TIDMAD4
RNS Number : 0848Q
adept4 plc
15 February 2019
Adept4 plc
("Adept4", the "Group" or the "Company")
Final results for the year ended 30 September 2018
Adept4 plc (AD4) the AIM quoted provider of IT as a Service is
pleased to announce final results for the year ended
30 September 2018.
Financial Summary
-- Revenue in line with last year at GBP10.2m (FY17: GBP10.3m)
with 70% from recurring customer base, demonstrating strength of
customer relationships
-- Gross profit of GBP5.7m (FY17: GBP6.2m) representing gross profit margin of 56% (FY17: 60%)
-- Trading Group EBITDA(1) of GBP0.6m (FY17: GBP1.2m)
-- Loss after tax of GBP3.8m (FY17: GBP0.6m) after significant
non-recurring items, including an impairment charge of GBP2.6m
against goodwill
-- Net debt(2) at 30 September 2018 of GBP2.7m (FY17: GBP2.0m)
Operational Summary
-- Successful settlement of legal case against vendors of Adept4
Managed IT Limited in the sum of GBP1.6m, of which GBP0.6m was
receivable in cash
-- Strengthening of management team leading to improved technical and service levels
-- Increased utilisation of cloud technology by customers
resulting in a reduced requirement for remote based and field
workers leading to a reduction in the operating cost base towards
the end of the year
-- Post-year end decision to focus on existing customers with
less emphasis on new business acquisition
-- Further cost savings identified and being implemented to
protect the cash reserves whilst the Board assesses strategic
options
Simon Duckworth, Chairman of Adept4, commented:
"Despite it being a challenging year for the business, we have
made progress against each of our key areas of strategic
development including the strengthening of our senior operational
management team and development of our technology partnerships. We
have improved our levels of service delivery leading to high levels
of customer satisfaction, though the investment made in the new
sales team has not yet delivered the results we had hoped for.
Maintaining our strong relationships with existing customers,
together with protecting the Group's cash balances and shareholder
value are our key objectives while we explore the strategic options
for the Group."
For further information please contact:
Adept4 plc
Simon Duckworth, Non-Executive Chairman 01925 398255
N+1 Singer (Nominated Adviser and Broker)
Jen Boorer
Shaun Dobson 0207 496 3000
MXC Capital Markets LLP
Charlotte Stranner 0207 965 8149
This announcement contains inside information.
(1) earnings before net finance costs, tax, depreciation,
amortisation, plc costs, separately identifiable items and
share-based
payments
(2) Net debt at 30 September 2018 comprises cash balances of
GBP1.4m, less the fair value of the BGF loan notes of GBP4.1m.
Chairman's statement
Overview
I am pleased to comment upon the results of the Group for the
year ended 30 September 2018 ("FY18") and to provide the market
with an update on our current performance and strategy. As outlined
in the 2017 Annual Report, that year was one of consolidation for
the Group, when we integrated the three companies previously
acquired into one single operating platform. We also set out our
key areas of strategic development for 2018 to enable us to build
on those foundations: the strengthening of our senior operational
management team; the development of our partnership with Microsoft
and our other technology partners and the development of our IT
security offering. We have made progress against each of these key
objectives during FY18.
The year has, however, seen us face some significant challenges.
The progress we have made in establishing a stronger management
team (with the appointments of a Chief Technology Officer, Director
of Operations and, towards the end of the financial year, a Sales
Director) and the subsequent ground work we have laid to improve
our technology, our delivery and our service levels has been
tempered by both disappointing progress with our new-business sales
in the year and also by a significant legal claim we were forced to
bring against the vendors of one of the acquired businesses. This
claim was brought against the vendors of the Adept4 MIT Limited
("MIT") business in respect of breach of warranties given by the
vendors at the time of our acquisition of the MIT business. This
was a necessary but expensive and distracting exercise, not only in
terms of legal and professional fees incurred and management time
expensed on the claim itself, but also in respect of M&A
activities which were put on hold as a result of the issues which
led to the legal action and which have subsequently been resolved.
We are pleased that this issue is now behind us, with a successful
settlement in the Company's favour of GBP1.6m (GBP0.6m cash
received post-year end and GBP1.0m waiver of deferred
consideration) before legal fees and other related costs.
In assessing the level of settlement of the warranty claim which
would be acceptable to the Company, various issues were considered,
including a historic licencing review of the acquired business
being undertaken by Microsoft. The Company has, post-year end,
reached agreement with Microsoft in relation to this review, and
this will result in a payment of GBP0.4m to Microsoft post-year
end. The liability in respect of this sum is provided for in these
results.
This legal issue also had a direct impact on our sales function
during the year, not least because it brought about the exit of the
former MIT management team sooner than we had planned, creating an
enforced change in sales leadership. It took us longer than planned
to recruit a new sales director and therefore we spent much of the
year without effective sales leadership in place. We have, towards
the end of the financial year, made significant changes to the
sales team, improving both its quality and experience; however we
have yet to see the results of this in pipeline conversion and
revenue growth post-year end.
Despite the challenges we faced during the year, revenue
remained consistent year on year at GBP10.2m (FY17: GBP10.3m) with
70% of revenue coming from our recurring revenue base,
demonstrating the strength of our existing customer relationships.
As a result of the move of certain customers to Cloud based
solutions, and as further explained in the Financial Review, our
gross profit margins fell from 60% to 56%. The fall in margins
contributed to a reduced Trading Group EBITDA(1) for the year of
GBP0.6m (FY17: GBP1.2m). After all costs and income, including,
inter alia, the warranty settlement and related costs, the
Microsoft settlement and an impairment charge of GBP2.6m in respect
of the Group's goodwill in its acquired businesses (see Note 7),
the operating loss for the year was GBP3.4m (FY17: nil) with a
retained loss of GBP3.8m (FY17: loss of GBP0.6m).
People
In March 2018, we announced that Ian Winn, Chief Financial
Officer and M&A director, had stepped down from the Board to
pursue other interests. At the same time, Nick Deman was appointed
to the Board as Interim Finance Director for a six-month period to
the end of the financial year. Jill Collighan, one of our existing
directors, has assumed the role of CFO following Nick's departure.
