited (now incorporated in
Maintel Europe Limited and Maintel Voice and Data Limited)
2007
£000
294
203
497
2006
£000
312
261
573
Goodwill of £227,000 arising on the acquisition of Pinnacle Voice and Data Limited (since renamed Maintel Network Solutions
Limited) in December 2005 was capitalised at 31 December 2005, as was the related deferred payment of £147,000 in 2006,
the aggregate being subject to an annual impairment review which has resulted in an impairment charge of £62,000 in 2006
and £18,000 in 2007, due to the termination of certain contracts acquired.
Goodwill of £290,000 arising on the acquisition of District Holdings Limited in June 2006 is impaired in parallel with the
release of the deferred tax liability arising on the acquisition of District, that being amortised over 5 years with effect from
1 July 2006, the impairment of the goodwill being £29,000 in 2006 and £58,000 in 2007.
The acquisition of District customer relationships was valued at £965,000. These relationships are estimated to have a useful
life of 5 years and are therefore amortised over that period and subject to annual impairment review. The 2006 amortisation
charge is therefore £97,000 and the 2007 charge is £193,000.
In February 2007, the Group acquired a maintenance contract base of c£60,000 per annum from WGTS Limited at nil cost,
the vendor being paid a subsequent commission to re-sign the contracts on a longer term basis. Given the nil cost, this
contract base has not been incorporated as an intangible asset.
The Group acquired a base of customer relationships from Callmaster Limited on 1 August 2007, for a consideration,
including costs, of £448,000. These relationships are estimated to have a useful life of five (maintenance contracts) or seven
(network services contracts) years and are therefore amortised over those periods and subject to annual impairment review.
The 2007 amortisation charge is £29,000 and the estimated contribution to Group profits in the year resulting from the
acquisition is £90,000.
For the purposes of impairment review, the estimated life of a relationship is five or seven years as noted above and the
net present value of the projected future cash flows from the relationships is compared with the carrying value. Projected
operating margins are based on current trends, and a discount rate of 17.6% is applied to the resultant projected cash flows;
the discount rate is based on conventional capital asset pricing model inputs.
36
Notes forming part of the financial statements
for the year ended 31 December 2007 (continued)
10 Intangible assets (continued)
Analysis of the acquisition of District Holdings Limited in June 2006 is as follows:
Net assets at the date of acquisition:
Tangible fixed assets
Stock
Debtors
Cash
Creditors
Deferred income
Net assets acquired
Value attributed to customer relationships
Discharged by:
Cash consideration paid
Costs associated with the acquisition
11 Subsidiaries
Book value
£000
Fair value
£000
50
52
255
183
(191)
(329)
20
29
132
272
183
(192)
(329)
95
965
1,060
1,025
35
1,060
The Group consists of Maintel Holdings Plc and its subsidiary undertakings, including several which did not trade during
the year. The following were the principal subsidiary undertakings at the end of the year and each has been included in the
consolidated financial statements:
Maintel Europe Limited
Maintel Voice and Data Limited
Each is wholly owned and incorporated in England and Wales.
Maintel Holdings Plc
Annual report and financial statements for the year ended 31 December 2007
www.maintel.co.uk
37
Notes forming part of the financial statements
for the year ended 31 December 2007 (continued)
12 Property, plant and equipment
Leasehold
improvements
£000
Plant and
machinery
£000
Office and
computer
equipment
£000
Motor
vehicles
£000
Cost or valuation
At 1 January 2006
Acquisition
Additions
Disposals
At 31 December 2006
Additions
Disposals
At 31 December 2007
Depreciation
At 1 January 2006
Acquisition
Provided in year
Disposals
At 31 December 2006
Provided in year
Disposals
At 31 December 2007
Net book value
At 31 December 2007
At 31 December 2006
64
-
-
-
64
-
-
64
64
-
-
-
64
-
-
64
-
-
89
-
-
-
89
-
(45)
44
78
-
8
-
86
3
(45)
44
-
3
617
125
110
(44)
808
99
(73)
834
388
96
128
(39)
573
132
(73)
632
202
235
-
-
-
-
-
7
-
7
-
-
-
-
-
1
-
1
6
-
Total
£000
770
125
110
(44)
961
106
(118)
949
530
96
136
(39)
723
136
(118)
741
208
238
38
Notes forming part of the financial statements
for the year ended 31 December 2007 (continued)
13 Inventories
Maintenance stock
Stock held for resale
14 Trade and other receivables
Trade receivables
Other receivables
Prepayments and accrued income
All amounts shown above fall due for payment within one year.
