Literature review of fixed line telecommunications: Telecom Plus and Alternative Networks
Introduction
Telecom Plus is a public utility company that is headquartered in London in the UK. The company is involved in the supply in mobile services, landline and broadband to
businesses and residences across the country. Moreover, it is also involved in the supply of other utilities such gas and electricity (Telecom Plus PLC, 2016).
On the other hand, Alternative Networks is an IT solutions company based on the UK. The company was formed in 1994. Since then, it has been able to develop into a
telecommunications and technology provider in the country. (Alternative Networks, 2016)
Although the two companies have diversified their portfolio over the years, historically, they are companies that are operating in the telecommunication industry.
Today, the market value of this industry is estimated be worth €44 billion, and is expected to grow even further in the coming years (Statista, 2016).
Financial Analysis
Conducting a financial analysis of the two companies can help to understand how the companies have been performing in the last five years. Below is the income
statement of the companies.
Income Statement of Telecom Plus
£’000
2015
£’000
2014
£’000
2013
£’000
2012
£’000
2011
Revenue 729,178 659,722 601,505 471,458 418,845
Cost of Sales (612,969) (561,435) (517,950) (395,085) 352,273
Gross Profit 116,209 98,287 83,555 76,373 66,572
Distribution expenses (21,876) (18,641) (17,753) (16,017) 13,252
Share incentive scheme charges (151) (125)
0 0 0
Total distribution expenses (22,027)
(18,766)
(17,753) (16,017) 13,252
Administrative expenses (46,544)
(41,560)
(35,449) (32,563) 28,301
Share incentive scheme credits/(charges)
1,173
(4,068)
0 0 0
Amortisation of intangible assets
(11,186)
(3,785)
0 0 0
Total administrative expenses (56,557)
(49,413)
(35,449) (32,563) 28,301
Other income
361 650 907 370 82
Operating profit
37,986 30,758 31,260 28,163 25,101
Financial income 133 109 49 49 74
Financial expenses (2,066) (855) (82) (132) 69
Net Financial expense (1,933) (746) (33) (83) 5
Share of profit of associates
6,006 4,654 3,404 3,404 2,400
Profit before taxation
42,059 34,666 34,631 30,743 27,506
Taxation
(9,758) (7,203) (7,565) (7,290) (6,781)
Profit and other comprehensive income for the year attributable to owners of the parent 32,301 27,463 27,066 23,453 20,725
Deferred tax on share options 0 0 0 0 167
Comprehensive income for the year attributable to owners of the parent 32,301 27,463 27,066 23,453 20,892
Income Statement of Alternative Networks
£’000
2015
£’000
2014
£’000
2013
£’000
2012
£’000
2011
Revenue 146,816 134,413 114,346 114,846 117,337
Cost of Sales (86,113) (79,101) (69,575) (70,060) (72,577)
Gross Profit 60,703 55,312 44,771 44,786 44,760
Operating Costs (45,603) (43,772) (32,390) (32,197) (35,438)
Operating Profit 15,100 11,540 12,381 12,589 9,322
Finance income 3 25 115 111 54
Finance costs (1,297) (1,202) (11) (14) (19)
Profit before taxation 13,806 10,363 12,485 12,686 9,357
Taxation (2,339) (2,285) (2,826) (2,896) (2,752)
Profit and comprehensive income for the year 11,467 8,078 9,659 9,790 6,605
Looking at Telecom Plus, on the revenue front, in 2011, the company reported a revenue of £418.845 million. In 2012, the revenue of the company stood at £471.458
million. This represented a 12.6% increase revenue from the previous year. In 2013, the revenue stood at £601.505. This signified a 27.8% increase. In the following
year, the revenue stood at £659.772 million. This was a 9.7% increase in profitability. In 2015, the profit stood at £729.172 million. This was a further increase by
10.5%. Under net profit, in 2011, the profit stood at £20.892 million. In the following year, the profit stood at £23.453 million. This was a 12.3% increase from the
previous year. In 2013, the profit stood at £27.066. This represented a 15.4% increase. In 2014, Telecom Plus reported a profit of £27.463 million. This was a further
increase by 1.5%. Lastly, in 2015, the profit of the company stood at £32.301. This represented a 17.6% increase from the previous year (Telecom Plus, 2016).
