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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Adept Technology Group Plc | LSE:ADT | London | Ordinary Share | GB00B0WY3Y47 | ORD 10P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 200.50 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From Apr 2022 to Apr 2024
TIDMADT
RNS Number : 0843S
AdEPT Technology Group PLC
12 July 2022
12 July 2022
The information contained within this announcement is deemed to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014. It forms part of United Kingdom domestic law by virtue of the European Union (Withdrawal) Act 2018. Upon the publication of this announcement, this inside information is now considered to be in the public domain.
ADEPT TECHNOLOGY GROUP PLC
("AdEPT" or the "Company" or the "Group")
FINAL RESULTS 2022
Successful acquisition, growing revenues, consistent margins and reinstatement of dividend
AdEPT, one of the UK's leading independent providers of managed services for IT, connectivity, unified communications solutions, and cloud services, is pleased to announce its final results for the full year ended 31 March 2022 ("FY22").
Financial highlights
Hot Features
Premium
(--) Revenue increased 18% to GBP68.1m (FY21: GBP57.9m)
(--) Underlying EBITDA increased 21% to GBP11.9m (FY21: GBP9.8m)(1)
(--) Adjusted fully diluted earnings per share increase 23% to 27.5p (FY21:
22.3p)(2)
(--) Reinstatement of dividend at: 1.0p per share (FY21: nil)
(--) Cloud Centric Strategic Services increased 7% on a pro-forma organic
revenue basis
(--) Gross Profit increased 17% to GBP32.4m (FY21: GBP27.6m)
(--) Underlying EBITDA margin 17% (FY21: 17%)
(--) Strong cash generation from operating activities after tax GBP8.1m
(FY21: GBP7.4m)
(--) Conversion of reported EBITDA to operating cash flow before tax of
108% (FY21: 89%)
(--) Year-end net senior debt GBP29.4m (FY21: GBP25.6m)(3) after payment
of initial consideration for Datrix acquisition
(--) Cap-ex light - maintained at 2% of revenue (FY21: 2%)
Operational highlights
(--) Acquisition of Datrix in April 2021, expanded the Group's portfolio
of capabilities
(--) Strategic focus now solely to the delivery of strong organic growth
and the reduction of senior debt
(--) Project Fusion, the creation of ONE AdEPT, completed - providing a
single set of financial and operational systems and a scalable platform
for growth
(--) Revenue from Public Sector & Healthcare 56.5% (FY21: 55.5%)
(--) Recurring revenues remains strong representing 73.6% of revenue (FY21:
74.1%)
(--) Cloud Centric Strategic Services revenues up 18% to GBP29.5m (FY21:
GBP25.1m)
(--) Traditional Telephony, as a percentage of total revenues, reduced to
13% (FY21: 19%)
(--) Managed services now comprises 87% of revenue and EBITDA (FY21: 81%)
(--) Strong client acquisition - over 100 new customer wins including, Multi-Academy
Trust, the Co-op and the TUC
Outlook
(--) Momentum gained in Q4 FY22 has continued into Q1 FY23 with strong recurring
order intake
(--) Demand anticipated to rise as clients continue to assess their long-term
ICT requirements
(--) Well invested Group with clear strategic objectives and strong infrastructure
for growth
(--) Board optimistic for the future of the technology market, and in turn
for the prospects of AdEPT
(1) Defined as operating profit after adding back depreciation, amortisation,
acquisition fees, restructuring costs, adjustment to deferred consideration
and share-based payment charges
(2) Profit before tax adding back amortisation, share options charges,
the taxation deduction on purchased customer contracts, deferred tax
credits on amortisation charges, restructuring and acquisition costs
(3) Net senior debt is defined as cash and cash equivalents less short-term
and long-term senior bank borrowings and prepaid bank fees
Phil Race, Chief Executive Officer of AdEPT, said: "The Board is pleased with the progress achieved during the year under review and the Group's performance in the face of the many, well-documented macro challenges. Given our focus on this aspect of our business the pro-forma organic growth in Cloud Centric Strategic Services is a particular highlight of the period.
"The acquisition of Datrix, in April 2021, significantly extended the Group's capabilities and enabled AdEPT to increase its potential 'wallet share' in the ever-expanding ICT space. The introduction of new partnerships and services that allow AdEPT to tap into the fast-growing markets of Software Defined Wide Area Networking (SD-WAN) and Secure Access Service Edge (SASE) is leading to significant sales successes. During the Period this team secured significant projects with organisations, including Nottinghamshire County Council, the Royal Surrey County Hospital, Public Health England and Trident IP.
"Our newly developed ONE AdEPT platform enabled the rapid integration of the Datrix business, ahead of plan, and has created a efficient business with a strong infrastructure for growth.
"The technology market is vibrant and growing, underpinned by the evolution of our working patterns, during and after the pandemic, and the need for business-critical cyber security across all digital services. The new financial year has started well, with the Group building on the momentum gained in Q4. This, combined with our comprehensive portfolio of capabilities, our extensive and strong industry partnership and numerous flagship references from across the public and private sectors, gives us confidence in prospects for the Group both in the year ahead and beyond."
The person responsible for the disclosure of this announcement for the purposes of EU Regulation 596/2014 is John Swaite, Finance Director.
For more information please contact:
AdEPT Technology Group Plc
Ian Fishwick, Chairman Tel: 07720 555 050
Phil Race, Chief Executive Officer Tel: 07798 575 338
John Swaite, Finance Director Tel: 01892 550 243
Singer Capital Markets (Nominated Adviser
& Broker)
Shaun Dobson/ Rachel Hayes / Will Goode Tel: 020 7496 3000
Belvedere Communications
Cat Valentine Tel: 07715 769 078
Keeley Clarke Tel: 07967 816 525
adeptpr@belvederepr.com
About AdEPT:
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 Microsoft, CATO, Extreme, Openreach, BT Wholesale, Virgin Media, Fortinet, Avaya, Gamma, 8X8, and Dell.
AdEPT is quoted on AIM, operated by the London Stock Exchange (Ticker: ADT). For further information please visit: www.adept.co.uk .
CHAIRMAN'S STATEMENT
It is with great pleasure that I announce the Group's annual results for the year ended 31 March 2022. I am very encouraged by the resilient performance of AdEPT during FY22, with a successful acquisition, growing revenues and consistent margins, organic advances in our Cloud Centric activities and an increase in adjusted earnings per share.
Our strategy of consolidation has created a powerful business, with the recent Datrix acquisition significantly extending our capability into leading edge software-defined networks and related security products. The Group is now well positioned to capture increasing 'wallet share' in the ever-expanding Information, Communication and Technology ('ICT') space. We have also completed Project Fusion - an initiative to bring all of the Group's businesses onto a single operating platform: ONE AdEPT, delivering enhanced operational agility, business insight and organisational effectiveness.
The ability to deliver an extensive portfolio, coupled with the completion of Project Fusion, underpins the Group's decision to focus on organic growth and debt reduction.
Results
We achieved a pleasing 21% uplift in our underlying EBITDA, to GBP11.9m (FY21: GBP9.8m), despite being constrained by project delays due to the ongoing worldwide microchip shortage. It is worth noting that our sales and delivery teams secured over GBP30m of total contract value orders in FY22, with an uptick in the last quarter laying strong foundations for FY23 and driving proforma organic growth of 2% in underlying EBITDA in the year under review.
The 18% rise in revenues to GBP68.1m (FY21: GBP57.9m), mirrored by the 17% rise in gross profit (from GBP27.6m in FY21 to GBP32.4m in FY22) includes the full year contribution of the acquired Datrix business.
Our 'Cloud first' sales strategy continues to drive growth, with Cloud Centric Strategic Services revenues up 18% year on year to GBP29.5m (FY21: GBP25.1m) representing 43% of revenues and growing organically (discounting for the Datrix acquisition) at 7%. The move to the cloud, the requirement for hosted applications, cloud hosted telephony solutions and the rise in demand for a broad range of Microsoft propositions continues unabated. AdEPT's own cloud platform, AdEPT Nebula, forms a successful part of this and now supports more than 650 customers.
Support services revenues increased by GBP5.3m to GBP17.1m (FY21: GBP11.8m), the majority of which resulted from the acquisition of Datrix.
Our concerted drive to assist customers with the transition to cloud telephony and managed services continues. We have been successful in migrating many customers away from the traditional on-desk telephone to alternative solutions, in particular Voice over IP (VoIP)(1) , Session Internet Protocol (SIP) (1) and Teams collaboration from Microsoft. Overall cloud telephony revenues increased by 49% year on year to GBP4.0m (FY21: GBP2.7m) and there was a 35% rise in AdEPT Nebula cloud telephony seats to 2,812 in the period.
As a result of this focus, Managed Services now accounts for 87% of both total revenue and EBITDA (2021: 81%).
(1) VoIP and SIP are complementary technologies that enable any type of
communication over the internet. VoIP is separately used for IP telephony
to transfer the voice traffic through data networks, whereas SIP It's
a unified communication tool that controls and enhances VoIP capabilities
for businesses to enjoy the swift collaboration that could otherwise
be impossible with VoIP alone. SIP also provides SIP trunking, a feature
that will allow you to connect to other phone networks even when their
internet connection is disconnected.
Re-instatement of Dividend
Cash generation remained strong with 108% pre-tax cash conversion of EBITDA. AdEPT paid down GBP5.5m of its loan facility after payment of the initial consideration for Datrix, a clear indication of sound cash and cost management. Our Capex-light strategy continues, with Capex expenditure at 2% of revenue in the year.
As a result of the Group's continued strong cash generation, the Board is proposing a final dividend of 1.0p per share (FY21: nil), payable on 6 October 2022 to shareholders on the register on 16 September 2022 (ex-dividend date being 15 September 2022). The Group is confident that a progressive policy can be maintained.
Strategy
On 7 April 2022, we announced an updated strategy (RNS Number 5511H), which followed an in-depth strategic review, supported by EY Parthenon, exploring; market requirements, customer sentiment, our ability to capture market opportunity, operational capability, and the richness of the AdEPT portfolio.
As a result of this review the Board concluded that the Group was ideally placed to capitalise on its market position and capabilities, and in turn focus on the organic growth opportunities now available, while using its strong cash generation to reduce debt.
The strategy, resulting from this review, is to build upon three pillars: Pillar one - focus on organic growth; Pillar two - structure for success; and Pillar three - reduce gearing, all with the express intent of delivering stakeholder value. Further details are given in the Chief Executive Officer's Review.
Board change
On 7 April 2022, AdEPT announced the retirement of Roger Wilson as a Non-Executive Director from the Board. Roger was a founder investor and has been an inspirational member of the AdEPT Board for 19 years, including 16 years as Chairman and three years as Deputy Chairman. Roger delayed his retirement due to the Covid pandemic.
It has been an absolute delight to work with Roger for so many years. He has been an integral part of the Company and a mentor to many during his time with AdEPT. The Board would like to wish Roger every success in his retirement and thank him for his wise counsel and outstanding contribution.
With two experienced independent Non-Executive Director's on the Board no replacement is required at this time.
Environmental, Social and Governance ("ESG")
AdEPT has a social conscience, with the executive team focused on making the world a better place both for current and future generations. AdEPT has updated the inaugural 17-point plan published during the Summer of 2021 and has made positive progress in advancing its position across each of the three pillars of i) Environmental Responsibility, ii) Social Responsibility, and iii) Governance. This updated plan can be found on AdEPT's investor relations website: www.adept-technology-group.co.uk/.
As part of carbon reduction activities, in our journey to Net Zero, we have undertaken our first cross company carbon measurement activity, to determine our Baseline Emissions Footprint.