15 Trade and other payables
Trade payables
Other tax and social security
Accruals
Other payables
Deferred maintenance income
Other deferred income
2007
£000
599
230
829
2007
£000
2,965
14
949
3,928
2007
£000
1,686
671
565
27
3,020
56
6,025
2006
£000
592
113
705
2006
£000
2,194
12
655
2,861
2006
£000
1,034
634
436
18
2,984
165
5,271
Deferred maintenance income relates to the unearned element of maintenance revenue that has been invoiced but not yet
recognised in the profit and loss account. Other deferred income relates to other amounts invoiced but not yet recognised in
the profit and loss account.
Maintel Holdings Plc
Annual report and financial statements for the year ended 31 December 2007
www.maintel.co.uk
39
Notes forming part of the financial statements
for the year ended 31 December 2007 (continued)
16 Financial instruments
The Group’s financial assets and liabilities mainly comprise cash, trade and other receivables and trade and other payables,
with smaller balances being recorded as other debtors and other creditors. The Group’s policy is, and has been throughout
the year, not to trade in financial instruments.
Current financial assets
Trade receivables
Cash and cash equivalents
Other receivables
Current financial liabilities
Trade payables
Other payables
Loans and receivables
2007
£000
2,965
2,109
14
5,088
2006
£000
2,194
2,234
12
4,440
Financial liabilities
measured at
amortised cost
2007
£000
1,686
27
1,713
2006
£000
1,034
18
1,052
The maximum credit risk for each of the above is the carrying value stated above. The main risks arising from the Group’s
operations are credit risk, currency risk and interest rate risk, however other risks are also considered below.
Credit risk
Management has a credit policy in place and the exposure to credit risk is monitored on an ongoing basis. Credit evaluations
are performed on customers as deemed necessary based on, inter alia, the nature of the prospect and size of order. The
Group does not require collateral in respect of financial assets.
At the balance sheet date there were no significant concentrations of credit risk, the largest exposure represented by the
carrying value of each financial asset in the balance sheet, principally trade and other receivables, against which £112,000
is provided at 31 December 2007 (2006 - £100,000). The provision represents an estimate of potential bad debt, goodwill
credits and additional costs to be incurred in respect of the year end trade receivables, a review having been undertaken of
each such year end receivable. The largest individual debtor included in trade and other receivables at 31 December 2007
owed the Group £234,000 including VAT (2006 - £160,000).
40
Notes forming part of the financial statements
for the year ended 31 December 2007 (continued)
16 Financial instruments (continued)
The movement on the provision is as follows:
Provision at start of year
Provision used
Additional provision made
Provision at end of year
2007
£000
100
(7)
19
112
2006
£000
85
(29)
44
100
A debt is considered to be bad when it is deemed irrecoverable, for example when the debtor goes into liquidation, or when
a credit or partial credit is issued to the customer for goodwill or commercial reasons.
The Group had past due trade receivables as follows:
Up to 30 days overdue
31-60 days overdue
More than 60 days overdue
2007
£000
1,004
334
93
1,431
2006
£000
687
158
33
878
Cash and cash equivalents at 2007 and 2006 year ends represented short term deposits with LloydsTSB and Abbey.
Foreign currency risk
The principal functional currency of the Group is Sterling. The Group engages in minimal foreign currency transactions, and
maintains a Euro bank account to facilitate these. The balance of the account at 31 December 2007 was £33,000 (2006 –
£3,000). The Group’s exposure to currency risk is therefore not significant.
Interest rate risk
The Group has no borrowings, and invests its surplus cash in short term bank deposits at prevailing rates of interest.
The Group’s interest income (£115,000 in 2007, and £135,000 in 2006) is therefore dependent on those prevailing rates.
Liquidity risk
The Group’s main financial liabilities are trade payables, which fall due and are typically paid in accordance with their
contractual terms which are typically 30 days; payment of these is dependent on the Group’s liquidity, which in turn is
dependent on management of the Group’s working capital.
Market risk
As noted above, the interest earned on short term deposits is dependent on the prevailing rates of interest from time
to time.
Fair value
All of the Group’s financial instruments are due to mature within one year and are subject to normal commercial credit and
interest rate risk.
There is no significant difference between the carrying amounts shown in the balance sheet and the fair values of the
Group’s financial instruments.
