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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 2019 to Apr 2024
TIDMADT
RNS Number : 8583E
AdEPT Technology Group PLC
09 July 2019
AdEPT Technology Group plc
("AdEPT", the "Company" or together with its subsidiaries the "Group")
Final results for the year ended 31 March 2019
AdEPT (AIM: ADT), a leading UK independent provider of award-winning managed services for IT, unified communications, connectivity and voice solutions, announces its results for the year ended 31 March 2019.
Financial highlights
-- Revenue increased by 11% to GBP51.3m (2018: GBP46.4m) -- Gross margin % increased to 49.4% (2018: 47.7%)(2) -- Underlying EBITDA increased by 11% to GBP10.8m (2018: GBP9.8m)(3) -- Underlying EBITDA margin % of 21.0% (2018: 21.0%) -- 6% increase to adjusted fully diluted earnings per share to 29.8p (2018: 28.1p) -- 12% increase to dividends declared to 9.80p (Interim 4.90p, Final 4.90p) (2018: 8.75p) -- Year-end net senior debt of GBP27.1m (2018: GBP17.6m)(1) -- Capital expenditure 1% of revenue (2018: 1%)
Operational highlights
-- Managed services accounted for 75% of total revenue (2018: 70%)
-- Acquisition of entire issued share capital of Shift F7 Group Limited completed in August 2018
-- Acquisition of entire issued share capital of ETS Communications Holdings Limited in November 2018
1 Net senior debt is defined as cash and cash equivalents less short-term and long-term bank borrowings and prepaid bank fees
2 2018 comparative after excluding GBP0.76m Openreach compensation credits
3 Defined as operating profit after adding back depreciation, amortisation, acquisition fees, restructuring costs, adjustment to deferred consideration and share-based payment charges
Commenting upon these results Chairman Ian Fishwick said:
"AdEPT has delivered an 11% increase to revenue, gross profit and underlying EBITDA for the year ended 31 March 2019. The highly cash generative business model of the Group, with 79% of pre-tax cash flow conversion from reported EBITDA, has funded a 12% increase to dividends declared during the year and the Board is confident that continued focus on underlying profitability and cash generation will support a progressive dividend policy. The Group continues to operate a capital light asset model, with only 1% of revenue strategically invested in the capital development of the AdEPT Nebula proposition during the year, which has extended the AdEPT Nebula product portfolio to incorporate IP cloud telephony services, hosted IT services and a range of data connectivity services.
Free cash flow generated combined with the extension of the debt facility during the year was used by the Company to complete the earnings enhancing acquisitions of Shift F7 Group Limited and ETS Communications Limited. The acquisitions completed during the year combined with organic sales have increased the proportion of Group revenue derived from managed services accounting for 75% of the total in the year ended 31 March 2019."
For further information on AdEPT please visit www.adept.co.uk or contact:
AdEPT Technology Group plc Ian Fishwick, Chairman 07720 555 050 Phil Race, Chief Executive 07798 575 338 John Swaite, Finance Director 01892 550 243 Cantor Fitzgerald Europe Nominated Adviser & Broker Phil Davies / Will Goode 020 7894 7000
This announcement has been released by John Swaite, Finance Director, on behalf of the Company.
About AdEPT Technology Group plc:
AdEPT Technology Group plc is one of the UK's leading independent providers of managed services for IT, unified communications, connectivity and voice solutions. AdEPT's tailored services are used by thousands of customers across the UK and are brought together through the strategic relationships with tier-1 suppliers such as Openreach, BT Wholesale, Virgin Media, Avaya, Microsoft, Dell and Apple.
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
Review of operations
The Group has been focused on the growth of managed service and IT revenues. The acquisitions of Shift F7 and ETS, combined with organic sales, has increased the rate of transition of the Group towards this strategic goal with managed services accounting for 75% of total revenue in the year ended 31 March 2019 (2018: 70%).
The acquisition of Shift F7, based in Dorking, in August 2018, gave us increased expertise in back-up and disaster recovery, with over 1,200 servers being backed up every night. Customers include Kent and Sussex Air Ambulance and a number of legal firms.
The acquisition of ETS, based in Wakefield, in November 2018, gave us extended geographical reach into Yorkshire for the first time. Customers include over 200 GP surgeries, taking Voice over IP solutions. ETS has been merged with our similar business in Northampton: Comms Group. This has given synergies in administrative functions, such as Finance and Billing.
The teams at Shift F7 and ETS have proved to be an excellent fit with AdEPT. In addition to providing geographical reach and proposition depth, they have also been working on delivering an infrastructure and support service which can be used across all companies in the Group.
Post year-end, in April 2019, we acquired Advanced Computer Systems Group (ACS Group) in Doncaster. This business specialises in providing IT support with a key focus on education, servicing over 200 schools in South Yorkshire. ACS Group will be merged with our Atomwide business.
Public sector and healthcare
We have continued to have success in the Public Sector. In March 2016, the Government set a target that 33% of public sector spend would be with SME's by 2022. In March 2019 42% of total Group revenue was generated from public sector and healthcare customers (2018: 31%). AdEPT now has as customers over 100 Councils, 18 NHS Trusts, more than 30 private hospitals, over 500 GP surgeries and clinical commissioning groups, over 20 universities, hundreds of colleges and 3,000+ schools along with services being provided to a number of central government departments.
In the year ended 31 March 2018 AdEPT Tunbridge Wells was awarded HSCN (Health and Social Care Network) Compliance and is therefore authorised to sell data networks to the NHS. During the current year the Group successfully won the contract to design and roll out a super-fast network infrastructure across all departments of Kent NHS, which includes more than 400 sites across Kent including hospitals, hospices and GP surgeries. This highly complex project includes a variety of services under a wide area network solution, including managed firewalls, to provide a fully secure and resilient solution for Kent NHS - this solution has improved the speed of service whilst at the same time achieving a more economic price point. The implementation plan for delivery of the services under the contract with Kent NHS has seen roll out in the latter months of the current period and therefore has no material impact on the current year revenue.
Infrastructure
AdEPT has continued to carefully invest a relatively low amount of capital (1% of revenue) in the further development of AdEPT Nebula, our national MPLS network and hosting capability built upon three data centres. AdEPT Nebula is centered on the AdEPT owned data centre in Orpington, and is connected to two other London data centres to provide high levels of resilience. AdEPT Nebula allows AdEPT to provide its own cloud hosting capability. AdEPT Nebula is live and already delivering benefits to over a hundred customers by providing IP cloud telephony services, hosted IT services and a range of data connectivity services.
Dividends
Our broad intention is to distribute roughly one third of free cash flow as dividends and to reinvest the remaining two thirds in the business. In order to ensure this policy is sustainable we wish to keep dividend cover above 2 times multiple. In line with its progressive policy, AdEPT has therefore increased the dividend year-on-year by 12%, proposing a final dividend of 4.90p per ordinary share (2018: 4.50p), making total dividends proposed in respect of the year ended 31 March 2019 of 9.80p per ordinary share (2018: 8.75p).
Employees
As a result of the acquisitions completed in the year ended 31 March 2019 and the more recent acquisition of ACS in April 2019, the Group now has nearly 300 full-time employees. The increased profitability and free cash flow generation this year was made possible by the continued hard work and focus of all employees at AdEPT. As a Group we are immensely proud of the track record we have created over the last 16 years and, on behalf of the Board, I would like to take this opportunity to thank all our employees for their continued hard work.
Director changes
In December 2018 the Board announced that Phil Race had been appointed as an executive director and subsequently being appointed Chief Executive from 1st January 2019, with myself [Ian Fishwick] becoming Chairman and Roger Wilson, the previous Chairman, being appointed Deputy Chairman at that time. I am pleased to welcome Phil as part of the Board at such an exciting time in the Company's history. Having Phil on board allows me to focus on acquisition opportunities, which I will continue to pursue with great passion and where I will continue to work closely with him, whilst allowing him to handle the day to day operations of the Company. Over the coming year, Phil will move AdEPT to a single operation with new branding and a Group-wide website, a unified Customer Relationship Management and cross company Service Management platform.
In February 2019 the Board announced that Christopher Kingsman resigned as a non-executive director in order to focus his time on other investments and business interests. On behalf of the Board I would like to thank Christopher for his advice and encouragement and wish him well and we look forward to working with him as a shareholder. Through his investment vehicle, Greenwood Investments, Christopher remains our largest shareholder and further increased his stake in May 2019.
