TIDMADT
RNS Number : 1094H
AdEPT Technology Group PLC
13 November 2018
AdEPT Technology Group plc
("AdEPT" or the "Company", together with its subsidiaries the
"Group")
Interim results for the 6 months ended 30 September 2018
AdEPT (AIM: ADT), one of the UK's leading independent providers
of managed services for IT, unified communications, connectivity,
voice and cloud services, announces its unaudited results for the 6
months ended 30 September 2018.
Highlights
Revenue and EBITDA
-- Total revenue increased by 9.5% to GBP24.4 million (2017: GBP22.3 million)
-- Managed services revenue increased by 19.2% to GBP18.0 million (2017: GBP15.1 million)
-- Managed services revenue up to 74% of total revenue (2017: 67%)
-- EBITDA* increased by 10.7% to GBP5.2 million (2017: GBP4.7 million)
-- EBITDA* margin 21.2% (2017: 20.9%)
PBT, EPS and Dividends
-- Adjusted profit after tax** increased by 13.4% to GBP3.7 million (2017: GBP3.2 million)
-- Adjusted EPS increased by 11.7% to 14.5p (2017: 13.0p)
-- Interim dividend increased by 15.3% to 4.9p per share (2017: 4.25p)
Cash Flow and Debt
-- Reported EBITA conversion to pre-tax cash from operating activities 81.9% (2017: 90.7%)
-- Net senior debt at period end of GBP25.1 million (2017: GBP20.8 million)
-- GBP8.5m of funds used to fund Shift F7 Group Limited acquisition and Our IT earnout
Roger Wilson, Chairman, commented:
"I am delighted by the continued progress being made by the
Group in its transformation into a managed service provider for
unified communications and IT. The results for the period
demonstrate the strength of our capex light model and our organic
and acquisitive growth strategy.
Trading continues to be in line with management's expectations,
we continue to be highly cash generative and with a fully
supportive investor base and funding partners we remain confident
in our strategy to identify earnings-enhancing acquisitions whilst
retaining scope for a progressive dividend policy."
*Earnings before interest, tax, depreciation, amortisation and
excluding one off acquisition costs and share based payments
** Adjusted profit after tax represents profit after tax adding
back one off acquisition costs and amortisation
Enquiries:
AdEPT Technology Group Plc
Roger Wilson, Chairman 07786 111 535
Ian Fishwick, Chief Executive 01892 550 225
John Swaite, Finance Director 01892 550 243
Cantor Fitzgerald Europe
Nominated Adviser & Broker 020 7894 7000
Marc Milmo/Catherine Leftley
About AdEPT Technology Group plc:
AdEPT Technology Group plc is one of the UK's leading
independent providers of managed services for IT, unified
communications, connectivity and voice solutions. AdEPT's tailored
services are used by thousands of customers across the UK and are
brought together through the strategic relationships with tier-1
suppliers such as BT Openreach, Vodafone, Virgin Media, Avaya,
Microsoft, Dell and Apple.
AdEPT is listed on the London Stock Exchange (Ticker: ADT). For
further information please visit: www.adept.co.uk
BUSINESS REVIEW
I am pleased to report that in the 6 months to 30 September 2018
the Group has made considerable progress on its journey to
transform AdEPT building upon our original telecom's heritage into
a managed service provider for unified communications and IT,
reflecting the trend of convergence within the marketplace. As a
Group we have remained focused on the UK and have continued to make
headway in the Public Sector reflecting the Government's commitment
to expand the role of SME's in the Public arena.
In March 2016, the Government set a target that 33% of public
sector spend would be with SME's by 2022. 34% of total Group
revenue at September 2018 is now from public sector and healthcare
customers (September 2017: 33%). The total revenue generated from
public sector and healthcare customers has increased, however the
proportion of total revenue has not changed significantly as the
customer base of Shift F7 is commercially focused IT and does not
currently provide services into the public sector. We now have over
100 Councils, more than 20 NHS Trusts, over 30 private hospitals,
15 universities, in excess of 3,000 schools as customers - we are
also providing services into a number of central government
departments.
As part of this commitment to the Public Sector, AdEPT has
secured approved supplier status on 9 central and local government
frameworks designed to make it easier for public sector customers
to buy our products and services.
Largest NHS contract award to date
In early 2018 AdEPT Tunbridge Wells was awarded HSCN (Health and
Social Care Network) Compliance and is now authorised to sell data
networks to the NHS. There have been a number of successful tenders
awarded to AdEPT under the HSCN framework, including our largest
NHS contract to date with Kent. We have been contracted to build
the data network which connects 140 hospitals and around 300 GP
surgeries across Kent.
