B4RN 2017 Accounts

For the sixth year in a row I have analysed B4RN’s Financial Return currently for the year to 31 March 2017.

B4RN have now traded for six years and have made a trading loss every year.  It would be only fair to forget the first year as it was a very short period with no income from their activities; therefore a loss was to be anticipated. However, since then the results for each year were as follows:

2013 – A loss of   £61,714
2014 – A loss of   £75,089
2015 – A loss of £122,106
2016 – A loss of £225,563
2017 – A loss of £399,531

The total loss since formation is £904,278, against a turnover (total Income) of £1,194,032.

Overheads are running at £786,093, materials at £173,135 with other charges exceeding an additional £87,000 per year.  The enterprise currently needs an income of £1,046,618 each year in order to break even.  That is only slightly less than the total income they have received since 2012.

Last year Monica Lee, Company Secretary very kindly told me that up to March 2016 they had 1690 connections, and that in the year to November 2016 they had connected a further 605 with an additional 705 expected in the remainder of the financial year.  This would have provided an income of £157,200. The income from connections has in fact fallen massively short of this figure so either the connections weren’t made, or their value was discounted in some way.

The monthly charge for the Broadband Service is £25 (Ex VAT) with something less for holiday lets and significantly more for businesses.  This gives a broad-brush estimate of just under 1,800 people paying, this year, for a Broadband service.  B4RN had 1,619 members (Investors) at the end of the year, having increased by 609 during the course of the year.

The question therefore arises.  How have B4RN managed to survive such massive losses and still be trading, employing 14 people, including two working Directors.

The short answer is Shareholder Funds.  The Share Capital at the beginning of the year was just over £2.1m.  Share subscriptions, less withdrawals added a further £1.2m leaving Shareholders with an investment of just less than £3.4m.  Of course nearly £1m of this disappeared in the trading losses for the year.  The average shareholder stake is £2,075. In addition to the Share Capital the enterprise has a total of slightly more than £2.1m in current and long term loans.

As I mentioned three years ago B4RN changed their depreciation policy to write off its network over 25 years, rather than the 10 years in prior accounts.  My practical experience in engineering industries tells me it will not last this length of time without spending increasing amounts of Shareholders funds in repairs and maintenance.

Let’s just hope that they can afford to do so as, if not, those people who were persuaded, quite foolishly in my view, that B4RN HS Broadband would add value to their property are going to be severely disappointed.

Finally.  On the 11 November 2016 Monica Lee, in an email, advised me that: “our projection for the company’s income for 2016/17 is £720,000.  2016/17 is expected to be the first year in which the company will record an operating profit”. As the income was £647,000 and the trading loss £400,000 the business wasn’t within a country mile of recording an operating profit.

You can examine a Management Report format version of the Accounts from this link: 2012-2017 Accounts, Management Format.

C’est la guerre.

John Keegan

7 thoughts on “B4RN 2017 Accounts”

  1. I went along to this years AGM and the presentation that Barry Forde gave was far more positive. There was the official auditor there too, so I’d assume the information he gave was correct.

    I think it’s important to note that B4RN is a community benefit society and any profits can only be distributed to the community.

    I take your point about the suggestion that having B4RN will somehow increase the value of your house. I doubt it would do this, but it may make it more attractive to a potential buyer who relies on high speed broadband for work or leisure. I quite often work from home, connecting to my work computer to do so. Previously this was impossible, even when nobody else in the house was connected. Now, we can be streaming HD TV in two rooms, browsing the Internet, and working from home – all at the same time, without a hitch. Maybe it’s a case of what you’ve never had, you never miss? I know that we’d find it incredibly difficult to have to go back to our old 5Mbps BT connection.

    1. Quite right Jim. Of course BT Infinity 2 in Whittington is now 76Mb. What surprised me was just how many had connected to B4RN but don’t take the service from them.

      It’s a pity that they will not provided audited figures for the connections, on the grounds of data protection, which is nonsense when they went on to say that the were prepared to provide the information to the PC, if asked, It’s either protected data or it’s not!

      It’s disappointing that B4RN cannot at least break even.

      Having beena Trustee of Lancaster CVS I am aware that many community and charitable ventures have folded because they, like B4RN, are using funds faster than they secure them

  2. BT Infinity 2 isn’t really a direct comparison though. At 76Mbps it’s much slower than B4RN, which for me is normally around 950Mbps. Also, BT is £44.99 per month on a 12 month contract, compared to B4RNs £30 per month.

    I’m sure that, for most people, 76Mbps is more than adequate, but the B4RN connection does give you plenty of spare capacity for the future.

