Source - RNS
RNS Number : 6240J
Manx Telecom PLC
13 September 2016
 

Manx Telecom Plc

Results for the 6 months ended 30 June 2016

 

Solid core performance and return to growth in Global Solutions

 

Manx Telecom Plc (AIM:MANX), ("Manx Telecom" or the "Company") the leading communication solutions provider on the Isle of Man, announces its results for the 6 months ended 30 June 2016.

Financial Highlights

-     Revenues of £39.2m (H1 2015: £39.8m)

•       Fixed Line, Broadband and Data revenues up 1.3%, driven by good take-up of high speed broadband

•       Core mobile revenues up 4.7% offset by lower roaming charges related to TT

•       Strong growth in Global Solutions revenues, up 12.4%

•       Data Centre revenues down 15.7%, due to decline in low margin kit sales and customer consolidation

-     EBITDA in line with last year at £13.8m (H1 2015: £13.8m)

-     Underlying profit before tax of £8.3m (H1 2015: £8.2m)

-     Operational cash flow of £10.1m (H1 2015: £10.4m) with free cash flow up  32.2% to £8.0m (H1 2015: £6.1m)

-     Net debt reduced to £53.1m (H1 2015; £56.1m)

-     Interim dividend of 3.7p (H1 2015: 3.5p), in line with progressive dividend policy

 

Operational Highlights

-        Business trading in line with Board expectations

-        Strong position in the core market maintained

-        Demand for superfast broadband continues to grow

-        4G adoption levels increasing and new roaming service launched

-        Successful trial of 4G+ in the period

-        Strong pipeline generation in Global Solutions supporting momentum growth

 

Gary Lamb, Chief Executive Officer, said:

"We have had a solid six months of trading which saw the Group continue to make progress with its strategic objectives and perform in line with the Board's expectations.

"Demand for superfast broadband and the increased speeds offered by 4G mobile services continue to grow and help drive growth in our highly cash generative core. We recently introduced 4G roaming to our customers, as well as trialling superfast 4G+ during the summer period, underlying our commitment to bring exciting new products to our local market.

"We will continue to explore new ways to grow the business by leveraging our mobile technology platform and getting the most out of the diverse range of talent amongst our highly skilled employees.

"We are confident in the long term outlook for the business which continues to trade in line with the Board's expectations for the full year."

 

 

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

 

For further enquiries, please contact:

Manx Telecom plc

+44 (0) 1624 636400

Gary Lamb, Chief Executive Officer

Danny Bakhshi, Chief Financial Officer

 

 

Liberum Capital (Nominated Adviser and Corporate Broker)     

+44 (0)20 3100 2000

Steve Pearce

Steve Tredget

 

 

Oakley Capital (Financial Adviser)

+44 (0) 20 7766 6900

Christian Maher

Victoria Boxall

 

 

Powerscourt Group (Public Relations)

+44 (0) 20 7250 1446

Simon Compton

Peter Ogden

Harriet O'Reilly

 

 

 

 

Introduction

The first six months of 2016 have seen a robust performance across all areas of the Group with the exception of a lower revenue contribution from the Data Centre part of the business, resulting from reduced equipment sales and customer consolidation.

Fixed, Broadband and Data has continued to deliver steady top line growth and following our focused investment and restructuring in 2015, Global Solutions has delivered a good performance, returning to strong revenue growth. Mobile revenues were down marginally year on year but this was due to high roaming revenues in 2015 and we are confident Mobile will return to growth in the second half.

The Company's revenues were £39.2m (H1 2015: £39.8m) and EBITDA was in line with last year at £13.8m.  Underlying profit before tax was £8.3m (H1 2015: £8.2m) and underlying diluted EPS was at 7.3p (H1 2015: 7.2p).

The Company has high cash generation driven predominantly by the core business. During the period operating cashflow was strong at £10.1m (H1 2015: £10.4m) and we anticipate generating more cash in the second half of the year in line with previous years.  Free cash flow increased by 32.2% to £8.0m (H1 2015: £6.1m). 

In reflection of this and the Board's confidence in the continued strength of cash flows the Board has declared an interim dividend of 3.7p, a 0.2p, or 5.7% increase on last year, payable on 7 November 2016 to shareholders on the register at 14 October 2016.

The Isle of Man economy continues to perform well, with unemployment at 1.9%, 32 years of uninterrupted GDP growth and economic growth forecast to continue.   Manx Telecom continually seeks to support the Isle of Man Government in attracting business to the Island, and the telecommunications infrastructure and services the Company provides form an important part of the Island's continued success.

Maintaining our track record of innovation, the past six months have seen Manx Telecom lead the world's first medical technology trial to help those with hearing loss through the use of software to fine tune phone calls. We have also partnered with Globalstar Europe Satellite Services to develop the world's first communication service to switch between multiple cellular networks and mobile satellite networks.

We also welcomed two new members to the plc Board. Danny Bakhshi joined Manx Telecom on 1 February as Chief Financial Officer having previously worked at BT, Vodafone and Virgin Media.  We also welcomed Chris Hall as Independent Non-Executive Director on 15 June. Chris has 30 years of telecoms experience and was formerly Manx Telecom Managing Director from 1999-2011.

