TIDMADT
RNS Number : 4945F
AdEPT Technology Group PLC
17 November 2020
AdEPT Technology Group plc
("AdEPT" or the "Company", together with its subsidiaries the
"Group")
Interim results for the six months ended 30 September 2020
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 2020.
Highlights
Revenue and EBITDA
-- Total revenue decreased by 7.6% to GBP28.5 million (2019: GBP30.8 million)
-- Recurring revenue increased to 78% of total revenue (2019: 75%)
-- Managed services revenue 82% of total revenue (2019: 82%)
-- Underlying EBITDA* of GBP5.2 million (2019: GBP6.1 million)
-- Underlying EBITDA* margin 18.4% (2019: 19.8%)
PBT, EPS and Dividends
-- Adjusted profit after tax** of GBP3.1 million (2019: GBP3.9 million)
-- Adjusted fully diluted EPS 11.4p (2019: 15.3p)
-- We are not proposing a dividend at this time, given the
continued uncertainty posed by the Covid-19 pandemic
Cash Flow and Debt
-- Reported EBITDA conversion to pre-tax cash from operating activities 152% (2019: 89%)
-- Customer debt collection period improved to 33 days (2019: 45 days)
-- Capital expenditure 2% of revenue (2019: 2%)
-- Net senior debt at period end reduced by GBP6.7 million to
GBP24.8 million (2019: GBP31.5 million)
-- GBP1.8m of funds used to fund Advanced Computer Systems (UK)
Limited deferred consideration
Ian Fishwick, Chairman, commented:
"The AdEPT business has proved incredibly resilient in the
period despite the headwinds created by the unique challenge of the
Covid-19 pandemic. Our revenue balance between private (55% of
total revenue) and public sector customers (45% of total revenue),
and our continued laser focus on recurring revenue has underpinned
the performance of AdEPT throughout the first half of FY21.
In the public sector our education customers faced unprecedented
challenges in 2020 resulting from the Covid-19 pandemic. AdEPT
supported over 4,000 schools in their transition to home schooling
and remote working, and, AdEPT has helped over 300 schools migrate
to the cloud - powered by Google G Suite or Microsoft 365. AdEPT is
one of only a handful of suppliers that can provide both Google G
Suite and Microsoft 365.
AdEPT Education has also had success building and deploying
software that facilitates the placement of over 200,000 children
annually with their chosen school, a solution called eAdmissions. A
real success story that "is one of the best shared service stories
in the public sector" to quote John Jackson, CEO of London Grid for
Learning, a key partner in this initiative.
Across the NHS AdEPT has helped hundreds of Doctor's surgeries
pivot to virtual surgeries, as they are now providing
telephone-based triage of patients. Whilst for hospitals AdEPT has
accelerated the flow of information across the NHS by providing new
network capacity working with various partners such as Virgin, BT
and Convergence Group.
Meanwhile, in the private sector our teams transformed
businesses across the UK, facilitating remote access for home
workers, migrating companies to the cloud and ensuring they have
effective communications across diverse and remote locations.
Despite the challenging environment AdEPT has also been able to win
new logo business with a range of customers across various sectors
including digital media, not-for-profit and private health.
The September 2020 interim results have been adversely impacted
by some customers downsizing the services they take from AdEPT and
the delay of projects as customers pause and evaluate the impact of
the pandemic on their businesses.
The inability to conduct a range of project work on site also
had an impact on H1 finances as AdEPT technicians were unable to
gain access to customer premises during lockdown to conduct work.
As a result, AdEPT has made use of the government Coronavirus Job
Retention Scheme (furlough) scheme. Of note, as a conscientious
employer AdEPT made good all of the salary shortfalls that our
staff may have incurred as a result of the furlough scheme. Given
that AdEPT utilised the furlough scheme the Executive Team
voluntarily elected not to receive a bonus during this period, and
AdEPT has elected not to pay a dividend - policies in line with
good corporate governance at this unique time.
As we assist clients in their digital ambitions, AdEPT itself
continues its own digital transformation on a journey to place the
entire business on a common operating platform, a programme
referred to as Project Fusion. Project Fusion continues to make
excellent progress with over 60% of the workforce now on the
platform. As a result, we are making huge strides against our
mission to become One AdEPT.
Going forward we will focus on adding further value by: a)
helping customers on a digital journey with AdEPT Consulting, b)
providing an easy to consume cloud platform for applications and c)
strengthening our successful AdEPT Nebula offering.
I'd like to take this opportunity to thank every one of our
300-person team for their great adaptability and commitment. We
have proven to be operationally resilient during these times. For
example, a s lockdown was announced in March, the AdEPT team dealt
with a ten-fold increase in service calls by clients. Yet , at
the
same time , received numerous customer commendations for their performance.