  3. Dear John – I do find your annual recasting of the B4RN accounts to be entertaining, but I wish you would try to present a fairer picture of B4RN’s financial status. You might, for example, have found space to mention that in a single year our income has nearly doubled, from £355,158 to £647,087.

    B4RN is a community benefit society (not a limited company). However, it is audited under the rules set by the Companies Act 2006 and the audited accounts have to be laid out in the same format as for a ‘normal’ profit making company. The fully audited accounts were accepted unanimously at the AGM and are available on line (https://mutuals.fsa.gov.uk/SocietyDetails.aspx?Number=31352&Suffix=R ).

    Clearly an organisation set up to provide reliable and cost-effective broadband in rural areas that are poorly served by existing providers is not a ‘normal’ profit making company and so the year end profit or loss figure is a poor indicator of overall performance. The capital expenditure figure in the accounts gives a much better indication of what is going on – lots of digging! The number of new paying customers connected each month is the best predictor of future income growth but does not form part of the audited accounts. At the AGM it was given that B4RN now covers 18,000 square kilometres with 3700 connections and we are expecting to reach 5000 connections by the summer. Our aim is to provide excellent broadband service in the hard to reach areas – which we are doing very successfully.

    Part of the audit includes checking internal management controls and processes. This year the auditors reconfirmed the appropriateness of the depreciation policy of the optical fibre network having an expected life of 25 years. I am surprised that you do not appreciate quite how future proofed fibre is in comparison with the copper wires that BT use. There will always be accidents and some maintenance will be required, but B4RN is going to great lengths to build resilience into the system so that service is not disrupted. The cost of repair and maintenance is very considerably lower than that required by BT, whilst providing a much better service. Very little of our income is being spent on repair and maintenance, it is instead going towards central costs and network support.

    Clearly B4RN is a young organisation (founded in 2011) and is still in network building phase. Capital from shareholders is used to develop the network which in turn generates income from customers – providing funds to cover operating costs and surpluses to repay investors. The building phase will not last forever. When the decision is made to stop expanding the network the cost base of B4RN will decrease significantly. Most of B4RN’s current costs relate to expanding the broadband network -the cost of materials, digging, network design and connecting new customers. With much lower costs and increased customer numbers post building phase, B4RN will be able to repay investors in full – as outlined in detail at the 2017 AGM and accepted by members.

    B4RN will then own and operate a world class broadband network designed with the rural community in mind and built with both resilience and spare capacity to cope with the ever-increasing demands placed on broadband networks. As an aside, I would point out that it is Estate Agents across the country who state the influence of good broadband upon house prices. People are already asking if there is B4RN service before they buy or rent.

    B4RN is now one of the bigger employers in rural north Lancashire/south Cumbria, and we are helping to boost the economy. The staff, the volunteers, and the Directors are all very proud of what we do, and I am glad that most of the feedback we receive is not as negative about our contribution to the community as is your blog.

  4. I greatly appreciate your comments Monica. Pleased be assured that I accept that the Broadband service you provide is without peer, in our rural environment.
    As you know my problem is simply that your expenditure of funds greatly outstrips the payments you receive from connections and service fees.
    I am sure you are correct in saying that you have 3,700 connections, but in 2016-17 only 1,800 people paid a service fee. I find that odd.
    When, last November you pointed out to me that you were a startup organisation and expected 2016-17 to be the first year in which you did not make a loss. I accepted that. Despite the fact, that was not what your Business Plan predicted. In the event you did not break even, you made a record loss, and a mere four month passed in which your expectation went so far awry.
    I will not labour the points I have previously made, as we are both familiar with them.
    However. I have personally been involved with a total of six successful startup companies, four commercial and two charitable. The key to a successful startup is a well formulated Business Plan. You are now so far adrift from your business plan that you cannot consider yourselves successful.
    Yes, you are a Community Benefit organisation but by now you were pledged to be benefitting the community in the form of interest payments on the communities’ share investment. According to your Business Plan you were to be able to repay all investments, within a ten year window. Currently that does not look feasible.
    I would dearly love you to succeed but to do so the managing Board needs to get to grips with the runaway costs. Just short of £400,000 a year on employment costs and £2.4m on Network Capex is simply not sustainable.
    Finally practical experience dictates that you are wrong about Network depreciation. You may be correct about fibre costs but the £5m you have spent is certainly not all fibre and hardware costs should be ten years at a maximum. Your home computer wouldn’t last that long.

    Best regards – John Keegan.

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