It is critical that AdEPT is an exemplary employer to ensure we retain, inspire, and nurture our talent. As part of this goal AdEPT is committed to ensuring diversity, equity, and inclusivity. We have a team from diverse backgrounds and genders, and we continue to foster balance and promote equal opportunities. This mix of skill sets, experience, and backgrounds enables us to perform better.
We are investing in our staff with, for example, concerted training programmes, and we are launching a new flexible benefits platform for our staff this year as part of this critical goal.
We have also undertaken our second Gender Pay Gap Report which showed modest positive progress. However, like many businesses in our sector, this highlights the challenges of hiring women into senior roles. We will use the findings of this report and work with our staff and stakeholders to shape policies that ensure an appropriate gender balance.
Outlook
We cannot ignore the potential impact from the ongoing macro-economic challenges facing the UK, the semiconductor shortages, the spectre of higher inflation, and the war in Ukraine. However, with 74% of our revenues from recurring contracts and a significant amount of re-occurring one-off revenues from existing customers the Board is confident in the strength of its talented team and operations, which have shown resilience and continued to deliver growth.
We are buoyed by the completion of Project Fusion, the strong sales finish to the year, and the performance of the Group in Q4. These bode well for the Group's future performance and demonstrate that our updated strategy will bear fruit in a marketplace that, despite the wider challenges beyond our control, continues to require our skills, solutions and exemplary customer service.
Ian Fishwick
Chairman
CHIEF EXECUTIVE OFFICER'S REVIEW
Overview
AdEPT has a clear mission of 'uniting technology and inspiring people'. This year has seen further advances against this mission - delivering successful projects for public and private sector customers alike, resulting in substantial overall growth. Pleasingly, organic growth in Cloud Centric services was 7%.
During the year, we streamlined the Group's operating structure, moving from five divisions to two, enhanced our relationship with key suppliers who we increasingly treat as partners and delivered several significant projects. Our progress is being driven by a motivated team, achieving high levels of customer satisfaction.
The Datrix acquisition at the start of the period added to our range of leading-edge software-defined network and related security expertise, building on AdEPT's world class Managed Service capabilities, addressing the converging ICT marketplace in which customers are increasingly demanding communications, network infrastructure and IT expertise.
Our success in the year was achieved despite the ongoing macro challenges, primarily electronic chip shortages, which continue to impact Technology Product revenues and the completion of some projects dependent on hardware. We are a resilient business, underpinned by a focus on recurring revenue, which comprises a high percentage of total revenues at 74% (FY21: 74%).
I am particularly heartened by the performance of our sales team, who added over one hundred new customers during the year. Customer demand is steadily gaining momentum across multiple vertical markets and delivered markedly stronger one-off order intake in the last quarter, up over 10% against the preceding nine months. New customer wins including, Multi-Academy Trust the Co-op, the TUC and the contact centre outsourcer, Kura, demonstrate AdEPT's ability to attract respected organisations.
In short, the demand for digitisation continues and is fuelling the growth of AdEPT's Cloud Centric services, with increasing revenues from the provision of managed networks, Microsoft solutions, cloud communications and services relating to cyber security.
A successful acquisition
At the start of this financial year (April 2021), we completed the acquisition of Datrix and declared it a 'game changer'; since then the Datrix team has not disappointed.
Datrix has enabled AdEPT to increase its potential 'wallet share' in the ever-expanding ICT space. The introduction of new partnerships and services that allow AdEPT to tap into the fast-growing markets of Software Defined Wide Area Networking (SD-WAN) and Secure Access Service Edge (SASE) is leading to significant sales successes. During the Period, this team secured significant projects with organisations, including Nottinghamshire County Council, the Royal Surrey County Hospital, Public Health England and Trident IP.
The ONE AdEPT platform enabled the rapid integration of the Datrix business ahead of plan and Datrix is now fully integrated into the AdEPT South & Healthcare division.
A simplifying structure
At the outset of FY22, the AdEPT business was structured as five business divisions: Comms North, Comms South, Education, ITS and Datrix. These each had their own management structures and resultant costs, albeit utilising the same underlying ONE AdEPT platform.
We are constantly looking to optimise AdEPT. As a result of the accelerated progress of Project Fusion, we were able to consolidate the business ahead of plan and, during the final quarter of the year, announced to the AdEPT workforce the formation of a simplified organisational structure centred around two operating divisions - AdEPT North & Education alongside AdEPT South & Healthcare.
This refinement allowed AdEPT to reduce ongoing operating costs by c. GBP0.6m. Our plan in FY23 is to further enhance customer service and product penetration as a consequence of this change.
Objectives for FY23
Following the review of our strategy as outlined in the Chairman's statement, we are now focused on three pillars:
a) Pillar one - Drive organic growth. Through acquisition AdEPT has
become a fully capable, Cloud Centric, managed services business,
with a highly skilled workforce and the ability to 'wrap' solutions
with consulting expertise to keep customers up to date with fast-changing
market requirements.
Following the successful acquisition of Datrix, AdEPT now has the
capability to capture a significant 'share of wallet' from its customers
through its comprehensive portfolio of products and services, supported
by our strategic partners, delivered by the wealth of talent within
the business.
Objective for FY23 - capitalise on our market position, strengthen
relationships with our key partners and customers, focus on the growth
of our team and its skillset and in turn increase our revenue.
b) Pillar two - Structure for success. The ONE AdEPT platform has created
a foundation for greater operational efficiency, cross-selling and
operational insight. All employees across AdEPT can now take advantage
of a single set of operational and financial applications wherever
they reside, which facilitates flexible working for our staff.
This enabled AdEPT to accelerate cost reductions arising from divisional
and management consolidation, with the Group transitioning from five
business entities at the beginning of FY21 to two, which reflect
our geographical and market focus: AdEPT North & Education, and AdEPT
South & Healthcare, as we move into FY23.
Objective for FY23 - improve margins and cross selling through improved
operational efficiency, a greater focus on market verticals, enhanced
inter-team working and transparent systems.
c) Pillar three - Reduce gearing. The Group has a historically low
capital expenditure requirement and a proven ability to generate
free cash flow. The strategic objective to focus purely on organic
growth will facilitate the debt reduction.
Objective for FY23 - retain Capex-light discipline, constraining
expenditure to a c.2% of revenue band, reduce office lease costs
and make substantial headway in reducing debt over the Period.
The market we serve
As part of the in-depth strategic review we explored market requirements, customer sentiment, our ability to capture market opportunity, operational capability, and the richness of the AdEPT portfolio. This extensive research revealed several reassuring data points, in particular that we have a large market to attack (the UK Core Addressable Market(2) for AdEPT services being GBP11bn), with fast growth aspects, in particular cloud services (c. 15% CAGR).
We are already witnessing positive trends in respect of AdEPT's 'cloud first' focus including:
(--) customers looking to consume cloud hosted offerings through 'as a Service
models' (XaaS)
(--) sustained reliance on cloud and collaboration tools to enable remote
working for a distributed workforce, and
(--) the convergence of Telecom and IT infrastructure with data, voice and
applications shifting to the internet.
In addition, the ongoing programme to retire the BT 'copper telephony network' by 2025, otherwise known as the "PSTN(3) switch off", will only serve to accelerate the migration to Voice over IP (VoIP) products, as well as drive higher demand for broadband connections as businesses move to unified communications. These changes encourage conversation with providers like AdEPT and in turn create an opportunity to up-sell other services.
On the back of these trends, we are finding that our consulting services such as Cloud Readiness Assessments, IT Health-checks and Security Risk Assessments are proving useful gateways for clients to explore our extended range of services. These take customers on a journey to investigate our overarching propositions which are to help customers;
(--) Be agile - with seamless workflow and business insight
(--) Be unified - providing cloud flexibility, IT rationalisation, as a
service provision and ERP capability
(--) Be secure - across data, the user, the network with security assurance
(--) Be resilient - whether that's the network or systems
(--) Be successful - empowering our customers to engage seamlessly, engage
digitally, and engage fast
(--) Be a great employer - with a modern workplace, whilst reducing environmental
impact
All of which have great references, powered by our strategic partners and present exciting opportunities.
(2) CAM is defined as total UK spend by SMBs in the corporate sector (<250
FTE) and all organisations in the public sector on AdEPT's core product
offerings (e.g., hosted cloud, voice and connectivity but excludes
non-core offerings like IaaS) in regions of the country in which AdEPT
has a strong presence (so, excludes Scotland, North England and Northern
Ireland)
(3) PSTN is the Public Switched Telephone Network
Investment for growth
The AdEPT strategy is to remain 'Capex light' spending less than 2% of revenues on capital projects. However, AdEPT continues to judiciously invest in AdEPT Nebula, its hybrid cloud platform, as this is proving attractive to those customers on the journey to the cloud.
This platform provides private cloud hosting (60 customers), back-up services (300 customers backing up over 1PetaByte of data), a resilient and cost-effective managed network (227 customers transferring c. 80Gbps over 184Gb bearers), 'as a service' security capability (52 school customers taking filtered connectivity) and a range of complementary services. It is the home for hosted communications, hosted Enterprise Resource Planning (ERP) and hosted School Management Information Systems (MIS) solutions - all in a secure environment.
I am particularly pleased to see our relationships with key strategic partners going from strength to strength, as they are crucial to our success. Our portfolio is impressive - with expertise and references working with globally respected players such as; Microsoft, Cato, Extreme, Avaya, Gamma, LG Ericsson, 8x8, Fortinet and BT.
We are building on this portfolio with an enhanced relationship with Sage, a provider of Enterprise resource planning (ERP) software. ERP software is used by organisations to manage day-to-day business activities, such as accounting, procurement, project management, risk management and compliance, and supply chain operations. AdEPT has become a Sage Intacct reseller, a cloud offering. This is all part of our journey to become a significant 'one stop shop' for our customers.
People
On 31 March 2022, the AdEPT team totalled 340. This talented and diverse team, strengthened by the acquisition of Datrix, is enabling us to achieve increasingly high levels of customer satisfaction and product penetration. We will continue with our aim to be an exemplary employer and I would like to thank everyone across AdEPT for their exceptional commitment in the year.
Current trading and outlook
With our comprehensive portfolio of capabilities, our extensive and strong industry partnerships, many flagship references from the public and private sectors, underpinned by the ONE AdEPT platform, which ensures that the Group operates efficiently, AdEPT is well placed to benefit from the acceleration in strategic IT investment, as clients continue to assess their long-term ICT requirements.
As a result, I remain confident in the long-term market opportunity for AdEPT, which has been enhanced by the dramatic changes to working patterns, coupled with the rising demand for secure digital services in all its guises.
Our mission remains 'uniting technology, inspiring people'. We are optimistic for the future of the technology market, and in turn for the prospects of AdEPT and our highly talented team.
Phil Race
Chief Executive Officer
STRATEGIC REPORT
Principal activities and review of business
The principal activity of the Group is the provision of managed services for cloud, digital platforms, unified communications and connectivity solutions to both domestic and business customers. A review of the business is contained in the Chairman's and CEO's statements on and the highlights are summarised in this strategic report.
Summary of three-year financial performance
Year ended March
2022 2021 2020
GBP'000 Year on GBP'000 Year on GBP'000
year % year %
------------------- --------- ---------- --------- ---------- ---------
Revenue 68,082 17.7% 57,851 (6.2%) 61,688
Gross profit 32,432 17.3% 27,640 (8.4%) 30,232
Underlying EBITDA 11,892 21.0% 9,830 (16.1%) 11,709
Net senior debt 29,353 25,603 27,938
------------------- --------- ---------- --------- ---------- ---------
Revenue and gross margin
Total revenue increased by 17.7% to GBP68.1m (FY21: GBP57.9m). The business is split into two primary segments, fixed line (encompassing call revenues and related fixed telephony line provision) and managed services. In respect of managed services versus fixed line revenues, during the year AdEPT has continued to grow its managed services business through a combination of organic contract wins and company acquisition.
