Final Results

1 MAY 2024

Maintel Holdings Plc

("Maintel", the "Company" or the "Group")

Final audited results for the year ended 31 December 2023

Performance turnaround supported by business transformation.

Maintel Holdings Plc, a leading provider of cloud and managed communications services, announces its audited results for the 12-month period to 31 December 2023.  

Key Financials

2023 Financial Headlines  

·    Group revenue was £101.3m, up 11.3% (2022: £91.0m) with recurring revenue of £75.0m (2022: £70.1m) at 74% of total revenue (2022: 77%).

·     The significant increase in revenue year on year reflects accelerated trading momentum in the second half, which delivered growth beyond the successful delivery of the order book contracted in 2022.

·    Adjusted EBITDA rose by 107% to £9.1m (2022: £4.4m) flowing from strong revenue growth compounded by the benefits delivered through the business reorganisation executed during the first half of 2023.

·      Gross profit increased to £31.2m (2022: £27.9m) with gross margin of 30.8% consistent year on year (2022: 30.7%).

·     Adjusted profit before tax^[5] increased to £5.5m (2022: £1.6m) mainly due to the growth in revenue, and the reduction in operating expenses.

·   The net debt ^[4] at year-end amounted to £18.1m, (2022: £16.6m), owing mainly to the exceptional restructuring exceptional costs and increased debt servicing charges. The benefits of restructuring are realised quickly and permanently.

·      Adjusted earnings per share^[2] at 23.6p, increased significantly from the 1.6p adjusted loss per share in 2022.

·      Basic loss per share at 37.3p (2022: basic loss per share at 30.4p), reflects exceptional costs of (£7.0m) plus increased interest charges of £2.2m compared with £1.1m in 2022.

·      Cash conversion^[3] was 97%  of adjusted EBITDA^[1] (2022: 245%.

2023 Operational Highlights

·    Strategic review - was completed in Q1 2023 and led to the implementation of a plan to transform the business, focusing on higher growth product lines, adapting the delivery and support organisations to crystallise substantial cost savings while creating a scalable cost base to support future growth.

·    Business transformation - was successfully completed in the first half of 2023, resulting in better alignment of the product and sales teams on the provision of specialised digital communications, and the formation of the new professional services business group. As part of the group structure simplifications, operations in Ireland have been wound down, and international contracts are now fully serviced from our operations in the UK.

·     New business - secured eight lots in the NS3 public framework, as well as winning new long term value contracts which included Vanquis Banking Group, Kingfisher IT Services, Harrods, Atos/Unify, Northampton General Hospital NHS Trust and the Leeds Teaching Hospital.

Board changes

·      On 11 May 2023, Clare Bates joined the Board of Directors as Independent Director and Nick Taylor resigned from his Non-Executive Director role on 30 May 2023.

·      On 27 February 2024, Dan Davies was appointed to the Interim CEO role (and continues his CTO and Head of Marketing roles) enabling Carol Thompson to focus on her Executive Chair role. The search for a permanent CEO is ongoing.

·      On 18 April 2024, John Booth announced his intention to not seek for re-election at the Company's Annual General Meeting and Carol Thompson left as Executive Chair.

Post period end

·    The Company successfully met the temporary milestones attributed by HSBC to its Group loan covenants in 2023. HSBC was satisfied that the recovery phase had been successfully completed and re-instated the initial covenants of the loan from 31 March 2024. In March 2024, the facility was extended to 30 September 2025, from the initial term ending on 24 March 2025.

·    In line with the disclosure made at the time of the 2022 results, the Callmedia business was successfully wound-down in Q12024.

·   Trading to date in 2024, in respect of revenue, EBITDA and orders, are all in line with management expectations.

Publication of annual report/ posting and Notice of Annual General Meeting

The Company's 2023 Annual General Meeting will be held at 10.30am on 19 June 2024 at the offices of Hudson Sandler, 25 Charterhouse Square, London EC1M 6AE.

The 2023 Annual Report and Notice of AGM, together with a form of proxy, will be posted to the Company's shareholders no later than 10 May 2024 and the 2023 Annual Report will also be available on the Company's website, www.maintel.co.uk/investors.

Commenting on the Group's results, Dan Davies, Interim Chief Executive Officer, said:

"2023 was a year of business transformation and performance turnaround for Maintel, thanks to the successful implementation of a strategic review and a new focus on three technology segments: Unified Communications & Collaboration, Customer Experience, and Security & Connectivity. The Group delivered an 11.3% increase in revenue, a significant improvement in Adjusted EBITDA, and a strong cash conversion performance.

"We are strong as a business and have made a confident start to 2024, with trading at the end of quarter one being in line with management expectations. While we continue to navigate challenging global macro-economic and political issues, the Board expects FY2024 to reflect a consolidation of the progress made in 2023, as management continues to focus on the strategic organic growth initiatives, with a focus on margin improvement and revenue expansion opportunities."

Notes

[1] Adjusted EBITDA is EBITDA of £2.0m (2022: £3.3m), adjusted for exceptional items (note 12) and share based payments (note 27).

[2] Adjusted earnings/(loss) per share is basic loss per share of 37.3p (2022: basic loss per share of 30.4p), adjusted for amortisation of acquired intangibles, exceptional items, interest charge on deferred consideration, share based payments and deferred tax items related to fixed assets acquired in prior years (note 10). The weighted average number of shares in the period was 14.4m (2022: 14.4m).

[3] Cash conversion is calculated as operating cash flow (being adjusted EBITDA plus working capital) to adjusted EBITDA.

[4] Interest bearing debt (including issue costs of debt and excluding lease liabilities) minus cash. Current year net debt includes £20.0m RCF and £3.0m Term loan.

[5] Adjusted profit before tax of £5.5m (2022: £1.6m) is basic profit before tax adjusted for amortisation of intangibles, exceptional items and share based payments.

This announcement contains inside information for the purposes of the retained UK version of the EU Market Abuse Regulation (EU) 596/2014 ("UK MAR").

