TIDMADT
RNS Number : 0665U
AdEPT Telecom plc
10 July 2018
AdEPT Telecom plc
("AdEPT", the "Company" or together with its subsidiaries the
"Group")
Final results for the year ended 31 March 2018
AdEPT (AIM: ADT), a leading UK independent provider of
award-winning managed services for IT, unified communications,
connectivity and voice solutions, announces its results for the
year ended 31 March 2018.
Financial highlights
-- 15th consecutive year of increased underlying EBITDA up 24.8% to GBP9.8m (2017: GBP7.8m)
-- Revenue increased by 34.8% to GBP46.4m (2017: GBP34.4m)
-- Gross margin % increased by 5.4% to 47.7% (2017: 42.3%)**
-- Underlying EBITDA margin % of 21.0% (2017: 22.7%)
-- Profit before tax increased by 32.8% to GBP4.5m (2017: GBP3.4m)
-- 26.2% increase to adjusted fully diluted earnings per share to 27.69p (2017: 21.94p)
-- 12.9% increase to dividends declared to 8.75p (Interim 4.25p, Final 4.50p) (2017: 7.75p)
-- Year-end net senior debt* of GBP17.6m (2017: GBP15.5m)
-- Capital expenditure 0.8% of revenue (2017: 0.3%)
Operational highlights
-- Managed services accounted for 69.8% of total revenue (2017: 55.4%)
-- Acquisition of entire issued share capital of Atomwide Limited completed in August 2017
* Net senior debt is defined as cash and cash equivalents less
short-term and long-term bank borrowings and prepaid bank fees
** Excluding GBP0.755m Openreach compensation credits
Commenting upon these results Chairman Roger Wilson said:
"AdEPT has delivered a 25% increase to underlying EBITDA for the
year ended 31 March 2018 and the Group continues to deliver
consistently high levels of free cash flow generation with more
than 80% of reported EBITDA turned into net cash from operating
activities after tax. The continued strong cash generation has
funded a 13% increase to dividends declared during the year and the
Board is confident that continued focus on underlying profitability
and cash generation will support a progressive dividend policy.
Free cash flow generated combined with the drawdown of part of
the accordion debt facility, put in place in February 2017, and the
convertible loan from BGF, was used by the Company to complete the
earnings enhancing acquisition of Atomwide Limited during the
current period. The acquisition completed during the year combined
with organic sales have increased the rate of transition of the
Group towards a complete managed service provider, with revenue
from managed services accounting for 70% of the total in the year
ended 31 March 2018."
This announcement contains inside information for the purposes
of Article 7 of Regulation 596/2014.
For further information on AdEPT please visit
www.adept-telecom.co.uk or contact:
AdEPT Telecom Plc
Roger Wilson, Chairman 07786 111 535
Ian Fishwick, Chief Executive 01892 550 225
John Swaite, Finance Director 01892 550 243
Northland Capital Partners Limited
Nominated Adviser
Tom Price / Edward Hutton
Broking
Rob Rees 020 3861 6625
Chairman's statement
Review of operations
I am pleased to report that in the year ended 31 March 2018 the
Group has made considerable progress on a wide range of fronts. In
early 2015 we embarked on a journey to transform AdEPT from our
original telecoms background into unified communications and then
into IT. Our logic was simple: it is becoming increasingly
difficult to tell where telecoms ends and IT starts in a world
where 'work is something that we do, rather than necessarily, a
place that you go to'.
The strategy of the Group has been focussed on increasing the
proportion of revenue from managed services, combined with
targeting customers in London and the South East and the public
sector. We believe that the economy in London and the South East
will continue to grow faster than the other regions in the UK and
that there is an increasing drive in the public sector to put
business with Small and Medium-sized Enterprises (SME's).
The Group has been focussed on the growth of managed service
revenues and the acquisition of Atomwide, combined with organic
sales, has increased the rate of transition of the Group towards
managed services, which accounted for 69.6% of total revenue in the
year ended 31 March 2018 (2017: 55.4%). The team at Atomwide has
proved to be an excellent fit with AdEPT and has been successful in
jointly working on delivering an infrastructure and support service
which can be used across all companies in the Group.
London and the South East
In London we are Chief Technology Partner to London Grid for
Learning supplying over 3,000 schools, we have nearly 50 hospitals
and specialist medical facilities, over 200 business centres,
thousands of commercial customers, and a range of specialist data
and cloud services being supplied to central government
departments.
Public sector and healthcare
In March 2016, the Government set a target that 33% of public
sector spend would be with SME's by 2022. Following the impact of
the Atomwide acquisition, in March 2018 31% of total Group revenue
was generated from public sector and healthcare customers (2017:
20%) and as customers we currently have over 100 Councils, 13 NHS
Trusts, more than 30 private hospitals, twelve universities, over
3,000 schools and services being provided to central government
departments.
Both Atomwide and OurIT have been awarded approved supplier
status on the new RM3804 Technology Services 2 Framework by Crown
Commercial Services. This framework is designed to make it far
easier for public sector customers to buy IT products and services.
AdEPT Tunbridge Wells has been awarded HSCN (Health and Social Care
Network) Compliance and is now authorised to sell data networks to
the NHS.
Dividends
In line with its progressive policy, AdEPT has increased the
dividend proposed year-on-year by 12.9%, proposing a final dividend
of 4.50p per ordinary share (2017: 4.00p), making total dividends
proposed in respect of the year ended 31 March 2018 of 8.75p per
ordinary share (2017: 7.75p).
Employees
As a result of the acquisitions completed in the year ended 31
March 2018, the Group now has just over 200 full-time employees.
The improved profitability and free cash flow generation this year
was made possible by the continued hard work and focus of all
employees at AdEPT. As a Group we are immensely proud of the track
record we have created over the last 15 years and, on behalf of the
Board, I would like to take this opportunity to thank all of our
employees for their continued hard work.
Director changes
On 8 November 2017 we announced the appointment of Christopher
Kingsman as a non-executive director. Christopher brings a broad
range of experience from investing in and being involved with a
number of public and private companies across different sectors. A
graduate of Cambridge University, he started his career with
Fidelity Investments and has managed a hedge fund and family
office. He is the principal of a private Swiss investment group,
executive chairman of Aranca, a global research, analytics and
advisory firm based in India, and is a director of a number of
private companies.
Through Greenwood Investments Ltd, he has been the second
largest shareholder of AdEPT since 2011. Having increased his stake
in February 2018 from 16.9% to 21.3% of the current issued share
capital of the Company Christopher Kingsman is now the largest
shareholder.
Company name change
The Board considered that the name of Company should be changed
to better reflect the business of the Group as a managed service
provider for IT and unified communications. On 16 January 2018 the
Company announced that at the General Meeting held on 16 January
2018 it received approval for the change of company name and that
it would make a further announcement when the change became
effective. The proposed company name has not yet been able to be
secured by the Company and therefore an alternative change of name
will be proposed as part of the resolutions for the forthcoming AGM
in September 2018.
Outlook
The excellent result for this year was delivered through a
combination of strategic acquisition and organic contract wins,
maintaining margins on customer contracts and maintaining high
levels of operational efficiency. The Board is confident that
continued strong cash conversion of operating profit will support
its intention of a progressive dividend policy.
The focus for the coming year remains on developing organic
sales through leveraging AdEPT's approved supplier status on the
various public sector telecom frameworks, maintaining profitability
and cash flow conversion, which will be used to reduce net
borrowings and/or fund suitable earnings-enhancing
acquisitions.
Roger Wilson
Non-executive Chairman
Strategic report
Principal activities and review of business
The principal activity of the Group is the provision of unified
communication and IT services to both domestic and business
customers. A review of the business is contained in the Chairman's
statement and the highlights are summarised in this strategic
report.
Summary of three year financial performance:
Year ended March
2018 2017 2016
GBP'000 Year-on-Year GBP'000 Year-on-Year GBP'000
% %
------------------- --------- --------------- --------- --------------- ---------
Revenue 46,434 34.8% 34,436 19.2% 28,881
Gross margin 22,919 57.3% 14,571 25.2% 11,634
Underlying EBITDA 9,771 24.8% 7,827 27.2% 6,153
Net senior debt 17,621 15,456 5,982
------------------- --------- --------------- --------- --------------- ---------
Revenue
During the year AdEPT has continued its transition from a
traditional fixed line service provider towards a managed services
provider. Total revenue generated from managed services represented
69.8% of total revenue in the year ended 31 March 2018 (2017:
55.4%).
Total revenue increased by 34.8% to GBP46.4m (2017:
GBP34.4m):
-- Managed services product revenues increased by GBP13.3m to
GBP32.4m (2017: GBP19.1m). This reflects the impact of the 8 month
contribution from the acquisition of Atomwide combined with an
increased level of organic contract wins and a lower relative churn
rate within the managed service customer base. AdEPT has continued
to make progress in expanding the number of circuits and
connections from new customer additions and through cross-selling
into the existing customer base. As the demand for faster data
connectivity speeds continues AdEPT has seen further customer
orders for 10Gb services.
-- Traditional fixed line revenues decreased to GBP14.0m (2017:
GBP15.4m), which is a reflection of the organic sales focus of the
Group on managed services and IT combined with the substitution
impact of existing customers transitioning to new technologies,
such as SIP and hosted services. The Group's reliance on
fluctuating call revenues continues to reduce, with call revenue
providing only 10.0% of total revenue in the year ended 31 March
2018 (2017: 15.4%).
The proportion of AdEPT revenue being generated from recurring
products and services (being all revenue excluding one-offs
projects, hardware and software) remains high at 78.4% of total
revenue. All of Centrix, Comms Group, OurIT and Atomwide product
sets include hardware supply and installation services, which, by
their nature, are project based and not fixed recurring revenue
streams; however, a high proportion of hardware supply and
installations are further products and services being supplied to
the existing customer base.
AdEPT continued to be highly successful in gaining further
traction in the public sector space during the last year through
leveraging its approved status on various frameworks. AdEPT
Tunbridge Wells was awarded HSCN (Health and Social Care Network)
Compliance during the year, which is the replacement for the legacy
N3 data network used by the NHS, and AdEPT has already contracted
data connectivity services to the NHS. AdEPT is an approved
supplier to the Crown Commercial Service under the RM1045 Network
Services Framework, RM3825 HSCN Access Services Framework and the
RM3804 Technology Services 2 Framework and the Group has been
successful in winning new business through this framework. This is
in addition to AdEPT's existing framework agreement with JISC,
under which AdEPT is one of only a small number of companies
approved to sell data connectivity to UK Colleges and Universities.
The proportion of total revenue generated from public sector and
healthcare customers has increased to 30.6% at March 2018 which
partly arises due to the contribution from the Atomwide acquisition
as the whole of the acquired revenue stream is generated from their
public sector customer base.
The Group is continuing to focus its organic sales efforts on
adding and retaining larger customers whilst complementing this
with an acquisitive strategy. AdEPT is managing the customer risk
with a wide spread of business sectors and no particular customer
concentration, with the top ten customers accounting for 22.3% of
total revenue (2017: 24.3%).
Gross margin
Gross margin percentage has improved to 49.4% during the year
(2017: 42.3%). The current year gross margin includes GBP0.76m of
compensation credits received from Openreach following the
settlement in relation to the deemed consent process in relation to
installation of data circuits. This compensation relates to service
credits for a large number of data circuits across a number of
financial periods and is not a true reflection of ongoing margin.
Excluding the compensation credits gross margin has increased to
47.7% for the year, this increase over the prior year largely
arises due to the business mix moving in greater proportion to IT
services.
Gross margins for fixed line services have decreased to 38.8%
(2017: 39.5%) which is a reflection of focus on winning and
retaining larger customer accounts which by their nature have
larger absolute revenue and gross profit but lower than average
gross margin percentage.
Gross margins for managed services and IT, such as
installations, support and maintenance, are higher than fixed line;
this is a reflection of the headcount costs of supporting the
project installations, helpdesk support and maintenance services
being included within operating expenditure.
Underlying EBITDA
Underlying EBITDA is defined as operating profit after adding
back depreciation, amortisation, acquisition fees, revaluation of
deferred consideration and share-based payment charges. The Group
uses underlying EBITDA as a measure of performance in line with the
telecommunications sector's general approach to relative
performance measurement. As the Group operates a capex-light model,
the Board considers that underlying EBITDA is the best indication
of the underlying cash generation of the business. Below is a
reconciliation of underlying EBITDA to the reported profit after
tax:
2018 2017
GBP'000 GBP'000
--------------------------------------- --------- ---------
Underlying EBITDA 9,771 7,827
Acquisition fees (229) (703)
Openreach compensation credit 755 -
Share option charges (40) (31)
Revaluation of deferred consideration (28) -
Depreciation (418) (279)
Amortisation (3,730) (2,482)
Interest (1,561) (928)
Profit before tax 4,520 3,404
During the year the Group received GBP0.76m compensation from
Openreach following the settlement in relation to the deemed
consent process in relation to installation of data circuits. The
value of the compensation received by the Group has been excluded
from the calculation of underlying EBITDA as it does not relate to
the current year and it is not a reflection of the underlying
profitability of the Group.
Underlying EBITDA has increased for the 15th consecutive year
since AdEPT's inception in 2003. The Group has focussed on the
underlying profitability of customers and revenue streams combined
with tight overhead control, industry leading debt collection and
wholesale supply chain negotiation.
