TIDMADT
RNS Number : 3709G
AdEPT Technology Group PLC
15 November 2022
The information contained within this announcement is deemed to
constitute inside information as stipulated under the Market Abuse
Regulations (EU) No. 596/2014. Upon the publication of this
announcement, this inside information is now considered to be in
the public domain.
15 November 2022
AdEPT Technology Group plc
("AdEPT" or the "Company", together with its subsidiaries the
"Group")
Interim results for the six months ended 30 September 2022
AdEPT (AIM: ADT), one of the UK's leading independent providers
of managed services for IT, unified communications, connectivity,
voice and cloud services, is pleased to announce its unaudited
results for the six months ended 30 September 2022 ("H1 FY23" or
the "Period").
The H1 FY23 results demonstrate the Group's resilience, with
organic growth in Managed Services continuing to replace
Traditional Telephony, strong cash generation enabling net debt and
earnout liability reduction of 16% in the last 12 months, and a
return of the interim dividend, alongside 115 new contract
wins.
Financial highlights:
Revenue and EBITDA
-- Group revenue of GBP34.2 million (H1 FY22: GBP34.3 million),
impacted by global supply chain issues
-- Organic growth of 3% in Cloud Centric Strategic Services
with revenue increasing by GBP0.5 million to GBP15.1 million
-- Managed Services revenue grew organically by 3% increasing
to 89% of Group revenue (H1 FY22: 87%), offsetting the
structural decline in revenue from legacy Traditional
Telephony, from which the Group continues to move away
-- Underlying EBITDA(1) of GBP5.4 million (H1 FY22: GBP5.7
million)
-- Underlying EBITDA(1) margin of 15.9% (H1 FY22: 16.7%)
Adjusted PAT and EPS
-- Adjusted profit after tax(2) of GBP3.0 million (H1 FY22:
GBP3.1 million)
-- Adjusted fully diluted EPS of 12.1p (H1 FY22: 12.5p)
Cash flow and debt
-- Deferred consideration for Datrix of GBP4.3 million paid
in July 2022, with no further amounts due
-- Strong cashflows with strategy to reduce gearing progressing
to plan: net senior debt, post H1 FY23 GBP4.3 million
earnout payment, of GBP30.7 million at 30 September 2022
(H1 FY22: GBP31.2 million)
-- Decrease to senior debt and acquisition liabilities of
GBP5.9 million (16%) in the last 12 months
-- Reported EBITDA conversion to post-tax cash from operating
activities at 91% (H1 FY22: 82%)
-- Low capital expenditure maintained at 1.6% of revenue
(H1 FY22: 1.6%)
Dividend
-- Interim dividend of 2.5p (H1 FY22: Nil) - up 150% on final
dividend of 1.0p in FY22
-- Dividend cover of 4.8x
(1) Earnings before interest, tax, depreciation, amortisation
and excluding one off furlough grants, acquisition and
restructuring costs and share based payments
(2) Profit after tax adding back one-off acquisition and restructuring
costs, amortisation and share based payments, excluding
revaluation of deferred consideration
Operational highlights:
-- Strategy in action: winner of 'Managed Service Provider
of the Year' for the second year running at the Comms
Business Awards 2022
-- Success of Project Fusion, which integrates all the Group's
businesses on the One AdEPT platform, recognised at The
Billing People Awards - AdEPT won "Billing Return on Investment
Award"
-- Focus on Cloud market gaining momentum:
i. A 9% organic increase in Voice over IP ("VoIP") revenues
to GBP2.1 million (H1 FY22: GBP1.9 million), demonstrating
the success of the Group's ability to help customers transition
from Traditional Telephony, which now comprises only 11%
of total revenue; and
ii. A 17% increase in AdEPT Cloud Services (Nebula) consumed
by customers: up from 654 to 764
-- Revenue generated from public sector and healthcare customers
in H1 FY23 increased to 50% (H1 FY22: 48%)
Outlook
-- Secured project revenue backlog of GBP1.1m, resulting
from global equipment supply shortages which began to
ease in Q2, deferred to H2 FY23 and FY24
-- Future growth prospects of the business remain strong,
supported by:
i. New strategic alliance with Canon (UK) Ltd launched
in October 2022: dedicated sales team at Canon selling
AdEPT IT Services;
ii. The ability to capture a greater wallet-share with
AdEPT now accredited as a Sage Intacct Partner, joining
only a handful of companies in the UK delivering Sage's
latest and most intuitive cloud-based accounting software
solution; and
iii. Success utilising the Department for Education (DfE)
GBP150 million fund, as the first of many potential projects
have been secured by AdEPT under the Connect the Classroom
initiative
iv. Strong pipeline of opportunities, driven by macro
technology market trends
-- Short-term outlook remains challenging but the Board considers
the long-term prospects of the Group to be as strong as
ever
Commenting on the results and outlook for the Group, Chairman,
Ian Fishwick, said:
"With many of the challenges affecting the Group being outside
of our control, we have focused on the areas which we are able to
influence, making good progress on our three strategic pillars:
Organic Growth
The Group's strategic focus on growth in Cloud Centric Services
is progressing. Having achieved 3% organic growth in the Period,
these services now represent 44% of Group revenue (H1 FY22: 42%).
Managed Services (recurring revenue) grew organically by 3% in the
Period, with total Managed Services revenue now representing 89% of
Group revenue, up from 87% in H1 FY22. Traditional Telephony
continued to decline as anticipated, and this segment of the
business has reduced to 11% of Group revenue (H1 FY22: 13%).