In June 2019, Richard Bligh was appointed to the Board. Richard was formerly Chief Operating Officer of Gamma Communications plc and was instrumental in building that company to over GBP1 billion market capitalisation. Richard's knowledge of the UK technology market, and how to grow businesses, will be a great asset to AdEPT.
Company name change
In October 2018 the Company announced a change of name to AdEPT Technology Group plc. Following the considerable progress in the transformation of the Group, particularly over the last 4 years, into a managed services and technology solutions provider, the Board consider that this company name is a more accurate reflection of the activities and expertise of the Group.
Outlook
The excellent result for this year was delivered through a combination of strategic acquisition and organic contract wins, maintaining margins on customer contracts and remaining focused on high levels of operational efficiency. The Board is confident that continued strong cash conversion of operating profit will support its intention of a progressive dividend policy.
With a steady start, the Board looks forward to an exciting coming year and beyond. The focus for the coming year remains on developing organic sales through leveraging AdEPT's approved supplier status on the various public sector frameworks, encouraging further cross company collaboration and maintaining profitability and cash flow conversion, which will be used to either reduce net borrowings and/or fund suitable earnings-enhancing acquisitions.
Ian Fishwick
Non-executive Chairman
Strategic report
Principal activities and review of business
The principal activity of the Group is the provision of unified communication and IT services to both domestic and business customers.
Summary of three year financial performance:
Hot Features
Premium
Year ended March
2019 2018 2017
GBP'000 Year-on-Year GBP'000 Year-on-Year GBP'000
% %
------------------- --------- --------------- --------- --------------- ---------
Revenue 51,308 10.5% 46,434 34.8% 34,436
Gross margin 25,342 10.6% 22,919 57.3% 14,571
Underlying EBITDA 10,795 10.5% 9,771 24.8% 7,827
Net senior debt 27,113 17,622 15,456
------------------- --------- --------------- --------- --------------- ---------
Revenue
During the year AdEPT has continued to grow its managed services business. Total revenue generated from managed services represented 75.0% of total revenue in the year ended 31 March 2019 (2018: 69.8%).
Total revenue increased by 10.5% to GBP51.3m (2018: GBP46.4m):
-- Managed services product revenues increased by GBP6.1m to GBP38.5m (2018: GBP32.4m). This reflects the impact of the 8 month contribution from the acquisition of Shift F7, 5 month contribution from the acquisition of ETS, combined with an increased level of organic contract wins and a lower relative churn rate within the managed service customer base.
-- Traditional fixed line revenues were reduced to GBP12.8m (2018: GBP14.0m). The underlying reduction in the fixed line revenues is a reflection of the organic sales focus of the Group on managed services and IT combined with the substitution impact of existing customers transitioning to new technologies, such as SIP and hosted services. The Group's reliance on fluctuating call revenues continues to reduce, with call revenue providing only 7.8% of total revenue in the year ended 31 March 2019 (2018: 10.0%).
The proportion of AdEPT revenue being generated from recurring products and services (being all revenue excluding one-offs projects, hardware and software) remains high at 78.6% of total revenue (2018: 78.4%). 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.
AdEPT continued to be highly successful in gaining further traction in the public sector space during the last year through leveraging its approved status on various frameworks. AdEPT Tunbridge Wells was awarded a number of HSCN (Health and Social Care Network) contracts with NHS registered bodies during the year, to help with the replacement of the legacy N3 data network used by the NHS. AdEPT is an approved supplier to the Crown Commercial Service under the RM1045 Network Services Framework, RM3825 HSCN Access Services Framework and the RM3804 Technology Services 2 Framework and the Group has been successful in winning further new business through these frameworks. This is in addition to AdEPT's existing framework agreement with JISC, under which AdEPT is one of only a small number of companies approved to sell data connectivity to UK Colleges and Universities. The proportion of total revenue generated from public sector and healthcare customers has increased to 41.5% at March 2019 (2018: 30.6%) which partly arises due to the contribution from the ETS acquisition as part of the acquired revenue stream is generated from their health sector customer base (GP surgeries) but also from the organic customer contract awards particularly under the various frameworks on which AdEPT is accredited.
The Group is continuing to focus its organic sales efforts on adding and retaining larger customers whilst complementing this with an acquisitive strategy. AdEPT is managing the customer risk with a wide spread of business sectors and no particular customer concentration, with the top ten customers accounting for 24.6% of total revenue (2018: 22.3%) and no customer accounting for more than 10% of the total.
Gross margin
Gross margin percentage has been maintained at 49.4% during the year (2018: 49.4% reported). The prior year gross margin includes GBP0.76m of compensation credits received from Openreach following the settlement in relation to the deemed consent process in relation to installation of data circuits. This compensation related to service credits for a large number of data circuits across a number of financial periods and is not a true reflection of ongoing margin. Excluding the compensation credits the gross margin in the comparative period was 47.7%. The increase over the prior year largely arises due to the business mix moving in greater proportion to IT services. Gross margins for managed services and IT, such as installations, support and maintenance, are higher than fixed line; this is a reflection of the headcount costs of supporting the project installations, helpdesk support and maintenance services being included within operating expenditure.
Underlying EBITDA
Underlying EBITDA is defined as operating profit after adding back depreciation, amortisation, acquisition fees, 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 telecommunications sector's general approach to relative performance measurement. As the Group operates a capex-light model, the Board considers that underlying EBITDA is the best indication of the underlying cash generation of the business. Below is a reconciliation of underlying EBITDA to the reported profit before tax:
2019 2018
GBP'000 GBP'000
------------------------------------- -------- --------
Underlying EBITDA 10,795 9,771
Acquisition fees (495) (229)
Restructuring costs (105) -
Openreach compensation credit - 755
Share option charges (68) (40)
Adjustment to deferred consideration (586) (28)
Depreciation (633) (418)
Amortisation (4,568) (3,730)
Interest (1,902) (1,561)
Profit before tax 2,438 4,520
In accordance with the requirements of IFRS 3 the adjustment to deferred consideration payable in respect of acquisitions has been recognised in the statement of comprehensive income. This value does not form part of the trading results of the Group and has therefore been added back for the purpose of demonstrating the underlying trading profitability of the Group.
During the prior year the Group received GBP0.76m compensation from Openreach following the settlement in relation to the deemed consent process in relation to installation of data circuits. The value of the compensation received by the Group has been excluded from the calculation of underlying EBITDA as it does not relate to the current year and it is not a reflection of the underlying profitability of the Group.
Finance costs
Total interest costs have increased to GBP1.90m (2018: GBP1.56m), arising largely from the increase in the average level of net borrowings, which was used to fund the acquisitions of Shift F7 and ETS combined with the deferred consideration payable in respect of the Our IT Department and Atomwide acquisitions. Included within interest costs is a GBP0.08m charge, which is non-cash, in relation to the discounted cash flow impact of the contingent deferred consideration payable in relation to the Atomwide, Shift F7 and ETS acquisitions. A further GBP0.15m of non-cash interest from the application of IAS 32 and IFRS 9 has been recognised in interest costs in relation to the discounting of the convertible loan liability. Increases to interest costs have been partially mitigated through treasury management of surplus cash balances to minimise the amount of drawn funds.
Profit before tax
This year reported profit before tax was GBP2.44m (2018: GBP4.52m). The decrease to profit before tax arises from the prior year including GBP0.76m of one-off compensation credits received from Openreach, the GBP0.34m increase in finance costs, the acquisition and restructuring costs of GBP0.60m, the adjustment to deferred consideration under IFRS 3 of GBP0.59m and the associated GBP0.84m increase in amortisation arising from the acquisitions undertaken during the current and prior year.
Profit after tax and earnings per share
Profit after tax for the year amounted to GBP1.87m (2018: GBP3.94m). Basic earnings per share was 7.88p (2018: 16.61p). Adjusted fully diluted earnings per share, based on the profit for the year attributable to equity holders adding back amortisation, share option charges, adjustment to deferred consideration, restructuring and acquisition costs, increased by 5.7% to 29.57p per share (2018: 27.97p).
Dividends and dividend per share
On the back of strong cash flow generation AdEPT announced an interim dividend of 4.90p per share, which was paid to shareholders on 8 April 2019. The Company announced in the pre-trading update on 3 April 2019 that, subject to shareholder approval at the annual general meeting later in the year, it is proposing a final dividend of 4.90p per ordinary share (2018: 4.50p). This dividend is expected to be paid on or around 9 October 2019.
