AdEPT Technology Group plc (LON:ADT), one of the UK’s leading independent providers of managed services for IT, connectivity, unified communications solutions, and cloud services, has reported its final results for the full year ended 31 March 2022.
|●||Revenue increased 18% to £68.1m (FY21: £57.9m)|
|●||Underlying EBITDA increased 21% to £11.9m (FY21: £9.8m)1|
|●||Adjusted fully diluted earnings per share increase 23% to 27.5p (FY21: 22.3p)2|
|●||Reinstatement of dividend at: 1.0p per share (FY21: nil)|
|●||Cloud Centric Strategic Services increased 7% on a pro-forma organic revenue basis|
|●||Gross Profit increased 17% to £32.4m (FY21: £27.6m)|
|●||Underlying EBITDA margin 17% (FY21: 17%)|
|●||Strong cash generation from operating activities after tax £8.1m (FY21: £7.4m)|
|●||Conversion of reported EBITDA to operating cash flow before tax of 108% (FY21: 89%)|
|●||Year-end net senior debt £29.4m (FY21: £25.6m)3 after payment of initial consideration for Datrix acquisition|
|●||Cap-ex light – maintained at 2% of revenue (FY21: 2%)|
|●||Acquisition of Datrix in April 2021, expanded the Group’s portfolio of capabilities|
|●||Strategic focus now solely to the delivery of strong organic growth and the reduction of senior debt|
|●||Project Fusion, the creation of ONE AdEPT, completed – providing a single set of financial and operational systems and a scalable platform for growth|
|●||Revenue from Public Sector & Healthcare 56.5% (FY21: 55.5%)|
|●||Recurring revenues remains strong representing 73.6% of revenue (FY21: 74.1%)|
|●||Cloud Centric Strategic Services revenues up 18% to £29.5m (FY21: £25.1m)|
|●||Traditional Telephony, as a percentage of total revenues, reduced to 13% (FY21: 19%)|
|●||Managed services now comprises 87% of revenue and EBITDA (FY21: 81%)|
|●||Strong client acquisition – over 100 new customer wins including, Multi-Academy Trust, the Co-op and the TUC|
|●||Momentum gained in Q4 FY22 has continued into Q1 FY23 with strong recurring order intake|
|●||Demand anticipated to rise as clients continue to assess their long-term ICT requirements|
|●||Well invested Group with clear strategic objectives and strong infrastructure for growth|
|●||Board optimistic for the future of the technology market, and in turn for the prospects of AdEPT|
|1||Defined as operating profit after adding back depreciation, amortisation, acquisition fees, restructuring costs, adjustment to deferred consideration and share-based payment charges|
|2||Profit before tax adding back amortisation, share options charges, the taxation deduction on purchased customer contracts, deferred tax credits on amortisation charges, restructuring and acquisition costs|
|3||Net senior debt is defined as cash and cash equivalents less short-term and long-term senior bank borrowings and prepaid bank fees|
Phil Race, Chief Executive Officer of AdEPT, said: “The Board is pleased with the progress achieved during the year under review and the Group’s performance in the face of the many, well-documented macro challenges. Given our focus on this aspect of our business the pro-forma organic growth in Cloud Centric Strategic Services is a particular highlight of the period.
“The acquisition of Datrix, in April 2021, significantly extended the Group’s capabilities and enabled AdEPT to increase its potential ‘wallet share’ in the ever-expanding ICT space. The introduction of new partnerships and services that allow AdEPT to tap into the fast-growing markets of Software Defined Wide Area Networking (SD-WAN) and Secure Access Service Edge (SASE) is leading to significant sales successes. During the Period this team secured significant projects with organisations, including Nottinghamshire County Council, the Royal Surrey County Hospital, Public Health England and Trident IP.
“Our newly developed ONE AdEPT platform enabled the rapid integration of the Datrix business, ahead of plan, and has created a efficient business with a strong infrastructure for growth.
“The technology market is vibrant and growing, underpinned by the evolution of our working patterns, during and after the pandemic, and the need for business-critical cyber security across all digital services. The new financial year has started well, with the Group building on the momentum gained in Q4. This, combined with our comprehensive portfolio of capabilities, our extensive and strong industry partnership and numerous flagship references from across the public and private sectors, gives us confidence in prospects for the Group both in the year ahead and beyond.”