Reduce Gearing
In July 2022, the Group's strong operating cash flows were used
to fund the final deferred consideration payment for the
acquisition of Datrix Limited, amounting to GBP4.3 million, with no
further amounts outstanding. Senior net debt (excluding IFRS 16
liabilities) at 30 September 2022 was GBP30.7 million, compared to
GBP29.4 million at 31 March 2022. The Group continues to operate
well within its Bank Covenants and whilst there have been
significant increases to interest rates in the period the GBP0.1
million increase in interest charges this is offset by a reduction
in the absolute value of borrowings.
The Board regularly monitors expected future interest rate
predictions and the potential impact on the interest charges for
the Group. The Group's GBP7.3 million convertible loan note is at a
fixed interest and senior net debt is anticipated to reduce
significantly over the coming 12 months. Based on the current base
rate forecast (source: ICAEW.com) through to December 2024 of an
increase to 4.5%, the interest cost variance against previous
management expectation is GBP0.2 million, which is less than
two-weeks operating cash flow.
There has been GBP0.1 million increase in interest charges in
the income statement to GBP1.5 million (GBP1.1 million cash
interest), with the significant increases to the base rate over the
last six months being offset by a reduction in the absolute value
of borrowings.
Structure for Success
One AdEPT, which lies at the heart of the Group's growth
strategy, providing high levels of operational visibility and a
scalable platform for cross-selling, is now used by 100% of our
staff members, with its tooling enabling the Group to balance work
force skills, share knowledge and distribute tasks across unified
teams.
Outlook
Whilst headwinds remain, constraining organic growth, the Group
has made good strategic progress and there remains a strong
pipeline of opportunities across the public and private sectors,
driven by macro technology market trends, and helped by specific
government initiatives relating to education. The long-term
prospects for AdEPT remain as strong as ever."
Enquiries
AdEPT Technology Group Plc
Ian Fishwick, Chairman 07720 555 050
Phil Race, Chief Executive 07798 575 338
John Swaite, Finance Director 01892 550 243
Singer Capital Markets
Nominated Adviser & Broker
Shaun Dobson / Rachel Hayes / Will
Goode 020 7496 3000
Belvedere Communications
Cat Valentine 07715 769 078
Keeley Clarke 07967 816 525
This announcement has been released by John Swaite, Finance
Director, on behalf of the Company.
About AdEPT Technology Group plc:
AdEPT Technology Group plc is one of the UK's leading
independent providers of managed services for IT, unified
communications, connectivity and voice solutions. AdEPT's tailored
services are used by thousands of customers across the UK and are
brought together through the strategic relationships with tier-1
suppliers such as Openreach, Vodafone, Virgin Media, Avaya,
Microsoft, Dell and Apple.
AdEPT is listed on the London Stock Exchange (Ticker: ADT). For
further information please visit:
www.adept.co.uk
CEO STATEMENT
Overview
I am pleased to report on the Group's progress, in what has been
a challenging six months.
Flat growth in Group revenue in the Period belies the continued
growth achieved in Managed Services, which increased by GBP0.8
million in H1 FY23 with a further GBP1.1 million of secured project
revenue deferred into H2 FY23 and FY24 purely as a result of global
supply chain delays. This growth offset the continued and
anticipated decline in Traditional Telephony of GBP0.8 million.
Underpinning this growth in Managed Services were strong
contract wins and renewals, the success of Cloud Centric Services
and AdEPT Nebula, the broadening of AdEPT's portfolio of
experience, and the continued strengthening of the Group's public
sector presence.
Sales progress
A Key Performance Indicator (KPI) for the business is the number
of new customers secured by the sales team, defined as new ongoing
customer relationships. In the Period, the team secured 115 new
recurring revenue customers, an excellent performance of which they
should be proud. New customers and significant renewals in the
Period included Birmingham City Council; the Atomic Weapons
Establishment (AWE); the Home Office; Newsquest; Herbert Smith
Freehills; CPH2; Arts University of Bournemouth; and Construction
Testing Solutions. The solutions deployed by AdEPT for these
organisations encompass networking, IT Managed Services, cloud
services, and communication. We also increased the number of AdEPT
Cloud (Nebula) Services consumed by customers by 17% to 764 from
654.
These wins and renewals reflect AdEPT's broad portfolio of
expertise, the strengthening brand profile AdEPT is building in its
marketplace, the Group's focus on customer engagement, and its
recognised ability to deliver effectively the technologies required
to fulfill the demand for digitisation and cloud centric services
in the UK.
AdEPT continues to empower its customers to be secure,
resilient, agile, and unified, whilst providing employees with a
flexible workplace.
New Initiatives
There are four specific initiatives that will help drive short
term revenue growth:
1. A strategic alliance with Canon (UK) Ltd with AdEPT's IT Services
being promoted alongside Canon's capabilities into their UK accounts,
an initiative launched in October 2022. This will be taken to
market as 'Canon IT Services, powered by AdEPT' and we anticipate
that it will open up significant new opportunities for our business
over the coming months;
2. The announcement in March 2022 by the then Education Secretary
Nadhim Zahawi of a 'Connect the Classroom' initiative, supported
by a GBP150 million fund to facilitate the introduction of faster
and more reliable connectivity for schools. This presents an
additional opportunity for AdEPT to help schools, a sector in
which it has a particularly strong market presence, with c.4,500
schools as customers. The first projects for the Group, underpinned
by this funding, have been secured and are in the process of
being delivered;
3. An initiative to expand the services AdEPT delivers to customers,
to encompass financial management systems. I am pleased to report
that having undertaken months of rigorous evaluation and assessment
AdEPT has become one of only a handful of companies in the UK
to have been awarded the prestigious Sage Intacct Partner status.
