TIDMADT

RNS Number : 3618E

AdEPT Technology Group PLC

07 July 2021

7 July 2021

The information contained within this announcement is deemed to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014. It forms part of United Kingdom domestic law by virtue of the European Union (Withdrawal) Act 2018. Upon the publication of this announcement, this inside information is now considered to be in the public domain.

ADEPT TECHNOLOGY GROUP PLC

("AdEPT" or the "Company" or the "Group")

FINAL RESULTS 2021

AdEPT, one of the UK's leading independent providers of managed services for IT, connectivity, unified communications solutions, and cloud services, is pleased to announce its final results for the full year ended 31 March 2021 ("FY21").

The Group delivered a resilient financial performance under highly challenging trading conditions and made considerable progress in its strategic ambitions, despite the disruption.

Financial highlights

 
--  Revenue of GBP57.9m at 94% of FY20 (2020: GBP61.7m) 
--  Gross Profit of GBP27.6m at 91% of FY20 (2020: GBP30.2m) 
--  Underlying EBITDA of GBP9.8m at 84% of FY20 (2020: GBP11.7m)(1) 
--  Underlying EBITDA margin of 17% (2020: 19%) 
--  Adjusted fully diluted earnings per share of 22.4p (2020: 
     28.0p)(2) 
--  Cash generation from operating activities after tax GBP7.4m 
     (2020: GBP7.6m) 
--  Cash at year-end GBP13.2m (2020: GBP11.8m) 
--  Conversion of reported EBITDA to operating cash flow before 
     tax of 89% (2019: 82%) 
--  Year-end net senior debt reduced to GBP25.6m (2020: GBP27.9m)(3) 
--  Capital expenditure remains at 2% of revenue (2020: 2%) 
 
 
1  Underlying EBITDA is defined as operating profit after adding 
    back depreciation, amortisation, acquisition fees, restructuring 
    costs, adjustment to deferred consideration and share-based 
    payment charges 
2  Profit after tax adding back amortisation, share option 
    charges, the taxation deduction on purchased customer contracts, 
    deferred tax credits on amortisation charges, restructuring 
    and acquisition costs 
3  Net senior debt is defined as cash and cash equivalents 
    less short-term and long-term senior bank borrowings and 
    prepaid bank fees 
 

Operational highlights

 
--  Significant progress on Project Fusion, the creation of ONE 
     AdEPT - a single set of financial and operational systems 
     providing the Group with a scalable platform for growth 
--  Revenue from Public Sector & Healthcare has increased to 
     55.5% (2020: 44.7%) 
--  Cloud Centric Strategic Services revenues up 9% year on year 
     to GBP25.1m (2020: GBP23.1m) 
--  Traditional Telephony as a percentage of revenues reduced 
     to 19% (2020: 21%) 
--  Managed services accounted for 81% of both total revenue 
     and EBITDA (2020: 79%) 
--  New enlarged GBP50m banking facility to support investment 
     in growth 
 

Post year-end highlights

 
--  Strategic acquisition of Datrix Limited ("Datrix"), in April 
     2021, a business focused on enterprise networks and security 
     which enhances the Group's core capabilities and strengthens 
     its presence in the NHS vertical market - integration on 
     track 
--  Firm plans for Datrix to transition to the One AEPT platform 
     by September 2021 
--  Brings new strategic partnerships with Cato Networks, Extreme 
     Networks and Palo Alto which fulfil key customer needs 
 

Current trading and outlook

 
--  Strong momentum from Q4 FY21 has continued into the new financial 
     year 
--  Sales and margins achievement in line with market expectations 
     in the year to date 
--  The Board views the future opportunities for the Group with 
     confidence 
 

Phil Race, CEO of AdEPT, said: "While the pandemic temporarily interrupted the trajectory of our growth, the Board is pleased with the progress achieved under challenging circumstances. Given our strategic focus on Cloud Centric Strategic Services the organic growth of 9% in this aspect of our business is particularly pleasing. We are confident that the opportunities for the Group remain strong, in a vibrant technology market, with demand for effective ICT services at an all-time high and likely to remain so.

The momentum gained by the Group in Q4 FY21 has continued into Q1 FY22 with sales and margins in the new financial year to date firmly in line with market expectations. Our focus remains on the delivery of strong organic growth, whilst seeking further opportunities to consolidate the fragmented market, through complementary acquisitions which generate strong levels of recurring revenue and margin. Our new integrated operating system, ONE AdEPT, lies at the heart of our plans, providing the Group with a scalable platform for growth.

The business is in great shape and the Board views the prospects for the Group in the year ahead and beyond with confidence."

The person responsible for the disclosure of this announcement for the purposes of EU Regulation 596/2014 is John Swaite, Finance Director.

For more information please contact:

 
  AdEPT Technology Group Plc 
  Ian Fishwick, Chairman                     Tel: 07720 555 050 
  Phil Race, Chief Executive Officer         Tel: 07798 575 338 
  John Swaite, Finance Director              Tel: 01892 550 243 
 
  Singer Capital Markets (Nominated 
   Adviser & Broker) 
  Shaun Dobson / Iqra Amin                   Tel: 020 7496 3000 
 
  Belvedere Communications 
  Cat Valentine                              Tel: 07715 769 078 
  Keeley Clarke                              Tel: 07967 816 525 
                                        adeptpr@belvederepr.com 
 

About AdEPT:

AdEPT Technology Group plc is one of the UK's leading independent providers of managed services for IT, unified communications, connectivity, and voice solutions. AdEPT's tailored services are used by thousands of customers across the UK and are brought together through the strategic relationships with tier-1 suppliers such as Openreach, BT Wholesale, Virgin Media, Avaya, Microsoft, Dell, and Apple.

AdEPT is quoted on AIM, operated by the London Stock Exchange (Ticker: ADT). For further information please visit: www.adept.co.uk .

CHAIRMAN'S STATEMENT

Introduction

I am pleased to present AdEPT Technology Group's results for the year ended 31 March 2021, which show a resilient financial performance and considerable strategic achievement under highly challenging trading conditions.

Our strong presence in the Public Sector and limited exposure to the sectors most impacted by the pandemic, such as travel, high street retail and leisure, have shielded AdEPT from the extreme impacts of the lockdown restrictions. The Group was, however, affected by a reduction in demand for support services and in the sale of technology products, as business closures during lockdown restricted on-site access and customers swapped significant infrastructure projects for more tactical purchases, including laptops and tablets. Customer confidence, which returned in Q4 FY21, is continuing through into the current Financial Year, as the vaccine programme rolls out and restrictions lift. Attention is moving to strategic solutions and the Group is securing new projects in this market.

Despite the many challenges, AdEPT continued to deliver on its strategy in FY21, adding new framework agreements, a key route to market; extending its partnerships; and, post the year-end, completing a major acquisition - Datrix, utilising our new, larger, banking facility agreed in April 2021. Our cloud centric services portfolio, which is at the heart of our strategic ambitions, continued to grow during the year. We are particularly proud of the support we gave to over 500 schools, helping them migrate to remote learning, and to more than 400 Doctors' surgeries, as they switched to remote practice.

Our resilient performance was achieved through swift management action, the agility of our business operations, and the commitment and hard work of the entire AdEPT team.

The pandemic has significantly accelerated changes to the way we work, and AdEPT is in an excellent position to capitalise on the growth opportunities this presents. Our focus on unifying technology and bringing together and integrating communications, technology platforms and networking for our clients puts us at the heart of a converging ICT world. The new financial year has started well for the Group with a strong pipeline of organic growth opportunities, arising from a need for long term strategic Information & Communications Technology ("ICT") solutions, and an ongoing focus on acquisition opportunities to expand the Group's core strengths and consolidate the market further. Our growth ambitions are supported by the Group's renewed banking facility and ONE AdEPT, which give us the necessary financial resources and integrated infrastructure to build a Group of breadth and scale.

We are hugely optimistic for the future of cloud centric technologies and in turn remain confident in the prospects for AdEPT in the year ahead and beyond.

Long-term vision and strategy

The subject of ICT in all its guises, from; unified communications empowering businesses to operate from bedrooms and kitchens to high performance networks to transport huge amounts of data, to the acceleration of cloud adoption, placing business applications where they can be easily accessed, have all been key to allowing business to trade and in some cases flourish during the pandemic.

This is the world in which AdEPT operates. AdEPT supports thousands of companies and millions of people with critical aspects of their day to day lives.

Clear mission

Our mission is 'Uniting Technology, Inspiring People'. We will help our customers navigate the storm of ICT innovation, to help them make the best use of technology, so they can communicate, operate, and transform successfully. We will do this by continuing to learn, adapt, and listen, working with great partners, to deliver flawless solutions.

Our aim is to become the industry benchmark and a business with whom organisations and partners aspire to work, all powered by a unified platform that makes us both efficient and effective.

Market consolidator

We remain focused on our goal to grow both organically and by acquisition, leveraging the Group's banking facilities which are supported by a strong balance sheet and high cash generation. By consolidating a fragmented market, through complementary acquisitions with strong levels of recurring revenue and margin, we will bring enhanced capability to customers and strengthen our presence in key vertical markets.

Many opportunities present themselves in our markets and we will continue to select and examine these carefully against our clearly defined target profile of strong recurring margins; cloud centric product focus; operating in an appropriate geography; adding relevant capability; consolidating a vertical market; or bringing new strategic product partnerships.

