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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 |
TIDMADT
RNS Number : 2128D
AdEPT Telecom plc
05 July 2016
AdEPT Telecom plc
("AdEPT", the "Company" or together with its subsidiaries the "Group")
Final results for the year ended 31 March 2016
AdEPT (AIM: ADT), a leading UK independent provider of award-winning telecommunications services for business-to-business communications, announces its results for the year ended 31 March 2016.
Financial highlights
-- 13th consecutive year of increased underlying EBITDA up 34.0% to GBP6.15m (2015: GBP4.59m) -- Revenue increased by 30.8% to GBP28.9m (2015: GBP22.1m) -- Underlying EBITDA margin % increased by 0.5% to 21.3% (2015: 20.8%) -- 28.7% increase to profit before tax to GBP2.8m (2015: GBP2.1m) -- 28.0% increase to profit after tax to GBP2.0m (2015: GBP1.5m) -- 27.2% increase to basic earnings per share of 8.78p (2015: 6.90p) -- 24.2% increase to adjusted earnings per share of 19.57p (2015: 15.76p) -- 36.8% increase to dividends declared to 6.50p (Interim 3.00p, Final 3.50p) (2015: 4.75p) -- Year-end net debt* of GBP6.0m (2015: GBP1.5m)
Operational highlights
-- Managed services accounted for 44.3% of total revenue (2015: 27.4%) -- Acquisition of entire issued share capital of Centrix Limited completed in May 2015 -- Acquisition of entire issued share capital of Comms Group UK Limited completed in May 2016
* Net debt is defined as cash and cash equivalents less short-term and long-term borrowings
Commenting upon these results Chairman Roger Wilson said:
"AdEPT has delivered its 13th consecutive year of increased underlying EBITDA through a combination of strategic acquisition and organic contract wins and the Group continues to deliver consistently high levels of free cash flow generation. The continued strong cash generation has funded a 37% 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.
Organically the Company has strengthened its position during the year through successfully gaining approved status on further public sector frameworks, which have been leveraged to increase the scale of its public and healthcare sector customer base. The new larger debt facility put in place in April 2015 was partially used by the Company to complete the acquisition of Centrix Limited in May 2015, which has been complemented by a further acquisition of another unified communications provider, Comms Group UK Limited post year end in May 2016. The Company has continued its transition towards a complete managed service provider, with revenue from managed services accounting for more than 44% of the total in the year ended 31 March 2016."
This announcement contains inside information for the purposes of Article 7 of Regulation 596/2014.
For further information on AdEPT please visit www.adept-telecom.co.uk or contact:
AdEPT Telecom Plc Roger Wilson, Chairman 07786 111 535 Ian Fishwick, Chief Executive 01892 550 225 John Swaite, Finance Director 01892 550 243 Northland Capital Partners Limited Nominated Adviser Edward Hutton / Gerry Beaney Broking John Howes / Abigail Wayne 020 3861 6625
CHAIRMAN'S STATEMENT
Review of operations
The Group has continued to increase underlying EBITDA and maintain strong free cash flow generation, which have been used to fund the progressive dividend policy and earnings-enhancing acquisitions.
AdEPT has been highly successful in gaining further traction in the public sector space, currently supplying telecoms services and unified communications into 38 councils (2015: 25 councils). We continue to concentrate on winning frameworks rather than individual tenders and in July 2015 the Company was awarded a framework agreement with the Crown Commercial Service under the RM1045 Network Services framework which has resulted in a number of new public sector contracts, not all of which are fully reflected in these results.
The Group's continued strong cash generation resulted in GBP4.5m of free cash flow after interest. This, combined with the drawdown of debt from the new GBP15m Revolving Credit Facility put in place with Barclays in April 2015, was used to fund the transformational acquisition of the entire issued share capital of Centrix Limited ('Centrix') in May 2015 and the continued progressive dividend policy.
Centrix is a well established UK-based specialist provider of complex unified communications, Avaya IP telephony, hosted IP solutions and managed services. Centrix offers its clients the delivery of complex unified communications and managed service solutions, which is an increasing requisite for AdEPT's existing and targeted enterprise and public sector customer base. The acquisition of Centrix, combined with organic sales, has increased the rate of transition of the Group towards managed services, which accounted for 44.3% of total revenue in the year ended 31 March 2016. Following the acquisition, the Group is now telecoms partner for 20 award-winning private hospitals and specialist clinics across London and Manchester and has a strong presence in business centres, supplying telecoms for eight out of 15 London-based business centres which have opened in the last 24 months. The team at Centrix has provided an excellent fit with AdEPT and has been successful in jointly working on unified communications contracts, particularly in the public sector, with five new contracts secured with councils post-acquisition. The post-acquisition performance of Centrix has delivered growth and therefore we anticipate the contingent deferred consideration to be at the top end of the range at around GBP3.0m. Testament to the success of the acquisition, the Group is pleased to announce that the Group's largest customer, which was a long-standing Centrix customer, has extended its contract for unified communications to the end of December 2019.
The issue of new equity during the year to directors increasing their shareholdings following the exercise of share options resulted in a cash inflow of GBP0.1m, which was used by the Company to repurchase 35,000 of its own shares during the year ended 31 March 2016 at an average price of 257.7p, pursuant to the stock exchange announcement issued on 18 December 2014. The Board believes that the share repurchase scheme can improve stock liquidity and increase value to shareholders and therefore the directors will continue to determine if further repurchases remain in the shareholders' best interests.
In line with its progressive policy, AdEPT has increased the dividend declared year-on-year by 36.8%, declaring a final dividend of 3.50p per ordinary share (2015: 2.50p), making total dividends declared in respect of the year ended 31 March 2016 of 6.50p per ordinary share (2015: 4.75p).
Employees
The improved 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 13 years and, on behalf of the Board, I would like to take this opportunity to thank all of our employees for their continued hard work.
Director changes and rebranding
The Group announces that after more than 13 years with AdEPT, its Chief Operating Officer, Amanda Woodruffe, has decided to retire and will therefore stand down from the Board with immediate effect. After a handover period, Amanda will leave the Group during summer 2016 with our best wishes for the future. The Board would like to take this opportunity to thank Amanda for her valuable contribution to AdEPT.
The Group is pleased to announce that it has appointed Richard Burbage, former director of Centrix, to the Board as Unified Communications Director, with immediate effect. Richard Burbage was the original founder of Centrix and one of the three owners who sold the business to AdEPT. He has over 20 years' experience running the Fleet business and is recognised as an industry expert in unified communications technologies. Richard will be responsible for overseeing the Centrix operation and developing the unified communications strategy, with particular focus on continued development of the public and healthcare sectors.
Following the completion of the contingent deferred consideration period for Centrix, and as part of Richard's introduction to the Group, Centrix has been rebranded in line with AdEPT, with effect from 1 June 2016. This provides the Group and its employees with a single brand identity, which should enable the Group to leverage benefits, particularly in relation to its public sector framework agreements.
Outlook
The excellent result for this year was delivered through a combination of strategic acquisition and organic contract wins, improving margins on customer contracts and maintaining 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.
The focus for the coming year remains on developing organic sales through leveraging AdEPT's approved supplier status on the various public sector telecom frameworks, maintaining profitability and cash flow conversion, which will be used to reduce net borrowings and/or fund suitable earnings-enhancing acquisitions.
Roger Wilson
Non-executive Chairman
STRATEGIC REPORT
PRINCIPAL ACTIVITIES AND REVIEW OF BUSINESS
The principal activity of the Group is the provision of voice and data communication services to both domestic and business customers. A review of the business is contained in the Chairman's statement and the highlights are summarised in the strategic report.
SUMMARY of three year financial performance:
Year ended March 2016 2015 2014 GBP'000 Year-on-Year GBP'000 Year-on-Year GBP'000 % % ------------------- --------- --------------- --------- --------------- --------- Revenue 28,881 30.8% 22,066 5.8% 20,852 Gross margin 11,634 40.2% 8,298 9.4% 7,584 Underlying EBITDA 6,153 34.0% 4,591 13.5% 4,043 Net debt 5,982 1,539 2,962 ------------------- --------- --------------- --------- --------------- ---------
REVENUE
During the year AdEPT has continued its transition from a traditional fixed line service provider towards a managed services provider. Total revenue generated from managed services represented 44.3% of total revenue in the year ended 31 March 2016 (2015: 27.4%).
Total revenue increased by 30.9% to GBP28.9m (2015: GBP22.1m):
-- Managed services product revenues increased by GBP6.8m to GBP12.8m (2015: GBP6.0m). This reflects the impact of the contribution from the acquisition of Centrix in May 2015 combined with an increased level of organic contract wins and a lower relative churn rate. AdEPT has continued to make progress in expanding the number of circuits and connections from new customer additions and through cross-selling into the existing customer base. As the demand for faster data connectivity speeds continues AdEPT has seen further customer orders for 1-10Gb services.
-- Traditional fixed line revenues were flat at GBP16.1m (2015: GBP16.0m), which is largely a reflection of the relative contribution from the Centrix acquisition which has been partially offset by the substitution impact of new technologies. The Group's reliance on fluctuating call revenues continues to reduce, with call revenue providing only 19.4% of total revenue in the year ended 31 March 2016 (2015: 25.3%).