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NOTES TO EDITORS

Maintel Holdings Plc ("Maintel") is a leading provider of cloud, networking and security managed communications services to the UK public and private sectors. Its services aim to help its clients operate at the highest level by designing, implementing, innovating and managing their vital digital communication solutions, with a focus across three strategic pillars:

·     Unified Communications and Collaboration - Making customers' people more effective, efficient, and collaborative with UC&C technology. The core focus of this pillar is the high growth Unified Communications as a Service (UCaaS) market segment.

·    Customer Experience - Helping customers to acquire, delight and retain their customers using customer experience technology. The core focus of this pillar is the high growth Contact Centre as a Service (CCaaS) market segment.

·      Security & Connectivity - Securely connecting customers' people, partners and guests to their cloud platforms, applications, and data with secure connectivity, and protecting their business from cyber threat. The core focus of this pillar is the high growth Software Defined Wide Area Networking (SD-WAN), Security Service Edge (SSE) and Cyber Managed Service market segments.

Maintel combines technology from its strategic, global technology vendor and carrier partners, with its own Intellectual Property, deployed from and managed by its own platforms, to provide seamless solutions that its customers can consume without the need for the internal skillset needed to deploy and manage the technology themselves.

Maintel serves the whole market, with a particular focus on key verticals of Financial Services, Retail, Public Healthcare, Local Government, Higher Education, Social Housing and Utilities. Its core market constitutes organisations with between 250 and 10,000 employees in the private, public and not-for-profit sectors with headquarters in the UK.

The Company was founded in 1991 and it listed on London's AIM market in 2004 (AIM: MAI).

INTERIM CHIEF EXECUTIVE OFFICER'S STATEMENT

2023 was a year of business transformation, assisted by a more normalised trading environment and the associated unwind of the order book, which resulted in a turnaround of the Group's performance. 

As we entered 2023, Maintel continued to face significant challenges including overcoming the historic global semiconductor shortage and several years of working practice changes in the client base due to the pandemic, meaning a new approach was required in terms of technology usage, solution design and the new and enduring move to hybrid working. Against this backdrop, our teams worked well together and with their stakeholders to respond to these challenges, designing a new way of working and delivering service which led to an enduring step change in performance.

A comprehensive strategic review begun in late 2022, was completed in the early part of 2023 and the subsequent transformation plan included organisational and cost reduction changes. These changes focused the business on higher growth product lines, adapting the delivery and support organisations to crystallise substantial cost savings while creating a scalable cost base to support future growth. This plan was successfully implemented in the first half of 2023.  

Performance

At the trading update on 22 January 2024, the Company announced that, as a result of accelerated trading momentum, our financial performance for 2023 was expected to be ahead of market expectations. Subsequently, we are pleased to report an 11.3% increase in revenue to £101.3m (2022: £91.0m) and significant progress in profit generation and working capital management that resulted in a much improved Adjusted EBITDA performance of £9.1m (2022: £4.4m).

Cash conversion in the period continued to be strong, driven by a rigorous working capital management process. Our overall net debt position increased to £18.1m (2022: £16.6m), noting that this includes exceptional items (including one-time restructuring costs). Deleveraging remains a focus, and with restructuring costs largely behind us, our goal is to return to leverage and interest coverage ratios in line with market norms.

Strategy and Operational Update

Our leaner, more focused organisation delivered cost structure improvements which had a one-time exceptional cost. The restructuring of the Group was completed in the first half and payback was within the same year, leaving the future clear for performance and yield improvement.

Maintel has been repositioned from a generalist in communications managed services, to a specialist across three strategic pillars: Unified Communications & Collaboration, Customer Experience and Security & Connectivity. The services we provide across these three areas are vital to our customers, as they fundamentally underpin their ability to thrive in a dynamic hybrid working and multi-cloud world.

In order to establish an expert position in these three technology segments, we have been focused on deepening our consultancy and advisory capabilities, developing our own intellectual property to complement and differentiate the business across its three pillars of focus, and strengthening our relationships with the strategic technology vendor partners and carriers that form the core of the services we now focus on delivering for our customers. Great progress has already been made in each of these areas of specialisation, with several exciting launches also planned for 2024. As is expanded on in the "Our Future" section of this report, looking forward we also continue to plan for the role that next generation technologies such as Artificial Intelligence will play, both in terms of our own ways of working, but also how they will enhance our product and service offerings.

Whilst executing our Group restructuring, we saw the continued easing of the global semiconductor shortage which largely returned to normalised levels by Q2 2023. This allowed our operational teams to focus on delivery and return the order book to more usual levels by the end of the year. This acceleration of order book delivery resulted in a significant increase in our project-related revenues, seeing one-time technology and professional services revenue increase by 25.6%.

The successful delivery of these projects resulted in an additional, ongoing contribution to our recurring revenues as they went live, unlocking the recurring managed service, software subscription and circuit/infrastructure rental revenues.

As a result, our overall recurring revenues grew by 7%, including continued strong growth in cloud revenues (+24.7%) and a return to robust growth for data connectivity services (+11.4%), driven by our successes in the Software Defined Wide Area Networking (SD-WAN) and cloud security space. These growth areas were complemented by a 16.7% increase in call traffic revenues, driven by significant contact centre calling volumes largely from our strong financial services customer base.

Our heritage on-premise support base remain stable, an area that has been in industry-wide double-digit decline for a number of years. We continue to expect this area of the business to diminish over time, but are putting effort and resources into reducing the rate of decline to maximise the longevity of these profitable heritage contracts.

New Business Wins

2023 also saw a strong performance in new business wins. Maintel secured eight lots in the new Network Services 3 (NS3 - RM6116) public sector framework (our main route to market for the Public Sector), whilst also winning significant new value and long-term contracts that included Vanquis Banking Group, Kingfisher IT Services, Harrods, Atos/Unify, Northampton General Hospital NHS Trust and The Leeds Teaching Hospital. These were all strong wins, demonstrating the validity of the strategic market pivot and our ability to capitalise on these areas of strong CAGR.