The acquisition of Datrix, post year end, is an excellent example of our strategy in action. It has excellent recurring margins, provides enterprise networking and security focused on the cloud, is UK centric with a London headquarters, brings new market relevant SD-WAN capability to the AdEPT Group, has a strong presence in the NHS - a vertical of interest and relevance to AdEPT, and has excellent partnerships with Cato and Extreme, both highly successful players within the secure networking arena. As such, Datrix ticks every box within our stated target profile.

Focus on service excellence

We will continue to invest carefully in our own capability, funding Project Fusion that is delivering our ONE AdEPT programme - a suite of operational systems for use by all employees that improves efficiency, ensures the delivery of increasingly high levels of customer service, and provides operational insight. We will also invest further in AdEPT Nebula, the hybrid cloud platform now used by over 635 of our clients.

Whilst the Group continues to generate revenues from traditional telephony, such as call billing and telephone line provision, this is a diminishing aspect of our business, as we encourage our customers to transition from copper-wire technologies. AdEPT's portfolio is now firmly aligned to cloud centric solutions, and this is underpinned by a range of class-leading partners. As a result, we are well placed to take advantage of the accelerated growth in advanced cloud-based solutions, as businesses switch to more flexible working patterns and increased homeworking.

People and our commitment to diversity

Our growth is dependent on the commitment of our entire team and good employee communication and engagement is vital. We conduct an Employee Engagement Survey annually and use the feedback gathered to refresh our people strategy. We fully appreciate that we will only succeed if everyone in the Group is aligned to our goals and objectives.

The Group is committed to ensuring diversity, equity and inclusivity. We have a team from diverse backgrounds and genders and will continue to foster balance and promote equal opportunities. This mix of skill-sets, experience, and backgrounds delivers a better outcome for all concerned.

We are implementing a new Human Resources (HR) platform, as part of our Project Fusion initiative, to ensure we are able to measure key aspects of our policies.

We deliberately did not materially reduce our staffing levels during the pandemic, as we have highly skilled, sought-after staff, and we could see that any revenue reduction was temporary. Whilst our profits took a slight hit in the short-term, this decision places us in a great position to capitalise on the growth opportunities post-lockdown.

Environmental, Social and Governance ("ESG")

We are committed to having a positive impact on society, the environment, and our stakeholders. Whilst this is an area in which we are already active, our intention is to report progress in a more structured manner. In the coming months, we will adopt one or more of the various frameworks that continue to emerge through the growing emphasis placed on ESG by investors, employees, the Government, and customers.

This will cover the:

   --         Impact of our business on our environment; 
   --         Diversity, equity and inclusion; 
   --         Board independence, ethics and leadership; and 
   --         Risk management processes. 

Team

The AdEPT Management Team evolved, during the year, with the appointment of a Group Chief Technology Officer, Clive Bryden, who was promoted internally. This new role reflects the increasing importance the Group places on the AdEPT Nebula solution and the customer facing technologies this facilitates.

The formation of the AdEPT Consulting Team, led by Chief Commercial Officer, Tim Scott, is another example of how we are evolving as a business. It brings together our Cloud enablement skills and our Security capability. This team has recently been strengthened with the recruitment of a Product Manager, focused on increasing our presence in the Microsoft marketplace given the rapid emergence of Microsoft Teams and other Microsoft products during the lockdown.

Dividend

As previously communicated given the impact of the pandemic; the Group's focus on cash preservation; and our use of the UK Job Retention Support Scheme ("furlough") in the year under review, the Board considers that a dividend payment in respect of FY21 would be inappropriate.

It should be noted that, during this same period, payments of bonuses to the Senior Management Team were suspended in line with good corporate practice during this pandemic.

As the new financial year progresses, the Board will continue to monitor the changing economic environment and adopt an appropriate dividend for future periods, with a further update alongside the September 2021 interim results.

Summary and Outlook

The new financial year has started well, building on the momentum which returned in the last quarter of FY21, with a number of new wins and overall a positive performance across the business. The team and the Board are confident that investment in ICT will remain a key focus for our customers, as they look to capitalise on the opportunities and efficiencies that our solutions unlock. We have a strong belief that the strategies which we are pursuing will serve to increase our position in this marketplace.

I would like to thank all our stakeholders, and in particular our people, for their exceptional efforts throughout a challenging year, which has been much appreciated by the Board.

Ian Fishwick

Chairman

CHIEF EXECUTIVE'S REVIEW

Overview

AdEPT has proven its resilience and agility in the year under review, rising to meet the many challenges presented by the pandemic and its associated lockdowns, and I am pleased to provide shareholders with a full report on the Group's performance and progress in this unparalleled trading period.

Our ambition is to provide exceptional customer service, through our profound knowledge of technology and underpinned by our comprehensive operational systems. During FY21 we achieved a Net Promoter score of 83% from our significant clients, this is incredibly positive feedback and, when set against the COVID-19 backdrop and an unprecedented surge in customer demand for help, advice, and support, this is an outstanding achievement.

I cannot praise our team highly enough for their professionalism and willingness to deliver under extreme pressure.

As an exceptional example of our impact over the course of the pandemic, AdEPT helped over 500 schools move to the cloud on both Microsoft 365 and Google G Suite platforms and became a leading player in the Department for Education initiative to facilitate remote education.

As a result of our team's considerable efforts, we have been able to further deliver our strategic objectives, despite the circumstances.

Project Fusion is now enabling all the Group Divisions to operate from a single set of financial and operational systems. This platform, delivering 'ONE AdEPT', gives us the infrastructure on which to build a business of scale, by enabling the fast and efficient integration of acquisitions, providing business insight and enhancing the Group's cross-selling capabilities.

In addition, we have added new services, new frameworks, and new channel partners, and, shortly after the year end, a major acquisition, Datrix, all of which significantly expand the Group's capabilities and potential.

The new financial year ending 31 March 2022 ("FY22") has started well, with the momentum achieved in H2 continuing. This positive return to more normal trading conditions, combined with the progress we have made with the Group strategically over the course of the last 18 months, gives us confidence for the year ahead and makes us excited about the long-term opportunity for AdEPT.

Results

The Group delivered a resilient performance in FY21 under challenging circumstances, generating revenue of GBP57.9m (FY20: GBP61.7m) and gross profit of GBP27.7m (FY20: 29.4m). Underlying EBITDA was GBP9.8m (GBP11.7m). Adjusted profit before taxation was GBP6.2m (FY20: GBP7.7m). Adjusted fully diluted earnings per share was 22.4p (FY20: 28.0p).

The Group's balance sheet remains strong with excellent operating cash generation. Conversion of reported EBITDA to operating cash flow before tax was strong at 89% (2019: 82%). Cash generation from operating activities after tax was broadly unchanged from FY20 at GBP7.4m (FY20: GBP7.6m). Cash at year-end GBP13.2m (FY20: GBP11.8m). Net senior debt reduced to GBP25.6m at the year-end (FY20: GBP27.9m).

Business review

Achieving revenue at 93.8% of FY20's level and gross profit at 94.2% of FY20 at GBP28.0m (FY20: GBP29.4m) in a year of unprecedented challenges reflects the resilience of our business and the important role AdEPT plays in supporting its clients.

The Group's Underlying EBITDA performance at 83.9% of FY20 at GBP9.8m (FY20: GBP11.7m) results from our strategy to retain expertise within the business, throughout the early stages of the pandemic and its associated lockdowns, on the anticipation of a swift return in demand. Accordingly, our costs did not decline directly in line with revenue. This strategy has proven sensible given the H2 trends, with growth in Professional Services (up 20% in H2 vs H1) and Cloud Centric Strategic Services (up 7% H2 vs H1). With team utilisation in Q4 recovering substantially, there was no requirement for the Coronavirus Job Retention Scheme ("furlough"), in the second half of the year.

AdEPT also elected to top up the salaries of those employees impacted by furlough in the first half of the year from the 80% support, provided by the Government, to full salary levels. This decision was extremely well received by those impacted and contributed to the employee Net Promoter Score of 85%. To mitigate the impact of the pandemic, the Group took prudent actions to reduce costs, namely a reduction in recruitment; a focus on expenses; a withdrawal of Executive Team bonus; and a pay freeze.

The story of the year quarter by quarter

To aid understanding of impact of the rapidly changing trading dynamics on the Group over the course of the year, driven by the spread of the pandemic and government lockdowns, we have reviewed our performance on a quarterly basis to provide context.

Q1 & Q2 FY21: The immediate impact of COVID-19

At the outset of the year the Group's service operations faced a significant increase in demand, as 'Lockdown 1.0' forced customers to shift rapidly to working from home. This created a surge in requests for help. Call volumes to our support desks rose by over 85%, during this period, demonstrating the critical role AdEPT plays supporting customers with their ICT.

This increased demand was spread across all parts of the AdEPT business. In the Public Sector, schools needed to educate virtually and doctors were required to diagnose remotely, whilst, in the Commercial Sector, businesses needed help setting up effective home office solutions for their staff.

Through this period, we also provided enhanced network capability to many NHS Trusts and hospitals with the help of our partners, such as Convergence Group, Virgin and BT. Within the education sector, AdEPT helped approximately 3,300 schools and over 100 universities and colleges transition successfully to remote schooling.

We assisted many of our commercial customers in their transition to homeworking, fulfilling a surge in demand for laptops, networks, new communications platforms to support cloud-centric collaboration, mobile telephony, and systems, which people could access remotely. In addition, we advised on and implemented a number of cyber security solutions to counter any threats brought about by the transition to homeworking.

During this time, we saw a significant decline in call revenues as organisations moved to IP based messaging such as Microsoft Teams or Zoom as their staff didn't use office-based telephony systems. The overall decline in traditional telephony was, therefore, greater than anticipated pre-COVID, at 15.2% Year on Year against our pre COVID expectation of c. 10%.