It is with great pleasure that I announce the Group’s annual results for the year ended 31 March 2022. I am very encouraged by the resilient performance of AdEPT during FY22, with a successful acquisition, growing revenues and consistent margins, organic advances in our Cloud Centric activities and an increase in adjusted earnings per share.
Our strategy of consolidation has created a powerful business, with the recent Datrix acquisition significantly extending our capability into leading edge software-defined networks and related security products. The Group is now well positioned to capture increasing ‘wallet share’ in the ever-expanding Information, Communication and Technology (‘ICT’) space. We have also completed Project Fusion – an initiative to bring all of the Group’s businesses onto a single operating platform: ONE AdEPT, delivering enhanced operational agility, business insight and organisational effectiveness.
The ability to deliver an extensive portfolio, coupled with the completion of Project Fusion, underpins the Group’s decision to focus on organic growth and debt reduction.
We achieved a pleasing 21% uplift in our underlying EBITDA, to £11.9m (FY21: £9.8m), despite being constrained by project delays due to the ongoing worldwide microchip shortage. It is worth noting that our sales and delivery teams secured over £30m of total contract value orders in FY22, with an uptick in the last quarter laying strong foundations for FY23 and driving proforma organic growth of 2% in underlying EBITDA in the year under review.
The 18% rise in revenues to £68.1m (FY21: £57.9m), mirrored by the 17% rise in gross profit (from £27.6m in FY21 to £32.4m in FY22) includes the full year contribution of the acquired Datrix business.
Our ‘Cloud first’ sales strategy continues to drive growth, with Cloud Centric Strategic Services revenues up 18% year on year to £29.5m (FY21: £25.1m) representing 43% of revenues and growing organically (discounting for the Datrix acquisition) at 7%. The move to the cloud, the requirement for hosted applications, cloud hosted telephony solutions and the rise in demand for a broad range of Microsoft propositions continues unabated. AdEPT’s own cloud platform, AdEPT Nebula, forms a successful part of this and now supports more than 650 customers.
Support services revenues increased by £5.3m to £17.1m (FY21: £11.8m), the majority of which resulted from the acquisition of Datrix.
Our concerted drive to assist customers with the transition to cloud telephony and managed services continues. We have been successful in migrating many customers away from the traditional on-desk telephone to alternative solutions, in particular Voice over IP (VoIP)1, Session Internet Protocol (SIP) 1 and Teams collaboration from Microsoft. Overall cloud telephony revenues increased by 49% year on year to £4.0m (FY21: £2.7m) and there was a 35% rise in AdEPT Nebula cloud telephony seats to 2,812 in the period.
As a result of this focus, Managed Services now accounts for 87% of both total revenue and EBITDA (2021: 81%).
|1||VoIP and SIP are complementary technologies that enable any type of communication over the internet. VoIP is separately used for IP telephony to transfer the voice traffic through data networks, whereas SIP It’s a unified communication tool that controls and enhances VoIP capabilities for businesses to enjoy the swift collaboration that could otherwise be impossible with VoIP alone. SIP also provides SIP trunking, a feature that will allow you to connect to other phone networks even when their internet connection is disconnected.|
Re-instatement of Dividend
Cash generation remained strong with 108% pre-tax cash conversion of EBITDA. AdEPT paid down £5.5m of its loan facility after payment of the initial consideration for Datrix, a clear indication of sound cash and cost management. Our Capex-light strategy continues, with Capex expenditure at 2% of revenue in the year.
As a result of the Group’s continued strong cash generation, the Board is proposing a final dividend of 1.0p per share (FY21: nil), payable on 6 October 2022 to shareholders on the register on 16 September 2022 (ex-dividend date being 15 September 2022). The Group is confident that a progressive policy can be maintained.
On 7 April 2022, we announced an updated strategy (RNS Number 5511H), which followed an in-depth strategic review, supported by EY Parthenon, exploring; market requirements, customer sentiment, our ability to capture market opportunity, operational capability, and the richness of the AdEPT portfolio.
