AdEPT Technology Group plc
(“AdEPT” or the “Company”, together with its subsidiaries the “Group”)
Interim results for the 6 months ended 30 September 2018
For a full copy of the RNS release please click here
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.
Revenue and EBITDA
- Total revenue increased by 9.5% to £24.4 million (2017: £22.3 million)
- Managed services revenue increased by 19.2% to £18.0 million (2017: £15.1 million)
- Managed services revenue up to 74% of total revenue (2017: 67%)
- EBITDA* increased by 10.7% to £5.2 million (2017: £4.7 million)
- EBITDA* margin 21.2% (2017: 20.9%)
PBT, EPS and Dividends
- Adjusted profit after tax** increased by 13.4% to £3.7 million (2017: £3.2 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 £25.1 million (2017: £20.8 million)
- £8.5m 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
|AdEPT Technology Group Plc
Roger Wilson, Chairman
Ian Fishwick, Chief Executive
John Swaite, Finance Director
07786 111 535
01892 550 225
01892 550 243
|Cantor Fitzgerald Europe
Nominated Adviser & Broker – Marc Milmo/Catherine Leftley
020 7894 7000
About AdEPT Technology Group plc:
AdEPT Technology Group plc is one of the UK’s leading independent providers of managed services for IT, unified communications, connectivity and voice solutions. AdEPT’s tailored services are used by thousands of customers across the UK and are brought together through the strategic relationships with tier-1 suppliers such as 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
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.
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 £3.7m was paid in April 2018 in cash. There are no further amounts due in respect of this acquisition.
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 £1.5m 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 £5.0 million in cash less net debt and tax liabilities at completion (approximately £0.5m) has been paid. Further contingent deferred consideration of between £nil and £2.9 million may be payable, also in cash, dependent upon the performance of Shift F7 in the 12 month period to July 2019.
Total revenue in the period increased by 9.5% to £24.4 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 £18.0 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 £1.7 million (2017: £2.0 million) which takes into account the £0.4 million increase in amortisation and £0.2 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 £0.9m 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 £0.7 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 £3.7 million (2017: £3.2 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 £5.2 million (2017: £4.7 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 £3.8 million (2017: £3.9 million), which equates to an 81.9% conversion of reported EBITA (after £0.3 million acquisition fees) (2017: 90.7%).
Dividends paid in the period absorbed £1.0 million of funds (2017: £0.9 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.
£4.8 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 £3.7 million in respect of the Our IT acquisition (undertaken in February 2017) was paid in April 2018.
Total senior debt has increased to £25.1 million at 30 September 2018 (2017: £20.8 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 £1.5 million due in respect of the Atomwide acquisition and also concluded the acquisition of ETS Communications Limited for an initial consideration of £2.5 million (less the net debt within ETS as at 31 October 2018) in cash.
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 £1.2 million of shareholders’ funds (2017: £1.0 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.
Bank facility extension
On 7 November 2018 the Company signed a £5 million extension to its existing £30 million 5-year revolving credit facility agreement, enlarging the total debt facility to £35 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 £2.5 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 £1.75 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.
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.
13 November 2018