Sage Intacct is Sage's latest and most intuitive cloud-based
accounting software solution that provides a flexible and configurable
financial management platform, allowing customers to manage all
their accounts and finances within one single, cloud native,
solution; and
4. An initiative called the GP Transformational Support Fund. A
fund of some GBP78 million for 2022/23 to help digitally enable
GPs including, specifically, "the roll out of cloud-based telephony
systems in general practice with associated pathway redesign
and using data to understand and improve access further". AdEPT
has already been successful in this arena with a solution called
Surgery Connect. We anticipate that this additional funding will
help accelerate our activity in this market.
People
The completion of Project Fusion and the full take-up of One
AdEPT enabled the operational restructure of the Group from four to
two divisions and resulted in the reduction of some senior
management roles that were largely duplicated. This has enabled
AdEPT to recruit more apprentices and junior members of staff to
work alongside skilled individuals in larger teams aided by
effective systems and tools.
As well as rewarding staff with pay increases, we are also
focused on being an excellent employer, with enhanced terms and
improved access to training. In addition, we are helping our staff
with the cost-of-living increases through the introduction of a
flexible benefits platform, which provides access to discount
schemes and other cost-effective benefits.
Headcount at the Period end was 333 (H1 FY22: 331).
Environmental, Social and Governance ("ESG")
AdEPT has a social conscience, and the Board is keen to ensure
that the Group plays its part in making the world a better place
both for current generations and those of the future.
Sustainability is of interest across the full spectrum of AdEPT
stakeholders: customers, employees, suppliers, shareholders, and
communities. As a result, we have set out our initiatives for
engaging with this subject as a company. The three pillars for
clarity are:
-- Environmental Responsibility - energy use, waste management,
and climate change;
-- Social Responsibility - labour relations, human rights,
diversity and inclusion, and product liability; and
-- Governance - compliance, business ethics, controls, and
procedures.
During the Period, AdEPT undertook a rigorous Carbon audit,
measuring our impact on the planet from energy consumption, staff
commuting, parcel movements and our own vehicle fleet. This audit
underpinned a Carbon Reduction Plan submitted for approval to the
Cabinet Office. Pleasingly, there was an 18% reduction in our
carbon footprint against the 2021 baseline, largely due to flexible
working and changing our energy providers to those with zero carbon
offerings.
We will continue to adopt ways to reduce our carbon footprint as
a company and have placed our carbon reduction report and plan on
our web site.
FINANCIAL RESULTS
Revenue
Total revenue of GBP34.2 million was consistent with the
comparative period (H1 FY221: GBP34.3 million). The Group delivered
GBP0.8 million or 3% organic growth in total Managed Services
revenue, which offset the continued structural decline in
Traditional Telephony, which reduced by GBP0.8 million or 18%. The
Group continues with its strategy to move away from Traditional
Telephony.
Recurring revenues versus one-off revenues
The proportion of AdEPT's revenue generated from recurring
products and services (being all revenue excluding one-off
projects, hardware and software) remains high at 73% of total
revenue (H1 FY22: 74%), with 3% organic growth in recurring managed
service revenues in the Period.
Managed Services (89% of Group revenue)
Cloud Centric Strategic Services - Our strategy is to focus on
Cloud Centric Strategic Services (including the AdEPT Nebula
proposition, hosting services, hybrid and public cloud, Voice over
IP, and Professional Services). This clear focus is delivering
rewards, as Cloud Centric Strategic Services revenue increased
organically by 3% to GBP15.1 million (H1 FY22: GBP14.7
million).
This growth has been achieved through organic revenue increases
in software, VoIP and professional services. VoIP revenue increased
organically by 9% year on year to GBP2.1 million (H1 FY22: GBP1.9
million), which is partly a result of our success in migrating
customers from Traditional Telephony products to new IP based
solutions combined with new customer acquisition.
The sales team's focus on the more complex project delivery
requirements of enterprise and mid-market customers has resulted in
a 17% increase in professional service and consultancy revenues to
GBP2.8 million (H1 FY22: GBP2.4 million).
Support Services - Support Services revenues increased
organically by 3% to GBP8.9 million (H1 FY22: GBP8.6 million). The
Group has been successful in retaining managed IT support
contracts, with a high level of customer satisfaction from the Net
Promoter Score, alongside winning new managed support contracts,
several of which will go live in H2 FY23. Network support and
maintenance contract revenues increased organically by 4% to GBP8.0
million (H1 FY22: GBP7.6 million), driven by contract wins with
Nottinghamshire County Council and IT support contracts for a
number of large multi-academy trusts.
The global supply chain delays, affecting the delivery of more
complex solutions, have a knock-on effect on to the recurring
revenues for support services attached to those projects. These
supply chain issues, which affected the Group significantly in Q1,
began to ease in Q2. As the backlog of projects begin to be
delivered during H2 FY23 and FY24 the recurring revenues attached
to these contracts will start to be recognised.