The second Covid-19 lockdown continues to make forecasting a
challenge, however the underlying trends remain, and indeed are
brought more into focus - with; digital transformation, a reliance
on unified communication, the move to the cloud and a greater
dependency on connectivity, all providing strong tailwinds for the
AdEPT business as we move into 2021. Indeed our own primary
research, conducted in association with Dell, supports this
assertion. The research found that 53% of respondents felt IT was
very important to their organisation, but only 37% felt their comms
infrastructure was well prepared for a crisis in the future, with
92% feeling it is important / very important to improve their data
network.
We remain reticent to publish guidance for the full year given
the ongoing uncertainty. However , we continue to be encouraged by
the key indicators of; new order intake, project delivery, cash
collection and operational effectiveness which bode well for the
remainder of this year."
* 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
N+1 Singer
Nominated Adviser & Broker
Shaun Dobson / Iqra Amin 020 7496 3000
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
CHAIRMANS STATEMENT
BUSINESS REVIEW
In the six-month period ended 30 September 20 20 , AdEPT proved
resilient in very tough trading conditions performing as the '4(th)
utility' providing essential services across the Information
Communications and Technology marketplace.
The revenue decline of 7.6% to GBP28.5 million (2019: GBP30.8
million) whilst frustrating for a business that has continuously
grown year on year for 17 years still marks a creditable
performance in the face of the pandemic challenge.
The conservation of cash has been a priority during the pandemic
therefore no acquisitions were undertaken during the interim
period. However, our recent acquisitions have continued to perform
well as they have been fully integrated into AdEPT. The success of
the most recent acquisition in April 2019, Advanced Computer
Systems UK Limited ("ACS") is evidenced by the payment of the
maximum value of the deferred consideration for this transaction
(GBP1.8 million).
This acquired team, coupled with the existing AdEPT Education
business, have been instrumental in delivering the Department for
Education initiative to 'cloud enable' schools across the UK. AdEPT
has helped over 300 schools to migrate to G Suite for Education or
Office 365 Education as part of this Covid inspired
transformation.
This public sector presence (45% of revenue) has cushioned AdEPT
from the downside pressures brought about by the pandemic impacting
the private sector. AdEPT has a modest presence in the sectors
experiencing the most extreme challenges, namely transport &
travel, leisure and high street retail.
During the period since September 2019 AdEPT successfully
completed the r oll - out of the Kent Health & Social Care
Network, connecting speedily and securely over 400 NHS sites of
varying shapes and sizes, from hospitals to care homes to doctors'
surgeries. The interim period sees the full 6-month contribution of
this project in revenue which is being recognised across the
lifetime of the contract in line with IFRS 15.
Extending strong partnerships - adding 8x8 to the portfolio
In our last trading statement we were delighted to announce that
AdEPT has been promoted by Avaya to the 'elite' Diamond status as a
part of the Avaya Edge partner programme in the UK , reflecting our
success in deploying Avaya solutions to clients such as the Health
Corporation of America (HCA), Islington Borough Council and Redrow
Homes. This Diamond status brings reduced costs, greater bid
support and accelerated rebates.
In an initiative to broaden our cloud hosted voice portfolio
AdEPT recently signed a partnership with 8x8. A Gartner Magic
Quadrant leader for Unified Communications as a Service (2019
Gartner Magic Quadrant for UCaaS Report). Soon after agreeing the
partnership, demonstrating the relevance of this initiative, AdEPT
secured a project for a 200-seat contact centre at Fortius Clinic.
A new client win that proved both the demand for the solution and
the suitability of our partnership.
Enhancing our Strategic Offerings
AdEPT recognises the need to constantly evolve to support our
clients. Three specific areas will receive focus and investment
over the coming months. These are:
-- AdEPT Consulting - an initiative to help customers move to a
secure environment for their workforce across disparate locations,
in a cloud enabled landscape. This team is focusing on; security
risk assessments, cloud migrations and network resilience.
-- Extending cloud services - providing hosted SIMS for
education clients and hosted Sage for small to medium enterprises,
deployed on the AdEPT Nebula platform.
-- Strengthening AdEPT Nebula - Nebula is the AdEPT owned
platform that supports over 250 customers who take various services
from our portfolio of; Nebula Cloud, Nebula Security, Nebula BC/DR,
Nebula Voice, Nebula Apps and Nebula Network.
Our recently published primary research, conducted in
association with Dell, provides encouragement for these
initiatives. With 80% of respondents stating that increasing their
level of IT support is either important or very important to their
organisation.