The Datrix business was fully integrated into the AdEPT systems and processes with immediate effect following the acquisition in April 2021, and this has yielded not only operational efficiencies with the acquired customer base being supported by a mix of existing and acquired team members but has also delivered customer contract renewals, new organic contract wins and successful cross-sell post-acquisition.
The revenue and gross margin breakdown is viewed through four strategic revenue streams, where managed services is split into three sub-segments - Cloud Centric Strategic Services, Support Services and Technology Products:
March 2022 March 2021
GBP'000s Revenue Gross margin Revenue Gross margin
---------------------------------- -------- ------------- -------- -------------
Cloud Centric Strategic Services 29,512 13,214 25,092 11,866
Support Services 17,127 12,924 11,817 9,965
Traditional Telephony 8,582 3,199 10,739 3,999
Technology Products 12,861 3,095 10,203 1,810
---------------------------------- -------- ------------- -------- -------------
Total 68,082 32,432 57,851 27,640
Cloud Centric Strategic Services - Our strategy is to focus on Cloud Centric Strategic Services (a segment including; data connectivity, hosting services, hybrid & public cloud, cloud telephony and professional services). This clear focus with a combination of organic growth plus the acquired contribution from Datrix delivered a GBP4.4m Year on Year increase in revenues to GBP29.5m (FY21: GBP25.1m). On a pro-forma basis Cloud Centric Strategic Services revenues have increased by 6.6% organically.
Revenues from cloud telephony increased by 49.0% year on year to GBP4.0m (FY21: GBP2.7m), of which 29.6% is organic uplift and GBP0.4m is the pro-forma acquisition contribution from Datrix. The organic growth is a result of our successful activities to migrate customers from traditional fixed line products to new IP based solutions combined with success in gaining contracts with new logo customers. This is a trend which has been aided by the increased demands for flexible and remote working resulting from the Covid-19 lockdowns.
Within this segment Professional Services has grown to GBP5.1m (FY21: GBP4.5m) which represents 7.7% organic reduction when taking into account the pro-forma Datrix acquisition contribution. This reduction arises mainly due to the inability to deliver project management and installation services associated with the backlog of equipment orders which have been delayed by the global supply chain issues arising firstly from Covid and latterly by the war in Ukraine. The inability to secure equipment supply within normal lead times has delayed the go live and revenue recognition for many projects, which also has a knock-on impact for revenues associated with the recurring services attached to the equipment, such as data connectivity and support services.
Revenues from data connectivity services have increased by 10.6% to GBP15.7m (FY21: GBP14.2m), which is 1.0% organic growth with a 9.6% pro-forma acquisition contribution from Datrix. The demand for faster connectivity and greater bandwidth continues, however during the Covid lockdown period lead times for some new service installations were extended. Despite this challenge, the Group has been successful in continuing to win new logo connectivity customers, whilst also cross-selling and upgrade existing customers to faster and more resilient services.
Support Services - Support Services revenues demonstrated resilience, increasing by GBP5.3m to GBP17.1m (FY21: GBP11.8m) principally through the acquisition contribution from Datrix. Early FY22 was a challenging period for securing new support contracts with businesses being reluctant to change support provider and sign into new term contracts in the aftermath of the pandemic. However, Q4 FY22 saw some change to this situation for telephony and IT services with several notable contract wins including Trident IP, Nottingham County Council and Royal Surrey NHS, all of which should yield benefit in FY23.
Technology Products - An increase of GBP2.7m revenue from Technology Products (hardware and software sales) was wholly driven by the acquisition contribution from Datrix, with a pro-forma organic reduction of 10.5%. Organic Technology Product revenues were heavily impacted by the supply chain issues arising from the global chip shortage resulting in a substantially increased year end backlog of secured sales orders for which the equipment has an extended lead time (up to 12 months in some cases). In addition, we have seen some continued latency of demand as customers delay investment in strategic infrastructure initiatives. However, whilst Technology Product sales were less resilient the product mix returned to a more normalised mix, which has resulted in an improvement in gross margins (FY22: 24.1% vs. FY21: 18.2%).
Traditional Telephony - The structural decline in Traditional Telephony (fixed line services) has been further accelerated in FY22 with a 20.1% reduction from FY21. This is largely as anticipated given that Openreach is continuing with its strategy to switch off the copper telephone network and there is a clear shift to messaging and IP based services over traditional fixed line and calls services. Additionally, the last 12 months fixed line revenues have been impacted by substantial reductions in call revenue as a result of access restrictions to business premises during the multiple Covid-19 lockdowns resulting in businesses using other means of communication rather than the desk-based telephone. Although the UK lockdowns appear to have now ended, there continues to be low take up for the return to office, and, therefore we do not anticipate a return in call volumes.
The ongoing reduction in the proportion of AdEPT revenues linked to Traditional Telephony is a result of our strategy to diversify away from Traditional Telephony into Cloud Centric Strategic Services. Following the acquisition of Datrix, which had no revenues from Traditional Telephony, and the organic decline Traditional Telephony now accounts for only 13% of Group revenues (FY21: 19%).
Recurring revenues versus one off revenues
In respect of recurring revenues versus one off revenues, the proportion of AdEPT revenue being generated from recurring products and services (being all revenue excluding one-off projects, hardware and software) remains high at 73.6% of total revenue (FY21: 74.1%). All of the managed service product sets include an element of hardware supply and installation services, which, by their nature, are project based and not fixed recurring revenue streams; however, a high proportion of hardware supply and installations are further products and services being supplied to the existing customer base, sometimes classified as 're-occurring revenues'.
Market sector analysis
AdEPT continued to be successful in gaining further traction in the public sector space during the last year through leveraging its approved status on various frameworks. AdEPT is an approved supplier to the Crown Commercial Service under the following frameworks RM3808 Network Services, RM3825 HSCN Access Services, RM1557 G-Cloud, RM6103 Education Technology and RM3804 Technology Services 2. The Group has been successful in winning further new business through a number of these frameworks.
The proportion of total revenue generated from public sector and healthcare customers was 56.5% in the year ended 31 March 2022 (FY21: 55.5%). The proportion has been maintained as the organic customer contract awards have been split between public sector and commercial customers; and takes into account the acquired Datrix customer base.
The Group is continuing to focus its organic sales efforts on a) selling a wider portfolio to existing customers, b) adding and retaining larger customers whilst complementing this with a new customer acquisition strategy. AdEPT is managing the customer risk with a wide spread of business sectors and low customer concentration, with the top ten customers accounting for 28.0% of total revenue (FY21: 23.0%) and no customer accounting for more than 10% of the total.
Gross margin
Gross margin percentage was stable at 47.6% (2021: 47.8%). The gross margin percentage from managed services reduced to 50.2%, due to third-party support service contracts with the Datrix acquisition blending down the gross margin on Support Services, although noting that these services do not require the same level of in-house support and therefore the operating cost (headcount effort) in relation to these contracts is reduced.
Recurring gross margin was 51.0% (FY21: 51.3%). The marginal reduction reflects the decrease in relative higher margin online back-up services combined with a reduction to software margins from an increased take-up of lower relative margin product, such as Microsoft 365, with this software representing a growing recurring revenue stream.
The gross margin generated from non-recurring products and services reduced to 39.6% (FY21: 40.6%) with the decrease over the prior year driven by an increase in the volume of third-party professional services costs.
The gross margin for fixed line services was flat at 37.3% (FY21: 37.3%) with management of the impact of changes to wholesale input costs through end-user pricing.
Underlying EBITDA
Underlying EBITDA is defined as operating profit after adding back depreciation, amortisation, acquisition fees, restructuring costs, adjustment to deferred consideration and share-based payment charges. The Group uses underlying EBITDA as a measure of performance in line with the IT and unified communications sector's general approach to relative performance measurement. As the Group operates a capex-light model, the Board considers that a good indication of the underlying cash generation of the business for comparison against operating cash flow before tax is underlying EBITDA.
Below is a reconciliation of underlying EBITDA to the reported loss before tax:
2022 2021
GBP'000 GBP'000
------------------------------------- -------- --------
Underlying EBITDA 11,892 9,830
Acquisition fees (1,371) -
Restructuring costs (2,023) (974)
Share option charge (62) (67)
Adjustment to deferred consideration (33) -
Depreciation (1,433) (1,532)
Amortisation (7,246) (5,793)
Profit on sale of assets - 133
Interest (2,752) (2,102)
------------------------------------- -------- --------
Loss before tax (3,028) (505)
Underlying EBITDA increased by 21.0% to GBP11.9m (FY21: GBP9.8m), of which 1.6% is organic and 19.4% is the pro-forma acquisition contribution from Datrix. The organic underlying EBITDA growth has been achieved through both organic revenue growth in recurring managed services and operational efficiency from further Project Fusion business process automation and the internal restructuring of the Group from five to two operating divisions.
The Group incurred GBP2.0m of restructuring costs from the ongoing headcount efficiencies generated from Project Fusion combined with some realignment of the operating cost base of the Group as a result of the streamlining of the senior management team as the business is repositioned to two core operating divisions, AdEPT South & Healthcare and AdEPT North & Education. These represent redundancy, settlement and salary costs creating a permanent ongoing reduction to the operating costs of the Group and will benefit future periods.
Acquisition fees include the cost of legal and financial due diligence, legal documentation and corporate finance fees in relation to the Datrix acquisition. These also include the one-off cost of the in-depth strategic review conducted by EY Parthenon, exploring market requirements, customer sentiment, our ability to capture market opportunity, operational capability and the richness of the AdEPT portfolio.
Depreciation
The Group has continued to invest in strengthening AdEPT Nebula - Nebula is the AdEPT owned platform providing a capability that supports over 650 customers who take various services from our portfolio of cloud, security, business continuity and disaster recovery, hosted voice, software apps and data connectivity.
GBP0.7m of depreciation relates to the liability accounting under IFRS16 right of use assets (FY21: GBP0.8m). The Group has no ownership of these assets. The cash cost in respect of the right of use asset leases is included within the cash flow statement under the heading 'Payment of lease liabilities'.
Finance costs
Total interest costs have increased by GBP0.7m to GBP2.8m (FY21: GBP2.1m). This income statement cost includes the notional interest charge for the discounting of the Datrix deferred consideration, plus the amortisation of the bank arrangement fees. Cash paid interest increased by GBP0.3m (18.3%) to GBP1.9m largely from the increase in the average level of net borrowings to GBP31.3m in FY22 (from GBP26.1m in FY21). The Group has continued to focus on careful management of customer credit terms and working capital as we emerge from the Covid-19 pandemic as it was considered a lead indicator of customer trading and financing challenges. The Group has used treasury management of surplus cash balances to minimise the amount of drawn funds during the year to minimise interest costs.
Included within cash paid interest costs is GBP0.1m of interest charges in relation to IFRS16 which is a cash related item.
Loss before tax
This year reported loss before tax was GBP3.0m (FY21: GBP0.5m). The reduction of GBP2.5m is driven primarily by GBP1.4m of acquisition related fees following the acquisition of Datrix in April 2021, combined with GBP1.0m increase to the restructuring costs from the further headcount efficiencies generated from the Project Fusion initiative combined with some realignment of the operating cost base of the Group as a result of the streamlining of the senior management team as the business is repositioned to two core operating divisions, AdEPT South & Healthcare and AdEPT North & Education.
The operating loss of GBP0.2m was impacted by non-cash items, including:
(--) GBP7.2m amortisation of intangible assets arising from acquisitions
undertaken during prior years;
(--) GBP0.7m non-cash depreciation; and
(--) GBP0.1m share-based payments.