ACQUISITION UPDATE
OurIT Department, Chingford, St Neots and London
In February 2017, we acquired OurIT Department; our first IT
business. OurIT brings AdEPT a wide range of IT products and
services focused on London and South East customers. The earn out
period ended on 31 January 2018 and in accordance with the terms of
the share purchase agreement deferred consideration of GBP3.7m was
paid in April 2018 in cash. There are no further amounts due in
respect of this acquisition.
Atomwide, Orpington
In August 2017 we acquired Atomwide, based at Orpington.
Atomwide is the UK's leading specialist in IT for Education with
more than 3,000 schools and over 2 million users. We now have over
1 million Office 365 users; this is one of the largest single
Office 365 deployments in the world. Included with the acquisition
was a data centre at Orpington and a specialist app development
team. The earn out period ended on 31 July 2018 and in accordance
with the terms of the share purchase agreement deferred
consideration of GBP1.5m was paid after the end of the interim
period, in October 2018, in cash. There are no further amounts due
in respect of this acquisition.
Shift F7, Dorking
On 1 August 2018 we acquired Shift F7 Group Limited ('Shift
F7'). Shift F7 is a highly accredited IT services provider with
over 20 years' experience, offering highly specialised IT support
services and technology solutions to more than 200 commercial
mid-market customers. Initial consideration of GBP5.0 million in
cash less net debt and tax liabilities at completion (approximately
GBP0.5m) has been paid. Further contingent deferred consideration
of between GBPnil and GBP2.9 million may be payable, also in cash,
dependent upon the performance of Shift F7 in the 12 month period
to July 2019.
REVENUE
Total revenue in the period increased by 9.5% to GBP24.4 million
and includes the 2-month revenue contribution from Shift F7
following the acquisition in August 2018; and a full 6 month
contribution from Atomwide following the acquisition in August
2017.
The continued progress of the Group's transition to a complete
managed service provider for IT, unified communications,
connectivity and voice solutions provider can be demonstrated with
the 19.2% increase in revenue from managed services, including IT,
unified communications, data connectivity and cloud services to
GBP18.0 million, accounting for 74% of total revenue for the six
months ended 30 September 2018 (2017: 67%).
Fixed line revenues reduced by 11.5% from the comparative
period, which is a reflection of the organic sales focus of the
Group on managed services and IT combined with the substitution
impact of existing customers transitioning to new technologies.
AdEPT, with its expanded IT and unified communications portfolio,
is well positioned to embrace customer migration to next generation
products and services.
One of the strengths of the AdEPT business model is having good
revenue visibility. The proportion of revenue being generated from
recurring products and services (being all revenue excluding
one-off projects, hardware and software procurement) remains high
at 79.3% of total revenue for the 6 month period ended 30 September
2018. The managed service and IT product sets include software,
hardware procurement and professional services for configuration
and installation, which by their nature are project based and not a
recurring revenue stream, however a high proportion of the one-off
revenues are further products and services being supplied to the
existing customer base.
PROFIT BEFORE TAX AND EARNINGS PER SHARE
Reported profit before tax decreased to GBP1.7 million (2017:
GBP2.0 million) which takes into account the GBP0.4 million
increase in amortisation and GBP0.2 million increase in interest
charges, arising from a higher average net debt position from the
funding of the acquisition consideration in the last 18 months. The
interest cost in the statement of comprehensive income of GBP0.9m
includes several non-cash items, such as discounting of the
estimated contingent deferred consideration for acquisitions and
the amortisation of bank facility fees, the interest cost of GBP0.7
million in the cash flow statement is a better measure of the cash
costs of financing.
Adjusted profit after tax (before one off acquisition fees and
amortisation) increased by 13.4% to GBP3.7 million (2017: GBP3.2
million) which is a reflection of the increased EBITDA, less the
additional interest costs arising from the higher average net debt
position which is largely a result of the acquisition consideration
outflows.
The adjusted operating profit (before one off acquisition fees,
depreciation and amortisation of intangible fixed assets) increased
by 10.7% to GBP5.2 million (2017: GBP4.7 million). This increase
arises from the full period impact of the acquisition of Atomwide
undertaken in the comparative period combined with the Shift F7
contribution in the current interim period and is slightly ahead of
the revenue increase, reflecting economies of scale.
Adjusted (basic) earnings per share increased by 11.7% to 14.5p
for the six months ended 30 September 2018 (2017: 13.0p). Taking
into account the share options in issue and the potential dilutive
effect of the BGF convertible instrument, adjusted diluted earnings
per share increased by 11.5% to 14.4p (2017: 12.9p).
FINANCING AND CASH FLOW
Cash generated from operating activities before tax remained
consistent at GBP3.8 million (2017: GBP3.9 million), which equates
to an 81.9% conversion of reported EBITA (after GBP0.3 million
acquisition fees) (2017: 90.7%).
Dividends paid in the period absorbed GBP1.0 million of funds
(2017: GBP0.9 million), this increase reflects the progressive
dividend policy of the Board.