The proportion of AdEPT revenue being generated from recurring products and services remains high at 91.7% of total revenue. The acquisition of Centrix extended the AdEPT product set to include hardware supply and installation services, which, by their nature, are project based and not a fixed recurring revenue streams, however, a high proportion of 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; this contract success is included in the 2016 revenue figures. AdEPT currently supplies a range of telecom services and unified communications for 38 councils. In July 2015 AdEPT was awarded a framework agreement with the Crown Commercial Service under the RM1045 Network Services framework. This is in addition to AdEPT's existing framework agreements with Ja.net, under which AdEPT is one of only a small number of companies approved to sell data connectivity to UK Colleges and Universities, and the ESPO framework, as the sole recommended supplier to public service bodies and registered charities for calls, lines, broadband, super-fast broadband (fibre) and SIP trunks.
The Group is continuing to focus its organic sales efforts on adding and retaining larger customers whilst complementing this with an acquisitive strategy. AdEPT's largest 1,400 customers (spending GBP5,000 per annum or more) account for approximately 63% of total revenue (2015: 1,000 customers, 50% of total revenue), with the top ten customers accounting for 26.1% of total revenue (2015: 12.9%).
GROSS MARGIN
Gross margin percentage has improved during the year.
Gross margins for fixed line services have been maintained at an absolute and percent. level through close monitoring of customer profitability and supply chain management of wholesale contracts.
Gross margins for managed services, such as installations, support and maintenance are higher than fixed line; this is a reflection of the headcount costs of supporting the project installations and maintenance being included within operating expenditure.
Underlying EBITDA
Underlying EBITDA is defined as operating profit after adding back depreciation, amortisation, impairment charges, acquisition fees 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:
2016 2015 GBP'000 GBP'000 ---------------------- --------- --------- Underlying EBITDA 6,153 4,591 Acquisition fees (389) - Share option charges 2 (3) Depreciation (188) (49) Amortisation (2,216) (2,169) Interest (612) (233) ---------------------- --------- --------- Profit before tax 2,750 2,137
Underlying EBITDA has increased for the 13th consecutive year since AdEPT's inception in 2003. The Group has focused on the underlying profitability of customers and revenue streams combined with tight overhead control, industry leading debt collection and wholesale supply chain negotiation.
FINANCE COSTS
Total interest costs have increased to GBP0.61m (2015: GBP0.23m), arising largely from the increase in net borrowings to fund the acquisition of Centrix in May 2015. Also included within interest costs is a GBP0.20m charge in relation to the discounted cash flow impact of the contingent deferred consideration payable in relation to the Centrix acquisition. 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 the Group has recorded a GBP0.61m improvement to profit before tax with a reported GBP2.75m (2015: GBP2.14m). The improvement to profit before tax arises from the GBP1.56m underlying EBITDA improvement, which has been absorbed by the GBP0.38m increase in finance costs and the acquisition costs of GBP0.39m in relation to Centrix.
PROFIT AFTER TAX AND EARNINGS PER SHARE
The profit for the year, after taxation, amounted to GBP1.96m (2015: GBP1.53m). Basic earnings per share increased by 27.2% to 8.78p (2015: 6.90p). Adjusted earnings per share, based on the profit for the year attributable to equity holders adding back amortisation and acquisition costs (see Note 25), increased by 24.2% to 19.57p per share (2015: 15.76p).
During the year ended 31 March 2016 the Company continued with a small share buyback of its own ordinary shares in order to improve stock liquidity and increase value to shareholders. The Company repurchased 35,000 shares (2015: 122,203 shares) at an average price of 257.7p (2015: 148.9p); the cost of these repurchases was met from the cash proceeds of share options exercised by the executive directors during the year. All shares repurchased by the Company were cancelled prior to the year end. The directors will continue to monitor the level of cash required for the business and determine if further repurchases remain in the shareholders' best interests.
DIVIDS AND DIVID PER SHARE
On the back of strong cash flow generation AdEPT announced an interim dividend of 3.00p per share, which was paid to shareholders on 8 April 2016. The Board of AdEPT Telecom announced on 5 April 2016 that, subject to shareholder approval at the annual general meeting later in the year, it is declaring a final dividend of 3.50p per ordinary share (2015: 2.50p). This dividend is expected to be paid on or around 7 October 2016 to shareholders on the register at 23 September 2016.
Total dividends approved and declared during the year ended 31 March 2016 of 6.50p per ordinary share represent a 36.8% increase year-on-year (2015: 4.75p). 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 underlying EBITDA turning into cash. Reported EBITA turned into net cash from operating activities after income tax is 85.7% (2015: 99.2%). The Group has continued to manage its credit risk in the current economic climate and the collections of trade receivables have been reasonably stable during the year with customer collection periods of 27 days (2015: 24 days).
Cash interest paid has increased during the year to GBP0.32m (2015: GBP0.17m), which arises from the increase in net borrowings to fund the acquisition of Centrix in May 2015.
Cash outflows of GBP7.1m have been incurred in the year ended 31 March 2016 in relation to acquisitions. The contingent consideration in respect of the acquisition of the entire issued share capital Bluecherry Telecom Limited was paid in April 2015 with no further amounts due. The initial cash consideration of GBP6.9m (net of cash acquired) was paid in May 2015 in relation to the acquisition of the entire issued share capital of Centrix Limited.
Dividends paid during the year ended 31 March 2016 absorbed GBP1.1m of cash (2015: GBP0.7m). This increase over the prior period arises from the continued application of the progressive dividend policy.
Cash inflows of GBP0.9m were generated from the issue of new equity during the year. Three of the executive director team increased their shareholdings in the Company following the exercise of share options. Pursuant to the stock exchange announcement during December 2014, these funds were used by the Company to make strategic purchases of its own shares.
There was an increase to cash and cash equivalents during the year of GBP4.1m. This arises from a net increase in the drawn element of the Barclays revolving credit facility at the year end which was used to fund the initial consideration for the acquisition of Comms Group UK Limited. 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 EXPITURE
The Group operates an asset light strategy and has low capital requirements; therefore, expenditure on fixed assets is low at 1.8% of revenue (2015: 0.5%). Capital expenditure has increased during the year largely due to an essential upgrade to the customer billing system combined with the fit out costs of the new Centrix office and head office refurbishment costs.
BUSINESS COMBINATIONS
The strategy of the Group is to concentrate organic sales efforts on attracting larger customers, particularly in the public and healthcare sector. Rather than operate a telesales operation aimed at acquiring smaller business customers organically, we instead use our free cash generation to acquire customer bases from other telecommunications suppliers in the industry.
On 1 May 2015 the Company acquired the entire issued share capital of Centrix Limited, a well established UK-based provider of complex unified communications, Avaya IP telephony, hosted IP solutions and managed services. Total consideration was an initial GBP6.9m plus the value of the cash balance of Centrix at completion (approximately GBP1.9m) with contingent consideration of up to GBP3.5m dependent upon the performance of Centrix post-acquisition. Acquisition related costs of GBP0.4m have been recognised as an expense in the statement of comprehensive income for the period ended 31 March 2016.
A fair value of GBP10.4m in relation to the customer contracts for the acquired business has been recognised as intangible asset additions in the year ended 31 March 2016. Further details on the acquisition during the year are described in Note 27 to the financial statements.
Post year end, on 1 May 2016, the Company acquired the entire issued share capital of Comms Group UK Limited for an initial consideration of GBP3.5m plus the value of the cash balance at completion (approximately GBP1.1m), payable in cash. Further contingent consideration of between GBPNil and GBP3.5m will be payable, also in cash, dependent upon performance of Comms Group UK Limited post-acquisition.
Further details on the acquisition post-balance sheet date are described in Note 28 to 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 bank interest paid of GBP4.5m was generated during the year ended 31 March 2016 (2015: GBP4.3m). Income taxes paid during the year increased from GBP0.3m to GBP0.9m. Lower charges in earlier periods are a reflection of corporation tax deductions in relation to share option exercises.
The free cash flow plus borrowing drawdowns of GBP8.4m have been used to fund GBP7.1m acquisition consideration, GBP1.1m dividends paid and GBP0.7m of capital expenditure on tangible and intangible assets. Net cash inflows of GBP0.1m have arisen from the issue of new equity following the exercise of share options by executive directors which has been used to fund the share repurchases during the year. Net debt, which comprises cash balances and bank borrowings, has increased to GBP6.0m at the year-end (2015: GBP1.5m) as a result of the acquisition consideration outflows, mainly in relation to Centrix.
On 22 April 2015 the Group signed a new five year GBP15m revolving credit facility agreement with Barclays Bank plc. This longer term facility replaced the previous GBP5m revolving credit facility, which had an 18 month term remaining, and the term loan which was due for repayment by September 2015. The new revolving credit facility offers the Group significantly greater flexibility and is on longer and improved commercial terms when compared to the facility which it replaces. The new revolving credit facility bears interest at 2.30% over LIBOR on drawn funds and is repayable in full on the final repayment date of 21 April 2020.
The Group's available banking facilities are described in Note 26 to the financial statements.