Finance costs
Total interest costs have increased to GBP1.56m (2017:
GBP0.93m), arising largely from the increase in the average level
of net borrowings, including the interest payable on the
convertible loan note, which was used to fund the acquisition of
Atomwide. Included within interest costs is a GBP0.3m charge, which
is non-cash, in relation to the discounted cash flow impact of the
contingent deferred consideration payable in relation to the Comms
Group, CAT, OurIT and Atomwide acquisitions. A further GBP0.1m of
non-cash interest from the application of IAS 32 and IAS 39 has
been recognised in interest costs in relation to the discounting of
the convertible loan liability. Increases to interest costs have
been partially mitigated through treasury management of surplus
cash balances to minimise the amount of drawn funds.
Profit before tax
This year profit before tax has increased by GBP1.12m with a
reported GBP4.52m (2017: GBP3.40m). The increase to profit before
tax arises from the GBP1.94m underlying EBITDA improvement plus the
compensation credits received from Openreach of GBP0.76m, which has
been partially absorbed by the GBP0.63m increase in finance costs,
the acquisition costs of GBP0.23m, and the associated increase in
depreciation and amortisation arising from the acquisitions
undertaken during the current and prior year.
Profit after tax and earnings per share
Profit after tax for the year amounted to GBP3.93m (2017:
GBP2.75m). Basic earnings per share was 16.61p (2017: 12.17p).
Adjusted fully diluted earnings per share, based on the profit for
the year attributable to equity holders adding back amortisation,
share option charges, revaluation of deferred consideration and
acquisition costs and excluding the compensation credits (see Note
28), increased by 26.2% to 27.69p per share (2017: 21.94p).
Dividends and dividend per share
On the back of strong cash flow generation AdEPT announced an
interim dividend of 4.25p per share, which was paid to shareholders
on 7 April 2018. The Company announced in the pre-trading update on
5 April 2018 that, subject to shareholder approval at the annual
general meeting later in the year, it is proposing a final dividend
of 4.50p per ordinary share (2017: 4.00p). This dividend is
expected to be paid on or around 8 October 2018 to shareholders on
the register at 28 September 2018.
Total dividends approved and proposed during the year ended 31
March 2018 of 8.75p per ordinary share represent a 12.9% increase
year-on-year (2017: 7.75p). The Board constantly monitors
shareholder value and is confident that the continued strong cash
generation will support a progressive dividend policy.
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 95.2% (2017: 82.2%). On an after income tax basis,
the proportion of reported EBITDA turned into net cash from
operating activities was 80.5% (2017: 68.1%). The Group continues
to manage its credit risk and the collections of trade receivables
has improved, leading to a reduction to 26 days at year end (2017:
35 days). This reduction is partly a reflection of an increased
value of customer payments in advance received for telecom and IT
maintenance and support services.
Cash interest paid has increased during the year to GBP0.91m
(2017: GBP0.40m), which arises from the increase in net borrowings
to fund the acquisition of Atomwide.
Cash outflows in the year ended 31 March 2018 in relation to
acquisitions amounted to GBP14.52m (net of cash acquired). The
contingent consideration in respect of the acquisition of Comms
Group was paid in July 2017 and for CAT Communications in November
2017 with no further amounts due. The initial cash consideration
for the acquisition of Atomwide of GBP12.0m (net of cash acquired)
was paid in August 2017.
Dividends paid during the year ended 31 March 2018 absorbed
GBP1.84m of cash (2017: GBP1.46m). This increase over the prior
period arises from the continued application of the progressive
dividend policy.
In August 2017 the Group raised GBP7.29m in the form of a
convertible loan instrument from BGF to part fund the acquisition
of Atomwide. The convertible loan instrument is excluded from the
leverage calculations by the senior debt partners, Barclays and
RBS. The Group has applied the principles of IAS 32 and IAS 39 in
the recognition and measurement of the convertible loan. The net
present value of the loan of GBP7.09m has been split between the
debt and equity components and an amount of GBP1.16m has been
recorded in equity, with GBP5.93m being included within long-term
debt. The transaction cost of GBP0.20m is being recognised in the
interest charge in the income statement across the term of the
convertible instrument.
There was a significant increase to cash and cash equivalents
during the year of GBP6.59m. This arises from a net increase in the
drawn element of the revolving credit facility at March 2018 which
was used to fund the deferred consideration for the acquisition of
Our IT, with an amount of GBP3.65m paid in early April 2018. The
Group will continue to apply its treasury management policies to
minimise the cost of finance whilst retaining flexibility to meet
its growth strategies.
Capital expenditure
The Group continues to operate an asset light strategy and has
low capital requirements; therefore, expenditure on fixed assets is
low at 0.8% of revenue (2017: 0.3%).
Business combinations
The strategy of the Group is to concentrate organic sales
efforts on attracting larger customers, particularly in the public
and healthcare sector. Rather than operate a telesales operation
aimed at acquiring smaller business customers organically, we use
our free cash generation in combination with debt and equity
instruments to acquire customer bases and businesses in the IT and
telecommunications industry.
On 2 August 2017 the Company acquired the entire issued share
capital of Atomwide. Atomwide, founded in 1987, is an IT services
provider with over 30 years' experience, offering specialised IT
support services and technology solutions to approximately 2
million users in over 3,000 schools. Atomwide is the chief
technology partner for London Grid for Learning, supplying IT
services to around 2,500 schools in London. The bespoke services
have been created by the in-house development team and are
supported by an experienced team of IT professionals based at
Atomwide's premises in Orpington, Kent. All of the senior
management team which are responsible for the strategic direction,
technical development and the day-to-day operations of Atomwide are
to be retained within the business post-acquisition. The
acquisition was for an initial consideration of GBP12.0m plus the
value of the surplus cash balance of Atomwide at completion
(approximately GBP6.5m), payable in cash. Further contingent
deferred consideration of up to GBP8.0m will be payable, also in
cash, dependent upon the performance of Atomwide post-acquisition.
The estimated deferred consideration payable at 31 March 2018 was
GBP0.7m.
A fair value of GBP7.22m in relation to the customer contracts
for the acquired business and GBP3.53m in relation to the Atomwide
developed software applications have been recognised as intangible
asset additions in the year ended 31 March 2018. Further details on
the acquisition during the year are described in Note 29 of the
financial statements.
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, free cash flow after taxes but
before bank interest paid of GBP8.27m was generated during the year
ended 31 March 2018 (2017: GBP4.33m).
Opening cash plus the free cash flow generated in the year, the
proceeds of the convertible loan note issued and borrowing
drawdowns form the senior debt facility have been used to fund
GBP14.52m acquisition consideration, GBP1.84m dividends paid and
GBP0.45m of capital expenditure on tangible and intangible assets.
Net senior debt, which comprises cash balances and bank borrowings,
has increased to GBP17.62m at the year-end (2017: GBP15.46m) as a
result of the acquisition consideration outflows.
The Group's available banking facilities are described in Note
29 of the financial statements.
Segmental key performance indicators (KPIs)
The segmental KPIs outlined below are intended to provide useful
information when interpreting the accounts.
Fixed
line Managed
services services Total
GBP'000 GBP'000 GBP'000
-------------------------- --------- --------- --------
Year ended 31 March 2018
Revenue 14,001 32,433 46,434
Gross profit 5,439 17,480 22,919
Gross margin % 38.8% 53.9% 49.4%
Underlying EBITDA 2,877 6,894 9,771
Underlying EBITDA% 20.5% 21.3% 21.0%
Year ended 31 March 2017
Revenue 15,365 19,071 34,436
Gross profit 6,074 8,497 14,571
Gross margin % 39.5% 44.6% 42.3%
Underlying EBITDA 3,387 4,440 7,827
Underlying EBITDA% 22.0% 23.3% 22.7%
There are no non-financial KPIs which are reviewed regularly by
the senior management team.
Principal risks and uncertainties
There are a number of potential risks and uncertainties which
could have a material impact on the Group's long-term performance
and could cause actual results to differ materially from expected
results.
Liquidity risk
The Group seeks to manage financial risk by ensuring sufficient
liquidity is available to meet foreseeable needs and to invest cash
assets safely and profitably. External funding facilities are
managed to ensure that both short-term and longer-term funding is
available to provide short-term flexibility whilst providing
sufficient funding to the Group's forecast working capital
requirements.
Credit risk
The Group extends credit of various durations to customers
depending on customer credit worthiness and industry custom and
practice for the product or service. In the event that a customer
proves unable to meet payments when they fall due, the Group will
suffer adverse consequences. To manage this, the Group continually
monitors credit terms to ensure that no single customer is granted
credit inappropriate to its credit risk. Additionally, a large
proportion of our customer receipts are collected by monthly direct
debit. The risk is further reduced by the customer base being
spread across a wide variety of industry and service sectors. The
top ten customers account for approximately 22.5% of revenues.
Competitor risk
The Group operates in a highly competitive market with rapidly
changing product and pricing innovations. We are subject to the
threat of our competitors launching new products in our markets
(including updating product lines) before we make corresponding
updates and developments to our own product range. This could
render our products and services out-of-date and could result in
loss of market share. To reduce this risk, we undertake new product
development and maintain strong supplier relationships to ensure
that we have products at various stages of the life cycle.
Competitor risk also manifests itself in price pressures which
are usually experienced in more mature markets. This results not
only in downward pressure on our gross margins but also in the risk
that our products are not considered to represent value for money.
The Group therefore monitors market prices on an ongoing basis.
Acquisition integration execution
The Group has set out that its strategy includes the acquisition
of businesses where they are earnings enhancing. The Board
acknowledges that there is a risk of operational disturbance in the
course of integrating the acquired businesses with existing
operations. The Group mitigates this risk by careful planning and
rigorous due diligence.
John Swaite
Finance director
Consolidated statement of comprehensive income
For the year ended 31 March 2018
2018 2017
Note GBP'000 GBP'000
---------------------------------------------- ---- -------- --------
Revenue 6 46,434 34,436
Cost of sales (23,515) (19,865)
---------------------------------------------- ---- -------- --------
Gross profit 22,919 14,571
Administrative expenses (16,838) (10,239)
---------------------------------------------- ---- -------- --------
Operating profit 6,081 4,332
---------------------------------------------- ---- -------- --------
Total operating profit - analysed:
Underlying EBITDA 9,771 7,827
Share-based payments (40) (31)
Depreciation of tangible fixed assets (418) (279)
Amortisation of intangible fixed assets (3,730) (2,482)
Loss on revaluation of deferred consideration (28) -
Acquisition fees (229) (703)
Compensation credits 755 -
---------------------------------------------- ---- -------- --------
Total operating profit 6,081 4,332
---------------------------------------------- ---- -------- --------
Finance costs 9 (1,561) (928)
---------------------------------------------- ---- -------- --------
Profit before income tax 4,520 3,404
Income tax expense 11 (584) (655)
---------------------------------------------- ---- -------- --------
Profit for the year 3,936 2,749
Other comprehensive income - -
---------------------------------------------- ---- -------- --------
Total comprehensive income 3,936 2,749
---------------------------------------------- ---- -------- --------
Note 2018 2017
---------------------------------------------- ---- -------- --------
Earnings per share
Basic earnings 28 16.61p 12.17p
Diluted earnings 28 16.36p 11.57p
---------------------------------------------- ---- -------- --------
All amounts relate to continuing operations.
Consolidated statement of financial position
As at 31 March 2018
31 March 31 March
2018 2017
Note GBP'000 GBP'000
-------------------------------------- ---- -------- ---------
Assets
Non-current assets
Goodwill 13 14,531 11,217
Intangible assets 14 35,666 28,559
Property, plant and equipment 16 1,114 863
51,311 40,639
Current assets
Inventories 18 266 196
Contract assets 4 423 -
Trade and other receivables 19 5,867 5,514
Cash and cash equivalents 7,127 1,238
-------------------------------------- ---- -------- ---------
13,683 6,948
-------------------------------------- ---- -------- ---------
Total assets 64,994 47,587
Current liabilities
Trade and other payables 20 11,832 13,049
Contract liabilities 4 568 -
Income tax 199 664
Short-term borrowings - 706
-------------------------------------- ---- -------- ---------
12,599 14,419
Non-current liabilities
Deferred tax 17 5,590 4,057
Convertible loan instrument 21 6,011 -
Long-term borrowings 21 24,749 15,988
-------------------------------------- ---- -------- ---------
Total liabilities 48,949 34,464
-------------------------------------- ---- -------- ---------
Net assets 16,045 13,123
-------------------------------------- ---- -------- ---------
Equity attributable to equity holders
Share capital 22 2,370 2,370
Share premium 479 479
Share capital to be issued 1,012 34
Capital redemption reserve 18 18
Retained earnings 12,166 10,222
-------------------------------------- ---- -------- ---------
Total equity 16,045 13,123
-------------------------------------- ---- -------- ---------
Company statement of financial position
As at 31 March 2018
31 March 31 March
2018 2017
Note GBP'000 GBP'000
-------------------------------------- ---- -------- --------
Assets
Non-current assets
Intangible assets 14 9,495 11,376
Investments 15 46,270 26,542
Property, plant and equipment 16 95 137
Deferred income tax 17 - 43
-------------------------------------- ---- -------- --------
55,861 38,098
Current assets
Inventories 18 1 1
Contract assets 284 -
Trade and other receivables 19 1,360 1,688
Cash and cash equivalents 4,305 -
-------------------------------------- ---- -------- --------
5,950 1,689
-------------------------------------- ---- -------- --------
Total assets 61,811 39,787
Current liabilities
Trade and other payables 20 9,705 10,655
Contract liabilities 336 -
Income tax 133 132
Short-term borrowings - 706
-------------------------------------- ---- -------- --------
10,174 11,493
Non-current liabilities
Other provisions and liabilities 17 140 -
Convertible loan instrument 21 6,011 -
Long-term borrowings 21 24,749 15,988
-------------------------------------- ---- -------- --------
Total liabilities 41,074 27,481
-------------------------------------- ---- -------- --------
Net assets 20,736 12,306
-------------------------------------- ---- -------- --------
Equity attributable to equity holders
Share capital 22 2,370 2,370
Share premium 479 479
Share capital to be issued 1,012 34
Capital redemption reserve 18 18
Retained earnings 16,857 9,405
-------------------------------------- ---- -------- --------
Total equity 20,736 12,306
-------------------------------------- ---- -------- --------
The profit for the financial year dealt with in the financial
statements of the parent Company was GBP9,326,057 (2017: loss
GBP566,084).
