ADT.L Regulatory News (ADT)

AdEPT Telecom plc

("AdEPT" or the "Company")

Interim results for the 6 months ended 30 September 2015

AdEPT, one of the UK's leading independent communications integrator and managed service providers, announces its results for the 6 months ended 30 September 2015.

Highlights

· Total revenue increased by 22.8% to £13.9 million (2014: £11.3 million)

· EBITDA increased by 24.8% to £2.9 million (2014: £2.4 million)

· EBITDA margin increased to 21.1% (2014: 20.8%)

· Adjusted profit before tax increased by 19.7% to £2.6 million (2014: £2.2 million)

· Adjusted EPS increased by 23.1% to 10.32p (2014: 8.38p)

· Interim dividend increased by 33.3% to 3.00p per share (2014: 2.25p)

· Operating cash flow before tax of £2.5 million (2014: £2.3 million)

· New £15 million Revolving Credit Facility with Barclays completed in April 2015

· Acquisition of Centrix Limited completed on 1 May 2015

· Net debt, after £7.2 million acquisition payments, of £7.6 million (2014: £3.2 million)

· Managed services revenue increased by 88.7% to £5.7 million (2014: £3.0 million)

Business review

Total revenue increased by 22.8% to £13.9 million with the increase being a reflection of the 5 month revenue contribution from Centrix Limited ("Centrix") following the completion of the acquisition on 1 May 2015. Centrix is a UK based specialist provider of complex unified communications, Avaya IP telephony, hosted IP solutions and managed services. With over 300 Avaya solutions in the UK and across the world Centrix has one of the largest customer bases backed by specialist knowledge of the Avaya Aura solution in particular, which has extended the Group's ability to provide a complete unified communications solution.

AdEPT has had continued success in the public sector and healthcare space during the period winning a number of new contracts with councils and other public sector bodies. Over the last 24 months AdEPT has been successful in gaining new contracts with public sector and healthcare organisations as a result of its various framework agreements. This has seen an increase to 28 councils from 18 in the comparative period. The acquisition of Centrix provided a complementary customer focus both in terms of size and sector. The continued targeting of larger contracts has seen the Premier Customer division now accounting for just over 70% of total revenue at 30 September 2015 (2014: 55%). The public and healthcare sector customer base has been extended and now accounts for 24.3% of total revenue at 30 September 2015 (2014: 13.3%).

In July 2015 AdEPT was awarded approved supplier status under the RM1045 Network Services Framework by the Crown Commercial Service and AdEPT has already been successful in winning new public sector customers under this framework by utilising its extended product portfolio acquired with Centrix. The Company holds additional framework agreements, including the Ja.Net framework agreement under which AdEPT is one of only a small number of companies approved to sell data connectivity and networks to UK universities and colleges, the Eastern Shires Purchasing Organisation sole supplier Telecom Framework to local government and charities for calls, lines, broadband, super-fast broadband (fibre), data connectivity and SIP trunks, and the G-Cloud 6 RM1557vi framework with Crown Commercial Service. Approved supplier status under these framework agreements gives the Company authority to provide services to both local and central government bodies.

In September 2015 Centrix was recognised by being awarded Avaya Partner in Customer Excellence based on independent customer feedback. Subsequently, in October 2015 Centrix was awarded Avaya Certified Gold Partner status, recognising the ability of the Company to deliver leading-edge and world-class communications solutions and support.

AdEPT continues to successfully make the transition from a traditional fixed line service provider to a complete communications integrator offering best of breed products from all major UK networks. Revenue from managed services, including data connectivity, hardware and cloud-based contact centre solutions, increased by 88.7% now accounting for 41.2% of total revenue for the six months ended 30 September 2015 (September 2014: 26.8%). The demand for faster data connectivity speeds continues, and this is being met through a wider data connectivity service offering, including up to 10Gb Optical Spectrum Services (OSA) data connectivity being provided to customers solutions under the Ja.Net framework for universities and colleges.

Financing and cash flow

Cash generated from operating activities before tax increased by 10.3% to £2.5 million (September 2014: £2.3 million), which equates to 99.2% reported EBITDA conversion (after £0.39m one-off acquisition fees). £0.6 million corporation tax instalments were paid during the period ended 30 September 2015 compared to £nil in the comparative period, due to a combination of share option relief and the timing of the instalment payments in the prior period.