Total dividends approved and proposed during the year ended 31 March 2019 of 9.80p per ordinary share represent a 12% increase year-on-year (2017: 8.75p). The Board constantly monitors shareholder value and is confident that the continued strong cash generation will support a progressive dividend policy.
Cash flow
The Group benefits from an excellent cash-generating operating model. Low capital expenditure results in a high proportion of underlying EBITDA turning into cash. The proportion of reported EBITDA which turned into net cash from operating activities before income tax was 70.5% (2018: 80.5%). The prior year includes GBP0.76m of cash received in respect of the Openreach compensation credit, which is abnormal. Excluding the compensation cash receipt the underlying pre-tax cash conversion for the prior year was 73.1%.On a before income tax basis, the proportion of reported EBITDA turned into net cash from operating activities was 79.0% (2018: 93.0%), with the prior year comparative being 85.6% excluding the Openreach compensation payment.
Working capital was extended at year end with GBP2.49m net cash flow impact in payables and receivables, although the majority of this is driven by timing rather than underlying extension of the working capital requirement for the Group. The collection of trade receivables was extended at year end beyond its usual position from the timing of invoicing in relation to several significant projects, most significantly the initial invoicing of Kent NHS in relation to the installation and rentals for the wide area network connecting more than 400 hospitals and GP surgeries across Kent which have been paid post-year end, plus the Second Home IT infrastructure project, both of which have not been recognised in revenue or profitability in the current period as the projects had not yet been fully completed pre-year end. In addition, following the successful contract award of the Citrix worldwide maintenance contact to AdEPT Fleet the annual invoicing was undertaken pre-year end, but the application of standard credit terms resulted in post-year end payment. The invoicing timing of these three projects and the AdEPT Nebula capital expenditure has impacted the movement on trade receivables and payables by GBP2.11m at year end. Reported year end trade receivables were 42 days at year end, with the underlying trade receivables being 35 days.
Additionally, the continued transition of the Group towards an increasing proportion of data connectivity services has increased the level of working capital, with GBP0.28m absorbed by the advanced charging structure of wholesale data connectivity rentals, which are typically quarterly in advance. This is an ongoing increase to the working capital requirement of the Group. GBP0.25m of capital expenditure incurred on the AdEPT Nebula project in March 2018 was not physically paid in cash until April 2018 and is therefore included in the net movement in trade payables in the current period.
March 2019 inventory value was increased by GBP0.17m due to firewall equipment purchased to fulfil the security and resilience solution incorporated into the Kent NHS wide area network project. The firewall installation has taken place post-year end and therefore this has temporarily absorbed working capital at year end.
Income taxes paid during the year have reduced to GBP0.81m (2018: GBP1.50m), this decrease is not a reflection of reduction in the effective tax rate but arises from the receipt of GBP0.51m of cash in respect of research and development tax claims for the software and app development work and the capital and operational costs for the development of AdEPT Nebula combined with a tax refund in respect of the tax deduction for share options exercised in Atomwide on acquisition. This cash receipt includes amounts which relate to prior periods and is not all arising from capital and operational expenditure on research and development in the year ended 31 March 2019.
Cash interest paid has increased during the year to GBP1.41m (2018: GBP0.91m), which arises from the increase in net borrowings to fund the acquisitions of Shift F7 and ETS and the deferred consideration paid in respect of the OurIT Department and Atomwide acquisitions.
Cash outflows in the year ended 31 March 2019 in relation to acquisitions amounted to GBP11.03m (net of cash acquired). The contingent consideration in respect of the acquisition of OurIT of GBP3.65m was paid in April 2018 and in respect of the acquisition of Atomwide GBP1.51m was paid in October 2018 with no further amounts due in relation to these acquisitions. The initial cash consideration for the acquisition of Shift F7 of GBP4.35m was paid in August 2018 and GBP1.74m for the acquisition of ETS in November 2018.
Dividends paid during the year ended 31 March 2018 absorbed GBP2.07m of cash (2018: GBP1.84m). This increase over the prior period arises from the continued application of the progressive dividend policy.
There was an increase to cash and cash equivalents during the year of GBP0.52m to year end cash of GBP7.65m. This arises from a net increase in the drawn element of the revolving credit facility at March 2019 which was used to fund the acquisition of Advanced Computer Systems Limited in April 2019. The Group will continue to apply its treasury management policies to minimise the cost of finance whilst retaining flexibility to meet its growth strategies.
Capital expenditure
The Group continues to operate an asset light strategy and has low capital requirements; therefore, expenditure on fixed assets is low at 1.1% of revenue (2018: 0.9%). The capital expenditure in the current year arises partly from the refurbishment of the Our IT Department premises in Chingford completed in April 2018 but mainly from AdEPT investing a relatively small amount of capital in the development of a network connecting three data centres (which, combined with other capabilities and services is known as "AdEPT Nebula"). AdEPT Nebula is built around the core data centre in Orpington, which is owned by AdEPT. The network allows AdEPT to provide its own cloud hosting capability.
AdEPT Nebula is live and already delivering benefits to customers by providing Avaya IP cloud telephony services, hosted IT services and a range of data connectivity services. The network underpinning AdEPT Nebula has been developed using the in-house skills and capabilities of the AdEPT technical team. The Company will continue to review development opportunities for the addition of new products and services to AdEPT Nebula as customer demand dictates.
Business combinations
On 17 August 2018 the Company acquired the entire issued share capital of Shift F7. Shift F7, founded in 1995, is a highly accredited IT services provider with over 20 years' experience, offering highly specialised IT support services and technology solutions to more than 200 commercial mid-market customers. Shift F7 has security accredited dedicated hosted platform environments in London Docklands and Heathrow. Key suppliers include Citrix, Microsoft, HP, Cisco, Ericsson LG and VMWare. Initial consideration of GBP4.35m was paid in cash. Further contingent deferred consideration of between GBPnil and GBP2.90m may be payable, also in cash, dependent upon the performance of Shift F7 post-acquisition. Total consideration is anticipated to be GBP4.35m (including acquired debts and tax liabilities).
A fair value of GBP5.16m in relation to the customer contracts for the acquired business has been recognised as intangible asset additions in the year ended 31 March 2019.
On 17 November 2018 the Company acquired the entire issued share capital of ETS. ETS, based in Wakefield, specialise in Avaya IP Office and Ericsson-LG and supply hosted voice in over 200 GP surgeries. One of the three vendors, who is responsible for the strategic direction and day-to-day operations of ETS, has been retained within the business post-acquisition. Initial consideration of GBP1.74m was paid in cash. Further contingent consideration of between GBPNil and GBP1.75m may be payable, also in cash, dependent upon the performance of ETS post-acquisition. Total consideration is expected to be GBP3.69m (including acquired debts and tax liabilities).
A fair value of GBP3.63m in relation to the customer contracts for the acquired business has been recognised as intangible asset additions in the year ended 31 March 2019.
Further details on the acquisition during the year are described in Note 18 of the financial statements.
Net debt and bank facilities
A key strength of AdEPT is its consistent, proven ability to generate strong free cash flow and therefore support net borrowings. As a result of the Group's focus on underlying profitability and cash conversion, free cash flow after taxes but before bank interest paid of GBP6.72m was generated during the year ended 31 March 2019 (2018: GBP8.24m). The current period includes GBP0.59m of costs in relation to acquisition fees and restructuring costs, the prior year comparative includes GBP0.76m of cash received from the Openreach compensation payment.
Opening cash plus the free cash flow generated in the year and borrowing drawdowns form the senior debt facility have been used to fund GBP11.03m acquisition consideration, GBP2.07m dividends paid and GBP0.63m of capital expenditure on tangible and intangible assets. Net senior debt, which comprises cash balances and bank borrowings, has increased to GBP27.11m at the year-end (2018: GBP17.62m) as a result of the acquisition consideration outflows.
On 7 November 2018 the Company signed a GBP5m extension to its existing GBP30m 5-year revolving credit facility agreement, enlarging the total debt facility to GBP35m. Post year end, in April 2019, the Company signed a further extension of its existing bank facility to GBP40m. The enlarged facility is provided by Barclays Bank Plc and The Royal Bank of Scotland Plc on an equal basis. The facility has been provided to AdEPT to fund acquisition of businesses that extend the AdEPT product set and by being part of the AdEPT group, will benefit from economies of scale. The commercial terms of the enlarged facility remain the same as the existing facility and are described in Note 17 of the financial statements.
Segmental key performance indicators (KPIs)
The segmental KPIs outlined below are intended to provide useful information when interpreting the accounts.