 

Operational review

Fixed, Broadband and Data Services

Fixed, Broadband and Data Services provide fixed line voice, broadband and connectivity services for customers, connecting approximately 37,000 homes and 4,000 businesses on the Isle of Man.  Fixed, Broadband and Data is our largest business, representing 40.9% of all Company revenues.  In H1 2016 revenue increased by 1.3% to £16.0m (H1 2015: £15.8m).

The Company continues to roll out high speed VDSL broadband services (up to 40mbps download) across the Island and now reaches 91% of households, with 36% penetration. This compares with penetration of 25% in H1 2015. We have seen strong levels of take up of our superfast broadband product "VDSL plus" which delivers  download speeds of up to 80 mbps and upload speeds of 10 mbps. The sale of Ultima and Ultima Plus has helped Broadband revenues to increase by 4.5% to £4.5m.

Mobile

Our award winning 4G network provides 99% population coverage at speeds 10 times faster than 3G services and is available to both our post-paid and pre-paid customers. 

Mobile performed well during the period, with 4G adoption levels increasing and customers continuing to return to Manx Telecom from the competition.  Post-paid revenues increased by 6% as we won new business and upsold customers from pre-paid to post-paid contracts. 

An increase in mobile revenue of 4.7% was more than offset by a decline in roaming revenues, which were unusually high last year on the back of increased demand at the time of the TT motorcycle race, resulting in a net decline in total mobile revenues of 1.9%. Total mobile revenues are expected to return to growth in H2 2016.

During the period we launched 4G roaming to our customers so that our 4G service can be enjoyed by our customers travelling off the Isle of Man and those visiting. We will continue to partner with global operators to increase our 4G roaming footprint around the world.  We also trialled 4G+, a service which provides download speeds up to 40% faster than 4G.  The trial was a resounding success.

Global Solutions

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

Global Solutions has continued to perform well following a re-organisation last year and an increase in investment, particularly in the sales team.  Revenues increased by 12.4% during the period to £7.0m (H1 2015: £6.2m) with growth across much of the product portfolio. We have developed a strong pipeline of opportunities across the product range and our focus is to convert this into further growth in the second half of the year.  We remain excited about the opportunity in Global Solutions and the growth potential for this business.

Data Centre

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

During H1 2016, one of our customers informed us they would be rationalising their data centre usage and moving away from the Isle of Man in order to capitalise on acquisition synergies following recent consolidation.  This has resulted in the release of some capacity in our data centre portfolio which we are actively seeking to re-populate. It should also be noted that in 2015 there were higher than normal levels of one off low margin kit sales as new data centre customers arrived and, as expected, this revenue stream declined during the period.  

Other

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

Other revenues during the period were £2.9m (H1 2015: £3.7m). This was primarily due to a reduction in lower margin telecom kit sales and the expected decline in directory advertising revenues, which accounted for the majority of the revenue decline in the period.

 

Awards

During the period we won the Global Telecoms for Business award for leadership in network virtualisation following our successful fixed voice network virtualisation project.  We also won the Isle of Man Award for Excellence following our roll out and operation of 4G on the Isle of Man. Finally, we were nominated for the "Best Telecommunications plc award" having won the award in 2015.

Outlook

Current trading remains on course to deliver a result for the full year in line with the Board's expectations.

 

The core domestic business (fixed line, broadband and data) has performed well and we expect this to continue in the second half of the year. Within Mobile, performance in the first half was encouraging, albeit masked by lower inbound roaming revenues year on year. Aided by continued growth in 4G adoption rates, we expect total Mobile revenues to return to year on year growth in the second half of the current financial year.

 

Our investment in Global Solutions has helped to deliver strong top line growth in this area in H1 and enabled us to identify additional opportunities to support our growth momentum.

 

The performance of our Data Centre business was disappointing in H1 due to reduced low margin equipment sales and customer consolidation, we continue to actively work to build the pipeline of Data Centre customers and are positive about our long term prospects in this area.

 

We continue to remain confident with the level of cash generation in the group and the Board is able to reiterate its progressive dividend policy.

 

 

Financial review

 

Results Overview

Revenue

H1 2016

%

H1 2015

%

Incr/(Decr)

£'000

Total Revenue

£'000

Total Revenue

%

Fixed, Broadband and Data

16,027

40.9%

15,825

39.7%

1.3%

Mobile

9,857

25.1%

10,051

25.2%

-1.9%

Global Solutions

6,986

17.8%

6,214

15.6%

12.4%

Data Centre

3,424

8.7%

4,062

10.2%

-15.7%

Other

2,918

7.5%

3,684

9.3%

-20.8%

Total Revenue

39,212

 

39,836

 

-1.6%

 

Group revenue decreased 1.6% to £39.2m (H1 2015: £39.8m) with growth in our core fixed and broadband business and global solutions business offsetting a decline elsewhere.