In contrast our on-site teams, whilst classified as key workers, were unable to work as many of our customers' offices were closed. As a result, we took the necessary decision to furlough 70 staff, mainly school technicians who were unable to access site.

With customer conferences cancelled, and a marketplace rightly focusing on the impact of COVID-19 our ability to win new clients was hampered, impacting new business, which we would have anticipated feeding into Q3 performance.

We also had to make the necessary changes within our own business, during this period of uncertainty. We acted quickly to support our staff, manage liquidity, and evaluate likely potential scenarios, all with the aim of protecting our stakeholders. We chose to top up the government's furlough payments back to full salary, as we felt strongly that none of our employees should suffer financially as a result of furlough.

Operationally, we proved immensely resilient, a benefit of our investment in Project Fusion in 2019. Every AdEPT employee was able to exploit our recently implemented Microsoft 365, Teams and Avaya communications infrastructure and smoothly transition to home working.

We constantly kept in touch with our people throughout this difficult period, communicating frequently and effectively to ensure everyone understood how government policy was impacting working practices. We provided home working equipment, undertook regular training events, and even held virtual cocktail evenings to keep spirits up! We also provided access to an anonymous counselling service to help anyone struggling with the changes forced upon them.

The positive feedback that we received from clients during this time about our team, their dedication and their adaptability was truly humbling.

Q3 FY21: A tentative recovery

As the country exited the first national lockdown at the end of the Summer 2020, optimism began to return with the belief that the pandemic was on the wane. Sales activity picked up and our engineering teams were able to attend site more readily. AdEPT and our clients had become familiar with the new working practices resulting from COVID-19, and there was sense of more normality as the Government eased restrictions.

Frustratingly, the re-introduction of restrictions in November and the second full lockdown in December 2020 due to the COVID-19 'second wave' dampened this recovery, but we continued to help and support our customers throughout. Our work in the education sector was a highlight, as the AdEPT team provided further support to schools, enabling them to teach remotely, and supplying equipment to pupils to enable them to study at home.

With the support of our strategic partner, London Grid for Learning (LGfL), AdEPT completed the next phase of a development called eAdmissions. This empowers 34 Local Authorities to make 240,000 offers of school places to parents annually - facilitated by approximately half a million SMS text messages and mobile app push messages - all in support of the overall process.

Our sales team performed better than anticipated during the second wave and our customer base remained resilient with cash collection improving over this period.

In support of our strategic goal to constantly refine and refresh our business proposition, we onboarded a new partner in Q3, 8x8. As a leading provider of unified communications solutions, 8x8 is an excellent addition to our successful portfolio of voice solutions, which sits neatly alongside Avaya and Ericsson LG.

We were also awarded Platinum Partner status by Gamma, during this quarter, which brings benefits to both AdEPT and our customers in terms of marketing assistance, access to Gamma technicians and improved commercial support.

Furthermore, we launched AdEPT Consulting initiative, to help customers transition to more permanent post COVID-19 strategic IT solutions from the tactical 'quick fixes' deployed rapidly during the early days COVID-19.

Q4 FY21: Momentum returns

The Group delivered a resilient performance in Q4, gaining momentum across the quarter despite the ongoing challenges of the pandemic. All our furloughed staff returned to work as a result of sustained customer demand and sales activity across the Group improved in Q4. Our support teams returned to some form of normality and our engineers and remote technicians were fully able to return to site.

The momentum felt in H2 FY21 has continued into Q1 of FY22 with sales bookings in line with our plans across all parts of the business, as confidence in the future returns.

As an example of our ability to win new clients AdEPT is pleased to report that it has been chosen to provide a full IT solution for the Trades Union Congress ("the TUC"). AdEPT Nebula is at the heart of the solution providing a Private Cloud and Connectivity platform, wrapped in a Managed Service.

This allows the TUC to have a hybrid, hosted and Cloud enabled service and allows the TUC to mix and match carriers to get the best connectivity across their offices. AdEPT is providing Microsoft Office 365 and Teams for communication, all supported by our proactive support team.

Our Cloud Centric Strategic Services is a portfolio that includes the AdEPT Nebula proposition, hosting services, hybrid and public cloud, Voice over IP, and Professional Services. Our strategic focus on this market is delivering rewards with an 8.6% year on year increase in revenues (FY21: GBP25.2m vs. FY20: GBP23.1m) and with H2 up 7.2% over H1. Furthermore, within this segment, Professional Services is a highlight. This is due to our success with the School Cloud Enablement activity and the success of AdEPT Consulting, demonstrated by a GBP1.2m year on year increase to GBP4.5m (FY20: GBP3.3m). Furthermore, Professional Services revenues were up 20% H2 over H1 demonstrating clear momentum.

In addition, revenues from VoIP increased by 11% year on year GBP2.7m (FY20: GBP2.4m), which is a result of our success with the new 8x8 proposition (17 new clients secured since signing 8x8 as a new partner) and our activity to migrate customers to new IP based solutions.

A new Banking Facility & improvement in the cash position of AdEPT

As previously announced on 7 April 2021 we secured a new enlarged banking facility to support the Group's investment in growth and to finance its strategy to consolidate the fragmented market through acquisition. The agreement is for a three-year term, extendable by one year, and provides the Company with up to GBP70m senior debt, comprising a GBP35m revolving credit facility, a GBP15m term loan, and a GBP20m accordion facility. This new facility replaces the GBP40m revolving credit facility, which was due to expire in February 2022. It is on the same commercial terms as the facility it replaces, supported by the Group's strong balance sheet and cash generation.

The Group's strong cash flow generation continued in Q4 with senior net debt down from GBP27.9m to GBP25.5m in a year in which we paid the final consideration of GBP1.8m in relation to the Advanced Computer Systems Group (ACS Group) acquisition. This results in an EBITDA to Senior Net Debt ratio of 2.6x (FY20: 2.4x). this is in line with management expectations. This includes Q4 outflows for the repayment of the deferred Q1 VAT liability.

Further, the Group remains a strong generator of cash with EBITDA to Cash conversion at 89% in FY21 (82% in FY20).

ONE AdEPT - benefitting from one integrated system

Our unswerving focus on a) providing the best service, b) having an efficient operation, c) facilitating organic growth across the business and d) having real time operational insight across the business are the reasons we are undertaking Project Fusion in a drive to achieve 'ONE AdEPT'. ONE AdEPT uses a suite of commercial off-the-shelf solutions that is now utilised by every Division within the business and provides the AdEPT leadership and staff with real-time information on performance, trends, and operational bottlenecks.

ONE AdEPT is at the core of our plans to build a business of scale through acquisition and market consolidation. It enables newly acquired businesses to be quickly and efficiently integrated and to benefit from the Group, as well as allowing the rapid delivery of synergies, enhanced organic growth and operational insight.

During the course of FY22, the recently acquired Datrix business will be transitioned to ONE AdEPT.

The market we serve

It is well documented that the global pandemic has thrust the ICT market in which we operate into the spotlight; as the world switched to communicating virtually through Zoom and Microsoft Teams, the shift away from traditional telephony solutions to those provided through technology has accelerated at speed. There is a dramatic trend to place applications on the cloud whether that be public, private or a mix of the two (hybrid), whilst this change needs to be executed in a secure manner on highly performant and resilient networks.

By being agile and constantly evolving our offering and skills, we have remained aligned with fast growing markets such as cloud services, unified communications, and cyber security and are able to deliver the dynamic technologies our customers need.

Our success will only continue if we continuously adapt. As a tangible example, we have enhanced our portfolio of strong partnerships in FY21 with the on boarding of 8x8. Since becoming a partner with 8x8 AdEPT has secured 17 new customers.

Investment for growth

There is an increasing demand for 'hybrid cloud' services, where customers purchase public cloud solutions alongside private cloud owned and hosted applications. AdEPT is meeting this demand through its investment in AdEPT Nebula.

Through a single secure connection a business can get access to services such as hosted applications, cloud telephony, Microsoft solutions, public or private cloud services (or a mix called hybrid cloud), carrier class connectivity and much more, all within a secure and managed service.

In the year under review, we invested 2% of Revenues in Capex, with Nebula forming part of this spend. AdEPT Nebula continues to increase in capacity and capability as a platform and is now supporting over 635 customers.

Channels to market

In addition to direct engagement with customers and prospects with our own sales teams, AdEPT is also present on multiple market frameworks. These allow buyers to tender for services with confidence and engage with pre-screened companies who have demonstrated expertise in a particular field, utilising contracts that are 'off the shelf'.

We are present on nine of these frameworks and have added the following to our roster over recent weeks:

Virgin Media Business (VMB) - VMB has chosen AdEPT to be its Avaya partner for three years. This means that any opportunity to sell Avaya products and services, unearthed by the extensive VMB direct sales teams (across both Public Sector and Enterprise), will be fulfilled and supported by AdEPT. Effectively we are now VMB's exclusive Avaya specialist team.

The Foreign and Commonwealth Office - AdEPT is the first company to be placed on the Foreign and Commonwealth and Development Office framework for connectivity. This framework will create significant opportunities for AdEPT as a potential provider, to enhance the communications and network infrastructure of this important Central Government department.

Crescent Purchasing Consortium (CPC) - AdEPT has secured a place on the CPC ICT framework for education. This is a framework for the supply and delivery of ICT hardware, peripherals, and support services. The CPC has over 7000 education customers who buy through its framework.