Dividends paid in the period absorbed £0.5 million of funds (September 2014: £0.3 million), which is a reflection of the progressive dividend policy of the Company. The Company operates a capex-light model but after 12 years of operation, to ensure that the billing system remains fully supported, £0.2 million has been spent on essential upgrades during the period ended 30 September 2015.

£7.0 million of available funds (net of cash acquired) was used to fund the initial cash consideration for the acquisition of the entire issued share capital of Centrix on 1 May 2015. The interim results for the current period include a 5 month contribution from Centrix, further details of which are included in Note 6. £0.2 million was used to fund the deferred consideration in relation to the acquisition of the entire issued share capital of Bluecherry Telecom Limited on 1 April 2014.

Net debt and bank facilities

A new £15 million Revolving Credit Facility was agreed with Barclays Bank plc on 22 April 2015, part of which was used to fund the initial cash consideration for the acquisition of Centrix. The flexible structure of the new agreement has resulted in a facility which is larger, cheaper and of longer duration than the previous arrangement. The remaining debt facility will be used by the Company to fund the strategic acquisition of earnings-enhancing businesses within the fragmented telecoms and managed services market.

Net borrowings have been increased to £7.6 million at 30 September 2015 largely as a result of £7.2 million acquisition payments. Increased net borrowings following the acquisition resulted in increased gearing to 61% (September 2014: 29%). Net Debt:EBITDA (annualised) ratio remains low at 1.3x at 30 September 2015.

Profit before and after tax

Adjusted profit before tax (adding back non-cash amortisation and one-off acquisition related fees) increased by 19.7% to £2.6 million (September 2014: £2.2 million) arising entirely from the improved underlying operating profit. Reported profit before tax increased by 4.1% to £1.2 million (2014: £1.1 million) and reported profit after tax increased by 8.1% to £0.8 million (2014: £0.8 million).

Earnings per share

Adjusted (basic) earnings per share has increased 23.1% to 10.32p for the six months ended 30 September 2015 (September 2014: 8.38p) as a result of the £0.45 million increase to underlying EBITDA.

Dividends

The Directors have declared an interim dividend of 3.00p per Ordinary Share in respect of the period ended 30 September 2015, an increase of 33.3% over the interim dividend for the comparative period (September 2014: 2.25p). This will absorb approximately £0.67 million of shareholders' funds (September 2014: £0.50 million). It is proposed by the Directors that this dividend will be paid on 8 April 2016 to shareholders who are on the register of members on the record date of 18 March 2016. Subject to the audited results for the year ending 31 March 2016, it is the intention of the Board to propose a final dividend with the March 2016 final results.

Strong free cash flow generation has continued since the end of the period, and there continues to be considerable scope for the Board to continue its progressive future dividend policy.

Director change

The Company announces that after more than 10 years with AdEPT its Sales Director, Joe Murphy, has decided to pursue other opportunities. Joe was instrumental in the development of the partner sales channel for the Company, and the Board would like to take this opportunity to thank Joe for his valuable contribution to AdEPT. Joe will leave the Company with effect from 20 November 2015 with our best wishes for the future.

Outlook

This has been an excellent 6 months with improved results in all key areas and an extremely positive contribution from the Centrix acquisition. We continue to be highly cash generative with adequate debt facilities in place to enable to Board to continue to identify earnings-enhancing acquisitions whilst retaining scope for a progressive dividend policy.