 

The fixed line, broadband and data business performed well with steady revenue growth of 1.3% to £16.0m (H1 2015: £15.8m). The Global Solutions business grew strongly at 12.4% to £7.0m (H1 2015 £6.2m) with growth across the portfolio of strongest signal mobile, M2M and international traveller propositions. Data Centre revenues fell to £3.4m (H1 2015 £4.1m) resulting from reduced equipment sales and one of our customers consolidating their global infrastructure. Growth in 4G was offset by a reduction in roaming revenues causing mobile revenues to fall marginally to £9.9m (H1 2015 £10.1m). Other revenues were down at £2.9m (H1 2015 £3.7m) as directory revenues continued to decline and other low margin equipment sales were below last year's levels.

The business generated an EBITDA of £13.8m which was a marginal increase over H1 2015, and in line with the Board's expectations. The EBITDA margin increased by 60bp to 35.3% (H1 2015 34.7%) primarily due to the growth in core products and Global Solutions and a reduction in kit sales, which earn a lower margin.

Depreciation and amortisation at £4.4m was little changed from that in H1 2015, leaving the operating profit up by 0.5%.

Underlying profit before tax was £8.3m (H1 2015 £8.2m). There is no corporation tax payable on the Company's profits for H1 2016 or last year as the company enjoys the benefit of an Isle of Man 0% corporation tax rate.

Underlying diluted EPS was in line with last year at 7.26p (H1 2015: 7.22p). The company has declared an interim dividend of 3.7p which is a 0.2p increase on last year.

 

Costs

Cost of sales decreased by 6% to £14.9m (H1 2015 £15.9m) primarily due to lower kit sales. Roaming related costs have increased slightly following the increase in Global Solutions revenue, while off-Island connectivity costs are down £0.2m following a renegotiation of rates.

Administrative expenses increased by 2% to £14.9m (H1 2015 £14.6m) due to slightly higher headcount and pay costs.

Net finance costs at £1.1m were £0.2m lower than last year (H1 2015: £1.3m) reflecting the changes we negotiated to the Group's lending arrangements on 30 June 2015, reducing the applicable interest rate by 0.5%.

We also recorded an unrealised loss of £2.0m (H1 2015 unrealised gain £0.3m) on interest rate swaps covering £50m of the £70m drawn from our loan facility, primarily due to decreases in market interest rates following the BREXIT referendum. This charge does not form part of the underlying results and has no impact on cash.

 

Cash flow

Cash generated from operating activities reduced by 2.1% to £10.1m (2015: £10.4m). This represents an EBITDA cash conversion of 73.2% (H1 2015: 74.9%) which we expect to improve significantly in the second half of the year and in line with previous years.

The Company reported a working capital outflow of £3.4m (H1 2015: £3.2m) for the half year, and like 2015 this is expected to reverse in the second half.

Free cash flow at £8.0m was 32.2% above last year (H1 2015: £6.1m) due to the phasing of capital expenditure (H1 2016: £2.3m v H1 2015 £4.5m).

 

Balance Sheet

Property, plant and equipment decreased to £60.5m (H1 2015 £62.9m). Capital additions were £1.0m in H1 2016 compared with £2.2m in H1 2015, with expenditure on facilities and IT infrastructure. Capital expenditure is in line with expectations for the full year.   Depreciation at £4.3m was in line with the prior period.

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

Current assets increased to £35.5m (H1 2015 £32.9m) as a result of cash increasing from £12.5m at H1 2015 to £15.8m. Trade and other receivable were down £0.6m from £19.7m H1 2015 to £19.1m in H1 2016.

Current liabilities reduced by £4.2m from £24.3m H1 2015 to £20.1m H1 2016 as a result of lower roaming and other creditors. The fair value of the interest rate swaps moved to a liability of £2.7m at H1 2016.

We closed our defined benefit pension scheme to future accrual in 2015. The valuation of the scheme changed during the current period from an asset of £0.4m at December 2015 to a liability of £2.7m, despite a £9.9m increase in scheme assets. Scheme liabilities increased by £13.0m mainly due to a reduction in the discount rate tied to deteriorating corporate bond yields. 

Net debt reduced to £53.1m (H1 2015 £56.1m) which is 1.9 times the EBITDA for the preceding 12 months.  Our loan facility matures on 30 June 2020.

 

Condensed Interim Consolidated Statement of Comprehensive Income

 

 

Note

Unaudited 6 months to 30 June 2016 

Unaudited 6 months to 30 June 2015 

 

 

£'000

£'000

Revenue

6

39,212

39,836

Cost of sales

 

(14,911)

(15,869)

Gross profit

 

24,301

23,967

 

 

 

 

Administrative expenses

 

(14,895)

(14,610)

Operating profit

 

9,406

9,357

 

 

 

 

EBITDA

 

13,842

13,820

Depreciation and amortisation

 

(4,436)

(4,463)

Operating profit

 

9,406

9,357

 

 

 

 

Other income

 

10

145

Financial income

7

49

99

Finance costs

7

(1,183)

(1,380)

Unrealised (loss)/profit on interest rate swaps

 

(1,976)

314

Profit before tax

 

6,306

8,535

Taxation

 

-

-

Profit for the period attributable to the owners of the Group

 

6,306

8,535

 

 

 

 

Underlying Profit before Tax

 