Objectives for FY22

In the context of our vision, the changes in the market we serve, and the impact of the pandemic globally, we have set ourselves a number of targets for the coming months to ensure we grow organically:

 
--        Integrate Datrix effectively, to ensure that we obtain the 
           benefit of Project Fusion from all elements of our business; 
--        Capture opportunity, by helping our customers benefit from 
           the full portfolio of AdEPT offerings, including the enhanced 
           offerings brought by the Datrix team; 
--        Market effectively to key sectors, ensuring our offerings 
           are fine tuned to reflect the specific needs of our target 
           markets; 
--        Invest wisely, so that our AdEPT Intellectual Property, be 
           that know-how, AdEPT Nebula or the Education Suite all capture 
           greater market share; 
--        Manage our portfolio, by working with our existing (and potentially 
           new) partners to ensure that market needs are matched carefully 
           to our partner offerings, and high growth propositions; and 
--        Explore further accretive acquisition opportunities, to continue 
           our consolidation journey. 
 

The organisations acquired by AdEPT will benefit from a broader range of solutions, a deeper skill set that will improve the quality of service they receive, and an operating platform that enhances the service they provide. Investors, meanwhile, should benefit from greater revenue generation through cross and up-selling activity, and synergies achieved from further consolidation of our market.

The market for acquisitions remains highly fragmented, with over 3,000 potential ICT company targets across the UK. AdEPT has a proven track record of identifying suitable acquisitions, purchasing, and then integrating them successfully, to increase shareholder value and we will seek to acquire in line with this strategy during the course of this year.

Post year end activity

We were delighted to be able to put our new bank facility to work with the transformational acquisition of Datrix in April 2021.

This acquisition signals a return to AdEPT's strategic pillar to consolidate the market, purchasing strategically significant businesses that are beneficial to the Group and demonstrates the AdEPT core competence in consolidating markets and purchasing strategically significant businesses that are beneficial to the Group.

Datrix designs, delivers, and manages end-to-end enterprise solutions for large, complex, multi-site, mission-critical environments. Approximately 63% of Datrix revenue and gross margin is generated from recurring services, with 63% of total revenue generated from public sector customers.

 
--        Datrix provides instant scale in the growing advanced cloud-based 
           networking market, expanding the Group's portfolio of core 
           competencies to include the latest technology, SD-WAN. 
--        With 63% of revenues generated from complementary customers 
           in the public sector, Datrix strengthens the Group's position 
           on Local and Central Government supplier frameworks and its 
           presence in key vertical markets, particularly the NHS. 
--        Datrix enhances AdEPT's cloud product portfolio, bringing 
           additional highly complementary, market-leading, Gartner 
           Magic Quadrant products to the Group, from significant new 
           partner relationships. 
--        Experienced senior management team, who have transformed 
           the business since joining Datrix in 2019, are being retained 
           by AdEPT and incentivised to continue delivering growth. 
 

The integration of Datrix is going as planned and firm plans are in place to add the business to the ONE AdEPT platform in September 2021. We see a number of opportunities for both Datrix and AdEPT to benefit from each other's capabilities.

Current trading and outlook

While the pandemic temporarily interrupted the trajectory of our growth, the Board is pleased with the progress achieved under challenging circumstances. We are confident that the opportunities for the Group remain strong, in a vibrant technology market, with demand for effective ICT services at an all-time high.

The momentum gained by the Group in Q4 FY21 has continued into Q1 FY22 with sales and margins in the new financial year to date firmly in line with market expectations. Our focus remains on the delivery of strong organic growth, whist seeking further opportunities to consolidate the fragmented market, through complementary acquisitions which generate strong levels of recurring revenue and margin. Our new integrated operating system, ONE Adept, lies at the heart of our plans, providing the Group with a scalable, platform for growth.

The business is in great shape and the Board views the prospects for the Group in the year ahead and beyond with confidence.

Phil Race

Chief Executive Officer

STRATEGIC REPORT

Principal activities and review of business

The principal activity of the Group is the provision of unified communication and IT services to both domestic and business customers. A review of the business is contained in the Chairman's and CEO's statements.

Summary of three year financial performance

 
                                             Year ended 31 March 
 
                             2021      Year on         2020      Year on         2019 
                          GBP'000         year      GBP'000         year      GBP'000 
                                             %                         % 
--------------------  -----------  -----------  -----------  -----------  ----------- 
 
  Revenue                  57,851       (6.2%)       61,688        20.3%       51,294 
  Gross profit             27,683       (8.4%)       30,232        19.4%       25,328 
  Underlying EBITDA         9,829      (16.1%)       11,709         8.6%       10,781 
  Net senior debt          25,562                    27,938                    27,113 
--------------------  -----------  -----------  -----------  -----------  ----------- 
 

Revenue and gross margin

The business is split into two segments, fixed line and managed services. In respect of managed services versus fixed line revenues, during the year AdEPT has continued to grow its managed services business through a combination of organic contract wins and company acquisition. Total revenue decreased by 5.7% to GBP58.2m (2020: GBP61.7m). The revenue and gross margin breakdown is viewed through four strategic groups, where managed services is split into three sub-segments:

 
                                   31 March 2021              31 March 2020 
  GBP'000s                    Revenue    Gross margin    Revenue    Gross margin 
--------------------------  ---------  --------------  ---------  -------------- 
  Fixed line telecom           10,739           3,999     12,891           5,040 
  Cloud centric strategic 
   services                    25,092          11,866     23,127          10,891 
  Support services             11,817           9,965     13,348          11,256 
  Technology products          10,201           1,809     12,322           3,045 
--------------------------  ---------  --------------  ---------  -------------- 
  Total                        57,851          27,640     61,688          30,232 
 

Cloud Centric Strategic Services - Our strategy is to focus on Cloud Centric Strategic Services (including; the AdEPT Nebula proposition, hosting services, hybrid & public cloud, Voice over IP, and Professional Services). This clear focus is delivering rewards with an 8.5% Year on Year increase in revenues (FY21: GBP25.1m vs. FY20: GBP23.1m) and with H2 up 7.2% over H1.

Within this segment Professional Services performance is a highlight. This is primarily due to the School Cloud Enablement activity and the success of AdEPT Consulting, demonstrated by a GBP1.2m Year on Year increase to GBP4.5m (FY20: GBP3.3m). Furthermore, Professional Services revenues were up 18.6% H2 over H1 demonstrating clear momentum.

In addition, revenues from VoIP increased by 11.0% year on year to GBP2.7m (FY20: GBP2.4m) which is a result of our success with the new 8x8 proposition (17 new clients secured since signing 8x8 as a new partner) and our activity to migrate customers from traditional fixed line products to new IP based solutions. This is a trend which has been aided by the increased demands for flexible and remote working during the Covid-19 lockdowns.

Technology Products - The increase in one-off Professional Services was frustratingly offset by a reduction in one-off Technology Products (hardware and software sales) as customers throughout the year declined to invest in strategic infrastructure initiatives (FY21: GBP10.2m, vs. FY20: GBP12.3m). However, yet again, the H2 trend over H1 provides encouragement with a rise of 31.0% H2 over H1. Whilst sales remained resilient the product mix (i.e. a propensity for laptops and tablets over more sophisticated infrastructure) was felt in the Technology Products margins (FY21: 17.9% vs. FY20: 24.4%).

Support Services - Support Services revenues were impacted by the onset of Covid-19 (at 88.5% of FY20 levels, FY21 GBP11.8m vs. FY20 GBP13.3m) as customers reduced the scale and scope of their services. In some sectors notably, leisure, hospitality, retail and office groups, customers were unable to continue trading during the nationwide lockdowns resulting in downwards flex in service demand. The AdEPT exposure to these sectors is modest, with 55.5% of the Groups businesses generated from Public Sector and Healthcare which has provided stability within a large proportion of the underlying customer base.

Traditional Telephony - The structural decline in Traditional Telephony has been accelerated in FY21. This is as anticipated given that Openreach are continuing with their strategy to switch off the copper telephone network and there is a clear shift to messaging and IP based services over traditional fixed line and calls services. Additionally, the last 12 months fixed line revenues have been impacted by substantial reductions in call revenue as a result of access restrictions to business premises during the multiple Covid-19 lockdowns resulting in businesses using other means of communication rather than the desk-based telephone.

The ongoing reduction in the proportion of AdEPT revenues linked to Traditional Telephony is a result of our strategy to diversify away from Traditional Telephony into Cloud Centric Strategic Services. Traditional Telephony is now only 19% of Group revenues (FY20: 21%) and following the acquisition of Datrix is anticipated to be only approximately 12% of our revenues in FY22.

Recurring revenues versus one off revenues

In respect of recurring revenues versus one off revenues, the proportion of AdEPT revenue being generated from recurring products and services (being all revenue excluding one-off projects, hardware and software) remains high at 74.5% of total revenue (2020: 74.7%). All of the managed service product sets include an element of hardware supply and installation services, which, by their nature, are project based and not fixed recurring revenue streams; however, a high proportion of hardware supply and installations are further products and services being supplied to the existing customer base.

Market sector analysis

AdEPT continued to be successful in gaining further traction in the public sector space during the last year through leveraging its approved status on various frameworks. AdEPT is an approved supplier to the Crown Commercial Service under the following frameworks RM3808 Network Services, RM3825 HSCN Access Services, RM1557 G-Cloud, RM6103 Education Technology and RM3804 Technology Services 2. The Group has been successful in winning further new business through a number of these frameworks.

The proportion of total revenue generated from public sector and healthcare customers has increased considerably to 57.6% at March 2021 (2020: 44.7%) which partly arises due to the organic customer contract awards, particularly under the various frameworks on which AdEPT is accredited but is also a reflection of the general contraction in the commercial customer sectors during the Covid-19 lockdown.