Technology Products - The demand for capital projects continued
with hardware and software revenues of GBP6.5 million (H1 FY22:
GBP6.5 million), although there was a volume increase in hardware
and software-only procurement of lower margin products, such as
audio visual, iPads and laptops. The well-documented supply chain
issues for equipment caused by the continued global chip shortage
pushed out revenue recognition for a number of projects beyond
normal lead times, amounting to GBP1.1 million revenue of secured
orders moving into H2 FY23 and into the next financial year. These
supply chain delays tend to impact the hardware required for more
complex projects, resulting in wider delays. Some supply chain
partners are still advising of lead times between 9-12 months for
certain equipment. We continue to work closely with our partners to
mitigate supply chain delays where possible or to transition
customers to alternative technology solutions.
Traditional Telephony (11% Of Revenues)
The structural decline in legacy Traditional Telephony continued
at the same level as the comparative period, with a 17% reduction
to GBP3.7 million (H1 FY22: GBP4.4 million). This decline, as
Openreach continues to switch off the copper wire telephone network
for traditional fixed line and calls services and forcing the shift
to messaging and VoIP based services, is in line with our
expectations and our strategy to diversify revenues away from fixed
line. In the last two years, this decline has accelerated due to
the substantial reductions in desk-based telephone call revenue
caused by multiple Covid lockdowns and the transition of most
businesses to hybrid working patterns, resulting in a 35% reduction
in call revenue from the comparative period. Traditional Telephony
now represents just 11% of Group revenue (H1 FY22: 13%).
Gross margin
The total gross profit margin for H1 FY23 was 47%, which is a
decrease from the 49% achieved in H1 FY22. This resulted largely
from the volume increase in lower margin one-off hardware and
software-only procurement, mentioned above.
GBP0.4 million of gross margin has been deferred into future
periods, due to the order backlog resulting from the global supply
chain issues outlined above.
Managed Services gross profit margins were 47% (H1 FY22: 50%),
impacted by the increased volume of lower margin equipment only
procurement. Within Managed Services, Cloud Centric Strategic
Services gross profit margin was flat at 44% (H1 FY22: 44%) with
organic growth in lower margin software being offset by organic
growth in higher margin professional services. Support Services
gross profit margin was largely consistent at 75% (H1 FY22: 76%)
with a similar blend of inhouse and third party contracts as the
comparative period. Gross profit margins in Traditional Telephony
experienced a reduction in H1 FY23, due to a lower proportion of
higher margin call usage (which reduced by 35% from the comparative
period). This segment now has a proportionately higher volume of
lower margin line rental services.
The value of revenue from professional services and consultancy
was higher in the Period. However, the proportion of third party
supported professional services increased, due to exceptionally
high seasonal demand during the summer/school holiday period in the
Group's Education customer base. This, combined with a higher blend
of lower relative margin hardware and equipment, resulted in
one-off gross profit margins reducing to 38% (H1 FY22: 41%).
Underlying EBITDA
Operating costs were reduced to GBP10.5 million (H1 FY22:
GBP11.0 million), despite inflationary increases t certain overhead
costs such as energy, the increase in costs from the incremental
1.25% NHS NIC levy and the performance driven increase in salary
costs for staff. The operating structure of the Group was reduced
during the Period from four functional reporting divisions at March
2022 to a simplified two divisional structure during H1 FY23. This
internal restructure reduced the number of senior management roles
and resulted in settlement and redundancy costs of GBP0.5 million
in the Period. The restructure was achievable due to our new One
AdEPT platform, which enables the Group to run effectively of a
reduced operating cost base.
Underlying EBITDA in the Period was GBP5.4 million (H1 FY22:
GBP5.7 million), impacted by the supply chain disrupted projects,
amounting to GBP1.1 million revenue and equating to GBP0.4 million
of margin deferral.
The underlying EBITDA margin achieved was 15.7% (H1 FY22:
16.7%), with the marginal reduction due to the gross margin
pressure being partially offset by the operating cost
efficiency.
Interest costs
There has been GBP0.1 million increase in interest charges in
the income statement to GBP1.5 million, with the significant
increases to the base rate over the last six months being offset by
a reduction in the absolute value of borrowings. The Board
regularly monitors expected future interest rate predictions and
the potential impact on the interest charges for the Group. The
convertible loan note is at a fixed interest and our senior debt is
anticipated to reduce significantly over the coming 12 months.
Based on the current base rate forecast (source: ICAEW.com) through
to December 2024 of an increase to 4.5%, the interest cost variance
against management expectation is GBP0.2 million, which is less
than two weeks operating cash flow.
It should be noted that the interest cost in the statement of
comprehensive income of GBP1.5 million includes several non-cash
items, such as the amortisation of bank facility fees, which have
been previously paid in cash. The interest cost of GBP1.1 million
in the cash flow statement is considered a better measure of the
cash costs of financing, which is in line with the comparative
period.
Profit/loss before and after tax and EPS
Reported operating profit increased by GBP0.5 million to GBP1.0
million (H1 FY22: GBP0.5 million), which is a reflection of no
acquisition related transaction costs and a reduction to
amortisation charges due to improved expected economic lives of the
intangible assets.
Reported loss before tax was GBP0.5 million (H1 FY22: GBP0.9
million). This improvement of GBP0.4 million in the Period is after
including one-off costs of GBP0.5 million of restructuring costs in
relation to the streamlining and restructuring the headcount to two
reporting divisions during the Period.
Adjusted profit after tax before one off restructuring costs and
non-cash amortisation was GBP3.0 million (H1 FY22: GBP3.1 million).