The Company operates a capex-light model with capital
expenditure on tangible fixed assets of 1.7% of revenue (2017:
0.3%). The increase in proportion of capital expenditure over the
comparative period arises partly from the refurbishment of the Our
IT Department premises in Chingford completed in April 2018 but
mainly from AdEPT investing a relatively small amount of capital in
the development of a network connecting three data centres (which,
combined with other capabilities and services is known as "AdEPT
Nebula"). AdEPT Nebula is built around the core data centre in
Orpington which is owned by AdEPT. The network allows AdEPT to
provide its own cloud hosting capability.
AdEPT Nebula is now live and already delivering benefits to
customers by providing Avaya IP cloud telephony services, hosted IT
services and a range of data connectivity services. The network
underpinning AdEPT Nebula has been developed using the in-house
skills and capabilities of the AdEPT technical team. The Company
will continue to review development opportunities for the addition
of new products and services to AdEPT Nebula as customer demand
dictates.
GBP4.8 million of available funds (net of cash acquired) was
used to fund the initial cash consideration for the acquisition of
the entire share capital of Shift F7 on 1 August 2018. Deferred
consideration of GBP3.7 million in respect of the Our IT
acquisition (undertaken in February 2017) was paid in April
2018.
Total senior debt has increased to GBP25.1 million at 30
September 2018 (2017: GBP20.8 million), with the increase arising
from the acquisition consideration paid in the period for Shift F7
Group Limited. The Senior Debt:EBITDA (annualised) ratio remained
comfortable at 2.4x at 30 September 2018 (2017: 2.2x), although it
should be noted that the reported leverage multiple includes all of
the debt in relation to the funding of the acquisition of Shift F7
Group Limited, undertaken in August 2018, but only 2 months
post-acquisition profitability. Post period end, the Company paid
the deferred consideration of GBP1.5 million due in respect of the
Atomwide acquisition and also concluded the acquisition of ETS
Communications Limited for an initial consideration of GBP2.5
million (less the net debt within ETS as at 31 October 2018) in
cash.
DIVIDS
As announced on 27 September 2018, the Directors have declared
an interim dividend of 4.90p per Ordinary Share in respect of the
period ended 30 September 2018, an increase of 15.3% over the
interim dividend for the comparative period (2017: 4.25p). This
will absorb approximately GBP1.2 million of shareholders' funds
(2017: GBP1.0 million). It is proposed by the Directors that this
dividend will be paid on 8 April 2019 to shareholders who are on
the register of members on the record date of 15 March 2019.
Dividend cover for the interim period was 3.0x (2017: 3.1x).
Strong free cash flow generation has continued since the end of the
period, and there continues to be scope for the Board to continue
its progressive dividend policy.
SUBSEQUENT EVENTS
Bank facility extension
On 7 November 2018 the Company signed a GBP5 million extension
to its existing GBP30 million 5-year revolving credit facility
agreement, enlarging the total debt facility to GBP35 million. The
enlarged facility is provided by Barclays Bank Plc and The Royal
Bank of Scotland Plc on an equal basis. The facility will be used
by AdEPT to fund acquisition of businesses that extend the AdEPT
product set and by being part of the AdEPT group, will benefit from
economies of scale. The terms of the enlarged facility remain the
same as the existing facility.
Acquisition of ETS Communications
On 8 November 2018 the Company acquired the entire issued share
capital of ETS Communications Holdings Limited ("ETS Holdings") and
its trading subsidiary ETS Communications Limited ("ETS Comms"),
(together referred to as "ETS") both well-established UK based
specialist providers of unified communications services. ETS,
founded in 1981, is an independent unified communications services
provider based in Wakefield with nearly 40 years' experience. ETS
is focused on providing unified communications and connectivity to
business customers and has a strong public sector presence,
including managing and supporting cloud-based telephony solutions
to more than 200 GP surgeries. With AdEPT having an existing
specialist Avaya IP Office operation in Northampton, the
acquisition of ETS builds on this capability and extends the
geographical reach to Yorkshire and Lincolnshire. ETS has a
well-developed customer base with long term relationships, which
builds upon AdEPT's existing public sector healthcare presence.
Initial consideration of GBP2.5 million less the net debt of ETS
at 31 October 2018 ("Net Debt") was paid in cash. Pursuant to the
terms of the share purchase agreement, the effective date of the
acquisition is 1 November 2018. Further contingent deferred
consideration of up to GBP1.75 million may be payable in cash
dependent upon the trading performance of ETS in the 12-month
period ended 31 October 2019. Further details are included in Note
8 of this interim statement.
OUTLOOK
Results such as these can only be achieved with the commitment
of an outstanding team at all levels of the business. The
transformation to a fully integrated managed service operation has
continued at a pace and, on behalf of the Board, I would like to
thank the entire team for another amazing 6 months.