The Group is continuing to focus its organic sales efforts on selling a wider portfolio to existing customers, adding and retaining larger customers whilst complementing this with an acquisitive strategy. AdEPT is managing the customer risk with a wide spread of business sectors and low customer concentration, with the top ten customers accounting for 23.0% of total revenue (2020: 17.1%) and no customer accounting for more than 10% of the total.

Gross margin

Gross margin percentage decreased to 48.3% during the year (2020: 49.0%). The gross margin percentage from managed services reduced to 50.7%, due to trading challenges during lockdown resulting in customers flexing downwards support services, which are 100% gross margin. The gross margin generated from non-recurring products and services increased to 40.6% (2091: 38.1%) with the increase over the prior year driven by a greater proportion of revenue from professional services, particularly with the cloud enablement of hundreds of schools and academies to remote education through Google G-Suite and Microsoft Office 365 Education. The gross margin for fixed line services reduced to 37.2%% (2020: 39.6%) which reflects a lower proportion of higher gross margin call revenue as business premises were closed during the national lockdowns resulting in depressed business call volumes.

Recurring gross margin reduced to 51.3% (2020: 53.7%) which reflects the decrease in relative higher margin online back-up services combined with a reduction to software margins from an increased take-up of lower relative margin product, such as Microsoft 365, but this software represents a growing ongoing recurring revenue stream. In addition, a number of customers in challenged sectors during Covid-19 lockdown have downsized managed IT and telephony support services during business closures or as a result of reduced operating capacity. Gross margins for these support services are 100% as the headcount costs of supporting the services are included within operating expenditure.

Underlying EBITDA

Underlying EBITDA is defined as operating profit after adding back depreciation, amortisation, acquisition fees, restructuring costs, adjustment to deferred consideration 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 a good indication of the underlying cash generation of the business for comparison against operating cash flow before tax is underlying EBITDA. Below is a reconciliation of underlying EBITDA to the reported profit/(loss) before tax:

 
                                           2021      2020 
                                        GBP'000   GBP'000 
-------------------------------------  --------  -------- 
Underlying EBITDA                         9,830    11,709 
Acquisition fees                              -     (267) 
Restructuring costs                       (974)     (288) 
Share option charges                       (67)      (29) 
Adjustment to deferred consideration          -       654 
Depreciation                            (1,532)   (1,513) 
Amortisation                            (5,793)   (5,772) 
Profit on sale of assets                    133         - 
Interest                                (2,102)   (2,523) 
-------------------------------------  --------  -------- 
Profit/(loss) before tax                  (505)     1,971 
 

During the year, the Group sold a freehold property that was acquired with the Atomwide acquisition resulting in a profit on sale of GBP0.1m, this is not considered to be part of the trading profitability of the Group and so has been added back for the purposes of the calculation of underlying EBITDA.

The Group incurred GBP1.0m of restructuring costs from the ongoing headcount efficiencies generated from the Project Fusion initiative, combined with some realignment of the operating cost base of the Group as a result of customer demand reduction during Covid-19. These represent redundancy and salary costs creating a permanent ongoing reduction to the operating costs of the Group.

Depreciation

The Group has continued to invest in s trengthening AdEPT Nebula - Nebula is the AdEPT owned platform that supports over 635 customers who take various services from our portfolio of: Nebula Cloud, Nebula Security, Nebula BC/DR, Nebula Voice, Nebula Apps and Nebula Network.

GBP0.76m of depreciation relates to the liability accounting under IFRS16 right of use assets. The Group has no ownership of these assets. The cash cost in respect of the right of use asset leases is included within the cash flow statement under the heading 'Payment of lease liabilities'.

Finance costs

Total interest costs have decreased by 16.6% to GBP2.1m (2020: GBP2.5m). Cash interest decreased to GBP1.6m largely from the decrease in the average level of net borrowings to GBP26.1m (from GBP32.3m). The Group took a number of prudent measures during the early period of the Covid-19 lockdown to preserve cash, including cancellation of the April 2020 dividend payment, deferral of the Q1 2020 VAT liability and limited use of the coronavirus job retention scheme (furlough). Additionally, the Group focused on careful management of customer credit terms and working capital during the Covid-19 pandemic as it was considered a lead indicator of customer trading and financing challenges. The Group has used treasury management of surplus cash balances to minimise the amount of drawn funds has been used during the year to minimise interest costs.

Included within interest costs is GBP0.1m of interest charges in relation to IFRS16 Leased Assets which is a cash related item.

Profit/(loss) before tax

This year reported loss before tax was (GBP0.5m) (2020: profit GBP2.0m). Operating profit decreased to GBP1.6m (2020: GBP4.5m) from the GBP1.4m reduction to gross margin, GBP0.6m reduction to the accounting profit from the revaluation of deferred consideration and GBP0.3m reduction in acquisitions fees from the prior period (with no acquisitions completed in the current year) and GBP0.7m increase to the restructuring costs from the ongoing headcount efficiencies generated from the Project Fusion initiative combined with some realignment of the operating cost base of the Group as a result of customer demand reduction during Covid-19.

The operating profit was absorbed by non-cash items including; GBP5.8m amortisation of intangible assets arising from acquisitions undertaken during prior years, GBP0.8m non-cash depreciation and GBP0.1m share-based payments. Profit before tax for the year is also impacted by the following cash items; GBP0.4m decrease in cash finance costs, the restructuring costs of GBP1.0m and GBP0.8m of depreciation which is a cash item under IFRS16 Leased Assets.

Earnings per share

Adjusted profit before tax, adding back amortisation, restructuring costs and interest costs discounting, removing deferred tax credits, was GBP5.1m (2020: GBP6.7m).

The Company issued 1.33 million shares in a placing at the end of February 2020, so there is a full 12 month dilution impact from the share placing in the current year but only a 1 month impact on the prior year as the number of shares in issue is calculated on a weighted average basis across the twelve month period. This provides a 5.1% equity dilution impact on earnings per share.

Basic earnings per share was negative 1.40p (2020: 4.14p positive). Adjusted fully diluted earnings per share, based on the profit for the year attributable to equity holders adding back amortisation, share option charges, restructuring and acquisition costs, was 22.35p per share (2020: 28.05p).

Dividends

Our historical policy has been to distribute roughly one-third of free cash flow as dividends and to reinvest the remaining two-thirds in the business. On 25 September 2019, the directors announced their intention to declare an interim dividend of 5.10p per ordinary share in respect of the September 2019 interim results. This interim dividend was due to be paid in April 2020 and would have absorbed approximately GBP1.3m of cash and shareholders' funds. However, in early April 2020, considering the potential Covid-19 disruption, the Board resolved to cancel the interim dividend that had been declared with the September 2019 interim results.

The Board will continue to monitor the changing economic environment and adopt an appropriate dividend for future periods, with a further update alongside the September 2021 interim results.

Cash flow

The Group benefits from an excellent cash-generating operating model. Low capital expenditure results in a high proportion of underlying EBITDA turning into cash. The proportion of reported EBITDA which turned into net cash from operating activities before income tax was 89.3% (2020: 81.7%).

Overall working capital has absorbed GBP0.7m of cash during the year. Part of the working capital absorption was anticipated with the continued transition of the Group towards a growing proportion of data connectivity services increasing the level of working capital, with a further GBP0.2m absorbed by the advanced charging structure of wholesale data connectivity rentals, which are typically quarterly in advance compared to monthly in advance for the end customer. As in prior periods, this is an ongoing increase to the working capital requirement of the Group. Customer payment periods have been a focus for the Group during the Covid-19 pandemic as they are considered a lead indicator of potential future trading and cash issues within the customer base. Through careful management of customer credit terms, the trade receivables payment periods have decreased to 44 days at year end (2022: 49 days). The Group has consciously continued to meet supplier payments on time throughout the Covid-19 period, this combined with hardware pre-purchased to secure supply for the busy Easter holiday installation period in the education sector has resulted in absorption of cash at year end.

Income taxes paid in cash during the year have decreased to GBP0.8m (2020: GBP2.0m). During the current year end HMRC processed the cash refund to the Company of GBP0.1m in respect of corporation tax overpaid in the year ended 31 March 2019. In addition, the Group moved to a Group Payment Arrangement for corporation tax purposes which moved Centrix Limited back to 'large' status from 'very large' status for corporation tax which deferred GBP0.2m of cash payment to HMRC.

Cash interest paid has decreased during the year to GBP1.6m (2020: GBP1.9m), which arises from the GBP6.2m decrease in average net borrowings against the prior year.

Cash outflows in the year ended 31 March 2021 in relation to acquisitions amounted to GBP1.8m. The contingent consideration in respect of the acquisition of ACS of GBP1.8m was paid in May 2020 with no further amounts due in relation to this acquisition.

There was an increase to cash and cash equivalents during the year of GBP1.3m to year-end cash of GBP13.2m. This arises from a net increase in the drawn element of the revolving credit facility at March 2021 which was in order to fund the initial consideration for Datrix Limited which was acquired in early April 2021.

Capital expenditure

The Group continues to operate an asset-light strategy and has low capital requirements; therefore, expenditure on fixed assets is low at 1.8% of revenue (2020: 1.8%). During the year, the Group sold a freehold property for proceeds of GBP0.3m. The capital expenditure in the current year arises from AdEPT investing a further GBP0.6m in the development of a network connecting three data centres (which, combined with other capabilities and services, is known as 'AdEPT Nebula'). AdEPT Nebula is built around the core data centre in Orpington, which is owned by AdEPT. The network allows AdEPT to provide its own Nebula Cloud hosting capability, Nebula Security, Nebula BC/DR, Nebula Voice, Nebula Apps and Nebula Network.

