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AdEPT Telecom plc

AdEPT Telecom plc 15th consecutive year of increased underlying EBITDA

AdEPT Telecom Plc (LON:ADT), a leading UK independent provider of award-winning managed services for IT, unified communications, connectivity and voice solutions, announced today its results for the year ended 31 March 2018.

Financial highlights

· 15th consecutive year of increased underlying EBITDA up 24.8% to £9.8m (2017: £7.8m)

· Revenue increased by 34.8% to £46.4m (2017: £34.4m)

· Gross margin % increased by 5.4% to 47.7% (2017: 42.3%)**

· Underlying EBITDA margin % of 21.0% (2017: 22.7%)

· Profit before tax increased by 32.8% to £4.5m (2017: £3.4m)

· 26.2% increase to adjusted fully diluted earnings per share to 27.69p (2017: 21.94p)

· 12.9% increase to dividends declared to 8.75p (Interim 4.25p, Final 4.50p) (2017: 7.75p)

· Year-end net senior debt* of £17.6m (2017: £15.5m)

· Capital expenditure 0.8% of revenue (2017: 0.3%)

Operational highlights

· Managed services accounted for 69.8% of total revenue (2017: 55.4%)

· Acquisition of entire issued share capital of Atomwide Limited completed in August 2017

* Net senior debt is defined as cash and cash equivalents less short-term and long-term bank borrowings and prepaid bank fees

** Excluding £0.755m Openreach compensation credits

Commenting upon these results Adept Telecom Plc Chairman Roger Wilson said: “AdEPT has delivered a 25% increase to underlying EBITDA for the year ended 31 March 2018 and the Group continues to deliver consistently high levels of free cash flow generation with more than 80% of reported EBITDA turned into net cash from operating activities after tax. The continued strong cash generation has funded a 13% 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.

Free cash flow generated combined with the drawdown of part of the accordion debt facility, put in place in February 2017, and the convertible loan from BGF, was used by the Company to complete the earnings enhancing acquisition of Atomwide Limited during the current period. The acquisition completed during the year combined with organic sales have increased the rate of transition of the Group towards a complete managed service provider, with revenue from managed services accounting for 70% of the total in the year ended 31 March 2018.”

Chairman’s statement

Review of operations

I am pleased to report that in the year ended 31 March 2018 the Group has made considerable progress on a wide range of fronts. In early 2015 we embarked on a journey to transform AdEPT from our original telecoms background into unified communications and then into IT. Our logic was simple: it is becoming increasingly difficult to tell where telecoms ends and IT starts in a world where ‘work is something that we do, rather than necessarily, a place that you go to’.

The strategy of the Group has been focussed on increasing the proportion of revenue from managed services, combined with targeting customers in London and the South East and the public sector. We believe that the economy in London and the South East will continue to grow faster than the other regions in the UK and that there is an increasing drive in the public sector to put business with Small and Medium-sized Enterprises (SME’s).

The Group has been focussed on the growth of managed service revenues and the acquisition of Atomwide, combined with organic sales, has increased the rate of transition of the Group towards managed services, which accounted for 69.6% of total revenue in the year ended 31 March 2018 (2017: 55.4%). The team at Atomwide has proved to be an excellent fit with AdEPT and has been successful in jointly working on delivering an infrastructure and support service which can be used across all companies in the Group.

London and the South East

In London we are Chief Technology Partner to London Grid for Learning supplying over 3,000 schools, we have nearly 50 hospitals and specialist medical facilities, over 200 business centres, thousands of commercial customers, and a range of specialist data and cloud services being supplied to central government departments.

Public sector and healthcare

In March 2016, the Government set a target that 33% of public sector spend would be with SME’s by 2022. Following the impact of the Atomwide acquisition, in March 2018 31% of total Group revenue was generated from public sector and healthcare customers (2017: 20%) and as customers we currently have over 100 Councils, 13 NHS Trusts, more than 30 private hospitals, twelve universities, over 3,000 schools and services being provided to central government departments.

Both Atomwide and OurIT have been awarded approved supplier status on the new RM3804 Technology Services 2 Framework by Crown Commercial Services. This framework is designed to make it far easier for public sector customers to buy IT products and services. AdEPT Tunbridge Wells has been awarded HSCN (Health and Social Care Network) Compliance and is now authorised to sell data networks to the NHS.

Dividends

In line with its progressive policy, AdEPT has increased the dividend proposed year-on-year by 12.9%, proposing a final dividend of 4.50p per ordinary share (2017: 4.00p), making total dividends proposed in respect of the year ended 31 March 2018 of 8.75p per ordinary share (2017: 7.75p).

Employees

As a result of the acquisitions completed in the year ended 31 March 2018, the Group now has just over 200 full-time 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 15 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

On 8 November 2017 we announced the appointment of Christopher Kingsman as a non-executive director. Christopher brings a broad range of experience from investing in and being involved with a number of public and private companies across different sectors. A graduate of Cambridge University, he started his career with Fidelity Investments and has managed a hedge fund and family office. He is the principal of a private Swiss investment group, executive chairman of Aranca, a global research, analytics and advisory firm based in India, and is a director of a number of private companies.

Through Greenwood Investments Ltd, he has been the second largest shareholder of AdEPT since 2011. Having increased his stake in February 2018 from 16.9% to 21.3% of the current issued share capital of the Company Christopher Kingsman is now the largest shareholder.

Company name change

The Board considered that the name of Company should be changed to better reflect the business of the Group as a managed service provider for IT and unified communications. On 16 January 2018 the Company announced that at the General Meeting held on 16 January 2018 it received approval for the change of company name and that it would make a further announcement when the change became effective. The proposed company name has not yet been able to be secured by the Company and therefore an alternative change of name will be proposed as part of the resolutions for the forthcoming AGM in September 2018.

Outlook

The excellent result for this year was delivered through a combination of strategic acquisition and organic contract wins, maintaining margins on customer contracts and 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