KEY PERFORMANCE INDICATORS (KPIs)
The 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 2016 Revenue 16,089 12,792 28,881 Gross profit 6,194 5,440 11,634 Gross margin % 38.5% 42.5% 40.3% Year ended 31 March 2015 Revenue 16,026 6,040 22,066 Gross profit 6,160 2,138 8,298 Gross margin % 38.4% 35.4% 37.6%
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 to customers of various durations depending on customer creditworthiness 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, 67% of our customer receipts are by monthly direct debit. The risk is further reduced by the customer base being spread across all industry and service sectors. The top ten customers account for approximately 13% 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
2016 2015 Note GBP'000 GBP'000 ------------------------------------------------------- ---- -------- -------- Revenue 2 28,881 22,066 Cost of sales (17,247) (13,768) ------------------------------------------------------- ---- -------- -------- Gross profit 11,634 8,298 Administrative expenses (8,272) (5,928) ------------------------------------------------------- ---- -------- -------- Operating profit 3,362 2,370 ------------------------------------------------------- ---- -------- -------- Total operating profit - analysed: Operating profit before acquisition costs, share-based payments, depreciation and amortisation 6,153 4,591 Share-based payments 2 (3) Depreciation of tangible fixed assets (188) (49) Acquisition fees (389) - Amortisation of intangible fixed assets (2,216) (2,169) ------------------------------------------------------- ---- -------- -------- Total operating profit 3,362 2,370
------------------------------------------------------- ---- -------- -------- Finance costs 7 (612) (233) ------------------------------------------------------- ---- -------- -------- Profit before income tax 2,750 2,137 Income tax expense 10 (786) (603) ------------------------------------------------------- ---- -------- -------- Profit for the year and total comprehensive income 1,964 1,534 ------------------------------------------------------- ---- -------- -------- Note 2016 2015 ------------------------------------------------------- ---- -------- -------- Earnings per share Basic earnings 25 8.78p 6.90p ------------------------------------------------------- ---- -------- --------
All amounts relate to continuing operations.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
31 March 31 March 2016 2015 Note GBP'000 GBP'000 -------------------------------------- ---- -------- -------- Assets Non-current assets Intangible assets 12 23,263 14,874 Property, plant and equipment 14 524 82 Deferred income tax 15 56 145 -------------------------------------- ---- -------- -------- 23,843 15,101 Current assets Inventories 16 48 3 Trade and other receivables 17 4,360 2,198 Cash and cash equivalents 6,166 2,095 -------------------------------------- ---- -------- -------- 10,574 4,296 -------------------------------------- ---- -------- -------- Total assets 34,417 19,397 Current liabilities Trade and other payables 18 8,753 3,165 Income tax 335 324 Short-term borrowings - 538 -------------------------------------- ---- -------- -------- 9,088 4,027 Non-current liabilities Long-term borrowings 19 12,148 3,095 -------------------------------------- ---- -------- -------- Total liabilities 21,236 7,122 -------------------------------------- ---- -------- -------- Net assets 13,181 12,275 -------------------------------------- ---- -------- -------- Equity attributable to equity holders Share capital 20 2,248 2,230 Share premium 429 335 Retained earnings 10,504 9,710 -------------------------------------- ---- -------- -------- Total equity 13,181 12,275 -------------------------------------- ---- -------- --------
COMPANY STATEMENT OF FINANCIAL POSITION
31 March 31 March 2016 2015 Note GBP'000 GBP'000 -------------------------------------- ---- -------- -------- Assets Non-current assets Intangible assets 12 13,255 14,874 Investments 13 11,846 - Property, plant and equipment 14 204 82 Deferred income tax 15 106 145 -------------------------------------- ---- -------- -------- 25,411 15,101 Current assets Inventories 16 1 3 Trade and other receivables 17 1,885 2,198 Cash and cash equivalents 5,489 2,095 -------------------------------------- ---- -------- -------- 7,375 4,296 -------------------------------------- ---- -------- -------- Total assets 32,786 19,397 Current liabilities Trade and other payables 18 6,195 3,165 Income tax 90 324 Short-term borrowings - 538 -------------------------------------- ---- -------- -------- 6,285 4,027 Non-current liabilities Long-term borrowings 19 12,148 3,095 -------------------------------------- ---- -------- -------- Total liabilities 18,433 7,122 -------------------------------------- ---- -------- -------- Net assets 14,353 12,275 -------------------------------------- ---- -------- -------- Equity attributable to equity holders Share capital 20 2,248 2,230 Share premium 429 335 Retained earnings 11,676 9,710 -------------------------------------- ---- -------- -------- Total equity 14,353 12,275 -------------------------------------- ---- -------- --------
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
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 2014 2,194 189 72 - 8,248 10,703 Profit for the year - - - - 1,534 1,534 Other comprehensive income - - - - - - ----------------------- -------- -------- -------- ----------- --------- -------- Total comprehensive income - - - - 1,534 1,534 Deferred tax asset adjustment - - - - 23 23 Share-based payments - - (14) - 17 3 Issue of share capital 48 146 - - - 194 Shares repurchased and cancelled (12) - - 12 (182) (182) ----------------------- -------- -------- -------- ----------- --------- -------- Equity at 1 April 2015 2,230 335 58 12 9,640 12,275 ----------------------- -------- -------- -------- ----------- --------- -------- Profit for the year - - - - 1,964 1,964 Other comprehensive income - - - - - - ----------------------- -------- -------- -------- ----------- --------- -------- Total comprehensive income - - - - 1,964 1,964 Deferred tax asset adjustment - - - - (23) (23) Dividends - - - - (1,059) (1,059) Share-based payments - - (2) - - (2) Issue of share capital 22 94 - - - 116 Shares repurchased and cancelled (4) - - 4 (90) (90) ----------------------- -------- -------- -------- ----------- --------- -------- Equity at 31 March 2016 2,248 429 56 16 10,432 13,181 ----------------------- -------- -------- -------- ----------- --------- --------
COMPANY STATEMENT OF CHANGES IN EQUITY
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 2014 2,194 189 72 - 8,248 10,703 Profit for the year - - - - 1,534 1,534 Other comprehensive income - - - - - - ----------------------- -------- -------- -------- ----------- --------- -------- Total comprehensive income - - - - 1,534 1,534 Deferred tax asset adjustment - - - - 23 23 Share-based payments - - (14) - 17 3
Issue of share capital 48 146 - - - 194 Shares repurchased and cancelled (12) - - 12 (182) (182) ----------------------- -------- -------- -------- ----------- --------- -------- Equity at 1 April 2015 2,230 335 58 12 9,640 12,275 ----------------------- -------- -------- -------- ----------- --------- -------- Profit for the year - - - - 643 643 Dividends received from subsidiary - - - - 2,493 2,493 Other comprehensive income - - - - - - ----------------------- -------- -------- -------- ----------- --------- -------- Total comprehensive income - - - - 3,136 3,136 Deferred tax asset adjustment - - - - (23) (23) Dividends - - - - (1,059) (1,059) Share-based payments - - (2) - - (2) Issue of share capital 22 94 - - - 116 Shares repurchased and cancelled (4) - - 4 (90) (90) ----------------------- -------- -------- -------- ----------- --------- -------- Equity at 31 March 2016 2,248 429 56 16 11,604 14,353 ----------------------- -------- -------- -------- ----------- --------- --------
CONSOLIDATED STATEMENT OF CASH FLOWS
2016 2015 GBP'000 GBP'000 ------------------------------------------ -------- -------- Cash flows from operating activities Profit before income tax 2,750 2,137 Depreciation and amortisation 2,403 2,218 Profit on sale of fixed asset (2) - Share-based payments (2) 3 Net finance costs 612 233 ------------------------------------------ -------- -------- Operating cash flows before movements in working capital 5,761 4,591 Decrease in inventories 14 - (Increase)/decrease in trade and other receivables (803) 76 Increase in trade and other payables 666 153 ------------------------------------------ -------- -------- Cash generated from operations 5,638 4,820 Income taxes paid (855) (315) ------------------------------------------ -------- -------- Net cash from operating activities 4,783 4,505 ------------------------------------------ -------- -------- Cash flows from investing activities Interest paid (318) (175) Acquisition of subsidiaries net of cash acquired (7,058) (2,152) Purchase of intangible assets (194) (11) Sale of property, plant and equipment 14 - Purchase of property, plant and equipment (532) (52) ------------------------------------------ -------- -------- Net cash used in investing activities (8,088) (2,390) ------------------------------------------ -------- -------- Cash flows from financing activities Dividends paid (1,059) (660) Share capital issued 114 194 Payments made for share repurchases (90) (182) Increase in bank loan 18,400 2,250 Repayment of borrowings (9,988) (5,399) ------------------------------------------ -------- -------- Net cash from financing activities 7,377 (3,797) ------------------------------------------ -------- -------- Net increase/(decrease) in cash and cash equivalents 4,072 (1,682) Cash and cash equivalents at beginning of year 2,094 3,777 ------------------------------------------ -------- -------- Cash and cash equivalents at end of year 6,166 2,095 ------------------------------------------ -------- -------- Cash and cash equivalents Cash at bank and in hand 6,166 2,095 Cash and cash equivalents 6,166 2,095 ------------------------------------------ -------- --------
COMPANY STATEMENT OF CASH FLOWS
2016 2015 GBP'000 GBP'000 ------------------------------------------ -------- -------- Cash flows from operating activities Profit before income tax 3,485 2,137 Depreciation and amortisation 1,872 2,218 Profit on sale of fixed asset (2) - Share-based payments (2) 3 Net finance costs 612 233 ------------------------------------------ -------- -------- Operating cash flows before movements in working capital 5,965 4,591 Decrease in inventories 3 - Decrease in trade and other receivables 217 76 Increase in trade and other payables 208 153 ------------------------------------------ -------- -------- Cash generated from operations 6,393 4,820 Income taxes paid (566) (315) ------------------------------------------ -------- -------- Net cash from operating activities 5,827 4,505 ------------------------------------------ -------- -------- Cash flows from investing activities Interest paid (315) (175) Acquisition of subsidiaries net of cash acquired (9,121) (2,152) Purchase of intangible assets (194) (11) Sale of property, plant and equipment 14 - Purchase of property, plant and equipment (193) (52) ------------------------------------------ -------- -------- Net cash used in investing activities (9,809) (2,390) ------------------------------------------ -------- -------- Cash flows from financing activities Dividends paid (1,059) (660) Share capital issued 114 194 Payments made for share repurchases (90) (182) Increase in bank loan 18,400 2,250 Repayment of borrowings (9,988) (5,399) ------------------------------------------ -------- -------- Net cash from financing activities 7,377 (3,797) ------------------------------------------ -------- -------- Net increase/(decrease) in cash and cash equivalents 3,395 (1,682) Cash and cash equivalents at beginning of year 2,095 3,777 ------------------------------------------ -------- -------- Cash and cash equivalents at end of year 5,490 2,095 ------------------------------------------ -------- -------- Cash and cash equivalents Cash at bank and in hand 5,490 2,095 Cash and cash equivalents 5,490 2,095 ------------------------------------------ -------- --------
NOTES TO THE FINANCIAL STATEMENTS
1. Nature of operations and general information
AdEPT is one of the UK's leading independent providers of voice and data telecommunication services with award-winning customer service. The Group is focused on delivering a complete telecommunications service for small and medium-sized business customers with a targeted product range including landline calls, line rental, broadband, mobile and data connectivity services.