8,282

8,221

Unrealised (loss)/profit on interest rate swaps                           

3

(1,976)

314

Profit before tax

 

6,306

8,535

 

 

 

 

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

 

 

 

Remeasurement of defined benefit pension scheme asset

13

(3,700)

(3,800)

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

 

2,606

4,735

 

 

 

 

Earnings per share from continuing operations

 

 

 

Basic earnings per share

  12

5.59p

7.56p

Diluted earnings per share

12

5.53p

7.50p

Underlying basic earnings per share

  12

7.34p

7.28p

Underlying diluted earnings per share

12

7.26p

7.22p

 

 

 

 

Condensed Interim Consolidated Statement of Financial Position

 

 

 

 

Note

 

Unaudited

30 June 2016

 

Unaudited

30 June 2015

 

Audited

31 December 2015 

 

 

£'000

£'000

£'000

Non-current assets

 

 

 

 

Property, plant and equipment

8

60,520

62,900

63,968

Goodwill

9

84,277

84,277

84,277

Intangible assets

 

282

462

364

Retirement benefit asset

13

-

-

400

Interest rate swaps

 

-

-

103

 

 

145,079

147,639

149,112

Current assets

 

 

 

 

Inventories

 

508

702

594

Trade and other receivables

 

19,146

19,654

19,235

Cash and cash equivalents

 

15,804

12,548

16,601

 

 

35,458

32,904

36,430

Current liabilities

 

 

 

 

Trade and other payables

 

(20,094)

(24,346)

(24,933)

 

 

(20,094)

(24,346)

(24,933)

 

 

 

 

 

Net current assets

 

15,364

8,558

11,497

 

 

 

 

 

Non-current liabilities

 

 

 

 

Interest-bearing loans and borrowings

11

(68,911)

(68,659)

(68,785)

Interest rate swaps

 

(2,650)

(694)

(777)

Retirement benefit liability

13

(2,700)

(950)

-

 

 

(74,261)

(70,303)

(69,562)

Net assets

 

86,182

85,894

91,047

 

 

 

 

 

Equity attributable to the owners of the Group

 

 

 

 

Share capital

10

226

226

226

Share premium

10

84,366

84,343

84,347

Retained earnings

 

1,590

1,325

6,474

Total equity

 

86,182

85,894

91,047

 

These financial statements were approved by the Board of Directors and were signed on its behalf by:

 

 

 

Gary Lamb

Danny Bakhshi

Director

Director

12 September 2016

 

Condensed Interim Consolidated Statement of Changes in Equity

 

Share

Capital

Share

Premium

Retained

earnings

Total
equity

 

£'000

£'000

£'000

£'000

Balance at 1 January 2015

226

84,343

3,749

88,318

Total comprehensive income for the period

 

 

 

 

Profit for the period

-

-

8,535

8,535

Other comprehensive income

-

-

(3,800)

(3,800)

Total comprehensive profit for the period

-

-

4,735

4,735

Transactions with owners of the Group, recorded directly in equity

 

 

 

 

Share based payment

Dividend paid

-

-

-

-

296

(7,455)

296

(7,455)

Total contributions by and distributions to the owners of the Group

-

-

(7,159)

(7,159)

Balance at 30 June 2015

226

84,343

1,325

85,894

 

 

 

 

 

Balance at 1 January 2015

226

84,343

3,749

88,318

Total comprehensive income for the period

 

 

 

 

Profit for the period

-

-

16,553

16,553

Other comprehensive income

-

-

(3,100)

(3,100)

Total comprehensive profit for the period

-

-

13,453

13,453

Transactions with owners of the Group, recorded directly in equity

 

 

 

 

Share-based payment transactions

-

-

681

681

Issue of shares

-

4

-

4

Dividend paid

-

-

(11,409)

(11,409)

Total contributions by and distributions to the owners of the Group

-

4

(10,728)

(10,724)

Balance at 31 December 2015

226

84,347

6,474

91,047

 

 

 

 

 

Balance at 1 January 2016

226

84,347

6,474

91,047

Total comprehensive income for the period

 

 

 

 

Profit for the period

-

-

6,306

6,306

Other comprehensive income

-

-

(3,700)

(3,700)

Total comprehensive profit for the period

-

-

2,606

2,606

Transactions with owners of the Group, recorded directly in equity

 

 

 

 

Share based payment

-

-

305

305

Issue of shares

-

19

-

19

Dividend paid

-

-

(7,795)

(7,795)

Total contributions by and distributions to the owners of the Group

-

19

(7,490)

(7,471)

Balance at 30 June 2016

226

84,366

1,590

86,182

 

Condensed Interim Consolidated Statement of Cash Flows

 

Note

Unaudited 6 months to 30 June 2016 

Unaudited 6 months to 30 June 2015 

 

 

 

£'000

 

£'000

Cash flows from operating activities

 

 

 

 

 

Profit for the period

 

 

6,306

 

8,535

Adjustments for:

 

 

 

 

 

Depreciation of property, plant and equipment

8

4,348

 

4,367

 

Amortisation of intangibles

 

88

 

96

 

Profit on disposal of property, plant and equipment

 

(10)

 