Consolidated statement of changes in equity
For the year ended 31 March 2018
Attributable to equity holders
--------------------------------------------------------------
Share Capital
Share Share option redemption Retained Total
capital premium reserve reserve earnings equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------------------- -------- -------- -------- ----------- --------- --------
Equity at 1 April 2016 2,248 429 56 16 9,011 11,760
--------------------------------- -------- -------- -------- ----------- --------- --------
Profit for the year - - - - 2,749 2,749
Other comprehensive income - - - - - -
--------------------------------- -------- -------- -------- ----------- --------- --------
Total comprehensive income - - - - 2,749 2,749
Deferred tax asset adjustment - - - - (69) (69)
Exercise of warrants - - (53) - 53 -
Dividends - - - - (1,461) (1,461)
Share-based payments - - 31 - - 31
Issue of share capital 124 50 - - - 174
Shares repurchased and cancelled (2) - - 2 (61) (61)
--------------------------------- -------- -------- -------- ----------- --------- --------
Equity at 1 April 2017 2,370 479 34 18 10,222 13,123
--------------------------------- -------- -------- -------- ----------- --------- --------
Impact of change in accounting
policy - - - - (174) (174)
--------------------------------- -------- -------- -------- ----------- --------- --------
Adjusted equity at 1 April
2017 2,370 479 34 18 10,048 12,949
--------------------------------- -------- -------- -------- ----------- --------- --------
Profit for the year - - - - 3,936 3,936
Other comprehensive income - - - - - -
--------------------------------- -------- -------- -------- ----------- --------- --------
Total comprehensive income - - - - 3,936 3,936
Deferred tax asset adjustment - - - - 19 19
Dividends - - - - (1,837) (1,837)
Share-based payments - - 40 - - 40
Equity element of convertible
loan note - - 938 - - 938
Equity at 31 March 2018 2,370 479 1,012 18 12,166 16,045
--------------------------------- -------- -------- -------- ----------- --------- --------
The Group has initially applied IFRS 15 using the cumulative
effect method. Under this method, the comparative information is
not restated. See Note 4.
Company statement of changes in equity
For the year ended 31 March 2018
Attributable to equity holders
--------------------------------------------------------------
Share Capital
Share Share option redemption Retained Total
capital premium reserve reserve earnings equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------------------- -------- -------- -------- ----------- --------- --------
Equity at 1 April 2016 2,248 429 56 16 11,509 14,258
--------------------------------- -------- -------- -------- ----------- --------- --------
Loss for the year - - - - (566) (566)
Other comprehensive income - - - - - -
--------------------------------- -------- -------- -------- ----------- --------- --------
Total comprehensive income - - - - (566) (566)
Deferred tax asset adjustment - - - - (69) (69)
Exercise of warrants - - (53) - 53 -
Dividends - - - - (1,461) (1,461)
Share-based payments - - 31 - - 31
Issue of share capital 124 50 - - - 174
Shares repurchased and cancelled (2) - - 2 (61) (61)
--------------------------------- -------- -------- -------- ----------- --------- --------
Equity at 1 April 2017 2,370 479 34 18 9,405 12,306
--------------------------------- -------- -------- -------- ----------- --------- --------
Impact of change in accounting
policy - - - - (55) (55)
Adjusted equity at 1 April
2017 2,370 479 34 18 9,350 12,251
Profit for the year - - - - 9,325 9,325
Other comprehensive income - - - - - -
--------------------------------- -------- -------- -------- ----------- --------- --------
Total comprehensive income - - - - 9,325 9,325
Deferred tax asset adjustment - - - - 19 19
Dividends - - - - (1,837) (1,837)
Share-based payments - - 40 - - 40
Equity element of convertible
loan note - - 938 - - 938
Equity at 31 March 2018 2,370 479 1,012 18 16,857 20,736
--------------------------------- -------- -------- -------- ----------- --------- --------
The Company has initially applied IFRS 15 using the cumulative
effect method. Under this method, the comparative information is
not restated. See Note 4.
Consolidated statement of cash flows
For the year ended 31 March 2018
2018 2017
GBP'000 GBP'000
--------------------------------------------------------- -------- --------
Cash flows from operating activities
Profit before income tax 4,520 3,404
Depreciation and amortisation 4,148 2,761
Profit on sale of fixed asset - -
Share-based payments 40 31
Net finance costs 1,561 928
--------------------------------------------------------- -------- --------
Operating cash flows before movements in working capital 10,269 7,124
Decrease/(Increase) in inventories (39) 33
Decrease/(Increase) in trade and other receivables 479 (123)
(Decrease)/increase in trade and other payables (972) (1,202)
--------------------------------------------------------- -------- --------
Cash generated from operations 9,737 5,832
Income taxes paid (1,501) (1,504)
--------------------------------------------------------- -------- --------
Net cash from operating activities 8,236 4,328
--------------------------------------------------------- -------- --------
Cash flows from investing activities
Interest paid (907) (405)
Acquisition of subsidiaries net of cash acquired (14,523) (11,987)
Purchase of intangible assets (54) (26)
Sale of property, plant and equipment - -
Purchase of property, plant and equipment (364) (146)
--------------------------------------------------------- -------- --------
Net cash used in investing activities (15,848) (12,564)
--------------------------------------------------------- -------- --------
Cash flows from financing activities
Dividends paid (1,837) (1,461)
Share capital issued - 174
Payments made for share repurchases - (61)
Increase in bank loan 11,500 3,950
Repayment of borrowings (2,750) -
Issue of convertible loan note 7,294 -
--------------------------------------------------------- -------- --------
Net cash from financing activities 14,207 2,602
--------------------------------------------------------- -------- --------
Net (decrease)/increase in cash and cash equivalents 6,595 (5,634)
Cash and cash equivalents at beginning of year 532 6,166
--------------------------------------------------------- -------- --------
Cash and cash equivalents at end of year 7,127 532
--------------------------------------------------------- -------- --------
Cash and cash equivalents
Cash at bank and in hand 7,127 1,238
Short-term borrowings - (706)
--------------------------------------------------------- -------- --------
Cash and cash equivalents 7,127 532
--------------------------------------------------------- -------- --------
Company statement of cash flows
For the year ended 31 March 2018
2018 2017
GBP'000 GBP'000
--------------------------------------------------------- -------- --------
Cash flows from operating activities
(Loss)/profit before income tax 9,495 (111)
Depreciation and amortisation 1,988 1,984
Profit on sale of fixed asset - -
Share-based payments 40 31
Net finance costs 1,561 928
--------------------------------------------------------- -------- --------
Operating cash flows before movements in working capital 13,084 2,832
Decrease/(Increase) in inventories - -
Decrease/(Increase) in trade and other receivables (390) (326)
(Decrease)/increase in trade and other payables 1,865 2,372
--------------------------------------------------------- -------- --------
Cash generated from operations 14,559 4,878
Income taxes paid (344) (513)
--------------------------------------------------------- -------- --------
Net cash from operating activities 14,215 4,365
--------------------------------------------------------- -------- --------
Cash flows from investing activities
Interest paid (909) (407)
Acquisition of subsidiaries net of cash acquired (22,436) (12,719)
Purchase of intangible assets (39) (26)
Sale of property, plant and equipment - -
Purchase of property, plant and equipment (26) (11)
--------------------------------------------------------- -------- --------
Net cash used in investing activities (23,410) (13,163)
--------------------------------------------------------- -------- --------
Cash flows from financing activities
Dividends paid (1,837) (1,461)
Dividends received - -
Share capital issued - 174
Payments made for share repurchases - (61)
Increase in bank loan 11,500 3,950
Repayment of borrowings (2,750) -
Issue of convertible loan note 7,294 -
--------------------------------------------------------- -------- --------
Net cash from financing activities 14,207 2,602
--------------------------------------------------------- -------- --------
Net (decrease)/increase in cash and cash equivalents 5,012 (6,196)
Cash and cash equivalents at beginning of year (706) 5,490
--------------------------------------------------------- -------- --------
Cash and cash equivalents at end of year 4,306 (706)
--------------------------------------------------------- -------- --------
Cash and cash equivalents
Cash at bank and in hand 4,306 -
Short-term borrowings - (706)
--------------------------------------------------------- -------- --------
Cash and cash equivalents 4,306 (706)
--------------------------------------------------------- -------- --------
Notes to the financial statements
For the year ended 31 March 2018
1. Nature of operations and general information
AdEPT is one of the UK's leading independent providers of
managed services for IT, unified communications, connectivity and
voice solutions focussed on enterprise business customers, public
sector and healthcare customers. The Company provides a complete
communications portfolio of unified communications, IP telephony,
IT services, equipment installation, managed services, Wi-Fi, IT
and communications hardware and data connectivity products.
AdEPT is incorporated under the Companies Act and domiciled in
the UK and the registered office is located at One Fleet Place,
London, EC4M 7WS. The Company's shares are listed on AIM of the
London Stock Exchange.
2. Accounting policies
Basis of preparation of financial statements
The financial statements have been prepared in accordance with
applicable IFRSs as adopted by the EU.
Accounting standards require the directors to consider the
appropriateness of the going concern basis when preparing the
financial statements. The directors confirm that they consider that
the going concern basis remains appropriate. The Group's available
banking facilities are described in Note 28 to the financial
statements. The Group has adequate financing arrangements which can
be utilised by the Group as required. Thus they continue to adopt
the going concern basis of accounting in preparing the annual
financial statements.
At the date of authorisation of these financial statements, the
directors have considered the standards and interpretations which
have not been applied in these financial statements that were in
issue but not yet effective (and in some cases had not yet been
adopted by the EU) and IFRS 16 "Leases" and IFRS 9 "Financial
Instruments" were considered to be relevant.
The directors have considered the application of IFRS 16 and
IFRS 9, once effective, and do not consider that they will have a
material impact on the net assets or retained profits of the
Group.
The Group has commenced a detailed assessment to determine the
impact of adopting IFRS 16, which introduces for certain lease
contracts significant changes to the allocation of the costs in the
statement of comprehensive income but it is not expected to have a
material impact on profit before tax. It is also expected that the
recognition of lease assets and liabilities will increase the gross
value of assets and liabilities but the impact on net assets will
not be material. This assessment is ongoing and the Board will
update the shareholders on the impact on transition, and on our
ongoing accounting policy, during 2018 as appropriate.
Adoption of the other standards and interpretations are not
expected to have a material impact on the results of the Group.
Application of these standards may result in some changes in
presentation of information within the Group's financial
statements.
The financial statements are presented in sterling, which is the
Group's functional and presentation currency. The figures shown in
the financial statements are rounded to the nearest thousand
pounds.
Segmental reporting
The directors have considered the requirements of IFRS 8
"Operating Segments" and have concluded that the Group has two
segments. For further information see Note 5 of the financial
statements.
Revenue
The Group has early adopted IFRS 15 "Revenue from contracts with
customers" with a date of initial application of 1 April 2017 which
has been applied in respect of data circuit installation and
rental, further details are included in Note 4. The Group has
applied IFRS 15 using the cumulative effect method and therefore
the comparative information has not been restated and continues to
be reported under IAS 18. Revenue is measured based on the
consideration specified in a contract with a customer. Revenue is
recognised when it transfers control over a product or service to a
customer to the extent that it is probable that the economic
benefits will flow to the Group and can be reliably measured.
In the comparative period, revenue was measured at the fair
value of the consideration received or receivable. Revenue from the
sale of goods and equipment was recognised when the significant
risks and rewards of ownership had been transferred to the
customers, recovery of the consideration was probably, the
associated costs and possible return of goods could be estimated
reliably, there was no continuing management involvement with the
goods and the amount of revenue could be measured reliably. Revenue
from rendering of services was recognised in proportion to the
stage of completion of the work at the reporting date.
The following is a description of the principal activities from
which the Group generates its revenue.
Segment Product/service Nature, timing of satisfaction of performance
obligations and significant payment
terms
Fixed line Calls and Revenue from calls, which excludes
services line rental value added tax and trade discounts,
is recognised in the income statement
at the time the call is made. Calls
made in the year, but not billed by
year end, are accrued within receivables
as accrued income.
Revenue from line rental is recognised
in the month that the charge relates
to, commencing with a full month's
charge in the month of connection.
The performance obligations of calls
and line rental services are fulfilled
in the month in which the services
are consumed by customers.