Maintel Holdings Plc
Annual report and financial statements for the year ended 31 December 2007
www.maintel.co.uk
41
Notes forming part of the financial statements
for the year ended 31 December 2007 (continued)
17 Deferred tax liability
At 1 January 2006
Arising on District acquisition
Credit/(charge) to income statement
At 31 December 2006
Adjustment on change in tax rates
Charge to income statement
At 31 December 2007
Property,
plant and
equipment
£000
Intangible
assets
£000
(30)
-
1
(29)
-
(1)
(30)
-
290
(29)
261
(20)
(58)
183
Other
£000
(15)
-
-
(15)
-
1
(14)
Total
£000
(45)
290
(28)
217
(20)
(58)
139
The deferred tax liability represents (a) a liability established under IFRS on the recognition of an intangible asset in relation
to the District acquisition net of (b) an asset represented by the tax value of depreciation provided in the accounts in excess
of capital allowances claimed, and (c) an asset in respect of holiday pay accrual, and is calculated using a tax rate of 28%
(2006 - 30%).
18 Share capital
Authorised
17,571,840 ordinary shares of 1p each
Alloted, called up and fully paid
12,386,800 (2006 - 12,456,800) ordinary shares of 1p each
2007
£000
176
124
2006
£000
176
124
Pursuant to the authority granted at the last annual general meeting, the Company repurchased and cancelled 70,000 of its
own 1p ordinary shares during 2007 at 166p per share and a total cost of £117,000. The purchase represents 0.6% of the
Company’s issued share capital as at 31 December 2006.
19 Reserves
The capital redemption reserve represents the nominal value of ordinary shares repurchased and cancelled by the Company
and is undistributable in normal circumstances.
Share capital, share premium and retained earnings represent balances conventionally attributed to those descriptions.
The Group having no borrowings or regulatory capital requirements, its primary capital management focus is on maximising
earnings per share and therefore shareholder return.
Subject to shareholder approval at the forthcoming AGM, it is proposed to pay a final dividend for 2007 of 3.0p per share;
this dividend is not provided for in these financial statements.
42
Notes forming part of the financial statements
for the year ended 31 December 2007 (continued)
20 Reconciliation of movements in total equity
Profit for the period
Repurchase of own shares
Dividends
Net increase/(decrease) in shareholders’ funds
Opening shareholders’ funds
Shareholders’ funds at 31 December 2007
21 Share Incentive Plan
2007
£000
1,384
(117)
(672)
595
1,611
2,206
2006
£000
1,420
(832)
(591)
(3)
1,614
1,611
The Company established the Maintel Holdings Plc Share Incentive Plan (“SIP”) in 2006. The SIP is open to all employees
with at least 6 months’ continuous service with a Group company, and allows employees to subscribe for existing shares
in the Company out of their gross salary. The shares are bought by the SIP on the open market. The employees own the
shares from the date of purchase, but must continue to be employed by a Group company and hold their shares within the
SIP for 5 years to benefit from the full tax benefits of the plan.
22 Operating leases
As at 31 December 2007, the Group had future minimum rentals payable under non-cancellable operating leases as set out
below:
The total future minimum lease payments
are due as follow:
Not later than one year
Later than one year and not later than five years
2007
Land and
buildings
£000
173
217
390
2007
Other
£000
90
50
140
2006
Land and
buildings
£000
143
36
179
2006
Other
£000
99
118
217
The commitment relating to land and buildings is in respect of the Group’s London offices, the lease on which expires in
normal circumstances in March 2010, and the remaining commitment relates to contract hired motor vehicles, which are
typically replaced on a 3 year rolling cycle.
23 Contingent liabilities
The Group has received notification of two separate potential legal claims against it. The estimated amount of each claim is
£30,000. The directors consider the Group to be practically and contractually protected from any liability and therefore no
provision has been made in the accounts for either.
Maintel Holdings Plc
Annual report and financial statements for the year ended 31 December 2007
www.maintel.co.uk
43
Notes forming part of the financial statements
for the year ended 31 December 2007 (continued)
24 Related party transactions
Transactions with key management personnel
The Group has a related party relationship with its directors and executive officers. The remuneration of the individual
directors is disclosed in the remuneration report. The remuneration of the directors and other key members of management
during the year was as follows:
Short term employment benefits
Contributions to defined contribution pension scheme
2007
£000
714
13
727
2006
£000
638
12
650
Transactions between the Company and its subsidiary undertakings
Transactions between Group companies are not disclosed as they have been eliminated on consolidation.