As a result of this review the Board concluded that the Group was ideally placed to capitalise on its market position and capabilities, and in turn focus on the organic growth opportunities now available, while using its strong cash generation to reduce debt.
The strategy, resulting from this review, is to build upon three pillars: Pillar one – focus on organic growth; Pillar two – structure for success; and Pillar three – reduce gearing, all with the express intent of delivering stakeholder value. Further details are given in the Chief Executive Officer’s Review.
On 7 April 2022, AdEPT announced the retirement of Roger Wilson as a Non-Executive Director from the Board. Roger was a founder investor and has been an inspirational member of the AdEPT Board for 19 years, including 16 years as Chairman and three years as Deputy Chairman. Roger delayed his retirement due to the Covid pandemic.
It has been an absolute delight to work with Roger for so many years. He has been an integral part of the Company and a mentor to many during his time with AdEPT. The Board would like to wish Roger every success in his retirement and thank him for his wise counsel and outstanding contribution.
With two experienced independent Non-Executive Director’s on the Board no replacement is required at this time.
Environmental, Social and Governance (“ESG”)
AdEPT has a social conscience, with the executive team focused on making the world a better place both for current and future generations. AdEPT has updated the inaugural 17-point plan published during the Summer of 2021 and has made positive progress in advancing its position across each of the three pillars of i) Environmental Responsibility, ii) Social Responsibility, and iii) Governance. This updated plan can be found on AdEPT’s investor relations website: www.adept-technology-group.co.uk/.
As part of carbon reduction activities, in our journey to Net Zero, we have undertaken our first cross company carbon measurement activity, to determine our Baseline Emissions Footprint.
It is critical that AdEPT is an exemplary employer to ensure we retain, inspire, and nurture our talent. As part of this goal AdEPT is committed to ensuring diversity, equity, and inclusivity. We have a team from diverse backgrounds and genders, and we continue to foster balance and promote equal opportunities. This mix of skill sets, experience, and backgrounds enables us to perform better.
We are investing in our staff with, for example, concerted training programmes, and we are launching a new flexible benefits platform for our staff this year as part of this critical goal.
We have also undertaken our second Gender Pay Gap Report which showed modest positive progress. However, like many businesses in our sector, this highlights the challenges of hiring women into senior roles. We will use the findings of this report and work with our staff and stakeholders to shape policies that ensure an appropriate gender balance.
We cannot ignore the potential impact from the ongoing macro-economic challenges facing the UK, the semiconductor shortages, the spectre of higher inflation, and the war in Ukraine. However, with 74% of our revenues from recurring contracts and a significant amount of re-occurring one-off revenues from existing customers the Board is confident in the strength of its talented team and operations, which have shown resilience and continued to deliver growth.
We are buoyed by the completion of Project Fusion, the strong sales finish to the year, and the performance of the Group in Q4. These bode well for the Group’s future performance and demonstrate that our updated strategy will bear fruit in a marketplace that, despite the wider challenges beyond our control, continues to require our skills, solutions and exemplary customer service.
CHIEF EXECUTIVE OFFICER’S REVIEW
AdEPT has a clear mission of ‘uniting technology and inspiring people’. This year has seen further advances against this mission – delivering successful projects for public and private sector customers alike, resulting in substantial overall growth. Pleasingly, organic growth in Cloud Centric services was 7%.
During the year, we streamlined the Group’s operating structure, moving from five divisions to two, enhanced our relationship with key suppliers who we increasingly treat as partners and delivered several significant projects. Our progress is being driven by a motivated team, achieving high levels of customer satisfaction.
The Datrix acquisition at the start of the period added to our range of leading-edge software-defined network and related security expertise, building on AdEPT’s world class Managed Service capabilities, addressing the converging ICT marketplace in which customers are increasingly demanding communications, network infrastructure and IT expertise.
Our success in the year was achieved despite the ongoing macro challenges, primarily electronic chip shortages, which continue to impact Technology Product revenues and the completion of some projects dependent on hardware. We are a resilient business, underpinned by a focus on recurring revenue, which comprises a high percentage of total revenues at 74% (FY21: 74%).