Fixed
line Managed
services services Total
GBP'000 GBP'000 GBP'000
-------------------------- --------- --------- --------
Year ended 31 March 2019
Revenue 12,814 38,494 51,308
Gross profit 4,904 20,438 25,342
Gross margin % 38.3% 53.1% 49.4%
Underlying EBITDA 2,784 8,011 10,795
Underlying EBITDA% 21.7% 20.8% 21.0%
Year ended 31 March 2018
Revenue 14,001 32,433 46,434
Gross profit 5,439 17,480 22,919
Gross margin % 38.8% 53.9% 49.4%
Underlying EBITDA 2,877 6,894 9,771
Underlying EBITDA% 20.5% 21.3% 21.0%
There are no non-financial KPIs which are reviewed regularly by the senior management team.
Principal risks and uncertainties
There are a number of potential risks and uncertainties which could have a material impact on the Group's long-term performance and could cause actual results to differ materially from expected results.
Liquidity risk
The Group seeks to manage financial risk by ensuring sufficient liquidity is available to meet foreseeable needs and to invest cash assets safely and profitably. External funding facilities are managed to ensure that both short-term and longer-term funding is available to provide short-term flexibility whilst providing sufficient funding to the Group's forecast working capital requirements.
Credit risk
The Group extends credit of various durations to customers depending on customer credit worthiness and industry custom and practice for the product or service. In the event that a customer proves unable to meet payments when they fall due, the Group will suffer adverse consequences. To manage this, the Group continually monitors credit terms to ensure that no single customer is granted credit inappropriate to its credit risk. Additionally, a large proportion of our customer receipts are collected by monthly direct debit. The risk is further reduced by the customer base being spread across a wide variety of industry and service sectors. The top ten customers account for approximately 24.6% of revenues.
Competitor risk
The Group operates in a highly competitive market with rapidly changing product and pricing innovations. We are subject to the threat of our competitors launching new products in our markets (including updating product lines) before we make corresponding updates and developments to our own product range. This could render our products and services out-of-date and could result in loss of market share. To reduce this risk, we undertake new product development and maintain strong supplier relationships to ensure that we have products at various stages of the life cycle.
Competitor risk also manifests itself in price pressures which are usually experienced in more mature markets. This results not only in downward pressure on our gross margins but also in the risk that our products are not considered to represent value for money. The Group therefore monitors market prices on an ongoing basis.
Acquisition integration execution
The Group has set out that its strategy includes the acquisition of businesses where they are earnings enhancing. The Board acknowledges that there is a risk of operational disturbance in the course of integrating the acquired businesses with existing operations. The Group mitigates this risk by careful planning and rigorous due diligence.
John Swaite
Finance director
Consolidated statement of comprehensive income
For the year ended 31 March 2019
2019 2018
Note GBP'000 GBP'000
---------------------------------------- ---- -------- --------
Revenue 4 51,308 46,434
Cost of sales (25,966) (23,515)
---------------------------------------- ---- -------- --------
Gross profit 25,342 22,919
Administrative expenses (21,002) (16,838)
---------------------------------------- ---- -------- --------
Operating profit 4,340 6,081
---------------------------------------- ---- -------- --------
Total operating profit - analysed:
Underlying EBITDA 10,795 9,771
Share-based payments (68) (40)
Depreciation of tangible fixed assets (633) (418)
Amortisation of intangible fixed assets (4,568) (3,730)
Adjustment to deferred consideration (586) (28)
Acquisition fees (495) (229)
Restructuring costs (105) -
Compensation credits - 755
---------------------------------------- ---- -------- --------
Total operating profit 4,340 6,081
---------------------------------------- ---- -------- --------
Finance costs 6 (1,902) (1,561)
---------------------------------------- ---- -------- --------
Profit before income tax 2,438 4,520
Income tax expense 7 (571) (584)
---------------------------------------- ---- -------- --------
Profit for the year 1,867 3,936
Other comprehensive income - -
---------------------------------------- ---- -------- --------
Total comprehensive income 1,867 3,936
---------------------------------------- ---- -------- --------
Restated
Note 2019 2018
------------------- ---- ----- --------
Earnings per share
Basic earnings 16 7.88p 16.61p
Diluted earnings 16 7.83p 16.53p
------------------- ---- ----- --------
All amounts relate to continuing operations.
Consolidated statement of financial position
As at 31 March 2019
31 March 31 March
2019 2018
Note GBP'000 GBP'000
-------------------------------------- ---- -------- --------
Assets
Non-current assets
Goodwill 9 16,024 14,531
Intangible assets 10 39,999 35,666
Property, plant and equipment 1,472 1,114
Deferred tax asset 12 43 -
-------------------------------------- ---- -------- --------
57,538 51,311
Current assets
Inventories 543 266
Contract assets 4 953 423
Trade and other receivables 13 10,349 5,867
Cash and cash equivalents 7,650 7,127
-------------------------------------- ---- -------- --------
19,495 13,683
-------------------------------------- ---- -------- --------
Total assets 77,033 64,994
Current liabilities
Trade and other payables 14 11,065 11,832
Contract liabilities 4 1,976 568
Income tax 831 199
Short-term borrowings 33 -
-------------------------------------- ---- -------- --------
13,905 12,599
Non-current liabilities
Deferred tax 12 6,405 5,590
Convertible loan instrument 15 6,174 6,011
Long-term borrowings 15 34,730 24,749
-------------------------------------- ---- -------- --------
Total liabilities 61,214 48,949
-------------------------------------- ---- -------- --------
Net assets 15,819 16,045
-------------------------------------- ---- -------- --------
Equity attributable to equity holders
Share capital 2,370 2,370
Share premium 479 479
Share option reserve 1,079 1,012
Capital redemption reserve 18 18
Retained earnings 11,873 12,166
-------------------------------------- ---- -------- --------
Total equity 15,819 16,045
-------------------------------------- ---- -------- --------
Consolidated statement of changes in equity
For the year ended 31 March 2019
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 2017 2,370 479 34 18 10,222 13,123
------------------------------- -------- -------- -------- ----------- --------- --------
Impact of change in accounting
policy - - - - (174) (174)
------------------------------- -------- -------- -------- ----------- --------- --------
Adjusted equity at 1 April
2017 2,370 479 34 18 10,048 12,949
------------------------------- -------- -------- -------- ----------- --------- --------
Profit for the year - - - - 3,936 3,936
Other comprehensive income - - - - - -
------------------------------- -------- -------- -------- ----------- --------- --------
Total comprehensive income - - - - 3,936 3,936
Deferred tax asset adjustment - - - - 19 19
Dividends - - - - (1,837) (1,837)
Share-based payments - - 40 - - 40
Equity element of convertible
loan note - - 938 - - 938
------------------------------- -------- -------- -------- ----------- --------- --------
Equity at 1 April 2018 2,370 479 1,012 18 12,166 16,045
------------------------------- -------- -------- -------- ----------- --------- --------
Impact of change in accounting
policy (Note 4) - - - - (99) (99)
Adjusted equity at 1 April
2018 2,370 479 1,012 18 12,067 15,946
Profit for the year - - - - 1,867 1,867
Other comprehensive income - - - - - -
------------------------------- -------- -------- -------- ----------- --------- --------
Total comprehensive income - - - - 1,867 1,867
Deferred tax on share options - - - - 12 12
Dividends - - - - (2,073) (2,073)
Share-based payments - - 67 - - 67
Equity at 31 March 2019 2,370 479 1,079 18 11,873 15,819
------------------------------- -------- -------- -------- ----------- --------- --------
The Group adopted IFRS 15 in the year ended 31 March 2018 and chose to apply the cumulative effect method. The Group has adopted IFRS 9 from 1 April 2018 with an opening adjustment to equity (Note 2).