Reported loss before tax for the year of GBP3.0m includes the following cash items:
(--) GBP1.9m cash financing costs;
(--) GBP2.0m restructuring costs;
(--) GBP1.4m acquisition related fees; and
(--) GBP0.7m of depreciation which is a cash item related to lease rentals
under IFRS16.
Income tax
The income tax charge in the year has increased to GBP2.2m (2021: GBP0.2m credit). This significant movement is driven entirely by the change in the deferred tax provisioning rate from 19% to 25% (the UK Government 2021 Budget announcement of an increase in the tax rate to 25% from 1 April 2023) which has generated an income statement tax debit of GBP2.8m in relation to the opening deferred tax balance. This is purely an accounting entry which has no cash impact and the deferred tax liability will reverse out with credits to the income statement at the higher rate in future periods, unless there is a subsequent change by the UK Government Policy to the UK corporation tax rate. Excluding the one-off impact of the change in the deferred tax rate the income tax expense is a net credit of GBP0.6m (2021: GBP0.2m credit).
Earnings per share
Adjusted profit before tax, adding back amortisation, restructuring costs and interest costs discounting, removing deferred tax credits, increased 23.0% to GBP6.9m (FY21: GBP5.6m).
Basic earnings per share was negative 20.90p (FY21: 1.36p negative), with this figure including the non-cash impact of the GBP2.8m deferred tax debit for the change in the deferred tax provisioning rate from 19% to 25% Adjusted earnings per share is used to reflect the non-cash nature of items which are charged to the income statement and non-trading items, such as acquisition costs, to give a better indicator of the underlying cash generation of the Group. Adjusted fully diluted earnings per share, based on the profit for the year attributable to equity holders adding back amortisation, share option charges, restructuring and acquisition costs, increased 22.9% to 27.46p per share (FY21: 22.34p).
Dividends and dividend per share
On the back of strong operating cash flow generation AdEPT is declaring a final dividend of 1.0p per share, which is subject to shareholder approval at the annual general meeting later this year. This dividend is expected to be paid on 6 October 2022 to shareholders on the register on 16 September 2022 (ex-dividend date being 15 September 2022). The Board constantly monitors shareholder value and is confident that the continued strong cash generation will support a progressive dividend policy.
Cash flow
The Group benefits from an excellent cash-generating operating model. Low capital expenditure results in a high proportion of underlying EBITDA turning into cash. The proportion of reported EBITDA which turned into net cash from operating activities before income tax was 108.4% (FY21: 89.3%).
The income statement includes many non-cash items, this is a summary of the operating cash flow and other cash movements in net debt:
2022 2021
GBP'000 GBP'000
------------------------------ -------- --------
Operating cash
flow 8,499 8,856
Net working
capital 608 (880)
Payment of lease liabilities (684) (866)
------------------------------- -------- --------
Free cash flow 8,423 7,110
Income taxes (1,024) (598)
Capex (1,249) (1,034)
Cash interest (1,897) (1,603)
------------------------------- -------- --------
Cash flow before acquisitions 4,253 3,875
Acquisition consideration (8,206) (1,798)
------------------------------- -------- --------
Cash movement in net debt (3,953) 2,077
Opening net debt (25,603) (27,993)
Movement in cash equivalents (3,953) 2,077
Non-cash loan movements 203 313
------------------------------- -------- --------
Closing net debt (29,353) (25,603)
------------------------------- -------- --------
Overall working capital efficiency has generated GBP0.6m of cash during the year, this is despite a GBP0.3m increase to year end inventories in relation to advance purchase of equipment to secure supply ahead of the busy school Easter holiday period in April 2022. Customer payment periods have been a focus for the Group since the start of the Covid-19 pandemic as they are considered a lead indicator of potential future trading and cash issues within the customer base. At the year end the reported trade receivables were abnormally inflated by GBP3.3m in relation to a pass-through contract where AdEPT is acting as agent and has no contractual liability and therefore will be recognising the revenue on an agency basis. Excluding this customer receivable (which has been paid in full post year-end), customer payment periods were 44 days (FY21: 44 days). The Group has consciously continued to meet supplier payments on time throughout the year.
Income taxes paid in cash during the year increased to GBP1.0m (FY21: GBP0.6m). There is a GBP0.1m repayment due from HMRC which has taken longer than expected to be processed due to the decision by the Company to end the HMRC Group Payment Arrangement to reduce the costs of administering the scheme.
Cash interest paid has increased during the year to GBP1.9m (FY21: GBP1.6m), which arises from the GBP5.2m increase in average net borrowings against the prior year in relation to the acquisition consideration paid for Datrix.
Cash outflows FY21 in relation to acquisitions amounted to GBP8.2m, all of which related to Datrix. The initial consideration of GBP6.5m was paid upon acquisition, with a further GBP0.5m paid upon finalisation of the completion net debt, GBP0.3m paid following the successful completion of the integration of Datrix on to the Project Fusion platform and GBP0.9m of the escrow funds released upon successful renewal of two key customer contracts.
Capital expenditure
The Group continues to operate an asset-light strategy and has low capital requirements; therefore, expenditure on fixed assets is low at 1.9% of revenue (FY21: 1.8%). The capital expenditure in the current year arises from AdEPT investing a further GBP0.3m in the development of the 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, security, business continuity and disaster recovery, cloud hosted voice, software apps and data connectivity.
AdEPT Nebula is live and already delivering benefits to hundreds of 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.
Over the last 12 months the AdEPT team has continued to work hard on the 'ONE AdEPT' project, christened 'Project Fusion', including initiatives in relation to sales, marketing, CRM systems, human resources, finance and branding. A further investment of GBP0.5m has been made over the last twelve months, which includes the cost of third-party consultancy and some capitalisation of the internal development teams time spent dedicated to the project. Despite the continued challenges of lockdown and remote working, all operating divisions have been migrated to the centralised CRM and finance platforms, with over 95% of Group employees now using and benefitting the platform.
Payments of lease liabilities
As required under IFRS 16, the balance sheet value of tangible fixed assets includes the discounted value of the remaining lease rentals for any material agreements which have a lease term greater than twelve months. The net present value of any new 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 lease agreements are included in the cash flow statement under the heading 'Payments of lease liabilities' and amounted to GBP0.7m in the current year (FY21: GBP0.9m).
Business combinations
On 12 April 2021 the Company acquired the entire issued share capital of Datrix Limited ('Datrix') a well-established, award-winning supplier of advanced cloud-based networking, communications, and cyber security solutions, headquartered in London, with expertise in the growing Software Defined Wide Area Networking ("SD-WAN") market focused on the public and healthcare sector. The vendors and the senior management team responsible for the strategic direction, technical development and day-to-day operations of Datrix have been retained within the business post-acquisition. Initial consideration of GBP9.0m, on a debt free cash free basis, was paid in cash. Pursuant to the terms of the share purchase agreement, the effective date of the acquisition was 1 April 2021. Further contingent deferred consideration of up to GBP7.0m is payable in cash dependent upon the trading performance of Datrix in the 12 month period ended 31 March 2022. 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 final amount of deferred consideration of GBP4.3m was paid on 1 July 2022.
The fair value of the assets and further details on the acquisition are described in Note 21 of the financial statements.
Net debt and bank facilities
A key strength of AdEPT is its consistent, proven ability to generate strong free cash flow and therefore support net borrowings. As a result of the Group's focus on underlying profitability and cash conversion, net operating cash flow after taxes but before bank interest paid of GBP8.1m was generated during the year ended 31 March 2022 (FY21: GBP7.4m). This cash flow generation represents 96.2% conversion of reported EBITDA (FY21: 82.7%).
Opening cash plus the free cash flow generated in the year and borrowing drawdowns from the senior debt facility have been used to fund GBP8.2m acquisition consideration and GBP1.3m of capital expenditure on tangible and intangible assets. Net senior debt, which comprises cash balances and senior bank borrowings (excluding IFRS 16 liabilities), has increased to GBP29.4m at the year-end (FY21: GBP25.6m).
Segmental key performance indicators (KPIs)
The segmental KPIs outlined below are intended to provide useful information when interpreting the accounts. 87% of revenue and EBITDA is generated from Managed Services (FY21: 81% revenue and EBITDA).
Fixed
line Managed
services services Total
GBP'000 GBP'000 GBP'000
-------------------------- --------- --------- --------
Year ended 31 March 2022
Revenue 8,582 59,500 68,082
Gross profit 3,200 29,232 32,432
Gross margin % 37% 49% 48%
Underlying EBITDA 1,515 10,377 11,892
Underlying EBITDA% 18% 17% 17%
Year ended 31 March 2021
Revenue 10,739 47,112 57,851
Gross profit 3,999 23,641 27,640
Gross margin % 37% 50% 49%
Underlying EBITDA 1,881 7,949 9,830
Underlying EBITDA% 18% 17% 17%
There are no non-financial KPIs which are reviewed regularly by the senior management team.
Section 172 requirements of the Companies Act
The section 172 requirements of the Companies Act in respect of the directors' duty to promote the success of the Company is covered in the Corporate Governance Statement included in these accounts.
Principal risks and uncertainties
There are a number of potential risks and uncertainties which could have a material impact on the Group's long-term performance and could cause actual results to differ materially from expected results.
Customer loss risk
The impact of this is partially mitigated with no customer accounting for more than 10% of the Group revenue. The top ten customers account for approximately 28.0% of revenues. The customer base of the Company is also spread across a wide geographical area and across a wide range of business sectors. We continue to monitor customer churn, develop our customer offering and service delivery. We acknowledge that some of our customers may experience financial pressure as a result of continuing Covid-19 disruption and more recent disruption from the war in Ukraine. To manage this risk, we maintain regular contact with our customers to identify and respond to any risks as early as possible.
Catastrophic event risk
All employees are able to work remotely, and the Group's operational and administrative servers are located and managed such that damage from an outage is minimised. A business continuity plan is in place which is reviewed regularly and enhanced from the results of testing. The Group is increasingly moving to cloud based systems, which are more readily available for a timely response to a catastrophic event. A testimony of the Group's ability to deal with a catastrophic event is the response to the Covid-19 pandemic which saw virtually all of the Group's workforce transition to remote working in the space of a couple of days in March 2020.
Credit risk
The Group extends credit of various durations to customers depending on customer credit worthiness and industry custom and practice for the product or service. In the event that a customer proves unable to meet payments when they fall due, the Group will suffer adverse consequences. To manage this, the Group continually monitors credit terms to ensure that no single customer is granted credit inappropriate to its credit risk. Additionally, a large proportion of our customer receipts are collected by monthly direct debit. The risk is further reduced by the customer base being spread across a wide variety of industry and service sectors.
Liquidity risk
The Group seeks to manage financial risk by ensuring sufficient liquidity is available to meet foreseeable needs and to invest cash assets safely and profitably. External funding facilities are managed to ensure that both short-term and longer-term funding is available to provide short-term flexibility whilst providing sufficient funding to the Group's forecast working capital requirements.
Competitor risk
The Group operates in a highly competitive market with rapidly changing product and pricing innovations. We are subject to the threat of our competitors launching new products in our markets (including updating product lines) before we make corresponding updates and developments to our own product range. This could render our products and services out of date and could result in loss of market share. To reduce this risk, we undertake new product development and maintain strong supplier relationships to ensure that we have products at various stages of the life cycle.
Competitor risk also manifests itself in price pressures which are usually experienced in more mature markets. This results not only in downward pressure on our gross margins but also in the risk that our products are not considered to represent value for money. The Group therefore monitors market prices on an ongoing basis.
Cyber-attack on Company, customer or supplier systems
The Group has extensive experience in cyber security and continues to invest of training, systems and tools to protect the Company and its customers. Customer networks are securely segregated from those of the Company and systems are replicated/backed up in more than one location. AdEPT holds several security accreditations including ISO27001, ISO9001, Cyber Essentials and PCI DSS. The Company's security systems and processes are subject to extensive third-party external auditing. In addition, the Company has in place a cyber insurance protection.