The Board

Clare Bates joined the Board of Directors as independent Non-Executive Director on 11 May 2023 and Nick Taylor resigned from his Non-Executive Director role on 30 May 2023.

On 27 February 2024, Carol Thompson relinquished her role as Interim CEO, remaining Executive Chair. At the same time, I was appointed to the Interim CEO role while continuing in my roles as CTO and leading our marketing team. On 18 April 2024, John Booth announced his intention not to seek re-election of the Company's Annual General Meeting and Carol Thompson left as Executive Chair.

The search for a permanent CEO is ongoing and the search for a new independent Chair is underway, to lead the business over the next phase of its development.

Our People

Our core strength is in our people, who showed great resilience and focus throughout 2023 in delivering this performance. Having achieved this result, the team are positive, energised, and keen to engage with clients, both existing and new.

The rate of technological change in our markets is faster than ever. The rapid move to hybrid working and the adoption of public cloud services were both accelerated significantly by the pandemic and play exceptionally well into our specialised offerings. In addition, the rise of Artificial Intelligence brings with it a generational change to the technology landscape. We continue to invest in our people to ensure that we capitalise on the opportunities that these technology trends will undoubtably bring.

The level of support that I've received, since taking on the Interim CEO role in February, is more than I could ever have asked for. Our team are highly skilled and inspiring, and I thank them for their hard work and dedication.

Mergers and acquisitions

Maintel has focused on evolving its products, customer engagements and technological advantages in key areas such as SD-WAN, Cloud Security, CCaaS & UCaaS, and therefore no acquisitions have been pursued.  While focusing on organic growth strategies, and our market strategy in 2024, we remain open to new opportunities, ideas and partnerships so long as they are value accretive and do not require up-front investment.

Current Trading and Outlook

Having concluded our organisational and strategic transformation in 2023, positioning the business to generate strong growth and deliver solid economic performance in the years to come, Maintel is focus remains on margin improvement, mitigating the impact of continued inbound price pressure, and on opportunities in high growth segments in 2024.   

Whilst the top-line performance in 2023 was supported by the unwinding of the significant order book built up during the semiconductor supply chain crisis of 2021-22, and the acceleration of project delivery, 2024 has seen a return to normalised business development and growth. The Company is expecting to close significant new business wins in the first half of 2024, which will contribute towards the expected growth in the second half of the year.

In the first quarter of 2024, major projects won in 2022 and 2023 were completed, together with the successful implementation of planned annual price increase. As a result, the overall performance of the business at the end of quarter one is in line with management expectations. Strong cash management, allowing for the effective servicing of our debt, combined with the solid improvement in profitability, have enabled the Company to conclude, as of 31 March 2024, the temporary recovery phase agreed with HSBC at the beginning of 2023.

The business has made a confident start to 2024 with encouraging growth in our sales pipeline and the cost management measures taken in 2023 will continue to benefit the Group in 2024. While navigating challenging macro-economic and political conditions, the Board expects 2024 to reflect a consolidation of the progress made in 2023 as management continues to focus on strategic organic growth initiatives, with a focus on margin improvement and revenue expansion opportunities.

Dan Davies

Interim Chief Executive Officer

BUSINESS REVIEW

Results for the year

Revenues increased by 11.3% to £101.3m (2022: £91.0m) and adjusted EBITDA increased to £9.1m (2022: £4.4m). Recurring revenue as a percentage of total revenue (being all revenue excluding one-off projects) amounted to 74% (2022: 77%). While the relative percentage decreased due to the strength of the project revenue (2023: £26m, compared with 2022: £21m), the absolute value of the recurring revenue increased by 7.1% to £75m (2022: £70m). The increase in recurring revenue was mainly driven by:

·  Managed Services and Technology division revenue increased by 12% to £52.1m (2022:£46.5m)supported by strong project revenue (+25.6%) following the easing of supply chain shortages and the successful unwinding of our contracted order book.

·      Network Services division increased by 13.0% to £45.3m. Calls and Lines increased by 3.2% to £10.6m (2022: £10.3m), largely resulting from price. Data increased by 11.4% to £18.4m (2022: £16.5m) mainly due to new implementations and price. Cloud revenue grew by £3.2m (+24.7%) due to continued growth in public and private cloud contracts.

·     Mobile division revenue reduced by £0.6m (-13.2%) to £3.8m (2022: £4.4m) as the business development efforts are focused on core revenue streams.

Gross profit for the Group increased by 12.1% to £31.2m (2022: £27.9m) with gross margin improving to 30.9% (2022: 30.6%).

The Group delivered an adjusted profit before tax of £5.5m (2022: £1.6m). Adjusted earnings per share (EPS)^(a) increased to 23.6 per share (2022: loss per share of 1.6p) based on a weighted average number of shares in the period of 14.4m (2022: 14.4m).

On an unadjusted basis, the Group generated a loss before tax of £6.8m (2022: loss of £4.9m) and basic loss per share of 37.3p (2022: basic loss per share of 30.4p). This includes £7.0m of net exceptional costs (2022: net exceptional costs of £1.0m) (refer note 12) and amortisation of acquired intangibles of £5.1m (2022: £5.4m). 

(a) Adjusted EBITDA is EBITDA of £2.0m (2022: £3.3m) adjusted for exceptional items and share based remuneration (note 11)

(b) Adjusted profit after tax divided by weighted average number of shares (note 10)

Cash performance

The Group generated net cash flows from operating activities of £5.0m (2022: £9.8m) resulting in a cash conversion ^(C) of 97% for the full year (2022: 245%).

(c) calculated as operating cash flow (being adjusted EBITDA plus working capital) to adjusted EBITDA

Review of operations

The following table shows the performance of the three operating segments of the Group.

(d) Technology includes revenues from hardware, software, professional services and other sales

Elements of cloud services revenues are currently accounted for in both the managed services and technology division (under the technology revenue line) and the network services division.