As indicated in the April 2020 trading statement AdEPT has used
available Government support schemes including the Coronavirus Job
Retention Scheme with grants of GBP0.3 million received in the
interim period. At the peak in April 2020 AdEPT had some 70
employees of furlough, although a return of customer demand
resulted in virtually all of these employees returning to work
before the end of June 2020. Currently the Company has only 1
employee who remains on furlough. In addition, the Company deferred
the Q1 VAT payment, but noting that this amount needs to be caught
up by the end of the 2020/21 tax year. This is purely a cash flow
timing impact and has moved GBP1.3 million of cash outflow from the
first 6 months to the second half of the year ending March
2021.
Creating One AdEPT - Project Fusion
T he AdEPT team has made continued progress on the 'One AdEPT'
project, christened 'Project Fusion' . An all-encompassing
programme enhancing sales, marketing, financial control and
operational systems. This solution set is now powering over 60% of
the entire AdEPT workforce, whilst the AdEPT brand is now intrinsic
to the entire business with the group-wide AdEPT website (
www.adept.co.uk ) generating an increasing number of leads for the
AdEPT sales force .
REVENUE
Total revenue in the period dec reased by 7.6 % to GBP 28.5
million (2019: GBP30.8 million). Revenue was impacted adversely due
to the Covid-19 pandemic and related lockdown actions taken by the
UK Government. These actions affected; a) the ability of AdEPT
technicians to attend site, b) the flow of new business due to
reduced tendering for new work across both the public and private
sector marketplaces, c) the impact on business confidence and d)
the call revenue of business customers during lockdown.
Despite these unique challenges AdEPT recurring revenues
increased to 78% of total revenue (2019: 75%) and, whilst some
customers ceased to trade and closed down sites, the majority of
AdEPT customers are weathering the Covid storm, albeit there was
understandable shrinkage across some accounts.
The focus of the Group on Managed Services is reflected in the
proportion of revenues from this arena at 82% (2019: 82%)
translating to GBP23.4 million (2019: GBP25.1 million),
demonstrating our capability in the in-demand arenas of; IT,
unified communications, data connectivity and cloud services .
AdEPT is increasingly a '4(th) utility' for our customers.
A comparison of September 2020 and the prior period shows a f
ixed line revenue reduc tion of 10. 9 % which is in line with
industry trends, as customers transition to communicating via video
conferencing and unified communication platforms provided by AdEPT
such as; Microsoft (Teams), 8x8 (X Series), or Avaya (Spaces).
AdEPT, with its expanded IT and unified communications portfolio,
is well positioned to embrace customer migration to next generation
products and services. The absolute revenue of calls & lines
revenues did experience an exceptional drop during the April and
May period due to lockdown, as business traffic dropped by 27% (a
reduction of GBP77,000 per month from March 2020 levels) however
this revenue has largely recovered back to expected levels,
although the impact of the second UK lockdown has yet to be
understood.
A highlight of the first half has been the success of the AdEPT
Education cloud migration activities, in support of the Department
for Education (DfE) initiative, bringing a substantial professional
services uplift of approximately GBP0.4 million.
GROSS MARGIN
The gross profit margin for the six-month period ended 30
September 20 20 was 48.3 %, which is a marginal increase from the
48.0 % achieved in the comparative period. Gross margins in fixed
line and managed services have remained in line with the
comparative period.
One-off gross margins have improved to 45.4% (2019:37.0%) with
an increase in professional services, offsetting a reduction in
recurring margins to 51.9% (2019: 52.9%). The pressure on recurring
margin is partly from the Covid reductions in high margin services,
such as a) call volumes, b) downsizing and termination of IT
support contracts from customers in sectors under pressure from
Covid-19. This was combined with an increased blend of lower margin
longer-term public sector data connectivity contracts.
Additionally, it reflects the impact of our success in reducing the
network cost base for one of our large and strategic clients' as
part of a technology transition - a project that in turn saw them
commit to a further three years of services but on a lower margin
contract .
UNDERLYING EBITDA
Underlying EBITDA of GBP5.2 million represents a 14.2% reduction
from the comparative period (2019: GBP6.1 million). The GBP0.9
million reduction reflects the GBP1.0 million reduction to gross
margin with only a small offset from reduced operating costs. The
view of the Board is that Covid is a temporary situation and
therefore a mass restructuring and realignment of the operating
cost base was not warranted unless it became apparent that the
pandemic was going to last for a substantially longer period.
Despite the reduction to gross margin from the reduced demand
during the Covid lockdown impacting underlying EBITDA, the EBITDA
margin achieved was strong at 18.4% (2019: 19.8%) demonstrating the
strength of the business model which is underpinned by a high
proportion of recurring revenue (78%).