Acquisition integration execution
The Group has set out that its strategy includes the acquisition of businesses where they are earnings enhancing. The Board acknowledges that there is a risk of operational disturbance in the course of integrating the acquired businesses with existing operations. The Group mitigates this risk by careful planning and rigorous due diligence.
John Swaite
Finance director
Consolidated statement of comprehensive income
For the year ended 31 March 2022
2022 2021
Note GBP'000 GBP'000
---------------------------------------- ----- --------- ---------
Revenue 4 68,082 57,851
Cost of sales (35,650) (30,211)
---------------------------------------- ----- --------- ---------
Gross profit 32,432 27,640
Other income 5 - 304
Administrative expenses (32,708) (26,347)
---------------------------------------- ----- --------- ---------
Operating (loss)/profit (276) 1,597
---------------------------------------- ----- --------- ---------
Total operating profit - analysed:
Underlying EBITDA 11,892 9,830
Share-based payments (62) (67)
Depreciation of tangible fixed assets (1,433) (1,532)
Amortisation of intangible fixed assets (7,246) (5,793)
Profit on sale of freehold property - 133
Revaluation of deferred consideration (33) -
Acquisition fees (1,371) -
Restructuring costs (2,023) (974)
---------------------------------------- ----- --------- ---------
Total operating (loss)/profit (276) 1,597
---------------------------------------- ----- --------- ---------
Finance costs 7 (2,752) (2,102)
---------------------------------------- ----- --------- ---------
Loss before income tax (3,028) (505)
Corporation tax 8 (194) (860)
Deferred tax 8 (2,010) 1,025
---------------------------------------- ----- --------- ---------
Income tax expense 8 (2,204) 165
---------------------------------------- ----- --------- ---------
Loss for the year (5,232) (340)
Other comprehensive income - -
---------------------------------------- ----- --------- ---------
Total comprehensive income (5,232) (340)
---------------------------------------- ----- --------- ---------
Note 2022 2021
------------------- ---- -------- -------
Earnings per share
Basic earnings 20 (20.90p) (1.36p)
Diluted earnings 20 N/A N/A
------------------- ---- -------- -------
All amounts relate to continuing operations.
Consolidated statement of financial position
As at 31 March 2022
Restated
31 March 31 March
2022 2021
Note GBP'000 GBP'000
-------------------------------------- ---- -------- ---------
Assets
Non-current assets
Goodwill 10 19,908 17,408
Intangible assets 11 43,619 36,895
Property, plant and equipment 12 1,802 2,209
Deferred tax asset 13 - -
-------------------------------------- ---- -------- ---------
65,329 56,512
-------------------------------------- ---- -------- ---------
Current assets
Inventories 14 843 569
Contract assets 5 422 978
Trade and other receivables 15 21,109 12,406
Income tax 243 -
Cash and cash equivalents 3,714 13,166
-------------------------------------- ---- -------- ---------
26,331 27,118
-------------------------------------- ---- -------- ---------
Total assets 91,660 83,631
-------------------------------------- ---- -------- ---------
Current liabilities
Trade and other payables 16 25,535 10,884
Contract liabilities 5 2,657 2,244
Income tax - 357
Short-term borrowings 59 81
-------------------------------------- ---- -------- ---------
28,251 13,566
-------------------------------------- ---- -------- ---------
Non-current liabilities
Deferred tax 13 10,810 6,700
Convertible loan instrument 17 6,728 6,524
Long-term borrowings 17 33,310 39,110
-------------------------------------- ---- -------- ---------
Total liabilities 79,099 65,900
-------------------------------------- ---- -------- ---------
Net assets 12,561 17,731
-------------------------------------- ---- -------- ---------
Equity attributable to equity holders
Share capital 19 2,503 2,503
Share premium 4,378 4,378
Share option reserve 1,237 1,175
Capital redemption reserve 18 18
Retained earnings 4,425 9,657
-------------------------------------- ---- -------- ---------
Total equity 12,561 17,731
-------------------------------------- ---- -------- ---------
Consolidated statement of changes in equity
For the year ended 31 March 2022
Attributable to equity holders
--------------------------------------------------------------
Share Capital
Share Share option redemption Retained Total
capital premium reserve reserve earnings equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------------------- -------- -------- -------- ----------- --------- --------
Equity at 1 April 2020 2,503 4,378 1,108 18 10,375 18,382
---------------------------- -------- -------- -------- ----------- --------- --------
Prior year adjustment (Note
2) - - - - (378) (378)
---------------------------- -------- -------- -------- ----------- --------- --------
Adjusted equity at 1 April
2020 2,503 4,378 1,108 18 9,997 18,004
---------------------------- -------- -------- -------- ----------- --------- --------
Loss for the year - - - - (340) (340)
Other comprehensive income - - - - - -
---------------------------- -------- -------- -------- ----------- --------- --------
Total comprehensive income - - - - (340) (340)
Share-based payments - - 67 - - 67
---------------------------- -------- -------- -------- ----------- --------- --------
Equity at 1 April 2021 2,503 4,378 1,175 18 9,657 17,731
---------------------------- -------- -------- -------- ----------- --------- --------
Loss for the year - - - - (5,232) (5,232)
Other comprehensive income - - - - - -
---------------------------- -------- -------- -------- ----------- --------- --------
Total comprehensive income - - - - (5,232) (5,232)
Share-based payments - - 62 - - 62
---------------------------- -------- -------- -------- ----------- --------- --------
Equity at 31 March 2022 2,503 4,378 1,237 18 4,425 12,561
---------------------------- -------- -------- -------- ----------- --------- --------
Consolidated statement of cash flows
For the year ended 31 March 2022
2022 2021
GBP'000 GBP'000
--------------------------------------------------------- -------- --------
Cash flows from operating activities
Loss before income tax (3,028) (505)
Depreciation and amortisation 8,680 7,325
Adjustment to deferred consideration 33 -
Profit on sale of fixed assets - (133)
Share-based payments 62 67
Net finance costs 2,752 2,102
--------------------------------------------------------- -------- --------
Operating cash flows before movements in working capital 8,499 8,856
(Increase)/decrease in inventories (272) 43
(Increase)/decrease in trade and other receivables (2,856) 1,643
Increase/(decrease) in trade and other payables 3,737 (2,566)
--------------------------------------------------------- -------- --------
Cash generated from operations 9,108 7,976
Income taxes paid (1,024) (598)
--------------------------------------------------------- -------- --------
Net cash from operating activities 8,084 7,378
--------------------------------------------------------- -------- --------
Cash flows from investing activities
Interest paid (1,897) (1,603)
Acquisition of subsidiaries net of cash acquired (8,206) (1,798)
Purchase of intangible assets (863) (751)
Sale of property, plant and equipment - 344
Purchase of property, plant and equipment (386) (627)
--------------------------------------------------------- -------- --------
Net cash used in investing activities (11,352) (4,435)
--------------------------------------------------------- -------- --------
Cash flows from financing activities
New bank loans 500 38,490
Repayment of bank loans (6,000) (39,250)
Payments of lease liabilities (684) (866)
--------------------------------------------------------- -------- --------
Net cash from financing activities (6,184) (1,626)
--------------------------------------------------------- -------- --------
Net (decrease)/increase in cash and cash equivalents (9,452) 1,317
Cash and cash equivalents at beginning of year 13,166 11,849
--------------------------------------------------------- -------- --------
Cash and cash equivalents at end of year 3,714 13,166
--------------------------------------------------------- -------- --------
Cash and cash equivalents
Cash at bank and in hand 3,714 13,166
--------------------------------------------------------- -------- --------
Cash and cash equivalents 3,714 13,166
--------------------------------------------------------- -------- --------
Note to the Preliminary Results announcement of Adept Technology Group Plc for the year ended 31 March 2022
The financial information set out below does not constitute the Group's financial statements for the years ended 31 March 2022 or 2021, but is derived from those financial statements. Statutory financial statements for 2021 have been delivered to the Registrar of Companies and those for 2022 will be delivered following the Group's annual general meeting. The auditors have reported on the 2021 financial statements which carried an unqualified audit report, did not include a reference to any matters to which the auditor drew attention by way of emphasis and did not contain a statement under section 498(2) or 498(3) of the Companies Act 2006. The audit report on the 2022 financial statements is not yet signed, however an unqualified opinion is expected.
Whilst the financial information included in this preliminary announcement has been computed in accordance with International Financial Reporting Standards (IFRS), this announcement does not in itself contain sufficient information to comply with IFRS. The accounting policies used in preparation of this preliminary announcement are consistent with those in the full financial statements that have yet to be published.
Availability of Financial Statements
The annual report containing the full financial statements for the year to 31 March 2022 is expected to be posted to shareholders in August 2022, a soft copy of which will be available to download from the Company's website www.adept.co.uk.
1. Nature of operations and general information
AdEPT is one of the UK's leading independent providers of managed services for IT, unified communications, connectivity and voice solutions focused on enterprise business, public sector and healthcare customers. The Company provides a complete communications portfolio of unified communications, IP telephony, IT services, equipment installation, managed services, Wi-Fi, IT and communications hardware and data connectivity products.
AdEPT is incorporated under the Companies Act 2006 and domiciled in the UK and the registered office is located at One Fleet Place, London EC4M 7WS. The Company's shares are listed on AIM of the London Stock Exchange.
2. Accounting policies
Basis of preparation of financial statements
The financial statements have been prepared in accordance with UK adopted International Accounting Standards in conformity with the requirements of the Companies Act 2006.
Accounting standards require the directors to consider the appropriateness of the going concern basis when preparing the financial statements. The directors confirm that they consider that the going concern basis remains appropriate. The statement of financial position reports an excess of current liabilities above current assets which arises from efficient utilisation of working capital and treasury management to maximise operating cash flow and minimise interest costs, along with the short-term classification of the deferred consideration for the Datrix acquisition. The Group has adequate financing arrangements which can be utilised by the Group as required to fund any temporary working capital requirement and to meet the deferred consideration liability, thus, they continue to adopt the going concern basis of accounting in preparing the annual financial statements. The Group's available banking facilities are described in Note 21.
At the date of authorisation of these financial statements, the directors have considered the standards and interpretations which have not been applied in these financial statements that were in issue but not yet effective and none were considered to be materially relevant.
Adoption of the other standards and interpretations is not expected to have a material impact on the results of the Group. Application of these standards may result in some changes in the presentation of information within the Group's financial statements.
The financial statements are presented in sterling, which is the Group's functional and presentation currency. The figures shown in the financial statements are rounded to the nearest thousand pounds.
Prior year restatement
Following a detailed review of the bad debt provision, a historic error in the calculation was identified in prior periods. Under IAS8, given that this is an error rather than a change to a judgement or estimate, an adjustment has been made to correct the reserves brought forward. The adjustment increases the provision for potential bad debts by GBP378,838 with a corresponding entry to the brought forward reserves at 1 April 2020, being the earliest period presented in these financial statements. There is no impact on either the income statement, the cashflow statement and the earnings per share in either the current or comparative period as a result of this correction.
3. Segmental information
IFRS 8 'Operating Segments' requires identification on the basis of internal reporting about components of the Group that are regularly reviewed by the chief operating decision maker to allocate resources to the segments and to assess their performance.
The chief operating decision maker has been identified as the Board. The Board reviews the Group's internal reporting in order to assess performance and allocate resources. The operating segments are fixed line services (being calls and line rental services) and managed services (which are data connectivity, hardware, IP telephony, support and maintenance services), which are reported in a manner consistent with the internal reporting to the Board. The Board assesses the performance of the operating segments based on revenue, gross profit and underlying EBITDA.
