TIDMADT
RNS Number : 0308T
AdEPT Technology Group PLC
12 November 2019
AdEPT Technology Group plc
("AdEPT" or the "Company", together with its subsidiaries the
"Group")
Interim results for the six months ended 30 September 2019
AdEPT (AIM: ADT), one of the UK's leading independent providers
of managed services for IT, unified communications, connectivity,
voice and cloud services, announces its unaudited results for the
six months ended 30 September 2019.
Highlights
Revenue and EBITDA
-- Total revenue increased by 26% to GBP30.8 million (2018: GBP24.4 million)
-- Managed services revenue increased by 39% to GBP25.1 million (2018: GBP18.0 million)
-- Managed services revenue up to 82% of total revenue (2018: 74%)
-- EBITDA* increased by 18% to GBP6.1 million (2018: GBP5.2 million)
-- EBITDA* margin 20% (2018: 21%)
PBT, EPS and Dividends
-- Adjusted profit after tax** increased by 4% to GBP3.9 million (2018: GBP3.7 million)
-- Adjusted fully diluted EPS increased by 4% to 15.3p (2018: 14.6p)
-- Interim dividend increased by 4% to 5.10p per share (2018: 4.90p)
Cash Flow and Debt
-- Reported EBITA conversion to pre-tax cash from operating activities 90% (2018: 82%)
-- Net senior debt at period end of GBP31.5 million (2018: GBP25.1 million)
-- GBP5.2m of funds used to fund Advanced Computer Systems (UK)
Limited acquisition in April 2019
Ian Fishwick, Chairman, commented:
"The Group has continued with its transformation into a managed
service provider for unified communications and IT whilst bringing
the Group closer together under the 'One AdEPT' initiative
christened 'Project Fusion'. I am delighted to see the organic
revenue growth that has been achieved alongside successfully
continuing with our acquisitive growth strategy. The results for
the period demonstrate the strength of our capex-light highly cash
generative business model which is focused on high levels of
recurring revenue.
I am pleased to see the positive results of our efforts, as
trading continues to be in line with management's expectations. We
have a fully supportive investor base and funding partners, and in
this converging and fragmented marketplace we will continue to
pursue our strategy to identify earnings-enhancing acquisitions
whilst retaining the ability to continue with our progressive
dividend."
* Earnings before interest, tax, depreciation, amortisation and
excluding one off acquisition and restructuring costs and share
based payments
** Profit after tax adding back one-off acquisition and
restructuring costs, amortisation and share based payments,
excluding revaluation of deferred consideration
Enquiries:
AdEPT Technology Group Plc
Ian Fishwick, Chairman 07720 555 050
Phil Race, Chief Executive 07798 575 338
John Swaite, Finance Director 01892 550 243
Cantor Fitzgerald Europe
Nominated Adviser & Broker
Phil Davies / Will Goode 020 7894 7000
About AdEPT Technology Group plc:
AdEPT Technology Group plc is one of the UK's leading
independent providers of managed services for IT, unified
communications, connectivity and voice solutions. AdEPT's tailored
services are used by thousands of customers across the UK and are
brought together through the strategic relationships with tier-1
suppliers such as Openreach, Vodafone, Virgin Media, Avaya,
Microsoft, Dell and Apple.
AdEPT is listed on the London Stock Exchange (Ticker: ADT). For
further information please visit: www.adept.co.uk
BUSINESS REVIEW
In the six-month period ended 30 September 2019, AdEPT made
considerable progress in its strategy of further expanding its
managed service and IT capability, with continuing geographical
expansion. This progress has been made through a combination of
2.5% organic revenue growth (driven mainly from IT and managed
connectivity services) and the contribution from acquisitions,
including that of Advanced Computer Systems UK Limited ("ACS"), an
education-focused IT business which completed in April 2019.
Providing a full suite of managed services, AdEPT is in an
excellent position to take advantage of the continuing convergence
between IT and telecoms.
AdEPT's most recent acquisition - strengthening a territory and
a market sector
The Company's most recent acquisition in the IT space, ACS, was
announced in April 2019. ACS is an independent IT service provider,
focused on providing IT services and has a strong public sector
presence, including managing and supporting the IT function of
approximately 200 schools and academy trusts. The highly skilled
team, together with the well-matched customer base and product set
at ACS complements AdEPT's existing IT managed services for
education offering where AdEPT provides services to thousands of
schools and academy trusts. ACS provides a geographical extension
to the existing education focused centre of excellence of AdEPT
based in Orpington and offers an opportunity to cross-sell the
software and applications developed by the in-house software team
at AdEPT. ACS is our second acquisition in Yorkshire, following the
acquisition of ETS Communications Limited ("ETS") in November 2018.
The IT skills of ACS are also highly complementary to the unified
communications expertise of ETS and they are working closely
together, with the ETS team having recently relocated from their
Wakefield office to the ACS offices in Doncaster.
The integration of ACS into the AdEPT group has been largely
completed, with the finance function being integrated into the
Orpington office of AdEPT. As this acquisition was made at the
start of the current financial year, it has made a full six-month
contribution to the interim financial results.