I am particularly heartened by the performance of our sales team, who added over one hundred new customers during the year. Customer demand is steadily gaining momentum across multiple vertical markets and delivered markedly stronger one-off order intake in the last quarter, up over 10% against the preceding nine months. New customer wins including, Multi-Academy Trust the Co-op, the TUC and the contact centre outsourcer, Kura, demonstrate AdEPT’s ability to attract respected organisations.
In short, the demand for digitisation continues and is fuelling the growth of AdEPT’s Cloud Centric services, with increasing revenues from the provision of managed networks, Microsoft solutions, cloud communications and services relating to cyber security.
A successful acquisition
At the start of this financial year (April 2021), we completed the acquisition of Datrix and declared it a ‘game changer’; since then the Datrix team has not disappointed.
Datrix has enabled AdEPT to increase its potential ‘wallet share’ in the ever-expanding ICT space. The introduction of new partnerships and services that allow AdEPT to tap into the fast-growing markets of Software Defined Wide Area Networking (SD-WAN) and Secure Access Service Edge (SASE) is leading to significant sales successes. During the Period, this team secured significant projects with organisations, including Nottinghamshire County Council, the Royal Surrey County Hospital, Public Health England and Trident IP.
The ONE AdEPT platform enabled the rapid integration of the Datrix business ahead of plan and Datrix is now fully integrated into the AdEPT South & Healthcare division.
A simplifying structure
At the outset of FY22, the AdEPT business was structured as five business divisions: Comms North, Comms South, Education, ITS and Datrix. These each had their own management structures and resultant costs, albeit utilising the same underlying ONE AdEPT platform.
We are constantly looking to optimise AdEPT. As a result of the accelerated progress of Project Fusion, we were able to consolidate the business ahead of plan and, during the final quarter of the year, announced to the AdEPT workforce the formation of a simplified organisational structure centred around two operating divisions – AdEPT North & Education alongside AdEPT South & Healthcare.
This refinement allowed AdEPT to reduce ongoing operating costs by c. £0.6m. Our plan in FY23 is to further enhance customer service and product penetration as a consequence of this change.
Objectives for FY23
Following the review of our strategy as outlined in the Chairman’s statement, we are now focused on three pillars:
|a)||Pillar one – Drive organic growth. Through acquisition AdEPT has become a fully capable, Cloud Centric, managed services business, with a highly skilled workforce and the ability to ‘wrap’ solutions with consulting expertise to keep customers up to date with fast-changing market requirements. Following the successful acquisition of Datrix, AdEPT now has the capability to capture a significant ‘share of wallet’ from its customers through its comprehensive portfolio of products and services, supported by our strategic partners, delivered by the wealth of talent within the business. Objective for FY23 – capitalise on our market position, strengthen relationships with our key partners and customers, focus on the growth of our team and its skillset and in turn increase our revenue.|
|b)||Pillar two – Structure for success. The ONE AdEPT platform has created a foundation for greater operational efficiency, cross-selling and operational insight. All employees across AdEPT can now take advantage of a single set of operational and financial applications wherever they reside, which facilitates flexible working for our staff. This enabled AdEPT to accelerate cost reductions arising from divisional and management consolidation, with the Group transitioning from five business entities at the beginning of FY21 to two, which reflect our geographical and market focus: AdEPT North & Education, and AdEPT South & Healthcare, as we move into FY23. Objective for FY23 – improve margins and cross selling through improved operational efficiency, a greater focus on market verticals, enhanced inter-team working and transparent systems.|
|c)||Pillar three – Reduce gearing. The Group has a historically low capital expenditure requirement and a proven ability to generate free cash flow. The strategic objective to focus purely on organic growth will facilitate the debt reduction. Objective for FY23 – retain Capex-light discipline, constraining expenditure to a c.2% of revenue band, reduce office lease costs and make substantial headway in reducing debt over the Period.|
The market we serve
As part of the in-depth strategic review we explored market requirements, customer sentiment, our ability to capture market opportunity, operational capability, and the richness of the AdEPT portfolio. This extensive research revealed several reassuring data points, in particular that we have a large market to attack (the UK Core Addressable Market2 for AdEPT services being £11bn), with fast growth aspects, in particular cloud services (c. 15% CAGR).