AdEPT is incorporated under the Companies Act, domiciled in the UK and the registered office is located at One London Wall, London EC2Y 5AB. The Company's shares are listed on AIM of the London Stock Exchange.
2. Accounting policies
Basis of preparation of financial statements
The financial statements have been prepared in accordance with applicable IFRS 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 25 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 were in issue but not yet effective (and in some cases had not yet been adopted by the EU) and IFRS 15 "Revenue from Contracts with Customers", IFRS 16 "Leases" and IFRS 9 "Financial Instruments" were considered to be relevant. It is not clear whether the application of IFRS 15, IFRS 16 and IFRS 9 once effective will have a material impact on the results of the Group. Adoption of the other standards and interpretations are 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.
Segmental reporting
The directors have considered the requirements of IFRS 8 "Operating Segments" and have concluded that the Group has two segments. For further information see Note 4 of the financial statements.
Revenue
Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and can be reliably measured.
Revenue from calls, which excludes value added tax and trade discounts, is recognised in the income statement at the time the call is made. Calls made in the year, but not billed by year end, are accrued within receivables as accrued income.
Revenue from line rental is recognised in the month that the charge relates to, commencing with a full month's charge in the month of connection. Revenue and related costs from the sales of mobile handsets are recognised at the date of supply or connection.
Revenue arising from the provision of internet and other services is recognised evenly over the periods in which the service is provided to the customer.
Revenue from the sale of goods is recognised when the goods have been fully installed. Income from maintenance services is recognised over the term of the agreement.
Connection commissions received from mobile network operators are recognised when the customer is connected to the mobile network after providing for expected future clawbacks.
The whole of the revenue is attributable to the provision of voice and data telecommunication services to both residential and business customers. All revenue arose within the United Kingdom.
Intangible fixed assets acquired as part of a business combination and amortisation
In accordance with IFRS 3 "Business Combinations", an intangible asset acquired in a business combination is recognised at fair value at the acquisition date.
After initial recognition, intangible assets are carried at cost less any accumulated amortisation and any accumulated impairment losses. Impairment reviews are conducted annually from the first anniversary following acquisition.
The intangible asset 'customer base' is amortised to the income statement over its estimated useful economic life on a straight line basis.
Other intangible assets
Also included within intangible fixed assets are the development costs of the Company's billing and customer management system plus an individual licence. These other intangible assets are stated at cost, less amortisation and any provision for impairment. Amortisation is provided at rates calculated to write off the cost, less estimated residual value of each intangible asset, over its expected useful economic life on the following bases:
Customer management system - Three years straight line Other licences - Contract licence period straight line Computer software - Three years straight line
Investments
Shareholdings in subsidiaries are valued at cost less provision for permanent impairment.
Property, plant and equipment and depreciation
Property, plant and equipment are stated at cost, less depreciation and any provision for impairment. Depreciation is provided on all property, plant and equipment at rates calculated to write off the cost, less estimated residual value of each asset, over its expected useful life on the following bases:
Short-term leasehold improvements - The shorter of five years and the remaining period of the lease straight line
Fixtures and fittings - Three years straight line Office equipment - Three years straight line Motor vehicles - Four years straight line Rental equipment at customer premises - Contract agreement period straight line
Lease accounting
The Group leases equipment under operating leases to non-related parties.
Leases of equipment where the Group retains substantially all risks and rewards incidental to ownership are classified as operating leases. The underlying assets are recognised in tangible fixed assets. Rental income from operating leases (net of any incentives given to the lessees) is recognised in profit or loss on a straight-line basis over the lease term.
Initial direct costs incurred by the Group in negotiating and arranging operating leases are added to the carrying amount of the leased assets and recognised as an expense in profit or loss over the lease term on the same basis as the lease income.
Inventories
Inventories are valued at the lower of cost and net realisable value after making allowance for any obsolete or slow moving items. Net realisable value is reviewed regularly to ensure accurate carrying values. Cost is determined on a first-in-first-out basis and includes transportation and handling costs.
Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs necessary to make the sale.
Pensions
The Group contributes to personal pension plans. The amount charged to the income statement in respect of pension costs is the contribution payable in the year.
Income tax
Income tax is the tax currently payable based on taxable profit for the year.
Deferred income tax is generally provided on the difference between the carrying amounts of assets and liabilities and their tax bases. However, deferred income tax is not provided on the initial recognition of goodwill, nor on the initial recognition of an asset or liability unless the related transaction is a business combination or affects tax or accounting profit.
Deferred income tax liabilities are provided in full, with no discounting. Deferred income tax assets are recognised to the extent that it is probable that the underlying deductible temporary differences will be able to be offset against future taxable income. Current and deferred income tax assets and liabilities are calculated at tax rates that are expected to apply to their respective period of realisation, provided they are enacted or substantively enacted at the balance sheet date.
Changes in deferred income tax assets or liabilities are recognised as a component of income tax expense in the income statement, except where they relate to items that are charged or credited directly to equity in which case the related deferred income tax is also charged or credited directly to equity.
Share-based payments
The cost of equity-settled transactions with employees is measured by reference to the fair value of the award at the date at which they are granted and is recognised as an expense over the vesting period, which ends on the date at which the relevant employees become fully entitled to the award. Fair value is appraised at the grant date and excludes the impact on non-market vesting conditions such as profitability and sales growth targets, using an appropriate pricing model for which the assumptions are approved by the directors. In valuing equity-settled transactions, only vesting conditions linked to the market price of the shares of the Company are considered.
No expense is recognised for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition, which are treated as vesting irrespective of whether or not the market condition is satisfied, provided that all other performance conditions are satisfied.
At each balance sheet date, the cumulative expense (as above) is calculated, representing the extent to which the vesting period has expired, management's best estimate of the achievement or otherwise of non-market conditions and the number of equity instruments that will ultimately vest or, in the case of an instrument subject to a market condition, be treated as vesting described above. The movement in the cumulative expense since the previous balance sheet date is recognised in the income statement, with a corresponding entry in equity.
Non-recurring items and acquisition costs
Material and non-recurring items of income and expense are separated out in the income statement. Examples of items which may give rise to disclosure as non-recurring items include costs of acquisition, restructuring and reorganisation of existing businesses, integration of newly acquired businesses and asset impairments.
Trade and other receivables
Trade receivables, which generally have 14-60 days terms, are initially recognised at fair value and subsequently held at amortised cost. A provision for impairment of trade receivables is established when it is considered probable that the Group may not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency in payments are considered indicators that the trade receivable is impaired. The provision is the difference between the asset's carrying amount and the original invoice amount less bad debts written-off. The carrying amount of the asset is reduced through the use of the provision and the amount of the loss is recognised in the income statement. When a trade receivable is uncollectible, it is written off against the allowance account for trade receivables.
Subsequent recoveries of amounts previously written off are credited in the income statement.
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand and demand deposits, together with other short-term, highly liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value.
Trade payables
Trade payables are stated at their nominal value, recognised initially at fair value and subsequently valued at amortised cost.
Dividends
Dividend distributions to the Company's shareholders are recognised when payment has been made to shareholders.
Share buybacks
The Company has returned surplus cash to shareholders through a limited share buyback scheme pursuant to the authority given to it at the annual general meeting. Shares purchased for cancellation are deducted from retained earnings at the total consideration paid or payable. The Group will continue to monitor the level of cash required for the business and determine if further repurchases remain in the shareholders' best interests.
Financial instruments
Financial assets and liabilities are recognised on the Group's balance sheet when the Group becomes a party to the contractual provisions of the instrument.
Capital
The capital structure of the Group consists of debt, which includes the borrowings disclosed in Notes 19 and 26, cash and cash equivalents, and equity attributable to equity holders, comprising issued capital, reserves and retained earnings.
Borrowings and borrowing costs
Borrowings are recorded initially at the proceeds received, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost. Any differences between the proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the period of the borrowings using the effective interest method.
Borrowing costs are expensed to the income statement as incurred with the exception of arrangement fees which are deducted from the related liability and released over the term of the related liability in accordance with IAS 39.
3. Critical accounting estimates and judgements
The key assumptions concerning the future and other key sources of estimation and uncertainty at the balance sheet date, which have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities with the next financial year, are discussed below.
Key sources of estimation and uncertainty are:
Measuring the fair value of customer bases on acquisition
The main estimates used to measure the fair value of the customer bases on acquisition are:
-- the churn rate (turnover of customers); -- discount rate; and -- gross margins.
Churn rates are based upon actual historical churn rates of the revenue stream for each customer base acquired. The discount rate used to discount the cash flows is based upon the Group's weighted average cost of capital (WACC) applicable at the date of acquisition. Gross margins are based upon actual margins achieved by the customer bases in the period prior to acquisition.