A balanced business - delivering in both public and private
sectors
The Group continues to have a significant public sector and
healthcare presence, with the proportion of total revenue from
public sector and healthcare customers accounting for 44% of total
revenue (2018: 34%). This increase is partly derived from the ACS
acquisition, which had approximately 70% of revenue being generated
from its education customer base, but also from continuing organic
contract wins under the public sector frameworks and further
penetration of services into the existing public sector and
healthcare customer base. Following the award of Health and Social
Care Network compliance authorising AdEPT to sell data networks to
the NHS, the Company successfully won the contract to design and
roll out a super-fast network infrastructure across all departments
and sites of Kent NHS. During the last 6 months the service
delivery team have been successfully carrying out the roll out of
the wide area network, including managed firewalls, in more than
400 sites across Kent, including hospitals, hospices and GP
surgeries. The roll out is nearing completion, which has resulted
in a significant increase in capacity and connectivity speed for
Kent NHS.
Building on strong partnerships - promotion to Avaya Diamond
Partner status
We recently announced that AdEPT has been promoted by Avaya to
the 'elite' Diamond status as a part of the Avaya Edge partner
programme in the UK. The AdEPT relationship with Avaya began over
20 years ago and during that time AdEPT have had no hesitation in
recommending Avaya voice solutions to customers that demand
scalability, reliability and functionality from either a cloud or
on-premise solution.
AdEPT has deployed Avaya solutions to clients such as HCA,
Somerset House, Beaumont Business Centres and Islington Borough
Council. The Avaya solutions have been an important part of the
AdEPT portfolio for many years and the promotion to Diamond status
strengthens our engagement with Avaya and improves our ability to
satisfy the dynamic requirements of our customers.
Creating One AdEPT - Project Fusion
Over the last six months the AdEPT team has been working hard on
the 'One AdEPT' project, christened 'Project Fusion', including
initiatives in relation to sales, marketing, systems and branding.
This includes the recent release of the new look group-wide AdEPT
website (www.adept.co.uk). The continued progress on the roll out
of a group-wide CRM system is expected to go live across several
business units during 2020, which is anticipated to enable the
Group to leverage greater operating efficiency from its highly
skilled team.
On 4 December 2019 we are holding our first AdEPT Group
conference and exhibition at The Drum, Wembley. The Group alongside
our valued partner network will be showcasing our technology
credentials and specialisms in the worlds of telecoms,
connectivity, IT services, education, healthcare and the wider
public sector. As an innovative ICT solutions provider, we
understand the technological challenges our customers are facing,
across all market verticals. We are inviting both existing and
potential new customers to join AdEPT and our world class ecosystem
of partners, including Avaya, Microsoft, Dell, BT, Pragma, Virtual1
and many more, to find out how we can help them succeed in this
increasingly digital world through the use of technology.
REVENUE
Total revenue in the period increased by 26% to GBP30.8 million
and includes the six-month revenue contribution from ACS following
the acquisition in April 2019; and a full six-month contribution
from Shift F7 and ETS following the acquisitions in August 2018 and
November 2018 respectively. Total underlying organic revenue growth
(excluding the revenue contributions from acquired businesses) was
2.5% over the comparative period.
The continued progress of the Group's transition to a complete
managed service provider can be demonstrated by the 39% increase in
revenue from managed services, including IT, unified
communications, data connectivity and cloud services to GBP25.1
million. The acquisition of ACS, combined with organic sales, has
increased the rate of transition of the Group towards this
strategic goal with managed services accounting for 81.5% of total
revenue in the six months ended 30 September 2019 (2018: 73.8%).
Excluding the impact of acquisitions, the managed services division
has seen an 7.9% organic revenue increase over the comparative
period, with the majority of the growth being achieved in managed
data connectivity, IT software and support services.
Fixed line revenues reduced by 10.7% from the comparative
period, which is a reflection of the organic sales focus of the
Group on managed services and IT combined with the substitution
impact of existing fixed line customers transitioning to new
technologies. AdEPT, with its expanded IT and unified
communications portfolio, is well positioned to embrace customer
migration to next generation products and services.
One of the strengths of the AdEPT business model is having good
revenue visibility. The proportion of revenue being generated from
recurring products and services (being all revenue excluding
one-off projects, hardware and software procurement) remains high
at 75.3% of total revenue for the six-month period ended 30
September 2019 (2018: 78.4%). ACS which was acquired at the start
of the interim period has a higher proportion of revenue generated
from one-off projects than the Group average. This has contributed
to the dilution of the overall recurring revenue percentage. The
managed service and IT product sets include software, hardware
procurement and professional services for configuration and
installation, which by their nature are project based and not a
recurring revenue stream, however a high proportion of the one-off
revenues are further products and services being supplied to the
existing customer base.
GROSS MARGIN
The gross profit margin for the six-month period ended 30
September 2019 was 48.0%, which is a reduction from the 49.2%
achieved in the comparative period. The gross profit margin
achieved on recurring services of 53.9% has remained consistent
with the prior period (2018: 53.9%), although with recurring
services being a lower proportion of total revenue in the interim
period. An increase in the proportion of revenue generated from
one-off projects and hardware put downward pressure on the gross
profit margin, as at 39.5% it generates a lower relative gross
profit margin than recurring services. This change arises because a
greater proportion of one-off revenues were generated from hardware
and software supply than the comparative period which, combined
with some price pressure arising partly from the wider-
macroeconomic backdrop, drives the reduction to the total average
gross profit margin.
PROFIT BEFORE TAX AND EARNINGS PER SHARE
Reported profit before tax decreased to GBP1.1 million (2018:
GBP1.7 million) which takes into account the GBP0.9 million
increase in amortisation and GBP0.4 million increase in interest
charges, arising from a higher average net debt position from the
funding of the consideration for the four acquisitions completed in
the last 14 months.