AdEPT Nebula is live and already delivering benefits to hundreds of customers by providing Avaya IP cloud telephony services, hosted IT services and a range of data connectivity services. The network underpinning AdEPT Nebula has been developed using the in-house skills and capabilities of the AdEPT technical team. The Company will continue to review development opportunities for the addition of new products and services to AdEPT Nebula as customer demand dictates.

Over the last twelve months the AdEPT team has continued to work hard on the 'ONE AdEPT' project, christened 'Project Fusion', including initiatives in relation to sales, marketing, systems, finance, and branding. A further investment of GBP0.6m has been made over the last twelve months, which includes the cost of third-party consultancy and some capitalisation of the internal development teams time spent dedicated to the project. Despite the challenges of lockdown and remote working, during the year three further operating divisions have been migrated to the centralised CRM and finance platforms. This achievement means that seven of the eight operating sites are now benefitting from Project Fusion, with over 80% of Group employees now using the platform. The final remaining operating divisions' migration has gone live in April 2021.

Payments of lease liabilities

As required under IFRS 16, the balance sheet value of tangible fixed assets includes the discounted value of the remaining lease rentals for any material agreements which have a lease term greater than twelve months. The net present value of any new leases is included in tangible fixed assets. These are not upfront cash purchases as the rentals are paid on a monthly or quarterly basis and therefore the cost is not included within capital expenditure, instead the cash outflows from the lease agreements are included in the cash flow statement under the heading 'Payments of lease liabilities' and amounted to GBP0.9m in the current year (2020: GBP0.8m).

Business combinations

On 12 April 2021, the Company acquired the entire issued share capital of Datrix Limited ('Datrix') a well-established, award-winning supplier of advanced cloud-based networking, communications, and cyber security solutions, headquartered in London, with expertise in the growing Software Defined Wide Area Networking ("SD-WAN") market focused on the public and healthcare sector. The vendors and the senior management team responsible for the strategic direction, technical development, and day-to-day operations of Datrix have been retained within the business post-acquisition. Initial consideration of GBP9.0m, on a debt free cash free basis, was paid in cash. Pursuant to the terms of the share purchase agreement, the effective date of the acquisition is 1 April 2021. Further contingent deferred consideration of up to GBP7.0m may be payable in cash dependent upon the trading performance of Datrix in the twelve month period ended 31 March 2022. The contingent deferred consideration will be determined by reference to the gross margin of the acquired business and applying the contingent deferred consideration calculation 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 these results as the completion balance sheet was not available.

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, net operating cash flow after taxes but before bank interest paid of GBP7.4m was generated during the year ended 31 March 2021 (2020: GBP7.6m).

In March 2021, the Company signed a new enlarged banking facility agreement with NatWest and Bank of Ireland, to support its growth ambitions. This agreement is for a three-year term, extendable by one year, and provides the Company with up to GBP70m senior debt, comprising a GBP35m revolving credit facility, a GBP15m term loan, and a GBP20m accordion facility. This new facility replaces the GBP40m revolving credit facility, which was due to expire in February 2022. The commercial terms of the enlarged facility are the same as the previous existing facility.

Opening cash plus the free cash flow generated in the year and borrowing drawdowns from the senior debt facility have been used to fund GBP1.8m acquisition consideration and GBP1.0m of capital expenditure on tangible and intangible assets. Net senior debt, which comprises cash balances and senior bank borrowings (excluding IFRS 16 liabilities), has decreased to GBP25.6m at the year-end (2020: GBP27.9m).

Segmental key performance indicators (KPIs)

The segmental KPIs outlined below are intended to provide useful information when interpreting the accounts. 81% of revenue and EBITDA is generated from Managed Services (2020: 79% revenue and 77% EBITDA).

 
                                        Fixed 
                                line services       Managed 
                                                   services      Total 
                                      GBP'000       GBP'000    GBP'000 
---------------------------  ----------------  ------------  --------- 
 
  Year ended 31 March 2021 
  Revenue                              10,739        47,112     57,851 
  Gross profit                          3,999        23,641     27,640 
  Gross margin %                          37%           50%        49% 
  Underlying EBITDA                     1,880         7,949      9,830 
  Underlying EBITDA%                      18%           17%        17% 
 
  Year ended 31 March 2020 
  Revenue                              12,891        48,797     61,688 
  Gross profit                          5,040        25,193     30,232 
  Gross margin %                          39%           52%        49% 
  Underlying EBITDA                     2,675         9,034     11,709 
  Underlying EBITDA%                      21%           18%        19% 
 
 

There are no non-financial KPIs which are reviewed regularly by the senior management team.

Section 172 requirements of the Companies Act

The section 172 requirements of the Companies Act in respect of the directors' duty to promote the success of the Company is covered in the Corporate Governance Statement included in these accounts.

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.

Customer loss risk

The impact of this is partially mitigated with no customer accounting for more than 10% of the Group revenue. The top ten customers account for approximately 23.0% of revenues. The customer base of the Company is also spread across a wide geographical area and across a wide range of business sectors. We continue to monitor customer churn, develop our customer offering and service delivery. We acknowledge that some of our customers may come under increased financial pressure as a result of continued Covid-19 disruption. To manage this risk, we maintain regular contact with our customers to identify and respond to any risks as early as possible.

Catastrophic event risk

All employees are able to work remotely, and the Group's operational and administrative servers are located and managed such that damage from an outage is minimised. A business continuity plan is in place which is reviewed regularly and enhanced from the results of testing. The Group is increasingly moving to cloud based systems, which are more readily available for a timely response to a catastrophic event. A testimony of the Group's ability to deal with a catastrophic event is the response to the Covid-19 pandemic which saw virtually all of the Group's workforce transition to remote working in the space of a couple of days in March 2020.

Credit risk

The Group extends credit of various durations to customers depending on customer credit worthiness 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, a large proportion of our customer receipts are collected by monthly direct debit. The risk is further reduced by the customer base being spread across a wide variety of industry and service sectors.

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.

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.

Cyber-attack on Company, customer, or supplier systems

The Group has extensive experience in cyber security and continues to invest in training, systems, and tools to protect the Company and its customers. Customer networks are securely segregated from those of the Company and systems are replicated/backed up in more than one location. AdEPT holds several security accreditations including ISO27001, Cyber Essentials and PCI DSS. The Company's security systems and processes are subject to extensive third-party external auditing. In addition, the Company has in place a cyber insurance protection.

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

For the year ended 31 March 2021

 
                                                           Restated 
                                                     2021      2020 
                                           Note   GBP'000   GBP'000 
 ----------------------------------------  ----  --------  -------- 
 Revenue                                    3      57,851    61,688 
 Cost of sales                                   (30,211)  (31,456) 
 ----------------------------------------  ----  --------  -------- 
 Gross profit                                      27,640    30,232 
 Other income                               4         304         - 
 Administrative expenses                         (26,347)  (25,739) 
 ----------------------------------------  ----  --------  -------- 
 Operating profit                                   1,597     4,494 
 ----------------------------------------  ----  --------  -------- 
 Total operating profit - analysed: 
 Underlying EBITDA                                  9,830    11,709 
 Share-based payments                                (67)      (29) 
 Depreciation of tangible fixed assets            (1,532)   (1,513) 
 Amortisation of intangible fixed assets          (5,793)   (5,772) 
 Adjustment to deferred consideration                   -       654 
 Profit on sale of freehold property                  133         - 
 Acquisition fees                                       -     (267) 
 Restructuring costs                                (974)     (288) 
 ----------------------------------------  ----  --------  -------- 
 Total operating profit                             1,597     4,494 
 ----------------------------------------  ----  --------  -------- 
 Finance costs                              6     (2,102)   (2,523) 
 ----------------------------------------  ----  --------  -------- 
 (Loss)/profit before income tax                    (505)     1,971 
 Income tax expense                         7         165     (986) 
 ----------------------------------------  ----  --------  -------- 
 (Loss)/profit for the year                         (340)       985 
 Other comprehensive income                             -         - 
 ----------------------------------------  ----  --------  -------- 
 Total comprehensive income                         (340)       985 
 ----------------------------------------  ----  --------  -------- 
 
 
                      Note     2021   2020 
 -------------------  ----  -------  ----- 
 Earnings per share 
 Basic earnings        18   (1.36p)  4.14p 
 Diluted earnings      18       N/a  4.12p 
 -------------------  ----  -------  ----- 
 

All amounts relate to continuing operations.