(145)

 

Finance income

 

(49)

 

(99)

 

Finance costs

 

1,183

 

1,380

 

Unrealised loss/(profit) on interest rate swaps

 

1,976

 

(314)

 

Equity-settled share-based payments transactions

 

306

 

296

 

Pension contributions

 

(600)

 

(600)

 

Changes in:

 

 

 

 

 

Inventories

 

86

 

92

 

Trade and other receivables

 

89

 

(2,946)

 

Trade and other payables

 

(3,585)

 

(306)

 

 

 

 

3,832

 

1,821

Net cash generated from operating activities

 

 

10,138

 

10,356

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

Proceeds from sale of property, plant and equipment

 

152

 

145

 

Purchase of property, plant and equipment

8

(2,298)

 

(4,429)

 

Purchase of intangible assets

 

(5)

 

(42)

 

Interest received

 

49

 

49

 

Net cash used in investing activities

 

 

(2,102)

 

(4,277)

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

Proceeds from issue of shares

10

19

 

-

 

Repayment of borrowings

11

(19)

 

(20)

 

Interest paid

 

(1,038)

 

(1,212)

 

Dividends paid

15

(7,795)

 

(7,455)

 

Net cash used in financing activities

 

 

(8,833)

 

(8,687)

Net decrease in cash and cash equivalents

 

 

(797)

 

(2,608)

Cash and cash equivalents brought forward

 

 

16,601

 

15,156

Cash and cash equivalents at 30 June

 

 

15,804

 

12,548

             

 

1              General information

Manx Telecom plc (the "Company") and its subsidiaries (together "the Group") supply of a broad range of telecommunications services to the Isle of Man.

The Company is a public limited company, which is listed on the Alternative Investment Market of the London Stock Exchange ("AIM") and is incorporated and domiciled in the Isle of Man. The address of its registered office is 33-37 Athol Street, Douglas, Isle of Man, IM1 1LB.

These condensed interim consolidated financial statements were approved for issue on 12 September 2016. The interim report will be available from 13 September 2016 on the group's website www.manxtelecom.com and from the registered office.

2              Basis of preparation

These interim financial statements have been prepared in accordance with IAS 34 "Interim Financial Reporting" as adopted by the European Union. They do not include all the information required for a complete set of financial statements prepared in accordance with International Financial Reporting Standards as adopted by the European Union. However, explanatory notes are included to explain events and transactions that are significant to an understanding of the changes in the Group's financial position and performance since the last annual consolidated financial statements as at and for the year ended 31 December 2015.

3              Accounting policies

The accounting policies adopted are consistent with those of the previous financial year. The Group has not adopted any new accounting policies in the period to 30 June 2016. Other amendments to IFRSs effective for the financial year ending 31 December 2016 are not expected to have a material impact on the Group.

Going concern

The Directors are satisfied that the Group has sufficient resources to continue in operation for the foreseeable future, a period of not less than 12 months from the date of this report. Accordingly they continue to adopt the going concern basis in preparing the condensed financial statements.

 

Non-GAAP measures

The adjustments made to reported profit before tax and operating profit are income and charges that are one-off in nature, significant and distort the Group's underlying performance. The only such adjustment included in the current and prior period relates to unrealised gains and losses on interest rate swaps (see note 11 for further information).

4              Estimates

The preparation of these condensed interim financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates.

 

In preparing these condensed interim financial statements, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements for the year ended 31 December 2015.

5              Financial risk management and financial instruments

5.1           Financial risk factors

 

The Group's operations expose it to a variety of financial risks including credit risk, currency risk, interest rate risk and liquidity risk. The Group's overall risk management policies focus on the unpredictability of financial markets and seek to minimise potential adverse effects on the Group's financial performance and net assets.

 

These condensed interim financial statements do not include all financial risk management information and disclosures required in the annual financial statements; they should be read in conjunction with the Group's annual financial statements as at 31 December 2015.

5.2           Liquidity risk

The Group's liquidity profile is unchanged during the period.

5.3           Fair value estimation

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, regardless of whether that price is directly observable or estimated using another valuation technique. In estimating the value for measurement and/or disclosure purposes in these consolidated financial statements is determined on such a basis, except for share based payments within the scope of IFRS 2, leasing transactions that are within the scope of IAS 17, and measurements that have some similarities to fair value but are not fair value, such as net realisable value in IAS 2 or value in use in IAS 36.

 

In addition, for financial reporting purposes, fair value measurements are categorised into Level 1, 2 or 3 based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety, which are described as follows:

Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;

Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly; and

Level 3: inputs for the asset or liability that are not based on observable market data

 

The table below analyses financial instruments carried at fair value at 30 June 2016, grouped into Levels 1 to 3 based on the degree to which the fair value is observable. Interest rate swaps are valued using discounted cash flows, under which future cash flows are estimated based on forward interest rate yields (from observable yield curves at the end of the reporting period) and contract interest rates.

 

 

 

30 June 2016

Level 1

£'000

 

Level 2

£'000

 

Level 3

£'000

 

Total

£'000

 

 

 

 

 

 

 

 

Financial assets

-

 

-

 

-

 

-

Financial liabilities

-

 

(2,650)

 

-

 

(2,650)

 

The following table presents the group's assets and liabilities that are measured at fair value at 30 June 2015.