The balance sheets looks as follows
Telecom Plus
2015
£’000
2014
£’000
2013
£’000
2012
£’000
2011
£’000
Property, plant and equipment 41,800 23,379
18,950
19,256 12,468
Goodwill and intangible assets 2,969
2,969 –
Investments in associates 1,668
1,497
,497
1,479 1,479
Investments in subsidiary undertakings 227,097
227,097
0 0 0
Deferred tax 0 2,389 1,644 1,318 1,106
Non-current receivables 12,100
10,301
12,575 9,986 7,370
Total non-current assets 282,665 264,663
37,635
35,008 22,423
Current assets
Inventories 893 1,771 491 452 347
Trade and other receivables 12,689 12,997 12,997 15,336 15,656
Prepayments and accrued income 7,139 8,228 103,464 78,245 78,035
Cash and cash equivalents 16,279 37,489 3,137 3,605 2,183
Total current assets 37,000 60,485 123,407 97,638 96,221
Total assets 319,665 325,148 61,042
132,646 118,644
Current liabilities
Short term borrowings (4,934) 19,804) (2,605) (2,900) 15,525
Trade and other payables (45,602) (21,583) (10,512) (7,417) 4,876
Current tax payable 0 0 (1,347)
(2,805) 2,304
Accrued expenses and deferred income (9,914) (8,219) (95,334) (65,697) 51,365
Total current liabilities (61,011)
(49,606) 109,798) (78,819) 74,070
Non-Current Liabilities
Long term borrowings (64,139) (79,216) 0 0 0
Deferred consideration (21,500) (21,500) 0 0 0
JSOP creditor (1,507) (4,080) (685) – 0
Total non-current liabilities (87,146)
(104,796)
(685)
53,827 0
Total assets less total liabilities 171,508 170,746
50,559
53,827 44,574
Equity
Share capital 4,011 4,001 3,530 3,510 3,477
Share premium 3,530 136,651 8,508 7,716 4,298
Treasury shares (760) 0 0 0 0
JSOP reserve 0 0 0 0 0
Retained earnings 31,019
30,094
38,521
42,601 36,799
Total equity 171,508 170,746 50,559 53,827 44,574
Alternative networks
£’000 £’000 £’000 £’000 £’000
Assets
Non-current assets
Intangible assets 3,251 3,436 3,203 2,788 2,551
Property, plant and equipment 2,877 563 1,861 1,809 1,908
Investments 78,599 78,599 26,826 26,826 26,826
Deferred tax asset 337 307 1,901 828
Property deposits
84,727 82,935 32,197 33,324 32,113
Current Assets
Asset held for sale 1,401
Inventories 2 4 7 5
Trade and other receivables 10,782 13,152 12,588 12,599 12,478
Cash and cash equivalents 467 720 9,690 19,481 10,237
11,249 5,275 19,481 32,087 22,720
Total assets 95,976 98,210 54,479 65,411 54,833
EQUITY AND LIABILITIES
Equity
Called up share capital 62 62 62 60 61
Share premium 6,600 6,563 6,534 6,196 5,019
Capital redemption reserve 8 8 8 6 4
Treasury shares held (1,422)
Merger reserve
Retained earnings 33,392 32,314 30,116 32,615 20,558
Total equity 40,062 38,947 36,720 38,877 24,220
Current liabilities
Borrowings 6,598 5,111 53 52 51
Current tax liabilities 1,371 679 378 1,281
Trade and other payables 33,206 25,503 41 1,583 19,308
41,175 31,293 16,999 22,855
Non-current liabilities
Borrowings 14,500 27,970 666 720 823
Deferred tax liabilities 239
Provisions for other liabilities 946
14,739 27,970 666 1,666 823
Total liabilities 55,914 59,263 17,759 26,534 21,463
Total equity and liabilities 95,976 98,210 54,479 65,411 45,683
The Cash flow is as follows
Telecom Plus
£’000
2015
£’000
2014
£’000
2013
£’000
2012
£’000
2011
Operating Activities
Operating profit 38,521 16,465
30,702 26,797 14,572
Depreciation of property, plant and equipment 1,254 1,286 917
Amortisation of intangible assets 1
Distribution from associated company (4,148)
(3,056)
2,365
1,817 1,017
Increase in inventories (2,688)
103,747
(39) (105) 123
Increase in trade and other receivables (41,017) (2,506) (20,821)
Increase in trade and other payables 4,586
(89,731)
32,976 15,933 1,582
Increase in inter-company payable 840 940 496