Estimating the useful life of customer bases
The main estimates used to conduct the impairment review are:
-- the churn rate (turnover of customers); -- discount rate; and -- gross margins.
The average useful economic life of all the customer bases has been estimated at 14 years (2015: 17 years) with a range of seven to thirty years.
Estimating churn, discount rate and gross margins
Churn rates ranging between (9.5%) and 22.7% are based upon actual historical churn rates of the revenue stream for each customer base.
The discount rate of 8.0% (2015: 5.7%) used to discount the cash flows is based upon the Group's weighted average cost of capital (WACC), which is the recommended discount rate suggested by International Financial Reporting Standards 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.
Gross margins of 44.2% are based upon actual margins achieved by the customer bases in the current and previous years. The actual outcomes have been materially equivalent.
Measuring the fair value of contingent consideration
The fair value of contingent deferred consideration is determined by reference to the growth rate for the gross margin of the acquired business and applying the contingent deferred consideration matrix as specified in the asset or share purchase agreement and discounting the net present value of the future cash flows. The range of contingent consideration in the current period was GBP0 to GBP3.5m, further details are included in Note 27.
Subsequent impairment of customer bases
The Group determines whether intangible assets are impaired on at least an annual basis. This requires an estimation of the 'value in use' of the cash-generating units to which the intangible value is allocated. Estimating a value in use amount requires management to make an estimate of the expected future cash flows from the cash-generating unit and also to choose a suitable discount rate in order to calculate the present value of those cash flows.
The calculations are sensitive to any movement in the discount rate, margin or churn rate and would 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 additional impairment charges of GBP36,000, GBP13,000 and GBPNil respectively.
More details, including carrying values, are included in Note 12.
Allowance for impairment of receivables
Management reviews are performed to estimate the level of provision required for irrecoverable debt. Provisions are made specifically against invoices where recoverability is uncertain. Further information on the receivables allowance account is given in Note 17.
4. 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 services, 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 Year ended 31 March 2016 2015 -------------------------------------- -------------------------------------- Fixed Fixed line Managed Central line Managed Central GBP'000 services services costs Total services services costs Total ------------------------ --------- --------- ------- ------- --------- --------- ------- ------- Revenue 16,089 12,792 - 28,881 16,026 6,040 - 22,066 Gross profit 6,194 5,440 - 11,634 6,160 2,138 - 8,298 Gross margin % 38.5% 42.5% - 40.3% 38.4% 35.4% - 37.6% ------------------------ --------- --------- ------- ------- --------- --------- ------- ------- Underlying EBITDA 3,512 2,641 - 6,153 3,411 1,180 - 4,591 Underlying EBITDA % 21.8% 20.6% - 21.3% 21.3% 19.5% - 20.8% ------------------------ --------- --------- ------- ------- --------- --------- ------- ------- Amortisation (2,216) - - (2,216) (2,169) - - (2,169) Depreciation - - (188) (188) - - (49) (49) Acquisition costs - - (389) (389) - - - - Share-based payments - - 2 2 - - (3) (3) ------------------------ --------- --------- ------- ------- --------- --------- ------- ------- Operating profit/(loss) 1,296 2,641 (575) 3,362 1,242 1,180 (52) 2,370 ------------------------ --------- --------- ------- ------- --------- --------- ------- ------- Finance costs - - (612) (612) - - (233) (233)
Income tax - - (786) (786) - - (603) (603) ------------------------ --------- --------- ------- ------- --------- --------- ------- ------- Profit/(loss) after tax 1,296 2,641 (1,973) 1,964 1,242 1,180 (888) 1,534 ------------------------ --------- --------- ------- ------- --------- --------- ------- -------
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 2015 or 2016.
5. Operating profit
The operating profit is stated after charging:
2016 2015 GBP'000 GBP'000 ---------------------------------------------- -------- -------- Amortisation of customer base, billing system and licence 2,216 2,169 Depreciation of tangible fixed assets: - owned by the Group 188 49 Share option (credit)/expense (2) 3 Minimum operating lease payments: - land and buildings 537 171 - motor vehicles and other equipment 103 42 ---------------------------------------------- -------- --------
6. Auditors remuneration
2016 2015 GBP'000 GBP'000 ------------------------------------------- -------- -------- Fees payable to the Group's auditors for the audit of the Group's annual financial statements 33 33 Fees payable to the Group's auditors and their associates in respect of: - audit of subsidiaries 10 - - other services relating to taxation 8 6 ------------------------------------------- -------- --------
7. Finance costs
2016 2015 GBP'000 GBP'000 ----------------------------------------- -------- -------- On bank loans and overdrafts 315 174 Bank fees 95 59 Finance cost on contingent consideration 202 - ----------------------------------------- -------- -------- 612 233 ----------------------------------------- -------- --------
8. Employee costs
Staff costs, including directors' remuneration, were as follows:
2016 2015 GBP'000 GBP'000 ---------------------- -------- -------- Wages and salaries 3,120 1,884 Social security costs 366 243 Share option expense (2) 3 Other pension costs 251 22 ---------------------- -------- -------- 3,735 2,152 ---------------------- -------- --------
The average monthly number of employees, including the directors, during the year was as follows:
2016 2015 Number Number ------------------------ ------- ------- Non-executive directors 2 3 Administrative staff 60 43 ------------------------ ------- ------- 62 46 ------------------------ ------- -------
Key management personnel
The directors are considered to be the key management personnel of the Group, having authority and responsibility for planning, directing and controlling the activities of the Group.
9. Directors' emoluments
Post- Short-term employee employment benefits benefits ----------------------------------- -------------- Salary Bonus and fees paid paid or or Other Pension Total Total receivable receivable benefits contributions 2016 2015 GBP GBP GBP GBP GBP GBP ------------ ----------- ----------- --------- -------------- ------- ------- R Wilson 43,743 - 7,614 366 51,723 50,036 C Fishwick 8,750 - - 8 8,758 15,000 D Lukic 21,258 - 7,190 150 28,598 27,495 I Fishwick 209,796 92,500 7,547 15,367 325,210 288,541 A Woodruffe 141,020 33,788 1,828 366 177,002 170,070 J Murphy 81,826 788 9,869 244 92,727 132,720 J Swaite 91,875 33,788 7,373 366 133,402 115,694 ------------ ----------- ----------- --------- -------------- ------- ------- Total 598,268 160,864 41,421 16,867 817,420 799,556 ------------ ----------- ----------- --------- -------------- ------- -------
During the year retirement benefits were accruing to one director (2015: one) in respect of money purchase pension schemes. The value of the Group's contributions paid to a money purchase pension scheme in respect of the highest paid director amounted to GBP15,367 (2015: GBP15,648). During the year there was one share option transaction in respect of the highest paid director (2015: no share option transactions).
The share option credit recognised during the year in respect of the directors was GBP2,259 (2015: charge of GBP2,789). The aggregate amount of gains made by directors on the exercise of share options was GBP483,323 (2015: GBP405,400). There were three directors (2015: three) who exercised share options during the year.
Directors' share options
Options Options at 1 at Option April Awarded Options Options 31 March Option Date of scheme 2015 in year exercised lapsed 2016 price grant ------------ ----------- ------- -------- ---------- ------- --------- ------ ----------- 13 November A Woodruffe EMI 171,708 - (171,708) - - 52p 2012 13 November J Swaite EMI 25,000 - (25,000) - - 52p 2012 13 November J Murphy EMI 25,000 - (25,000) - - 52p 2012 1 March I Fishwick EMI - 129,440 - - 129,440 222p 2016 1 March J Swaite EMI - 64,720 - - 64,720 222p 2016 1 March R Wilson EMI - 29,660 - - 29,660 222p 2016 1 March D Lukic Unapproved - 16,180 - - 16,180 222p 2016 ------------ ----------- ------- -------- ---------- ------- --------- ------ -----------
10. Income tax expense
2016 2015 GBP'000 GBP'000 ------------------------------------------------ -------- -------- Current tax UK corporation tax on profit for the year 725 637 Adjustments in respect of prior periods (5) 3 ------------------------------------------------ -------- -------- Total current tax 720 640 ------------------------------------------------ -------- -------- Deferred tax Origination and reversal of timing differences: * Fixed assets 39 3 * Provision for receivables - (8) * Share options 21 (25) Adjustments in respect of prior periods 3 (7) Total deferred tax (see Note 15) 66 (37) ------------------------------------------------ -------- -------- Total income tax expense 786 603 ------------------------------------------------ -------- --------
Factors affecting tax charge for year
The relationship between expected tax expense based on the effective tax rate of AdEPT at 20% (2015: 21%) and the tax expense actually recognised in the income statement can be reconciled as follows:
2016 2015 GBP'000 GBP'000 ---------------------------------------------- -------- -------- Profit before income tax 2,750 2,137 Tax rate 20% 21% Expected tax charge 550 449 Expenses not deductible for tax purposes 99 33 Amortisation not deductible for tax purposes 243 253 Adjustments to tax charge in respect of prior periods (2) (5) Short-term timing differences 24 - Share options (32) (32) Share option relief (96) (95) ---------------------------------------------- -------- -------- Actual tax expense net 786 603 ---------------------------------------------- -------- --------
There were no material factors that may affect future tax charges.
11. Dividends
On 30 September 2015 the directors approved an interim dividend of 3.00p per ordinary share (2015: 2.25p), which was paid to shareholders on 8 April 2016. On 30 March 2016 the directors declared a final dividend, subject to shareholder approval at the 2016 annual general meeting, of 3.50p per ordinary share (2015: 2.50p). Total dividends declared in respect of the year ended 31 March 2016 will absorb GBP1,461,467 of shareholders' funds in future periods (2015: total GBP1,054,001).