We are now more than 200 staff with several thousand years of
industry experience delivering benefits to clients across an
increasingly wide range of technologies and skill sets. This
breadth of expertise provides an excellent platform for our future
growth. AdEPT has a full suite of managed services and is now
embracing the continuing convergence between IT and Telecoms. The
investment in AdEPT Nebula, our own network and IT services
infrastructure, is already providing benefits across the Group - an
initiative that has capitalised on the capability and expertise
acquired with Atomwide in 2017.
The Board is delighted with the continued progress being made by
the Group and trading continues to be in line with management's
expectations. We continue to be highly cash generative with a fully
supportive investor base and funding partners to enable the Board
to continue to identify earnings-enhancing acquisitions whilst
retaining scope for a progressive dividend policy.
Roger Wilson
Chairman
13 November 2018
UNAUDITED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Six months ended
Restated
30 September 30 September
2018 2017
Note GBP'000 GBP'000
-------------------------------------------------- ----- ------------- -------------
REVENUE 24,390 22,280
Cost of sales (12,042) (11,892)
-------------------------------------------------- ----- ------------- -------------
GROSS PROFIT 12,348 10,388
Administrative expenses (9,751) (7,708)
-------------------------------------------------- ----- ------------- -------------
OPERATING PROFIT 2,597 2,680
Total operating profit - analysed:
Operating profit before acquisition fees,
share-based payments,
depreciation and amortisation 5,161 4,662
Share-based payments (25) (20)
Acquisition fees (319) (217)
Depreciation of tangible fixed assets (229) (195)
Amortisation of intangible fixed assets (1,991) (1,550)
-------------------------------------------------- ----- ------------- -------------
Total operating profit 2,597 2,680
-------------------------------------------------- ----- ------------- -------------
Finance costs (895) (660)
Finance income - 1
-------------------------------------------------- ----- ------------- -------------
PROFIT BEFORE INCOME TAX 1,702 2,021
Income tax expense (329) (541)
-------------------------------------------------- ----- ------------- -------------
TOTAL COMPREHENSIVE INCOME FOR THE PERIOD 1,373 1,480
-------------------------------------------------- ----- ------------- -------------
Attributable to:
Equity holders 1,373 1,480
Earnings per share
Basic earnings per share (pence) 3 5.8p 6.2p
Diluted earnings per share (pence) 3 5.8p 6.2p
Adjusted earnings per share, after adding
back
acquisition fees, amortisation and non-recurring
costs
Basic earnings per share (pence) 3 14.5p 13.0p
Diluted earnings per share (pence) 3 14.4p 12.9p
UNAUDITED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Restated
30 September 30 September 31 March
2018 2017 2018
GBP'000 GBP'000 GBP'000
------------------------------- ------------- ------------- ---------
ASSETS
Non-current assets
Goodwill 17,672 12,493 14,531
Intangible assets 37,550 39,404 35,666
Property, plant and equipment 1,653 1,169 1,114
-------------------------------- ------------- ------------- ---------
56,875 53,066 51,311
Current assets
Inventories 217 240 266
Contract assets 391 585 423
Trade and other receivables 9,394 6,970 5,867
Cash and cash equivalents 4,626 3,184 7,127
-------------------------------- ------------- ------------- ---------
14,628 10,979 13,683
Total assets 71,503 64,045 64,994
LIABILITIES
Current liabilities
Trade and other payables 11,889 13,117 11,832
Contract liabilities 1,228 836 568
Income tax 147 282 199
Short term borrowings - - -
------------------------------- ------------- ------------- ---------
13,264 14,235 12,599
Non-current liabilities
Deferred income tax 5,960 5,159 5,590
Convertible loan instrument 6,092 6,152 6,011
Long term borrowings 29,751 24,000 24,749
-------------------------------- ------------- ------------- ---------
Total liabilities 55,067 49,546 48,949
--------------------------------
Net assets 16,436 14,499 16,045
SHAREHOLDERS' EQUITY
Share capital 2,370 2,370 2,370
Share premium 479 479 479
Share capital to be issued 1,037 992 1,012
Capital redemption reserve 18 18 18
Retained earnings 12,532 10,640 12,166
-------------------------------- ------------- ------------- ---------
Total equity 16,436 14,499 16,045
-------------------------------- ------------- ------------- ---------
UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Attributable to equity holders of
parent
Share Capital
Share Share capital redemption Retained Total
to
capital premium be issued reserve earnings equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------------------------- -------- -------- ---------- ----------- --------- --------
Balance at 1 April 2017 2,370 479 34 18 10,222 13,123
Impact of change in accounting
policy - - - - (174) (174)
-------------------------------- -------- -------- ---------- ----------- --------- --------
Balance at 1 April 2017
(restated) 2,370 479 34 18 10,048 12,949
Profit for 6 months ended
30 September 2017 - - - - 1,480 1,480
Dividend - - - - (888) (888)
Share based payments - - 20 - - 20
Equity element of convertible
instrument issued - - 938 - - 938
Balance at 30 September
2017 (restated) 2,370 479 992 18 10,640 14,499