Customer payment terms are 14 days
from invoice for call usage and line
rental services.
----------------- ------------------------------------------------
Managed services Data networks Revenue arising from the provision
of internet and other data connectivity
services is recognised evenly over
the periods in which the service is
provided to the customer. Revenue from
installation of data connectivity services
are recognised evenly over the term
of the customer contract.
The performance obligations of data
networks are fulfilled when the equipment
is installed, the service has gone
live and the associated data connectivity
rental services are consumed by customers
on a monthly basis.
All equipment required for data connectivity
services is covered by a standard manufacturer
warranty which is provided back-to-back
with customer terms.
Customer payment terms are 14 days
from invoice, installation charges
(if applicable) are paid for upfront
with the rental charges paid on a monthly,
annual or quarterly basis.
----------------- ------------------------------------------------
Managed services Sale of goods Revenue from the sale of goods is recognised
when the goods have been fully installed
and the risks and rewards of ownership
have passed to the customer.
The performance obligations of the
supply of goods and equipment are met
when the goods have been delivered,
configured and installed.
All goods supplied are covered by a
standard manufacturer warranty which
is provided back-to-back with customer
terms.
Customer payment terms are 30 days
from invoice date. A deposit of up
to 33% is invoiced prior to delivery
with the balance being invoiced once
the equipment has been configured and
installed.
----------------- ------------------------------------------------
Managed services Support services Support service revenues are recognised
evenly over the customers contractual
period for which the charges relate.
Support service charges which arise
outside of the customer contracts are
recognised in the month when the support
service is provided.
The performance obligations of support
services are fulfilled in the month
in which the services are consumed
by customers.
Customer payment terms are 14-30 days
from invoice date, support services
are invoiced and paid for up to twelve
months in advance.
----------------- ------------------------------------------------
Where customer contracts have multiple components to be
delivered (e.g. equipment rental and internet services), the
revenue attributable to each component is calculated based on the
fair value of each component.
The whole of the revenue is attributable to the provision of
voice and data telecommunication services to both residential and
business customers. All revenue arose within the United
Kingdom.
Goodwill
Goodwill is recognised separately as intangible assets and
carried at cost less accumulated impairment losses. Goodwill is
tested for impairment at least annually. Any impairment is
recognised immediately in the income statement. Subsequent
reversals of impairment losses for goodwill are not recognised.
Intangible fixed assets acquired as part of a business
combination and amortisation
In accordance with IFRS 3 "Business Combinations", an intangible
asset acquired in a business combination is recognised at fair
value at the acquisition date.
After initial recognition, intangible assets are carried at cost
less any accumulated amortisation and any accumulated impairment
losses. Impairment reviews are conducted annually from the first
anniversary following acquisition.
The intangible asset 'customer base' is amortised to the income
statement over its estimated useful economic life on a straight
line basis.
Other intangible assets
Also included within intangible fixed assets are the development
costs of the Company's billing and customer management system plus
an individual licence. These other intangible assets are stated at
cost, less amortisation and any provision for impairment.
Amortisation is provided at rates calculated to write off the cost,
less estimated residual value of each intangible asset, over its
expected useful economic life on the following bases:
Customer management system - Three years straight line
Other licences - Contract licence period straight line
Computer software - Three years straight line
Software apps - Ten years straight line
Website - Five years straight line
Investments
Shareholdings in subsidiaries are valued at cost less provision
for permanent impairment.
Property, plant and equipment and depreciation
Property, plant and equipment are stated at cost, less
depreciation and any provision for impairment. Depreciation is
provided on all property, plant and equipment at rates calculated
to write off the cost, less estimated residual value of each asset,
over its expected useful life on the following bases:
Short-term leasehold improvements - The shorter of five years
and the remaining period of the
lease straight line
Fixtures and fittings - Three years straight line
Office equipment - Three years straight line
Motor vehicles - Four years straight line
Rental equipment at customer premises - Contract agreement period straight line
Lease accounting
The Group leases equipment under operating leases to non-related
parties. Leases of equipment where the Group retains substantially
all risks and rewards incidental to ownership are classified as
operating leases. The underlying assets are recognised in tangible
fixed assets. Rental income from operating leases (net of any
incentives given to the lessees) is recognised in profit or loss on
a straight line basis over the lease term.
Initial direct costs incurred by the Group in negotiating and
arranging operating leases are added to the carrying amount of the
leased assets and recognised as an expense in profit or loss over
the lease term on the same basis as the lease income.
Inventories
Inventories are valued at the lower of cost and net realisable
value after making allowance for any obsolete or slow moving items.
Full provision is made for any items older than six months. Net
realisable value is reviewed regularly to ensure accurate carrying
values. Cost is determined on a first-in, first-out basis and
includes transportation and handling costs.
Net realisable value is the estimated selling price in the
ordinary course of business, less the estimated costs necessary to
make the sale.
Pensions
The Group contributes to personal pension plans. The amount
charged to the income statement in respect of pension costs is the
contribution payable in the year.
Cash and cash equivalents
Cash and cash equivalents comprise cash at bank, cash in hand
and overdrafts.
Income tax
Income tax is the tax currently payable based on taxable profit
for the year.
Deferred income tax is generally provided on the difference
between the carrying amounts of assets and liabilities and their
tax bases. However, deferred income tax is not provided on the
initial recognition of goodwill, nor on the initial recognition of
an asset or liability unless the related transaction is a business
combination or affects tax or accounting profit.
Deferred income tax liabilities are provided in full, with no
discounting. Deferred income tax assets are recognised to the
extent that it is probable that the underlying deductible temporary
differences will be able to be offset against future taxable
income. Current and deferred income tax assets and liabilities are
calculated at tax rates that are expected to apply to their
respective period of realisation, provided they are enacted or
substantively enacted at the balance sheet date.
Changes in deferred income tax assets or liabilities are
recognised as a component of income tax expense in the income
statement, except where they relate to items that are charged or
credited directly to equity, in which case the related deferred
income tax is also charged or credited directly to equity.
Share-based payments
The cost of equity-settled transactions with employees is
measured by reference to the fair value of the award at the date at
which they are granted and is recognised as an expense over the
vesting period, which ends on the date at which the relevant
employees become fully entitled to the award. Fair value is
appraised at the grant date using an appropriate pricing model for
which the assumptions are approved by the directors.
At each balance sheet date, the cumulative expense is calculated
representing the extent to which the vesting period has expired and
management's best estimate of the number of equity instruments that
will ultimately vest. The movement in the cumulative expense since
the previous balance sheet date is recognised in the income
statement, with a corresponding entry in equity.
Trade and other receivables
Trade receivables, which generally have 14 to 30 day terms, are
initially recognised at fair value and subsequently held at
amortised cost. A provision for impairment of trade receivables is
established for any amount due in 90 or more days or when it is
considered probable that the Group may not be able to collect all
amounts due according to the original terms of the receivables.
Significant financial difficulties of the debtor, probability that
the debtor will enter bankruptcy or financial reorganisation, and
default or delinquency in payments are considered indicators that
the trade receivable is impaired. The provision is the difference
between the asset's carrying amount and the original invoice amount
less bad debts written off. The carrying amount of the asset is
reduced through the use of the provision and the amount of the loss
is recognised in the income statement. When a trade receivable is
uncollectible, it is written off against the allowance account for
trade receivables.
Subsequent recoveries of amounts previously written off are
credited to the income statement.
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand and demand
deposits, together with other short-term, highly liquid investments
that are readily convertible into known amounts of cash and which
are subject to an insignificant risk of changes in value.
Trade payables
Trade payables are stated at their nominal value, recognised
initially at fair value and subsequently valued at amortised
cost.
Dividends
Dividend distributions to the Company's shareholders are
recognised when payment has been made to shareholders.
Share buybacks
The Company has returned surplus cash to shareholders through a
limited share buyback scheme pursuant to the authority given to it
at the annual general meeting. Shares purchased for cancellation
are deducted from retained earnings at the total consideration paid
or payable. The Company will continue to monitor the level of cash
required for the business and determine if further repurchases
remain in the shareholders' best interests.
Financial instruments
Financial assets and liabilities are recognised on the Group's
balance sheet when the Group becomes a party to the contractual
provisions of the instrument.
Capital
The capital structure of the Group consists of debt, which
includes the borrowings disclosed in Notes 21 and 29, cash and cash
equivalents, and equity attributable to equity holders, comprising
issued capital, reserves and retained earnings.
Borrowings and borrowing costs
Borrowings are recorded initially at the proceeds received, net
of transaction costs incurred. Borrowings are subsequently stated
at amortised cost. Any differences between the proceeds (net of
transaction costs) and the redemption value is recognised in the
income statement over the period of the borrowings using the
effective interest method.
Borrowing costs are expensed to the income statement as
incurred, with the exception of arrangement fees which are deducted
from the related liability and released over the term of the
related liability in accordance with IAS 39.
3. Critical accounting estimates and judgements
The key assumptions concerning the future and other key sources
of estimation and uncertainty at the balance sheet date, which have
a significant risk of causing a material adjustment to the carrying
amounts of assets and liabilities within the next financial year,
are discussed below.
Key sources of estimation and uncertainty are:
Measuring the fair value of customer bases on acquisition
The main estimates used to measure the fair value of the
customer bases on acquisition are:
-- the churn rate (turnover of customers);
-- discount rate; and
-- gross margins.
Estimating churn, discount rate and gross margins
For Centrix and Atomwide the net present value of the discounted
future cash flows is based on the actual revenues of the acquired
customer bases and applying the actual gross margins achieved by
the businesses.
For the remaining customer bases, the churn rates ranging
between 3.0% and 13.5% are based upon actual historical churn rates
of the revenue stream for each customer base.
The discount rate of 7.2% (2017: 8.0%) used to discount the cash
flows is based upon the Group's weighted average cost of capital
(WACC), which is the recommended discount rate suggested by IFRSs
and is a calculated figure using actual input variables where
available and applying estimates for those which are not, such as
the equity market premium.
Gross margins applied are based upon actual margins achieved by
the customer bases in the current and previous years. The actual
outcomes have been materially equivalent.
Estimating the useful life of customer bases
The main estimate used to conduct the impairment review is the
churn rate (turnover of customers).
The average useful economic life of all the customer bases has
been estimated at 14 years (2017: 15 years) with a range of ten to
30 years.
Measuring the fair value of contingent consideration
The fair value of contingent deferred consideration is
determined by reference to the growth rate for the gross margin of
the acquired business and applying the contingent deferred
consideration matrix as specified in the asset or share purchase
agreement and discounting the net present value of the future cash
flows. The range of contingent consideration in the current period
was GBP0 to GBP11.75m; further details are included in Note 28.
Subsequent impairment of customer bases
The Group determines whether intangible assets are impaired on
at least an annual basis. This requires an estimation of the 'value
in use' of the cash-generating units to which the intangible value
is allocated. Estimating a value in use amount requires management
to make an estimate of the expected future cash flows from the
cash-generating unit and also to choose a suitable discount rate in
order to calculate the present value of those cash flows.
The calculations are sensitive to any movement in the discount
rate, margin or churn rate and would therefore result in an
impairment charge to the income statement. A 1% change to the
discount rate, gross margin and churn rate would result in
additional impairment charges of GBP122,455, GBP54,910 and
GBP230,229 respectively.
More details, including carrying values, are included in Note
14.
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.
Further information on the receivables allowance account is given
in Note 19.
4. Changes in accounting policies
Except for the changes below, the Group has consistently applied
the accounting policies to all presented in these consolidated
financial statements. The details and quantitative impact of the
changes in accounting policies are disclosed below:
Data circuit installation and rental
The Group previously recognised the revenue for the installation
of data circuits when the installation had been completed and the
data circuit had gone live, and the revenue for the rental of the
data circuit was recognised on a monthly basis across the contract
period. Under IFRS 15, the total consideration receivable in
respect of the data circuit, being the installation revenue plus
the total value of the contracted monthly rental charges, is being
spread evenly across the contract period.
The following tables summarise the impacts of adopting IFRS 15
on the Group's consolidated financial statements for the year ended
31 March 2018:
Adjustments Balances
without
adoption
of IFRS
GBP'000 As reported 15
-------------------------------------- ----------- ------------ ---------
Assets
Non-current assets
Goodwill 14,531 - 14,531
Intangible assets 35,666 - 35,666
Property, plant and equipment 1,114 - 1,114
51,311 - 51,311
Current assets
Inventories 266 - 266
Trade and other receivables 5,867 - 5,867
Contract assets 423 (423) -
Cash and cash equivalents 7,127 - 7,127
-------------------------------------- ----------- ------------ ---------
13,683 (423) 13,260
-------------------------------------- ----------- ------------ ---------
Total assets 64,994 (423) 64,571
Current liabilities
Trade and other payables 11,832 - 11,832
Contract liabilities 568 (568) -
Income tax 199 (6) 193
12,599 (574) 12,025
Non-current liabilities
Deferred income tax 5,590 - 5,590
Convertible loan instrument 6,011 - 6,011
Long-term borrowings 24,749 - 24,749
-------------------------------------- ----------- ------------ ---------
Total liabilities 48,949 (574) 48,375
-------------------------------------- ----------- ------------ ---------
Net assets 16,045 151 16,196
-------------------------------------- ----------- ------------ ---------
Equity attributable to equity holders
Share capital 2,370 - 2,370
Share premium 479 - 479
Retained earnings 13,196 151 13,347
-------------------------------------- ----------- ------------ ---------
Total equity 16,045 151 16,196
-------------------------------------- ----------- ------------ ---------
Adjustments Balances
without
adoption
of IFRS
GBP'000 As reported 15
--------------------------- ----------- ------------ ---------
Revenue 46,434 18 46,452
Cost of sales (23,515) (47) (23,562)
--------------------------- ----------- ------------ ---------
Gross profit 22,919 (29) 22,890
Administrative expenses (16,838) - (16,838)
--------------------------- ----------- ------------ ---------
Operating profit 6,081 (29) 6,052
Finance costs (1,561) - (1,561)
--------------------------- ----------- ------------ ---------
Profit before income tax 4,520 (29) 4,491
Income tax expense (584) 6 (578)
--------------------------- ----------- ------------ ---------
Profit for the year 3,936 (23) 3,913
Other comprehensive income - - -
--------------------------- ----------- ------------ ---------
Total comprehensive income 3,936 (23) 3,913
--------------------------- ----------- ------------ ---------
The Group has recognised the cumulative effect of initially
applying IFRS 15 with an opening adjustment to equity of GBP173,904
at 1 April 2017. The net impact on profit before tax of applying
IFRS 15 in the year ended 31 March 2018 was GBP23,051, resulting in
a net adjustment to retained earnings at 31 March 2018 of
GBP150,853.