Other transactions
The Group traded during the year with Maybank Marketing, a company indirectly associated with A J McCaffery. Purchases
during the year amounted to £9,675 (2006 - £7,809) net of VAT, of which £1,590 (2006 - £329) was owed at the year end
and is included within trade creditors. Sales during the year amounted to £109 (2006 - £230), of which £Nil (2006 - £26)
was owed at the year end.
The Group provided services to A J McCaffery during the year amounting to £1,005 (2006 - £869) net of VAT, of which £Nil
(2006 - £179) was owed at the year end.
The Group paid commissions in the year to J A Spens, a shareholder in the Company, amounting to £46,258 net of VAT
(2006 - £Nil), of which £4,709 was owed at the year end and is included in trade creditors.
25 Accounting estimates and judgements
In the process of applying the Group’s accounting policies, management has made various estimates, assumptions and
judgements, with those likely to contain the greatest degree of uncertainty being summarised below.
Impairment
The Group assesses at each reporting date whether there is an indication that its intangible assets may be impaired. In
undertaking such an impairment review, estimates are required in determining an asset’s recoverable amount; those used
are shown in note 10. These estimates include the asset’s future cash flows and the appropriate discount to reflect the time
value of money. The effect on the impairment charge in the income statement of assuming a year’s longer and a year’s
shorter customer contract length compared with the assumed five (maintenance contracts) and seven (network services
contracts) years is as follows:
Maintenance contracts
One year longer contract length
One year shorter contract length
Network services contracts
One year longer contract length
One year shorter contract length
Long term contracts
Increase/(decrease)
in impairment charge
£000
Nil
Nil
(18)
31
At each reporting date the Group has customer projects which are partially complete. Estimates are made of the stage
of completion of these projects and a proportion of the project’s revenue and cost is recognised in the period’s financial
statements. The time scales and costs to completion may differ from those estimates.
44
Notes forming part of the financial statements
for the year ended 31 December 2007 (continued)
25 Accounting estimates and judgements (continued)
Business combinations
The acquisition of customer relationships from Callmaster Limited and WGTS Limited have been adjudged not to be business
combinations. The accounting treatment had they been adjudged business combinations would not have been materially
different, and there would be no resultant effect on profit after tax reported in the income statement.
Contingent liabilities
An assessment has been made of the outcome and potential cost of the two claims referred to in note 23. It is considered
that any divergence from those estimates is unlikely to be significant.
26 Post balance sheet event
On 16 January 2008, the Company repurchased and cancelled 240,000 of its 1p ordinary shares at 161.5p per share.
27 Transition to International Financial Reporting Standards
The Group’s previously reported financial performance and position is altered as a result of the adoption of IFRS and the
accounting policies detailed in note 1 above.
The following table summarises the impact of the adoption of IFRS on the Group’s profit after tax for the year ended 31
December 2006.
Profit after tax – under UK GAAP
Reversal of goodwill amortisation
Amortisation of intangible assets and goodwill impairment
Staff costs – holiday pay
Deferred tax on amortisation of intangible assets
Profit after tax – under IFRS
2006
£000
1,459
122
(188)
(2)
29
1,420
The following table summarises the impact of the adoption of IFRS on the Group’s total equity as at 1 January 2006 and
31 December 2006.
Total equity – under UK GAAP
Reversal of goodwill amortisation
Amortisation of intangible assets and goodwill impairment
Staff costs – holiday pay net of deferred tax
Total equity – under IFRS
1 January 31 December
2006
£000
2006
£000
1,648
-
-
(34)
1,614
1,684
122
(159)
(36)
1,611
More detailed disclosure of the effects of IFRS on the UK GAAP financial statements is shown in the following tables.