PROFIT BEFORE TAX AND EARNINGS PER SHARE
Reported profit before tax decreased to GBP0.02 million (201 9 :
GBP1.1 million). The comparative period includes GBP0.4 million of
gains on revaluation of deferred consideration, which is a
non-trading item. The current period includes GBP0.5 million of
restructuring costs in relation to the streamlining of the
headcount of the business as a result of operational efficiencies
delivered by Project Fusion.
GBP0.3 million decrease in interest charges as result of using
positive trading cash flow to reduce average net borrowings. The
interest cost in the statement of comprehensive income of GBP1.1
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 GBP0.8
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) was GBP2.9 million (2019:
GBP3.6 million) which is a reflection of the GBP0.9 million EBITDA
reduction, less the GBP0.3 million interest costs reduction arising
from the lower average net debt position.
Adjusted diluted earnings per share, taking into account the
share options in issue and the potential dilutive effect of the BGF
convertible instrument under the treasury stock accounting method,
de creased by 25.2 % to 11.4p (201 9 : 15.3 p ). In February 2020,
the Company completed a share placing, issuing 1,328,125 ordinary
shares at a price of 320p raising GBP4.25 million gross funds.
Considering the uncertain trading conditions arising from Covid-19
these funds were used to reduce senior debt as the Board prudently
decided to place on hold acquisition activity. Therefore, as a
result the additional shares have provided dilution to the earnings
per share of 5.5% with the balance of the dilution arising from the
reduction in adjusted EBITA.
CASH FLOW
The Group benefits from an excellent cash-generating operating
model. Low capital expenditure results in a high proportion of
underlying EBITDA turning into cash. The proportion of reported
EBITDA which turned into net cash from operating activities before
income tax was 152% (2019: 89%). This cash conversion figure is
flattered by the Company deferring the Q1 VAT payments through to
Q4 of the current financial year in line with the HMRC financial
support guidance under Covid-19. The deferral value was GBP1.3
million, which if adjusted gives underlying operating cash
conversion from reported EBITDA of 124% (2019: 89%).
In addition, despite the economic pressures arising from
Covid-19, the Group has focused on cash management and is pleased
to have delivered a significant reduction in working capital during
the 6 months ended 30 September 2020, with a net cash inflow of
GBP2.4 million since March 2020. This has been primarily achieved
through a reduction in collection periods from 47 days at March
2020 to 33 days at September 2020, although it should be noted that
this partly reflects a reversal of the GBP1.5 million working
capital extension at March 2020 and contributes to the
exceptionally high proportion of cash generated from operating
activities in the interim period.
In May 2020, the Group paid the deferred consideration of GBP1.8
million in respect of the Advanced Computer Systems (UK) Limited
acquisition, with no further amounts due.
The Group drew down in full the revolving credit facility in
March 2020 as a prudent measure considering the potential trading
disruption for Covid-19 to ensure sufficient access to cash
facilities. As a result of strong customer credit collection and
resilient trading in the interim period, the Group repaid this
drawn amount and further additional amounts were repaid, with GBP10
million reduction to the revolving credit facility since March
2020.
Cash interest paid in the interim period reduced by GBP0.1
million (11%), which is a reflection of a lower level of average
net borrowings compared to the prior interim period as a result of
lower acquisition and dividend outflows.
As required under IFRS 16, the balance sheet value of tangible
fixed assets includes the discounted value of the remaining
operating lease rentals for any material agreements which have a
lease term greater than twelve months. The net present value of any
new operating leases is included in tangible fixed assets. These
are not upfront cash purchases as the rentals are paid on a monthly
or quarterly basis and therefore the cost is not included within
capital expenditure, instead the cash outflows from the operating
lease agreements are included in the cash flow statement under the
heading 'Payments of lease liabilities'.
CAPITAL EXPITURE
The Group continues to operate an asset-light strategy and has
low capital requirements; therefore, expenditure on fixed assets is
low at 2% of revenue. The Group used GBP0.3 million of cash on
capital expenditure of tangible fixed assets and includes;
a. the refurbishment of our Tunbridge Wells Head Office
b. t he investment in support of Project Fusion; and
c. further investment in the development of the AdEPT Nebula
platform - specifically increases in both the data storage and the
processor capability
The major item during the period was GBP0.25m spent on extending
the storage capacity of the AdEPT Nebula data centre in Orpington
as a result of increasing customer demand. AdEPT Nebula is centered
on the core data centre in Orpington which is owned by AdEPT. AdEPT
Nebula allows AdEPT to provide its own cloud hosting capability and
is the foundation for the following portfolio; Nebula Cloud, Nebula
Security, Nebula BC/DR, Nebula Voice, Nebula Apps and Nebula
Network.