The interest cost in the statement of comprehensive income of
GBP1.3 million includes several non-cash items, such as discounting
of the estimated contingent deferred consideration for acquisitions
and the amortisation of bank facility fees. The interest cost of
GBP0.9 million in the cash flow statement is a better measure of
the cash costs of financing.
Adjusted profit after tax (before one off acquisition fees,
restructuring costs and amortisation) increased by 4.0% to GBP3.9
million (2018: GBP3.7 million) which is a reflection of the
increased EBITA, less the additional interest costs arising from
the higher average net debt position which is as a direct result of
the acquisition consideration outflows (initial and deferred
consideration) in respect of the Atomwide, Shift F7, ETS and ACS
acquisitions.
The adjusted operating profit (before one off acquisition fees,
restructuring costs, depreciation and amortisation of intangible
fixed assets) increased by 18.3% to GBP6.1 million (2018: GBP5.2
million). This increase arises from the full period impact of the
acquisition of ACS undertaken at the start of the interim period
and the full period impact of the Shift F7 and ETS Communications
compared to the comparative period, combined with the
reclassification of GBP0.4 million of costs to depreciation and
interest charges under IFRS16 (Lease Accounting) which were
previously included within operating costs.
Adjusted basic diluted earnings per share increased by 4.3% to
15.4p for the six-month period ended 30 September 2019 (2018:
14.7p). Taking into account the share options in issue and the
potential dilutive effect of the BGF convertible instrument under
the treasury stock accounting method, adjusted diluted earnings per
share increased by 4.3% to 15.3p (2018: 14.6p). The dilution impact
of increased interest charges, arising from the use of the debt
facility to fund the four earnings enhancing acquisitions in the
last 18 months, results in this increase being lower than the 9.7%
uplift in adjusted EBITA.
FINANCING AND CASH FLOW
Cash generated from operating activities before tax increased to
GBP4.8 million (2018: GBP3.8 million), which equates to a 90%
conversion of reported EBITA (after including the GBP0.5 million
acquisition and restructuring fees which are cash costs) (2018:
82%). The increase in inventory levels of GBP0.1 million at 30
September 2019 relates to equipment pre-purchased in preparation of
some significant installation projects in the second half of the
current financial year. The value of contract assets and
liabilities (deferred revenue and costs under IFRS 15 'Revenue
recognition') in relation to data circuit installations increased
by GBP1.0 million each respectively, creating no additional working
capital impact. The value of trade receivables was increased at 30
September 2019 by GBP1.4 million following a significant volume of
one-off installation projects for the education customers during
the school summer holiday period for which the customers have paid
the invoiced values after the end of the interim period. A large
proportion of this working capital pressure was offset through
supplier credit terms, with a GBP0.9 million increase to trade
payables at 30 September 2019.
Dividends paid in the period absorbed GBP1.2 million of funds
(2018: GBP1.0 million), this increase reflects the progressive
dividend policy of the Board.
The Company operates a capex-light model with capital
expenditure on tangible fixed assets of 1.3% of revenue (2018:
1.7%). The capital expenditure in the current interim period
includes;
a. the refurbishment of the Our IT Department premises in St
Neots, which has been recently completed;
b. the investment in support of Project Fusion; and
c. further investment in the development of AdEPT Nebula - the
network connecting three data centres and a number of added value
services such as hosted desktop and voice solutions.
AdEPT Nebula is built around the core data centre in Orpington
which is owned by AdEPT. AdEPT Nebula allows AdEPT to provide its
own cloud hosting capability. AdEPT Nebula is live and already
delivering benefits to around 200 customers by providing Avaya IP
cloud telephony services, hosted IT services and a range of data
connectivity services. The network underpinning AdEPT Nebula has
been developed using the in-house skills and capabilities of the
AdEPT technical team. The Company will continue to review
development opportunities for the addition of new products and
services to AdEPT Nebula as customer demand dictates.
GBP5.2 million of available funds (net of cash acquired) was
used to fund the initial cash consideration for the acquisition of
the entire share capital of ACS with effect from 1 April 2019.
Total senior debt has increased to GBP31.5 million at 30
September 2019 (2018: GBP25.1 million), with the increase arising
from the acquisition consideration paid in the period for ETS
Communications Limited in November 2018 and ACS in April 2019. The
Senior Debt:EBITDA (annualised) ratio has slightly increased as a
result of the use of the debt facility to fund the acquisition
consideration but remained comfortable at 2.58x at 30 September
2019 (2018: 2.43x).
DIVIDS
On 7 April 2019 the Company paid dividends of GBP1,194,165 in
relation to the interim dividend declared in September 2018.
On 25 September 2019, the Directors announced their intention to
declare an interim dividend in respect of these interim results. An
interim dividend of 5.10p per Ordinary Share has been declared in
respect of the period ended 30 September 2019, an increase of 4.1%
over the interim dividend for the comparative period (2018: 4.90p).
This will absorb approximately GBP1.2 million of shareholders'
funds (2018: GBP1.2 million). It is proposed by the Directors that
this dividend will be paid on 6 April 2020 to shareholders who are
on the register of members on the record date of 13 March 2020. The
ex-dividend date will be 12 March 2020.
Dividend cover for the interim period was 3.0x (2018: 3.0x).
Strong free cash flow generation has continued since the end of the
period, and there continues to be scope for the Board to continue
its progressive dividend policy.