-------------------------------- -------- -------- ---------- ----------- --------- --------
Profit for 6 months ended
31 March 2018 - - - - 2,456 2,456
Dividend - - - - (949) (949)
Deferred tax asset adjustment - - - - 19 19
Share based payments - - 20 - - 20
Balance at 31 March 2018 2,370 479 1,012 18 12,166 16,045
-------------------------------- -------- -------- ---------- ----------- --------- --------
Profit for 6 months ended
30 September 2018 - - - - 1,373 1,373
Share based payments - - 25 - - 25
Dividend - - - - (1,007) (1,007)
Balance at 30 September
2018 2,370 479 1,037 18 12,532 16,436
-------------------------------- -------- -------- ---------- ----------- --------- --------
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
Six months ended
Restated Year ended
30 September 30 September 31 March
2018 2017 2018
GBP'000 GBP'000 GBP'000
------------------------------------------------- ------------- ------------- -----------
Cash flows from operating activities
Profit before income tax 1,702 2,021 4,520
Depreciation and amortisation 2,220 1,745 4,148
Share based payments 25 20 40
Net finance costs 895 660 1,561
Decrease/(Increase) in inventories 51 (14) (39)
Decrease/(increase) in trade and other
receivables (3,007) (481) 479
Increase/(decrease) in trade and other
payables 1,873 (127) (972)
-------------------------------------------------- ------------- ------------- -----------
Cash generated from operations 3,759 3,824 9,737
Income taxes paid (663) (649) (1,501)
-------------------------------------------------- ------------- ------------- -----------
Net cash from operating activities 3,096 3,175 8,236
-------------------------------------------------- ------------- ------------- -----------
Cash flows from investing activities
Interest paid (701) (317) (906)
Acquisition of trade and assets (8,474) (14,324) (14,523)
Purchase of intangible assets (9) (36) (54)
Purchase of property, plant and equipment (406) (57) (364)
-------------------------------------------------- ------------- ------------- -----------
Net cash used in investing activities (9,590) (14,734) (15,847)
Cash flows from financing activities
Dividends paid (1,007) (888) (1,837)
Repayment of borrowings (1,000) - (2,750)
Convertible loan instrument - 7,293 7,293
Increase in bank loan 6,000 7,806 11,500
Net cash (used in)/from financing activities 3,993 14,211 14,206
-------------------------------------------------- ------------- ------------- -----------
Net increase/(decrease) in cash and cash
equivalents (2,501) 2,652 6,595
Cash and cash equivalents at beginning
of period/year 7,127 532 532
-------------------------------------------------- ------------- ------------- -----------
Cash and cash equivalents at end of period/year 4,626 3,184 7,127
-------------------------------------------------- ------------- ------------- -----------
Cash at bank and in hand 4,626 3,184 7,127
Bank overdrafts - - -
------------------------------------------------- ------------- ------------- -----------
Cash and cash equivalents 4,626 3,184 7,127
-------------------------------------------------- ------------- ------------- -----------
ACCOUNTING POLICIES
1 Basis of preparation
The financial information set out in this interim report, which
has not been audited, does not constitute statutory accounts within
the meaning of Section 434 of the Companies Act 2006. The Company's
statutory financial statements for the year ended 31 March 2018,
prepared under International Financial Reporting Standards, were
approved by the board of directors on 13 July 2018 and have been
filed with the Registrar of Companies. The auditor's report on
those financial statements was unqualified, did not contain any
emphasis of matter paragraph and did not contain any statement
under Section 498 of the Companies Act 2006.
The interim financial statements have been prepared in
accordance with IAS 34 "Interim Financial Reporting", as adopted by
the EU. Comparatives for the year ended 31 March 2018 have been
extracted from the audited statutory accounts.
2 Accounting policies
The same accounting policies, presentation and methods of
computation are followed in this interim report as were applied in
the preparation of the Group's annual financial statements for the
year ended 31 March 2018.
As detailed in the financial statements for the year ended 31
March 2018, the Group early adopted IFRS 15 "Revenue from contracts
with customers" with a date of initial application of 1 April 2017,
which has been applied in the interim results for the 6 months
ended 30 September 2018 in respect of data circuit installation and
rental. 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 September 2017 comparative information has
been restated to be on the same accounting basis as the audited
financial statement for the year ended 31 March 2018 and the
current interim period. The impact of the application of IFRS 15 on
the results for the comparative period are reduction to revenue of
GBP286,825, reduction to gross profit and profit before tax of
GBP77,490 and reduction to profit after tax of GBP62,767. The
closing net assets shown by the statement of financial position for
the comparative period have been reduced by GBP62,767 which is
included in the statement of changes in equity. There is no impact
on the cash generated from operating activities reported in the
statement of cash flows for the comparative period as this is
purely an accounting adjustment.