Adjustments Balances
without
adoption
of IFRS
GBP'000 As reported 15
----------------------------------------------------- ----------- ------------ ---------
Cash flows from operating activities
Profit before income tax 4,520 (29) 4,491
Depreciation and amortisation 4,148 - 4,148
Share-based payments 40 - 40
Net finance costs 1,561 - 1,561
----------------------------------------------------- ----------- ------------ ---------
Operating cash flows before movements in working
capital 10,269 (29) 10,240
Decrease in inventories (39) - (39)
Increase in trade and other receivables 479 47 526
(Decrease)/increase in trade and other payables (972) (18) (990)
----------------------------------------------------- ----------- ------------ ---------
Cash generated from operations 9,737 - 9,737
Income taxes paid (1,501) - (1,501)
----------------------------------------------------- ----------- ------------ ---------
Net cash from operating activities 8,236 - 8,236
----------------------------------------------------- ----------- ------------ ---------
Cash flows from investing activities
Interest paid (907) - (907)
Acquisition of subsidiaries net of cash acquired (14,523) - (14,523)
Purchase of intangible assets (54) - (54)
Purchase of property, plant and equipment (364) - (364)
----------------------------------------------------- ----------- ------------ ---------
Net cash used in investing activities (15,848) - (15,848)
----------------------------------------------------- ----------- ------------ ---------
Cash flows from financing activities
Dividends paid (1,837) - (1,837)
Issue of convertible loan note 7,294 - 7,294
Increase in bank loan 11,500 - 11,500
Repayment of borrowings (2,750) - (2,750)
----------------------------------------------------- ----------- ------------ ---------
Net cash from financing activities 14,207 - 14,207
----------------------------------------------------- ----------- ------------ ---------
Net (decrease)/increase in cash and cash equivalents 6,595 - 6,595
Cash and cash equivalents at beginning of
year 532 - 532
----------------------------------------------------- ----------- ------------ ---------
Cash and cash equivalents at end of year 7,127 - 7,127
----------------------------------------------------- ----------- ------------ ---------
The impact of the adoption of IFRS 15 on basic and adjusted
earnings per share is not material.
5. Segmental information
IFRS 8 "Operating Segments" requires identification on the basis
of internal reporting about components of the Group that are
regularly reviewed by the chief operating decision maker to
allocate resources to the segments and to assess their
performance.
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 (being calls and line rental services) and
managed services (which are data connectivity, hardware, IP
telephony, support and maintenance services), which 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 underlying EBITDA.
Year ended 31 March 2018 Year ended 31 March 2017
------------------------ --------------------------------------- --------------------------------------
Fixed Fixed
line Managed Central line Managed Central
GBP'000 services services costs Total services services costs Total
------------------------ --------- --------- ------- -------- --------- --------- ------- -------
Revenue 14,001 32,433 - 46,434 15,365 19,071 - 34,436
Gross profit 5,439 17,480 - 22,919 6,074 8,497 - 14,571
Gross margin
% 38.8% 53.9% - 49.4% 39.5% 44.6% - 42.3%
------------------------ --------- --------- ------- -------- --------- --------- ------- -------
Administrative
expenses (2,562) (10,586) - (13,148) 2,687 4,057 - 6,744
------------------------ --------- --------- ------- -------- --------- --------- ------- -------
Underlying EBITDA 2,877 6,894 - 9,771 3,387 4,440 - 7,827
Underlying EBITDA
% 20.5% 21.3% - 21.0% 22.0% 23.3% - 22.7%
------------------------ --------- --------- ------- -------- --------- --------- ------- -------
Amortisation (2,071) (1,659) - (3,730) (1,907) (575) - (2,482)
Depreciation - - (418) (418) - - (279) (279)
Revaluation of
deferred consideration - - (28) (28) - - - -
Acquisition costs - - (229) (229) - - (703) (703)
Compensation
credits - - 755 755 - - - -
Share-based payments - - (40) (40) - - (31) (31)
------------------------ --------- --------- ------- -------- --------- --------- ------- -------
Operating profit/(loss) 806 5,236 39 6,081 1,480 3,865 (1,013) 4,332
------------------------ --------- --------- ------- -------- --------- --------- ------- -------
Finance costs - - (1,561) (1,561) - - (928) (928)
Income tax - - (584) (584) - - (655) (655)
------------------------ --------- --------- ------- -------- --------- --------- ------- -------
Profit/(loss)
after tax 806 5,236 (2,106) 3,936 1,480 3,865 (2,596) 2,749
------------------------ --------- --------- ------- -------- --------- --------- ------- -------
During the year the Group received compensation from Openreach
following their mis-use of the deemed consent process in relation
to installation of data circuits. This compensation relates to
service credits for a large number of data circuits across a number
of financial periods. The value of the compensation received by the
Group has been excluded from the calculation of managed services
gross margin and underlying EBITDA as it does not relate to the
current year and it is not a reflection of the underlying
profitability of the Group.
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.
Transactions with the largest customer of the Group are less
than 10% of total turnover and do not require disclosure for either
2017 or 2018.
6. Revenue
In the following table, revenue is disaggregated by major
product/service lines and timing of revenue recognition. All
revenue is derived from the UK.
2018 2017
GBP'000 GBP'000
-------------------------------------------- -------- --------
Sale of goods 10,003 4,698
Provision of services
- calls and line rental 14,481 15,874
- data networks 9,731 8,501
- support services 8,847 2,046
- other services 3,372 3,317
--------------------------------------------- -------- --------
46,434 34,436
-------------------------------------------- -------- --------
Timing of revenue recognition
Products transferred at a point in time 10,003 4,698
Products and services transferred over time 36,431 29,738
---------------------------------------------
46,434 34,436
-------------------------------------------- -------- --------
The Group has initially applied IFRS 15 using the cumulative
effect method. Under this method the comparative information is not
restated.
The following table provides information about receivables,
contract assets and contract liabilities with customers:
2018 2017
GBP'000 GBP'000
---------------------------------------------- -------- --------
Receivables, which are included in 'Trade and
other receivables' 3,987 3,738
Contract assets 423 -
Contract liabilities (568) -
----------------------------------------------- -------- --------
Contract assets relate to the deferred direct costs in respect
of data circuit installations which have been completed and are
being recognised across the customers contractual term to which the
installation relates. The contract liabilities relate to the
deferred revenue in respect of data installations which have been
completed and the revenue is being recognised across the term of
the customer contract.
Significant changes in the contract assets and contract
liabilities balances during the period are as follows:
2018 2017
GBP'000 GBP'000
----------------------------------------------- -------- --------
Revenue deferred into future periods (568) -
Deferred revenue recognised in the period 18 -
Direct costs deferred into future periods 423 -
Deferred direct costs recognised in the period (47) -
------------------------------------------------ -------- --------
The Group recognised the cumulative effect of initially applying
IFRS 15 as an adjustment to the opening balance at 1 April
2017.
The performance obligations of the underlying contracts to which
the contract assets relate are expected to be met over periods of
up to 5 years. However, the performance obligations for all
revenues and costs that have been deferred into future periods have
been satisfied at the year end, as these relate to the installation
and equipment of data networks which have been completed and the
service is being used by the customer.
There are no impairment losses in relation to the contract
assets recognised under IFRS 15.
7. Operating profit
The operating profit is stated after charging:
2018 2017
GBP'000 GBP'000
-------------------------------------------------- -------- --------
Amortisation of customer base, billing system and
licence 3,730 2,482
Depreciation of tangible fixed assets:
- owned by the Group 418 279
Share option expense/(credit) 40 31
Minimum operating lease payments:
- land and buildings 466 575
- motor vehicles and other equipment 76 110
Acquisition costs 230 703
Compensation credit 755 -
-------------------------------------------------- -------- --------
8. Auditor's remuneration
2018 2017
GBP'000 GBP'000
--------------------------------------------------------- -------- --------
Fees payable to the Group's auditor for the audit
of the Group's annual financial statements 36 35
Fees payable to the Group's auditor and their associates
in respect of:
- audit of subsidiaries 52 31
- other services relating to taxation 20 17
--------------------------------------------------------- -------- --------
9. Finance costs
2018 2017
GBP'000 GBP'000
----------------------------------------- -------- --------
On bank loans and overdrafts 1,122 424
Bank fees 136 182
Finance cost on contingent consideration 303 322
----------------------------------------- -------- --------
1,561 928
----------------------------------------- -------- --------
The finance costs on contingent consideration arises from the
release of the discounted contingent consideration liability evenly
across the term of the deferred consideration period in relation to
each acquisition. This is a non-cash item.
10. Employee costs
Staff costs, including directors' remuneration, were as
follows:
2018 2017
GBP'000 GBP'000
---------------------- -------- --------
Wages and salaries 8,296 4,141
Social security costs 960 483
Share option expense 40 31
Other pension costs 114 51
---------------------- -------- --------
9,411 4,706
---------------------- -------- --------
The average monthly number of employees, including the
directors, during the year was as follows:
2018 2017
Number Number
------------------------------------------------- ------- -------
Non-executive directors 3 2
Administrative staff 176 87
------------------------------------------------- ------- -------
179 89
------------------------------------------------- ------- -------
Key management personnel
The directors are considered to be the key management personnel
of the Group, having authority and responsibility for planning,
directing and controlling the activities of the Group.
11. Income tax expense
2018 2017
GBP'000 GBP'000
------------------------------------------------ -------- --------
Current tax
UK corporation tax on profit for the year 1,428 1,300
Adjustments in respect of prior periods (325) 32
------------------------------------------------ -------- --------
Total current tax 1,103 1,332
------------------------------------------------ -------- --------
Deferred tax
Origination and reversal of timing differences:
- fixed assets (22) (4)
- share options (3) (10)
- goodwill on business combinations (506) (633)
Adjustments in respect of prior periods 12 (30)
------------------------------------------------ -------- --------
Total deferred tax (see Note 16) (519) (677)
------------------------------------------------ -------- --------
Total income tax expense 584 655
------------------------------------------------ -------- --------
Factors affecting tax charge for the year
The relationship between expected tax expense based on the
effective tax rate of AdEPT at 19% (2017: 20%) and the tax expense
actually recognised in the income statement can be reconciled as
follows:
2018 2017
GBP'000 GBP'000
------------------------------------------------------ -------- --------
Profit before income tax 4,520 3,404
Tax rate 19% 20%
Expected tax charge 859 681
Expenses not deductible for tax purposes 126 254
Adjustments to tax charge in respect of prior periods (313) 2
Depreciation/amortisation on non-qualifying assets 13 (2)
R&D enhanced tax deduction (95) -
RDEC credit taxed 3 -
Prior year IFRS 15 adjustment (33) -
Unprovided deferred tax movement - 3
Difference due to deferred tax rate being lower
than the standard tax rate 63 (272)
Share option relief - (11)
Group relief claim (29) -
Other (10) -
------------------------------------------------------ -------- --------
Actual tax expense net 584 655
------------------------------------------------------ -------- --------
The change in income tax rates will affect future tax
charges.
12. Dividends
On 30 September 2017 the directors approved an interim dividend
of 4.25p per ordinary share (2017: 3.75p), which was paid to
shareholders on 7 April 2018. On 5 April 2018 the directors
proposed a final dividend, subject to shareholder approval at the
2018 annual general meeting, of 4.50p per ordinary share (2017:
4.00p). Total dividends proposed in respect of the year ended 31
March 2018 will absorb GBP2,073,910 of shareholders' funds in
future periods (2017: GBP1,836,892).
On 7 April 2017 the Company paid dividends of GBP888,818 in
relation to the interim dividend declared in September 2016. On 10
October 2017 the Company paid dividends of GBP948,074 in relation
to the final dividend declared in March 2017. Total dividends paid
in the year ended 31 March 2018 absorbed GBP1,836,892 of cash
(2017: GBP1,461,467).