Costs attributed to the issue of share options (1,022) 4,193
459
Corporation tax paid (3,587) (6,865) (7,033) (6,224) (5,511)
Net cash flow from operating activities 57,302
39,333
20,979 38,579 (7,165)
Investing activities
Purchase of property, plant and equipment (20,306)
(5,736)
(948) (8,074) (1,545)
Disposal of property, plant and equipment 47
0
New energy supply agreement:
Cash consideration and fees paid
Cash held in statutory entities acquired (202,629)
Distribution from associated company 4,148
3,056
Purchase of shares in associated company (171)
(18) (432)
Interest received 129
107
Cash flow from investing activities (16,153) (205,202)
(966) (8,074) (1,977)
Financing activities
Dividends paid (30,230) (23,921) (20,965) (16,636) (13,989)
Interest received 49 49 135
Interest paid 1,652) (769) (82) (132) (2)
Drawdown of long term borrowing facilities 100,000
Repayment of borrowing facilities (30,000)
Fees associated with long term borrowing facilities (315)
(1,098)
Issue of new ordinary shares 598 131,061
812 483
Payment of share issue costs
(2,447)
(444)
Purchase of own shares (760)
(272)
Sale of treasury shares 222 370
Cash flow from financing activities (62,359) 202,826
(20,186) (16,458) (13,758)
(Decrease)/increase in cash and cash equivalents (21,210)
36,957
(173) 14,047 (22,900)
Net cash and cash equivalents at the beginning of the year 37,489
532
705 (13,342) 25,354
Net cash and cash equivalents at the end of the year 16,279
37,489
532 705 2,454
Cash (21,210) 36,957 3,137 3,605 2,454
Short term borrowings (2,605) (2,900) –
Net cash and cash equivalents at the end of the year 16,279
37,489
532 705 2,454
Alternative Networks
2015
£’000
2014
£’000
2013
£’000
2012
£’000
2011
£’000
Cash flow from operating activities
Cash generated from operation 21,879 16,167 14,405 18,088
Income tax paid (1,247) (1,376) (2,916) (2,625)
Interest paid 115 111
Net cash generated from operating activities 20,632 14,791 11,478 15,449
Cash flows from investing activities
Purchase of property, plant and equipment (4,020) (846) (482) (554)
Purchase of intangible assets (1,295) (1,230) (812) (441)
Proceeds from sale of property, plant and equipment 3,800 10 27
Interest received 3 25 115 111
Purchase of subsidiary undertakings (net of cash acquired) (50,880) (378)
Net cash used in investing activities (1,512) (52,931) (1,547) (857)
Cash flows from financing activities
Interest paid (1,298) (1,070)
Dividends paid (7,305) (6,564) (7,402) (5,089)
Proceeds from issue of share capital 37 29 896 219
Payments made for share buy-backs (6,797)
Transaction costs in relation to loan facility (724)
Proceeds from borrowings 35,000
Repayments of borrowings (11,985) (2,668) (53) (51)
Net cash (used in)/received from financing activities (20,551) 24,003 (13,356) (4,921)
Decrease in cash and cash equivalents (1,431) (14,137) (3,425) 9,671
Cash and cash equivalents at start of year 3,793 17,930 21,355 11,684
Cash and cash equivalents at end of year 2,362 3,793 17,930 21,355
Looking at Alternative networks, on the revenue front, in 2011, the company reported a revenue of £117.337 million. In 2012. The company reported a revenue of £114.846
million. This was a decline of 2.1%. In 2013, the company reported a revenue of £114.346 million. This was a slight decline in revenue of 0.35%. In 2014, the revenue
of the company stood at £96.242 million. This was a significant decline from the previous year. The percentage decline stood at 15.29%. In 2015, the revenue of the
company rose to £117.337 million. This was a 21.9% increase from the previous year. Looking at the profit of the company, in 2011, the profit stood at £6.605 million.