Consolidated statement of financial position

As at 31 March 2021

 
                                              31 March  31 March 
                                                  2021      2020 
                                        Note   GBP'000   GBP'000 
--------------------------------------  ----  --------  -------- 
Assets 
Non-current assets 
Goodwill                                 8      17,408    17,408 
Intangible assets                        9      36,895    41,952 
Property, plant and equipment            10      2,209     2,700 
Deferred tax asset                       11          -         - 
--------------------------------------  ----  --------  -------- 
                                                56,512    62,060 
--------------------------------------  ----  --------  -------- 
Current assets 
Inventories                              12        569       612 
Contract assets                          3         978     1,379 
Trade and other receivables              13     12,784    14,695 
Cash and cash equivalents                       13,166    11,849 
--------------------------------------  ----  --------  -------- 
                                                27,497    28,535 
--------------------------------------  ----  --------  -------- 
Total assets                                    84,009    90,595 
--------------------------------------  ----  --------  -------- 
Current liabilities 
Trade and other payables                 14     10,884    14,979 
Contract liabilities                     3       2,244     2,502 
Income tax                                         357       156 
Short-term borrowings                               81        54 
--------------------------------------  ----  --------  -------- 
                                                13,566    17,691 
--------------------------------------  ----  --------  -------- 
Non-current liabilities 
Deferred tax                             11      6,700     7,738 
Convertible loan instrument              15      6,524     6,340 
Long-term borrowings                     15     39,110    40,444 
--------------------------------------  ----  --------  -------- 
Total liabilities                               65,900    72,213 
--------------------------------------  ----  --------  -------- 
Net assets                                      18,109    18,382 
--------------------------------------  ----  --------  -------- 
Equity attributable to equity holders 
Share capital                            17      2,503     2,503 
Share premium                                    4,378     4,378 
Share option reserve                             1,175     1,108 
Capital redemption reserve                          18        18 
Retained earnings                               10,035    10,375 
--------------------------------------  ----  --------  -------- 
Total equity                                    18,109    18,382 
--------------------------------------  ----  --------  -------- 
 

Consolidated statement of changes in equity

For the year ended 31 March 2021

 
                                          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 2019       2,370       479     1,079           18     11,753    15,699 
------------------------  --------  --------  --------  -----------  ---------  -------- 
Profit for the year              -         -         -            -        986       986 
Other comprehensive 
 income                          -         -         -            -          -         - 
------------------------  --------  --------  --------  -----------  ---------  -------- 
Total comprehensive 
 income                          -         -         -            -        986       986 
Deferred tax on share 
 options                         -         -         -            -       (41)      (41) 
Dividends                        -         -         -            -    (2,323)   (2,323) 
Share-based payments             -         -        29            -          -        29 
Issue of new equity            133     3,899         -            -          -     4,032 
------------------------  --------  --------  --------  -----------  ---------  -------- 
Equity at 1 April 2020       2,503     4,378     1,108           18     10,375    18,382 
------------------------  --------  --------  --------  -----------  ---------  -------- 
Loss for the year                -         -         -            -      (340)     (340) 
Other comprehensive 
 income                          -         -         -            -          -         - 
------------------------  --------  --------  --------  -----------  ---------  -------- 
Total comprehensive 
 income                          -         -         -            -      (340)     (340) 
Share-based payments             -         -        67            -          -        67 
------------------------  --------  --------  --------  -----------  ---------  -------- 
Equity at 31 March 2021      2,503     4,378     1,175           18     10,035    18,109 
------------------------  --------  --------  --------  -----------  ---------  -------- 
 

Consolidated statement of cash flows

For the year ended 31 March 2021

 
                                                         2021      2020 
                                                      GBP'000   GBP'000 
---------------------------------------------------  --------  -------- 
Cash flows from operating activities 
Profit before income tax                                (505)     1,971 
Depreciation and amortisation                           7,325     7,285 
Adjustment to deferred consideration                        -     (653) 
Profit on sale of fixed assets                          (133)      (17) 
Share-based payments                                       67        29 
Net finance costs                                       2,102     2,523 
---------------------------------------------------  --------  -------- 
Operating cash flows before movements in working 
 capital                                                8,856    11,138 
Decrease/(increase) in inventories                         43      (45) 
Decrease/(increase) in trade and other receivables      1,643   (4,072) 
(Decrease)/increase in trade and other payables       (2,566)     2,604 
---------------------------------------------------  --------  -------- 
Cash generated from operations                          7,976     9,625 
Income taxes paid                                       (598)   (2,018) 
---------------------------------------------------  --------  -------- 
Net cash from operating activities                      7,378     7,607 
---------------------------------------------------  --------  -------- 
Cash flows from investing activities 
Interest paid                                         (1,603)   (1,861) 
Acquisition of subsidiaries net of cash acquired      (1,798)   (6,285) 
Purchase of intangible assets                           (751)     (419) 
Sale of property, plant and equipment                     344         - 
Purchase of property, plant and equipment               (627)     (706) 
---------------------------------------------------  --------  -------- 
Net cash used in investing activities                 (4,435)   (9,271) 
---------------------------------------------------  --------  -------- 
Cash flows from financing activities 
Dividends paid                                              -   (2,323) 
New bank loans                                         38,490     5,000 
Repayment of bank loans                              (39,250)       (9) 
Payments of lease liabilities                           (866)     (837) 
Issue of new equity                                         -     4,032 
---------------------------------------------------  --------  -------- 
Net cash from financing activities                    (1,626)     5,863 
---------------------------------------------------  --------  -------- 
Net increase in cash and cash equivalents               1,317     4,199 
Cash and cash equivalents at beginning of year         11,849     7,650 
---------------------------------------------------  --------  -------- 
Cash and cash equivalents at end of year               13,166    11,849 
---------------------------------------------------  --------  -------- 
Cash and cash equivalents 
Cash at bank and in hand                               13,166    11,849 
---------------------------------------------------  --------  -------- 
Cash and cash equivalents                              13,166    11,849 
---------------------------------------------------  --------  -------- 
 

Note to the Preliminary Results announcement of Adept Technology Group Plc for the year ended 31 March 2021

The financial information set out below does not constitute the Group's financial statements for the years ended 31 March 2021 or 2020, but is derived from those financial statements. Statutory financial statements for 2020 have been delivered to the Registrar of Companies and those for 2021 will be delivered following the Group's annual general meeting. The auditors have reported on the 2020 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. The audit report on the 2021 financial statements is not yet signed, however an unqualified opinion is expected.

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.

Availability of Financial Statements

The annual report containing the full financial statements for the year to 31 March 2021 is expected to be posted to shareholders in August 2021, a soft copy of which will be available to download from the Company's website www.adept.co.uk.

1. Accounting policies

Basis of preparation of financial statements

The financial statements have been prepared in accordance with International Accounting Standards in conformity with the requirements of the Companies Act 2006.

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 19. 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 that were in issue but not yet effective (and in some cases had not yet been adopted by the EU) and none were considered to be materially relevant.

Adoption of the other standards and interpretations is not expected to have a material impact on the results of the Group. Application of these standards may result in some changes in the 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.

Prior year restatement

The direct salary costs of employees for one of the trading divisions (Comms North) have been reclassified from costs of sales to administrative expenses for the year ended 31 March 2020 to be consistent with the allocation of costs with the same nature in the other trading divisions within the Group. As a result, GBP841,604 of costs have moved from cost of sales to administrative expenses during the prior year. This is purely reallocation of costs in the income statements and there is no change to operating profit.

2. 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, 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 2020 
                                 Year ended 31 March 2021                         (restated) 
                          ---------------------------------------  --------------------------------------- 
                              Fixed                                    Fixed 
                               line    Managed  Central                 line    Managed  Central 
 GBP'000                   services   services    costs     Total   services   services    costs     Total 
------------------------  ---------  ---------  -------  --------  ---------  ---------  -------  -------- 
Revenue                      10,739     47,112        -    57,851     12,891     48,797        -    61,688 
Gross profit                  3,999     23,641        -    27,640      5,040     25,193        -    30,232 
Gross margin 
 %                              37%        50%        -       48%        39%        51%        -       49% 
------------------------  ---------  ---------  -------  --------  ---------  ---------  -------  -------- 
Other income                     56        247        -       304          -          -        -         - 
Administrative 
 expenses                   (2,175)   (15,939)        -  (18,114)    (2,364)   (16,158)        -  (18,523) 
------------------------  ---------  ---------  -------  --------  ---------  ---------  -------  -------- 
Underlying EBITDA             1,880      7,949        -     9,830      2,675      9,034        -    11,709 
Underlying EBITDA 
 %                              18%        17%        -       17%        21%        18%        -       19% 
------------------------  ---------  ---------  -------  --------  ---------  ---------  -------  -------- 
Amortisation                (1,741)    (4,052)        -   (5,793)    (1,573)    (4,199)        -   (5,772) 
Depreciation                      -          -  (1,532)   (1,532)          -          -  (1,513)   (1,513) 
Adjustment to 
 deferred consideration           -          -        -         -          -          -      654       654 
Acquisition costs                 -          -        -         -          -          -    (267)     (267) 
Profit on sale                    -          -      133       133 
Restructuring 
 costs                            -          -    (974)     (974)          -          -    (288)     (288) 
Share-based payments              -          -     (67)      (67)          -          -     (29)      (29) 
------------------------  ---------  ---------  -------  --------  ---------  ---------  -------  -------- 
Operating profit/(loss)         139      3,897  (2,440)     1,597      1,102      4,835  (1,443)     4,494 
------------------------  ---------  ---------  -------  --------  ---------  ---------  -------  -------- 
Finance costs                     -          -  (2,102)   (2,102)          -          -  (2,523)   (2,523) 
Income tax                        -          -      165       165          -          -    (986)     (986) 
------------------------  ---------  ---------  -------  --------  ---------  ---------  -------  -------- 
Profit/(loss) 
 after tax                      139      3,897  (4,380)     (340)      1,102      4,835  (4,952)       985 
------------------------  ---------  ---------  -------  --------  ---------  ---------  -------  -------- 
 

The segmental figures for year ended 31 March 2020 have been restated to reclassify revenues and costs associated with Non-Geographic Number services to the fixed line services segment as it better reflects the characteristics of the service.

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 2020 or 2021.

3. Revenue

In the following table, revenue is disaggregated by major product/service lines and timing of revenue recognition. All revenue is derived from the UK.