Year ended 31 March 2022 Year ended 31 March 2021
--------------------------------------- ---------------------------------------
Fixed Fixed
line Managed Central line Managed Central
GBP'000 services services costs Total services services costs Total
------------------------ --------- --------- ------- -------- --------- --------- ------- --------
Revenue 8,582 59,500 - 68,082 10,739 47,112 - 57,851
Gross profit 3,200 29,232 - 32,432 3,999 23,641 - 27,640
Gross margin
% 37% 49% - 48% 37% 50% - 48%
------------------------ --------- --------- ------- -------- --------- --------- ------- --------
Other income - - - - 57 247 - 304
Administrative
expenses (1,685) (18,855) - (20,540) (2,175) (15,939) - (18,114)
------------------------ --------- --------- ------- -------- --------- --------- ------- --------
Underlying
EBITDA 1,515 10,377 - 11,892 1,881 7,949 - 9,830
Underlying
EBITDA % 18% 17% - 18% 18% 17% - 17%
------------------------ --------- --------- ------- -------- --------- --------- ------- --------
Amortisation (1,588) (5,658) - (7,246) (1,741) (4,052) - (5,793)
Depreciation - - (1,433) (1,433) - - (1,532) (1,532)
Adjustment to
deferred consideration - - (33) (33) - - - -
Acquisition
costs - - (1,371) (1,371) - - - -
Profit on sale - - - - - - 133 133
Restructuring
costs - - (2,023) (2,023) - - (974) (974)
Share-based
payments - - (62) (62) - - (67) (67)
------------------------ --------- --------- ------- -------- --------- --------- ------- --------
Operating profit/(loss) (73) 4,719 (4,922) (276) 140 3,897 (2,440) 1,597
Finance costs - - (2,752) (2,752) - - (2,102) (2,102)
Income tax - - (2,204) (2,204) - - 165 165
------------------------ --------- --------- ------- -------- --------- --------- ------- --------
Profit/(loss)
after tax (73) 4,719 (9,878) (5,232) 140 3,897 (4,377) (340)
------------------------ --------- --------- ------- -------- --------- --------- ------- --------
The assets and liabilities relating to the above segments have not been disclosed as they are not separately identifiable and are not used by the chief operating decision maker to allocate resources. All segments are in the UK and all revenue relates to the UK.
Transactions with the largest customer of the Group are less than 10% of total turnover and do not require disclosure for either FY21 or FY22.
4. Revenue
In the following table, revenue is disaggregated by major product/service lines and timing of revenue recognition. All revenue is derived from the UK.
2022 2021
GBP'000 GBP'000
-------------------------------------------- -------- --------
Sale of goods 17,969 14,703
Provision of services:
- calls and line rental 8,582 10,739
- data networks 15,733 14,228
- support services 20,453 14,659
- cloud telephony and other services 5,345 3,522
-------------------------------------------- -------- --------
68,082 57,851
-------------------------------------------- -------- --------
Timing of revenue recognition
Products transferred at a point in time 17,969 14,703
Products and services transferred over time 50,113 43,148
-------------------------------------------- -------- --------
68,082 57,851
-------------------------------------------- -------- --------
The following table provides information about receivables, contract assets and contract liabilities with customers:
2022 2021
GBP'000 GBP'000
----------------------------------------------------------------- -------- --------
Receivables, which are included in 'Trade and other receivables' 13,550 8,472
Contract assets 422 978
Contract liabilities (2,657) (2,244)
----------------------------------------------------------------- -------- --------
Contract assets relate to the deferred direct costs in respect of data circuit installations which have been completed and are being recognised across the customer's contractual term to which the installation relates. The contract liabilities relate to the deferred revenue in respect of data installations which have been completed and the revenue is being recognised across the term of the customer contract.
Significant changes in the contract assets and contract liabilities balances during the period are as follows:
2022 2021
GBP'000 GBP'000
----------------------------------------------- -------- --------
Revenue deferred into future periods (2,657) (2,244)
Deferred revenue recognised in the period 1,744 2,470
Direct costs deferred into future periods 422 978
Deferred direct costs recognised in the period 854 839
----------------------------------------------- -------- --------
The performance obligations of the underlying contracts to which the contract assets relate are expected to be met over periods of up to five years. However, the performance obligations for all revenues and costs that have been deferred into future periods have been satisfied at the year end, as these relate to the installation and equipment of data networks which have been completed and the service is being used by the customer.
There are no impairment losses in relation to the contract assets recognised under IFRS 15.
5. Other income
2022 2021
GBP'000 GBP'000
---------------------------------------- --------- --------
Coronavirus Job Retention Scheme claims - 304
---------------------------------------- --------- --------
6. Operating profit
The operating profit is stated after charging:
2022 2021
GBP'000 GBP'000
---------------------------------------------------------- -------- --------
Amortisation of customer base, billing system and licence 7,246 5,793
Depreciation of tangible fixed assets:
- owned by the Group 743 845
- right of use assets 690 687
Share option expense 62 67
Acquisition costs 1,371 -
Restructuring and non-recurring costs 2,023 974
---------------------------------------------------------- -------- --------
Acquisition costs relate to the legal and professional fees incurred as a direct result of acquisitions completed during the year. Restructuring costs relate to the acquisition operating costs (from the date of acquisition) and other operating costs which have been either terminated or notice to terminate has been served and therefore these items will not form part of the future operating costs of the Group.
7. Finance costs
2022 2021
GBP'000 GBP'000
----------------------------------------- -------- --------
On bank loans and overdrafts 1,872 1,608
Bank arrangement fees 415 435
IFRS 16 lease liability interest 50 59
Finance cost on contingent consideration 415 -
----------------------------------------- -------- --------
2,752 2,102
----------------------------------------- -------- --------
The finance costs on contingent consideration arise from the release of the discounted contingent consideration liability across the term of the deferred consideration period in relation to each acquisition. This is a non-cash item.
8. Income tax expense
2022 2021
GBP'000 GBP'000
---------------------------------------------------- -------- --------
Current tax
UK corporation tax on profit for the year 461 860
Adjustments in respect of prior periods (267) -
---------------------------------------------------- -------- --------
Total current tax 194 860
---------------------------------------------------- -------- --------
Deferred tax
Origination and reversal of temporary differences:
- fixed assets and short-term temporary differences 526 (43)
- share options - (14)
- intangibles on business combinations (1,502) (963)
Effect of tax rate change on opening balance 2,817 -
Adjustments in respect of prior periods 169 (5)
---------------------------------------------------- -------- --------
Total deferred tax (see Note 13) 2,010 (1,025)
---------------------------------------------------- -------- --------
Total income tax expense 2,204 (165)
---------------------------------------------------- -------- --------
Factors affecting tax charge for the year
The relationship between expected tax expense based on the effective tax rate of AdEPT at 19% (FY21: 19%) and the tax expense actually recognised in the income statement can be reconciled as follows:
2022 2021
GBP'000 GBP'000
---------------------------------------------------------- -------- --------
Profit before income tax (3,028) (505)
Tax rate 19% 19%
Expected tax charge (575) (96)
Expenses not deductible for tax purposes 348 1
Adjustments to tax charge in respect of prior periods (98) (25)
Depreciation/amortisation on non-qualifying assets (298) 22
Difference due to deferred tax rate being higher than
the standard tax rate 127 -
Movement on share option deferred tax assets taken to
equity 22 -
Plant & machinery super-deduction (30) -
R&D enhanced tax deduction (103) (50)
RDEC credit taxed (6) (21)
Effect of tax rate change on deferred tax opening balance 2,817 -
Other - 4
---------------------------------------------------------- -------- --------
Actual tax expense net 2,204 (165)
---------------------------------------------------------- -------- --------
Future changes to tax rates are anticipated in line with the UK Government announcement in the 2021 Budget of an increase in the tax rate to 25% from 1 April 2023. The change in the deferred tax provisioning rate from 19% to 25% has generated an non-cash income statement tax debit of GBP2.8m in relation to the opening deferred tax balance.
9. Dividends
On 6 July 2022 the directors proposed a final dividend, subject to shareholder approval at the 2022 annual general meeting, of 1.0p per ordinary share (FY21: nil). Total dividends proposed in respect of the year ended 31 March 2022 will absorb GBP250,299 of shareholders' funds in future periods.
Total dividends paid in the year ended 31 March 2022 was GBPNil (FY21: GBPNil).
10. Goodwill
Group
Total
GBP'000
------------------ --------
Cost
At 1 April 2020 19,492
Additions -
------------------ --------
At 1 April 2021 19,492
Additions 2,500
------------------ --------
At 31 March 2022 21,992
------------------ --------
Impairment
At 1 April 2020 2,084
Impairment charge -
------------------ --------
At 1 April 2021 2,084
Impairment charge -
------------------ --------
At 31 March 2022 2,084
------------------ --------
Net book value
At 31 March 2022 19,908
------------------ --------
At 31 March 2021 17,408
------------------ --------
We performed an annual goodwill impairment review as at 31 March 2022.
Goodwill is recognised when a business combination does not generate cash flows independently of other assets or groups of assets. As a result, the recoverable amount, being the value in use, is determined at a cash-generating unit (CGU) level. These CGUs represent the smallest identifiable group of assets that generate cash flows. Our CGUs are deemed to be the assets within the operating units. Each CGU to which goodwill is allocated represents the lowest level within the Group at which the goodwill is monitored for internal management purposes.
The total intangible value in use for each CGU, incorporating goodwill and the intangible asset value, is determined using discounted cash flow projections derived from the total historical revenue profile of each identifiable CGU. The assumptions which are applied to each CGU in respect of churn rate, discount rate, margin and useful economic life are set out in Note 11.
The Group's goodwill is split by CGU as follows:
March March
2022 2021
GBP'000 GBP'000
------------------------------------- -------- --------
Centrix Limited 3,614 3,614
Comms Group UK Limited 2,672 2,672
CAT Communications Limited 248 248
Our IT Department Limited 4,683 4,683
Atomwide Limited 3,313 3,313
Shift F7 Limited 879 879
ETS Communications Limited 615 615
Advanced Computer Systems UK Limited 1,384 1,384
Datrix Limited 2,500 -
------------------------------------- -------- --------
The net present value of the future cash flows for the CGUs is sensitive to the weighted average cost of capital. The rate used to discount the future cash flows is the Group's pre-tax weighted average cost of capital of 8.4%. An increase in the Group's weighted average cost of capital to above 19.1% would materially impair the carrying value of the Group's goodwill by more than GBP400,000. Further details of the sensitivity of the variables used in the impairment testing are included in Note 11.