Maintel Holdings Plc
Annual report and financial statements for the year ended 31 December 2007
www.maintel.co.uk
45
Notes forming part of the financial statements
for the year ended 31 December 2007 (continued)
27 Transition to International Financial Reporting Standards (continued)
Reconciliation of the Group’s consolidated income statement for the year to 31 December 2006
Revenue
Cost of sales
Gross profit
Administrative expenses
Goodwill amortisation
Goodwill impairment
Intangibles amortisation
Other administrative expenses
Operating profit
Financial income
Financial charges
Profit before taxation
Taxation
Profit after taxation attributable to
equity holders of the parent
Earnings per share
Basic and diluted
UK GAAP
£000
16,166
10,167
5,999
122
-
-
Goodwill
£000
(notes a,b)
-
-
-
(122)
91
97
Holiday
pay
£000
(note c)
-
-
-
-
-
-
-
2
66
(66)
-
-
(66)
(29)
(37)
2
(2)
-
-
(2)
-
3,931
4,053
1,946
135
(1)
2,080
621
1,459
11.4p
IFRS
£000
16,166
10,167
5,999
-
91
97
3,933
4,121
1,878
135
(1)
2,012
592
(2)
1,420
11.1p
46
Notes forming part of the financial statements
for the year ended 31 December 2007 (continued)
27 Transition to International Financial Reporting Standards (continued)
Reconciliation of the Group’s consolidated balance sheet as at 1 January 2006 (the opening IFRS balance sheet)
Non current assets
Intangible assets
Property, plant and equipment
Deferred tax asset
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Total assets
Current liabilities
Trade and other payables
Current tax liabilities
Total liabilities
Total net assets
Equity
Issued share capital
Share premium
Capital redemption reserve
Retained earnings
Total shareholders’ equity
UK GAAP
£000
Holiday
pay
£000
(note c)
227
240
-
-
30
497
15
15
585
1,917
3,625
6,127
6,624
4,613
363
4,976
1,648
129
628
7
884
1,648
-
-
-
-
15
49
-
49
(34)
-
-
-
(34)
(34)
IFRS
£000
227
240
45
512
585
1,917
3,625
6,127
6,639
4,662
363
5,025
1,614
129
628
7
850
1,614
Maintel Holdings Plc
Annual report and financial statements for the year ended 31 December 2007
www.maintel.co.uk
47
Notes forming part of the financial statements
for the year ended 31 December 2007 (continued)
27 Transition to International Financial Reporting Standards (continued)
Reconciliation of the Group’s consolidated balance sheet as at 31 December 2006
Non current assets
Intangible assets
Property, plant and equipment
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Total assets
Current liabilities
Trade and other payables
Current tax liabilities
Non current liabilities
Deferred tax liability
Total net assets
Equity
Issued share capital
Share premium
Capital redemption reserve
Retained earnings
Total shareholders’ equity
UK GAAP
£000
Goodwill
£000
(notes a,b)
1,217
238
1,455
705
2,861
2,234
5,800
7,255
5,220
380
5,600
(29)
1,684
124
628
12
920
1,684
224
-
224
-
-
-
-
224
-
-
-
261
(37)
-
-
-
(37)
(37)
Holiday
pay
£000
(note c)
-
-
-
-
-
-
-
-
51
-
51
(15)
(36)
-
-
-
(36)
(36)
IFRS
£000
1,441
238
1,679
705
2,861
2,234
5,800
7,479
5,271
380
5,651
217
1,611
124
628
12
847
1,611
48
Notes forming part of the financial statements
for the year ended 31 December 2007 (continued)
27 Transition to International Financial Reporting Standards (continued)
Explanatory notes to the UK GAAP to IFRS reconciliations
(a) Business combinations, goodwill and intangible assets
Under UK GAAP, the cost of an acquisition over and above the fair value of the net assets acquired was deemed to be
goodwill. IFRS 3 requires that for each acquisition a fair value is attributed to any identifiable other intangible assets such
as customer relationships. The goodwill cost is therefore the difference between the consideration paid for the investment
after deducting the fair value of net assets including other intangible assets.
IFRS 1 provides for an exemption from restating the acquisition of Maintel Network Solutions Limited (previously Pinnacle
Voice and Data Limited) on this basis as the acquisition took place on 5 December 2005 - before the Group’s IFRS transition
date of 1 January 2006 - and so the historical goodwill of £374,000 relating to that company has been retained. In
such circumstances, IFRS 3 requires that this goodwill, being an asset of indefinite life, is not amortised but is tested for
impairment annually, and any such impairment is applied in accordance with IAS 36.
The directors have considered the acquisition of District Holdings Limited - acquired on 12 June 2006 - and attributed a
value of £965,000 to the customer contracts and associated relationships of District. This intangible asset will be amortised
over its useful life, this being deemed to be 5 years, and subjected to an impairment review at each reporting date.
Under UK GAAP goodwill was capitalised and amortised over its estimated useful life, which under Maintel’s accounting
policies was 7 years. Goodwill impairment of £122,000 which was charged to the profit and loss account for the year ended
31 December 2006 has been reversed, and the replacement charges under IFRS consist of goodwill impairment of £91,000
and intangibles amortisation of £97,000.
(b) Deferred tax
Under IAS 12 “Income taxes”, deferred tax is recognised on the basis of temporary differences between the carrying
value of assets and liabilities in the balance sheet, and their tax bases. A deferred tax liability (at 30%) of £290,000 has
accordingly been created in respect of the £965,000 intangible asset recognised as at the date of the acquisition of District
Holdings Limited, with subsequent releases of the deferred tax liability to the income statement as impairment of the
intangible is recognised.