We would like to place on record our thanks to Nick for his efforts
and support during the period.
Given the enormous change which has taken place within Adept4 in
the past year, I would like to take this opportunity to thank our
dedicated staff. There have been many examples of our people simply
continuing to work very hard to produce great outcomes for our
customers despite the significant challenges we have faced, and I
would like to assure them of the Board's appreciation.
Outlook
As detailed above, the past twelve months have been extremely
challenging for the business. The investment made in the new sales
team has not yet delivered the results we had hoped for, with
progress further hindered by the general level of caution which is
evident in our markets as the uncertainly surrounding Brexit
continues to delay decisions and customer spend. The Board does not
see this situation improving in the short-term.
Detailed work has already gone into right-sizing the Group's
cost base, with a significant reduction in operating costs achieved
towards the end of FY18. However, given the continued delay in new
sales in the current financial year, the Group continues to see
monthly Trading Group EBITDA and cash losses following the
investment made in the sales and marketing functions. The Group's
cash balance at 31 January 2019 was GBP0.9m.
Maintaining our strong relationships with existing customers,
together with protecting the Group's cash balances and shareholder
value are the key objectives of the Board. We have therefore taken
the decision to focus on our existing customer base with less
emphasis on new business acquisition, which has an upfront cost to
the business and takes time to come through. This is designed to
protect the cash reserves of the Group whilst the Board considers
the strategic options open to the Company. This will lead to
reduced revenue and gross profit but requires a significantly lower
operating cost base, which should enable the Group to return to
profitability and positive cash generation. To that end, further
cost savings have been identified which are in the process of being
implemented.
The Board will update the market as it continues to explore its
strategic options.
Simon Duckworth
Non-Executive Chairman
14 February 2019
Business overview
What we do
Adept4 delivers IT as a Service to small and medium-sized
businesses across the UK. Through the provision of our modular
managed services, customers can create a bespoke service to suit
their requirements based on proven technologies from providers such
as Microsoft, complemented by the Group's operational and technical
teams, to provide guaranteed support with defined service levels.
As a result of the flexible nature of our approach, our customers
can start with any or all of the services available and can expand
these as their needs and demands change.
As many of the technologies which underpin our product suite can
be provided "as a service", we provide our clients with exactly
what is required to support their needs in accordance with business
demands, billed on a monthly basis, based on what is consumed.
Effectively, we provide the UK small to medium enterprise ("SME")
market with enterprise-level IT on a pay as you go ("PAYG") basis.
Our 24/7 UK response team, together with our strategic consulting,
professional services and software development teams provide
exactly what businesses need from IT at any given time.
The revenue generated by Adept4 typically comes from three core
areas of our business: contracted recurring managed services,
professional services and the sale of associated hardware and other
products.
Our market
Adept4 predominantly sells services into the SME market. The
Group's customer base spans all aspects of the SME market and the
requirements for each can be quite different. We typically see
small businesses more inclined to look for a single organisation to
provide as many services as possible across IT, telephony and
connectivity providing them with a "one stop shop" approach. As we
move towards the medium enterprise clients, we typically see these
look to a more specialist provider for different aspects of the
services they require. These customers will generally start with a
specific service from Adept4 which addresses a particular business
need and will then engage in additional solution discussions once
the initial service is being successfully delivered. With the depth
and breadth of our technology offering, together with our
specialist teams and our flexible service options, we are ideally
placed to grow our existing medium enterprise accounts whilst
continuing to service and support our overall base.
In addition to its SME customer base, the Group has a number of
public sector clients and we have experienced an increase in
requests to transact business through a recognised government
procurement framework. We were therefore pleased that during FY18,
we were successful in securing a place on the government's Digital
Outcomes and Specialist 3 ("DOS3") framework which went live in
October 2018. This further underpins our credentials for our core
professional and managed services capabilities within the public
sector arena. Further supporting our competencies in this area,
during the year we were successful in winning a number of projects
in the higher education sector including a GBP0.3m telephony
upgrade for an existing customer ranked in the top 25 universities
worldwide (QS World Rankings 2017/18).
Our technology
As part of our drive to be recognised as "trusted advisors" to
our customers, we have continued the development of our technical
skills, our competencies and our engagement with key vendor
partners across both our IT and telephony managed service
sectors.
We utilise industry leading technology products and services
from a number of vendor partners, including Microsoft, Mitel and
Fortinet in delivering our managed service offering.
One of our core technology partners is Microsoft and during the
year we have been awarded "Gold Cloud Platform" partner status, a
certification that validates our high level of competency in cloud
technologies, identity management, systems management,
virtualisation, storage and networking. We have also secured the
coveted Microsoft "P-Seller" status which is designed to create a
deeper relationship between Microsoft partners and the Microsoft
product teams, in order to provide highly-skilled solution
specialists to Microsoft customers.
Telephony services continue to drive strong opportunities for
the Group, in both the traditional telecoms market - where we sell,
install and support systems from Mitel, a market leading voice
technology company - and in new technologies, such as integrated
solutions from Microsoft based on their Skype for Business
technology, now branded as Microsoft Teams. We increasingly see
customers looking to introduce the Microsoft voice and
collaboration suite of products into their business, consolidating
their technology to a single platform. We have added further
functionality to our offering, with the introduction of a contact
centre product called Anywhere365. This software application, which
works directly with Microsoft Teams, provides additional
multichannel communication functionality. With the Group's
capability across the telephony market, we are ideally placed to
continue to sell to and support clients requiring traditional
infrastructure and also provide a migration strategy for those that
want to move to the new collaboration platforms.
In relation to our security proposition, during the year we were
granted exclusivity to sell the Nyotron security portfolio in the
UK. Nyotron's next generation cybersecurity solution distinguishes
between legitimate operating system behaviour of IT users versus
threatening activities carried out by attackers. This provides
real-time protection from any attack without foreknowledge of the
exploit. We very quickly saw significant interest for this
next-generation technology and we have identified a strong pipeline
of opportunities for the product, with a number of pilot schemes
being undertaken during the year. Whilst we have been disappointed
with the speed at which the product has been adopted by the market
as a whole, we remain confident that Nyotron could become a strong
revenue stream for Adept4.