Managed services and technology division

The Managed Services and Technology division contains two distinct revenue lines:

·   Managed services: all support and managed service recurring revenues for hardware and software located on customer premises. This combines both legacy PBX and Contact Centre systems, which are in a managed decline across the sector as organisations migrate to more effective and efficient cloud solutions, with areas of technology such as Local Area Networking (LAN), WIFI and security, which are still very much current and developing technology areas and therefore enduring sources of revenue.

·    Technology: all non-recurring revenues from hardware, software, professional and consultancy services and other non-recurring sales.

Services are predominantly provided across the UK, with some customers also having international footprints. The division also supplies and installs project-based technology, professional and consultancy services to our direct clients and through our partner relationships.

This division increased revenue by 12.0% to £52.1m, mainly driven by strong project revenue deriving from the delivery of projects sold in 2022 and 2023, enabled by the availability of equipment following the easing of the availability of semiconductor and the normalisation of the global technology hardware supply chain. Both the technology and professional services divisions benefitted from the improved trading conditions and grew respectively by 29% and 18% respectively in 2023.

The slowdown in the decline of our heritage on premise support business, combined with price actions resulted in a 0.9% growth in the revenue of that product line to £25.8m. The general global market decline in the legacy PBX and contact centre markets, still benefits the Network Services division with customers from our legacy managed service base transitioning to Maintel's cloud-based services. The most notable transformation contracts in 2023 being for a number of key financial services and retail customers.

Gross profit increased in the division at a lower rate than revenue (+7.8%), due to the revenue mix weighted towards the Technology revenue streams. The revenue mix also translates into the decrease in the average gross margin of the division from 25% to 24%.

Network Services Division

The Network Services division is made up of three strategic revenue lines:

·      Cloud - subscription and managed service revenues from cloud contracts.

·      Data - subscription, circuit, co-location and managed service revenues from Wide Area Network (WAN), SD-WAN, internet access and managed security service contracts.

·      Call traffic and line rental - recurring revenues from both legacy voice and modern SIP Trunking contracts.

Network Services revenue grew by 13.0% and gross profit increased by 18.8% to £17.4m, resulted in a 1.0pts improvement in gross profit to 38%. The growth in the higher margin cloud revenue products offsetting the decline in lower margin call traffic revenues. Our fixed line telephony revenues (shown above under call traffic and line rental) increased by 3.2% to £10.6m (2022: £10.3m). Within this, our overall line rental revenues reduced by 2.1%, reflecting the overall market decline for legacy Public Switched Telephone Network (PSTN) products as customers migrate to consolidated modern SIP Trunking or Cloud Communication services. However our revenue from Call Traffic increased by 16.7%, driven by an increase in inbound contact centre calling traffic and outbound SIP call traffic, predominantly from our strong Financial Services customer base.

Data connectivity revenues saw a significant increase of 11.4%. The acceleration of revenue since 2022 is now reflecting the increasing impact that our new Software Defined Wide Area Networking (SD-WAN) and managed Cloud Security Services are having on the performance of this division. Much of the business closed in these new areas had been delayed from delivery by the semiconductor supply shortage however delivery conditions have now normalised, and the trend is set to continue as we continue to win new contracts.

Our momentum in the Security & Connectivity space continued in the period with key contract wins for several customers including a leading retailer and NHS Trusts.

The number of contracted seats across our cloud communication services significantly increased, up 8.6% in the year to ~182,500 seats at the end of December 2023 (~168,000 at December 2022), in line with the market growth rates for this technology segment.

Overall, 75.4% of the overall cloud seats contracted in 2023 were public cloud based, highlighting the expected growing trend of a preference for public cloud services in many industry verticals. This trend was accelerated by some significant wins in this space, including a >7,000 seat RingCentral Unified Communications win for Kingfisher, a ~2000 seat RingCentral win with Angus Council, a strategic Genesys Contact Centre win for the Vanquis Banking group, and many other public cloud wins.

Our flagship ICON private cloud service sales also continued to perform, with key wins such as a ~5,000 seat win for Gloucestershire Health and Care NHS Foundation Trust. Demand for the Virtual Private Cloud service that our ICON platform offers continues to remain high across the sectors with complex requirements or where an absolute minimum of downtime is required, such as Finance, Insurance, Healthcare and Housing verticals in particular. With the platform providing very high (99.999%) core service availability levels, including hybrid local survivability, guaranteed UK data sovereignty, security ringfenced customer instances, license and handset investment protection and the ability to allow customers to manage platform evolution at their own pace.

Our cloud communications pipeline remains strong, with key wins expected to close in FY24. Having long surpassed the inflection point where economies of scale are realised, our focus has now turned to quality of earnings over volume for our cloud communications business.

Mobile Division

The Mobile division generates revenue primarily from commissions received as part of its dealer agreements with O2 which scales in line with growth in partner revenues, in addition to value added services sold alongside mobile such as mobile fleet management and mobile device management.

Revenues decreased by 13.2% to £3.8m (2022: £4.4m) and gross profits also declined by 13.8%, reflecting the refocus of the Maintel's business development towards our focus revenue streams. Although customer churn remained low in the period, the lack of new business compounded by downward price pressure on contract renewals drove the negative revenue progression. Recognising these market challenges, Maintel has been proactively resourcing the mobile sales team to focus on customer retention as opposed to new business.

Maintel's mobile proposition continues to be multi-faceted and network agnostic and ensuring we can provide competitive and complete coverage for the UK. This enables us to be in a position to cater for our customers' requirements. Our mobile go to market proposition remains focused on the mid-market enterprise space (100 - 2,000 connections) and the launch of our new mobile reporting functionality within our ICON Portal digital customer engagement platform has resonated well with our customer base.

Other operating income

Other operating income of £0.5m (2022: £0.5m) relates to the recovery of one year's R&D tax credit of £0.5m (2022: £0.5m).

Other administrative expenses

Other administrative expenses for the Group decreased by 6.9% to £24.1 (2022: £25.9m).

