B4RN’s Annual Accounts for 2018 were to be presented at an AGM on the 09 October 2018. I assume that this took place. However, I have seen no publicity, as there was last year, regarding the proceedings. If anyone knows of any such publicity and has records of the statements made by the Chairman and the Auditors, I would be extremely grateful for more information.
However, I obtained the accounts and have been analysing them.
You will remember that in their 2017 Accounts B4RN declared a loss of (£399,533). In this year’s accounts, they have decided to change their accounting policies and “Restate” last year’s loss to (£235,227).
Because the change in accounting policy will have an impact on the 2018 performance it is necessary to establish how, and why, this policy change has occurred.
You will remember that for the first three years B4RN used a rate of Depreciation of the Network Assets of 10% pa (straight line), which means that the Network was written off over a 10 year period.
That changed in 2015 when it was decided that the materials comprising the Network would, in fact, last for 25 years. The rate of Depreciation was reduced to 4%, increasing the life expectancy by two and a half times..
Twenty five years may well be reasonable, I’m not sure that anyone actually knows. What we do know is that Virgin Media, SKY, Talk Talk and B4RN themselves have had their cable eaten by rats. We must also remember that fibre optic broadband is celebrating its 10th anniversary so there will be no experience, for another 15 years, of domestic fibre optics being viable for 25 years.
ISPReview reported that: “It might surprise some readers that rodents are actually one of the most common causes of damage that can lead to cable failure. Lightning strikes, overloads or surges, installation problems and shovels (building / digging damage) are the other common causes.”
Apparently, the rodents get access into the protective ducting. I’m not sure how long the ducting is expected to last but its longevity will be critical to the life expectancy of the Network.
Note 5. to this year’s accounts states: “The prior year accounts have been restated to reflect the capitalisation of labour and motor costs charged in the income and expenditure account”.
What this means is that an amount of £164,306 has been removed from Overheads and added to the Net Book Value of the Network.
The Motor Expenses included in last year’s overhead was £12,612, therefore, Employment costs (Wages + NI) of about £158,000 has been assessed as adding to the value of the Network. The Accounts provide no analysis of Employment Costs that would enable the veracity of this amount to be verified.
This year B4RN have, once again, spent more than the income generated by the work/service they sell. Technically that is called a loss. So, their loss in 2018 was (£122,306) making the total losses made since they started trading in 2012 of (£862,280). In the year they also sold £7,000 worth of Assets (there is no indication which assets but Motor Vehicles are no longer accounted for separately)
Of course, if the Accounting Policy changes had not been made to the 2017 accounts, and continued in the 2018 accounts, the losses to date would have exceeded £1 million. It is worth bearing in mind that if the decision to reduce the rate of devaluation of the Network to the exceptionally low level of 4% hadn’t been made then this latest policy change would, probably, never have happened.
When I reflect that B4RN have had the same Auditors since inception and that the principle Directors have never changed, how is it that such dramatic changes in Accounting Policy (the third in the six years since start-up) have had to be taken? Is it anything to do with the accumulating losses?
It is quite clear the B4RN are not charging enough for the monthly service they provide to clients. Currently, they charge £25 (Ex VAT) per month. The Income from this source in 2018 was £924,574 that is equivalent to 3,082 subscribers. B4RN do not publish how many clients they have. I have no idea why. The total amount they have earned from providing connections, since 2012, is £373,517. At £125 per connection that adds up to 2,988. I am comfortable therefore in estimating that their client base is a mere 3,000 or so.
If these 3,000 clients had paid an additional £4 per month over the six years then B4RN would not be in a loss-making situation.
That raises the question as to why the Directors have not recognised that they cannot continue losing money every year when such a small increase in charges could reverse their failure. Six years without any inflationary increase seems to be unnecessary. In 2012 I was paying BT £17 (inc VAT) each month. I am now paying £33.20 (inc VAT) which includes unlimited calls to UK Land Lines. Surely if B4RN provide such a superior Network their charges could stand another £3 to £4 to match BT charges?
This year B4RN notified the Financial Conduct Authority that they will in future “Provide high speed broadband to domestic and business premises located in the United Kingdom,” and no longer only “the north of England”.
If I was an investor I would want to know how this expansion in the business outreach will impact on Employment Costs, and Motor Expenses, which will in future inflate the Asset Value of the business because of the recent policy changes.
During the course of the year, the business accepted a further £1,441,749 in share capital, with an increase of only £840,907 in its Net Asset Value on the Balance Sheet. Put another way Shareholders Capital continues to be absorbed in losses each year.
Two years ago B4RN confidentially told me that they would make a profit in 2017 and this would continue in 2018. They were wrong. They continue to expand the business and increase the losses. In financial circles, this is defined as “Over trading” and is the reason many businesses declare Creditors Voluntary Liquidation.
If I was running the operation I would be calling for retrenchment. A sign of a reversal of losses and that trading was beginning to shows signs of competent management.
The people of Kirkby Lonsdale need to weigh, very carefully, their view of the ongoing viability of a B4RN network replacing the BT Fibre Optic Broadband that they currently enjoy.
You can examine the full B4RN Annual Return by clicking B4RN Annual Return to the FCA
Alternatively, to view their performance in a Management Format, enabling you to track performance across all their trading years you can select B4RN Management Accounting Format.