Additionally, in the cyber security market, during the year we
started to sell a security and threat detection solution from
Fortinet, a leading global provider of network security solutions.
We have sold this as both a stand-alone solution and also as a
managed service to, amongst others, a multi-site vehicle dealership
in a security solution including a monthly reporting pack of key
activity, both in terms of threats and usage. Given our sales
success, we are now regarded as a key Fortinet development partner
and have a healthy pipeline in this area.
Our software development team continue to deliver strong
revenues from our existing clients and we have also added new
customer revenues for application redevelopment work and Power BI
reporting during the year. This included a new GBP0.3 million
contract for application development for a global provider of
customer contact centres.
The need to interrogate data from multiple applications and
information stores and bring this together to provide analytical
intelligence is driving new conversations in our customer base and
is expected to provide the Group with new revenue streams. We have
a team of in-house developers and additionally, we have agreed a
partnership with a "nearshore" development provider to supplement
our own software development capabilities in a cost efficient and
scalable manner to allow us to maximise revenue opportunities.
Management team and operational development
A number of new key operational leadership appointments were
made during the year, ultimately bringing about a new management
team across the business. Our three key appointments were a new
Sales Director, a Director of Operations and a new Chief Technology
Officer. These appointments, together with our existing executives,
provide us with an effective team to guide the business through its
next phase of development and they have already effected some
significant improvements within the business.
One of the biggest areas of improvement in the year has been in
our technical operations and support teams, who provide the
technical services and back end support to our customers. Through
feedback from customers and members of the sales and services
teams, we identified a series of operational changes that were
required to improve how we dealt with support requests and also how
we captured client sentiment and dealt with this.
Following a review by the newly appointed Director of
Operations, it was clear that the business required a fresh
approach to customer support and we identified a new Head of
Service Operations to join the Group and run the service desk
teams. Processes were improved which quickly reduced the number of
outstanding support requests, improved the response times of the
service desk teams, reduced the number of repeat inbound calls to
the service desk and provided a platform to allow us to score every
engagement that was made with the service desk. The current
position is that we have a much faster ticket resolution process
with more tickets closed on the first day than at any point in the
previous three years, resulting in customers more willing to engage
with discussions to acquire additional products and services from
the Group.
Within our sales pipeline, we are also seeing an increase in our
existing customers' appetite to understand how they can embrace
digital transformation, i.e. how they can utilise cloud technology
to drive business agility, improve time to market, understand and
predict client behaviour and make better use of their business
data. We are seeing a steady increase in these early discussions
with customers on how to approach such a significant change in
their business and how Adept4 can assist in doing so. As part of
digital transformation, customers typically see a change in the
profile of their IT spend with an increase in upfront professional
services to make the journey from "traditional to cloud" but then a
reduction in infrastructure hardware and monthly recurring spend as
they have less infrastructure for us to support.
This model of PAYG cloud computing has also brought about some
changes to the way managed services are delivered and priced. With
the cloud infrastructure being hosted in a vendor's datacentre
(Microsoft Azure / Amazon AWS), any hardware support is provided by
the vendor as part of their service. This means that we no longer
need to provide the support for this hardware but there is an
additional cost from the vendor for the provision of these
services. For this reason, and as detailed in the Financial Review,
our gross profit margin has fallen during the year. We do however
see the benefit of operational cost savings as under this model,
our responsibility is focused on the operating systems support as
well as the configuration and management of the virtual servers
which is carried out by our desk based technical teams. We
therefore have a reduced requirement for remote based or field
workers with associated high travel and expense costs. Towards the
end of the financial year, the Group's operating cost base was
reduced accordingly; the impact of this will be seen in the new
financial year. This will be supplemented by further cost
reductions which have been identified and are in the process of
being implemented.
Summary and outlook
As detailed above, we have made progress against our key
objectives during the year, but this was tempered by certain
challenges faced by the Group. Going forward our priorities are to
maintain our strong relationships with existing customers, and to
protect the Group's cash balances and shareholder value. Our focus
is therefore on continuing to deliver high levels of service to our
existing customer base whilst placing less emphasis on new business
acquisition which has an upfront cost to the business and takes
time to come through. This is designed to safeguard the cash
reserves of the Group whilst the Board considers the strategic
options open to the Company.
Financial review
Revenue and gross margin
Group revenue for the year to 30 September 2018 was in line with
that generated in the previous financial year, at GBP10.2m (FY17:
GBP10.3m). This produced a gross profit of GBP5.7m (FY17: GBP6.2m)
representing a gross margin of 56% (FY17: 60%). The reduction in
margin predominantly relates to the recurring services segment, as
explained below.
We continue to see strong recurring revenue performance with 70%
(FY17: 70%) of all revenues coming from ongoing contracts for
services. The analysis of revenue and gross profit from each of our
operating segments of recurring services, product sales and
professional services is shown in Note 3 and is detailed below.
Recurring services
Revenues from recurring services were GBP7.1m (FY17: GBP7.2m),
generating a gross profit of GBP4.2m (FY17: GBP4.6m) and a gross
margin of 60% (FY17: 64%). We continue to see a reduction in the
gross profit from recurring services due to the migration of
certain services from our infrastructure to that of a third party
(such as Microsoft), in line with our asset-light strategy. Whilst
initially resulting in some margin reduction, this strategy reduces
risk and cost of ownership for us and allows us to provide
customers with best-of-breed solutions with the ability to sell a
wider range of services to the customer. This transition also means
that we need fewer staff to support the in-house solutions, which
has enabled us to undertake a cost rationalisation programme in the
year to reduce our overhead base.
We continue to focus on generating recurring revenues by
promoting our consumptive pricing and "pay-as-you-go" IT model. The
proportion of our total revenue derived from recurring services was
70% (FY17: 70%), providing a strong and visible future revenue
base.