Adjusted diluted earnings per share, taking into account the share
options in issue and the potential dilutive effect of the BGF
convertible instrument under the treasury stock accounting method
was 12.1p (H1 FY22: 12.5p). The movement in adjusted earnings per
share reflects the GBP0.1 million movement in adjusted profit after
tax with a virtually flat weighted average number of shares.
Dividend
The focus on securing recurring customer contracts continues,
with these currently representing 73% of total revenue (H1 FY22:
74%) and a further significant percentage being generated from
re-occurring one-off revenues from existing customers. The strong
underlying recurring revenue and margin stream, combined with
continued operational efficiency, generated strong organic cash
flow in the Period.
As a result, the Board is pleased to announce a return to
interim dividend payments, with an interim dividend of 2.50p per
Ordinary Share in respect of the six months ended 30 September
2022. This represents an increase of 150% over the final dividend
of 1.0p paid for the year ended 31 March 2022 and dividend cover of
4.8x. The interim dividend will absorb approximately GBP0.6 million
of shareholders' funds (H1 FY22: GBPNil). It is proposed that the
dividend will be paid on 7 April 2023 to shareholders who are on
the register of members on the record date of 10 March 2023.
Pre-pandemic, our dividend policy was to return 30% of our
Adjusted Earnings Per Share to shareholders in dividends and while
the macro-economic landscape remains uncertain, we are on a journey
back to 'normality'. Our reinstatement of interim dividends
reflects this change in circumstance and remains conservative.
As announced in the AGM trading statement in September 2022, we
anticipate returning approximately 20% of our Earnings Per Share in
financial year ending 31 March 2023, compared to the pre-pandemic
percentage of 30%. This leaves scope for the Board to execute on
its progressive dividend policy over the coming years.
Considering this dividend policy and our assumptions on forecast
rises in interest rates, we anticipate the Group's EBITDA: Senior
net debt ratio to be less than 2x within 12 months and is,
therefore, in line with our declared strategy to reduce
leverage.
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 after
income tax was 91% (H1 FY22: 82%).
H1 FY23 working capital was impacted by GBP0.4 million, of which
GBP0.2 million relates to inventories for the advance purchase of
equipment for October 2022 half-term customer projects in the
Education division. The Group had an extension of customer credit
during the Period of GBP0.8 million, driven by public sector and
healthcare customers who paid overdue balances very shortly after
the end of the Period, which resulted in an extension of customer
credit collection periods to 43 days (H1 FY22: 39 days). This was
partially offset by extended supply chain credit terms.
In July 2022, the Group paid the performance-based element of
the deferred consideration of GBP4.3 million, which was due in
respect of the trading results of the Datrix customer base for
FY22. There are no further amounts outstanding in respect of the
Datrix or any other acquisitions.
Cash interest paid in the Period was in line with the
comparative period at GBP1.1 million, which reflects an 8%
reduction to average net borrowings in H1 FY23, but at an increased
cost of capital due to the increase in the base rate.
As required under IFRS 16, the balance sheet value of tangible
fixed assets includes the discounted value of the remaining
operating lease rentals for any material agreements which have a
lease term greater than 12 months. The net present value of any new
operating leases is included in tangible fixed assets. These are
not upfront cash purchases, as the rentals are paid on a monthly or
quarterly basis, and, therefore, the cost is not included within
capital expenditure, instead the cash outflows from the operating
lease agreements are included in the cash flow statement under the
heading 'Payments of lease liabilities'.
Capital Expenditure
The Group continues to operate an asset-light strategy and has
low capital requirements; therefore, expenditure on fixed assets is
low at less than 2% of revenue.
The Group used GBP0.3 million of cash on capital expenditure of
tangible fixed assets - GBP0.2 million was used for investment in
the maintenance and expansion of the AdEPT Nebula platform, to
increase the data storage capacity driven by increasing customer
demand, and GBP0.1 million for a refurbishment of the Orpington
office and installation of energy efficient LED lighting as part of
the Group's ESG plan.
A further GBP0.3 million was spent in the Period on intangible
assets. This included GBP0.1 million in relation to investment in
Project, which includes the cost of third-party consultancy time
dedicated to delivering the final stages of the project. The
Group-wide CRM and other platforms are now live in all of the AdEPT
operating sites. Shortly after the end of the Period, the Group
launched its flexible benefits platform, which will enable all
employees of the Group to choose how they wish to receive and use
their remuneration, including taking advantage of salary sacrifice
and competitive benefits costs from scale purchasing. GBP0.2
million was spent on the Webscreen X and Nimbus Sync software
developments, both of which are expected to deliver ongoing
benefits to the Education customer base and the Group.
Net Debt and Bank Facilities
A key strength of AdEPT is its consistent, proven ability to
generate strong free cash flow and support its net borrowings. As a
result of its focus on underlying profitability and cash
conversion, the Group generated net operating cash flow after taxes
but before bank interest paid of GBP4.4 million (H1 FY22: GBP3.6
million). The GBP0.8 million improvement in operating cash flow
generation arose from a GBP0.5 million reduction to working capital
and GBP0.3 million reduction to cash paid income taxes.
Senior net debt at 30 September 2022 was GBP30.7 million, which
is after payment GBP4.3 million deferred consideration liabilities
for Datrix during H1 FY23 with no further amounts outstanding in
respect of any acquisitions. The comparative net debt, including
deferred consideration liabilities, was GBP36.6 million at 30
September 2021, which is an effective decrease of senior debt and
acquisition liabilities of GBP5.9 million (16%) in the last 12
months.