BOARD CHANGES
The board of directors recognises the importance of, and is
committed to, ensuring that proper standards of effective corporate
governance operate throughout the Company. Accordingly, the Group
is continuing to strengthen the Board with industry professionals
whilst taking into account the provisions of the QCA Corporate Code
published by the Quoted Companies Alliance.
As part of an ongoing review of AdEPT board practices the board
acknowledges the guidance to retain independent non-executive
directors with an appropriate length of service.
In June 2019, Richard Bligh was appointed to the Board. Richard
was formerly chief operating officer of Gamma Communications plc
and was instrumental in building that company to over GBP1 billion
market capitalisation. Richard's knowledge of the UK technology
market, and how to grow businesses, will be a great asset to
AdEPT.
In October 2019 the Company announced the appointment of Craig
Wilson as a non-executive director. Craig has extensive experience
in Business Process Outsourcing (BPO), IT Services and Software,
running businesses with up to GBP3 billion annual revenue and
14,000 staff. Given that AdEPT has over 40% of revenues related to
the Public Sector, Craig's expertise in this arena is highly
relevant with experience spanning; Department for Work and
Pensions, HMRC, Ministry of Defence and Ministry of Justice.
As a further consequence of the review, AdEPT announced on 29
October 2019 the retirement of Dusko Lukic as a non-executive
director from the Board. Dusko has been a valued member of the
AdEPT Board for 13 years as the senior independent non-executive
director. We wish Dusko every success in the future and thank him
for his outstanding contribution. He is a big part of our
history.
OUTLOOK
The continuing transformation to a fully integrated managed
service operation has continued at a pace and, on behalf of the
Board, I would like to thank all of the AdEPT team for another
amazing six months.
The business now has over 300 talented individuals working to
the mission "uniting technology, inspiring people" and I would like
to take the opportunity to thank this team for their continued
engagement with AdEPT and their hard work as they are instrumental
to the success of the business. This breadth of expertise provides
an excellent platform for our future growth.
The evolution and strengthening of the leadership team has been
a continuing theme during this period, with the recruitment of
Andrew Lovett as COO to work alongside Phil Race as CEO. A very
welcome addition to the business.
AdEPT has a full suite of managed services and is now embracing
the continuing convergence between IT and Telecoms. The investment
in AdEPT Nebula, our own network and IT services infrastructure, is
already providing benefits across the Group - an initiative that
has capitalised on the capability and expertise acquired with
Atomwide in 2017.
The Board is delighted with the continued progress being made by
the Group and trading continues to be in line with management's
expectations. We continue to be highly cash generative with a fully
supportive investor base and funding partners, which enables the
Board to continue to identify earnings-enhancing acquisitions
whilst retaining scope for a progressive dividend policy.
Ian Fishwick
Chairman
12 November 2019
UNAUDITED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Six months Six months
ended ended
30 September 30 September
2019 2018
Note GBP'000 GBP'000
-------------------------------------------------- ----- ------------- -------------
REVENUE 30,818 24,390
Cost of sales (16,021) (12,402)
-------------------------------------------------- ----- ------------- -------------
GROSS PROFIT 14,797 11,988
Administrative expenses (12,363) (9,391)
-------------------------------------------------- ----- ------------- -------------
OPERATING PROFIT 2,434 2,597
Total operating profit - analysed:
Operating profit before acquisition fees,
share-based payments,
depreciation and amortisation 6,106 5,161
Share-based payments (40) (25)
Acquisition fees (239) (319)
Restructuring costs (236) -
Revaluation of deferred consideration 385 -
Depreciation of tangible fixed assets (681) (229)
Amortisation of intangible fixed assets (2,861) (1,991)
-------------------------------------------------- ----- ------------- -------------
Total operating profit 2,434 2,597
-------------------------------------------------- ----- ------------- -------------
Finance costs (1,289) (895)
Finance income - -
-------------------------------------------------- ----- ------------- -------------
PROFIT BEFORE INCOME TAX 1,145 1,702
Income tax expense (279) (329)
-------------------------------------------------- ----- ------------- -------------
TOTAL COMPREHENSIVE INCOME FOR THE PERIOD 866 1,373
-------------------------------------------------- ----- ------------- -------------
Attributable to:
Equity holders 866 1,373
Earnings per share
Basic earnings per share (pence) 3 3.7p 5.8p
Diluted earnings per share (pence) 3 3.6p 5.8p
Adjusted earnings per share, after adding
back
acquisition fees, amortisation and non-recurring
costs
Basic earnings per share (pence) 3 15.4p 14.7p
Diluted earnings per share (pence) 3 15.3p 14.6p
UNAUDITED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Restated Audited
30 September 30 September 31 March
2019 2018 2019
GBP'000 GBP'000 GBP'000
------------------------------- ------------- ------------- ---------
ASSETS
Non-current assets
Goodwill 17,182 17,672 16,024
Intangible assets 44,520 37,550 39,999
Property, plant and equipment 2,740 1,653 1,472
Deferred tax asset 43 - 43
-------------------------------- ------------- ------------- ---------
64,485 56,875 57,538
Current assets
Inventories 696 217 543
Contract assets 1,562 391 953
Trade and other receivables 13,787 9,295 10,349