Administrative expenses mainly comprise costs related to the sales and marketing teams, the support functions and the managerial positions, as well as the associated growth generating investments and general costs. The net £1.8m reduction mainly reflects the savings from organisational optimisation initiatives.

The overall average headcount in 2023 reduced by 2.2% (or 11 FTEs) and now stands at 482 (2022: 493). At 31 December 2023, the FTEs was 445 compared to 503 at 31 December 2022 as a result of the Group's programme of re-organisation, creating an organisation 'fit for future'.

Exceptional items

Exceptional costs of £7.0m (2022: exceptional costs £0.9m) were substantially driven by the business transformation project (£4.9m) as discussed in more detail below.

·    The termination of the Callmedia business represents £2.3m non-cash impairment charge of the previously capitalised software development and £0.3m of development costs net of associated revenues.

·      £1.6m results from the downsizing of the London premises and exceptional service charge.

·      Staff-related restructuring costs (£1.5m) associated with the organisational review of the business.

·    Other transformation costs in the year of £0.7m relate to the strategic review of the business having led to the strategic pivot re-focusing the business over three pillars: unified communications and collaboration, customer experience and security & connectivity.

·     Other exceptional costs include £0.4m of fees relating to our credit facility agreement following the amended agreement that negotiated temporary covenant terms in place during the phase of transformation of the Company.

In 2022, exceptional costs of £0.9m were substantially driven by staff-related restructuring costs (£0.4m) associated with the ongoing review of the Group's operating costs base. Other exceptional costs included £0.3m in relation to foreign exchange impact on a specific contract, which had been delayed since 2021 as a consequence of the logistics issues related to the Covid pandemic; and fees relating to a revised credit facilities agreement of £0.2m.

A full breakdown is shown in note 12.

Interest

The Group's net interest charge was £2.2m in the year (2022: £1.1m).

Taxation

The tax credit in the period of £1.4m is driven by a £1.4m increase in deferred tax in relation to tax losses (£0.7m) and fixed assets (£0.8m), and a £0.3m adjustment to prior period deferred tax for temporary taxable timing differences on intangible assets.

The prior year tax credit of £0.5m was driven by the net combined effect of deferred tax arising from the current tax losses of £0.7m, fixed assets (£0.2m) offset by a £0.3m adjustment to prior period taxation.

Dividends and earnings per share

The Board continues to take a prudent approach to the Company's dividend policy. Throughout 2023 the Board has been focused on de-leveraging of the Company and investing in the future growth of the Group's operations. Consequently, it has made the decision not to propose a final dividend for the full year 2023 (2022: nil pence per share). It remains the Board's intention to review returns to shareholders when economic conditions improve and financial performance permits.

Adjusted profit per share is 23.6p, increasing from the adjusted loss per share of 1.6p in 2022. On an unadjusted basis, basic loss per share is at 37.3p (2022: basic loss per share at 30.4p).

Consolidated statement of financial position

Net assets decreased by £5.2m in the year to £14.2m at 31 December 2023 (2022: £19.4m) with the key movements explained below.

Trade and other receivables decreased by £2.0m to £25.4m (2022: £27.4m), driven by a decrease in prepayments and accrued income to £12.7m (2022: £13.7m). Within this, accrued income decreased by £0.6m, as billing milestones were reached during the year as equipment became available; prepayments decreased by £0.4m, as the result of a pro-active reduction in upfront payments to suppliers.

Trade and other payables decreased by £3.2m to £43.9m (2022: £47.1m). Within this, trade payables decreased by £5.9m at December 2023, following the normalisation of working capital; deferred income increased by £1.7m driven by recurring revenue and technology advance billings; Other payables and accruals increased by £1.0m driven principally by the recognition of an onerous lease contract and capital expenditure accruals.

Intangible assets decreased by £4.3m driven by impairment charges of £2.3m in relation to the termination of the Callmedia business, amortisation of £5.1m, offset by £3.1m of capital expenditure in relation to capitalised software development and software licences.

Inventories reduced by £0.9m in the period driven by the unwinding of the significant order book built up through 2021 and 2022.

Borrowings of £22.9m (2022: £22.7m) represent the Group's drawn down debt, consisting of £20.0m Rolling Credit Facility and £3.0m Term loan, net of costs of issue of £0.1m.

Cash flow

As at 31 December 2023 the Group had net debt of £18.2m, excluding issue costs of debt of £0.1m, (31 December 2022: £16.8m), equating to a net debt: Adjusted EBITDA ratio of 2.0x (2022: 3.8x). An explanation of the £1.4m increase in net debt, excluding issue costs of debt, is provided below.

The Group generated £5.0m (2022: £9.8m) of cash from operating activities and operating cashflow before changes in working capital of £5.3m (2022: £3.5m). 

Cash conversion ^(C) in 2023 was 97% (2022: 245%).

Capital expenditure of £3.5m (2022: £3.3m) was incurred relating to the ongoing investment in the ICON platform and IT infrastructure.

A more detailed explanation of the working capital movements is included in the analysis of the consolidated statement of financial position. Further details of the Group's revolving credit facilities are given in note 21.

(c) calculated as operating cash flow (being adjusted EBITDA plus working capital) to adjusted EBITDA

Risk management

The Board has overall responsibility for setting the risk appetite for the business and for ensuring that the Group's ongoing risk profile aligns with this. The Board is also responsible for identifying the business risks and uncertainties faced by the Group that could have a material adverse effect on the business, most of which are beyond its control, and for determining the appropriate course of action to manage these. It reviews a dynamic risk report quarterly, the process behind which is monitored by the Audit and Risk committee. The most significant current risks and uncertainties are described below; the extent of the impact of each would naturally depend on the precise nature and duration of the event. This list is not exhaustive and there may be risks and uncertainties of which we are currently unaware, or which we currently believe are immaterial, that could have an adverse effect on the business.

The Group's approach to financial risk management is further explained in note 23 to the financial statements.

FINANCIAL STATEMENTS 

Consolidated statement of comprehensive income

for the year ended 31 December 2023

The attached notes form part of these consolidated financial statements.