Product sales
Revenues from product sales were consistent with those in FY17
at GBP2.0m (FY17: GBP2.0m) generating a gross profit of GBP0.4m
(FY17: GBP0.4m) and gross margin of 22% (FY17: 22%). Product
revenue during the year included telephone system sales of GBP0.7m
(FY17: GBP0.5m), with notable Mitel telephone system upgrades to
universities and local government organisations totalling
GBP0.5m.
Professional services
Revenues from professional services were GBP1.1m (FY17: GBP1.2m)
generating a gross profit of GBP1.0m (FY17: GBP1.2m) as permanent
employee costs are included in overheads. Digital transformation
projects were undertaken during the year for five key customers
generating GBP0.5m of professional services revenues. In addition,
over 540 new orders were placed during the financial year for
chargeable professional services work, demonstrating the quality of
our professional services offering.
Operating performance, costs and EBITDA
Aside from revenue, gross profit and cash balances, one of our
main financial key performance indicators is our Trading Group
EBITDA(1) - our operational trading performance before plc
costs.
Excluding plc costs of GBP0.5m (FY17: GBP0.6m), our trading
overheads during the year were GBP5.1m (FY17: GBP5.0m), of which
staff costs comprised 88% (FY17: 81%). Given the level of gross
profit generated from recurring revenue this meant that we achieved
83% (FY17: 91%) coverage of the trading overhead base from our
recurring services. Our resultant Trading Group EBITDA(1) for the
year was GBP0.6m (FY17: GBP1.2m).
Separately identifiable items
During the year we incurred certain costs and income which were
not directly related to the generation of revenue and trading
profits. Given their size and nature, they have been classified as
separately identifiable items within the Consolidated Income
Statement. These items totalled a net cost of GBP2.4m and can be
summarised as follows:
-- income of GBP1.6m in relation to the settlement of the
warranty claim with the vendors of Adept4 Managed IT Limited
("MIT");
-- costs in relation to the warranty claim and other M&A activities of GBP0.5m;
-- settlement of a historic Microsoft licence review, cost of GBP0.4m;
-- impairment charge in respect of goodwill of GBP2.6m;
-- integration and reorganisation costs of GBP0.3m; and
-- costs in relation to the disposal of Pinnacle CDT Limited of GBP0.2m.
During FY18, the Company brought a warranty claim against the
vendors of the MIT business, The Company was successful with this
claim and agreed a settlement in the sum of GBP1.6 million. GBP0.6m
of the settlement was payable to the Company in cash post-year end,
with the balance extinguishing the Company's liability to pay the
MIT vendors deferred consideration of GBP1.0m. Costs of GBP0.5m
were incurred by the Company in relation to the warranty dispute
and also in respect of corporate activity which was put on hold as
a result of certain matters which led to the legal action and which
have subsequently been resolved.
In assessing the level of settlement of the warranty claim which
would be acceptable to the Company, various issues were considered,
including a historic licencing review of the acquired business
being undertaken by Microsoft. The Company has, post year end,
reached agreement with Microsoft in relation to this review, which
resulted in a payment of GBP0.4m due to Microsoft. The liability in
respect of this sum is provided for in these results.
As a result of the warranty claim and current performance
levels, the Board has assessed the carrying value of the Group's
goodwill and an impairment charge of GBP2.6m (FY17: GBP0.2m) has
been made against goodwill. Further details are given in Note
7.
After the successful integration of the service-desk team into a
single site in July 2017 and a number of efficiencies gained as a
result of the investment in a single operating system, together
with the migration of certain services from our own infrastructure
to third party vendors, the Group was able to reduce the ongoing
annualised cost base for the business by GBP0.6m by way of a
restructure. The restructure incurred one-off costs in relation to
redundancy, holiday pay and payments in lieu of notice. The cost
reductions took place towards the end of the financial year and
therefore the benefit of these will be seen in FY19 along with the
benefit of the additional cost savings currently being
implemented.
In addition, the Group incurred a charge of GBP0.2m in relation
to the disposal in 2016 of the trade and assets of one of its
subsidiary companies. Further details are provided in Note 4.
Net finance expenses
During the year the Group incurred net finance costs of GBP0.6m
(FY17: GBP0.8m). GBP0.4m of this was a cash cost in relation to the
interest on the Business Growth Fund ("BGF") loan notes and GBP0.2m
related to the release to the income statement of the fair value
adjustments in respect of these loan notes.
Loss for the period
The Group incurred non-cash costs including total amortisation
and depreciation charges of GBP1.0m (FY17: GBP1.0m) and a
share-based payments charge of GBP0.1m (2017: GBP0.2m).
After accounting for a deferred tax credit of GBP0.2m (2017:
GBP0.2m) the reported loss for the year after tax was GBP3.8m
(FY17: GBP0.6m).
Statement of Financial Position and cash
Cash balances at 30 September 2018 were GBP1.4m (FY17: GBP2.9m)
whilst net debt was GBP2.7m (FY17: GBP2.0m). Net debt comprises
cash balances of GBP1.4m less the fair value of the BGF loan notes
of GBP4.1m.
The main components of the Group's cash flows during the year
were as follows:
-- cash used in operating activities of GBP0.9m (after the
payment of separately identifiable costs of GBP0.6m and plc costs
of GBP0.5m);
-- purchase of tangible fixed assets of GBP0.1m;
-- GBP0.1m settlement of Chess dispute paid in October 2017; and
-- financing interest payments of GBP0.4m;
Trade and other receivables at the period end were GBP2.9m
(FY17: GBP2.3m). The increase in this category is primarily due to
the GBP0.6m cash element of the warranty claim settlement which was
received in November 2018.
Net assets at 30 September 2018 were GBP4.0m (FY17:
GBP7.7m).