Cash and cash equivalents 4,575 4,626 7,650
-------------------------------- ------------- ------------- ---------
20,620 14,529 19,495
Total assets 85,105 71,404 77,033
LIABILITIES
Current liabilities
Trade and other payables 17,515 11,889 11,065
Contract liabilities 2,222 1,228 1,976
Income tax 406 147 831
Short term borrowings 29 - 33
-------------------------------- ------------- ------------- ---------
20,172 13,264 13,905
Non-current liabilities
Deferred income tax 7,152 5,960 6,405
Convertible loan instrument 6,255 6,092 6,174
Long term borrowings 36,044 29,751 34,730
-------------------------------- ------------- ------------- ---------
Total liabilities 69,623 55,067 61,214
--------------------------------
Net assets 15,482 16,337 15,819
SHAREHOLDERS' EQUITY
Share capital 2,370 2,370 2,370
Share premium 479 479 479
Share capital to be issued 1,119 1,037 1,079
Capital redemption reserve 18 18 18
Retained earnings 11,496 12,433 11,873
-------------------------------- ------------- ------------- ---------
Total equity 15,482 16,337 15,819
-------------------------------- ------------- ------------- ---------
UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Attributable to equity holders of
parent
Share Capital
Share Share capital redemption Retained Total
to
capital premium be issued reserve earnings equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------- -------- -------- ---------- ----------- --------- --------
Equity at 1 April 2018 2,370 479 1,012 18 12,166 16,045
-------- -------- ---------- ----------- --------- --------
Change in accounting policy
(Note 2) - - - - (99) (99)
------------------------------- -------- -------- ---------- ----------- --------- --------
Adjusted equity at 1 April
2018 2,370 479 1,012 18 12,067 15,946
Profit for 6 months ended
30 September 2018 - - - - 1,373 1,373
Dividend - - - - (1,007) (1,007)
Share based payments - - 25 - - 25
Equity at 30 September
2018 2,370 479 1,037 18 12,433 16,337
Profit for 6 months ended
31 March 2019 - - - - 495 495
Dividend - - - - (1,066) (1,066)
Deferred tax asset adjustment - - - - 11 11
Share based payments - - 42 - - 42
Balance at 31 March 2019 2,370 479 1,079 18 11,873 15,819
Change in accounting policy
(Note 2) - - - - (48) (48)
------------------------------- -------- -------- ---------- ----------- --------- --------
Adjusted equity at 1 April
2019 2,370 479 1,079 18 11,825 15,771
Profit for 6 months ended
30 September 2019 - - - - 866 866
Share based payments - - 40 - - 40
Dividend - - - - (1,195) (1,195)
Balance at 30 September
2019 2,370 479 1,119 18 11,496 15,482
------------------------------- -------- -------- ---------- ----------- --------- --------
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
Audited
Six months Six months Year ended
ended ended
30 September 30 September 31 March
2019 2018 2019
GBP'000 GBP'000 GBP'000
------------------------------------------------- ------------- ------------- -----------
Cash flows from operating activities
Profit before income tax 1,146 1,702 2,438
Depreciation and amortisation 3,542 2,220 5,201
Adjustment to deferred consideration (385) - 586
Share based payments 40 25 68
Net finance costs 1,287 895 1,902
Decrease/(Increase) in inventories (129) 51 (171)
Decrease/(increase) in trade and other
receivables (3,292) (3,007) (3,609)
Increase/(decrease) in trade and other
payables 2,564 1,873 1,118
-------------------------------------------------- ------------- ------------- -----------
Cash generated from operations 4,773 3,759 7,533
Income taxes paid (1,252) (663) (809)
-------------------------------------------------- ------------- ------------- -----------
Net cash from operating activities 3,521 3,096 6,724
-------------------------------------------------- ------------- ------------- -----------
Cash flows from investing activities
Interest paid (936) (701) (1,414)
Acquisition of subsidiaries net of cash
acquired (5,191) (8,474) (11,034)
Purchase of intangible assets (125) (9) (63)
Purchase of property, plant and equipment (415) (406) (564)
-------------------------------------------------- ------------- ------------- -----------
Net cash used in investing activities (6,667) (9,590) (13,075)
Cash flows from financing activities
Dividends paid (1,194) (1,007) (2,074)
Increase in bank loan 3,800 6,000 10,000
Repayment of borrowings (2,535) (1,000) (1,052)
Net cash (used in)/from financing activities 71 3,993 6,874
-------------------------------------------------- ------------- ------------- -----------
Net increase/(decrease) in cash and cash
equivalents (3,075) (2,501) 523
Cash and cash equivalents at beginning
of period/year 7,650 7,127 7,127
-------------------------------------------------- ------------- ------------- -----------
Cash and cash equivalents at end of period/year 4,575 4,626 7,650
-------------------------------------------------- ------------- ------------- -----------
Cash at bank and in hand 4,575 4,626 7,650
Bank overdrafts - - -
------------------------------------------------- ------------- ------------- -----------
Cash and cash equivalents 4,575 4,626 7,650
-------------------------------------------------- ------------- ------------- -----------
ACCOUNTING POLICIES
1 Basis of preparation
The financial information set out in this interim report, which
has not been audited, does not constitute statutory accounts within
the meaning of Section 434 of the Companies Act 2006. The Company's
statutory financial statements for the year ended 31 March 2019,
prepared under International Financial Reporting Standards, were
approved by the board of directors on 31 July 2019 and have been
filed with the Registrar of Companies. The auditor's report on
those financial statements was unqualified, did not contain any
emphasis of matter paragraph and did not contain any statement
under Section 498 of the Companies Act 2006.