Consolidated statement of financial position

 at 31 December 2023

The consolidated financial statements were approved and authorised for issue by the Board on 30 April 2024 and were signed on its behalf by:

Gab Pirona

Chief Financial Officer

The attached notes form part of these consolidated financial statements.

Consolidated statement of changes in equity

for the year ended 31 December 2023

The attached notes form part of these consolidated financial statements.

Consolidated statement of cash flows

for the year ended 31 December 2023

Consolidated statement of cash flows

for the year ended 31 December 2023 (continued)

The following cash and non-cash movements have occurred during the year in relation to financing activities from non-current liabilities:

Reconciliation of liabilities from financing activities

Loans and borrowings (Note 21)

Lease liabilities (Note 22)

The notes on following pages form part of these consolidated financial statements.

Notes forming part of the consolidated financial statements

for the year ended 31 December 2023

Maintel Holdings Plc is a public limited company incorporated and domiciled in the UK, whose shares are publicly traded on the Alternative Investment Market (AIM). Its registered office and principal place of business is 160 Blackfriars Road, London SE1 8EZ.

The principal policies adopted in the preparation of the consolidated financial statements are as follows: 

(a) Basis of preparation

The consolidated financial statements have been prepared in accordance with UK-adopted International Accounting Standards in conformity with the requirements of the Companies Act 2006.

(b) Basis of consolidation

The consolidated financial statements present the results of the Company and its subsidiaries ("the Group") as if they formed a single entity. Intercompany transactions and balances between Group companies are therefore eliminated in full.

Where the Company has control over an investee, it is classified as a subsidiary. The Company controls an investee if all three of the following elements are present: power over the investee, exposure to variable returns from the investee, and the ability of the investor to use its power to affect those variable returns. Control is reassessed whenever facts and circumstances indicate that there may be a change in any of these elements of control.

The consolidated financial statements incorporate the results of business combinations using the acquisition method. In the consolidated statement of financial position, the acquiree's identifiable assets, liabilities and contingent liabilities are initially recognised at their fair values at the acquisition date. The acquisition related costs are included in the consolidated statement of comprehensive income on an accruals basis. The results of acquired operations are included in the consolidated statement of comprehensive income from the date on which control is obtained.

        (c) Rounding of amounts

All amounts disclosed in the financial statements and notes have been rounded to the nearest thousand unless otherwise stated.

(d) Going concern

The Group has a sound financial record including strong operating cash flows derived from a substantial level of recurring revenue across a range of sectors. The facility with HSBC Bank plc ("HSBC") consisting of a revolving credit facility ("RCF") of £20m with a £6m term loan on a reducing basis, remained in place during the year and has been extended to 30 September 2025 in March 2024.  Repayments started in October 2022, and at 31 December 2023, £3m remained outstanding. The key covenants include net leverage ratio and interest cover tests, assessed on a quarterly basis. During 2023, the Company successfully met the temporary milestones and HSBC being satisfied that the recovery phase had been successfully completed, the initial covenants of the loan were reinstated in early 2024. As a consequence, the debt has been classified to long term liabilities at 31 December 2023, whilst the debt had been reclassified as current liabilities in 2022.

As highlighted in the risk management section the Board has put robust business continuity plans in place to ensure continuity of trading and operations. Management believes that following the strategic pivot operated in 2023, with a product offering aligned to its strategy, the  pipeline will enable Maintel to deliver upside from the budgeted revenue, whilst maintaining the efficiency of its cost base and continuously enhancing margins.

The Group's forecasts and projection models have been built on a prudent basis, taking into account inflationary pressure, reasonable prudence with regard to both project delivery and timing of pipeline conversion. The Board has reviewed the model in detail, taking account of reasonably possible changes in trading performance, including sensitivities in pipeline conversion and renewal risk, together with further mitigating actions it could take such as operating costs savings. As a result, the Board believes that the Group has sufficient headroom in its agreed funding arrangements to withstand a greater negative impact on its cash flow than it currently expects.

On this basis, the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Therefore, the Group financial statements have been prepared on a going concern basis.

(e) Revenue

Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and can be reliably measured.

Revenue represents sales to customers at invoiced amounts and commissions receivable from suppliers, less value added tax.

Managed services

Managed services revenues are recognised over time, over the relevant contract term, on the basis that the customer simultaneously receives and consumes the benefits provided by the Group's performance of the services over the contract term. Where the Group's performance of its obligations under a contract exceeds amounts received, accrued income is recognised depending on the Group's billing rights. Where the Group's performance of its obligations under a contract is less than amounts received, deferred income is recognised as this is also the point where the Group transfers the benefits of the goods and services to the end customer.

Technology

Technology revenues for contracts with customers, which include both supply of technology goods and installation services, represent in substance one performance obligation and result in revenue recognition at a point in time, when the Group has fulfilled its performance obligations under the relevant customer contract. Under these contracts, the Group performs a significant integration service which results in the technology goods and the integration service being one performance obligation.  Over the course of the contract, the technology goods, which comprise both hardware and software components, are customised through the integration services to such an extent that the final customised technology goods installed on completion are substantially different to their form prior to the integration service. Revenue is recognised when the integrated technology equipment and software has been installed and accepted by the customer.

Network services

Revenues for network services are comprised of call traffic, line rentals and data services, which are recognised over time, for services provided up to the reporting date, on the basis that the customer simultaneously receives and consumes the benefits provided by the Group's performance of the services over the contract term. Amounts received in advance of the performance of the call traffic, line rentals and data services are recognised as performance obligations and released to revenue as the Group performs the services under the contract. Where the Group's performance of its obligations under a contract are less than amounts received, deferred income is recognised.

Mobile

Connection commission received from the mobile network operators on fixed line revenues, are allocated primarily to two separate performance obligations, being:

(i)         the obligation to provide a hardware fund to end users for the supply of handsets and other hardware kit - revenues are recognised under these contracts at a point in time when the hardware goods are delivered to the customer and the customer has control of the assets; and

(ii)      ongoing service obligations to the customer - revenues are spread over the course of the customer contract term.