Consolidated income statement
for the year ended 30 September 2018
2018 2017
Note GBP'000 GBP'000
------------------------------------------------ ---- -------- --------
Continuing operations
Revenue 3 10,185 10,301
Cost of sales (4,480) (4,137)
------------------------------------------------ ---- -------- --------
Gross profit 3 5,705 6,164
Administrative expenses (5,598) (5,575)
Amortisation of intangible assets 8 (907) (880)
Depreciation 9 (136) (162)
Separately identifiable (costs)/income 4 (2,390) 626
Share-based payments (48) (162)
------------------------------------------------ ---- -------- --------
Operating (loss)/profit (3,374) 11
------------------------------------------------ ---- -------- --------
Interest receivable 5 7 -
Interest payable 5 (609) (842)
------------------------------------------------ ---- -------- --------
Net finance expense (602) (842)
------------------------------------------------ ---- -------- --------
Loss before taxation (3,976) (831)
------------------------------------------------ ---- -------- --------
Taxation 169 248
------------------------------------------------ ---- -------- --------
Loss and total comprehensive loss for the
year attributable to owners of the parent (3,807) (583)
------------------------------------------------ ---- -------- --------
Loss per share
Basic and fully diluted 7 (1.68)p (0.26)p
------------------------------------------------ ---- -------- --------
Non-statutory measure : Trading Group EBITDA(1)
Operating (loss)/profit (3,374) 11
Plc costs 482 570
Amortisation of intangible assets 8 907 880
Depreciation 9 136 162
Separately identifiable costs/(income) 4 2,390 (626)
Share-based payments 48 162
------------------------------------------------ ---- -------- --------
Trading Group EBITDA(1) 589 1,159
------------------------------------------------ ---- -------- --------
(1) earnings before net finance costs, tax, depreciation,
amortisation, plc costs, separately identifiable items and
share-based
payments
Consolidated statement of financial position
as at 30 September 2018
30
30 September September
2018 2017
Note GBP'000 GBP'000
-------------------------------------- ---- ------------ ----------
Non-current assets
Intangible assets 8 8,282 11,804
Property, plant and equipment 9 146 228
-------------------------------------- ---- ------------ ----------
Total non-current assets 8,428 12,032
-------------------------------------- ---- ------------ ----------
Current assets
Inventories 26 66
Trade and other receivables 10 2,900 2,349
Cash and cash equivalents 1,427 2,905
-------------------------------------- ---- ------------ ----------
Total current assets 4,353 5,320
-------------------------------------- ---- ------------ ----------
Total assets 12,781 17,352
-------------------------------------- ---- ------------ ----------
Current liabilities
Short-term borrowings (32) (1,012)
Trade and other payables (1,102) (1,203)
Other taxes and social security costs (377) (490)
Accruals and deferred income (1,937) (1,590)
-------------------------------------- ---- ------------ ----------
Total current liabilities 11 (3,448) (4,295)
-------------------------------------- ---- ------------ ----------
Non-current liabilities
Long-term borrowings 11 (4,117) (3,914)
Deferred tax liability (1,248) (1,416)
-------------------------------------- ---- ------------ ----------
Total non-current liabilities (5,365) (5,330)
-------------------------------------- ---- ------------ ----------
Total liabilities (8,813) (9,625)
-------------------------------------- ---- ------------ ----------
Net assets 3,968 7,727
-------------------------------------- ---- ------------ ----------
Equity
Share capital 2,271 2,271
Share premium account 11,337 11,337
Capital redemption reserve 6,489 6,489
Merger reserve 1,997 1,997
Other reserve 1,649 1,601
Retained earnings (19,775) (15,968)
-------------------------------------- ---- ------------ ----------
Total equity 3,968 7,727
-------------------------------------- ---- ------------ ----------
Consolidated statement of changes in equity
for the year ended 30 September 2018
Capital
Share Share redemption Merger Other Retained
capital premium reserve reserve reserve earnings Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------- -------- -------- ----------- -------- -------- --------- --------
At 1 October 2016 2,271 11,337 6,489 1,997 1,439 (15,385) 8,148
------------------------------- -------- -------- ----------- -------- -------- --------- --------
Loss and total comprehensive
loss for the period - - - - - (583) (583)
------------------------------- -------- -------- ----------- -------- -------- --------- --------
Transactions with owners
Share-based payments - - - - 162 - 162
Total transactions with owners - - - - 162 - 162
------------------------------- -------- -------- ----------- -------- -------- --------- --------
Total movements - - - - 162 (583) (421)
------------------------------- -------- -------- ----------- -------- -------- --------- --------
Equity at 30 September 2017 2,271 11,337 6,489 1,997 1,601 (15,968) 7,727
------------------------------- -------- -------- ----------- -------- -------- --------- --------
Capital
Share Share redemption Merger Other Retained
capital premium reserve reserve reserve earnings Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------- -------- -------- ----------- -------- -------- --------- --------
At 1 October 2017 2,271 11,337 6,489 1,997 1,601 (15,968) 7,727
------------------------------- -------- -------- ----------- -------- -------- --------- --------
Loss and total comprehensive
loss for the period - - - - - (3,807) (3,807)
------------------------------- -------- -------- ----------- -------- -------- --------- --------
Transactions with owners
Share-based payments - - - - 48 - 48
------------------------------- -------- -------- ----------- -------- -------- --------- --------
Total transactions with owners - - - - 48 - 48
------------------------------- -------- -------- ----------- -------- -------- --------- --------
Total movements - - - - 48 (3,807) (3,759)
------------------------------- -------- -------- ----------- -------- -------- --------- --------
Equity at 30 September 2018 2,271 11,337 6,489 1,997 1,649 (19,775) 3,968
------------------------------- -------- -------- ----------- -------- -------- --------- --------
Consolidated statement of cash flows
for the year ended 30 September 2018
2018 2017
GBP'000 GBP'000
-------------------------------------------------- -------- --------
Cash flows from operating activities
Loss before taxation (3,976) (831)
Adjustments for:
Depreciation 136 162
Amortisation 907 880
Share-based payments 48 162
Net finance expense 602 842
Settlement of Warranty Claim (1,578) -
Write back of contingent consideration - (1,122)
Impairment of goodwill 2,644 200
Increase in trade and other receivables 73 (781)
Decrease/(increase) in inventories 40 (44)
Increase in trade payables, accruals and deferred
income 195 480
-------------------------------------------------- -------- --------
Net cash used in operating activities (909) (52)
-------------------------------------------------- -------- --------
Cash flows from taxation - (383)
-------------------------------------------------- -------- --------
Cash flows from investing activities
Purchase of property, plant and equipment (70) (248)
Payment of deferred consideration (8) -
Interest received 7 -
-------------------------------------------------- -------- --------
Net cash used in investing activities (71) (248)
-------------------------------------------------- -------- --------
Cash flows from financing activities
Finance lease income received 56 16
Payment of finance lease liabilities (44) (30)
Interest paid (410) (404)
Net cash used in financing activities (398) (418)
-------------------------------------------------- -------- --------
Cash flows from discontinued operations
Acquisition of remaining shares in Accent Telecom
North Limited - (260)
Settlement of dispute with Chess ICT Limited (100) -
-------------------------------------------------- -------- --------
Net cash used in discontinued operations (100) (260)
-------------------------------------------------- -------- --------
Net decrease in cash (1,478) (1,361)
Cash at bank and in hand at beginning of period 2,905 4,266
-------------------------------------------------- -------- --------
Cash at bank and in hand at end of period 1,427 2,905
-------------------------------------------------- -------- --------
Comprising:
Cash at bank and in hand 1,427 2,905
-------------------------------------------------- -------- --------
Notes to the consolidated financial information
1. General information
Adept4 plc is a public limited company incorporated in England
and Wales under the Companies Act 2006. The Board of Directors
approved this preliminary announcement on 14 February 2019. Whilst
the financial information included in the preliminary announcement
has been prepared in accordance with the recognition and
measurement criteria of International Financial Reporting Standards
("IFRS") as endorsed by the European Union, this announcement does
not itself contain sufficient information to comply with all the
disclosure requirements of IFRS and does not constitute statutory
accounts of the Company for the years ended
30 September 2018 and 2017.
The financial information for the period ended 30 September 2017
is derived from the statutory accounts for that year which have
been delivered to the Registrar of Companies. The statutory
accounts for the year ended 30 September 2018 will be delivered to
the Registrar of Companies following the Company's annual general
meeting. The auditors have reported on those accounts; their
reports were unqualified and did not contain a statement under
s498(2) or s498(3) of the Companies Act 2006.
2. Basis of Preparation
The consolidated financial statements have been prepared in
accordance with applicable International Financial Reporting
Standards (IFRSs) as adopted by the EU and in accordance with the
Companies Act 2006. The measurement bases and principal accounting
policies of the Group are set out below. These policies have been
consistently applied to all years presented unless otherwise
stated.
3. Segment reporting
The Chief Operating Decision Maker ("CODM") has been identified
as the directors of the Company and its subsidiaries, who review
the Group's internal reporting in order to assess performance and
to allocate resources. The CODM assess profit performance
principally through adjusted profit measures consistent with those
disclosed in the Annual Report and Accounts. The Board believes
that the Group comprises a single reporting segment, being the
provision of IT managed services to customers. Whilst the CODM
reviews the revenue streams and related gross profits of three
categories separately (Recurring Services, Product and Professional
Services), the operating costs and operating asset base used to
derive these revenue streams are the same for all three categories
and are presented as such in the Group's internal reporting.
Accordingly, the segmental analysis below is therefore shown at a
revenue and gross profit level in line with the CODM's internal
assessment, based on the following reportable operating
segments:
Recurring Services
* This segment comprises the provision of continuing IT
services which have an ongoing billing and support
element.
Product
* This segment comprises the resale of solutions
(hardware and software) from leading technology
vendors
Professional Services
* This segment comprises the provision of highly
skilled resource to consult, design, install,
configure and integrate IT technologies.
--------------------- -----------------------------------------------------------------
All revenues are derived from customers within the UK and no
customer accounts for more than 10% of external revenues.
Inter-segment transactions are accounted for using an arm's length
commercial basis.
3.1 Analysis of continuing results
The operating segments for 2017 have been restated to reflect
the definitions used in 2018, in particular the Professional
Services operating segment, which now includes all separable
Professional Services revenues associated with Product and
Recurring Services revenues, which have been unbundled to measure
the contribution of our skilled technical resources. All revenues
from continuing operations are derived from customers within the
UK. This analysis is consistent with that used internally by the
CODM and, in the opinion of the Board, better reflects the nature
of the revenue.
3.1.1 Revenue
2018 2017
GBP'000 GBP'000
----------------------- --------- ---------
Recurring Services 7,100 7,173
Product 1,987 1,957
Professional Services 1,098 1,171
Total Revenue 10,185 10,301
----------------------- --------- ---------
3.1.2 Gross Profit
2018 2017
GBP'000 GBP'000
----------------------- --------- ---------
Recurring Services 4,231 4,566
Product 439 433
Professional Services 1,035 1,165
Total Gross Profit 5,705 6,164
----------------------- --------- ---------
4. Separately identifiable (costs)/income
Items which are material and non-routine in nature are presented
as separately identifiable items in the Consolidated Income
Statement.
2018 2017
GBP'000 GBP'000
------------------------------------------------------ -------- --------
Settlement of warranty claim 1,578 -
Costs in relation to the warranty claim and other M&A
activities (481) -
Settlement of historic Microsoft licence review (376) -
Impairment of goodwill (Note 8) (2,644) (200)
Integration and restructure costs (271) (121)
Costs in relation to disposal of Pinnacle CDT Limited (196) (100)
Write back of contingent consideration - 1,122
Termination payment - (75)
------------------------------------------------------ -------- --------
Separately identifiable (costs)/income (2,390) 626
------------------------------------------------------ -------- --------
The acquisition of Adept4 Managed IT Ltd ("MIT") on 26 May 2016
was for a total consideration of up to GBP7m, including up to
GBP1.5m of contingent consideration, based on the financial
performance of the Group in the calendar year to December 2017 and
payable in March 2018. The performance targets for the contingent
consideration were not achieved and this element of the
consideration, the fair value of which was GBP1.1m, was credited to
the Consolidated Income Statement in FY17.