The interim financial statements have been prepared in
accordance with IAS 34 "Interim Financial Reporting", as adopted by
the EU. Comparatives for the year ended 31 March 2019 have been
extracted directly from the audited statutory accounts and the
figures presented in the statement of comprehensive income in this
interim report for comparative periods have not been restated to
take account of the change in accounting policies in respect of
IFRS 9 'Financial Instruments' and IFRS16 'Leased assets', details
of which are set out in Note 2 below.
2 Accounting policies
The same accounting policies, presentation and methods of
computation are followed in this interim report as were applied in
the preparation of the Group's annual financial statements for the
year ended 31 March 2019 with the exception of those noted
below.
IFRS 9 'Financial Instruments'
IFRS 9 replaces the provisions of IFRS 9 that relate to the
recognition, classification and measurement of financial assets and
financial liabilities, derecognition of financial instruments,
impairment of financial assets and hedge accounting.
The adoption of IFRS 9 from 1 April 2018 resulted in changes in
accounting policies and adjustments to the amounts recognised in
the financial statements. The Group has applied IFRS 9 in
accordance with the transitional provisions with an opening
adjustment to equity and has elected not to restate comparative
information. As a result, the comparative information provided
continues to be accounted for in accordance with the Group's
previous accounting policy. The Group has recognised the cumulative
effect of initially applying IFRS 9 with an opening adjustment to
equity of GBP99,044 at 1 April 2018. The statement of financial
position for the September 2018 comparative has been restated to
take account of the opening equity impact of IFRS 9.
Assets carried at amortised cost
For loans and receivables, the amount of the loss was measured
as the difference between the asset's carrying amount and the
present value of estimated future cash flows (excluding future
credit losses that had not been incurred) discounted at the
financial asset's original effective interest rate. The carrying
amount of the asset was reduced and the amount of the loss was
recognised in profit or loss.
If, in a subsequent period, the amount of the impairment loss
decreased and the decrease could be related objectively to an event
occurring after the impairment was recognised (such as an
improvement in the debtor's credit rating), the reversal of the
previously recognised impairment loss was recognised in profit or
loss.
Allowance for impairment of receivables
Management reviews are performed to estimate the level of
provision required for irrecoverable debt. Provisions are made
specifically against invoices where recoverability is
uncertain.
IFRS16 'Leased assets'
The Group has applied IFRS 16 with a date of initial application
of 1 April 2019 using the modified retrospective approach and
therefore the comparative information has not been restated and
continues to be reported under IAS 17 and IFRIC 4. The cumulative
effect of initial application is recognised in retained earnings at
1 April 2019. The details of the change in accounting policy are
disclosed below.
Previously, the Group determined at contract inception whether
and arrangement is or contains a lease under IFRIC 4. Under IFRS
16, the Group assesses whether a contract is or contains a lease
based on the definition of a lease.
On transition to IFRS 16, the Group elected to reassess whether
there is a lease for all contracts in place on or after 1 April
2019. Contracts that were not identified as leases under IAS 17 and
IFRIC 4 were reassessed for whether there is a lease. Therefore,
the definition of a lease under IFRS 16 was applied to contracts in
place or entered into on or after 1 April 2019.
As lessee, the Group previously classified leases as operating
or finance leases based on its assessment pf whether the lease
transferred significantly all of the risks and remains incidental
to ownership of the underlying asset to the Group. Under IFRS 16,
the Group recognises rights-of-use assets and liabilities for most
leases - i.e. these leases are on-balance sheet.
The Group decided to apply recognition exemptions to short-term
leases of equipment and services.
At transition, lease liabilities were measured at the present
value of the remaining lease payments, discounted at a cost of
capital of 5.0%. Rights-of-use assets are measured at their
carrying amount as if IFRS 16 had been applied since the
commencement date, discounted at a cost of capital of 5.0%.
At inception of a contract, the Group assesses whether a
contract is, or contains, a lease. A contract is, or contains, a
lease if the contract conveys the right to control the use of an
identified asset for a period of time in exchange for
consideration. To assess whether a contract conveys the right to
control the use of an identified asset, the Group assesses
whether:
-- The contract involves the use of an identified assets - this
may be specified explicitly or implicitly, and should be physically
distinct or represent substantially all of the capacity of a
physically distinct asset;
-- The Group has the right to obtain substantially all of the
economic benefits from use of the assets throughout the period of
use; and
-- The Group has the right to direct the use of the asset. The
Group has this right when it has the decision-making rights that
are most relevant to changing how and for what purpose the asset is
used, In rare cases where the decision about how and for what
purpose the asset is used is predetermined, the Group has the right
to direct the use of the asset if the Group has the right to
operate the asset.
On transition to IFRS 16, the Group recognised an additional
GBP1,897,418 of right-of-use assets and GBP1,945,942 of lease
liabilities, recognising the difference of GBP48,524 as an opening
adjustment to equity at 1 April 2019.