We are already witnessing positive trends in respect of AdEPT’s ‘cloud first’ focus including:
|●||customers looking to consume cloud hosted offerings through ‘as a Service models’ (XaaS)|
|●||sustained reliance on cloud and collaboration tools to enable remote working for a distributed workforce, and|
|●||the convergence of Telecom and IT infrastructure with data, voice and applications shifting to the internet.|
In addition, the ongoing programme to retire the BT ‘copper telephony network’ by 2025, otherwise known as the “PSTN3 switch off”, will only serve to accelerate the migration to Voice over IP (VoIP) products, as well as drive higher demand for broadband connections as businesses move to unified communications. These changes encourage conversation with providers like AdEPT and in turn create an opportunity to up-sell other services.
On the back of these trends, we are finding that our consulting services such as Cloud Readiness Assessments, IT Health-checks and Security Risk Assessments are proving useful gateways for clients to explore our extended range of services. These take customers on a journey to investigate our overarching propositions which are to help customers;
|●||Be agile – with seamless workflow and business insight|
|●||Be unified – providing cloud flexibility, IT rationalisation, as a service provision and ERP capability|
|●||Be secure – across data, the user, the network with security assurance|
|●||Be resilient – whether that’s the network or systems|
|●||Be successful – empowering our customers to engage seamlessly, engage digitally, and engage fast|
|●||Be a great employer – with a modern workplace, whilst reducing environmental impact|
All of which have great references, powered by our strategic partners and present exciting opportunities.
|2||CAM is defined as total UK spend by SMBs in the corporate sector (<250 FTE) and all organisations in the public sector on AdEPT’s core product offerings (e.g., hosted cloud, voice and connectivity but excludes non-core offerings like IaaS) in regions of the country in which AdEPT has a strong presence (so, excludes Scotland, North England and Northern Ireland)|
|3||PSTN is the Public Switched Telephone Network|
Investment for growth
The AdEPT strategy is to remain ‘Capex light’ spending less than 2% of revenues on capital projects. However, AdEPT continues to judiciously invest in AdEPT Nebula, its hybrid cloud platform, as this is proving attractive to those customers on the journey to the cloud.
This platform provides private cloud hosting (60 customers), back-up services (300 customers backing up over 1PetaByte of data), a resilient and cost-effective managed network (227 customers transferring c. 80Gbps over 184Gb bearers), ‘as a service’ security capability (52 school customers taking filtered connectivity) and a range of complementary services. It is the home for hosted communications, hosted Enterprise Resource Planning (ERP) and hosted School Management Information Systems (MIS) solutions – all in a secure environment.
I am particularly pleased to see our relationships with key strategic partners going from strength to strength, as they are crucial to our success. Our portfolio is impressive – with expertise and references working with globally respected players such as; Microsoft, Cato, Extreme, Avaya, Gamma, LG Ericsson, 8×8, Fortinet and BT.
We are building on this portfolio with an enhanced relationship with Sage, a provider of Enterprise resource planning (ERP) software. ERP software is used by organisations to manage day-to-day business activities, such as accounting, procurement, project management, risk management and compliance, and supply chain operations. AdEPT has become a Sage Intacct reseller, a cloud offering. This is all part of our journey to become a significant ‘one stop shop’ for our customers.
On 31 March 2022, the AdEPT team totalled 340. This talented and diverse team, strengthened by the acquisition of Datrix, is enabling us to achieve increasingly high levels of customer satisfaction and product penetration. We will continue with our aim to be an exemplary employer and I would like to thank everyone across AdEPT for their exceptional commitment in the year.
Current trading and outlook
With our comprehensive portfolio of capabilities, our extensive and strong industry partnerships, many flagship references from the public and private sectors, underpinned by the ONE AdEPT platform, which ensures that the Group operates efficiently, AdEPT is well placed to benefit from the acceleration in strategic IT investment, as clients continue to assess their long-term ICT requirements.
As a result, I remain confident in the long-term market opportunity for AdEPT, which has been enhanced by the dramatic changes to working patterns, coupled with the rising demand for secure digital services in all its guises.
Our mission remains ‘uniting technology, inspiring people’. We are optimistic for the future of the technology market, and in turn for the prospects of AdEPT and our highly talented team.
Chief Executive Officer