Trading update and outlook
Revenue generation improved by 15% in Q2 FY23, compared to Q1,
as supply chain issues began to ease and the Group benefitted from
seasonal demand in the Education sector. Technology Products'
revenue rose by GBP1.8 million in Q2 FY23, having been more heavily
impacted by supply chain challenges in Q1 which resulted in a
GBP1.2 million drop in revenue compared to Q4 FY22.
Organic growth in Cloud Centric Strategic and Support Services
revenue in Q2 FY23 was 6% above Q1, achieved through growth in
software licensing, professional services, maintenance and support
contract wins coming on stream.
The growth in recurring Managed Services revenue is expected to
continue to offset the structural decline in Traditional Telephony,
which reduced by 5% between Q1 and Q2 FY23.
Inflationary pressures are expected to increase product and
operational costs, predominantly wage inflation, recruitment and
energy costs in FY23. The Group is working closely with its
partners to mitigate the supply chain delays and to pass on cost
increases, where possible, in particular those linked to
connectivity and telephony charges. This cushions the business to
some extent from the inflationary pressures within its supplier
base.
AdEPT's focus will remain firmly on what is within its influence
and further progressing on its three strategic pillars: to deliver
organic growth through the Group's expanded portfolio of
capabilities; repay of borrowings and reduce gearing through strong
cash flow; and structure for success through the efficiencies
driven by the new One AdEPT platform.
Over the longer term, the Board remains confident that the
underlying demand for digitisation and cloud-based services, as
both businesses and government continue to seek efficiency
benefits, places AdEPT in a strong position when the macro
conditions improve. We expect growth to return to previously
anticipated levels once the supply chain challenges ease and the
economy returns to more normal trading conditions.
Phil Race
Chief Executive Officer
UNAUDITED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Six months Six months
ended ended
30 September 30 September
2022 2021
Note GBP'000 GBP'000
--------------------------------------------------- ------ -------------- --------------
REVENUE 34,228 34,275
Cost of sales (18,313) (17,594)
--------------------------------------------------- ------ -------------- --------------
GROSS PROFIT 15,915 16,681
Administrative expenses (14,908) (16,177)
--------------------------------------------------- ------ -------------- --------------
OPERATING PROFIT 1,007 504
Total operating profit - analysed:
Operating profit before acquisition fees,
share-based payments,
depreciation and amortisation 5,447 5,719
Share-based payments (12) (31)
Acquisition fees - (569)
Restructuring costs (494) (322)
Depreciation of tangible fixed assets (660) (714)
Amortisation of intangible fixed assets (3,274) (3,579)
--------------------------------------------------- ------ -------------- --------------
Total operating profit 1,007 504
--------------------------------------------------- ------ -------------- --------------
Finance costs (1,468) (1,373)
Finance income - -
--------------------------------------------------- ------ -------------- --------------
PROFIT/(LOSS) BEFORE INCOME TAX (461) (869)
Income tax expense 213 (339)
--------------------------------------------------- ------ -------------- --------------
TOTAL COMPREHENSIVE INCOME FOR THE PERIOD (248) (1,208)
--------------------------------------------------- ------ -------------- --------------
Attributable to:
Equity holders (248) (1,208)
Earnings per share
Basic earnings per share (pence) 3 (1.0)p (4.8)p
Diluted earnings per share (pence) 3 N/a N/a
Adjusted earnings per share, after adding
back
acquisition fees, amortisation and non-recurring
costs
Basic earnings per share (pence) 3 12.1p 12.5p
Diluted earnings per share (pence) 3 12.1p 12.5p
UNAUDITED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Audited
30 September 30 September 31 March
2022 2021 2022
GBP'000 GBP'000 GBP'000
-------------------------------- -------------- -------------- ----------
ASSETS
Non-current assets
Goodwill 19,908 17,408 19,908
Intangible assets 40,613 47,004 43,619
Property, plant and equipment 1,945 2,155 1,802
Deferred tax asset - - -
-------------------------------- -------------- -------------- ----------
62,466 66,567 65,329
Current assets
Inventories 932 780 843
Contract assets 233 643 422
Trade and other receivables 17,324 17,536 21,109
Income tax - - 243
Cash and cash equivalents 3,663 3,614 3,714
--------------------------------- -------------- -------------- ----------
22,152 22,573 26,331
Total assets 84,618 89,140 91,660
LIABILITIES
Current liabilities
Trade and other payables 17,986 21,314 25,535
Contract liabilities 2,163 2,470 2,657
Income tax 216 301 -
Short term borrowings 41 85 59
--------------------------------- -------------- -------------- ----------
20,406 24,170 28,251
Non-current liabilities
Deferred income tax 10,085 6,275 10,810
Convertible loan instrument 6,838 6,623 6,728
Lease asset liabilities 630 414 243
Long term borrowings 34,334 34,703 33,067
--------------------------------- -------------- -------------- ----------
Total liabilities 72,293 72,185 79,099
---------------------------------
Net assets 12,325 16,954 12,561
SHAREHOLDERS' EQUITY
Share capital 2,503 2,503 2,503
Share premium 4,378 4,378 4,378
Share capital to be issued 1,249 1,206 1,237
Capital redemption reserve 18 18 18
Retained earnings 4,177 8,849 4,425
--------------------------------- -------------- -------------- ----------
Total equity 12,325 16,954 12,561
--------------------------------- -------------- -------------- ----------
UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Attributable to equity holders of
parent
Share Capital
Share Share capital redemption Retained Total
to
capital premium be issued reserve earnings equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------------------------- --------- --------- ----------- ------------ ---------- ---------