13. Goodwill
Group
Total
GBP'000
------------------ --------
Cost
At 1 April 2016 5,698
Additions 7,603
------------------ --------
At 1 April 2017 13,301
Additions 3,313
At 31 March 2018 16,615
------------------ --------
Impairment
At 1 April 2016 (2,084)
Impairment charge -
------------------ --------
At 1 April 2017 (2,084)
Impairment charge -
------------------ --------
At 31 March 2018 (2,084)
------------------ --------
Net book value
At 31 March 2018 14,531
------------------ --------
At 31 March 2017 11,217
------------------ --------
The goodwill is split by cash-generating units as follows:
March March
2018 2017
GBP'000 GBP'000
--------------------------- -------- --------
Centrix Limited 3,614 3,614
Comms Group UK Limited 2,672 2,672
CAT Communications Limited 248 248
OurIT Department Limited 4,683 4,683
Atomwide Limited 3,313 -
--------------------------- -------- --------
The assumptions are set out in note 3. The net present value of
the future cash flows for some of the cash-generating units is
sensitive to the weighted average cost of capital. The rate used to
discount the future cash flows is the Group's pre-tax weighted
average cost of capital of 7.18%. An increase in the Groups
weighted average cost of capital to above 10.9% would materially
impair the carrying value of the Group's goodwill by more than
GBP400,000.
An increase to the weighted average cost of capital may lead to
impairment of goodwill, further details of the sensitivity of the
variables used in the impairment testing are included in Note
3.
14. Intangible fixed assets
Group
Computer Customer Software
Licence software base apps Website Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------- -------- --------- -------- -------- -------- --------
Cost
At 1 April 2016 26 1,274 40,444 - - 41,744
Additions - 26 6,111 - 1,744 7,881
Acquired with subsidiary - - 1,703 - - 1,703
------------------------- -------- --------- -------- -------- -------- --------
At 1 April 2017 26 1,300 48,295 - 1,744 51,365
Additions 15 39 7,248 3,535 - 10,837
Acquired with subsidiary - - - - - -
------------------------- -------- --------- -------- -------- -------- --------
At 31 March 2018 41 1,339 55,543 3,535 1,744 62,202
------------------------- -------- --------- -------- -------- -------- --------
Amortisation
At 1 April 2016 26 1,112 19,186 - - 20,324
Charge for the year - 88 2,208 - - 2,296
Impairment charge - - 186 - - 186
------------------------- -------- --------- -------- -------- -------- --------
At 1 April 2017 26 1,200 21,580 - - 22,806
Charge for the year 2 83 2,947 236 249 3,517
Impairment charge - - 213 - - 213
------------------------- -------- --------- -------- -------- -------- --------
At 31 March 2018 28 1,283 24,740 236 249 26,536
------------------------- -------- --------- -------- -------- -------- --------
Net book value
At 31 March 2018 13 56 30,803 3,299 1,495 35,666
------------------------- -------- --------- -------- -------- -------- --------
At 31 March 2017 - 100 26,715 - 1,744 28,559
------------------------- -------- --------- -------- -------- -------- --------
Included within the Group's intangible assets is:
March March
2018 2017
Useful life GBP'000 GBP'000
---------------------------------------- ------------ -------- --------
Centrix Limited 30 years 7,664 7,946
Comms Group UK Limited 17 years 4,331 4,662
OurIT Department Limited 17 years 2,999 3,281
CAT Communications Limited 10 years 1,055 1,289
Atomwide Limited - customer base 10 years 6,751 -
Atomwide Limited - software/apps 10 years 3,299 -
Other customer bases- AdEPT Telecom plc
trading business 10-16 years 9,497 11,281
---------------------------------------- ------------ -------- --------
Company
Computer Customer
Licence software base Total
GBP'000 GBP'000 GBP'000 GBP'000
-------------------- -------- --------- -------- --------
Cost
At 1 April 2016 26 1,274 32,045 33,345
Additions - 26 - 26
-------------------- -------- --------- -------- --------
At 1 April 2017 26 1,300 32,045 33,371
Additions - 39 - 39
-------------------- -------- --------- -------- --------
At 31 March 2018 26 1,339 32,045 33,410
-------------------- -------- --------- -------- --------
Amortisation
At 1 April 2016 26 1,112 18,952 20,090
Charge for the year - 88 1,631 1,719
Impairment charge - - 186 186
-------------------- -------- --------- -------- --------
At 1 April 2017 26 1,200 20,769 21,995
Charge for the year - 83 1,661 1,744
Impairment charge - - 176 176
-------------------- -------- --------- -------- --------
At 31 March 2018 26 1,283 22,606 23,915
-------------------- -------- --------- -------- --------
Net book value
At 31 March 2018 - 56 9,439 9,495
-------------------- -------- --------- -------- --------
At 31 March 2017 - 100 11,276 11,376
-------------------- -------- --------- -------- --------
Intangible assets are reviewed annually or more frequently if
events or changes in circumstances indicate that the carrying value
may be impaired. The net present value of cash flows for each
cash-generating unit is reviewed against the carrying value at the
balance sheet date. At the final reporting date of 31 March 2018
the net present value of future cash flows of certain
cash-generating units was below the carrying value and an
impairment charge of GBP212,850 (2017: GBP185,583) has been
recorded in respect of four cash-generating units.
The useful lives of the customer base intangible assets are
determined by reference to the actual historical churn rates of the
revenue stream for each customer base acquired. Sensitivity of the
assumptions are included in Note 3.
The rate used to discount the future cash flows is the Group's
pre-tax weighted average cost of capital of 7.18%. An increase in
the Groups weighted average cost of capital to above 11.4% would
materially impair the carrying value of the Group's intangible
assets by more than GBP400,000.
Book value of cash-generating unit Estimated value in use
GBP'000s GBP'000s
--------------------------------- ---------------------------------- ----------------------
Centrix Limited 7,664 22,420
Comms Group UK Limited 4,331 6,212
OurIT Department Limited 2,999 3,957
CAT Communications Limited 1,055 1,473
Atomwide Limited - customer base 3,299 3,417
Atomwide Limited - software/apps 6,751 9,091
--------------------------------- ---------------------------------- ----------------------
15. Investments in subsidiaries
Company
Company Total
GBP'000 GBP'000
---------------------------- -------- --------
Cost
1 April 2016 11,846 11,846
Additions 16,157 16,157
Disposals (1,461) (1,461)
---------------------------- -------- --------
1 April 2017 26,542 26,542
Additions 19,728 19,728
Disposals - -
---------------------------- -------- --------
At 31 March 2018 46,270 46,270
---------------------------- -------- --------
Amounts written off
At 1 April 2016 - -
Written off during the year - -
---------------------------- -------- --------
1 April 2017 - -
Written off during the year - -
---------------------------- -------- --------
At 31 March 2018 - -
---------------------------- -------- --------
Net book value
At 31 March 2018 46,270 46,270
---------------------------- -------- --------
At 31 March 2017 26,542 26,542
---------------------------- -------- --------
Details of the principal subsidiaries of the Company are
included in Note 31 to the financial statements.
16. Property, plant and equipment
Group
Short-term Fixtures
Motor leasehold and Office
vehicles improvements fittings equipment Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------- --------- ------------- --------- ---------- --------
Cost
At 1 April 2016 105 7 338 548 998
Acquired with subsidiary - - 11 461 472
Additions - - 1 145 146
Disposals - - - (62) (62)
------------------------- --------- ------------- --------- ---------- --------
At 1 April 2017 105 7 350 1,092 1,554
Acquired with subsidiary 43 256 88 66 453
Additions - - 9 355 364
Disposals - - - (271) (271)
------------------------- --------- ------------- --------- ---------- --------
At 31 March 2018 148 263 447 1,242 2,100
------------------------- --------- ------------- --------- ---------- --------
Depreciation
At 1 April 2016 4 7 152 311 474
Charge for the year 26 - 56 197 279
Disposals - - - (62) (62)
------------------------- --------- ------------- --------- ---------- --------
At 1 April 2017 30 7 208 446 691
Charge for the year 38 14 70 295 417
Disposals - - - (122) (122)
------------------------- --------- ------------- --------- ---------- --------
At 31 March 2018 68 21 278 619 986
------------------------- --------- ------------- --------- ---------- --------
Net book value
At 31 March 2018 80 242 169 623 1,114
------------------------- --------- ------------- --------- ---------- --------
At 31 March 2017 75 - 142 646 863
------------------------- --------- ------------- --------- ---------- --------
Company
Short-term Fixtures
Motor leasehold and Office
vehicles improvements fittings equipment Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------------- --------- ------------- --------- ---------- --------
Cost
At 1 April 2016 105 7 208 346 666
Additions - - - 10 10
Disposals - - - - -
-------------------- --------- ------------- --------- ---------- --------
At 1 April 2017 105 7 208 356 676
Additions - - 7 19 26
Disposals - - - - -
-------------------- --------- ------------- --------- ---------- --------
At 31 March 2018 105 7 215 375 702
-------------------- --------- ------------- --------- ---------- --------
Depreciation
At 1 April 2016 4 7 146 305 462
Charge for the year 26 - 24 27 77
Disposals - - - - -
-------------------- --------- ------------- --------- ---------- --------
At 1 April 2017 30 7 170 332 539
Charge for the year 27 - 24 17 68
Disposals - - - - -
-------------------- --------- ------------- --------- ---------- --------
At 31 March 2018 57 7 194 349 606
-------------------- --------- ------------- --------- ---------- --------
Net book value
At 31 March 2018 48 - 21 26 95
-------------------- --------- ------------- --------- ---------- --------
At 31 March 2017 75 - 38 24 137
-------------------- --------- ------------- --------- ---------- --------
17. Deferred taxation
2018 2018 2017 2017
Group Company Group Company
GBP'000 GBP'000 GBP'000 GBP'000
------------------------------------------ -------- -------- -------- --------
At 1 April 2017 (4,057) 43 (3,041) 106
Income statement credit/(charge) 519 18 700 6
Movement in deferred tax on share options
taken to equity 19 19 (69) (69)
Deferred tax provision on convertible
loan note taken to equity (220) (220) - -
Deferred tax acquired (22) - - -
Deferred tax on business combination (1,829) - (1,646) -
------------------------------------------ -------- -------- -------- --------
At 31 March 2018 (5,590) (140) (4,057) 43
------------------------------------------ -------- -------- -------- --------
The deferred tax (liability)/asset is made up as follows:
2018 2018 2017 2017
Group Company Group Company
GBP'000 GBP'000 GBP'000 GBP'000
-------------------------------------- -------- -------- -------- --------
Capital allowances (49) 9 (7) 6
Short-term timing differences 33 16 17 16
Convertible loan note equity element (208) (208) - -
Deferred tax on business combinations (5,409) - (4,088) -
Share options 43 43 21 21
-------------------------------------- -------- -------- -------- --------
(5,590) (140) (4,057) 43
-------------------------------------- -------- -------- -------- --------
18. Inventories
2018 2018 2017 2017
Group Company Group Company
GBP'000 GBP'000 GBP'000 GBP'000
------------ -------- -------- -------- --------
Consumables 266 1 196 1
------------ -------- -------- -------- --------
As at 31 March 2018, inventories of GBP100,171 (2017: GBP74,036)
were fully provided for. During the year GBP26,135 has been
recognised as an expense in the statement of comprehensive
income.
There is no material difference between the replacement cost of
inventories and the amount stated above.
19. Trade and other receivables
2018 2018 2017 2017
Group Company Group Company
GBP'000 GBP'000 GBP'000 GBP'000
------------------ -------- -------- -------- --------
Trade receivables 3,955 1,015 3,738 1,178
Other receivables 53 7 24 7
Income tax - - - -
Prepayments 1,477 200 1,432 291
Accrued income 382 138 320 212
------------------ -------- -------- -------- --------
5,867 1,360 5,513 1,688
------------------ -------- -------- -------- --------
As at 31 March 2018, trade receivables of GBP121,298 (2017:
GBP215,939) were impaired and fully provided for. The ageing of the
trade receivables which are past due and not impaired is as
follows:
2018 2018 2017 2017
Group Company Group Company
GBP'000 GBP'000 GBP'000 GBP'000
------------- -------- -------- -------- --------
31-60 days 903 108 512 147
61-90 days 213 4 182 20
Over 90 days 260 - 162 -
------------- -------- -------- -------- --------
1,376 112 856 167
------------- -------- -------- -------- --------
All debts which are older than 90 days relate to interim amounts
in respect of large customer projects which have not yet fully
completed and are considered to be fully recoverable on completion.
The movement of the provision for impairment of trade receivables
is as follows:
Group Company
GBP'000 GBP'000
------------------------------------------------------------ -------- --------
At 1 April 2016 128 128
Receivables provided for during the year as uncollectable 87 1
------------------------------------------------------------ -------- --------
At 1 April 2017 215 129
Receivables provided for during the year as uncollectable - 47
Receivables collected during the year which were previously
provided (94) -
------------------------------------------------------------ -------- --------
At 31 March 2018 121 176
------------------------------------------------------------ -------- --------
The creation and release of a provision for impaired receivables
has been included in administration expenses in the income
statement. Amounts charged to the allowance account are generally
written off when there is no expectation of recovering cash.
Management regularly reviews the outstanding receivables and does
not consider that any further impairment is required. The other
asset classes within trade and other receivables do not contain
impaired assets.