30 June 2015

Level 1

£'000

 

Level 2

£'000

 

Level 3

£'000

 

Total

£'000

 

 

 

 

 

 

 

 

Financial assets

-

 

-

 

-

 

-

Financial liabilities

-

 

(694)

 

-

 

(694)

 

The following table presents the group's assets and liabilities that are measured at fair value at 31 December 2015.

31 December 2015

Level 1

£'000

 

Level 2

£'000

 

Level 3

£'000

 

Total

£'000

 

 

 

 

 

 

 

 

Financial assets

-

 

103

 

-

 

103

Financial liabilities

-

 

(777)

 

-

 

(777)

 

There were no transfers between levels during the current or prior periods.

6      Operating segment information

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

 

 

 

 

30 June 2016 

 

30 June 2015

 

 

£'000

£'000

 

 

 

 

Fixed line, Broadband and Data

 

16,027

15,825

Mobile

 

9,857

10,051

Global Solutions

 

6,986

6,214

Data Centre

 

3,424

4,062

Other

 

2,918

3,684

Total

 

39,212

39,836

 

 

 

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

There is no inter-segmental trading.

 

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

Fixed line, broadband and data includes revenues from ADSL and VDSL rental and connection charges, fixed line call charges, fixed line rental and connection charges, and private circuit rental and connection charges.

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

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

Data centre includes revenues from hosting services provided.

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

7                 Finance income and expense recognised in profit or loss

 

30 June 2016

30 June 2015

 

£'000

£'000

Finance income

 

 

Other interest receivable

49

49

Net interest on pension asset

-

50

Total

49

99

 

 

 

Finance expense

 

 

Interest payable on borrowings

1,035

1,209

Amortisation of loan transaction costs

145

168

Finance lease interest

3

3

Total

1,183

1,380

 

8                    Property, plant and equipment

Fixed asset additions during the period relate principally investment in the Group's fixed voice network, billing systems and building facilities.

 

Property, plant and equipment

Land and buildings

Plant and equipment

Under construction

Total

 

£'000

£'000

£'000

£'000

Cost or valuation

Balance at 1 January 2015

36,707

89,857

8,610

135,174

Additions

-

-

2,169

2,169

Transfer

255

6,285

(6,540)

-

Disposals

-

-

-

-

Balance at 30 June 2015

36,962

96,142

4,239

137,343

 

 

 

 

 

Balance at 1 January 2015

36,707

89,857

8,610

135,174

Additions

-

-

7,935

7,935

Transfer

1,960

8,383

(10,343)

-

Disposals

(500)

(7,248)

-

(7,748)

Balance at 31 December 2015

38,167

90,992

6,202

135,361

 

 

 

 

 

Balance at 1 January 2016

38,167

90,992

6,202

135,361

Additions

-

16

1,026

1,042

Transfer

344

3,830

(4,174)

-

Disposals

(170)

(39)

-

(209)

Balance at 30 June 2016

38,341

94,799

3,054

136,194

 

 

 

 

 

Depreciation

 

 

 

 

Balance at 1 January 2015

9,833

60,243

-

70,076

Depreciation charge for the period

775

3,592

-

4,367

Disposals

-

-

-

-

Balance at 30 June 2015

10,608

63,835

-

74,443

 

 

 

 

 

Balance at 1 January 2015

9,833

60,243

-

70,076

Depreciation charge for the period

1,555

7,331

-

8,886

Disposals

(500)

(7,069)

-

(7,569)

Impairment

-

-

-

-

Balance at 31 December 2015

10,888

60,505

-

71,393

 

 

 

 

 

Balance at 1 January 2016

10,888

60,505

-

71,393

Depreciation charge for the period

844

3,504

-

4,348

Disposals

(28)

(39)

-

(67)

Balance at 30 June 2016

11,704

63,970

-

75,674

 

 

 

 

 

Net book value 30 June 2016

26,637

30,829

3,054

60,520

Net book value 31 December 2015

27,279

30,487

6,202

63,968

Net book value 30 June 2015

26,354

32,307

4,239

62,900

 

 

 

 

 

The carrying value of land and buildings held under the revaluation model is the same as if it were held under the historical cost model. There were no changes in valuation techniques during the period.

 

9      Goodwill

 

Cost

£'000

Balance at 1 January 2015

84,277

Additions during the period

-

Balance at 30 June 2015

84,277

Additions during the period

-

Balance at 31 December 2015

84,277

Additions during the period

-

Balance at 30 June 2016

84,277

 

 

Carrying amount

 

As at 30 June 2016

84,277

As at 31 December 2015

84,277

As at 30 June 2015

84,277

 

On 29 June 2010, the Group acquired all of the ordinary shares in Manx Telecom Trading Limited (previously Manx Telecom Limited) for £133.8m satisfied in cash.

 

Goodwill is deemed to have an indefinite life and so is not subject to amortisation.