In 2012, the net profit stood at £9.790 million. This was a 48.2% increase in profitability from the previous year. In 2013, the profit dropped slightly to £9.659
million. This was a 1.3% decline. In 2014, the net profit of the company was £8.078 million. This was a further drop in profitability by 16.4%. However, in 2015, the
profit rose significantly to £11.467 million. This represented a 42% increase in profitability (Alternative Networks PLC, 2016).
SWOT Analysis
A SWOT analysis of the two companies can help to understand their strengths, weaknesses, opportunities and threats.
A notable strength in Telecom Plus is its strong financial performance that makes it very stable in the market. Moreover, its various strategic business units protects
it from market volatility. However, a notable weakness of the company is its failure to penetrate into markets outside the UK. Another weakness is its small business
units. These have not been able to effective compete with larger units among the competitors (Scholes & Whittington, 2014). A notable opportunity is entering into
other markets across Europe and other parts of the world. Another opportunity is greater diversification. However, the company faces various threats, a notable of
which being huge competition. Changes in government regulations is yet another threat (Gale Research, 2015).
In Alternative Networks, a notable strength is its strong presence in the domestic market. Another strength is its strong business units. However, it has its
weaknesses. One of these is overreliance in the telecommunication business segment. Moreover, its uneven profitability makes the future of the company highly uncertain
(Balmer, 2016). Under opportunities, the company can consider expanding to more geographical locations. Moreover, the company should target more corporate customers
especially in towns and small cities. A notable threat of the company is huge competition. Moreover, changing exchange rates normally affects the prices of its
software (Welfens, et al., 2014).
Bibliography
Alternative Networks PLC, 2016. Annual Reports. [Online]
Available at: http://www.alternativenetworks.com/wp-content/uploads
Alternative Networks, 2016. About Us. [Online]
Available at: http://www.alternativenetworks.com
Balmer, R., 2016. Competition and Investment in Telecommunications and Media Markets. London: Springer Shop.
Gale Research, 2015. Telecommunications Directory. Farmington Hills: Gale Research.
OFCOM, 2016. Facts and Figures. [Online]
Available at: http://media.ofcom.org.uk/facts/
Scholes, G. J. ?. & Whittington, ?., 2014. Exploring Corporate Strategy. New Delhi: Financial Times Prentice Hall.
Statista, 2016. Telecommunications services market value in the United Kingdom (UK) from 2009 to 2017. [Online]
Available at: http://www.statista.com/statistics/275966/telecommunications-services-revenue-forecast-in-the-uk/
Telecom Plus PLC, 2016. About Us. [Online]
Available at: https://www.utilitywarehouse.co.uk
Telecom Plus, 2016. Annual Reports. [Online]
Available at: https://www.utilitywarehouse.co.uk/files/whitepapers
Welfens, P. J., Yarrow, ?. & Grinberg, ?., 2014. Towards Competition in Network Industries : Telecommunications, Energy and Transportation in Europe and Russia.
Berlin, Heidelberg: Springer Berlin Heidelberg.