AdEPT Nebula is delivering benefits to around 2 5 0 customers
and 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 , with the
most recent additions being the provision of hosted voice
capability in partnership with both Avaya and Pragma (LG Ericsson)
and the creation of a hosted SIMS proposition (SIMS is a Management
Information System widely used by schools) .
A further GBP0.3 million was spent in the period on intangible
assets, which is the continued investment in Project Fusion and
includes the cost of third-party consultancy and some
capitalisation of the salary costs of the internal development team
for time dedicated to delivering the project. The progress on the
Group-wide CRM has continued at a pace, and it is now live in 7 of
the 8 AdEPT operating sites. In addition, the Group is
transitioning to a centralised finance platform which is hosted in
the AdEPT Nebula network, with four operating sites already live
and two further operating sites expected to go live before the end
of the 2020 calendar year.
NET DEBT AND BANK FACILITIES
A key strength of AdEPT is its consistent, proven ability to
generate strong free cash flow and therefore support net
borrowings. As a result of the Group's focus on underlying
profitability and cash conversion, net operating cash flow after
taxes but before bank interest paid of GBP7.0 million was generated
during the 6 months ended 30 September 2020 (2019: GBP3.5 million).
The current period includes GBP0.5 million of non-recurring costs
in relation to restructuring costs.
Senior net debt at 30 September 2020 was GBP24.8 million which
is a reduction of GBP6.7 million from the comparative period (2019:
GBP31.5 million) and represents a senior leverage ratio of 2.4x
adjusted EBITDA (2019: 2.6x).
In July 2020, in light of the potential impact of Covid-19, the
Company signed an agreement with Barclays Bank plc and Royal Bank
of Scotland plc for the deferral of the GBP5 million reduction to
the RCF facility, which was originally due in July 2020, until the
facility end date of February 2022 to provide additional cash
headroom. As a result, the Group has a GBP40 million revolving
credit facility in place until February 2022. In addition, the July
2020 agreement contained an extension to the leverage and interest
cover covenants included in the original bank facility to provide
additional headroom for the Group through to the facility end date
of February 2022. No fees were payable to Barclays Bank plc or
Royal Bank of Scotland plc in respect of this agreement.
DIVIDS
Our historical policy has been to distribute roughly one-third
of free cash flow as dividends and to reinvest the remaining
two-thirds in the business. However, in early April 2020,
considering the potential Covid-19 disruption, the Board resolved
to cancel the interim dividend that had been declared with the
September 2019 interim results and which was due to be paid in
April 2020.
The Board will continue to monitor the ever-changing economic
environment and adopt an appropriate dividend for future periods,
but at this time doesn't consider it appropriate to declare an
interim dividend and will provide a further update alongside the
trading update ahead of the March 2021 full year results.
ACQUISITIONS
The history of AdEPT contains many examples of successful
earnings enhancing acquisitions with the most recent, ACS,
demonstrating yet again the ability of the Group to identify and
integrate a successful business for the benefit of the acquired
team and their respective clients.
Despite electing to curtail its acquisition activities during
this uncertain period covered by the interim results, AdEPT will
remain a consolidator in the marketplace and we continue to
evaluate suitable targets and will return to this successful aspect
of our business strategy when the time is right.
OUTLOOK
In the face of tremendous challenges since the announcement of
lockdown by the Government in March of this year the entire AdEPT
team has performed brilliantly. Empowering thousands of customers
to work from home, with a ten-fold increase in requests for help,
whilst maintaining a high-quality service, working in a constantly
changing climate whilst also being part of an internal digital
transformation project. This is a huge challenge that the AdEPT
team has risen to with exceptional results.
The success of AdEPT is a result of the collective effort of
over 300 talented individuals who continue their mission of
"uniting technology, inspiring people" and I would like to take the
opportunity to thank this team for their tremendous contribution
and hard work - they are instrumental to our success. This breadth
of expertise provides an excellent platform for our future
growth.
AdEPT has a full suite of managed services and is now embracing
the continuing convergence between IT and Telecoms , a solution set
that has proved invaluable to many businesses throughout this
pandemic . Coupled with a consulting team that can help customers
achieve their ambitions, AdEPT Nebula to integrate services in a
cost-effective way, and powerful partnerships that allow AdEPT to
deliver sophisticated solutions for clients. These attributes make
AdEPT well placed to succeed over future years.
The Board is very pleased with the progress being made by the
Group in incredibly difficult trading conditions . We continue to
be highly cash generative with a fully supportive investor base and
funding partners, which we hope - when the time is right - will
enable the Board to yet again act on earnings-enhancing
acquisitions whilst returning to a progressive dividend policy.
Given the ongoing uncertainty regarding the duration of the
Covid-19 outbreak as we are in the second UK lockdown period, the
Board is unable to provide guidance for the year ending 31 March
2021 at this time.