An equal and opposite amount of £290,000 is included as goodwill as required by IFRS, this and the deferred tax of
£290,000 being amortised over 5 years, subject to annual impairment review.
The effect of adopting this standard is shown under the goodwill column in the reconciliation tables above.
(c) Holiday pay accrual
IAS 19 requires that a liability for holiday pay is recorded for all accrued entitlement at each balance sheet date. The
Group’s primary holiday year end is 31 December, in line with its financial year end, and most employees are entitled to
carry forward a maximum of 10 days’ holiday to the following holiday year. As at 30 June, therefore, there tends to be a
larger accrual (and therefore expense in the income statement) required than is the case at 31 December.
(d) Cash flow statements
The only changes to the cash flow statement are presentational, the principal ones being classifying tax cash flows as
relating to operating activities and equity dividends as relating to financing activities.
Maintel Holdings Plc
Annual report and financial statements for the year ended 31 December 2007
www.maintel.co.uk
49
Maintel Holdings Plc Company balance sheet
at 31 December 2007 - prepared under UK GAAP
Note
2007
£000
Fixed assets
Investment in subsidiaries
Current assets
Debtors
Cash at bank and in hand
Creditors: amounts falling due
within one year
Net current assets/(liabilities)
Total assets less current liabilities
Capital and reserves
Called up share capital
Share premium
Capital redemption reserve
Profit and loss account
Shareholders’ funds
5
6
7
8
9
9
9
7
449
456
222
2007
£000
2,323
234
2,557
124
628
12
1,793
2,557
2006
£000
10
401
411
675
2006
£000
2,403
(264)
2,139
124
628
12
1,375
2,139
The financial statements were approved and authorised for issue by the Board on 14 March 2008 and were signed on its
behalf by:
T T Mason
Director
The notes on pages 50 to 52 form part of these financial statements.
50
Notes forming part of the Company financial statements
for the year ended 31 December 2007
1 Accounting policies
The principal accounting policies are summarised below; they have been applied consistently throughout the year and
the preceding year.
(a) Basis of preparation
The Company has elected to prepare its parent company accounts in accordance with UK GAAP.
The financial statements of the Company are presented as required by the Companies Act 1985. As permitted by that
Act, the financial statements have been prepared in accordance with applicable accounting standards in the United
Kingdom and on the historical cost basis.
Under section 230 (4) of the Companies Act the Company is exempt from the requirement to present its own profit
and loss account.
The Company has taken advantage of the exemption contained in FRS8 and has not disclosed transactions or balances
with entities which form part of the Group.
(b) Investments
Investments in subsidiary undertakings are stated at cost unless, in the opinion of the directors, there has been
impairment to their value, in which case they are written down to their recoverable amount.
The Company uses the cost method of accounting, which is a method of accounting for an investment whereby
the investment is recognised at cost. The investor recognises income from the investment only to the extent that
the investor receives distributions from accumulated profits of the investee arising after the date of acquisition.
Distributions received in excess of such profits are regarded as a recovery of investment and are recognised as a
reduction of the cost of investment.
(c) Cash
Cash comprises cash balances and short term deposits with an original maturity of three months or less.
(d) Taxation
Current tax is the expected tax payable on the taxable income for the year, together with any adjustments to tax
payable in respect of previous years.
(e) Dividends
Dividends unpaid at the balance sheet date are only recognised as a liability at that date to the extent that they are
appropriately authorised and are no longer at the discretion of the Company. Proposed but unpaid dividends that do
not meet these criteria are disclosed in the notes to the accounts.
2 Employees
The only employees of the Company were the directors. The average number employed during the year was
5 (2006 – 5). The directors’ remuneration is shown in note 4 of the consolidated financial statements.
3 Profit for the financial period
The Company has taken advantage of the exemption under S230 of the Companies Act 1985 and has not presented its
own profit and loss account in these financial statements. The profit for the year of the Company, after tax and before
dividends paid, was £1,207,000 (2006 – £1,358,000).