Consolidated statement of cash flows
For the year ended 31 March 2019
2019 2018
GBP'000 GBP'000
--------------------------------------------------------- -------- --------
Cash flows from operating activities
Profit before income tax 2,438 4,520
Depreciation and amortisation 5,201 4,148
Adjustment to deferred consideration 586 -
Share-based payments 68 40
Net finance costs 1,902 1,561
--------------------------------------------------------- -------- --------
Operating cash flows before movements in working capital 10,195 10,269
Decrease/(increase) in inventories (171) (39)
Decrease/(increase) in trade and other receivables (3,609) 479
(Decrease)/increase in trade and other payables 1,118 (972)
--------------------------------------------------------- -------- --------
Cash generated from operations 7,533 9,737
Income taxes paid (809) (1,501)
--------------------------------------------------------- -------- --------
Net cash from operating activities 6,724 8,236
--------------------------------------------------------- -------- --------
Cash flows from investing activities
Interest paid (1,414) (907)
Acquisition of subsidiaries net of cash acquired (11,034) (14,523)
Purchase of intangible assets (63) (54)
Purchase of property, plant and equipment (564) (364)
--------------------------------------------------------- -------- --------
Net cash used in investing activities (13,075) (15,848)
--------------------------------------------------------- -------- --------
Cash flows from financing activities
Dividends paid (2,074) (1,837)
Increase in bank loan 10,000 11,500
Repayment of borrowings (1,052) (2,750)
Issue of convertible loan note - 7,294
--------------------------------------------------------- -------- --------
Net cash from financing activities 6,874 14,207
--------------------------------------------------------- -------- --------
Net (decrease)/increase in cash and cash equivalents 523 6,595
Cash and cash equivalents at beginning of year 7,127 532
--------------------------------------------------------- -------- --------
Cash and cash equivalents at end of year 7,650 7,127
--------------------------------------------------------- -------- --------
Cash and cash equivalents
Cash at bank and in hand 7,650 7,127
Short-term borrowings - -
--------------------------------------------------------- -------- --------
Cash and cash equivalents 7,650 7,127
--------------------------------------------------------- -------- --------
Notes to the financial statements
For the year ended 31 March 2019
Note to the Preliminary Results announcement of Adept Technology Group Plc for the year ended 31 March 2019
The financial information set out below does not constitute the Group's financial statements for the years ended 31 March 2019 or 2018, but is derived from those financial statements. Statutory financial statements for 2018 have been delivered to the Registrar of Companies and those for 2019 will be delivered following the Group's annual general meeting. The auditors have reported on the 2018 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 2019 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 2019 will be posted to shareholders on or around 17 August 2019, a soft copy of which will be available to download from the Company's website www.adept.co.uk.
1. Accounting policies
Basis of preparation of financial statements
The financial statements have been prepared in accordance with applicable IFRSs as adopted by the EU.
Accounting standards require the directors to consider the appropriateness of the going concern basis when preparing the financial statements. The directors confirm that they consider that the going concern basis remains appropriate. The Group's available banking facilities are described in Note 17 to the financial statements. The Group has adequate financing arrangements which can be utilised by the Group as required. Thus they continue to adopt the going concern basis of accounting in preparing the annual financial statements.
At the date of authorisation of these financial statements, the directors have considered the standards and interpretations which have not been applied in these financial statements that were in issue but not yet effective (and in some cases had not yet been adopted by the EU) and IFRS 16 "Leases" was considered to be relevant.
The Group has undertaken a detailed assessment to determine the impact of adopting IFRS 16, with initial application from 1 April 2019, which introduces for certain lease contracts significant changes to the allocation of the costs in the statement of comprehensive income, it is estimated that the changes will increase operating profit and EBITDA by approximately GBP0.5m but it is not expected to have a material impact on profit before tax. It is expected that the recognition of lease assets and liabilities will increase the gross value of assets and liabilities by approximately GBP2.0m and decrease net current assets GBP2.0m.
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 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.
2. Changes in accounting policy
Except for the changes below, the Group has consistently applied the accounting policies in these consolidated financial statements.
The details and quantitative impact of the changes in accounting policies are disclosed below:
IFRS 9 Financial Instruments
IFRS 9 replaces the provisions of IFRS 9 that relate to the recognition, classification and measurement of financial assets and financial liabilities, derecognition of financial instruments, impairment of financial assets and hedge accounting.
The adoption of IFRS 9 from 1 April 2018 resulted in changes in accounting policies and adjustments to the amounts recognised in the financial statements. The new accounting policies are set out in Note 1 above. In accordance with the transitional provisions in IFRS 9 comparative figures have not been restated.
The following tables summarise the impacts of adopting IFRS 9 on the Group's consolidated financial statements for the year ended 31 March 2019:
Adjustments Balances
without
adoption
of IFRS
GBP'000 As reported 9
-------------------------------------- ----------- ------------ ---------
Assets
Non-current assets 57,538 - 57,538
Inventories 543 - 543
Contract assets 953 - 953
Trade and other receivables 10,349 107 10,456
Cash and cash equivalents 7,650 - 7,650
-------------------------------------- ----------- ------------ ---------
Current assets 19,495 107 19,602
-------------------------------------- ----------- ------------ ---------
Total assets 77,033 107 77,140
Total liabilities 61,214 - 61,214
-------------------------------------- ----------- ------------ ---------
Net assets 15,819 107 15,926
-------------------------------------- ----------- ------------ ---------
Equity attributable to equity holders
Share capital 2,370 - 2,370
Share premium 479 - 479
Share option reserve 1,079 - 1,079
Capital redemption reserve 18 - 18
Retained earnings 11,873 107 11,980
-------------------------------------- ----------- ------------ ---------
Total equity 15,819 107 15,926
-------------------------------------- ----------- ------------ ---------
The Group has recognised the cumulative effect of initially applying IFRS 9 with an opening adjustment to equity of GBP99,044 at 1 April 2018. The net impact on profit before tax of applying IFRS 9 in the year ended 31 March 2019 was GBP8,150, resulting in a net adjustment to retained earnings at 31 March 2019 of GBP107,195.
The impact of the adoption of IFRS 9 on basic and adjusted earnings per share is not material.
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 2019 Year ended 31 March 2018
--------------------------------------- ---------------------------------------
Fixed Fixed
line Managed Central line Managed Central
GBP'000 services services costs Total services services costs Total
------------------------ --------- --------- ------- -------- --------- --------- ------- --------
Revenue 12,814 38,494 - 51,308 14,001 32,433 - 46,434
Gross profit 4,904 20,438 - 25,342 5,439 17,480 - 22,919
Gross margin
% 38.3% 53.1% - 49.4% 38.8% 53.9% - 49.4%
------------------------ --------- --------- ------- -------- --------- --------- ------- --------
Administrative
expenses (2,120) (12,427) - (14,547) (2,562) (10,586) - (13,148)
------------------------ --------- --------- ------- -------- --------- --------- ------- --------
Underlying EBITDA 2,784 8,011 - 10,795 2,877 6,894 - 9,771
Underlying EBITDA
% 21.7% 20.8% - 21.0% 20.5% 21.3% - 21.0%
------------------------ --------- --------- ------- -------- --------- --------- ------- --------
Amortisation (1,509) (3,059) - (4,568) (2,071) (1,659) - (3,730)
Depreciation - - (633) (633) - - (418) (418)
Adjustment to
deferred consideration - - (586) (586) - - (28) (28) Acquisition costs - - (495) (495) - - (229) (229) Compensation credits - - - - - - 755 755 Restructuring costs - - (105) (105) - - - - Share-based payments - - (68) (68) - - (40) (40) ------------------------ --------- --------- ------- -------- --------- --------- ------- -------- Operating profit/(loss) 1,275 4,952 (1,887) 4,340 806 5,236 39 6,081 ------------------------ --------- --------- ------- -------- --------- --------- ------- -------- Finance costs - - (1,902) (1,902) - - (1,561) (1,561) Income tax - - (571) (571) - - (584) (584) ------------------------ --------- --------- ------- -------- --------- --------- ------- -------- Profit/(loss) after tax 1,275 4,952 (4,360) 1,867 806 5,236 (2,106) 3,936 ------------------------ --------- --------- ------- -------- --------- --------- ------- --------
The assets and liabilities relating to the above segments have not been disclosed as they are not separately identifiable and are not used by the chief operating decision maker to allocate resources. All segments are in the UK and all revenue relates to the UK.
Transactions with the largest customer of the Group are less than 10% of total turnover and do not require disclosure for either 2018 or 2019.
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.