1 April 2019
GBP'000
---------------------------------------------------------- -------------
Operating lease commitment at 31 March 2019 as disclosed
in the Group's consolidated financial statements 2,347
Discounted using the weighted average cost of capital at
1 April 2019 (401)
---------------------------------------------------------- -------------
Lease liabilities recognised at 1 April 2019 1,946
---------------------------------------------------------- -------------
Amounts recognised in profit and loss:
6 months
ended
30 September
2019
GBP'000
------------------------------------- --------------
Interest on lease liabilities 33
Depreciation of right-to-use assets 345
------------------------------------- --------------
3 Earnings per share
6 months ended
Restated Year ended
30 September 30 September 31 March
2019 2018 2019
GBP'000 GBP'000 GBP'000
--------------------------------------------- --------------- ------------- -----------
Earnings for the purposes of basic
and diluted earnings per share
Profit for the period attributable
to equity holders of the parent 866 1,373 1,867
Add: amortisation 2,861 1,991 4,568
Less: taxation on amortisation of purchased
customer contracts (59) (59) (117)
Less: deferred tax credit on amortisation
charges (380) (284) (669)
Add: share option charges 40 25 68
Add: acquisition fees and restructuring
costs 475 319 600
Add: revaluation of deferred consideration (385) - 586
Add: interest unwind on loan note and
deferred consideration 224 127 150
Adjusted profit attributable to equity
holders of the
parent, adding back acquisition fees
and amortisation 3,642 3,492 7,053
Number of shares
Weighted average number of shares used
for earnings per share 23,701,832 23,701,832 23,701,832
Dilutive effect of share plans 162,561 160,337 150,578
--------------------------------------------- --------------- ------------- -----------
Diluted weighted average number of
shares used to
calculate fully diluted earnings per
share 23,864,393 23,862,169 23,852,410
Earnings per share
Basic earnings per share (pence) 3.7p 5.8p 7.9p
Fully diluted earnings per share (pence) 3.6p 5.8p 7.8p
Adjusted earnings per share, after
adding back
acquisition fees, amortisation and
non-recurring costs
Adjusted basic earnings per share (pence) 15.4p 14.7p 29.8p
Adjusted fully diluted earnings per
share (pence) 15.3p 14.6p 29.6p
Earnings per share is calculated by dividing the profit
attributable to equity holders of the Company by the weighted
average number of ordinary shares in issue.
Adjusted earnings per share is calculated by dividing the profit
attributable to equity holders of the Company (after adding back
amortisation, the taxation deduction on purchased customer
contracts, the deferred tax credit on amortisation charges, share
option charges and acquisition costs, as all of these are purely
non-cash accounting adjustments) by the weighted average number of
ordinary shares in issue.
Fully diluted earnings per share is calculated by adjusting the
weighted average number of ordinary shares by existing share
options, assuming dilution through conversion of all existing
options. The September 2018 comparative has been restated and
calculated on the same basis as the March 2019 audited financial
statements, which uses the treasury stock method to account for the
dilutive impact of share options and the convertible loan
instrument to take account only of outstanding share options which
are in the money.
4 Segmental information
The chief operating decision maker has been identified as the
Board. The Board reviews the Group's internal reporting in order to
assess performance and allocate resources. The operating segments
are fixed line services and managed services, which incorporates IT
services, data connectivity, mobile, hardware and VoIP services.
These are reported in a manner consistent with the internal
reporting to the Board. The Board assesses the performance of the
operating segments based on revenue, gross profit and EBITDA.
Unaudited Unaudited
6 months ended 30 September 6 months ended 30 September
2019 2018
---------------------------------------- ----------------------------------------
Fixed Fixed
line Managed Central line Managed Central
services services costs Total services services costs Total
------------------------- --------- --------- -------- -------- --------- --------- -------- --------
Revenue 5,706 25,112 - 30,818 6,390 18,000 - 24,390
Gross profit 2,253 12,544 - 14,797 2,628 9,360 - 11,988
Gross margin % 39.5% 50.0% - 48.0% 41.1% 52.0% - 49.2%
------------------------- --------- --------- -------- -------- --------- --------- -------- --------
EBITDA 1,106 5,000 - 6,106 1,185 3,976 - 5,161
EBITDA % 19.4% 19.9% - 19.8% 18.5% 22.1% - 21.2%
------------------------- --------- --------- -------- -------- --------- --------- -------- --------
Amortisation (787) (2,074) - (2,861) (889) (1,102) - (1,991)
Depreciation - - (681) (681) - - (229) (229)
Revaluation on deferred
consideration - - 385 385 - - - -
Acquisition costs - - (239) (239) - - (319) (319)
Restructuring costs - - (236) (236) - - - -
Share-based payments - - (40) (40) - - (25) (25)
------------------------- --------- --------- -------- -------- --------- --------- -------- --------
Operating profit/(loss) 319 2,926 (811) 2,434 296 2,874 (573) 2,597
------------------------- --------- --------- -------- -------- --------- --------- -------- --------
Finance costs - - (1,289) (1,289) - - (895) (895)
Income tax - - (279) (279) - - (329) (329)
------------------------- --------- --------- -------- -------- --------- --------- -------- --------
Profit after tax 319 2,926 (2,379) 866 296 2,874 (1,797) 1,373
------------------------- --------- --------- -------- -------- --------- --------- -------- --------
Audited
Year ended 31 March
2019
----------------------------------------
Fixed
line Managed Central
services services costs Total
--------------------------------------- --------- --------- -------- --------
Revenue 12,814 38,494 - 51,308
Gross profit 4,904 20,438 - 25,342
Gross margin % 38.3% 53.1% - 49.4%
--------------------------------------- --------- --------- -------- --------
EBITDA 2,784 8,011 - 10,795
EBITDA % 21.7% 20.8% - 21.0%
--------------------------------------- --------- --------- -------- --------
Amortisation (1,509) (3,059) - (4,568)
Depreciation - - (633) (633)
Revaluation on deferred consideration - - (586) (586)
Acquisition costs - - (495) (495)
Compensation credits - - - -
Restructuring costs - - (105) (105)
Share-based payments - - (68) (68)
--------------------------------------- --------- --------- -------- --------
Operating profit/(loss) 1,275 4,952 (1,887) 4,340
--------------------------------------- --------- --------- -------- --------
Finance costs - - (1,902) (1,902)
Income tax - - (571) (571)
--------------------------------------- --------- --------- -------- --------
Profit after tax 1,275 4,952 (4,360) 1,867
--------------------------------------- --------- --------- -------- --------
The assets and liabilities relating to the above segments have
not been disclosed as they are not separately identifiable and are
not used by the chief operating decision maker to allocate
resources. All segments are in the UK and all revenue relates to
the UK. For the six months ended 30 September 2019, transactions
with the largest customer of the Group accounted for 7.4% of
revenue.