Equity at 1 April 2021 2,503 4,378 1,175 18 9,656 17,731
Prior year adjustment (note
2) - - - - 232 232
Equity at 1 April 2021
(restated) 2,503 4,378 1,175 18 9,889 17,963
Profit for 6 months ended
30 September 2020 - - - - (1,037) (1,037)
IFRS16 leased assets transfer - - - - (2) (2)
Share based payments - - 31 - - 31
Balance at 30 September
2021 (restated) 2,503 4,378 1,206 18 8,849 16,954
-------------------------------- --------- --------- ----------- ------------ ---------- ---------
Profit for 6 months ended
31 March 2022 - - - - (4,424) (4,424)
Share based payments - - 31 - - 31
Balance at 31 March 2022 2,503 4,378 1,237 18 4,425 12,561
Profit for 6 months ended
30 September 2022 - - - - (248) (248)
Share based payments - - 12 - - 12
Balance at 30 September
2022 2,503 4,378 1,249 18 4,177 12,325
-------------------------------- --------- --------- ----------- ------------ ---------- ---------
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
Audited
Six months Six months Year
ended ended ended
30 September 30 September 31 March
2022 2021 2022
GBP'000 GBP'000 GBP'000
---------------------------------------- -------------- -------------- ----------
Cash flows from operating activities
Profit/(loss) before income tax (461) (869) (3,028)
Depreciation and amortisation 3,934 4,292 8,680
Adjustment to deferred consideration - - 33
Share based payments 12 31 62
Net finance costs 1,468 1,373 2,752
Decrease/(Increase) in inventories (90) (210) (272)
Decrease/(increase) in trade
and other receivables 3,728 1,107 (2,856)
Increase/(decrease) in trade
and other payables (4,083) (1,787) 3,737
----------------------------------------- -------------- -------------- ----------
Cash generated from operations 4,508 3,937 9,108
Income taxes paid (80) (343) (1,024)
----------------------------------------- -------------- -------------- ----------
Net cash from operating activities 4,428 3,594 8,084
----------------------------------------- -------------- -------------- ----------
Cash flows from investing activities
Interest paid (1,074) (1,111) (1,897)
Acquisition of subsidiaries net
of cash acquired (4,244) (7,054) (8,206)
Purchase of intangible assets (268) (433) (863)
Sale of property, plant and equipment - - -
Purchase of property, plant and
equipment (292) (111) (386)
----------------------------------------- -------------- -------------- ----------
Net cash used in investing activities (5,878) (8,709) (11,352)
Cash flows from financing activities
Payments of lease liabilities (346) (440) (684)
(Drawdown/(repayment) of borrowings 1,745 (3,997) (5,500)
Net cash (used in)/from financing
activities 1,399 (4,437) (6,184)
----------------------------------------- -------------- -------------- ----------
Net increase/(decrease) in cash
and cash equivalents (51) (9,552) (9,452)
Cash and cash equivalents at
beginning of period/year 3,714 13,166 13,166
----------------------------------------- -------------- -------------- ----------
Cash and cash equivalents at
end of period/year 3,663 3,614 3,714
----------------------------------------- -------------- -------------- ----------
Cash at bank and in hand 3,663 3,614 3,714
Bank overdrafts - - -
---------------------------------------- -------------- -------------- ----------
Cash and cash equivalents 3,663 3,614 3,714
----------------------------------------- -------------- -------------- ----------
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 2022,
prepared under International Financial Reporting Standards, were
approved by the board of directors on 4 August 2022 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 2022 have been
extracted directly 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 2022.
Prior period adjustment
At the time of preparation of the interim statement for the 6
months ended 30 September 2021 the statutory audit of Datrix
Limited for the year ended 31 March 2021 (which was acquired in
April 2021) had not been completed. The acquisition balance sheet
for Datrix Limited did not include the full recognition of the
deferred tax assets in respect of the trading losses. Therefore,
the income tax charge for the prior year results have been restated
to include the deferred tax assets and the associated deferred tax
release for the profits from the Datrix profit stream generated
during the 6 months ended 30 September 2021. As a result, the net
assets at 30 September 2021 increased by GBP232,483 and the income
tax charge increased by GBP170,517 in the comparative period.
3 Earnings per share
6 months 6 months Year ended
ended ended
30 September 30 September 31 March
2020 2019 2021
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 (248) (1,208) (5,232)
Add: amortisation 3,274 3,579 7,248
Less: taxation on amortisation of purchased
customer contracts (59) (59) (117)
Less: deferred tax credit on amortisation
charges (552) (197) 1,298
Add: share option charges 12 31 62
Add: acquisition fees and restructuring
costs 494 892 3,394
Add: adjustment to deferred consideration - - 33
Add: interest unwind on loan note and
deferred consideration 109 99 204
Adjusted profit attributable to equity
holders of the
parent, adding back acquisition fees
and amortisation 3,030 3,136 6,888
Number of shares
Weighted average number of shares used
for earnings per share 25,029,957 25,029,957 25,029,957
Dilutive effect of share plans - 100,320 54,335
Diluted weighted average number of shares
used to
calculate fully diluted earnings per
share 25,029,957 25,130,277 25,084,292
Earnings per share
Basic earnings per share (pence) (1.0p) (4.1p) (20.9p)
Fully diluted earnings per share (pence) N/a N/a N/a
Adjusted earnings per share, after adding
back
acquisition fees, amortisation and non-recurring
costs
Adjusted basic earnings per share (pence) 12.1p 12.5p 27.5p
Adjusted fully diluted earnings per share
(pence) 12.1p 12.5p 27.5p
Earnings per share is calculated by dividing the profit
attributable to equity holders of the Company by the weighted
average number of ordinary shares in issue.