Ian Fishwick
Chairman
UNAUDITED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Six months Six months
ended ended
30 September 30 September
2020 2019
Note GBP'000 GBP'000
-------------------------------------------------- ----- ------------- -------------
REVENUE 28,488 30,818
Cost of sales (14,721) (16,021)
-------------------------------------------------- ----- ------------- -------------
GROSS PROFIT 13,767 14,797
Administrative expenses (12,689) (12,363)
-------------------------------------------------- ----- ------------- -------------
OPERATING PROFIT 1,078 2,434
Total operating profit - analysed:
Operating profit before acquisition fees,
share-based payments,
depreciation and amortisation 5,238 6,106
Share-based payments (33) (40)
Acquisition fees - (239)
Restructuring costs (480) (236)
Revaluation of deferred consideration - 385
Depreciation of tangible fixed assets (741) (681)
Amortisation of intangible fixed assets (2,906) (2,861)
-------------------------------------------------- ----- ------------- -------------
Total operating profit 1,078 2,434
-------------------------------------------------- ----- ------------- -------------
Finance costs (1,060) (1,289)
Finance income - -
-------------------------------------------------- ----- ------------- -------------
PROFIT BEFORE INCOME TAX 18 1,145
Income tax expense (319) (279)
-------------------------------------------------- ----- ------------- -------------
TOTAL COMPREHENSIVE INCOME FOR THE PERIOD (301) 866
-------------------------------------------------- ----- ------------- -------------
Attributable to:
Equity holders (301) 866
Earnings per share
Basic earnings per share (pence) 3 (1.2)p 3.7p
Diluted earnings per share (pence) 3 (1.2)p 3.6p
Adjusted earnings per share, after adding
back
acquisition fees, amortisation and non-recurring
costs
Basic earnings per share (pence) 3 11.4p 15.4p
Diluted earnings per share (pence) 3 11.4p 15.3p
UNAUDITED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Restated Audited
30 September 30 September 31 March
2020 2019 2020
GBP'000 GBP'000 GBP'000
------------------------------- ------------- ------------- ---------
ASSETS
Non-current assets
Goodwill 17,408 17,182 17,408
Intangible assets 39,354 44,520 41,952
Property, plant and equipment 2,707 2,740 2,700
Deferred tax asset - 43 -
------------------------------- ------------- ------------- ---------
59,469 64,485 62,060
Current assets
Inventories 900 696 612
Contract assets 1,144 1,562 1,379
Trade and other receivables 12,250 13,787 14,965
Cash and cash equivalents 5,065 4,575 11,849
-------------------------------- ------------- ------------- ---------
19,360 20,620 28,535
Total assets 78,829 85,105 90,595
LIABILITIES
Current liabilities
Trade and other payables 13,429 17,585 14,979
Contract liabilities 2,194 2,222 2,502
Income tax 574 406 156
Short term borrowings 82 29 54
-------------------------------- ------------- ------------- ---------
16,280 20,242 17,691
Non-current liabilities
Deferred income tax 7,473 7,152 7,738
Convertible loan instrument 6,429 6,255 6,340
Long term borrowings 29,864 36,044 40,444
-------------------------------- ------------- ------------- ---------
Total liabilities 60,744 69,693 72,213
--------------------------------
Net assets 18,115 15,412 18,382
SHAREHOLDERS' EQUITY
Share capital 2,503 2,370 2,503
Share premium 4,378 479 4,378
Share capital to be issued 1,141 1,119 1,108
Capital redemption reserve 18 18 18
Retained earnings 10,076 11,426 10,375
-------------------------------- ------------- ------------- ---------
Total equity 18,115 15,412 18,382
-------------------------------- ------------- ------------- ---------
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 2019 2,370 479 1,079 18 11,789 15,735
Change of accounting policy
(Note 2) - - - - (36) (36)
Adjusted equity at 1 April
2019 2,370 479 1,079 18 11,753 15,698
Profit for 6 months ended
30 September 2019 - - - - 866 866
Dividend - - 40 - - 40
Share based payments - - - - (1,195) (1,195)
Equity at 30 September
2019 2,370 479 1,119 18 11,426 15,412
Profit for 6 months ended
31 March 2020 - - - - 120 120
Dividend - - - - (1,129) (1,129)
Deferred tax asset adjustment - - - - (41) (41)
Issue of new equity 133 3,899 - - - 4,032
Share based payments - - (11) - - (11)
Balance at 31 March 2020 2,503 4,378 1,108 18 10,375 18,382
Profit for 6 months ended
30 September 2020 - - - - (301) (301)
Share based payments - - 33 - - 33
Balance at 30 September
2020 2,503 4,378 1,141 18 10,076 18,115
------------------------------- -------- -------- ---------- ----------- --------- --------
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
Audited
Six months Six months Year ended
ended ended
30 September 30 September 31 March
2020 2019 2020
GBP'000 GBP'000 GBP'000
---------------------------------------------- ---- ------------- ------------- -----------
Cash flows from operating activities
Profit before income tax 19 1,146 1,971
Depreciation and amortisation 3,647 3,542 7,285
Adjustment to deferred consideration - (385) (653)
(Profit)/loss on sales of fixed assets (13) - (17)
Share based payments 33 40 29