Maintel Holdings Plc
Annual report and financial statements for the year ended 31 December 2007
www.maintel.co.uk
51
Notes forming part of the Company financial statements
for the year ended 31 December 2007 (continued)
4 Dividends paid on ordinary shares
Final 2005, paid 24 April 2006 – 2.5p per share
Interim 2006, paid 29 September 2006 – 2.1p per share
Final 2006, paid 25 April 2007 – 2.9p per share
Interim 2007, paid 5 October 2007 – 2.5p per share
2007
£000
-
-
361
311
672
2006
£000
323
268
-
-
591
The directors recommend the payment of a final dividend for 2007 of 3.0p (2006 – 2.9p) per ordinary share, payable
on 30 April 2008 to shareholders on the register at 28 March 2008, subject to approval by shareholders at the Annual
General Meeting.
5 Investment in subsidiaries
Cost
At 1 January 2007 and 31 December 2007
Provision for impairment
At 1 January 2007
Charge for the year
At 31 December 2007
Net book value
At 31 December 2007
At 31 December 2006
The following were the principal subsidiary undertakings at the end of the year:
Maintel Europe Limited
Maintel Voice and Data Limited
Each is wholly owned and incorporated in England and Wales.
6 Debtors
Other debtors
Prepayments and accrued income
Corporation tax recoverable
All amounts shown under debtors fall due for payment within one year.
Shares in
subsidiary
undertakings
£000
2,403
-
80
80
2,323
2,403
2007
£000
1
1
5
7
2006
£000
7
3
-
10
52
Notes forming part of the Company financial statements
for the year ended 31 December 2007 (continued)
7 Creditors
Amounts due to subsidiary undertakings
Trade creditors
Accruals and deferred income
Corporation tax
8 Share capital
Authorised
17,571,840 ordinary shares of 1p each
Allotted, called up and fully paid
2007
£000
214
1
7
-
222
2007
£000
2006
£000
652
16
6
1
675
2006
£000
176
176
12,386,800 (2006 - 12,456,800) ordinary shares of 1p each
124
124
Pursuant to the authority granted at the last annual general meeting, the Company repurchased and cancelled 70,000 of
its own 1p ordinary shares during 2007 at 166p per share and a total cost of £117,000. The purchases represent 0.6%
of the Company’s issued share capital as at 31 December 2006.
9 Capital and reserves
At 1 January 2006
Profit for year*
Dividends paid
Movements in respect of
purchase of own shares
At 31 December 2006
Profit for year*
Dividend in specie received from
subsidiary undertakings
Capital contribution
Dividends paid
Movements in respect of
purchase of own shares
At 31 December 2007
Share
capital
£000
129
Share
premium
£000
628
Capital
redemption
reserve
£000
7
Retained
earnings
£000
1,440
-
-
(5)
124
-
-
-
-
-
124
-
-
-
628
-
-
-
-
-
628
-
-
5
12
-
-
-
-
-
12
1,358
(591)
(832)
1,375
1,207
285
(285)
(672)
(117)
1,793
Total
£000
2,204
1,358
(591)
(832)
2,139
1,207
285
(285)
(672)
(117)
2,557
* Total recognised income and expenses for the period are the same as the profit for the period.
The dividend in specie and capital contribution relate to assets and liabilities transferred from the District group of
companies to Maintel Europe Limited, via Maintel Holdings Plc.
Subject to shareholder approval at the forthcoming AGM, it is proposed to pay a final dividend for 2007 of 3.0p per share;
this dividend is not provided for in these financial statements.
10 Post balance sheet event
On 16 January 2008, the Company repurchased and cancelled 240,000 of its 1p ordinary shares at 161.5p per share.
Maintel Holdings Plc
Annual report and financial statements for the year ended 31 December 2007
www.maintel.co.uk
53
Notice of annual general meeting
Notice is hereby given that the annual general meeting of Maintel Holdings Plc (“the Company”) will be held at its offices at
61 Webber Street, London SE1 0RF, on 25 April 2008, at 10.30 am, for the following purposes:
Ordinary business
To consider and, if thought fit, to pass the following resolutions which will be proposed as ordinary resolutions:
1. To receive and adopt the financial statements of the Company for the year ended 31 December 2007, together with the
Report of the directors and the Independent auditors report thereon.
2. To declare and approve the payment of the proposed final dividend of 3.0 pence per ordinary share for the financial year
ended 31 December 2007, on 30 April 2008, to shareholders on the register at 28 March 2008.
3. To approve the report of the remuneration committee for the year ended 31 December 2007.
4. To re-elect Mr T T Mason, who retires by rotation, as a director of the Company.
5. To re-elect Mr A J McCaffery, who retires by rotation, as a director of the Company.
6. To re-appoint BDO Stoy Hayward LLP as auditors of the Company to hold office from the conclusion of the meeting to the
conclusion of the next meeting at which accounts are laid before the Company, and to authorise the directors to agree
their remuneration.