On 7 April 2015 the Company paid dividends of GBP502,368 in relation to the interim dividend declared in September 2014. On 6 October 2015 the Company paid dividends of GBP557,435 in relation to the final dividend declared in March 2015. Total dividends paid in the year ended 31 March 2016 absorbed GBP1,059,803 of cash (2015: GBP329,094).
12. Intangible fixed assets
Group
Computer Customer Licence software base Total GBP'000 GBP'000 GBP'000 GBP'000 -------------------- -------- --------- -------- -------- Cost At 1 April 2014 26 1,040 30,060 31,126 Additions - 40 1,985 2,025 -------------------- -------- --------- -------- -------- At 1 April 2015 26 1,080 32,045 33,151 Additions - 194 10,411 10,605 -------------------- -------- --------- -------- -------- At 31 March 2016 26 1,274 42,456 43,756 -------------------- -------- --------- -------- -------- Amortisation At 1 April 2014 22 972 15,114 16,108 Charge for the year 3 56 2,110 2,169 Impairment charge - - - - -------------------- -------- --------- -------- -------- At 1 April 2015 25 1,028 17,224 18,277 Charge for the year 1 84 2,086 2,171 Impairment charge - - 45 45 -------------------- -------- --------- -------- -------- At 31 March 2016 26 1,112 19,355 20,493 -------------------- -------- --------- -------- -------- Net book value At 31 March 2016 - 162 23,101 23,263 -------------------- -------- --------- -------- -------- At 31 March 2015 1 52 14,821 14,874 -------------------- -------- --------- -------- --------
Included within the Group's intangible assets is GBP11,450,987 in relation to the Centrix Limited customer base (2015: GBPNil) with an estimated useful life of thirty years.
Company
Computer Customer Licence software base Total GBP'000 GBP'000 GBP'000 GBP'000 -------------------- -------- --------- -------- -------- Cost At 1 April 2014 26 1,040 30,060 31,126 Additions - 40 1,985 2,025 -------------------- -------- --------- -------- -------- At 1 April 2015 26 1,080 32,045 33,151 Additions - 194 - 194 -------------------- -------- --------- -------- -------- At 31 March 2016 26 1,274 32,045 33,345 -------------------- -------- --------- -------- -------- Amortisation At 1 April 2014 22 972 15,114 16,108 Charge for the year 3 56 2,110 2,169 Impairment charge - - - - -------------------- -------- --------- -------- -------- At 1 April 2015 25 1,028 17,224 18,277 Charge for the year 1 84 1,683 1,768 Impairment charge - - 45 45 -------------------- -------- --------- -------- -------- At 31 March 2016 26 1,112 18,952 20,090 -------------------- -------- --------- -------- -------- Net book value At 31 March 2016 - 162 13,093 13,255 -------------------- -------- --------- -------- -------- At 31 March 2015 1 52 14,821 14,874 -------------------- -------- --------- -------- --------
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 2016 the net present value of future cash flows of certain cash-generating units was below the carrying value and an impairment charge of GBP45,041 (2015: GBPNil) has been recorded.
13. Investments in subsidiaries
Company
Company Total GBP'000 GBP'000 --------------------------------- -------- -------- Cost At 1 April 2014 and 1 April 2015 - - Additions 11,846 11,846 ----------------------------------- -------- -------- At 31 March 2016 11,846 11,846 ----------------------------------- -------- -------- Amounts written off At 1 April 2014 and 1 April 2015 - - Written off during the year - - --------------------------------- -------- -------- At 31 March 2016 - - --------------------------------- -------- -------- Net book value At 31 March 2016 11,846 11,846 ----------------------------------- -------- -------- At 31 March 2015 - - ----------------------------------- -------- --------
Details of the principal subsidiaries of the Company are included in Note 29 to the financial statements.
14. 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 2014 25 7 137 277 446 Additions - - 2 50 52 ------------------------- --------- ------------- --------- ---------- -------- At 1 April 2015 25 7 139 327 498 Acquired with subsidiary - - - 109 109 Additions 105 - 199 228 532 Disposals 25 - - 116 141 ------------------------- --------- ------------- --------- ---------- -------- At 31 March 2016 105 7 338 548 998 ------------------------- --------- ------------- --------- ---------- -------- Depreciation At 1 April 2014 3 7 131 226 367 Charge for the year 6 - 4 39 49 ------------------------- --------- ------------- --------- ---------- -------- At 1 April 2015 9 7 135 265 416 Charge for the year 9 - 17 162 188 Disposals 14 - - 116 130 ------------------------- --------- ------------- --------- ---------- -------- At 31 March 2016 4 7 152 311 474 ------------------------- --------- ------------- --------- ---------- -------- Net book value At 31 March 2016 101 - 186 237 524 ------------------------- --------- ------------- --------- ---------- -------- At 31 March 2015 16 - 4 62 82 ------------------------- --------- ------------- --------- ---------- --------
Company
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 2014 25 7 137 277 446 Additions - - 2 50 52 -------------------- --------- ------------- --------- ---------- -------- At 1 April 2015 25 7 139 327 498 Additions 105 - 69 19 193 Disposals 25 - - - 25 -------------------- --------- ------------- --------- ---------- -------- At 31 March 2016 105 7 208 346 666 -------------------- --------- ------------- --------- ---------- -------- Depreciation At 1 April 2014 3 7 131 226 367 Charge for the year 6 - 4 39 49 -------------------- --------- ------------- --------- ---------- -------- At 1 April 2015 9 7 135 265 416 Charge for the year 9 - 11 40 60 Disposals 14 - - - 14 -------------------- --------- ------------- --------- ---------- -------- At 31 March 2016 4 7 146 305 462 -------------------- --------- ------------- --------- ---------- -------- Net book value At 31 March 2016 101 - 62 41 204 -------------------- --------- ------------- --------- ---------- -------- At 31 March 2015 16 - 4 62 82 -------------------- --------- ------------- --------- ---------- --------
15. Deferred taxation
2016 2016 2015 2015 Group Company Group Company GBP'000 GBP'000 GBP'000 GBP'000 At 1 April 2015 145 145 115 115 Income statement credit/(charge) (66) (16) 7 7 Movement in deferred tax on share options (23) (23) 23 23 ---------------------------------- -------- -------- -------- -------- At 31 March 2016 56 106 145 145 ---------------------------------- -------- -------- -------- --------
The deferred tax asset is made up as follows:
2016 2016 2015 2015 Group Company Group Company GBP'000 GBP'000 GBP'000 GBP'000 -------------------------------- -------- -------- -------- -------- Capital allowances (43) 7 26 26 Short-term timing differences - provision for receivables 17 17 17 17 Share options 82 82 102 102 -------------------------------- -------- -------- -------- -------- 56 106 145 145 -------------------------------- -------- -------- -------- --------
16. Inventories
2016 2016 2015 2015 Group Company Group Company GBP'000 GBP'000 GBP'000 GBP'000 ------------ -------- -------- -------- -------- Consumables 48 1 3 3 ------------ -------- -------- -------- --------
There is no material difference between the replacement cost of inventories and the amount stated above.
17. Trade and other receivables
2016 2016 2015 2015 Group Company Group Company GBP'000 GBP'000 GBP'000 GBP'000 ------------------------------- -------- -------- -------- -------- Trade receivables 2,584 1,517 1,767 1,767 Other receivables 7 7 12 12 Prepayments and accrued income 1,769 361 419 419 ------------------------------- -------- -------- -------- -------- 4,360 1,885 2,198 2,198 ------------------------------- -------- -------- -------- --------
As at 31 March 2016, trade receivables of GBP128,811 (2015: GBP131,280) were impaired and fully provided for. The ageing of the trade receivables which are past due and not impaired is as follows:
2016 2016 2015 2015 Group Company Group Company GBP'000 GBP'000 GBP'000 GBP'000 ------------- -------- -------- -------- -------- 31-60 days 282 145 111 111 61-90 days 159 8 3 3 Over 90 days 65 2 2 2 ------------- -------- -------- -------- -------- 506 155 116 116 ------------- -------- -------- -------- --------
Movement of the provision for impairment of trade receivables is as follows:
Group Company GBP'000 GBP'000 ------------------------------------------- -------- -------- At 1 April 2014 113 113 Receivables written off during the year as uncollectable (99) (99) Provision for receivables impairment for the year 117 117 ------------------------------------------- -------- -------- At 1 April 2015 131 131 Receivables written off during the year as uncollectable (3) (3) At 31 March 2016 128 128 ------------------------------------------- -------- --------
The creation and release of a provision for impaired receivables has 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.
18. Trade and other payables
2016 2016 2015 2015 Group Company Group Company GBP'000 GBP'000 GBP'000 GBP'000 ----------------------------------- -------- -------- -------- -------- Trade payables 2,757 1,339 1,567 1,567 Other taxes and social security costs 665 489 538 538 Other payables 72 45 48 48 Amounts owed to Group undertakings - 474 - - Accruals and deferred income 2,302 891 812 812 Contingent consideration 2,957 2,957 200 200 ----------------------------------- -------- -------- -------- -------- 8,753 6,195 3,165 3,165 ----------------------------------- -------- -------- -------- --------
19. Long-term borrowings
2016 2016 2015 2015 Group Company Group Company GBP'000 GBP'000 GBP'000 GBP'000 --------------------------- -------- -------- -------- -------- Between one and two years - - 3,095 3,095 Between two and five years 12,148 12,148 - - More than five years - - - - --------------------------- -------- -------- -------- -------- Bank loans 12,148 12,148 3,095 3,095 --------------------------- -------- -------- -------- --------
The bank loan 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, fixed plant and machinery. Details of the interest rates applicable to the loans are included in Note 26.