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 September 2017 comparative information in the
statement of financial position and statement of changes in equity
have been restated to be consistent with the principles of IAS 32
and IAS 39 for the recognition and measurement of the convertible
loan in the March 2018 audited financial statements. This is purely
an accounting adjustment which affects the balance sheet allocation
between debt and equity and there is no impact on the statement of
comprehensive income or statement of cash flows as a result of this
restatement. The net present value of the loan of GBP7.09m has been
split between the debt and equity components and an amount of
GBP0.94m has been recorded in equity, with GBP6.15m 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.
3 Earnings per share
Six months ended
Restated Year ended
30 September 30 September 31 March
2018 2017 2018
GBP'000 GBP'000 GBP'000
--------------------------------------------- ----------------- ------------- -----------
Earnings for the purposes of basic
and diluted earnings per share
Profit for the period attributable
to equity holders of the parent 1,373 1,480 3,936
Add: amortisation 1,991 1,550 3,730
Less: taxation on amortisation of purchased
customer contracts (59) (59) (121)
Less: deferred tax credit on amortisation
charges (284) (195) (506)
Add: share option charges 25 20 40
Add: acquisition fees 319 217 230
Add: revaluation of deferred consideration - - 28
Less: compensation credits - - (755)
Add: interest unwind on loan note 77 70 79
Adjusted profit attributable to equity
holders of the
parent, adding back acquisition fees
and amortisation 3,442 3,083 6,661
Number of shares
Weighted average number of shares used
for earnings per share 23,701,832 23,701,832 23,701,832
Dilutive effect of share plans 160,337 113,651 350,628
--------------------------------------------- ----------------- ------------- -----------
Diluted weighted average number of
shares used to
calculate fully diluted earnings per
share 23,862,169 23,815,483 24,052,460
Earnings per share
Basic earnings per share (pence) 5.8p 6.2p 16.6p
Fully diluted earnings per share (pence) 5.8p 6.2p 16.4p
Adjusted earnings per share, after
adding back
acquisition fees, amortisation and
non-recurring costs
Adjusted basic earnings per share (pence) 14.5p 13.0p 28.1p
Adjusted fully diluted earnings per
share (pence) 14.4p 12.9p 27.7p
Earnings per share is calculated by dividing the profit
attributable to equity holders of the Company by the weighted
average number of ordinary shares in issue.
Adjusted earnings per share is calculated by dividing the profit
attributable to equity holders of the Company (after adding back
amortisation, the taxation deduction on purchased customer
contracts, the deferred tax credit on amortisation charges, share
option charges and acquisition costs, as all of these are purely
non-cash accounting adjustments) by the weighted average number of
ordinary shares in issue.
Fully diluted earnings per share is calculated by adjusting the
weighted average number of ordinary shares by existing share
options, assuming dilution through conversion of all existing
options. The September 2017 comparative has been restated and
calculated on the same basis as the March 2018 audited financial
statements, which uses the treasury stock method to account for the
dilutive impact of share options and the convertible loan
instrument.
4 Segmental information
The chief operating decision maker has been identified as the
Board. The Board reviews the Group's internal reporting in order to
assess performance and allocate resources. The operating segments
are fixed line services and managed services, which incorporates IT
services, data connectivity, mobile, hardware and VoIP services.
These are reported in a manner consistent with the internal
reporting to the Board. The Board assesses the performance of the
operating segments based on revenue, gross profit and EBITDA.