11. Intangible fixed assets
Group
Computer Customer Software
Licence software base apps Website Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------------- -------- --------- -------- -------- -------- --------
Cost
At 1 April 2020 262 1,688 71,616 3,535 1,745 78,846
Additions 139 575 - - 22 736
-------------------- -------- --------- -------- -------- -------- --------
At 1 April 2021 401 2,263 71,616 3,535 1,767 79,582
Additions 121 546 13,118 169 16 13,970
-------------------- -------- --------- -------- -------- -------- --------
At 31 March 2022 522 2,809 84,734 3,704 1,783 93,552
-------------------- -------- --------- -------- -------- -------- --------
Amortisation
At 1 April 2020 120 1,342 33,498 936 998 36,894
Charge for the year 82 13 4,957 351 390 5,793
-------------------- -------- --------- -------- -------- -------- --------
At 1 April 2021 202 1,355 38,455 1,287 1,388 42,687
Charge for the year 107 124 6,270 350 395 7,246
-------------------- -------- --------- -------- -------- -------- --------
At 31 March 2022 309 1,479 44,725 1,637 1,783 49,933
-------------------- -------- --------- -------- -------- -------- --------
Net book value
At 31 March 2022 213 1,330 40,009 2,067 - 43,619
-------------------- -------- --------- -------- -------- -------- --------
At 31 March 2021 199 908 33,161 2,248 379 36,895
-------------------- -------- --------- -------- -------- -------- --------
Included within the Group's intangible assets is:
March March
2022 2021
Useful life GBP'000 GBP'000
-------------------------------------------------- ------------ -------- --------
Centrix Limited - customer base 17 years 5,486 6,030
Comms Group UK Limited - customer base/website 17 years 2,803 3,174
Our IT Department Limited - customer base/website 17 years 1,386 1,823
CAT Communications Limited - customer base 10 years 589 699
Atomwide Limited - customer base 16 years 3,876 4,592
Atomwide Limited - software/apps 5 years 1,898 2,249
Shift F7 Limited - customer base 10 years 3,175 3,718
ETS Communications Limited - customer base 10 years 2,385 2,747
Advanced Computer Systems UK Limited - customer
base 10 years 5,274 6,001
Datrix Limited - customer base 10 years 11,861 -
Other customer bases - AdEPT Technology Group
plc trading business 10-16 years 3,853 5,591
-------------------------------------------------- ------------ -------- --------
Critical accounting estimates and key judgements made in reviewing intangible assets and goodwill for impairment
The key assumptions concerning the future and other key sources of estimation and uncertainty at the reporting date, which have a significant risk of causing a material adjustment to the carrying amounts of intangible assets and goodwill, are discussed below.
Measuring the fair value of intangible assets on acquisition
The main estimates used to measure the fair value of the intangible assets on acquisition are:
-- churn rate; -- discount rate; and -- gross margins.
Intangible assets are reviewed annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. The net present value of cash flows for each cash-generating unit is reviewed against the carrying value at the balance sheet date. At the final reporting date of 31 March 2022 the net present value of future cash flows of certain cash-generating units was above the carrying value and therefore no impairment charge has been recorded (FY21: GBPNil).
We tested our intangible assets, investments and goodwill for impairment as at 31 March 2022. The carrying value of the intangible assets and the key assumptions used in performing the annual impairment assessment and sensitivities are disclosed below:
Book value
of Estimated
cash-generating value
unit in use
GBP'000 GBP'000
---------------------------------------------------------- ---------------- ---------
Centrix Limited and CAT Communications Limited 6,050 12,892
Comms Group UK Limited and ETS Communications Limited 5,211 7,456
Our IT Department Limited and Shift F7 Limited 4,659 6,189
Atomwide Limited and Advanced Computer Systems UK Limited 10,866 21,958
Datrix Limited 11,861 21,781
---------------------------------------------------------- ---------------- ---------
What discount rate have we used?
The rate used to discount the future cash flows is the Group's pre-tax weighted average cost of capital (WACC) of 8.4% (2021: 8.9%). The directors have chosen to use WACC as it is a calculated figure using actual input variables where available and applying estimates for those which are not, such as the equity market premium. An increase in the Group's weighted average cost of capital to above 19.1% would materially impair the carrying value of the Group's intangible assets by more than GBP400,000.
What churn rate have we used?
The churn rate is calculated based on the rate of attrition of the revenue generated from customers as at the date of acquisition and is calculated by reference to the closing revenue as a percentage of the opening revenue in the latest 12 months period.
For the customer bases which have been fully integrated into the AdEPT Technology Group plc trading business in Tunbridge Wells, the churn rate of 6.3% per annum is based upon the actual historical churn rate of the revenue stream from the customer bases.
For Centrix, Comms Group, Our IT Department, CAT Communications, Atomwide, Shift F7, ETS Communications and ACS the net present value of the discounted future cash flows is based on the actual revenues of the acquired customer bases. The actual historical churn rates for the acquired customer bases vary between nil and 7.9% per annum. Where an acquired customer base has shown growth, a default churn assumption of 3% per annum has been applied.
For the software and apps which have been developed by Atomwide the net present value of the discounted future cash flows is based on the actual revenues being derived from the customer base to which the software licences and charges relate. The actual historical churn rates for the software and app revenue stream is nil per annum, but a default churn rate of 3% per annum has been applied for the purpose of impairment testing.
What margin have we used?
Gross margins applied are based upon actual margins achieved by the customer bases in the current and previous years. A proportion of overheads are applied to the gross margin to represent the actual operating cost required to support the acquired customer revenue stream, resulting in a net margin which is used for the discounted net present valuation.
What is the estimated useful life of customer bases?
The method used to estimate the useful life of each customer base to conduct the impairment review is the revenue churn rate. The average useful economic life of all the customer bases has been estimated at 13 years (FY21: 14 years) with a range of 10 to 17 years.
What sensitivities have we applied?
The calculations are sensitive to movements in the discount rate, margin or churn rate and may therefore result in an impairment charge to the income statement. The following movements would result in an impairment charge:
-- 5.7% increase to the discount rate percentage -- 3.1% increase to the churn rate -- 4.5% decrease to the gross margin percentage
12. Property, plant and equipment
Group
Right Short-term Fixtures
Motor of use leasehold and Office
vehicles assets improvements fittings equipment Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------- --------- -------- ------------- --------- ---------- --------
Cost
At 1 April 2020 357 1,989 295 603 1,886 5,130
Additions 78 514 4 25 599 1,220
Disposals (183) (439) (238) - (164) (1,024)
------------------------- --------- -------- ------------- --------- ---------- --------
At 1 April 2021 252 2,064 61 628 2,321 5,326
Acquired with subsidiary - 135 - 49 164 348
Additions - 256 36 27 359 678 Disposals - (59) - - (81) (140) ------------------------- --------- -------- ------------- --------- ---------- -------- At 31 March 2022 252 2,396 97 704 2,763 6,212 ------------------------- --------- -------- ------------- --------- ---------- -------- Depreciation At 1 April 2020 266 725 63 452 924 2,430 Charge for the year 44 758 15 98 590 1,505 Disposals (182) (434) (39) - (163) (818) ------------------------- --------- -------- ------------- --------- ---------- -------- At 1 April 2021 128 1,049 39 550 1,351 3,117 Charge for the year 45 646 11 99 632 1,433 Disposals - (59) - - (81) (140) ------------------------- --------- -------- ------------- --------- ---------- -------- At 31 March 2022 173 1,636 50 649 1,902 4,410 ------------------------- --------- -------- ------------- --------- ---------- -------- Net book value At 31 March 2022 79 760 47 55 861 1,802 ------------------------- --------- -------- ------------- --------- ---------- -------- At 31 March 2021 124 1,015 22 78 970 2,209 ------------------------- --------- -------- ------------- --------- ---------- --------
The right of use asset is made up as follows:
2022 2021
------------------ ------------------
Group Company Group Company
GBP'000 GBP'000 GBP'000 GBP'000
--------------- -------- -------- -------- --------
Property 659 175 850 342
Motor vehicles 93 29 140 54
Other 8 3 25 13
--------------- -------- -------- -------- --------
760 207 1,015 409
--------------- -------- -------- -------- --------
The depreciation charge for right of use assets is as follows:
2022 2021
------------------ ------------------
Group Company Group Company
GBP'000 GBP'000 GBP'000 GBP'000
--------------- -------- -------- -------- --------
Property 530 177 472 111
Motor vehicles 111 47 166 40
Other 9 2 120 112
--------------- -------- -------- -------- --------
650 226 758 263
--------------- -------- -------- -------- --------
13. Deferred taxation
2022 2021
------------------ ------------------
Group Company Group Company
GBP'000 GBP'000 GBP'000 GBP'000
--------------------------------------------- -------- -------- -------- --------
At 1 April (6,700) (172) (7,738) (279)
Income statement credit/(charge) 807 (387) 1,025 89
Movement in deferred tax on share options
taken to equity (4) (4) 4 4
Deferred tax transferred from Group company - - - (10)
Deferred tax asset acquired with subsidiary 404 - - -
Adjustments in respect of prior periods - - 9 24
Effect of tax rate change on opening balance (2,817) - - -
Deferred tax on business combination (2,500) - - -
--------------------------------------------- -------- -------- -------- --------
At 31 March (10,810) (563) (6,700) (172)
--------------------------------------------- -------- -------- -------- --------
The deferred tax (liability)/asset is made up as follows:
2022 2021
------------------ ------------------
Group Company Group Company
GBP'000 GBP'000 GBP'000 GBP'000
-------------------------------------- -------- -------- -------- --------
Accelerated capital allowances (540) (444) (181) (58)
Short-term temporary differences 26 5 5 -
Losses 44 - - -
Convertible loan note equity element (124) (124) (128) (128)
Deferred tax on business combinations (10,216) - (6,410) -
Share options - - 14 14
-------------------------------------- -------- -------- -------- --------
(10,810) (563) (6,700) (172)
-------------------------------------- -------- -------- -------- --------
14. Inventories
2022 2021
------------------ ------------------
Group Company Group Company
GBP'000 GBP'000 GBP'000 GBP'000
------------ -------- -------- -------- --------
Consumables 843 62 569 111
------------ -------- -------- -------- --------
As at 31 March 2022, inventories of GBP19,826 (FY21: GBP25,765) were fully provided for. During the year GBP6,161,236 (FY21: GBP7,296,830) has been recognised as an expense in the statement of comprehensive income.
There is no material difference between the replacement cost of inventories and the amount stated above.
15. Trade and other receivables
We initially recognise trade and other receivables at fair value, which is usually the original invoiced amount. They are subsequently carried at amortised cost using the effective interest method. The carrying amount of these balances approximates to fair value due to the short maturity of amounts receivable.
We provide services to consumer and business customers, mainly on credit terms. We know that certain debts due to us will not be paid through the default of a small number of our customers. Because of this, we recognise an allowance for doubtful debts on initial recognition of receivables, which is deducted from the gross carrying amount of the receivable. The allowance is calculated by reference to credit losses expected to be incurred over the lifetime of the receivable. In estimating a loss allowance we consider historical experience and informed credit assessment alongside other factors such as the current state of the economy and particular industry issues. We consider reasonable and supportable information that is relevant and available without undue cost or effort.
Once recognised, trade receivables are continuously monitored and updated. Allowances are based on our historical loss experiences for the relevant aged category as well as forward-looking information and general economic conditions. Allowances are calculated by individual customer-facing units in order to reflect the specific nature of the customers relevant to that customer-generating unit.
Restated
2022 2021
------------------ ------------------
Group Company Group Company
GBP'000 GBP'000 GBP'000 GBP'000
----------------------------------- -------- -------- -------- --------
Trade receivables 13,493 2,664 8,102 3,414
Other receivables 104 4 - -
Amounts owed by Group undertakings - 4,810 - 9,200
Prepayments 4,939 1,517 3,692 2,268
Accrued income 2,573 2,096 612 58
----------------------------------- -------- -------- -------- --------
21,109 11,091 12,406 14,940
----------------------------------- -------- -------- -------- --------
The Group has one type of financial asset that is subject to IFRS 9's expected credit loss model:
-- trade receivables for sales of inventory and from the provisions of consulting services.
Trade receivables and contract assets
The Group applies the IFRS 9 simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance for all trade receivables and contract assets. As at 31 March 2022, trade receivables of GBP333,706 (FY21: GBP387,712) were fully provided for.