 

The cash generating unit of the Group is considered to be the operations of Manx Telecom Trading Limited in its entirety due to the structure of the Company which operates as one telecommunications business. Goodwill is considered to be impaired if the carrying amount exceeds the recoverable amount.

 

A review for indicators of impairment since 31 December 2015 has been performed with no such indicators identified.

 

10    Share capital

The table below sets out the amounts recorded in equity:

 

 

 

Number of shares in issue (thousands)

 

Ordinary share capital

£'000

Share premium

£'000

Total

£'000

 

Opening balance as at 1 January 2015

112,961

226

84,343

84,569

At 30 June 2015

112,961

226

84,343

84,569

 

 

 

 

 

Opening balance as at 1 January 2015

112,961

226

84,343

84,569

Shares issued on exercise of SAYE share options

3

-

 

4

4

At 31 December 2015

112,964

226

84,347

84,573

 

 

 

 

 

Opening balance as at 1 January 2016

112,964

226

84,347

84,573

Shares issued on exercise of SAYE share options

14

-

 

19

19

At 30 June 2016

112,978

226

84,366

84,592

 

The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of the Company.

 

On 24 November 2015, the Company made a block listing application to the London Stock Exchange for admission of 30,000 Ordinary Shares of 0.2p each in the Company to trading on AIM. The shares will be issued from time to time pursuant to the exercise of share options under the Company's Save As You Earn share option scheme and will rank pari passu in all respects with the existing ordinary shares of the Company. On 10 December 2015, 3,214 shares were issued in respect of options exercised under this scheme. During the period to 30 June 2016, a further 13,570 shares have been exercised under this scheme.

 

11    Interest-bearing loans and borrowings

 

 

30 June 2016

30 June 2015

31 December 2015

 

£'000

£'000

£'000

Non-current Liabilities

Finance lease liability

Secured bank loans

 

74

68,837

 

113

68,546

 

93

68,692

 

68,911

68,659

68,785

Current Liabilities

Current portion of secured bank loans

 

-

 

-

 

-

Total

68,911

68,659

68,785

 

In connection with the Admission to AIM on 10 February 2014, the Group entered into an £80m revolving credit facility agreement on 3 February 2014 with Barclays Bank plc, Lloyds Bank plc and The Royal Bank of Scotland plc as arrangers and Lloyds Bank plc as agent and security agent (the ''Facility Agreement'').

The proceeds of the first drawdown under the Facility Agreement of £70m were used to (among other things) refinance indebtedness existing at 31 December 2013 and to pay fees, costs and expenses in relation to the Admission process and the debt refinancing. Additional amounts may be drawn under the Facility Agreement for general corporate purposes and/or working capital purposes and the payment of fees, costs and expenses.

Amounts drawn under the Facility Agreement are to be repaid on the last day of each applicable interest period unless the relevant borrower elects otherwise and amounts repaid will (subject to certain drawdown conditions) remain available for re-drawing unless cancelled. The Facility Agreement also provides for the payment of a commitment fee, agency fee and arrangement fee and contains certain undertakings, guarantees and covenants (including financial covenants) and provides for certain events of default. During the period the Group has not breached any financial covenants contained within the Facility Agreement.

On 30 June 2015, the Group extended the term of the revolving credit facility agreement by a further 2 years from 30 June 2018 to 30 June 2020. In connection with the modification to the lending arrangements, the Group also negotiated a reduction in the applicable margin range from 2.0% pa to 3.5% pa, to 1.5% pa to 3% pa. Transaction costs incurred as part of the extension to the facility of £437,000 were capitalised in the period to 30 June 2015 and will be amortised over the loan period.

As at 30 June 2015, 31 December 2015 and 30 June 2016, the margin applicable to the interest rate on the facility was 1.5%.

The loan is secured by way of a debenture in favour of the security agent providing a fixed and floating charge over certain of the Group's assets, including the shares of Manx Telecom Holdings Limited and Manx Telecom Trading Limited and property, plant and equipment of the Group.

 

To mitigate the Group's exposure to interest rate risk, the Group has entered into interest swap agreements:

 

Bank

Interest rate
%

Expiry date

 

Notional amount
£'000

Fair value at 30 June 2016£'000

Fair value at 30 June 2015
£'000

Fair value at 31 December 2015
£'000

 

Royal Bank of Scotland PLC

1.711

29/06/2018

25,000

    (688)

(347)

(389)

 

Lloyds Bank PLC

1.711

29/06/2018

25,000

(688)

(347)

(388)

 

Lloyds Bank PLC

1.698

30/06/2020

50,000

(1,274)

-

103

 

 

 

 

 

(2,650)

(694)

(674)

 

 

12    Earnings per share

 

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

 

 

30 June 2016

30 June 2015

 

 

 

31 December 2015

 

 

000's

000's

 

000's

Weighted average number of ordinary shares at 30 June/31 December (Basic)

 

112,834

112,961

 

112,960

Effect of Co-Investment plan

 

687

655

688

Effect of Save as you earn plan

 

303

133

208

Effect of Share incentive plan

 

80

37

61

Effect of Shadow save as you earn plan

 

4

1

2

Effect of Shadow share incentive plan

 

1

-

1

Effect of Long term incentive plan

 