Adjusted earnings per share is calculated by dividing the profit
attributable to equity holders of the Company (after adding back
amortisation, the taxation deduction on purchased customer
contracts, the deferred tax credit on amortisation charges, share
option charges and acquisition costs, as all of these are purely
non-cash accounting adjustments) by the weighted average number of
ordinary shares in issue.
Fully diluted earnings per share is calculated by adjusting the
weighted average number of ordinary shares by existing share
options, assuming dilution through conversion of all existing
options.
4 Segmental information
The chief operating decision maker has been identified as the
Board. The Board reviews the Group's internal reporting in order to
assess performance and allocate resources. The operating segments
are fixed line services and managed services, which incorporates IT
services, data connectivity, mobile, hardware and VoIP services.
These are reported in a manner consistent with the internal
reporting to the Board. The Board assesses the performance of the
operating segments based on revenue, gross profit and EBITDA.
Unaudited Unaudited
6 months ended 30 September 6 months ended 30 September
2022 2021
-------------------------------------------- --------------------------------------------
Fixed Fixed
line Managed Central line Managed Central
services services costs Total services services costs Total
------------------------ ---------- ---------- --------- --------- ---------- ---------- --------- ---------
Revenue 3,672 30,556 - 34,228 4,478 29,797 - 34,275
Gross profit 1,296 14,619 - 15,915 1,730 14,951 - 16,681
Gross margin % 35% 48% - 47% 39% 50% - 49%
------------------------ ---------- ---------- --------- --------- ---------- ---------- --------- ---------
EBITDA 527 4,920 - 5,447 709 5,010 - 5,719
EBITDA % 14% 16% - 16% 16% 17% - 17%
------------------------ ---------- ---------- --------- --------- ---------- ---------- --------- ---------
Amortisation (424) (2,850) - (3,274) (794) (2,785) - (3,579)
Depreciation - - (660) (660) - - (714) (714)
Acquisition costs - - - - - - (569) (569)
Restructuring costs - - (494) (494) - - (322) (322)
Share-based payments - - (12) (12) - - (31) (31)
------------------------ ---------- ---------- --------- --------- ---------- ---------- --------- ---------
Operating
profit/(loss) 103 2,070 (1,166) 1,007 (85) 2,225 (1,636) 504
------------------------ ---------- ---------- --------- --------- ---------- ---------- --------- ---------
Finance costs - - (1,468) (1,468) - - (1,373) (1,373)
Income tax - - 213 213 - - (339) (339)
------------------------ ---------- ---------- --------- --------- ---------- ---------- --------- ---------
Profit after tax 103 2,070 (2,421) (248) (85) 2,225 (3,348) (1,208)
------------------------ ---------- ---------- --------- --------- ---------- ---------- --------- ---------
Audited
Year ended 31 March
2022
--------------------------------------------
Fixed
line Managed Central
services services costs Total
--------------------------------------- ---------- ---------- --------- ---------
Revenue 8,582 59,500 - 68,082
Gross profit 3,200 29,232 - 32,432
Gross margin % 37% 49% - 48%
--------------------------------------- ---------- ---------- --------- ---------
EBITDA 1,515 10,377 - 11,892
EBITDA % 18% 17% - 18%
--------------------------------------- ---------- ---------- --------- ---------
Amortisation (1,588) (5,658) - (7,248)
Depreciation - - (1,433) (1,433)
Adjustment to deferred consideration - - (33) (33)
Acquisition costs - - (1,471) (1,471)
Restructuring costs - - (2,023) (2,023)
Share-based payments - - (62) (62)
--------------------------------------- ---------- ---------- --------- ---------
Operating profit/(loss) (73) 4,719 (4,922) (276)
--------------------------------------- ---------- ---------- --------- ---------
Finance costs - - (2,752) (2,752)
Income tax - - (2,204) (2,204)
--------------------------------------- ---------- ---------- --------- ---------
Profit after tax (73) 4,719 (9,878) (5,232)
--------------------------------------- ---------- ---------- --------- ---------
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 2022, transactions
with the largest customer of the Group accounted for 3.6% of
revenue (2021: 4.7%).
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 2021 31 March 2022
2022
------------------- -------------------- -------------------
Number Weighted Number Weighted Number Weighted
of shares average of shares average of shares average
under exercise under exercise under exercise
option price option price option price
-------------------------- --------- -------- ---------- -------- --------- --------
Outstanding at start
of period 3,244,064 355p 3,244,064 355p 3,244,064 355p
Granted during the period - - - - - -
Forfeited during the - - - - - -
period
Exercised during the - - - - - -
period
-------------------------- --------- -------- ---------- -------- --------- --------
Outstanding at end of
period 3,244,064 355p 3,244,064 355p 3,244,064 355p
-------------------------- --------- -------- ---------- -------- --------- --------
The mid-market price of the ordinary shares on 30 September 2022
was 110p and the range during the period was 82.5p.
The share option expense recognised during the period in the
statement of comprehensive income was GBP12,072 (September 2021:
GBP30,841).
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END
IR EANFLFLAAFFA
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