20. Trade and other payables
2018 2018 2017 2017
Group Company Group Company
GBP'000 GBP'000 GBP'000 GBP'000
-------------------------------------- -------- -------- -------- --------
Trade payables 2,292 608 1,706 617
Other taxes and social security costs 1,407 435 910 174
Other payables 44 34 67 54
Amounts owed to Group undertakings - 3,222 - 2,065
Accruals and deferred income 3,729 1,046 3,630 1,009
Contingent consideration 4,360 4,360 6,736 6,736
-------------------------------------- -------- -------- -------- --------
11,832 9,705 13,049 10,655
-------------------------------------- -------- -------- -------- --------
The contingent consideration liability of GBP4,359,527 (2017:
GBP6,735,837) represents the year-end fair value of the contingent
consideration liabilities arising on the acquisitions made during
the year. The fair value of the contingent consideration liability
was initially determined by reference to the forecast growth rate
for the customer base and applying the contingent consideration
matrix as specified in the share purchase agreement. Further
details are included in Note 29.
21. Long-term borrowings
2018 2018 2017 2017
Group Company Group Company
GBP'000 GBP'000 GBP'000 GBP'000
--------------------------- -------- -------- -------- --------
Between one and two years - - - -
Between two and five years 24,749 24,749 15,988 15,988
More than five years 6,011 6,011 - -
--------------------------- -------- -------- -------- --------
Bank loans 30,760 30,760 15,988 15,988
--------------------------- -------- -------- -------- --------
The bank loan of GBP24,748,564 is secured by a debenture
incorporating a fixed and floating charge over the undertaking and
all property and assets present and future, including goodwill,
book debts, uncalled capital, buildings, fixtures and fixed plant
and machinery.
Included in long-term borrowings is an amount of GBP6,011,728
which is the debt component of the convertible loan instrument from
BGF. This loan instrument is sub-ordinated and sits behind the bank
loan.
Details of the interest rates applicable to the borrowings are
included in Note 29.
Included within bank loans are arrangement fees amounting to
GBP251,435 (2017: GBP261,635) which are being released over the
term of the loan in accordance with IAS 39.
22. Share capital
2018 2017
GBP'000 GBP'000
------------------------------------------------- -------- --------
Authorised
65,000,000 ordinary shares of 10p each 6,500 6,500
------------------------------------------------- -------- --------
Allotted, called up and fully paid
23,701,832 (2017: 23,701,832) ordinary shares of
10p each 2,370 2,370
------------------------------------------------- -------- --------
Movement in shares in issue
31 March 31 March
2018 2017
--------------------------------------------------- ---------- ----------
Ordinary shares of 10p each 23,701,832 22,484,108
Issued upon exercise of share options and warrants - 1,236,860
Shares repurchased and cancelled - (19,136)
--------------------------------------------------- ---------- ----------
23,701,832 23,701,832
--------------------------------------------------- ---------- ----------
Share buyback scheme
On 18 December 2014 the Company announced that it intended to
commence a limited share buyback of its own ordinary shares. During
the year ended 31 March 2018 the Company repurchased no shares
(2017: 19,136 at an average price of 318p).
Share options
At 31 March 2018, the following options and warrants over the
shares of AdEPT were in issue:
2018 2017
--------------------- ----------------------
Number Weighted Number Weighted
of shares average of shares average
under exercise under exercise
option price option price
-------------------------- ---------- --------- ----------- ---------
Outstanding at 1 April 392,500 228p 1,469,840 49p
Granted during the year 2,095,910 386p 159,520 228p
Exercised during the year - - (1,236,860) 14p
-------------------------- ---------- --------- ----------- ---------
Outstanding at 31 March 2,488,410 361p 392,500 228p
-------------------------- ---------- --------- ----------- ---------
The weighted average remaining contractual life of share options
and warrants at 31 March 2018 was two years.
Employee share option schemes have a vesting period of three
years and are settled through new equity issues in return for cash
consideration and the maximum term of share options is ten
years.
The weighted average fair values of options issued during the
year have been determined using the Black-Scholes-Merton Pricing
Model with the following assumptions and inputs:
2018 2017
----------------------------------------------- ----- -----
Risk-free interest rate 1.68% 0.50%
Expected volatility 17.0% 28.0%
Expected option life (years) 3.0 3.0
Expected dividend yield 2.7% 2.3%
Weighted average share price 335p 229p
Weighted average exercise price 335p 229p
Weighted average fair value of options granted 32p 31p
----------------------------------------------- ----- -----
The expected average volatility was determined by reviewing
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 2.7%; this is based upon the past dividend yield of
AdEPT Telecom plc and in accordance with the guidance in IFRS
2.
Expected 31 March 31 March
Exercise option 2018 2017
price life No. of No. of
(p) (years) options options
---------------- -------- -------- --------- --------
21 January 2009 11 3.0 - -
23 August 2013 126 3.0 - -
1 March 2016 222 3.0 240,000 240,000
1 October 2016 238 3.0 152,500 152,500
1 August 2017 335 3.0 2,095,910 -
---------------- -------- -------- --------- --------
2,488,410 392,500
---------------- -------- -------- --------- --------
The closing price of the ordinary shares on 31 March 2018 was
325p and the range during the year was 118p.
23. Pension commitments
At 31 March 2018 there were no pension commitments (2017:
GBPNil).
24. Operating lease commitments
At 31 March 2018 the lease commitments were as follows:
Group
Land and buildings Other
--------------------------- -------------------- ------------------
2018 2017 2018 2017
GBP'000 GBP'000 GBP'000 GBP'000
--------------------------- --------- --------- -------- --------
Within one year 414 382 61 58
Between two and five years 948 413 38 52
--------------------------- --------- --------- -------- --------
Company
Land and buildings Other
--------------------------- -------------------- ------------------
2018 2017 2018 2017
GBP'000 GBP'000 GBP'000 GBP'000
--------------------------- --------- --------- -------- --------
Within one year 29 172 37 43
Between two and five years - 29 22 41
--------------------------- --------- --------- -------- --------
Land and buildings
The Company leases its offices under non-cancellable operating
lease agreements. There is no material contingent rent payable. The
lease agreements do not offer security of tenure. The lease terms
are for five years.
Other
The Company leases various office equipment and motor vehicles
under non-cancellable operating lease agreements. The lease terms
are three years.
The lease expenditure charged to the income statement during the
year is disclosed in Note 7.
25. Operating lease rentals
At 31 March 2018 the lease rental commitments outstanding from
customers were as follows:
Group
Land and buildings Other
--------------------------- -------------------- ------------------
2018 2017 2018 2017
GBP'000 GBP'000 GBP'000 GBP'000
--------------------------- --------- --------- -------- --------
Within one year - - 117 115
Between two and five years - - 79 112
--------------------------- --------- --------- -------- --------
Company
Land and buildings Other
-------------------------- -------------------- ------------------
2018 2017 2018 2017
GBP'000 GBP'000 GBP'000 GBP'000
-------------------------- --------- --------- -------- --------
Within one year - - - -
Between two and five years - - - -
-------------------------- --------- --------- -------- --------
Other
The Company leases various telecommunications equipment to
customers under non-cancellable operating lease agreements. The
lease terms are three years.
The lease income is included within the operating segment
'Managed Services', see note 4, and recognised in the income
statement evenly during the term of the agreement.
26. Related party transactions
During the year dividends were paid to the following
directors:
2018 2017
GBP GBP
----------- ---- ----
I Fishwick 73 78
R Wilson 47 51
D Lukic 2 3
C Kingsman 291 -
R Burbage 16 7
J Swaite 6 5
----------- ---- ----
There is no ultimate controlling party.
Transactions between the Company and its subsidiaries are as
follows:
Provision of services from related parties
31 March 31 March
2018 2017
GBP'000 GBP'000
-------------------------- -------- --------
Our IT Department Limited 35 -
-------------------------- -------- --------
Amounts due to subsidiaries
31 March 31 March
2018 2017
GBP'000 GBP'000
----------------------- -------- --------
Centrix Limited 1,168 1,008
Comms Group UK Limited 950 1,550
Brightvision Limited - 605
Atomwide Limited 1,201 -
----------------------- -------- --------
3,319 3,163
----------------------- -------- --------
Amounts due from subsidiaries
31 March 31 March
2018 2017
GBP'000 GBP'000
-------------------------- -------- --------
Our IT Department Limited 97 1,097
-------------------------- -------- --------
Intra-Group dividends of GBP10,200,000 were paid to AdEPT
Telecom plc from the subsidiary companies during the year (2017:
GBPNil). These dividends are included in the Company profit for the
year but are eliminated upon consolidation.
27. Capital commitments
At 31 March 2018 there were capital commitments of GBPNil (2017:
GBPNil).
28. Earnings per share
Earnings per share is calculated on the basis of a profit of
GBP3,936,054 (2017: GBP2,749,130) divided by the weighted average
number of shares in issue for the year of 23,701,832 (2017:
22,585,580). The diluted earnings per share is calculated on the
treasury stock method and the assumption that the weighted average
unapproved and EMI share options outstanding during the period are
exercised. This would give rise to a total weighted average number
of ordinary shares in issue for the period of 24,052,460 (2017:
23,768,178).
Adjusted earnings per share is used to reflect the non-cash
nature of certain items which are charged to the income statement
and the non-trading items, such as acquisition costs, to give a
better indicator of the underlying cash generation of the Group.
Adjusted earnings per share is calculated by adding back
amortisation of intangible assets, impairment of goodwill, the
taxation deduction on purchased customer contracts, deferred tax
credits on amortisation charges, share option charges, revaluation
of deferred consideration, acquisition costs and excluding
compensation credits from retained earnings, giving GBP6,660,491
(2017: GBP5,213,923). This is divided by the same weighted average
number of shares as above.
2018 2017
GBP'000 GBP'000
------------------------------------------------------------------ ---------- ----------
Earnings for the purposes of basic and diluted earnings per share
Profit for the period attributable to equity holders 3,936 2,749
Add: amortisation 3,730 2,482
Less: taxation on amortisation of purchased customer contracts (121) (118)
Less: deferred tax credit on amortisation charges (506) (633)
Add: share option charges 40 31
Add: revaluation of deferred consideration 28 -
Add: acquisition costs 230 703
Less: compensation credits (755) -
Add: interest unwind on loan note 79 -
------------------------------------------------------------------ ---------- ----------
Adjusted profit attributable to equity holders 6,661 5,214
------------------------------------------------------------------ ---------- ----------
Number of shares
Weighted average number of shares used for earnings per share 23,701,832 22,585,580
Weighted average dilutive effect of share plans 350,628 1,182,598
------------------------------------------------------------------ ---------- ----------
Diluted weighted average number of shares 24,052,460 23,768,178
------------------------------------------------------------------ ---------- ----------
Earnings per share
Basic earnings per share 16.61p 12.17p
Diluted earnings per share 16.36p 11.57p
Adjusted earnings per share
Adjusted basic earnings per share 28.10p 23.09p
Adjusted diluted earnings per share 27.69p 21.94p
------------------------------------------------------------------ ---------- ----------
Earnings per share is calculated by dividing the retained
earnings attributable to the equity holders by the weighted average
number of ordinary shares in issue.
Adjusted earnings per share is calculated by dividing the
retained earnings attributable to the equity holders (after adding
back amortisation, the taxation deduction on purchased customer
contracts, deferred tax credits on amortisation charges, share
option charges, revaluation of deferred consideration, acquisition
costs and excluding compensation credits) by the weighted average
number of ordinary shares in issue.
29. Financial instruments
Set out below are the Group's financial instruments. The
directors consider there to be no difference between the carrying
value and fair value of the Group's financial instruments.
2018 2018 2017 2017
Group Company Group Company
GBP'000 GBP'000 GBP'000 GBP'000
---------------------------------------- -------- -------- -------- --------
Loans and receivables at amortised cost
Cash and cash equivalents 7,127 4,305 1,238 -
Loans and receivables 3,955 1,015 3,912 1,352
---------------------------------------- -------- -------- -------- --------
11,082 5,320 5,150 1,352
---------------------------------------- -------- -------- -------- --------
Financial liabilities at amortised cost
Liabilities at amortised cost 33,051 31,367 18,400 17,312
Financial liabilities at fair value
Contingent consideration 4,360 4,360 6,426 6,426
---------------------------------------- -------- -------- -------- --------
37,411 35,727 24,826 23,738
---------------------------------------- -------- -------- -------- --------
Amounts due for settlement
Within twelve months 6,651 4,967 8,838 7,750
After twelve months 30,760 30,760 15,988 15,988
---------------------------------------- -------- -------- -------- --------
37,411 35,727 24,826 23,738
---------------------------------------- -------- -------- -------- --------
On 2 February 2017 the Company signed a new five year GBP30m
revolving credit facility agreement with Barclays Bank plc and
Royal Bank of Scotland plc. The revolving credit facility bears
interest at 1.85-2.30% over LIBOR on drawn funds, dependent upon
the net debt: EBITDA ratchet, and is repayable in full on the final
repayment date of 2 February 2022.
The financial assets of the Group are cash and cash equivalents
and trade and other receivables, which are offset against
borrowings under the facility, and there is no separate interest
rate exposure.
Barclays Bank plc and Royal Bank of Scotland plc have a cross
guarantee and debenture incorporating a fixed and floating charge
over the undertaking and all property and assets present and
future, including goodwill, book debts, uncalled capital,
buildings, fixtures and fixed plant and machinery.
The banks also hold a charge over the life assurance policy of
Ian Fishwick, director of the Company, for GBP1,500,000.