Roger Wilson

Chairman

10 November 2015

Enquiries:

AdEPT Telecom

Roger Wilson, Chairman 07786 111535

Ian Fishwick, Chief Executive 01892 550225

John Swaite, Finance Director 01892 550243

Northland Capital Partners Limited 020 7382 1100

Nominated Adviser

Edward Hutton/Gerry Beaney

Broking

John Howes/Abigail Wayne

UNAUDITED STATEMENT OF COMPREHENSIVE INCOME

UNAUDITED STATEMENT OF FINANCIAL POSITION

UNAUDITED STATEMENT OF CHANGES IN EQUITY

UNAUDITED STATEMENT OF CASH FLOWS

ACCOUNTING POLICIES

1 Basis of preparation

The financial information set out in this interim report, which has not been audited, does not constitute statutory accounts within the meaning of section 434 of the Companies Act 2006. The Company's statutory financial statements for the year ended 31 March 2015, prepared under International Financial Reporting Standards, were approved by the board of directors on 10 July 2015 and have been filed with the Registrar of Companies. The auditor's report on those financial statements was unqualified, did not contain any emphasis of matter paragraph and did not contain any statement under Section 498 of the Companies Act 2006.

The interim financial statements have been prepared in accordance with IAS 34 "Interim Financial Reporting", as adopted by the EU. Comparatives for the year ended 31 March 2015 have been extracted from the audited statutory accounts.

2 Accounting policies

The same accounting policies, presentation and methods of computation are followed in this interim report as were applied in the preparation of the Company's annual financial statements for the year ended 31 March 2015.

In order to comply with the requirements of IFRIC 17, as applied in the audited financial statements for the year ended 31 March 2015, the statement of financial position as at 30 September 2014 has been restated to include the dividend charge only from the actual payment date.

3 Earnings per share

Earnings per share is calculated by dividing the profit attributable to equity holders of the Company by the weighted average number of ordinary shares in issue.

Adjusted earnings per share is calculated by dividing the profit attributable to equity holders of the Company (after adding back amortisation) by the weighted average number of ordinary shares in issue.

Fully diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares by existing share options, assuming dilution through conversion of all existing options.

4 Segmental information

The chief operating decision maker has been identified as the Board. The Board reviews the Company's internal reporting in order to assess performance and allocate resources. The operating segments are fixed line services and managed services, which incorporates cloud-based contact centre solutions, data connectivity, mobile, hardware and VoIP services. These 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 EBITDA.

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 Company comprise less than 10% of total turnover and do not require disclosure for either 2014 or 2015.

5 Share options

Details of the share options outstanding during the period are as follows:

The weighted average fair values have been determined using the Black-Scholes-Merton Pricing Model with the following assumptions and inputs:

The expected average volatility was determined by reviewing the last 260 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 2.5% which is based upon the actual dividend yield for the period ended 30 September 2015. It does not bear any relation to the future dividend policy of AdEPT Telecom plc.

The mid-market price of the ordinary shares on 30 September 2015 was 260p and the range during the period was 132.5p.

The share option expense recognised during the period in the statement of comprehensive income was £415 (September 2014: £2,462).

6 Business combinations

On 1 May 2015 the Company acquired the entire issued share capital of Centrix Limited ("Centrix") for an initial consideration of £7 million plus the value of the cash balance of Centrix at completion (approximately £1.9 million), payable in cash. Further consideration of between £Nil and £3.5 million will be payable, also in cash, dependent upon performance of Centrix post-acquisition. The fair value of contingent deferred consideration has been initially determined by reference to the forecast churn/growth rate for the gross margin of the acquired business and applying the deferred consideration matrix as specified in the share purchase agreement. The fair value of the contingent consideration liability is an estimate, as there have been limited post-acquisition period financial results upon which to determine the contingent consideration.

Centrix, based in Hook, 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. Approximately 80% of Centrix revenue is generated from recurring revenue streams.

AdEPT and Centrix have both adopted capital asset light strategies and are dedicated to offering a full suite of flexible data and unified communication strategies.

Centrix will retain its current presence and customer service operation in Hook, Hampshire. The vendors of Centrix are being retained in their current capacity within the business for a period of at least 12 months post-acquisition.

The audited accounts of Centrix for the year ended 31 December 2014 reported turnover, operating profit and profit before tax of £8.8 million, £2.3 million and £2.3m respectively. Capital expenditure in the year ended 31 December 2014 was insignificant. Net and gross assets at that date were £0.8 million and £2.8 million respectively.

Acquisition related costs of £0.39 million have been recognised as an expense in the statement of comprehensive income for the period ended 30 September 2015. Centrix contributed revenue and profit of £3.6 million and £0.7 million respectively for the period ended 30 September 2015 and represents a five month contribution.