Keytech: Net Income $6.3 Million For 2009/10
KeyTech, whose subsidiaries include The Bermuda Telephone Company, Logic Communications, M3 Wireless, and the Bermuda Yellow Pages, have announced a net income for 2009/10 of $6.3 million, which is down down $4.2 million over the prior year. Keytech attributes the decline to a drop in BTC’s fixed line voice business and a $2.1 million decline in value of a holding of Butterfield Bank shares.
KeyTech currently pays $3.7 million per annum in telecommunication license and spectrum fees and a further $2.6 million in employers’ payroll tax. KeyTech’s current effective corporate tax rate to the Bermuda government for these two taxes combined is 37% of net income before taxes. “There is only so much tax burden this industry can bear. The cost of additional taxes will fall on jobs in our industry and reduced capital investment as our domestic market is not growing.” said Keytech CEO Sheila Lines.
The full preliminary announcement of KeyTech results for the financial year ended 31st March 2010 is below:
In the 2009 challenging economic environment, KeyTech’s revenues increased 1.5% year over year, due to focus on sales across the group and to growth in data and wireless services, and despite significant on-going declines in fixed line voice services. Investments in the prior year in the Challenger high capacity submarine cable system and in wireless networks enabled the revenue growth.
KeyTech net income for 2009/10 was $6.3 million, down $4.2 million over the prior year due to both a significant decline in the net income from BTC’s fixed line voice business and a $2.1 million decline in value of a holding of Butterfield Bank shares. As of 31 March 2010 the Butterfield Bank holding is the Company’s only material marketable security.
KeyTech’s wireless and data businesses improved net income as compared to the prior year. In Cayman losses reduced by $1.1 million and the net income from the directory business remained consistent year over year.
“While we remained focused on our vital long-term strategies of growth in data and wireless revenues during the current economic downturn, the local economy has seen a reduction in employment which has a direct impact on demand for many of our services and corporate demand is lower than in prior years. We prepared for the continued downturn by negotiating reduced maintenance rates with a number of suppliers, froze executive salaries, and took the difficult decision to reduce the total number of staff positions. Nevertheless BTC, our Bermuda fixed line business, experienced a severe decline in net income.” said KeyTech CEO Sheila Lines
Total revenues for 2009/10 increased $1.5 million to $107 million due to growth in data and cellular revenues exceeding declines in fixed line revenue.
Total expenses for 2009/10 increased $4.7 million compared to the prior year. Salary costs increased $2.7 million due to union wage rate increases of 3.25%, increased health care costs and increased overtime costs related to the implementation of a new billing and operating system in BTC. KeyTech incurred $0.8 million in staff separation costs in the current year and a further $1.1 million subsequent to the year end as KeyTech continues to restructure the businesses in light of declines in fixed line voice revenues.
“As we re-evaluated strategy, we took the decision to focus on recurring network revenues – our core business. The provision of telephone systems at business customer premises is serviced by a number of established non-carrier competitors and BTC no longer needs to provide the service itself to enable customers to access our carrier voice and data services. We intend to transition out of this product line and will continue to support existing customers through this change.” said KeyTech CEO Sheila Lines
2009/10 was the first full year of operation for the Challenger cable system with a resulting increase in amortization of $1.3 million and an increase of maintenance costs of $0.8 million in the current year. Partially offsetting these cost increases, general and administrative costs reduced $0.4 million year over year.
“As we faced an environment characterized by a weak economy, regulatory uncertainty and continued customer price pressure, our objectives over the last year focused on customer retention, growing data revenues and improved operating procedures and cost containment. “ said KeyTech CEO Sheila Lines
Due to an impairment on marketable securities of $2.1 million, realized loss on investments increased $2.2 million compared to the prior year. Equity earnings in affiliates increased $0.7 million in the current year due to improved results from both Bermuda CableVision Limited and QuoVadis Holdings Limited.
After completing a number of large capital projects in the prior year at a total cost of $46.3 million, including the Challenger cable system, total capital asset expenditure in the current year was $11.3 million.
In May 2010, the Bermuda government issued, for industry consultation, draft telecommunications legislation to implement its Regulatory Reform initiative.
“We agree that change to the current system, which dates from 1986, is warranted. We are very concerned, however, about the breadth of regulation proposed and the additional costs (in time and money) that the industry will incur.” said Sheila Lines.
KeyTech currently pays $3.7 million per annum in telecommunication license and spectrum fees and a further $2.6 million in employers’ payroll tax for its communications businesses. KeyTech’s current effective corporate tax rate to the Bermuda government for these two taxes combined is 37% of net income before taxes. It is proposed that the new regulator will charge fees to cover their newly formed administration costs, of up to 3% of revenues. If there is no reduction in the existing telecommunication fees contributed to the Government Consolidated Fund, KeyTech’s combined effective tax rate will increase to 53% of net income before taxes. “There is only so much tax burden this industry can bear. The cost of additional taxes will fall on jobs in our industry and reduced capital investment as our domestic market is not growing.” said Sheila Lines. “We believe the benefits of reform to consumer welfare have not been quantified and compared to the additional cost and complexity for the industry.”
Total cash dividends paid to common shareholders for the year was $0.60 per common share. A 1 for 10 share dividend for the holders of the common shares was declared and issued fully paid on July 24, 2008. At the end of the year, net assets per common share were $9.80, compared to $9.87 in the prior year.
The KeyTech Board has revised the cash dividend rate to $0.48 per common share for the next fiscal year, or $0.12 per common share per quarter. “While we fully recognize the importance of dividends to our shareholders we believe this is a prudent step which reflects the general weak economic conditions that we expect to continue for 2010/11 and anticipated increases in regulatory costs.” said KeyTech Chairman Dr James King. The dividend for the common shareholders of KeyTech Limited for the quarter ending June 30, 2010 will be 12 cents per share.
“We anticipate that the economic environment will continue to be difficult however we are clear on the work ahead of us for the next year – focusing on our core businesses and customer relations, enhancing service capacity in networks. We will also be fully engaged in the regulatory changes in our industry, seeking opportunities, acting in a proactive manner and putting forth constructive views to ensure the benefits of regulatory change outweigh the costs.” said KeyTech CEO Sheila Lines.
KeyTech’s basic and fully diluted earnings per common share for the year were $0.434 compared to $0.724 in the prior year. Operating revenues for the year were $107,036,670 as compared to $105,483,253 for the prior year.
Net income attributable to shareholders was $6,313,598. Net income attributable to shareholders for the prior year was $10,551,393.
Total equity earnings in affiliates for the year were $1,884,235 as compared to $1,135,084 for the prior year.Investment income was $110,451 and realized loss on investments was $2,349,635 for the year. Investment loss for the prior year was $164,085 and realized loss on investments was $190,376 for the prior year. Non-controlling minority interests for the year were $526,959 of earnings as compared to $489,600 for the prior year.
During the financial year KeyTech invested $11,316,178 in capital assets. During the prior year KeyTech invested $46,324,188 in capital assets.
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