2019 2018
GBP'000 GBP'000
-------------------------------------------- -------- --------
Sale of goods 10,969 10,003
Provision of services:
- calls and line rental 12,814 14,001
- data networks 11,901 10,211
- support services 11,981 8,847
- other services 3,643 3,372
-------------------------------------------- -------- --------
51,308 46,434
-------------------------------------------- -------- --------
Timing of revenue recognition
Products transferred at a point in time 10,969 10,003
Products and services transferred over time 40,339 36,431
-------------------------------------------- -------- --------
51,308 46,434
-------------------------------------------- -------- --------
The following table provides information about receivables, contract assets and contract liabilities with customers:
2019 2018
GBP'000 GBP'000
----------------------------------------------------------------- -------- --------
Receivables, which are included in 'Trade and other receivables' 7,018 4,008
Contract assets 953 423
Contract liabilities (1,976) (568)
----------------------------------------------------------------- -------- --------
Contract assets relate to the deferred direct costs in respect of data circuit installations which have been completed and are being recognised across the 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:
2019 2018
GBP'000 GBP'000
----------------------------------------------- -------- --------
Revenue deferred into future periods (1,976) (568)
Deferred revenue recognised in the period 1,582 18
Direct costs deferred into future periods 953 423
Deferred direct costs recognised in the period 921 (47)
----------------------------------------------- -------- --------
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. There was no impact of IFRS 15 in respect of acquisitions completed during the year.
5. Operating profit
The operating profit is stated after charging/(crediting):
2019 2018
GBP'000 GBP'000
---------------------------------------------------------- -------- --------
Amortisation of customer base, billing system and licence 4,568 3,730
Depreciation of tangible fixed assets:
- owned by the Group 633 418
Share option expense/(credit) 68 40
Minimum operating lease payments:
- land and buildings 556 466
- motor vehicles and other equipment 70 76
Acquisition costs 495 229
Restructuring costs 105 -
Compensation credit - (755)
---------------------------------------------------------- -------- --------
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) 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.
6. Finance costs
2019 2018
GBP'000 GBP'000
----------------------------------------- -------- --------
On bank loans and overdrafts 1,514 1,122
Bank fees 306 136
Finance cost on contingent consideration 82 303
----------------------------------------- -------- --------
1,902 1,561
----------------------------------------- -------- --------
The finance costs on contingent consideration arise from the release of the discounted contingent consideration liability evenly across the term of the deferred consideration period in relation to each acquisition. This is a non-cash item.
7. Income tax expense
2019 2018
GBP'000 GBP'000
------------------------------------------------- -------- --------
Current tax
UK corporation tax on profit for the year 1,372 1,428
Adjustments in respect of prior periods (60) (325)
------------------------------------------------- -------- --------
Total current tax 1,312 1,103
------------------------------------------------- -------- --------
Deferred tax
Origination and reversal of timing differences:
- fixed assets and short term timing differences (53) (22)
- share options (4) (3)
- goodwill on business combinations (668) (506)
Effect of tax rate change on opening balance (28) -
Adjustments in respect of prior periods 12 12
------------------------------------------------- -------- --------
Total deferred tax (see Note 12) (741) (519)
------------------------------------------------- -------- --------
Total income tax expense 571 584
------------------------------------------------- -------- --------
Factors affecting tax charge for the year
The relationship between expected tax expense based on the effective tax rate of AdEPT at 19% (2018: 19%) and the tax expense actually recognised in the income statement can be reconciled as follows:
2019 2018
GBP'000 GBP'000
--------------------------------------------------------- -------- --------
Profit before income tax 2,438 4,520
Tax rate 19% 19%
Expected tax charge 463 859
Expenses not deductible for tax purposes 241 126
Adjustments to tax charge in respect of prior periods (48) (313)
Depreciation/amortisation on non-qualifying assets 8 13
Unprovided deferred tax movement - -
Difference due to deferred tax rate being lower than the
standard tax rate 58 63
Share option relief - -
R&D enhanced tax deduction (137) (95)
RDEC credit taxed (16) 3
Prior year IFRS 15 adjustment - (33)
Group relief claim - (29)
Other 2 (10)
--------------------------------------------------------- -------- --------
Actual tax expense net 571 584
--------------------------------------------------------- -------- --------
The change in income tax rates will affect future tax charges.
8. Dividends
On 27 September 2018 the directors approved an interim dividend of 4.90p per ordinary share (2018: 4.25p), which was paid to shareholders on 8 April 2019. On 3 April 2019 the directors proposed a final dividend, subject to shareholder approval at the 2019 annual general meeting, of 4.90p per ordinary share (2018: 4.50p). Total dividends proposed in respect of the year ended 31 March 2019 will absorb GBP2,322,780 of shareholders' funds in future periods (2018: GBP2,073,910).
On 7 April 2018 the Company paid dividends of GBP1,007,328 in relation to the interim dividend declared in September 2017. On 8 October 2018 the Company paid dividends of GBP1,066,582 in relation to the final dividend declared in March 2018. Total dividends paid in the year ended 31 March 2019 absorbed GBP2,073,910 of cash (2018: GBP1,836,892).
9. Goodwill
Group
Total
GBP'000
------------------ --------
Cost
At 1 April 2017 13,301
Additions 3,313
------------------ --------
At 1 April 2018 16,614
Additions 1,494
------------------ --------
At 31 March 2019 18,108
------------------ --------
Impairment
At 1 April 2017 (2,084)
Impairment charge -
------------------ --------
At 1 April 2018 (2,084)
Impairment charge -
------------------ --------
At 31 March 2019 (2,084)
------------------ --------
Net book value
At 31 March 2019 16,024
------------------ --------
At 31 March 2018 14,531
------------------ --------
We perform an annual goodwill impairment review and we tested our goodwill for impairment as at 31 March 2019.
Goodwill is recognised in 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 CGU 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 flows 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 10.
The goodwill is split by CGU as follows:
March March
2019 2018
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 -
ETS Limited 615 -
--------------------------- -------- --------
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 7.8%. An increase in the Group's weighted average cost of capital to above 11.0% 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 10.
10. 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 2017 26 1,300 48,295 - 1,744 51,365
Additions 15 39 7,248 3,535 - 10,837
Acquired with subsidiary - - - - - -
------------------------- -------- --------- -------- -------- -------- --------
At 1 April 2018 41 1,339 55,543 3,535 1,744 62,202
Additions 56 6 5,873 - 1 5,936
Acquired with subsidiary 57 - 2,908 - - 2,965
------------------------- -------- --------- -------- -------- -------- --------
At 31 March 2019 154 1,345 64,324 3,535 1,745 71,103
------------------------- -------- --------- -------- -------- -------- --------
Amortisation
At 1 April 2017 26 1,200 21,580 - - 22,806
Charge for the year 2 83 2,947 236 249 3,517
Impairment charge - - 213 - - 213
------------------------- -------- --------- -------- -------- -------- --------
At 1 April 2018 28 1,283 24,740 236 249 26,536
Charge for the year 29 37 3,778 350 374 4,568
Impairment charge - - - - - -
------------------------- -------- --------- -------- -------- -------- --------
At 31 March 2019 57 1,320 28,518 586 623 31,104
------------------------- -------- --------- -------- -------- -------- --------
Net book value
At 31 March 2019 97 25 35,806 2,949 1,122 39,999
------------------------- -------- --------- -------- -------- -------- --------
At 31 March 2018 13 56 30,803 3,299 1,495 35,666
------------------------- -------- --------- -------- -------- -------- --------
Included within the Group's intangible assets is:
March March
2019 2018
Useful life GBP'000 GBP'000
---------------------------------------------- ------------ -------- --------
Centrix Limited 17 years 7,119 7,664
Comms Group UK Limited 17 years 3,952 4,331
Our IT Department Limited 17 years 2,610 2,999
CAT Communications Limited 10 years 1,008 1,055
Atomwide Limited - customer base 16 years 6,024 6,751
Atomwide Limited - software/apps 5 years 2,949 3,299
Shift F7 Limited 10 years 4,813 -
ETS Communications Limited 10 years 3,472 -
Other customer bases - AdEPT Technology Group
plc trading business 10-16 years 7,930 9,497
---------------------------------------------- ------------ -------- --------
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:
-- the 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 2019 the net present value of future cash flows of certain cash-generating units was above the carrying value and an impairment charge of GBPNil (2018: GBP212,850) has been recorded.
We tested our intangible assets and goodwill for impairment as at 31 March 2019. The carrying value of the intangible assets and the key assumptions used in performing the annual impairment assessment and sensitives are disclosed below:
Book value
of Estimated
cash-generating value
unit in use
GBP'000 GBP'000
--------------------------------- ---------------- ---------
Centrix Limited 7,119 18,720
Comms Group UK Limited 3,951 4,509
Our IT Department Limited 2,610 4,734
CAT Communications Limited 1,009 1,762
Atomwide Limited - customer base 6,024 8,229
Atomwide Limited - software/apps 2,949 4,029
Shift F7 Limited 4,813 4,960
ETS Communications Limited 3,477 3,938
--------------------------------- ---------------- ---------
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 7.8% (2018: 7.2%). The WACC is the recommended discount rate suggested by IFRSs and is a calculated figure using actual input variables where available and applying estimates for those which are not, such as the equity market premium. An increase in the Group's weighted average cost of capital to above 11.0% would materially impair the carrying value of the Group's intangible assets by more than GBP400,000.