Special business
Ordinary resolution
7. That the directors be and are hereby generally and unconditionally authorised pursuant to Section 80 of the Companies
Act 1985 (as amended) (“the Act”) to exercise all powers of the Company to allot and to make offers or agreements to
allot relevant securities (as defined in Section 80 (2) of the Act) up to a maximum aggregate nominal amount of £40,489,
provided that this authority shall expire at the conclusion of the next annual general meeting of the Company or 15
months after the passing of this resolution (if earlier) unless renewed or extended prior to such time, except that the
Company may before such expiry make an offer or agreement which would or might require the relevant securities to
be allotted after such expiry and the directors may allot relevant securities in pursuance of such offer or agreement as if
the authority conferred hereby had not expired. This authority is in substitution for all subsisting authorities to the extent
unused.
To consider and, if thought fit, to pass the following resolutions which will be proposed as special resolutions:
Special resolutions
8. That, subject to the passing of the previous resolution, the directors be and are hereby empowered pursuant to Section 95
of the Act to allot equity securities as defined in Section 94 of the Act for cash as if Section 89 (1) of the Act did not apply
to any such allotment, provided that this power shall be limited:
(a) to the allotment of equity securities in connection with a rights issue or other pre-emptive issue in favour of
shareholders; and
(b) to the allotment (otherwise than pursuant to sub-paragraph (a) above) of equity securities up to an aggregate nominal
value of £12,146.
This power shall expire at the conclusion of the next annual general meeting of the Company or 15 months after the
passing of this resolution (if earlier) unless renewed or extended prior to such time except that the Company may before
such expiry make an offer or agreement which would or might require the relevant securities to be allotted after such
expiry and the directors may allot equity securities in pursuance of such offer or agreement as if the power conferred
hereby had not expired.
54
Notice of annual general meeting
(continued)
9. That the Company is, pursuant to Section 166 of the Act, hereby generally and unconditionally authorised to make market
purchases (within the meaning of Section 163 (3) of the Act) of up to a maximum of 1,820,805 ordinary shares of 1p each
in its capital (representing 14.99% of the Company’s current issued ordinary share capital), provided that:
(a) the minimum price, exclusive of any expenses, which may be paid for an ordinary share is 1p;
(b) the maximum price, exclusive of any expenses, which may be paid for each ordinary share is not more than 5%
above the average published market value for an ordinary share as derived from the London Stock Exchange Alternative
Investment Market for the five business days immediately preceding the day on which such share is contracted to be
purchased; and
(c) the authority shall expire at the conclusion of the next annual general meeting of the Company or 15 months after the
passing of this resolution (if earlier), except in relation to the purchase of any ordinary shares the contract for which was
concluded before the date of expiry of the authority and which would or might be completed wholly or partly after such
date.
By order of the Board
W D Todd
Company Secretary
31 March 2008
Registered office
61 Webber St
London SE1 0RF
Notes
1. A member entitled to attend and vote at the meeting may appoint one or more proxies to attend, speak and vote at
the meeting. A proxy need not be a member of the Company. Appointment of a proxy will not preclude a member from
attending and voting at the meeting. A form of proxy is enclosed which you are invited to complete and return. To be
effective, it must be completed and be received at the offices of the Company’s Registrar not later than 48 hours before
the time fixed for the meeting.
2. The Company, pursuant to Regulation 41 of the Uncertified Securities Regulations 2001, specifies that only those
shareholders registered in the register of members of the Company as at close of business on 23 April 2008, shall be
entitled to attend or vote at the aforesaid general meeting in respect of the number of shares registered in their name at
that time (or in the event that the meeting is adjourned, 48 hours before the time of the adjourned meeting). Changes to
entries on the relevant register of securities after close of business on 23 April 2008 shall be disregarded in determining
the rights of any person to attend and vote at the meeting.
3. During the period from the date of the notice until the date of the meeting, there will be available for inspection at the
registered office of the Company during normal business hours on any weekday (Saturdays and bank holidays excepted)
and at the place and on the date of the meeting for 15 minutes prior to and until completion of the meeting (a) copies of
all directors’ service contracts; and (b) particulars of transactions of the directors and their families in the shares of the
company up to and including the date of this notice.
Maintel Holdings Plc
Annual report and financial statements for the year ended 31 December 2007
www.maintel.co.uk
Maintel, 61 Webber Street, London SE1 0RF www.maintel.co.uk