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
END
FR RIMMTMBAMTRF
(END) Dow Jones Newswires
July 05, 2016 02:00 ET (06:00 GMT)
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