In the case of (i) revenues are recognised based on the fair value of the hardware goods provided to the customer on delivery and for (ii) the residual amounts, representing connection commissions less the hardware revenues, are recognised over the customer contract term.

Customer overspend and bonus payments are recognised monthly at a point in time when the Group's performance obligations have been completed; these are also payable by the network operators on a monthly basis.

(f) Leased assets

When the Group enters into a lease, a lease liability and a right of use asset is created.

A lease liability shall be recognised at the commencement date of the lease term and will be measured at the present value of the remaining lease payments discounted using the Groups' incremental borrowing rate. In determining the lease term, hindsight will be applied in respect of leases which contain an option to terminate the lease. The lease liability is subsequently increased for a constant periodic rate of interest on the remaining balance of the lease liability and reduced for lease payments. Interest on the lease liability is recognised in the income statement.

A right of use asset shall be recognised at the commencement date of the lease term. The right of use asset will be measured at an amount equal to the lease liability. The right of use asset will subsequently be measured at cost less accumulated depreciation and any accumulated impairment losses.

Depreciation for leased property (disclosed as 'Land and buildings' in Note 16), motor vehicles and office and computer equipment is charged to the statement of comprehensive income on a straight-line basis over the shorter of the lease term and the useful economic life of the asset. The useful economic life of a right of use asset is based on that assigned to equivalent owned assets, as disclosed in the 'Property, plant and equipment' policy (n).

Where leases are 12 months or less or of low value, payments made are expensed evenly over the period of the lease.

Rentals receivable under operating leases are credited to the consolidated statement of comprehensive income on a straight-line basis over the term of the lease. The aggregate cost of lease incentives offered is recognised as a reduction of the rental income over the lease term on a straight-line basis.

In addition, the carrying amount of the right-of-use assets and lease liabilities are remeasured if there is a modification, a change in the lease term or a change in the fixed lease payments. The remeasured lease liability (and corresponding right-of-use asset) is calculated using a revised discount rate, based upon a revised incremental borrowing rate at the time of the change.

(g) Employee benefits

The Group contributes to a number of defined contribution pension schemes in respect of certain of its employees, including those established under auto-enrolment legislation. The amount charged in the consolidated statement of comprehensive income 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.

(h) Exceptional items

Exceptional items are significant items of non-recurring income or expenditure that have been separately presented by virtue of their nature to enable a better understanding of the Group's financial performance. Non-recurring exceptional items are presented separately in the consolidated statement of comprehensive income.

(i) Interest

Interest income and expense is recognised using the effective interest rate basis.

(j) 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 balance sheet 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

·       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 nor 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 and taxable temporary differences will be available against which the asset can be utilised.

Management judgement is used in determining the amount of deferred tax asset that can be recognised, based upon the likely timing and level of future taxable profits together with future tax planning strategies.

The amount of the deferred tax asset or liability is measured on an undiscounted basis and is determined using tax rates that have been enacted or substantively enacted by the date of the consolidated statement of financial position and are expected to apply when the deferred tax assets/liabilities are recovered/settled. 

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.

(k) Dividends

Dividends unpaid at the reporting 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

consolidated financial statements.

(l) Intangible assets

Goodwill

Goodwill represents the excess of the fair value of the consideration of a business combination over the acquisition date fair value of the identifiable assets, liabilities and contingent liabilities acquired; the fair value of the consideration comprises the fair value of assets given. Direct costs of acquisition are recognised immediately as an expense. Goodwill is capitalised as an intangible asset and carried at cost with any impairment in carrying value being charged to the consolidated statement of comprehensive income.

Customer relationships

Customer relationships are stated at fair value where acquired through a business combination, less accumulated amortisation. Customer relationships are amortised over their estimated useful lives of six years to eight years.

Brands

Brands are stated at fair value where acquired through a business combination less accumulated amortisation. Brands are amortised over their estimated useful lives, being eight years in respect of the ICON brand.

Product platform

The product platform is stated at cost less accumulated amortisation. Where these have been acquired through a business combination, the cost is the fair value allocated less accumulated amortisation. The product platform is amortised over its estimated useful life of eight years.

Software (Microsoft licences and Callmedia)

Software is stated at cost less accumulated amortisation. Where these assets have been acquired through a business combination, the cost is the fair value allocated in the acquisition accounting. Software is amortised over its estimated useful life of three years in respect of the Microsoft licences.

The net book value of the Callmedia capitalised systems, software and development costs has been impaired in the year in line with the decision made in 2023 to exit the Callmedia business by January 2024. See Note 13 for further information.

Licences (third-party subscription licences)

Third-party subscription licences are stated at cost less accumulated amortisation. Where these assets have been acquired through a business combination, the cost is the fair value allocated in the acquisition accounting. Licences are amortised over their estimated useful lives of three years.

Other

Other intangible assets includes stock management platforms which is managed by third parties. Other intangibles are amortised over their estimated useful lives, being 5 years.

(m) Impairment of non-current assets

Impairment tests on goodwill 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 in the administrative expenses line in the consolidated statement of comprehensive income and, in respect of goodwill impairments, the impairment is never reversed.

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.

(n) Property, plant and equipment

Property, plant and equipment is stated at cost, less accumulated depreciation and any impairment in value. 

Depreciation is provided to write off the cost, less estimated residual values, of all tangible fixed assets, other than freehold land, over their expected useful economic lives, at the following rates:

Property, plant and equipment acquired in a business combination is initially recognised at its fair value.

(o) Inventories

Inventories comprise (i) maintenance stock, being replacement parts held to service customers' telecommunications systems, and (ii) stock held for resale, 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.

(p) Cash and cash equivalents

Cash and cash equivalents comprise cash balances and short-term deposits with an original maturity of three months or less, held for meeting short term commitments.

(q) Financial assets and liabilities

The Group's financial assets and liabilities mainly comprise cash, borrowings, trade and other receivables, trade and other payables, lease liabilities and derivative financial instruments.