5 Share options
Details of the share options outstanding during the period are
as follows:
6 months ended 6 months ended Year ended
30 September 30 September 31 March 2019
2019 2018
--------------------- --------------------- ---------------------
Number Weighted Number Weighted Number Weighted
of shares average of shares average of shares average
under exercise under exercise under exercise
option price option price option price
--------------------------- ---------- --------- ---------- --------- ---------- ---------
Outstanding at start
of period 2,925,428 361p 2,488,410 361p 2,488,410 361p
Granted during the period 100,000 355p 200,000 353p 437,018 361p
Forfeited during the
period (100,000) 353p - - - -
Exercised during the - - - - -
period
--------------------------- ---------- --------- ---------- --------- ---------- ---------
Outstanding at end of
period 2,925,428 361p 2,688,410 361p 2,925,428 361p
--------------------------- ---------- --------- ---------- --------- ---------- ---------
The weighted average fair values have been determined using the
Black-Scholes-Merton Pricing Model with the following assumptions
and inputs:
30 September 30 September 31 March
2019 2018 2019
--------------------------------- ------------- ------------- ---------
Risk free interest rate 1.38% 1.68% 1.68%
Expected volatility 15.0% 16.0% 18.0%
Expected option life (years) 3.0 3.0 3.0
Expected dividend yield 2.8% 2.7% 2.6%
Weighted average share price 355p 353p 365p
Weighted average exercise price 355p 353p 361p
Weighted average fair value of
options granted 28p 32p 32p
--------------------------------- ------------- ------------- ---------
The expected average volatility was determined by reviewing the
historical fluctuations in the share price prior to the grant date
of each share instrument. An expected take up of 100% has been
applied to each share instrument. Expected dividend yield is
estimated at 2.8% which is based upon the actual dividend yield for
the period ended 30 September 2019. It does not bear any relation
to the future dividend policy of AdEPT Technology Group plc.
The mid-market price of the ordinary shares on 30 September 2019
was 351p and the range during the period was 85p.
The share option expense recognised during the period in the
statement of comprehensive income was GBP39,986 (September 2018:
GBP25,224).
6 Business combinations
On 26 April 2019 the Company acquired the entire issued share
capital of Advanced Computers Systems Group Limited and its trading
subsidiary Advanced Computer Systems Limited (ACS), (together
referred to as 'ACS Group') a well-established UK-based specialist
provider of IT services focused on the education sector.
ACS Group, founded in 1999, is an independent IT service
provider based in Doncaster with 20 years' experience. ACS Group is
focused on providing IT services and has a strong public sector
presence, including managing and supporting the IT function of
approximately 200 schools and academy trusts.
Initial consideration of GBP5.24 million less the net debt of
ACS Group at 31 March 2019 was paid in cash. Pursuant to the terms
of the share purchase agreement, the effective date of the
acquisition is 1 April 2019. Further contingent deferred
consideration of up to GBP2.26 million may be payable in cash
dependent upon the trading performance of ACS in the twelve-month
period ended 31 March 2020. The contingent deferred consideration
will be determined by reference to the gross margin of the acquired
business and applying the contingent deferred consideration
calculation as specified in the share purchase agreement. The fair
value of the assets and the contingent consideration liability have
not yet been identified at the date of these interim results as the
completion balance sheet was not available.
Details of the fair value of the assets acquired at completion
and the consideration payable:
Fair
Book cost value
GBP'000 GBP'000
------------------------------- --------- --------
Intangible assets 5,155 7,256
Property, plant and equipment - -
Inventories 24 24
Trade and other receivables 832 832
Cash and cash equivalents 704 704
Trade and other payables (1,377) (1,377)
Income tax (166) (166)
Deferred tax - (1,265)
Net assets 5,172 6,008
------------------------------- --------- --------
Cash 5,190
Contingent cash consideration 2,083
------------------------------- --------- --------
Fair value total consideration 7,273
------------------------------- --------- --------
Goodwill 1,265
------------------------------- --------- --------
ACS contributed revenue and profit after tax of GBP3.1 million
and GBP0.6 million respectively for the six month period ended 30
September 2019 and represents a six month contribution. Acquisition
related and restructuring costs of GBP0.4 million have been
recognised as an expense in the statement of comprehensive income
for the period ended 30 September 2019.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR BRBDBRGBBGCB
(END) Dow Jones Newswires
November 12, 2019 02:00 ET (07:00 GMT)
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