What churn rate have we used?
For the customer bases which have been fully integrated into the AdEPT Technology Group plc trading business in Tunbridge Wells, the churn rate of 6.6% 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 and ETS Communications 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 3.7% per annum. Where an acquired customer base has shown growth, a default churn assumption of 3-4% 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 1.8% 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 15 years (2018: 14 years) with a range of ten 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. A 1% change to the discount rate, gross margin and churn rate would result in no additional impairment charges.
11. Property, plant and equipment
Group
Short-term Fixtures
Motor leasehold and Office
vehicles improvements fittings equipment Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------- --------- ------------- --------- ---------- --------
Cost
At 1 April 2017 105 7 350 1,092 1,554
Acquired with subsidiary 43 256 88 66 453
Additions - - 9 355 364
Disposals - - - (271) (271)
------------------------- --------- ------------- --------- ---------- --------
At 1 April 2018 148 263 447 1,242 2,100
Acquired with subsidiary 93 - 103 252 448
Additions - 31 21 512 564
Disposals (132) - (2) (65) (199)
------------------------- --------- ------------- --------- ---------- --------
At 31 March 2019 109 294 569 1,941 2,913
------------------------- --------- ------------- --------- ---------- --------
Depreciation
At 1 April 2017 30 7 208 446 691
Charge for the year 38 14 70 295 417
Disposals - - - (122) (122)
------------------------- --------- ------------- --------- ---------- --------
At 1 April 2018 68 21 278 619 986
Charge for the year 72 23 94 444 633
Disposals (113) - (1) (64) (178)
------------------------- --------- ------------- --------- ---------- --------
At 31 March 2019 27 44 371 999 1,441
------------------------- --------- ------------- --------- ---------- --------
Net book value
At 31 March 2019 82 250 198 942 1,472
------------------------- --------- ------------- --------- ---------- --------
At 31 March 2018 80 242 169 623 1,114
------------------------- --------- ------------- --------- ---------- --------
12. Deferred taxation
2019 2018
Group Group
GBP'000 GBP'000
---------------------------------------------------------- -------- --------
At 1 April 2018 (5,590) (4,057)
Income statement credit/(charge) 741 519
Movement in deferred tax on share options taken to equity 11 19
Deferred tax provision on convertible loan note taken
to equity - (220)
Deferred tax acquired (32) (22)
Deferred tax on business combination (1,492) (1,829)
---------------------------------------------------------- -------- --------
At 31 March 2019 (6,362) (5,590)
---------------------------------------------------------- -------- --------
The deferred tax (liability)/asset is made up as follows:
2019 2018
Group Group
GBP'000 GBP'000
-------------------------------------- -------- --------
Capital allowances (73) (49)
Short-term timing differences 49 33
Convertible loan note equity element (164) (208)
Deferred tax on business combinations (6,232) (5,409)
Share options 58 43
-------------------------------------- -------- --------
(6,362) (5,590)
-------------------------------------- -------- --------
13. 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.
2019 2018
Group Group
GBP'000 GBP'000
------------------ -------- --------
Trade receivables 6,949 3,955
Other receivables 70 53
Income tax - -
Prepayments 2,844 1,477
Accrued income 486 382
------------------ -------- --------
10,349 5,867
------------------ -------- --------
The Group has one type of financial assets that are subject to IFRS 9's new expected credit loss model:
-- trade receivables for sales of inventory and from the provisions of consulting services
The Group was required to revise its impairment methodology under IFRS 9 for each of these classes of assets. The impact of the change in impairment methodology on the group's retained earnings and equity is disclosed in the table in Note 2 above.
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. This resulted in an increase of the loss allowance on 1 April 2018 by GBP99,044 for trade receivables.
As at 31 March 2019, trade receivables of GBP326,039 (2018: GBP120,298) 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
GBP'000
------------------------------------------------------------ --------
At 1 April 2017 215
Receivables provided for during the year as uncollectable -
Receivables collected during the year which were previously
provided (74)
------------------------------------------------------------ --------
At 1 April 2018 141
Change of accounting policy 99
------------------------------------------------------------ --------
At 1 April 2018 adjusted 240
Receivables provided for during the year as uncollectable 86
Receivables collected during the year which were previously
provided -
------------------------------------------------------------ --------
At 31 March 2019 326
------------------------------------------------------------ --------
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.
14. Trade and other payables
2019 2018
Group Group
GBP'000 GBP'000
-------------------------------------- -------- --------
Trade payables 3,632 2,292
Other taxes and social security costs 1,593 1,407
Other payables 148 44
Amounts owed to Group undertakings - -
Accruals and deferred income 4,443 3,729
Contingent consideration 1,249 4,360
-------------------------------------- -------- --------
11,065 11,832
-------------------------------------- -------- --------
The contingent consideration liability of GBP1,249,205 (2018: GBP4,359,527) represents the year-end fair value of the contingent consideration liabilities arising on the acquisitions made during the year. The fair value of the contingent consideration liability was initially determined by reference to the forecast growth rate for the customer base and applying the contingent consideration matrix as specified in the share purchase agreement.
15. Long-term borrowings
2019 2018
Group Group
GBP'000 GBP'000
--------------------------- -------- --------
Between one and two years - -
Between two and five years 34,730 24,749
More than five years 6,174 6,011
--------------------------- -------- --------
Bank loans 40,904 30,760
--------------------------- -------- --------
The bank loan of GBP34,729,629 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 GBP6,174,374 which is the debt component of the convertible loan instrument from BGF. This loan instrument is sub-ordinated and sits behind the bank loan.
Details of the interest rates applicable to the borrowings are included in Note 17.
Included within bank loans are arrangement fees amounting to GBP272,203 (2018: GBP251,435) which are being released over the term of the loan in accordance with IFRS 9.
16. Earnings per share
Earnings per share is calculated on the basis of a profit of GBP1,867,932 (2018: GBP3,936,054) divided by the weighted average number of shares in issue for the year of 23,701,832 (2018: 23,701,832). 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 23,852,410 (2018 restated: 23,810,994). The March 2018 comparative has been restated applying the treasury stock method to take account only of outstanding share options which are in the money.
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 and acquisition costs and excluding compensation credits from retained earnings, giving GBP7,052,812 (2018: GBP6,660,491). This is divided by the same weighted average number of shares as above.
Restated
2019 2018
GBP'000 GBP'000
--------------------------------------------------------------- ---------- ----------
Earnings for the purposes of basic and diluted earnings
per share
Profit for the period attributable to equity holders 1,867 3,936
Add: amortisation 4,568 3,730
Less: taxation on amortisation of purchased customer contracts (117) (121)
Less: deferred tax credit on amortisation charges (669) (506)
Add: share option charges 68 40
Add: adjustment to deferred consideration 586 28
Add: acquisition fees and restructuring costs 600 229
Less: compensation credits - (755)
Add: interest unwind on loan note 150 79
--------------------------------------------------------------- ---------- ----------
Adjusted profit attributable to equity holders 7,053 6,660
--------------------------------------------------------------- ---------- ----------
Number of shares
Weighted average number of shares used for earnings per
share 23,701,832 23,701,832 Weighted average dilutive effect of share plans 150,578 109,162 --------------------------------------------------------------- ---------- ---------- Diluted weighted average number of shares 23,852,410 23,810,994 --------------------------------------------------------------- ---------- ---------- Earnings per share Basic earnings per share 7.88p 16.61p Diluted earnings per share 7.83p 16.53p Adjusted earnings per share Adjusted basic earnings per share 29.80p 28.10p Adjusted diluted earnings per share 29.61p 27.97p --------------------------------------------------------------- ---------- ----------
Earnings per share is calculated by dividing the retained earnings attributable to the equity holders by the weighted average number of ordinary shares in issue.
Adjusted earnings per share is calculated by dividing the retained earnings attributable to the equity holders (after adding back amortisation, the taxation deduction on purchased customer contracts, deferred tax credits on amortisation charges, share option charges, adjustment to deferred consideration and acquisition costs and excluding compensation credits) by the weighted average number of ordinary shares in issue.
17. 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.