Net finance costs 1,060 1,287 2,523
Decrease/(Increase) in inventories (287) (129) (45)
Decrease/(increase) in trade and other
receivables 2,655 (3,292) (4,072)
Increase/(decrease) in trade and other
payables 69 3,133 2,604
---------------------------------------------------- ------------- ------------- -----------
Cash generated from operations 7,182 5,343 9,625
Income taxes paid (193) (1,252) (2,018)
---------------------------------------------------- ------------- ------------- -----------
Net cash from operating activities 6,989 4,091 7,607
---------------------------------------------------- ------------- ------------- -----------
Cash flows from investing activities
Interest paid (841) (936) (1,861)
Acquisition of subsidiaries net of cash
acquired (1,798) (5,191) (6,285)
Purchase of intangible assets (288) (125) (419)
Purchase of property, plant and equipment (349) (415) (706)
---------------------------------------------------- ------------- ------------- -----------
Net cash used in investing activities (3,276) (6,667) (9,271)
Cash flows from financing activities
Dividends paid - (1,194) (2,323)
Payments of lease liabilities (447) (569) (837)
Increase in bank loan - 3,800 5,000
Repayment of borrowings (10,050) (2,535) (9)
Issue of new equity - - 4,032
Net cash (used in)/from financing activities (10,497) (499) 5,863
---------------------------------------------------- ------------- ------------- -----------
Net increase/(decrease) in cash and
cash equivalents (6,784) (3,075) 4,199
Cash and cash equivalents at beginning
of period/year 11,849 7,650 7,650
---------------------------------------------------- ------------- ------------- -----------
Cash and cash equivalents at end of
period/year 5,065 4,575 11,849
---------------------------------------------------- ------------- ------------- -----------
Cash at bank and in hand 5,065 4,575 11,849
Bank overdrafts - - -
---------------------------------------------- ---- ------------- ------------- -----------
Cash and cash equivalents 5,065 4,575 11,849
---------------------------------------------------- ------------- ------------- -----------
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 2020,
prepared under International Financial Reporting Standards, were
approved by the board of directors on 7 August 2020 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 2020 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 policy in respect of IFRS
16 '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 2020.
IFRS 16 '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
an 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 of 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 right of use assets and liabilities for most
leases - i.e. these leases are included on the balance sheet.
The policy applies to leased properties, motor vehicles and
certain data connectivity agreements where the underlying services
are being used by the Group. 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%, being an approximation of the Group's finance rate
on finance leases prior to the application of IFRS 16 . Right 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 asset - 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 the cumulative
effect of initially applying IFRS 16 with an additional
GBP1,717,468 of right-of-use assets and GBP1,753,484 of lease
liabilities, recognising the difference of GBP36,016 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 (475)
---------------------------------------------------------- -------------
Lease liabilities recognised at 1 April 2019 1,872
---------------------------------------------------------- -------------
3 Earnings per share
6 months ended
Restated Year ended
30 September 30 September 31 March
2020 2019 2020
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 (301) 866 985
Add: amortisation 2,906 2,861 5,772
Less: taxation on amortisation of purchased
customer contracts (59) (59) (117)
Less: deferred tax credit on amortisation
charges (291) (380) (235)
Add: share option charges 33 40 29
Add: acquisition fees and restructuring
costs 480 475 555
Less: revaluation of deferred consideration - (385) (654)
Add: interest unwind on loan note and
deferred consideration 89 224 381
Adjusted profit attributable to equity
holders of the
parent, adding back acquisition fees
and amortisation 2,858 3,642 6,717
Number of shares
Weighted average number of shares used
for earnings per share 25,029,957 23,701,832 23,812,509
Dilutive effect of share plans 11,437 162,561 133,146
--------------------------------------------- ------------- --------------- -----------
Diluted weighted average number of
shares used to
calculate fully diluted earnings per
share 25,041,394 23,864,393 23,945,655
Earnings per share
Basic earnings per share (pence) (1.2)p 3.7p 4.1p
Fully diluted earnings per share (pence) (1.2)p 3.6p 4.1p
Adjusted earnings per share, after
adding back
acquisition fees, amortisation and
non-recurring costs
Adjusted basic earnings per share (pence) 11.4p 15.4p 28.2p
Adjusted fully diluted earnings per
share (pence) 11.4p 15.3p 28.1p
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.