Included within bank loans are arrangement fees amounting to GBP132,000 (2015: GBP48,973) which are being released over the term of the loan in accordance with IAS 39.
20. Share capital
2016 2015 GBP'000 GBP'000 ---------------------------------------------- -------- -------- Authorised 65,000,000 ordinary shares of 10p each 6,500 6,500 ---------------------------------------------- -------- -------- Allotted, called up and fully paid 22,484,108 (2015: 22,297,400) ordinary shares of 10p each 2,248 2,230 ---------------------------------------------- -------- --------
Movement in shares in issue
31 March 31 March 2016 2015 ---------------------------------- ---------- ---------- Ordinary shares of 10p each 22,297,400 21,939,603 Issued under share option schemes 221,708 480,000 Shares repurchased and cancelled (35,000) (122,203) ---------------------------------- ---------- ---------- 22,484,108 22,297,400 ---------------------------------- ---------- ----------
Share buyback scheme
On 18 December 2014 the Company announced that it intended to commence a limited share buyback of its own ordinary shares. During the year ended 31 March 2016 the Company repurchased 35,000 shares (2015: 122,203) at an average price of 257.7p (2015: 148.9p). All share repurchased by the Company were cancelled prior to the year end.
Share options
At 31 March 2016, the following options and warrants over the shares of AdEPT were in issue:
2016 2015 --------------------- --------------------- Number Weighted Number Weighted of shares average of shares average under exercise under exercise option price option price ------------------------------- ---------- --------- ---------- --------- Outstanding at 1 April 1,440,759 20p 1,955,668 27p Granted during the year 240,000 222p 32,143 126p Granted/(forfeited) during the year 10,789 11p (67,052) 73p Exercised during the year (221,708) 52p (480,000) 41p ------------------------------- ---------- --------- ---------- --------- Outstanding at 31 March 1,469,840 49p 1,440,759 20p ------------------------------- ---------- --------- ---------- ---------
The weighted average share price at date of exercise for options exercised during the year was 270.0p (2015: 126.6p).
The weighted average remaining contractual life of share options and warrants at 31 March 2016 was three years.
Employee share option schemes have a vesting period of three years and are settled through new equity issues in return for cash consideration and the maximum term of share options is ten years.
The weighted average fair values of options issued during the year have been determined using the Black-Scholes-Merton Pricing Model with the following assumptions and inputs:
2016 2015 ----------------------------------------------- ----- ----- Risk-free interest rate 2.69% 2.69% Expected volatility 22.0% 3.0% Expected option life (years) 3.0 3.0 Expected dividend yield 2.9% 2.0% Weighted average share price 222p 126p Weighted average exercise price 222p 140p Weighted average fair value of options granted 30p 0p ----------------------------------------------- ----- -----
The expected average volatility was determined by reviewing historical fluctuations in the share price prior to the
grant date of each share instrument. An expected take-up of 100% has been applied to each share instrument. Expected dividend yield is estimated at 2.9%; this is based upon the past dividend yield of AdEPT Telecom plc and in accordance with the guidance in IFRS 2.
Expected Exercise option price life 31 March 31 March (p) (years) 2016 2015 ----------------- -------- -------- --------- --------- 21 January 2009 11 3.0 1,197,697 1,186,908 13 November 2012 52 3.0 - 221,708 23 August 2013 126 3.0 32,143 32,143 1 March 2016 222 3.0 240,000 - ----------------- -------- -------- --------- --------- 1,469,840 1,440,759 ----------------- -------- -------- --------- ---------
During the year ended 31 March 2009 a warrant was issued to Barclays Bank plc over 5% of the diluted share capital of the Company. As at 31 March 2016 this entitled the holder to 1,197,697 shares. The weighted average fair value of this equity instrument of GBP53,278 has been determined using the Black-Scholes-Merton Pricing Model, applying the same assumptions as those applied to the other equity instruments issued during the period due to Barclays Bank plc being unable to provide a sufficiently reliable estimate of the value of services provided in relation to these warrants.
The mid-market price of the ordinary shares on 31 March 2016 was 229p and the range during the year was 147.5p.
21. Pension commitments
At 31 March 2016 there were no pension commitments (2015: GBPNil).
22. Operating lease commitments
At 31 March 2016 the lease commitments were as follows:
Group
Land and buildings Other -------------------- ------------------ 2016 2015 2016 2015 GBP'000 GBP'000 GBP'000 GBP'000 --------------------------- --------- --------- -------- -------- Within one year 266 165 53 45 Between two and five years 520 357 51 28 --------------------------- --------- --------- -------- --------
Company
Land and buildings Other -------------------- ------------------ 2016 2015 2016 2015 GBP'000 GBP'000 GBP'000 GBP'000 --------------------------- --------- --------- -------- -------- Within one year 173 165 39 45 Between two and five years 187 357 42 28 --------------------------- --------- --------- -------- --------
Land and buildings
The Group leases its offices under non-cancellable operating lease agreements. There is no material contingent rent payable. The lease agreements do not offer security of tenure. The lease terms are for five years.
Other
The Group leases various office equipment and motor vehicles under non-cancellable operating lease agreements. The lease terms are three years.
The lease expenditure charged to the income statement during the year is disclosed in Note 5.
23. Related party transactions
During the year CKR Holdings Limited and Rykesh Limited, companies controlled by Chris Fishwick, a former director, provided consultancy services to the Group in the normal course of business with a total value of GBP70,833 (2015: GBP85,000). There was no balance owed to CKR Holdings Limited or Rykesh Limited at the end of the year (2015: GBPNil).
During the year dividends were paid to the following directors:
2016 2015 GBP GBP ------------ ---- ---- I Fishwick 57 36 R Wilson 37 24 D Lukic 3 3 A Woodruffe 13 6 J Swaite 3 2 ------------ ---- ----
There is no ultimate controlling party.
24. Capital commitments
At 31 March 2016 there were capital commitments of GBPNil (2015: GBPNil).
25. Earnings per share
Earnings per share is calculated on the basis of a profit of GBP1,964,435 (2015: GBP1,534,128) divided by the weighted average number of shares in issue for the year of 22,364,213 (2015: 22,219,140). 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 23,608,713 (2015: 23,649,870).
Adjusted earnings per share is calculated by adding back amortisation of intangible assets, the taxation deduction on purchased customer contracts and acquisition costs to retained earnings, giving GBP4,377,153 (2015: GBP3,501,343). This is divided by the same weighted average number of shares as above.
2016 2015 GBP'000 GBP'000 -------------------------------------------- ---------- ---------- Earnings for the purposes of basic and diluted earnings per share Profit for the period attributable to equity holders 1,964 1,534 Add: amortisation 2,216 2,169 Less: taxation on amortisation of purchased customer contracts (192) (202) Add: acquisition costs 389 - -------------------------------------------- ---------- ---------- Adjusted profit attributable to equity holders 4,377 3,501 -------------------------------------------- ---------- ---------- Number of shares Weighted average number of shares used for earnings per share 22,364,213 22,219,140 Weighted average dilutive effect of share plans 1,244,500 1,430,730 -------------------------------------------- ---------- ---------- Diluted weighted average number of shares 23,608,713 23,649,870 -------------------------------------------- ---------- ---------- Earnings per share Basic earnings per share 8.78p 6.90p
Diluted earnings per share 8.32p 6.49p Adjusted earnings per share Adjusted basic earnings per share 19.57p 15.76p Adjusted diluted earnings per share 18.54p 14.81p -------------------------------------------- ---------- ----------
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 and acquisition costs) by the weighted average number of ordinary shares in issue.
Diluted EPS is calculated by dividing the retained earnings or the adjusted retained earnings (after adding back amortisation, the taxation deduction on purchased customer contracts and acquisition costs) by the weighted average number of shares in issue after applying treasury stock method, assuming that all proceeds from the exercise of share options and warrants are used to repurchase equity.
26. 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.
2016 2016 2015 2015 Group Company Group Company GBP'000 GBP'000 GBP'000 GBP'000 ------------------------------------ -------- -------- -------- -------- Loans and receivables at amortised cost Cash and cash equivalents 6,166 5,489 2,094 2,094 Loans and receivables 2,584 1,517 1,767 1,767 Financial liabilities at amortised cost Liabilities at amortised cost 14,905 13,487 5,200 5,200 Financial liabilities at fair value Contingent consideration 2,956 2,956 200 200 ------------------------------------ -------- -------- -------- -------- 17,861 16,443 5,400 5,400 ------------------------------------ -------- -------- -------- -------- Amounts due for settlement Within twelve months 5,713 4,295 2,305 2,305 After twelve months 12,148 12,148 3,095 3,095 ------------------------------------ -------- -------- -------- -------- 17,861 16,443 5,400 5,400 ------------------------------------ -------- -------- -------- --------
On 22 April 2015 the Group signed a new five year GBP15m revolving credit facility agreement with Barclays Bank plc. The revolving credit facility bears interest at 2.30% over LIBOR on drawn funds and is repayable in full on the final repayment date of 21 April 2020.
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 has 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, fixed plant and machinery.
The bank also holds a charge over the life assurance policies of Ian Fishwick and Amanda Woodruffe, directors of the Company, for GBP1,500,000 and GBP250,000 respectively.
Contingent consideration obligations
At 31 March 2016 a financial liability of GBP2,956,571 has been recognised in respect of the fair value of the contingent consideration due in respect of the Centrix acquisition. The value at 31 March 2015 of GBP200,000 relates to the fair value of the contingent deferred consideration paid in the current year in respect of the acquisition of Bluecherry Telecom Limited.