2019 2018
Group Group
GBP'000 GBP'000
------------------------------------------ -------- --------
Loans and receivables at amortised cost
Cash and cash equivalents 7,650 7,127
Loans and receivables 7,018 3,955
------------------------------------------ -------- --------
14,668 11,082
------------------------------------------ -------- --------
Financial liabilities at amortised cost
Liabilities at amortised cost 51,863 40,344
Financial liabilities at fair value
Contingent consideration 1,249 4,360
------------------------------------------ -------- --------
53,112 44,704
------------------------------------------ -------- --------
Amounts due for settlement
Within twelve months 4,882 6,651
After twelve months 48,230 38,053
------------------------------------------ -------- --------
53,112 44,704
------------------------------------------ -------- --------
The Company has a five year GBP40m revolving credit facility agreement with Barclays Bank plc and Royal Bank of Scotland plc. The revolving credit facility bears interest at 1.85-2.9% over LIBOR on drawn funds, dependent upon the net debt to EBITDA ratchet. The facility limit reduces to GBP35m in June 2020, and the balance is repayable in full on the final repayment date in February 2022.
The financial assets of the Group are cash and cash equivalents and trade and other receivables, which are offset against borrowings under the facility, and there is no separate interest rate exposure.
Barclays Bank plc and Royal Bank of Scotland plc have a cross guarantee and debenture incorporating a fixed and floating charge over the undertaking and all property and assets present and future, including goodwill, book debts, uncalled capital, buildings, fixtures and fixed plant and machinery.
The banks also hold a charge over the life assurance policy of Ian Fishwick, director of the Company, for GBP1,500,000.
In August 2017 the Group raised GBP7,293,726 in the form of a convertible loan instrument from BGF to part fund the acquisition of Atomwide. The convertible loan instrument is excluded from the leverage calculations by the senior debt partners, Barclays and RBS. The Group has applied the principles of IAS 32 and 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.
BGF has the right to convert the loan to 1,855,910 ordinary shares at a share price of GBP3.93 per share at anytime. The loan instrument can be redeemed by the Company from the third anniversary. The convertible loan instrument bears an interest rate of 7%. In addition, the transaction 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.
18. Business combinations
On 17 August 2018 the Company acquired the entire issued share capital of Shift F7 Group Limited ('Shift F7') for an initial consideration of GBP5.00m in cash less net debt and tax liabilities at completion (approximately GBP0.65m). Further contingent deferred consideration of between GBPnil and GBP2.90m may be payable, also in cash, dependent upon the performance of Shift F7 post-acquisition.
The contingent deferred consideration will be determined by reference to the gross margin of the acquired business and applying the contingent deferred consideration calculation as specified in the share purchase agreement. The fair value of contingent deferred consideration has been determined by reference to the expected growth rate for the gross margin of the acquired business and applying the contingent deferred consideration calculation as specified in the share purchase agreement. The contingent consideration liability of GBP0.37m has been discounted at the Group's weighted average cost of capital with the value of the discount of GBP0.03m being included within finance costs over the deferred consideration period as an interest charge. At 31 March 2019 the estimated deferred consideration was GBPNil, a credit of GBP0.39m has been recognised in the statement of total comprehensive income in respect of the movement on the deferred consideration liability. Total consideration is anticipated to be GBP4.35m (including acquired debts and tax liabilities).
Shift F7, founded in 1995, is a highly accredited IT services provider with over 20 years' experience, offering highly specialised IT support services and technology solutions to more than 200 commercial mid-market customers.
Shift F7 has security accredited dedicated hosted platform environments in London Docklands and Heathrow. Key suppliers include Citrix, Microsoft, HP, Cisco, Ericsson LG and VMWare.
All services provided by Shift F7 are supported by a highly experienced team of IT professionals based at Shift F7's premises in Dorking, Surrey, which have been retained post-acquisition. The senior management team responsible for the strategic direction, technical development and the day-to-day operations of Shift F7 have been retained within the business post-acquisition.
Shift F7 contributed revenue and profit after tax of GBP2.47m and GBP0.20m respectively for the year ended 31 March 2019 and represents an 8-month contribution. On a full year basis, Shift F7 would have contributed revenue and profit after tax of GBP3.96m and GBP0.29m respectively. Acquisition related costs of GBP0.35m have been recognised as an expense in the statement of comprehensive income for the year ended 31 March 2019.
On 17 November 2018 the Company acquired the entire issued share capital of ETS Communications Holdings Limited ('ETS') for an initial consideration of GBP1.74m net of debts on the balance sheet at the date of acquisition (approximately GBP0.70m), payable in cash. Further contingent consideration of between GBPNil and GBP1.75m may be payable, also in cash, dependent upon the performance of ETS post-acquisition.
The contingent deferred consideration will be determined by reference to the forecast gross margin of the acquired business for months 1 to 12 post acquisition and applying the contingent deferred consideration matrix as specified in the share purchase agreement. The fair value of the contingent deferred consideration has been determined by reference to the forecast gross margin of the acquired business for months 1 to 12 post acquisition and applying the contingent deferred consideration matrix as specified in the share purchase agreement. The contingent consideration liability of GBP1.01m has been discounted at the Group's weighted average cost of capital with the value of the discount of GBP0.08m being included within the finance costs over the deferred consideration period as an interest charge. At 31 March 2019 the estimated deferred consideration was GBP1.25m, a debit of GBP0.23m has been recognised in the statement of total comprehensive income in respect of the movement on the deferred consideration liability. Total consideration is expected to be GBP3.69m (including acquired debts and tax liabilities).
ETS, based in Wakefield, specialise in Avaya IP Office and Ericsson-LG and supply hosted voice in over 200 GP surgeries. One of the three vendors, who is responsible for the strategic direction and day-to-day operations of ETS, has been retained within the business post-acquisition.
ETS contributed revenue and profit after tax of GBP1.14m and GBP0.12m respectively for the year ended 31 March 2019 and represents a 5-month contribution. On a full year basis, ETS would have contributed revenue and profit after tax of GBP2.7m and GBP0.25m respectively. Acquisition related costs of GBP0.15m have been recognised as an expense in the statement of comprehensive income for the year ended 31 March 2019.
19. Subsequent events
Bank facility extension
On 25 April 2019 the Company signed a GBP5m extension to its existing GBP35 million 5-year revolving credit facility agreement, enlarging the total debt facility to GBP40m. The incremental GBP5m tranche of the revolving credit facility is available in the period through to 30 June 2020. The remaining GBP35m of the revolving credit facility remains available for the 5-year term to 31 January 2022. The enlarged facility is provided by Barclays Bank Plc ("Barclays") and The Royal Bank of Scotland Plc ("RBS) on an equal basis. The facility will be used by AdEPT to fund acquisition of businesses that extend the AdEPT product set and by being part of the AdEPT group, will benefit from economies of scale. The commercial terms of the enlarged facility remain the same as the existing facility, the details of which are included in Note 17.
Acquisition of Advanced Computer Systems Group Limited
On 26 April 2019 the Company acquired the entire issued share capital of Advanced Computers Systems Group Limited and its trading subsidiary Advanced Computer Systems Limited ("ACS"), (together referred to as "ACS Group") a well-established UK based specialist provider of IT services focused on the education sector.
ACS Group, founded in 1999, is an independent IT service provider based in Doncaster with 20 years' experience. ACS Group is focused on providing IT services and has a strong public sector presence, including managing and supporting the IT function of approximately 200 schools and academy trusts.
Initial consideration of GBP5.24m less the net debt of ACS Group at 31 March 2019 was paid in cash. Pursuant to the terms of the share purchase agreement, the effective date of the acquisition is 1 April 2019. Further contingent deferred consideration of up to GBP2.26m may be payable in cash dependent upon the trading performance of ACS in the 12 month period ended 31 March 2020. The contingent deferred consideration will be determined by reference to the gross margin of the acquired business and applying the contingent deferred consideration calculation as specified in the share purchase agreement. The fair value of the assets and the contingent consideration liability have not yet been identified at the date of these interim results as the completion balance sheet was not available.
The last filed statutory accounts of ACS Group for the year ended 31 December 2018 reported turnover, operating profit and profit before tax of GBP5.46m, GBP0.91m and GBP0.85m respectively. There was no capital expenditure in the year ended 31 December 2018. Net and gross assets at that date were GBP0.19m and GBP1.50m respectively. Acquisition related costs will be recognised as an expense in the statement of comprehensive income for the year ending 31 March 2020.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
END
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July 09, 2019 04:29 ET (08:29 GMT)
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