During FY18, the Company brought a warranty claim against the
vendors of the MIT business. The Company was successful with this
claim and agreed a settlement in the sum of GBP1.6 million, in
addition to confirmation that the contingent consideration was not
payable. GBP0.6m of the settlement was payable to the Company in
cash post-year end, with the balance extinguishing the Company's
liability to pay the MIT vendors deferred consideration of GBP1.0m.
Costs of GBP0.5m were incurred by the Company in relation to the
warranty dispute and also in respect of corporate activity which
was put on hold as a result of certain matters which led to the
legal action and which have subsequently been resolved.
In assessing the level of settlement of the warranty claim which
would be acceptable to the Company, various issues were considered,
including a historic licencing review of the acquired business
being undertaken by Microsoft. The Company has, post-year end,
reached agreement with Microsoft in relation to this review, which
resulted in a payment of GBP0.4m due to Microsoft in FY19. The
liability in respect of this sum is provided for in these
results.
Subsequent to the warranty claim and the non-achievement of the
performance criteria in relation to the MIT earn out, the Board has
assessed the carrying value of the Group's goodwill. Following an
assessment of current budgets and forecasts for the Group, an
impairment charge of GBP2.6m (FY17: GBP0.2m) has been made.
After the successful integration of the service-desk team into a
single site in July 2017 and a number of efficiencies gained as a
result of our investment in a single operating system, we were able
to reduce the ongoing annualised cost base for the business by
GBP0.6m by way of a restructure. The restructure incurred one-off
costs of GBP0.3m in relation to redundancy costs, holiday pay and
payments in lieu of notice. The cost reductions took place towards
the end of the financial year and therefore the benefit of these
will be seen in FY19.
In 2017, the Company identified the need for a provision
following a dispute which related to the recovery of an asset
included in the sale of the trade and assets of Pinnacle CDT
Limited, a subsidiary of Adept4, to Chess ICT Limited ("Chess"). We
resolved this dispute in September 2017, and this resulted in a
payment of GBP0.1m by the Company in October 2017. In accordance
with the settlement agreement, as the asset in question was not
recovered by 30 September 2018, a further GBP0.1m became payable to
Chess in October 2018. This liability has been provided for in
these financial statements. Under the terms of the settlement
agreement, we continue to pursue the asset on behalf of Chess, but
the Company has no further liability.
5. Finance income and finance costs
Finance cost includes all interest-related income and expenses.
The following amounts have been included in the Consolidated Income
Statement line for the reporting periods presented:
2018 2017
GBP'000 GBP'000
-------------------------------------------------------- -------- --------
Interest income resulting from short-term bank deposits 7 -
-------------------------------------------------------- -------- --------
Finance income 7 -
-------------------------------------------------------- -------- --------
Interest expense resulting from:
Finance leases 10 4
BGF loan notes 400 400
Effective interest on liability element of the BGF Loan
Notes 199 199
Effective interest on deferred consideration relating
to Adept4 Managed IT Ltd - 239
-------------------------------------------------------- -------- --------
Finance costs 609 842
-------------------------------------------------------- -------- --------
6. Operating (loss)/profit
2018 2017
GBP'000 GBP'000
-------------------------------------------------- -------- --------
Operating (loss)/profit is stated after charging:
Depreciation of owned assets 136 162
Amortisation of intangibles 907 880
Operating lease rentals:
- Buildings 105 114
Auditor's remuneration:
- Audit of parent company 20 14
- Audit of subsidiary companies 37 36
- Audit costs relating to prior year 28 -
- Audit-related assurance services 6 5
- Corporation tax services 16 18
-------------------------------------------------- -------- --------
7. Loss per share
2018 2017
GBP'000 GBP'000
----------------------------------------------------- ----------- -----------
Loss attributable to ordinary shareholders (3,807) (583)
----------------------------------------------------- ----------- -----------
Number Number
----------------------------------------------------- ----------- -----------
Weighted average number of Ordinary Shares in issue,
basic and diluted 227,065,100 227,065,100
Basic and diluted loss per share (1.68)p (0.26)p
----------------------------------------------------- ----------- -----------
8. Intangible assets
IT, billing
and
website Customer
Goodwill systems Brand lists Total
Intangible assets GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------------- -------- ----------- -------- -------- --------
Cost
At 1 October 2016 4,312 - 1,157 7,580 13,049
Additions - 113 - - 113
Adjustments to provisional
fair values 135 - - - 135
---------------------------- -------- ----------- -------- -------- --------
At 1 October 2017 4,447 113 1,157 7,580 13,297
Additions - 29 - - 29
---------------------------- -------- ----------- -------- -------- --------
At 30 September 2018 4,447 142 1,157 7,580 13,326
---------------------------- -------- ----------- -------- -------- --------
Accumulated amortisation
At 1 October 2016 - - (35) (378) (413)
Charge for the year - (7) (115) (758) (880)
-------------------------- ---- ----- ------- -------
At 1 October 2017 - (7) (150) (1,136) (1,293)
Charge for the year -(20) (115) (772) (907)
-------------------------- ---- ----- ------- -------
At 30 September 2018 -(27) (265) (1,908) (2,200)
-------------------------- ---- ----- ------- -------
Impairment
At 1 October 2016 - --- -
Charge in the year (200) --- (200)
---------------------- ------- -------
At 1 October 2017 (200) --- (200)
Charge in the year (2,644) ---(2,644)
---------------------- ------- -------
At 30 September 2018 (2,844) ---(2,844)
---------------------- ------- -------
Carrying amount
At 30 September 2018 1,603 115 892 5,672 8,282
-------------------------------- ----- --------- --------- --------- ---------
At 30 September 2017 4,247 106 1,007 6,444 11,804
-------------------------------- ----- --------- --------- --------- ---------
Average remaining amortisation 2.8 years 6.6 years 6.6 years 6.6 years
period
-------------------------------- ----- --------- --------- --------- ---------
In determining whether intangible assets including goodwill were
impaired, the directors estimated the discounted future cash flows
associated with the intangible assets over a ten year period. The
directors also considered the release of the contingent
consideration, the impact of the issues underlying the warranty
claim and the reduction in Trading EBITDA during the year as
indicators that the intangible assets were impaired. The goodwill
was impaired by GBP2.6m during the year.