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
2020 2019
---------------------------------------- ----------------------------------------
Fixed Fixed
line Managed Central line Managed Central
services services costs Total services services costs Total
------------------------- --------- --------- -------- -------- --------- --------- -------- --------
Revenue 5,082 23,406 - 28,488 5,706 25,112 - 30,818
Gross profit 2,040 11,727 - 13,767 2,253 12,544 - 14,797
Gross margin % 40.1% 50.1% - 48.3% 39.5% 50.0% - 48.0%
------------------------- --------- --------- -------- -------- --------- --------- -------- --------
EBITDA 905 4,333 - 5,238 1,106 5,000 - 6,106
EBITDA % 17.8% 18.5% - 18.4% 19.4% 19.9% - 19.8%
------------------------- --------- --------- -------- -------- --------- --------- -------- --------
Amortisation (808) (2,098) - (2,906) (787) (2,074) - (2,861)
Depreciation - - (741) (741) - - (681) (681)
Revaluation on deferred
consideration - - - - - - 385 385
Acquisition costs - - - - - - (239) (239)
Restructuring costs - - (480) (480) - - (236) (236)
Share-based payments - - (33) (33) - - (40) (40)
------------------------- --------- --------- -------- -------- --------- --------- -------- --------
Operating profit/(loss) 97 2,235 (1,254) 1,078 319 2,926 (811) 2,434
------------------------- --------- --------- -------- -------- --------- --------- -------- --------
Finance costs - - (1,060) (1,060) - - (1,289) (1,289)
Income tax - - (319) (319) - - (279) (279)
------------------------- --------- --------- -------- -------- --------- --------- -------- --------
Profit after tax 97 2,235 (2,633) (301) 319 2,926 (2,379) 866
------------------------- --------- --------- -------- -------- --------- --------- -------- --------
Audited
Year ended 31 March 2020
----------------------------------------
Fixed
line Managed Central
services services costs Total
--------------------------------------- --------- --------- -------- --------
Revenue 11,463 50,225 - 61,688
Gross profit 4,541 24,850 - 29,391
Gross margin % 39.6% 49.5% - 47.6%
--------------------------------------- --------- --------- -------- --------
EBITDA 2,277 9,432 - 11,709
EBITDA % 19.9% 18.8% - 19.0%
--------------------------------------- --------- --------- -------- --------
Amortisation (1,573) (4,199) - (5,772)
Depreciation - - (1,513) (1,513)
Revaluation on deferred consideration - - 654 654
Acquisition costs - - (267) (267)
Restructuring costs - - (288) (288)
Share-based payments - - (29) (29)
--------------------------------------- --------- --------- -------- --------
Operating profit/(loss) 704 5,233 (1,443) 4,494
--------------------------------------- --------- --------- -------- --------
Finance costs - - (2,523) (2,523)
Income tax - - (986) (986)
--------------------------------------- --------- --------- -------- --------
Profit after tax 704 5,233 (4,952) 985
--------------------------------------- --------- --------- -------- --------
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 2020, transactions
with the largest customer of the Group accounted for 7.6% of
revenue (2019: 7.4%).
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 2020
2020 2019
--------------------- --------------------- ---------------------
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 3,162,448 361p 2,925,428 361p 2,925,428 361p
Granted during the period - - 100,000 355p 337,018 339p
Forfeited during the
period (16,180) 223p (100,000) 353p (100,000) 353p
Exercised during the - - - -
period
--------------------------- ---------- --------- ---------- --------- ---------- ---------
Outstanding at end of
period 3,146,268 361p 2,925,428 361p 3,162,448 359p
--------------------------- ---------- --------- ---------- --------- ---------- ---------
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
2020 2019 2020
--------------------------------- ------------- ------------- ---------
Risk free interest rate 1.86% 1.38% 1.62%
Expected volatility 10.0% 15.0% 12.5%
Expected option life (years) 3.0 3.0 3.0
Expected dividend yield 2.8% 2.8% 2.8%
Weighted average share price 330p 355p 340p
Weighted average exercise price 330p 355p 340p
Weighted average fair value of
options granted 17p 28p 20p
--------------------------------- ------------- ------------- ---------
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 historical dividend
yield. 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 2020
was 235p and the range during the period was 51.5p.
The share option expense recognised during the period in the
statement of comprehensive income was GBP32,807 (September 2019:
GBP39,986).
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END
IR KZMMMNVVGGZM
(END) Dow Jones Newswires
November 17, 2020 02:00 ET (07:00 GMT)
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