144

5

45

Weighted average number of ordinary shares at 30 June/31 December (Diluted)

 

114,053

113,792

113,965

 

12.1         Reported Earnings per Share

 

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

 

 

Earnings

£'000

 

Number of shares (Basic)

000's

 

Basic Earnings per Share

 

Number of shares (Diluted) 000's

Diluted earnings per share

6,306

 

112,834

5.59p

 

114,053

5.53p

 

30 June 2015

8,535

 

112,961

7.56p

 

113,792

7.50p

 

31 December 2015

16,553

 

112,960

14.65p

 

113,965

14.53p

 

12.2         Underlying Earnings per Share

 

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

 

 

Earnings

£'000

 

Number of shares (Basic) 000's

Basic Earnings per Share

 

Number of shares (Diluted) 000's

Diluted earnings per share

8,282

 

112,834

7.34p

 

114,053

7.26p

 

30 June 2015

8,221

 

112,961

7.28p

 

113,792

7.22p

31 December 2015

16,219

 

112,960

14.36p

 

113,965

14.23p

 

13    Retirement Benefit Obligations

 

The Group operates two pension schemes. The Manx Telecom Limited Combined Pension Scheme is a defined benefit scheme that is closed to new entrants and the Manx Telecom Employee Retirement Plan is a defined contribution plan.

 

At 30 June 2016, the net liability on the defined benefit scheme increased to £2.7m from an asset of £0.4m at 31 December 2015 (30 June 2015: £0.95m liability). The fair value of the assets at 30 June 2016 were £85m (31 December 2015: £75.1m, 30 June 2015: £76.5m). The defined benefit obligation at 30 June 2016 was £87.7m (31 December 2015 £74.7m, 30 June 2015: £77.45m).

 

The service cost for the six month period was £nil as the scheme was closed to future accrual in August 2014 (31 December 2015: £nil, 30 June 2015: £nil), the net interest income on the defined benefit asset was £nil (31 December 2015: £0.1m income on asset, 30 June 2015: £0.05m income on asset) and employer contributions were £0.6m (31 December 2015: £1.2m, 30 June 2015: £0.6m). The loss on remeasurement of the defined benefit pension scheme recognised in other comprehensive income for the six month period was £3.7m (31 December 2015: £3.1m loss, 30 June 2015: £3.8m loss). The loss on remeasurement of the defined benefit pension scheme is a combination of the loss based on changes in financial assumptions, offset by a return on scheme assets greater than the discount rate applied. The loss as a result of financial assumptions was £12.6m for the six month period to 30 June 2016 (31 December 2015: £0.2m, 30 June 2015: £3m).

 

The financial assumptions used were:

 

 

30 June 2016

31 December 2015

30 June 2015

Discount rate

2.75%

3.80%

3.90%

Retail price inflation

2.85%

3.15%

3.45%

Consumer price inflation

1.85%

2.15%

2.45%

Salary increases

N/A

N/A

N/A

 

14     Related party transactions

 

There have been no related party transactions during the period other than the compensation of key management personnel.

 

15     Dividends

 

The following amounts were recognised as distributions to equity holders in the period:

 

30 June 2016
£'000

31 December 2015
£'000

 30 June 2015
£'000

Interim dividend for the year ended 31 December 2015 of 3.5p (2014: 3.3p) per share

-

3,954

-

Final dividend for the year ended 31 December 2015 of 6.9p (2014: 6.6p) per share

7,795

7,455

7,455

Total dividends recognised in the period/year

7,795

11,409

7,455

Proposed interim dividend for the year ended 31 December 2016 of 3.7p per share

4,180

-

-

 

The final dividend for the year ended 31 December 2015 was declared on 30 March 2016. The proposed interim dividend was declared on 12 September 2016 and has not been included as a liability in these condensed interim financial statements. The proposed dividend is payable to all shareholders on the Register of Members on 14 October 2016. The total estimated dividend to be paid is 3.7p per share. The payment of this dividend will not have any tax consequences for the Group.

 

16     Subsequent events

 

The following significant events occurred after the period end date of 30 June 2016 and prior to the signing of these interim financial statements on 12 September 2016:

 

-       An interim dividend for the year ended 31 December 2016 was declared as detailed in note 15;

-       On 4 July 2016, 457,922 share options were granted to Executive Directors of the Company and Directors of the subsidiary Manx Telecom Trading Limited under a second Long Term Incentive Plan approved by the Remuneration Committee on 28 January 2016; and

-       On 11 July 2016, 566,826 share options were granted to employees of the Group under a second Save As You Earn share option scheme approved by the Remuneration Committee on 28 January 2016.

-       Subsequent to the period end there have been movements in bond yields which impact the discount rate used in the valuation of the Group's retirement benefit obligations disclosed in note 13. An updated actuarial valuation has not been prepared to 31 August 2016, however movements in discount rates indicate that at 31 August 2016, the net liability on the defined benefit scheme would have increased significantly following an increase in the defined benefit obligation not completely offset by an increase in the fair value of scheme assets.

 

Other than as noted above, there are no events after the balance sheet date which require disclosure.

 

 

 


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