9. Property, plant and equipment
Fixtures,
fittings Plant,
and machinery
leasehold and motor
IT equipment improvements vehicles Total
GBP'000 GBP'000 GBP'000 GBP'000
--------------------- ------------ ------------- ---------- --------
Cost of assets
At 1 October 2016 188 127 14 329
Additions 114 21 - 135
Disposals - - (14) (14)
--------------------- ------------ ------------- ---------- --------
At 30 September 2017 302 148 - 450
Additions 70 - - 70
Disposals (16) - - (16)
--------------------- ------------ ------------- ---------- --------
At 30 September 2018 356 148 - 504
--------------------- ------------ ------------- ---------- --------
Depreciation
At 1 October 2016 41 22 11 74
Charge for the year 111 48 3 162
Disposal - - (14) (14)
--------------------- --- --- ---- ----
At 30 September 2017 152 70 - 222
Charge for the year 79 57 - 136
At 30 September 2018 231 127 - 358
--------------------- --- --- ---- ----
Net book value
At 30 September 2018 125 21 - 146
---------------------- ----- ---- --- -----
At 30 September 2017 150 78 - 228
---------------------- ----- ---- --- -----
10. Trade and other receivables
2018 2017
GBP'000 GBP'000
--------------------------------- -------- --------
Trade receivables 1,343 1,476
Warranty settlement (see Note 4) 600 -
Other Debtors 36 209
Prepayments and accrued income 921 664
--------------------------------- -------- --------
Trade and other receivables 2,900 2,349
--------------------------------- -------- --------
11. Trade and other payables
11.1 Current
2018 2017
GBP'000 GBP'000
----------------------------------------------- -------- --------
Trade payables 1,102 1,203
Accruals and deferred income 1,937 1,590
Finance leasing liability - short-term element 32 25
Other taxes and social security costs 377 490
Deferred consideration - 987
----------------------------------------------- -------- --------
Total current liabilities 3,448 4,295
----------------------------------------------- -------- --------
11.2 Non-current
2018 2017
GBP'000 GBP'000
------------------------------------------------------ -------- --------
BGF Loan Notes repayable to the BGF between three and
seven years 5,000 5,000
Less fair value adjustment relating to the BGF Loan
Notes (929) (1,128)
Fair value of BGF Loan Notes 4,071 3,872
Finance leasing liability - long-term element 46 42
Total non-current liabilities 4,117 3,914
------------------------------------------------------ -------- --------
12. Financial instrument
On 26 May 2016, the Company issued GBP5m unsecured loan notes
("Loan Notes") to the BGF with a seven-year term (although
redemption is permissible from the third anniversary) with
repayment between the fifth and seventh anniversaries in equal
semi-annual repayments that carry interest at 8% per annum
("Coupon"). Assuming that the Loan Notes were held for seven years
and not redeemed early, the maximum credit exposure at 30 September
2018, including interest, is GBP6.4m (FY17: GBP6.8m), of which
GBP1.4m (FY17: GBP1.8m) relates to interest. As previously
described, the Company also agreed to grant the BGF an option to
subscribe for 50,000,000 Ordinary Shares of 1p at a subscription
price of 6p any time before 26 May 2031. As the Loan Notes are
unsecured, no collateral was offered to the BGF as security. The
Loan Notes are not exposed to market interest rate increases over
the term.
In accordance with IAS 32, the BGF Loan Note and share warrant
elements were linked and treated as a single financial instrument
and shown at fair value.
The fair value of the share options at 26 May 2016 (date of
grant) has been calculated using the Black Scholes pricing model
incorporating the following key assumptions:
-- share price volatility of 40%;
-- spot price of 6p per share;
-- risk-free rate of 0.9%; and
-- option period, aligned with the maximum amount of time the loan can remain outstanding.
Based on the assumptions above, the Black Scholes pricing model
provided a fair value for the share option of 2.89p per share,
which implied a total fair value for the share option of GBP1.4m.
Based on the expected Coupon payments and repayment profile under
the Loan Notes, this implies an effective borrowing rate of 15%.
This resulted in a fair value of the loan amount at 26 May 2016 of
GBP3.6m. The difference between the Coupon rate and the effective
interest charge at 15% is charged through the Consolidated Income
Statement over the life of the Loan Notes, and increases the
outstanding Loan Note balance over time to match actual Coupon and
capital cash repayments relating to the Loan Notes.
Loan Carrying 8%
Note value interest
balance Loan Notes payable
GBP'000 GBP'000 GBP'000
---------------------------------------------------- -------- ----------- ---------
Cash received from the BGF on 26 May 2016 for Loan
Notes at 8% per annum interest 5,000 - -
---------------------------------------------------- -------- ----------- ---------
At 30 September 2017 5,000 3,872 -
Interest on Loan Notes at 8% per annum for the year
to 30 September 2018 - - 400
Notional interest on liability element of the BGF
Loan Notes to 30 September 2018 - 199 -
---------------------------------------------------- -------- ----------- ---------
At 30 September 2018 5,000 4,071 400
---------------------------------------------------- -------- ----------- ---------
13. Post-balance sheet events
Maintaining strong relationships with existing customers,
together with protecting the Group's cash balances and shareholder
value are the key objectives of the Board. The Board has therefore
taken the decision to focus on the existing customer base with less
emphasis on new business acquisition, which has an upfront cost to
the business and takes time to come through. This is designed to
protect the cash reserves of the Group whilst the Board considers
the strategic options open to the Company. This will lead to
reduced revenue and gross profit but requires a significantly lower
operating cost base, which should enable the Group to return to
profitability and positive cash generation. To that end, post year
end, further cost savings have been identified which are in the
process of being implemented.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR SFWEFLFUSEDE
(END) Dow Jones Newswires
February 15, 2019 02:00 ET (07:00 GMT)
Cloudcoco (LSE:CLCO)
Historical Stock Chart
From Apr 2024 to May 2024
Cloudcoco (LSE:CLCO)
Historical Stock Chart
From May 2023 to May 2024