Fair value as at ------------------------ Financial Relationship assets/ Fair Valuation Significant of unobservable financial 31 March 31 March value technique(s) unobservable inputs to liabilities 2015 2016 hierarchy and key input(s) input(s) fair value -------------- ---------- ------------ ---------- ----------------- ------------------ ---------------- 7) Contingent GBP200,000 GBP2,956,571 Level The contingent Growth rate The higher consideration 3 consideration being the the growth in a was based gross margin rate the higher business upon a multiple increase the multiple. combination of gross margin as measured The higher calculated by the gross by the growth actual increase margin the rate over of higher the a period of gross margin earn out. twelve months over a and subject twelve month to a maximum period. earn out of Gross margin GBP3,500,000 based due for upon actual payment by gross 30 June 2016. margins achieved. -------------- ---------- ------------ ---------- ----------------- ------------------ ----------------
The earn out had not been achieved by 31 March 2016.
Obligations under finance leases
As at 31 March 2016 the Group had no finance lease obligations.
Sensitivity analysis
At 31 March 2016 it was estimated that a movement of 1% in interest rates would impact the Group's profit before tax by approximately GBP120,000.
Interest rate risk
The Group's current interest rate policy is subject to ongoing review in line with the level of borrowings and potential interest risk exposure. At 31 March 2016, none of the Group's borrowings are at a fixed rate of interest (2015: 0%).
Credit risk
Credit risk associated with cash balances is managed by transacting with financial institutions with high quality credit ratings. Accordingly the Group's associated credit risk is deemed to be limited.
The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at 31 March 2016 was GBP8,757,529 (2015: GBP3,873,300).
Loans and receivables
2016 2016 2015 2015 Group Company Group Company GBP'000 GBP'000 GBP'000 GBP'000 -------------------------- -------- -------- -------- -------- Trade receivables 2,584 1,517 1,767 1,767 Other receivables 7 7 12 12 Cash and cash equivalents 6,166 5,489 2,095 2,095 -------------------------- -------- -------- -------- -------- 8,757 7,013 3,874 3,874 -------------------------- -------- -------- -------- --------
Credit risk refers to the risk that the counterparty will default on its contractual obligations resulting in financial loss to the Group. The Group has adopted a policy of only dealing with creditworthy counterparties and this policy has been implemented by requiring staff to carry out appropriate credit checks on customers before sales commence.
Trade receivables consist of a large number of customers, spread across diverse industries across the United Kingdom. Ongoing credit evaluation is performed on the financial condition of accounts receivable. The Group does not have any significant credit risk exposure to any single counterparty.
Liquidity risk
The Group has an appropriate liquidity risk management framework for the management of the Group's short, medium and long-term funding and liquidity risk management requirements. The Group manages liquidity risk by maintaining adequate banking facilities and through cash flow forecasting, acquisition planning and monitoring working capital and capital expenditure requirements on an ongoing basis.
The following table analyses the Group's financial liabilities into relevant maturity groupings based on the remaining period at the balance sheet dated to the contractual maturity date. The amounts disclosed in the table are the contracted undiscounted cash flows. Discounting is not required as this has no material effect on the financial statements.
Amortised cost
More Within than 1 year 1-2 years 2-5 years 5 years Year ended 31 March 2016 GBP'000 GBP'000 GBP'000 GBP'000 Borrowings - - 12,148 - Trade and other payables 2,758 - - - ------------------------- -------- --------- --------- -------- 2,758 - 12,148 - ------------------------- -------- --------- --------- -------- More Within than 1 year 1-2 years 2-5 years 5 years Year ended 31 March 2015 GBP'000 GBP'000 GBP'000 GBP'000 Borrowings 538 3,095 - - Trade and other payables 1,567 - - - ------------------------- -------- --------- --------- -------- 2,105 3,095 - - ------------------------- -------- --------- --------- --------
Currency risk
The Group's operations are handled entirely in sterling.
Capital risk management
The Group is subject to the risk that its capital structure will not be sufficient to support the growth of the business. The Group's objectives when managing capital are to safeguard the Group's ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. There were no changes to the Group's approach to capital management during the year.
As part of the banking arrangements, the Group is required to comply with certain covenants including net debt to adjusted EBITA and interest cover.
In order to maintain or adjust the capital structure, the Company may return capital to shareholders, issue new shares or sell assets to reduce debt.
27. Business combinations
On 1 May 2015 the Company acquired the entire issued share capital of Centrix Limited ('Centrix') for an initial consideration of GBP6.9m plus the value of the cash balance of Centrix at completion (approximately GBP1.9m), payable in cash. Further contingent consideration of between GBPNil and GBP3.5m was payable under the terms of the share purchase agreement. The Company estimated that contingent deferred cash consideration of GBP3.0m would be paid post-year end based upon the expected performance of Centrix post-acquisition. The fair value of contingent deferred consideration is different to that disclosed in the financial statements for the year ended 31 March 2015 as there was insufficient financial results or information upon which to determine the contingent consideration at the time. The fair value of contingent deferred consideration has been determined by reference to the growth rate for the gross margin of the acquired business and applying the contingent deferred consideration matrix as specified in the share purchase agreement. The contingent consideration liability of GBP3.0m has been discounted at the Group's weighted average cost of capital with the value of the discount of GBP0.2m being included within finance costs as an interest charge. Total consideration is expected to be GBP10.0m (net of the cash acquired).
Centrix, based in Fleet, is a well-established UK based specialist provider of complex unified communications, Avaya IP telephony, hosted IP solutions and managed services. Centrix offers its clients the delivery of complex unified communications and managed service solutions, which is an increasing requisite for AdEPT's existing and targeted enterprise and public sector customer base. Centrix skills and product set will complement and enhance AdEPT's existing services.
Book Fair cost value GBP'000 GBP'000 ------------------------------- -------- -------- Intangible asset - 10,411 Property, plant and equipment 109 109 Inventories 59 59 Trade and other receivables 1,420 1,455 Cash and cash equivalents 2,063 2,063 Trade and other payables (2,104) (2,104) Income tax (147) (147) ------------------------------- -------- -------- Net assets 1,400 11,846 ------------------------------- -------- -------- Cash (9,091) Contingent cash consideration (2,755) ------------------------------- -------- -------- Fair value total consideration (11,846) ------------------------------- -------- -------- Goodwill - ------------------------------- -------- --------
Centrix Limited contributed revenue and profit after tax of GBP8.8m and GBP1.8m respectively for the year ended 31 March 2016 and represents an eleven month contribution. On a full year basis, Centrix would have contributed revenue and profit after tax of GBP9.6m and GBP1.9m respectively. Acquisition related costs of GBP0.4m have been recognised as an expense in the statement of comprehensive income for the year ending 31 March 2016.
28. Events after the balance sheet date
On 1 May 2016 the Company acquired the entire issued share capital of Comms Group UK Limited ('Comms') for an initial consideration of GBP3.5m plus the value of the cash balance of Comms at completion (approximately GBP1.1m), payable in cash. Further contingent consideration of between GBP0.5m and GBP3.5m will be payable, also in cash, dependent upon the performance of Comms post-acquisition. The contingent deferred consideration will be determined by reference to the forecast churn/growth rate for the gross margin of the acquired business and applying the contingent deferred consideration matrix 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 signature of these financial statements as the completion balance sheet was not available and there have been no post-acquisition period financial results.
Comms, based in Northampton, is a well-established UK-based specialist provider of unified communications, Avaya IP telephony, hosted IP solutions, IT and managed services. Comms offers its clients the delivery of unified communications and managed service solutions, which is an increasing requisite for AdEPT's existing and targeted enterprise and public sector customer base. Comms technical skills and product set will complement and enhance AdEPT's existing services.
AdEPT and Comms have both adopted capital asset light strategies and are dedicated to offering a full suite of flexible data and unified communication strategies.
Comms will retain its current presence and customer service operation in Northampton. The vendors of Comms are to be retained in their current capacity within the business for a period of at least twelve months post-acquisition.
The last filed accounts of Comms for the year ended 31 March 2015 reported turnover, operating profit and profit before tax of GBP3.3m, GBP0.5m and GBP0.4m respectively. Capital expenditure in the year ended 31 March 2015 was insignificant. Net and gross assets at that date were GBP1.2m and GBP1.8m respectively. Acquisition related costs of approximately GBP0.25m will be recognised as an expense in the statement of comprehensive income for the year ending 31 March 2017.
29. Principal subsidiaries
Country % shareholding Description -------------------------- -------- -------------- ----------- England Bluecherry Telecom Limited & Wales 100 Dormant England Centrix Limited & Wales 100 Trading -------------------------- -------- -------------- -----------
NOTE TO THE PRELIMINARY RESULTS ANNOUNCEMENT OF ADEPT TELECOM PLC FOR THE YEAR ENDED 31 MARCH 2016
The financial information set out above does not constitute the Group's financial statements for the years ended 31 March 2016 or 2015, but is derived from those financial statements. Statutory financial statements for 2015 have been delivered to the Registrar of Companies and those for 2016 will be delivered following the Group's annual general meeting. The auditors have reported on the 2015 and 2016 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.
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. The preliminary results for the year ended 31 March 2016 were approved by the Board of Directors on 4 July 2016.
AVAILABILITY OF FINANCIAL STATEMENTS
The annual report containing the full financial statements for the year to 31 March 2016 will be posted to shareholders on or around 19 August 2016, a soft copy of which will be available to download from the Company's website www.adept-telecom.co.uk.
This information is provided by RNS
The company news service from the London Stock Exchange
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