In August 2017 the Group raised GBP7,293,726 in the form of a
convertible loan instrument from BGF to part fund the acquisition
of Atomwide. The convertible loan instrument is excluded from the
leverage calculations by the senior debt partners, Barclays and
RBS. The Group has applied the principles of IAS 32 and IAS 39 in
the recognition and measurement of the convertible loan. The net
present value of the loan of GBP7,090,201 has been split between
the debt and equity components and an amount of GBP1,158,317 has
been recorded in equity, with GBP5,931,883 being included within
long-term debt.
BGF has the right to convert the loan to 1,855,910 ordinary
shares at a share price of GBP3.93 per share at anytime. The loan
instrument can be redeemed by the Company from the third
anniversary. The convertible loan instrument bears an interest rate
of 7%. In addition, the transaction cost with a net present value
of GBP203,526 is being recognised in the interest charge in the
income statement across the term of the convertible instrument.
Contingent consideration obligations
At 31 March 2018 a financial liability of GBP4,359,527 has been
recognised in respect of the fair value of the contingent
consideration due in respect of the acquisitions of:
Fair value as
at
------------------- ------------------ ---------- ------------------ ------------- ----------------
Relationship
31 March 31 March Valuation Significant of unobservable
2017 2018 Fair value technique(s) unobservable inputs to
GBP'000 GBP'000 hierarchy and key input(s) input(s) fair value
------------------- -------- -------- ---------- ------------------ ------------- ----------------
Growth rate
being the
Based upon gross margin
a multiple increase as The higher
of measured by the growth
gross margin actual rate the higher
calculated increase of the multiple.
by the growth gross The higher
rate over margin over the gross
a a margin the
Comms Group Level period of twelve-month higher the
UK Limited 3,434 - 3 twelve months. period. earn out.
------------------- -------- -------- ---------- ------------------ ------------- ----------------
Growth rate
being the
Based upon gross margin
a multiple increase as The higher
of measured by the growth
gross margin actual rate the higher
calculated increase of the multiple.
by the growth gross The higher
rate over margin over the gross
a a margin the
CAT Communications Level period of twelve-month higher the
Limited 508 - 3 twelve months. period. earn out.
------------------- -------- -------- ---------- ------------------ ------------- ----------------
The contingent
consideration
was
based upon
a multiple Measured by
of actual
EBITDA calculated EBITDA over The higher
over a period a the EBITDA
OurIT Department Level of twelve twelve-month the higher
Limited 2,785 3,654 3 months. period. the earn out.
------------------- -------- -------- ---------- ------------------ ------------- ----------------
Atomwide Limited - 706 Level Based upon Growth rate The higher
3 a multiple being the the growth
of gross margin rate the higher
gross margin increase as the multiple.
calculated measured by The higher
by the growth actual the gross
rate over increase of margin the
a gross higher the
period of margin over earn out.
twelve months. a
twelve-month
period.
------------------- -------- -------- ---------- ------------------ ------------- ----------------
All contingent consideration is subject to the maximum value as
stated in the share purchase agreement. The net fair value of the
estimated deferred consideration liability at 31 March 2018 is not
materially different to that of the net values estimated at the
date of acquisition. The discount charge which has been recognised
as an expense in the statement of comprehensive income in relation
to the deferred consideration liability is disclosed in Note 9 to
these financial statements.
Reconciliation of the movement in the fair value of contingent
consideration:
Comms CAT OurIT
Atomwide Group Communications Department
Limited UK Limited Limited Limited Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------------------------------- -------- ----------- --------------- ----------- --------
As at 1 April 2017 - 3,434 496 2,805 6,735
Additions/adjustment 640 - (55) 671 1,256
Discounting of deferred consideration 66 23 37 178 304
Settled in cash - (3,457) (478) - (3,935)
-------------------------------------- -------- ----------- --------------- ----------- --------
As at 31 March 2018 706 - - 3,654 4,360
-------------------------------------- -------- ----------- --------------- ----------- --------
The earn out for Atomwide Limited had not been achieved by 31
March 2018. The earnout for Our IT Department Limited was paid on 5
April 2018.
During the year total cash consideration of GBP14,522,818 was
paid in respect of acquisitions, GBP3,934,239 was in respect of the
settlement of deferred consideration and GBP10,588,579 was in
respect of initial consideration (net of cash acquired).
The contingent consideration arising on the acquisition of OurIT
is payable to a vendor who remained in employment in the business
after acquisition. In accordance with the requirements of IFRS 3,
management has considered the indicators therein and determined
that the contingent amounts payable to the vendor represent
consideration for the acquisition and not remuneration for
post-acquisition services.
Obligations under finance leases
As at 31 March 2018 the Group had no finance lease
obligations.
Sensitivity analysis
At 31 March 2018 it was estimated that a movement of 1% in
interest rates would impact the Group's profit before tax by
approximately GBP0.2m.
Interest rate risk
The Group's current interest rate policy is subject to ongoing
review in line with the level of borrowings and potential interest
risk exposure. At 31 March 2018, GBP7,293,726 of the Group's
borrowings are at a fixed rate of interest (2017: 0%).
Credit risk
Credit risk associated with cash balances is managed by
transacting with financial institutions with high quality credit
ratings. Accordingly the Company's associated credit risk is deemed
to be limited.
The carrying amount of financial assets represents the maximum
credit exposure. The maximum exposure to credit risk at 31 March
2018 was GBP11,081,483 (2017: GBP4,976,694).
Loans and receivables
2018 2018 2017 2017
Group Company Group Company
GBP'000 GBP'000 GBP'000 GBP'000
-------------------------- -------- -------- -------- --------
Trade receivables 3,955 1,015 3,738 1,178
Other receivables 53 7 21 7
Cash and cash equivalents 7,127 4,305 1,238 -
-------------------------- -------- -------- -------- --------
11,135 5,327 4,997 1,185
-------------------------- -------- -------- -------- --------
Credit risk refers to the risk that the counterparty will
default on its contractual obligations resulting in financial loss
to the Group. The Group has adopted a policy of only dealing with
creditworthy counterparties and this policy has been implemented by
requiring staff to carry out appropriate credit checks on customers
before sales commence.
Trade receivables consist of a large number of customers, spread
across diverse industries across the United Kingdom. Ongoing credit
evaluation is performed on the financial condition of accounts
receivable. The Group does not have any significant credit risk
exposure to any single counterparty.
Liquidity risk
The Group has an appropriate liquidity risk management framework
for the management of the Group's short, medium and long-term
funding and liquidity risk management requirements. The Group
manages liquidity risk by maintaining adequate banking facilities
and through cash flow forecasting, acquisition planning and
monitoring working capital and capital expenditure requirements on
an ongoing basis.
Amortised cost
More
Within than
1 year 1-2 years 2-5 years 5 years
Year ended 31 March 2018 GBP'000 GBP'000 GBP'000 GBP'000
------------------------- -------- --------- --------- --------
Borrowings - - 24,749 6,011
Trade and other payables 2,336 - - -
------------------------- -------- --------- --------- --------
2,336 - 24,749 6,011
------------------------- -------- --------- --------- --------
More
Within than
1 year 1-2 years 2-5 years 5 years
Year ended 31 March 2017 GBP'000 GBP'000 GBP'000 GBP'000
------------------------- -------- --------- --------- --------
Borrowings 706 - 15,988 -
Trade and other payables 1,706 - - -
------------------------- -------- --------- --------- --------
2,412 - 15,988 -
------------------------- -------- --------- --------- --------
Currency risk
The Group's operations are handled entirely in sterling.
Capital risk management
The Group is subject to the risk that its capital structure will
not be sufficient to support the growth of the business. The
Group's objectives when managing capital are to safeguard the
Group's ability to continue as a going concern in order to provide
returns for shareholders and benefits for other stakeholders and to
maintain an optimal capital structure to reduce the cost of
capital. There were no changes to the Group's approach to capital
management during the year.
As part of the banking arrangements, the Group is required to
comply with certain covenants, including net debt to adjusted EBITA
and interest cover.
In order to maintain or adjust the capital structure, the
Company may return capital to shareholders, issue new shares or
sell assets (customer bases/relationships) to reduce debt.
30. Business combinations
On 2 August 2017 the Company acquired the entire issued share
capital of Atomwide Limited ('Atomwide') for an initial
consideration of GBP12.0m plus the value of the surplus cash
balance of Atomwide at completion (approximately GBP6.5m), payable
in cash. Further contingent deferred consideration of between
GBPNil and GBP8.0m may be payable, also in cash, dependent upon the
performance of Atomwide post-acquisition.
The contingent deferred consideration will be determined by
reference to the forecast churn/growth rate for the gross margin of
the acquired business and applying the contingent deferred
consideration matrix as specified in the share purchase agreement.
The fair value of contingent deferred consideration has been
determined by reference to the growth rate for the gross margin of
the acquired business and applying the contingent deferred
consideration matrix as specified in the share purchase agreement.
The contingent consideration liability of GBP1.3m has been
discounted at the Group's weighted average cost of capital with the
value of the discount of GBP0.1m being included within finance
costs over the deferred consideration period as an interest charge.
At 31 March 2018 the estimated deferred consideration was GBP0.7m,
a credit of GBP0.6m has been recognised in the statement of total
comprehensive income in respect of the movement on the deferred
consideration liability. Total consideration is expected to be
GBP12.7m (net of the surplus cash acquired).
Atomwide, founded in 1987, is an IT services provider with over
30 years' experience, offering specialised IT support services and
technology solutions to approximately 2 million users in over 3,000
schools.
Atomwide is the chief technology partner for London Grid for
Learning, supplying IT services to around 2,500 schools in London.
The bespoke services have been created by the in-house development
team and are supported by an experienced team of IT professionals
based at Atomwide's premises in Orpington, Kent.
All of the senior management team which are responsible for the
strategic direction, technical development and the day-to-day
operations of Atomwide are to be retained within the business
post-acquisition.
Details of the fair value of the assets acquired at completion
and the consideration payable:
Fair
Book cost value
GBP'000 GBP'000
------------------------------- --------- --------
Software applications - 3,535
Customer base - 7,223
Property, plant and equipment 453 453
Inventories 30 30
Trade and other receivables 1,524 1,524
Cash and cash equivalents 7,916 7,916
Trade and other payables (2,710) (2,710)
Income tax 273 273
Deferred tax - (1,829)
Net assets 7,486 16,415
------------------------------- --------- --------
Cash (18,502)
Contingent cash consideration (1,226)
------------------------------- --------- --------
Fair value total consideration (19,728)
------------------------------- --------- --------
Goodwill 3,313
------------------------------- --------- --------
The trade and other receivables are all considered
recoverable.
Atomwide contributed revenue and profit after tax of GBP5.59m
and GBP0.80m respectively for the year ended 31 March 2018 and
represents an eight-month contribution. On a full year basis,
Atomwide would have contributed revenue and profit after tax of
GBP7.86m and GBP1.0m respectively. Acquisition related costs of
GBP0.23m have been recognised as an expense in the statement of
comprehensive income for the year ending 31 March 2018.
31. Subsidiaries
Class
Country Registered office of share % shareholding Description
---------------------- --------------- ----------------- --------- -------------- -----------
AdEPT Technology England & Wales One Fleet Place, Ordinary 100 Dormant
Limited London, EC4M 7WS
Centrix Limited England & Wales One Fleet Place, Ordinary 100 Trading
London, EC4M 7WS
Comms Group UK Limited England & Wales One Fleet Place, Ordinary 100 Trading
London, EC4M 7WS
Our IT Department England & Wales One Fleet Place, Ordinary 100 Trading
Limited London, EC4M 7WS
BrightVisions Limited England & Wales One Fleet Place, Ordinary 100 Trading
London, EC4M 7WS
Atomwide Limited England & Wales One Fleet Place, Ordinary 100 Trading
London, EC4M 7WS
CAT Communications England & Wales One Fleet Place, Ordinary 100 Dormant
Limited London, EC4M 7WS
AdEPT Technology England & Wales One Fleet Place, Ordinary 100 Dormant
Group Limited London, EC4M 7WS
---------------------- --------------- ----------------- --------- -------------- -----------
32. Subsequent events
There are no subsequent events after the balance sheet date.
NOTE TO THE PRELIMINARY RESULTS ANNOUNCEMENT OF ADEPT TELECOM
PLC FOR THE YEARED 31 MARCH 2018
The financial information set out above does not constitute the
Group's financial statements for the years ended 31 March 2018 or
2017, but is derived from those financial statements. Statutory
financial statements for 2017 have been delivered to the Registrar
of Companies and those for 2018 will be delivered following the
Group's annual general meeting. The auditors have reported on the
2017 financial statements which carried an unqualified audit
report, did not include a reference to any matters to which the
auditor drew attention by way of emphasis and did not contain a
statement under section 498(2) or 498(3) of the Companies Act 2006.
The audit report on the 2018 financial statements is not yet
signed, however an unqualified opinion is expected.
Whilst the financial information included in this preliminary
announcement has been computed in accordance with International
Financial Reporting Standards (IFRS), this announcement does not in
itself contain sufficient information to comply with IFRS. The
accounting policies used in preparation of this preliminary
announcement are consistent with those in the full financial
statements that have yet to be published.
AVAILABILITY OF FINANCIAL STATEMENTS
The annual report containing the full financial statements for
the year to 31 March 2018 will be posted to shareholders on or
around 19 August 2018, a soft copy of which will be available to
download from the Company's website www.adept.co.uk.
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
FR RLMATMBMMBIP
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July 10, 2018 02:00 ET (06:00 GMT)
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