All debts which are older than 90 days relate to interim amounts in respect of large customer projects which have not yet fully completed and are considered to be fully recoverable on completion. The movement of the provision for impairment of trade receivables is as follows:
Group Company
GBP'000 GBP'000
------------------------------------------------------------ -------- --------
At 1 April 2020 411 81
Receivables provided for during the year as uncollectable 245 245
Receivables collected during the year which were previously
provided (153) -
Receivables written off in the year which were previously
provided for (115) (51)
Acquired through acquisition - 25
------------------------------------------------------------ -------- --------
At 1 April 2021 388 300
Receivables provided for during the year as uncollectable 60 -
Receivables collected during the year which were previously
provided (176) (136)
Receivables written off in the year which were previously
provided for - -
Acquired through acquisition 62 -
------------------------------------------------------------ -------- --------
At 31 March 2022 334 164
------------------------------------------------------------ -------- --------
The creation and release of a provision for impaired receivables have been included in administration expenses in the income statement. Amounts charged to the allowance account are generally written off when there is no expectation of recovering cash. Management regularly reviews the outstanding receivables and does not consider that any further impairment is required. The other asset classes within trade and other receivables do not contain impaired assets.
16. Trade and other payables
2022 2021
------------------ ------------------
Group Company Group Company
GBP'000 GBP'000 GBP'000 GBP'000
-------------------------------------- -------- -------- -------- --------
Trade payables 9,327 2,107 4,176 2,001
Other taxes and social security costs 2,321 699 1,998 741
Other payables 305 44 179 36
Lease liability 421 205 547 220
Accruals and deferred income 8,727 1,326 3,984 1,440
Contingent consideration 4,434 4,434 - -
-------------------------------------- -------- -------- -------- --------
25,535 8,815 10,884 4,438
-------------------------------------- -------- -------- -------- --------
The contingent consideration liability of GBP4,433,540 (FY21: GBPNil) represents the year-end fair value of the contingent consideration liabilities arising on the acquisitions made during the year. The fair value of the contingent consideration liability was determined by applying the contingent consideration matrix as specified in the share purchase agreement. Further details are included in Note 22.
17. Long-term borrowings
2022 2021
------------------ ------------------
Group Company Group Company
GBP'000 GBP'000 GBP'000 GBP'000
--------------------------- -------- -------- -------- --------
Between one and two years - - - -
Between two and five years 40,038 39,814 45,634 45,322
More than five years - - - -
--------------------------- -------- -------- -------- --------
40,038 39,814 45,634 45,322
--------------------------- -------- -------- -------- --------
The bank loan of GBP33,066,676 is secured by a debenture incorporating a fixed and floating charge over the undertaking and all property and assets present and future, including goodwill, book debts, uncalled capital, buildings, fixtures and fixed plant and machinery.
Included in long-term borrowings is an amount of GBP6,728,784 which is the debt component of the convertible loan instrument from BGF. This loan instrument is subordinated and ranks behind the bank loan.
Details of the interest rates applicable to the borrowings are included in Note 21.
Included within bank loans are arrangement fees amounting to GBP433,323 (FY21: GBP661,871) which are being released over the term of the loan.
18. Lease liability
Included within long-term borrowings (Note 17) between two and five years is an amount of GBP242,689 (FY21: GBP521,468) which relates to the IFRS 16 lease liability.
2022 2021
------------------ ------------------
Group Company Group Company
GBP'000 GBP'000 GBP'000 GBP'000
--------------------------- -------- -------- -------- --------
Within one year 405 206 547 220
Between two and five years 243 18 521 218
More than five years - - - -
--------------------------- -------- -------- -------- --------
648 224 1,068 438
--------------------------- -------- -------- -------- --------
Total cash payments in respect of IFRS 16 lease agreements during the year was GBP683,881 (FY21: GBP866,442).
19. Share capital
2022 2021
GBP'000 GBP'000
---------------------------------------------------------- -------- --------
Authorised
65,000,000 ordinary shares of 10p each 6,500 6,500
---------------------------------------------------------- -------- --------
Allotted, called up and fully paid
25,029,957 (2021: 25,029,957) ordinary shares of 10p each 2,503 2,503
---------------------------------------------------------- -------- --------
20. Earnings per share
Earnings per share is calculated on the basis of a loss of GBP5,232,160 (FY21: loss of GBP339,787) divided by the weighted average number of shares in issue for the year of 25,029,970 (FY21: 25,029,959). The diluted earnings per share is calculated on the treasury stock method and the assumption that the weighted average unapproved and EMI share options outstanding during the period are exercised. This would give rise to a total weighted average number of ordinary shares in issue for the period of 25,084,305 (FY21: 25,052,139).
Adjusted earnings per share is used to reflect the non-cash nature of certain items which are charged to the income statement and the non-trading items, such as acquisition costs, to give a better indicator of the underlying cash generation of the Group. Adjusted earnings per share is calculated by adding back amortisation of intangible assets, impairment of goodwill, the taxation deduction on purchased customer contracts, deferred tax credits on amortisation charges, share option charges, adjustment to deferred consideration acquisition fees and restructuring costs from retained earnings, giving GBP6,888,372 (FY21: GBP5,597,601). This is divided by the same weighted average number of shares as above.
2022 2021
GBP'000 GBP'000
--------------------------------------------------------------- ---------- ----------
Earnings for the purposes of basic and diluted earnings
per share
Loss for the period attributable to equity holders (5,232) (340)
Add: amortisation 7,246 5,793
Less: taxation on amortisation of purchased customer contracts (117) (117)
Add/(less): deferred tax on amortisation charges 1,298 (963)
Add: share option charges 62 67
Less: adjustment to deferred consideration 33 -
Add: acquisition fees and restructuring costs 3,394 974
Add: interest unwind on loan note 204 184
--------------------------------------------------------------- ---------- ----------
Adjusted profit attributable to equity holders 6,888 5,598
--------------------------------------------------------------- ---------- ----------
Number of shares
Weighted average number of shares used for earnings per
share 25,029,970 25,029,957
Weighted average dilutive effect of share plans 54,335 22,180
--------------------------------------------------------------- ---------- ----------
Diluted weighted average number of shares 25,084,305 25,052,137
--------------------------------------------------------------- ---------- ---------- Earnings per share Basic earnings per share (20.90p) (1.36p) Diluted earnings per share N/A N/A Adjusted earnings per share Adjusted basic earnings per share 27.52p 22.36p Adjusted diluted earnings per share 27.46p 22.34p --------------------------------------------------------------- ---------- ----------
Earnings per share is calculated by dividing the retained earnings attributable to the equity holders by the weighted average number of ordinary shares in issue. Diluted earnings per share has not been calculated as the impact of share plans is anti-dilutive.
Adjusted earnings per share is calculated by dividing the retained earnings attributable to the equity holders (after adding back amortisation, the taxation deduction on purchased customer contracts, deferred tax credits on amortisation charges, share option charges, adjustment to deferred consideration and acquisition costs) by the weighted average number of ordinary shares in issue.
21. Financial instruments
Set out below are the Group's financial instruments. The directors consider there to be no difference between the carrying value and fair value of the Group's financial instruments.
2022 2021
------------------ ------------------
Group Company Group Company
GBP'000 GBP'000 GBP'000 GBP'000
---------------------------------------- -------- -------- -------- --------
Loans and receivables at amortised cost
Cash and cash equivalents 3,714 135 13,166 10,652
Loans and receivables 13,550 2,669 8,472 3,793
---------------------------------------- -------- -------- -------- --------
17,264 2,804 21,638 14,445
---------------------------------------- -------- -------- -------- --------
Financial liabilities at amortised cost
Liabilities at amortised cost 50,656 42,733 51,390 48,357
Financial liabilities at fair value
Contingent consideration 4,434 4,434 - -
---------------------------------------- -------- -------- -------- --------
55,090 47,167 51,390 48,357
---------------------------------------- -------- -------- -------- --------
Amounts due for settlement
Within twelve months 14,487 6,789 4,987 2,257
After twelve months 40,603 40,378 46,403 46,100
---------------------------------------- -------- -------- -------- --------
55,090 47,167 51,390 48,357
---------------------------------------- -------- -------- -------- --------
The Company has a three plus one year GBP50m committed revolving credit facility agreement with NatWest and Bank of Ireland. The revolving credit facility bears interest at 1.85-3.25% over LIBOR on drawn funds, dependent upon the net debt to EBITDA ratchet. The facility is repayable in full on the final repayment date in March 2024, or March 2025 if the one year extension option is activated.
The financial assets of the Group are cash and cash equivalents and trade and other receivables, which are offset against borrowings under the facility, and there is no separate interest rate exposure.
NatWest and Bank of Ireland have a cross guarantee and debenture incorporating a fixed and floating charge over the undertaking and all property and assets present and future, including goodwill, book debts, uncalled capital, buildings, fixtures and fixed plant and machinery.
The banks also hold a charge over the life assurance policy of Ian Fishwick, director of the Company, for GBP1,500,000.
In August 2017 the Group raised GBP7,293,726 in the form of a convertible loan instrument from BGF to part fund the acquisition of Atomwide. The convertible loan instrument is excluded from the leverage calculations by the senior debt partners, NatWest and Bank of Ireland. The Group has applied the principles of IAS 32 and IFRS 9 in the recognition and measurement of the convertible loan. The net present value of the loan of GBP7,090,201 has been split between the debt and equity components and an amount of GBP1,158,317 has been recorded in equity, with GBP5,931,884 being included within long-term debt at the initial date of recognition.
BGF has the right to convert the loan to 1,855,910 ordinary shares at a share price of GBP3.93 per share at any time. The loan instrument can be redeemed by the Company from the third anniversary. The convertible loan instrument bears an interest rate of 7%. In addition, the transaction costs with a net present value of GBP203,525 are being recognised in the interest charge in the income statement across the term of the convertible instrument. The equity component of the convertible loan is included in the share option reserve in the statement of changes in equity and statement of financial position.
22. Business combinations
Contingent consideration obligations
Reconciliation of the movement in the fair value of contingent consideration:
Datrix
Limited Total
GBP'000 GBP'000
-------------------------------------- -------- --------
At 1 April 2021 - -
Additions 5,319 5,319
Discounting of deferred consideration 415 415
Settled in cash (1,300) (1,300)
-------------------------------------- -------- --------
At 31 March 2022 4,434 4,434
-------------------------------------- -------- --------
The earnout period for Datrix Limited ended on 31 March 2022 and the final amount of deferred consideration payable was paid on 1 July 2022.
Acquisition of Datrix Limited
On 12 April 2021 the Company acquired the entire issued share capital of Datrix Limited ('Datrix') a well-established, award-winning supplier of advanced cloud-based networking, communications, and cyber security solutions, headquartered in London, with expertise in the growing Software Defined Wide Area Networking ("SD-WAN") market focused on the public and healthcare sector.
Initial consideration of GBP9.0 million, on a debt free cash free basis, was paid in cash. Pursuant to the terms of the share purchase agreement, the effective date of the acquisition is 1 April 2021. Further contingent deferred consideration of up to GBP7.0 million is payable in cash dependent upon the trading performance of Datrix in the twelve-month period ended 31 March 2022. 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 final amount of deferred consideration payable of GBP4.3m was paid on 1 July 2022.
Details of the fair value of the assets acquired at completion and the consideration payable:
Book cost Fair value
GBP'000 GBP'000
------------------------------- --------- ----------
Intangible assets - 13,148
Property, plant and equipment 220 213
Inventories 5 -
Trade and other receivables 5,905 5,837
Cash and cash equivalents (321) (321)
Trade and other payables (6,829) (6,844)
Short term borrowings (249) (249)
Income tax 37 37
Deferred tax 403 (2,097)
------------------------------- --------- ----------
Net assets (829) 9,725
------------------------------- --------- ----------
Cash 7,791
Contingent cash consideration 4,434
------------------------------- --------- ----------
Fair value total consideration 12,225
------------------------------- --------- ----------
Goodwill 2,500
------------------------------- --------- ----------
Datrix generated revenue and profit after tax of GBP12.3 million and GBP1.5 million respectively for the year ended 31 March 2022 and represents a twelve month contribution. Acquisition related and restructuring costs of GBP0.8 million have been recognised as an expense in the statement of comprehensive income for the year ended 31 March 2022.
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