Trade and other receivables are not interest bearing and are stated at their amortised cost as reduced by appropriate allowances for irrecoverable amounts or additional costs required to effect recovery.

The Group reviews the amount of credit loss associated with its trade receivables based on forward looking estimates that take into account current and forecast credit conditions. The Group has applied the Simplified Approach applying a provision matrix based on number of days past due to measure lifetime expected credit losses and after taking into account customer sectors with different credit risk profiles and current and forecast trading conditions.

Trade and other payables are not interest bearing and are stated at their amortised cost.

Derivative financial instruments held by the Group at 31 December 2022 represented foreign exchange contracts held to manage the cash flow exposures of forecast transactions denominated in foreign currencies. The Group entered into derivative financial instruments principally with financial institutions with investment grade credit ratings. No such instruments were held at December 2023, as the Group had no material exposure to foreign currency at that time.  

Foreign exchange contracts are held at fair value using techniques which employ the use of market observable inputs. The key inputs used in valuing the derivatives are the exchange rates at year end between Pound Sterling and US Dollar. Market values have been used to determine fair value and have been obtained from an independent third party. Any movements in the fair value of the foreign exchange contracts are recognised in the consolidated statement of comprehensive income as no hedge accounting is applied.

(r) Borrowings

Interest bearing bank loans and overdrafts are initially recorded at the value of the amount received, net of attributable transaction costs. Interest bearing borrowings are subsequently stated at amortised cost with any difference between cost and redemption value being recognised in the consolidated statement of comprehensive income over the period of the borrowing using the effective interest method.

(s) Foreign currency

The presentation currency of the Group is Pound Sterling. All Group companies at 31 December 2023 have a functional currency of Pound Sterling, consistent with the presentation currency of the Group's consolidated financial statements. Transactions in currencies other than Pound Sterling are recorded at the rates of exchange prevailing on the dates of the transactions.

As at 31 December 2023, the Group, did not hold any interest in foreign subsidiaries, following the transfer of the control of Maintel International Limited ("MIL") to the liquidators of MIL. Certain non-material contracts had been transferred to Maintel Europe Limited ("MEL") prior to the appointment of the liquidator. See Note 14 for further information.

On consolidation the results of MIL, which are included in the consolidated statement of comprehensive income up to the transfer of the entity to the liquidators, are translated into Pound Sterling, at rates approximating those ruling when the transactions took place. The monetary assets and liabilities of MIL are translated at the rate ruling at the reporting date.  Non-monetary items that are measured at historical cost are translated using rates approximating those ruling at the dates of the initial transactions.

Exchange differences on retranslation of the foreign subsidiary are recognised in other comprehensive income and accumulated in a translation reserve.

(t) Share-based payments

The Group uses the Black-Scholes Model to calculate the appropriate fair value at the date the options are granted to the employee.

Where employees are rewarded using equity settled share-based payments, the fair values of employees' services are determined indirectly by reference to the fair value of the instrument granted to the employee. This fair value is appraised at the grant date.

All equity-settled share-based payments are ultimately recognised as an expense in the income statement with a corresponding credit to reserves.

If vesting periods apply, the expense is allocated over the vesting periods, based on the best available estimate of the number of share options expected to vest. Estimates are revised subsequently if there is any indication that the number of share options expected to vest differs from previous estimates.  Any cumulative adjustment prior to vesting is recognised in the current year. No adjustment is made to any expense recognised in prior years if share options that have vested are not exercised.

(u) Accounting standards issued

The following standards and amendments to standards were issued and adopted in the year, with no material impact on the financial statements:

·      IFRS 17 - Insurance Contracts

·      Deferred tax related to assets and liabilities arising from a single transaction - amendments to IAS 12

·      International tax reform and temporary exception for deferred tax assets and liabilities related to the OECD pillar two income taxes - amendments to IAS 12

·      Definition of Accounting Estimates - amendments to IAS 8

·      Disclosure of Material Accounting Policies - amendments to IAS 1 and IFRS Practice Statement 2

There were no other new accounting standards issued that have been adopted in the year.

(v) Standards in issue but not yet effective

At the date of authorisation of these financial statements there were amendments to standards which were in issue, but which were not yet effective, and which have not been applied. The principal ones were:

Effective for annual periods beginning on or after 1 January 2024

·      Lease liability in a sale and leaseback transaction - amendments to IFRS 16

·      Non-current liabilities with covenants - amendments to IAS 1

·      Supplier finance - amendments to IAS 7 and IFRS 7

Effective for annual periods beginning on or after 1 January 2025

·      Lack of exchangeability in currencies - amendments to IAS 21

The Directors do not expect the adoption of these amendments to standards to have a material impact on the financial statements.

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 of non-current assets

The Group is required to test, on an annual basis, whether goodwill has suffered any impairment. The Group is also required to test other finite life intangible assets for impairment where impairment indicators are present. The recoverability of assets subject to impairment reviews is assessed based on whether the carrying value of assets can be supported by the net present value of future cash flows derived from such assets, using cash flow projections which have been discounted at an appropriate rate. In calculating the net present value of the future cash flows, certain assumptions are required to be made in respect of uncertain matters.

In particular, management exercises estimation in determining assumptions for revenue growth rates and gross margins for future periods which are important components of future cash flows, and also in determining the appropriate discount rates which are used across the Group's cash generating units (refer to Note 13).

Year-ended 31 December 2023

For management reporting purposes and operationally, the Group consists of three business segments: (i) managed service and technology sales, (ii) network services, and (iii) mobile services. Revenue from managed services, network services and mobile is recognised over time and technology revenue is recognised at a point in time. Each segment applies its respective resources across inter-related revenue streams, which are reviewed by management collectively under these headings. The businesses of each segment and a further analysis of revenue are described under their respective headings in the Strategic Report.

The chief operating decision maker has been identified as the Board, which assesses the performance of the operating segments based on revenue and gross profit.

The Board does not regularly review the aggregate assets and liabilities of its segments and accordingly an analysis of these is not provided.