Unaudited Unaudited (restated)
6 months ended 30 September 6 months ended 30 September
2018 2017
---------------------------------------- ----------------------------------------
Fixed Fixed
line Managed Central line Managed Central
services services costs Total services services costs Total
------------------------- --------- --------- -------- -------- --------- --------- -------- --------
Revenue 6,390 18,000 - 24,390 7,224 15,056 - 22,280
Gross profit 2,628 9,720 - 12,348 2,800 7,588 - 10,388
Gross margin % 41.1% 54.0% - 50.6% 38.8% 50.4% - 46.6%
------------------------- --------- --------- -------- -------- --------- --------- -------- --------
EBITDA 1,185 3,976 - 5,161 1,472 3,190 - 4,662
EBITDA % 18.5% 22.1% - 21.2% 20.4% 21.2% - 20.9%
------------------------- --------- --------- -------- -------- --------- --------- -------- --------
Amortisation (889) (1,102) - (1,991) (1,005) (545) - (1,550)
Depreciation - - (229) (229) - - (195) (195)
One-off costs - - (319) (319) - - (217) (217)
Share-based payments - - (25) (25) - - (20) (20)
------------------------- --------- --------- -------- -------- --------- --------- -------- --------
Operating profit/(loss) 296 2,874 (573) 2,597 467 2,645 (432) 2,680
------------------------- --------- --------- -------- -------- --------- --------- -------- --------
Finance costs - - (895) (895) - - (659) (659)
Income tax - - (329) (329) - - (541) (541)
------------------------- --------- --------- -------- -------- --------- --------- -------- --------
Profit after tax 296 2,874 (1,797) 1,373 467 2,645 (1,632) 1,480
------------------------- --------- --------- -------- -------- --------- --------- -------- --------
Audited
Year ended 31 March
2018
----------------------------------------
Fixed
line Managed Central
services services costs Total
--------------------------------------- --------- --------- -------- --------
Revenue 14,001 32,433 - 46,434
Gross profit 5,439 17,480 - 22,919
Gross margin % 38.8% 53.9% - 49.4%
--------------------------------------- --------- --------- -------- --------
EBITDA 2,877 6,894 - 9,771
EBITDA % 20.5% 21.3% - 21.0%
--------------------------------------- --------- --------- -------- --------
Amortisation (2,071) (1,659) - (3,730)
Depreciation - - (418) (418)
Revaluation on deferred consideration - - (28) (28)
Acquisition costs - - (229) (229)
Compensation credits - - 755 755
Share-based payments - - (40) (40)
--------------------------------------- --------- --------- -------- --------
Operating profit/(loss) 806 5,235 40 6,081
--------------------------------------- --------- --------- -------- --------
Finance costs - - (1,561) (1,561)
Income tax - - (584) (584)
--------------------------------------- --------- --------- -------- --------
Profit after tax 806 5,235 (2,105) 3,936
--------------------------------------- --------- --------- -------- --------
The assets and liabilities relating to the above segments have
not been disclosed as they are not separately identifiable and are
not used by the chief operating decision maker to allocate
resources. All segments are in the UK and all revenue relates to
the UK. For the six months ended 30 September 2018, transactions
with the largest customer of the Group accounted for 7.9% of
revenue.
5 Share options
Details of the share options outstanding during the period are
as follows:
6 months ended 6 months ended Year ended
30 September 30 September 31 March 2018
2018 2017
--------------------------- --------------------- ---------------------
Number Weighted Number Weighted Number Weighted
of shares average of shares average of shares average
under exercise under exercise under exercise
option price option price option price
--------------------------- ---------- --------------- ---------- --------- ---------- ---------
Outstanding at start
of period 2,488,410 361p 392,500 228p 392,500 228p
Granted during the period 200,000 353p 2,095,910 386p 2,095,910 386p
Exercised during the - - - - - -
period
--------------------------- ---------- --------------- ---------- --------- ---------- ---------
Outstanding at end of
period 2,688,410 361p 2,488,410 361p 2,488,410 361p
--------------------------- ---------- --------------- ---------- --------- ---------- ---------
The weighted average fair values have been determined using the
Black-Scholes-Merton Pricing Model with the following assumptions
and inputs:
30 September 30 September 31 March
2018 2017 2018
--------------------------------- ------------- ------------- ---------
Risk free interest rate 1.68% 0.50% 1.68%
Expected volatility 16.0% 19.0% 17.0%
Expected option life (years) 3.0 3.0 3.0
Expected dividend yield 2.7% 2.5% 2.7%
Weighted average share price 353p 269p 335p
Weighted average exercise price 353p 269p 335p
Weighted average fair value of
options granted 32p 33p 32p
--------------------------------- ------------- ------------- ---------
The expected average volatility was determined by reviewing the
historical fluctuations in the share price prior to the grant date
of each share instrument. An expected take up of 100% has been
applied to each share instrument. Expected dividend yield is
estimated at 2.7% which is based upon the actual dividend yield for
the period ended 30 September 2018. It does not bear any relation
to the future dividend policy of AdEPT Technology Group plc.
The mid-market price of the ordinary shares on 30 September 2018
was 410p and the range during the period was 110p.
The share option expense recognised during the period in the
statement of comprehensive income was GBP20,342 (September 2017:
GBP12,110).
6 Business combinations
On 1 August 2018 the Company acquired the entire issued share
capital of Shift F7 Limited ('Shift F7') for an initial
consideration of GBP5.0 million in cash less net debt and tax
liabilities at completion (approximately GBP0.5m). Further
contingent deferred consideration of between GBPnil and GBP2.9
Million may be payable, also in cash, dependent upon the
performance of Shift F7 post-acquisition.
