KeyTech’s Net Income Drops To $5.9m
The KeyTech Group of Companies concluded fiscal year 2010/11 with a net income of $5.9 million, or $10.3 million excluding early retirement and redundancy costs. The early retirement and staff separation expenses of $4.4 million substantially impacted the current fiscal years’ financial results.
Prior year net income was $6.3 million, $9.2 million excluding early retirement and redundancy costs incurred in the prior year of $0.8 million, and a $2.1 million expense from the decline in value of a holding of Butterfield Bank shares.
“We have seen a substantial drop in demand for residential services due to lower levels of economic activity and population. We anticipated these conditions would continue from the prior year and we have continued to adjust our business model to reduce costs and focus on core products that have strong margin and future viability, specifically in the area of data services” said KeyTech CEO Sheila Lines.
Total revenues for 2010/11 decreased $9 million to $98 million due to declines in Bermuda in all revenue lines except data services. In the Cayman Islands total revenue was similar to the prior year with increases in corporate revenue offsetting residential revenue decline.
Total expenses declined $6.1 million to $94.7 million due to decisions taken in the year and prior years in anticipation of a continued challenging economic environment in Bermuda and Cayman. Excluding the impact of early retirement and staff separation costs in both years, total expenses declined $9.7 million year over year, with reductions in all categories of expense except government taxes and fees.
“Over the course of 2010/11 we have reshaped our businesses by moving out of low margin product lines and we invested in our wireless and wire-line network assets to increase data capacity and improve service, and in the case of Cayman to serve new markets by extending fiber networks further in the corporate business districts” said KeyTech CEO Sheila Lines.
Total capital asset expenditure in the current year was $14.1 million compared to $11.3 million in the prior year. Significant individual capital items in the year were $5.5 million on network and premises in BTC to improve service and maintain existing assets, $3.8 million in M3 Wireless on additional cellular sites to increase network coverage and capacity and $2 million on construction of fiber plant in the business district of George Town in the Cayman Islands.
In 2010 KeyTech secured a full ownership of its subsidiary in the Cayman Islands and this enabled investment in fiber network facilities in the George Town business district. In May 2011 KeyTech completed a merger of M3 Wireless with Cellular One.
“Bermuda is a small market to serve with three cellular providers, each duplicating infrastructure investments to compete for share of a finite market. The shareholders of CellularOne and we recognized that we could be in a more competitive position and deliver greater value for our customers as a combined business” said Sheila Lines. The merger occurred after the end of KeyTech’s financial year.
“The structural changes to the group – merging in wireless and acquiring 100% of Logic-Cayman enable us to focus on future opportunities for our group. Our fiber network investments in the current year and those planned for 2010/11 deploy our available capital in the areas of our group with the most attractive competitive position as future demand for service as bandwidth use continues to grow” said KeyTech CEO Sheila Lines.
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 that was proposed in 2010 and the additional costs (in time and money) that the industry will incur and whether they are required for a market the size of Bermuda. ” said Sheila Lines.
“Our market has decreased in size of revenue and new costs at this time will be a heavy additional burden to absorb when facing on-going downward revenue pressure and will most likely fall on jobs in our industry and reduced capital investment.”
A spokesperson said, “In May 2010 it was proposed that the new regulator will charge additional fees to cover their newly formed administration costs, of up to 3% of revenues. KeyTech’s current effective corporate tax rate to the Bermuda Government for the combination of telecommunications license and spectrum fees and employers’ payroll tax is 36% of net income before taxes and totals millions of dollars.”
“This does not include the duty paid to Government on import of network equipment. If there is no reduction in the existing telecommunication fees contributed to the Government Consolidated Fund, our combined effective tax rate would on that basis increase to 53% of net income before taxes. ”
“We are cautiously hopeful that the Government has taken into account the concerns of the industry on the issue of additional taxation costs due to regulatory reform, however we have not yet seen further drafts of the proposed legislation” said Sheila Lines.
Total cash dividends paid to common shareholders for the year was $0.48 per common share. Total cash dividends paid to common shareholders for the prior year were $0.60 per common share. At the end of the year, net assets per common share were $9.64, compared to $9.80 in the prior year.
KeyTech’s basic and fully diluted earnings per common share for the year were $0.405 compared to $0.434 in the prior year.
Operating revenues for the year were $98,410,897 as compared to $107,036,670 for the prior year.
Net income attributable to shareholders was $5,891,061. Net income attributable to shareholders for the prior year was $6,313,598.
Total equity earnings in affiliates for the year were $2,141,670 as compared to $1,884,235 for the prior year.
Investment income was $9,695 and realized gain on investments was $7,614 for the year. Investment income for the prior year was $110,451 and realized loss on investments for the prior year was $2,349,635. Prior year realized loss on investments included a $2,152,083 expense from the decline in value of a holding of Butterfield Bank shares.
Non-controlling minority interests for the year were $87,548 of earnings as compared to $526,959 for the prior year.
During the financial year KeyTech invested $14,099,981 in capital assets. During the prior year KeyTech invested $11,316,178 in capital assets.
