ADT.L Regulatory News (ADT)

AdEPT Telecom plc

("AdEPT" or the "Company")

Interim results for the 6 months ended 30 September 2012

AdEPT, one of the UK's leading independent providers of award-winning telecommunications voice and data services for fixed line, VoIP and mobile networks, announces its results for the 6 months ended 30 September 2012.

Highlights

Financial

·; Profit before tax increased by 32% to £0.86 million (2011: £0.65 million)

·; Profit after tax increased by 76% to £0.52 million (2011: £0.30 million)

·; Free cash flow increased by 63% with £1.57 million generated in H1 (2011: £0.96 million)

·; Adjusted EPS increased by 16% to 6.54p (2011: 5.64p)

·; Interim dividend increased by 50% to 0.75p per share (2011: 0.50p)

·; Gearing down by 27% to 46% (2011: 73%)

·; Net debt reduced by £2.08 million in the last 12 months to £4.39 million (2011: £6.47 million)

·; Net debt reduced by £0.95 million since year end (March 2012: £5.34 million)

·; Underlying EBITDA increased by 1.2% to £1.97 million (2011: £1.95 million)

·; Underlying EBITDA margin increased by 0.5% to 18.0% (2011: 17.5%)

Operational

·; Total revenue fell by 1.5% to £10.9 million (2011: £11.1 million)

·; Data & broadband product revenues increased by 15% to £1.09 million (2011: £0.95 million)

·; Cloud-based contact centre solution revenue increased by 17% to £0.57 million (2011: £0.49 million)

·; Revenue from customers taking 3 or more products increased to 34% (2011: 32%)

Business review

In the 6 month period ended 30 September 2012 total revenue fell by 1.5% primarily as a result of fixed line revenues being 2.2% lower than the comparative period. However absolute gross margins for fixed line services increased by £0.2 million to £3.37 million (2011: £3.15 million). Fixed line product margins have improved to 35.7% (2011: 32.8%). This has been achieved through management of supply contracts combined with the impact of regulatory price changes on mobile interconnect rates and ISDN30 circuit rentals.

Cloud-based contact centre solution revenue has increased by 17% in the 6 months ended 30 September 2012 compared to the prior period. This has been achieved by new inbound customers coming on stream combined with the continued development of network and cloud-based solutions for existing customers, such as Monarch Airline and Cosmos Holidays.

Continued deployment of 21CN data connectivity products has led to data and broadband revenues increasing by 15% in the 6 months ended 30 September 2012 against the prior year comparative period and an 8% increase in absolute gross margin. The average gross margin percentage from data connectivity products has experienced a blending down as the product mix has moved further towards the higher revenue but lower margin complex data solutions. As the demand for faster data connectivity speeds continues AdEPT has continued to broaden its product offering, which now includes 10Gb Optical Spectrum Services (OSA and OSEA).

The on-going focus on larger customers, generally businesses with 50 to 1,000 employees, has enhanced scale efficiencies and cross selling opportunities. Cross selling into the existing customer base continues to be successful, with revenue from customers taking 2 or more products increasing to 93% (2011: 89%) and 3 or more products increasing to 34% of total revenue (2011: 32%).

Financing

Cash generation has improved during the interim period. During the 6 months to 30 September 2012 the Company has generated £1.57 million free cash flow, of which £0.48 million has been used to fund the initial consideration for the acquisition of certain trade and assets from Expanse (UK) Communications Limited.

Net borrowings have been reduced by £2.08 million during the last 12 months, which at 30 September 2012 were £4.39 million (September 2011: £6.47 million).

Interest costs for the 6 month period to 30 September 2012 were £0.14 million lower, a fall of 37% from the comparative period. This improvement is a reflection of the significantly reduced net borrowings and pro-active treasury management.

Gearing

Following the reduction in net borrowings and generation of £0.52 million retained earnings in the 6 month period ended 30 September 2012 gearing is down by 27% to 46% (2011: 73%).

Profit before and after tax

Profit before tax has increased by 32% to £0.86 million (2011: £0.65 million) arising from the improved operating profit combined with the reduction in interest costs. Profit after tax has increased by 76% to £0.52 million (2011: £0.30 million).

Earnings per share

As a result of the improvement to profit after tax, adjusted (basic) earnings per share has increased 16% to 6.54p for the year ended 30 September 2012 (2011: 5.64p).

Dividends

The Directors propose an interim dividend of 0.75p per Ordinary Share in respect of the results for the 6 months to 30 September 2012. This will absorb approximately £158,006 of shareholders' funds (2011: £105,337). It is proposed by the Directors that this dividend will be paid on 12 April 2013 to shareholders who are on the register of members on the record date of 22 March 2013. Subject to the financial results for the second half of the financial year, it is the intention of the Company to look to propose a final dividend with the March 2013 final results.

Outlook

The Company continues to be under top line pressure in the competitive fixed line market place. Despite this, it has increased EBITDA slightly and achieved a significant reduction in net borrowings through a focus on profitability and cash generation. On-going regulatory changes to mobile interconnect rates and active network supplier management should continue to drive down our wholesale costs, helping to support margins despite falling retail prices.

AdEPT will continue to focus on broadening its revenue base, with particular emphasis on longer term contracts which encompass data connectivity and cloud-based contact centre solutions.

Roger Wilson

13 November 2012

Enquiries:

AdEPT Telecom

Roger Wilson, Chairman 07786 111535

Ian Fishwick, Chief Executive 01892 550225

John Swaite, Finance Director 01892 550243

Northland Capital Partners Limited

Tim Metcalfe 020 7796 8800

Edward Hutton 020 7796 8800

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 2012, prepared under International Financial Reporting Standards, were approved by the board of directors on 3 July 2012 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 2012 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 2012.

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 next generation services, which incorporates cloud-based contact centre solutions, data connectivity, mobile 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 2011 or 2012.

5 Share options

As at 30 September 2012 the following options over the shares of AdEPT were in issue:

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 65 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 1.0% which is based upon the actual dividend yield for the year ended 31 March 2012. 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 2012 was 53p and the range during the period was 5p.

The share option expense recognised during the period in the statement of comprehensive income was £3,787 (2011: £1,733).

6 Business combinations

On 1 May 2012 the Company acquired certain trading assets from Expanse (UK) Communications Limited, a supplier of fixed line calls, line rental and data connectivity products to small and medium-sized businesses. Initial consideration of £400,000 has been paid in cash by the Company with the balance of consideration being deferred until April and October 2013. Total consideration is estimated to be £800,000, this amount is contingent and is dependent upon the gross margin and remaining contractual term of the customer contracts acquired as at 1 December 2012. Total consideration is capped at £950,000. Acquisition related costs of £15,015 have been recognised as an expense in the statement of comprehensive income for the period ended 30 September 2012. Expanse (UK) Communications Limited contributed revenue and profit of £520,000 and £150,000 respectively in the statement of comprehensive income for the period ended 30 September 2012. A fair value of £930,777 in relation to the customer contracts for the acquired business has been recognised as intangible asset additions in the period ended 30 September 2012. No other assets or liabilities were acquired.