The contingent deferred consideration will be determined by
reference to the gross margin of the acquired business and applying
the contingent deferred consideration calculation as specified in
the share purchase agreement. The fair value of contingent deferred
consideration has been determined by reference to the expected
growth rate for the gross margin of the acquired business and
applying the contingent deferred consideration calculation as
specified in the share purchase agreement. The contingent
consideration liability of GBP1.83 million has been discounted at
the Group's weighted average cost of capital with the value of the
discount of GBP0.14 million being included within finance costs
over the deferred consideration period as an interest charge. Total
consideration is anticipated to be GBP6.6 million (including
acquired debts and tax liabilities).
Shift F7, founded in 1995, is a highly accredited IT services
provider with over 20 years' experience, offering highly
specialised IT support services and technology solutions to more
than 200 commercial mid-market customers.
Shift F7 has security accredited dedicated hosted platform
environments in London Docklands and Heathrow. Key suppliers
include Citrix, Microsoft, HP, Cisco, Ericsson LG and VMWare.
All services provided by Shift F7 are supported by a highly
experienced team of IT professionals based at Shift F7's premises
in Dorking, Surrey, which have been retained post-acquisition. The
senior management team responsible for the strategic direction,
technical development and the day-to-day operations of Shift F7
have been 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
------------------------------- --------- --------
Intangible assets 2,036 3,864
Property, plant and equipment 355 355
Inventories 2 2
Trade and other receivables 549 549
Cash and cash equivalents 247 247
Trade and other payables (1,426) (893)
Income tax 3 3
Deferred tax - (657)
Net assets 1,766 3,470
------------------------------- --------- --------
Cash (4,914)
Contingent cash consideration (1,696)
------------------------------- --------- --------
Fair value total consideration (6,610)
------------------------------- --------- --------
Goodwill 3,140
------------------------------- --------- --------
Shift F7 contributed revenue and profit after tax of GBP0.68
million and GBP0.10 million respectively for the two month period
ended 30 September 2018 and represents a two month contribution.
Acquisition related costs of GBP0.32m have been recognised as an
expense in the statement of comprehensive income for the period
ended 30 September 2018.
7 Change of name
Subsequent to the passing of the special resolution at the AGM
on 27 September 2018, the company changed its name to AdEPT
Technology Group plc.
8 Subsequent events
Bank facility extension
On 7 November 2018 the Company signed a GBP5 million extension
to its existing GBP30 million 5-year revolving credit facility
agreement, enlarging the total debt facility to GBP35 million. The
enlarged facility is provided by Barclays Bank Plc ("Barclays") and
The Royal Bank of Scotland Plc ("RBS) on an equal basis. The
facility will be used by AdEPT to fund acquisition of businesses
that extend the AdEPT product set and by being part of the AdEPT
group, will benefit from economies of scale. The terms of the
enlarged facility remain the same as the existing facility, the
details of which are included in Notes 21 and 29 to the statutory
financial statements of the Company for the year ended 31 March
2018.
Acquisition of ETS Communications
On 8 November 2018 the Company acquired the entire issued share
capital of ETS Communications Holdings Limited ("ETS Holdings") and
its trading subsidiary ETS Communications Limited ("ETS Comms"),
(together referred to as "ETS") both well-established UK based
specialist providers of unified communications services.
ETS, founded in 1981, is an independent unified communications
services provider based in Wakefield with nearly 40 years'
experience. ETS is focused on providing unified communications and
connectivity to business customers and has a strong public sector
presence, including managing and supporting cloud-based telephony
solutions to more than 200 GP surgeries.
Initial consideration of GBP2.5 million less the net debt of ETS
at 31 October 2018 ("Net Debt") was paid in cash. Pursuant to the
terms of the share purchase agreement, the effective date of the
acquisition is 1 November 2018. Further contingent deferred
consideration of up to GBP1.75 million may be payable in cash
dependent upon the trading performance of ETS in the 12 month
period ended 31 October 2019. The contingent deferred consideration
will be determined by reference to the gross margin of the acquired
business and applying the contingent deferred consideration
calculation as specified in the share purchase agreement. The fair
value of the assets and the contingent consideration liability have
not yet been identified at the date of these interim results as the
completion balance sheet was not available and there have been no
post-acquisition period financial results.
The last filed statutory accounts of ETS for the year ended 31
March 2018 reported turnover, operating profit and profit before
tax of GBP3.16 million, GBP0.32 million and GBP0.31m respectively.
Capital expenditure in the year ended 31 March 2018 was
insignificant. Net and gross assets (pro-forma consolidated basis)
at that date were GBP0.10 million and GBP0.53 million respectively.
Acquisition related costs will be recognised as an expense in the
statement of comprehensive income for the year ending 31 March
2019.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR BLBDBUUBBGID
(END) Dow Jones Newswires
November 13, 2018 02:00 ET (07:00 GMT)
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