Category Archives: Rural Broadband

Not For Profit

There is much confusion around how some people, possibly with no prior experience in charitable fund raising, view the “profit” status of B4RN.

In its Business Plan B4RN states that it “was setup as a not for profit social enterprise rather than as a standard limited company to reflect its commitment to the community rather than any profit”.

In UK law a “not for profit” enterprise has no legal status.

The Resource Centre explain it as follows: “Not-for-profit organisation” is a broad term for all independent organisations that do not make private profit for directors, members or shareholders. Many different types of organisation can be “not-for-profit”. It is not a legal structure in and of itself.

B4RN is specifically registered as a Community Benefit Society.  That is its legal status.

Myersons Accountants, who specialise in such enterprises, explain: “Community benefit societies are incorporated registered societies which operate for the benefit of the community in which they operate. They must be able to demonstrate their social objectives and these must continue to be met.

These are not the same as co-operatives as these operate primarily for the benefit of members. Depending on how they distribute profits and what activities they undertake, co-operatives can also be social enterprise entities.

Put simply it is not the fact of making; or failing to make; a profit that determines the nature of a Society.  It is the purpose to which the profit it generates is employed.

Charities which trade, like Scope, The British Heart Foundation, Age UK and so on aim to make a profit, which they then invest in the charitable causes which they support.  They are still called “not for profit”.

Organisations such as Lancaster Advocacy, Advocacy Focus, Beacon etc are charitable organisations that do not trade.  They are funded by organisations such as the NHS, Lancaster County and Lancaster City Councils and so on.  These charities have to operate within their means as their only income is pre-determined at the beginning of their financial year and they cannot spend more than the funds they are provided with.  They are also ”not for profit”

In the case of B4RN.  The plan was to raise £3m in a mix of Shares, Loans and Grants, between 2011 and 2014.  For B4RN to meet the Social Objective the Loans would be fully repaid by 2021 .  The Shares would also be repaid over ten years (increased to 2017 in recent Invitations to Subscribe), including  interest, currently targeted at 5% pa,  paid in the form of additional shares credited to the investor’s account.  However the rate of interest paid  is determined by the board after taking into account the financial position of the society, which of course has made mounting losses since inception.

The Grants would, of course not be repaid.  However B4RN have been unable to secure Grant funding, therefore an additional amount of just less that £1m needed to be sourced from repayable, interest bearing, funds.

It is a simple matter of fact that in order to repay the shares and loans which the community have invested in B4RN, and provide the broadband infrastructure they planned, the organisation must make a profit.  In the Business Plan this is shown as a positive cash flow balance between income and expenditure

To suggest that making losses year on year, for the last six years is acceptable because B4RN is a “Non Profit” organisation is palpable nonsense because it runs counter to the declared Social Objective.

Indeed at their AGM in October, Hornby Swimming Pool was raised as an example of a community project that would benefit from funding, and shareholders were assured that once B4RN was generating sufficient income, the income would be returned to the community in a variety of ways.  In his reply however Barry Forde gave no indication when trading was planned to become profitable, bearing in Mind that Monica Lee had said the they would be in profit by March 2017.

It is time the Managing Board brought operational cost under control and curtailed some of their more grandiose schemes, however desirable they may be.

John Keegan

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

B4RN and VoIP

Android VoIP phone

A question for those of you who chose to have B4RN as your ISP.

During the two very recent power outages did you loose all your VoIP telephone services, or do you have a UPS to maintain power to your Phone, PC and Hub.

If not, do you have a landline so that you have normal telephony available?

To those of you that opted for BT Broadband, and have cordless phones remember that you are advised to have one hardwired telephone for emergency use.  However, because BT Infinity is Fibre to the Cabinet you will not loose your telephony for 11 hours or so.

If you have a BT Cordless phone, like the BT8600 Call Blocker, your cordless phone will continue to work until the battery in each handset runs flat (24 hours or so depending on use and initial charge).

Alternatively, make sure your cell phone is always fully charged and has all necessary emergency numbers programmed in.

B4RN 2016 Accounts

I have reported my views of the B4RN accounts each year for the last four years. This year is no exception.  Here is my analysis.  Also; B4RN have been kind enough to provide their response, which is included as the first Comment to this post:

B4RN held it’s AGM on the 01 November 2016, having published their Annual Report and Financial Statement for the year ending 31 March 2016, on the FCA website on the 29 September 2016.

These show that on an Income of £357,708 they made a loss for the year of £225,263.  In addition, due to a change in accounting policies, they have “restated” the 2015 loss, which was £47,368, as a loss of £122,106.  The cumulative loss, since the Company foundation, is £565,011.

In 2016 B4RN’s Auditors have recognised that £83,206 declared as assets in 2015 should have been Cost of Sales. This reduces the depreciation for 2015 by £14,721.

They have also recognised that this should have been applied in prior years and as a result has devalued the assets for 2012 to 2014 by £60,249.  As a result, the Net Asset Value for the year end 2015 is reduced by £134,987.

In my view these changes in accounting policy are positive.  The one negative aspect of the accounts continues to be the low level of income from users of the service, and the commensurate build up of losses.

This year income increased £144,398 to £367,708.  However, when the cost of sales are taken from this the funds left to cover overheads are insufficient. Overheads have increased from £172.099 to £459,819.

In previous years B4RN have always included a page in their accounts which detailed exactly the source of their income and provided a detailed breakdown of their overhead costs.  This page is omitted from the accounts for this year.

Monica Lee, who is Director & Secretary has very kindly provided me with some of this missing information.

B4RN had 1,690 connections at 2016.  Income from connections over all prior years totalled £54,350, which equates to 362 connections.  As a result, I calculate that the value of connections made in 2016 would have been £199,200 (1,328 connections) and the service fees £155,958 with Income from other sources £2,550

Monica tells me that in the year to November 2016 a further 605 connections have been made with an additional 705 anticipated in the balance of the 2017 financial year.  This would suggest Connection fees in the order of £196,500 for 2017.

Estimating service income is more difficult because it depends on how many months the connection covers.  However, the customers from 2016 should generate £608,400.  Assuming the customers to Nov 2016 are connected for half a year they should generate £108,900.  It would be safest to assume that the connections between Nov and March will not have time to provide any service income.  This suggests that the Income for 2017 could be £913,800.  The COS for the connections in 2016 was £77,034.  You could assume therefore that the COS for the 1,310 connections in 2017 would be a further £70,000, leaving a balance of £843,800 to cover overheads and profit.

Last year the overhead was £459,819.  As there is no breakdown for this figure it is impossible to estimate what the coming year will bring.  If these figures are correct then the future looks much brighter than the past.  But it pays to remember that the B4RN Business Plan forecast Income from trading between 2012 and 2016 of £2,378,000 and it has only been £546,945.  In addition to Share capital of £2,138,989 the Company is in receipt of loans from members reported as £1,476,575, which will need to be repaid at some time, so the path ahead is still steep.

John Keegan

PS: Please see accompanying Comment from B4RN