 
                                                  2021      2020 
                                               GBP'000   GBP'000 
--------------------------------------------  --------  -------- 
Sale of goods                                   14,703    15,616 
Provision of services: 
- calls and line rental                         10,739    12,891 
- data networks                                 14,228    13,976 
- support services                              14,659    16,232 
- cloud telephony and other services             3,522     2,973 
--------------------------------------------  --------  -------- 
                                                57,851    61,688 
--------------------------------------------  --------  -------- 
Timing of revenue recognition 
Products transferred at a point in time         14,703    15,616 
Products and services transferred over time     43,148    46,072 
--------------------------------------------  --------  -------- 
                                                57,851    61,688 
--------------------------------------------  --------  -------- 
 

The following table provides information about receivables, contract assets and contract liabilities with customers:

 
                                                          2021      2020 
                                                       GBP'000   GBP'000 
----------------------------------------------------  --------  -------- 
Receivables, which are included in 'Trade and other 
 receivables'                                            8,472     9,984 
Contract assets                                            978     1,379 
Contract liabilities                                   (2,244)   (2,502) 
----------------------------------------------------  --------  -------- 
 

Contract assets relate to the deferred direct costs in respect of data circuit installations which have been completed and are being recognised across the customer's contractual term to which the installation relates. The contract liabilities relate to the deferred revenue in respect of data installations which have been completed and the revenue is being recognised across the term of the customer contract.

Significant changes in the contract assets and contract liabilities balances during the period are as follows:

 
                                                     2021      2020 
                                                  GBP'000   GBP'000 
-----------------------------------------------  --------  -------- 
Revenue deferred into future periods              (2,244)   (2,502) 
Deferred revenue recognised in the period           2,470     2,201 
Direct costs deferred into future periods             978     1,379 
Deferred direct costs recognised in the period        839       724 
-----------------------------------------------  --------  -------- 
 

The performance obligations of the underlying contracts to which the contract assets relate are expected to be met over periods of up to five years. However, the performance obligations for all revenues and costs that have been deferred into future periods have been satisfied at the year end, as these relate to the installation and equipment of data networks which have been completed and the service is being used by the customer.

4. Other income

 
                                              2021      2020 
                                           GBP'000   GBP'000 
----------------------------------------  --------  -------- 
Coronavirus Job Retention Scheme claims        304         - 
----------------------------------------  --------  -------- 
 

5. Operating profit

The operating profit is stated after charging:

 
                                                        2021      2020 
                                                     GBP'000   GBP'000 
--------------------------------------------------  --------  -------- 
Amortisation of customer base, billing system and 
 licence                                               5,793     5,772 
Depreciation of tangible fixed assets: 
- owned by the Group                                     845       711 
- right of use assets                                    687       801 
Share option expense                                      67        29 
Acquisition costs                                          -       267 
Restructuring costs                                      974       288 
--------------------------------------------------  --------  -------- 
 

Acquisition costs relate to the legal and professional fees incurred as a direct result of acquisitions completed during the year. Restructuring costs relate to the acquisition operating costs (from the date of acquisition) and other operating costs which have been either terminated or notice to terminate has been served and therefore these items will not form part of the future operating costs of the Group.

6. Finance costs

 
                                               2021      2020 
                                            GBP'000   GBP'000 
-----------------------------------------  --------  -------- 
On bank loans and overdrafts                  1,608     1,870 
Bank arrangement fees                           435       357 
IFRS 16 lease liability interest                 59        81 
Finance cost on contingent consideration          -       215 
-----------------------------------------  --------  -------- 
                                              2,102     2,523 
-----------------------------------------  --------  -------- 
 

The finance costs on contingent consideration arise from the release of the discounted contingent consideration liability evenly across the term of the deferred consideration period in relation to each acquisition. This is a non-cash item.

7. Income tax expense

 
                                                          2021      2020 
                                                       GBP'000   GBP'000 
----------------------------------------------------  --------  -------- 
Current tax 
UK corporation tax on profit for the year                  860     1,129 
Adjustments in respect of prior periods                      -      (91) 
----------------------------------------------------  --------  -------- 
Total current tax                                          860     1,038 
----------------------------------------------------  --------  -------- 
Deferred tax 
Origination and reversal of temporary differences: 
- fixed assets and short-term temporary differences       (43)        67 
- share options                                           (14)        14 
- intangibles on business combinations                   (963)     (968) 
Effect of tax rate change on opening balance                 -       763 
Adjustments in respect of prior periods                    (5)        72 
----------------------------------------------------  --------  -------- 
Total deferred tax                                     (1,025)      (52) 
----------------------------------------------------  --------  -------- 
Total income tax expense                                 (165)       986 
----------------------------------------------------  --------  -------- 
 

Factors affecting tax charge for the year

The relationship between expected tax expense based on the effective tax rate of AdEPT at 19% (2020: 19%) and the tax expense actually recognised in the income statement can be reconciled as follows:

 
                                                            2021      2020 
                                                         GBP'000   GBP'000 
------------------------------------------------------  --------  -------- 
Profit before income tax                                   (505)     1,971 
Tax rate                                                     19%       19% 
Expected tax charge                                         (96)       374 
Expenses not deductible for tax purposes                       1      (40) 
Adjustments to tax charge in respect of prior periods       (25)      (19) 
Depreciation/amortisation on non-qualifying assets            22        12 
Difference due to deferred tax rate being lower 
 than the standard tax rate                                    -         - 
Movement on share option deferred tax assets taken 
 to equity                                                     -        20 
R&D enhanced tax deduction                                  (50)      (45) 
RDEC credit taxed                                           (21)      (30) 
Effect of tax rate change on deferred tax opening 
 balance                                                       -       763 
Other                                                          4      (49) 
------------------------------------------------------  --------  -------- 
Actual tax expense net                                     (165)       986 
------------------------------------------------------  --------  -------- 
 

Future changes to tax rates are anticipated in line with the UK government announcement in the 2021 Budget of an increase in the tax rate to 25% from 1 April 2023.

8. Goodwill

Group

 
                       Total 
                     GBP'000 
------------------  -------- 
Cost 
At 1 April 2019       18,108 
Additions              1,384 
------------------  -------- 
At 1 April 2020       19,492 
Additions                  - 
------------------  -------- 
At 31 March 2021      19,492 
------------------  -------- 
Impairment 
At 1 April 2019        2,084 
Impairment charge          - 
------------------  -------- 
At 1 April 2020        2,084 
Impairment charge          - 
------------------  -------- 
At 31 March 2021       2,084 
------------------  -------- 
Net book value 
At 31 March 2021      17,408 
------------------  -------- 
At 31 March 2020      17,408 
------------------  -------- 
 

We perform an annual goodwill impairment review and we tested our goodwill for impairment as at 31 March 2021.

Goodwill is recognised when a business combination does not generate cash flows independently of other assets or groups of assets. As a result, the recoverable amount, being the value in use, is determined at a cash-generating unit (CGU) level. These CGUs represent the smallest identifiable group of assets that generate cash flows. Our CGUs are deemed to be the assets within the operating units. Each CGU to which goodwill is allocated represents the lowest level within the Group at which the goodwill is monitored for internal management purposes.

The total intangible value in use for each CGU, incorporating goodwill and the intangible asset value, is determined using discounted cash flow projections derived from the total historical revenue profile of each identifiable CGU. The assumptions which are applied to each CGU in respect of churn rate, discount rate, margin and useful economic life are set out in Note 9.

The Group's goodwill is split by CGU as follows:

 
                                          March     March 
                                           2021      2020 
                                        GBP'000   GBP'000 
-------------------------------------  --------  -------- 
Centrix Limited                           3,614     3,614 
Comms Group UK Limited                    2,672     2,672 
CAT Communications Limited                  248       248 
Our IT Department Limited                 4,683     4,683 
Atomwide Limited                          3,313     3,313 
Shift F7 Limited                            879       879 
ETS Communications Limited                  615       615 
Advanced Computer Systems UK Limited      1,384     1,384 
-------------------------------------  --------  -------- 
 

The net present value of the future cash flows for the CGUs is sensitive to the weighted average cost of capital. The rate used to discount the future cash flows is the Group's pre-tax weighted average cost of capital of 8.9% An increase in the Group's weighted average cost of capital to above 16.2% would materially impair the carrying value of the Group's goodwill by more than GBP400,000. Further details of the sensitivity of the variables used in the impairment testing are included in Note 9.

9. Intangible fixed assets

Group

 
                                 Computer  Customer  Software 
                       Licence   software      base      apps   Website     Total 
                       GBP'000    GBP'000   GBP'000   GBP'000   GBP'000   GBP'000 
--------------------  --------  ---------  --------  --------  --------  -------- 
Cost 
At 1 April 2019            154      1,345    64,343     3,535     1,745    71,122 
Additions                  108        343     7,292         -         -     7,743 
--------------------  --------  ---------  --------  --------  --------  -------- 
At 1 April 2020            262      1,688    71,616     3,535     1,745    78,846 
Additions                  139        575         -         -        22       736 
--------------------  --------  ---------  --------  --------  --------  -------- 
At 31 March 2021           401      2,263    71,616     3,535     1,767    79,582 
--------------------  --------  ---------  --------  --------  --------  -------- 
Amortisation 
At 1 April 2019             57      1,320    28,537       586       623    31,123 
Charge for the year         63         22     4,961       350       375     5,771 
--------------------  --------  ---------  --------  --------  --------  -------- 
At 1 April 2020            120      1,342    33,498       936       998    36,894 
Charge for the year         82         13     4,957       351       390     5,793 
--------------------  --------  ---------  --------  --------  --------  -------- 
At 31 March 2021           202      1,355    38,455     1,287     1,388    42,687 
--------------------  --------  ---------  --------  --------  --------  -------- 
Net book value 
At 31 March 2021           199        908    33,161     2,248       379    36,895 
--------------------  --------  ---------  --------  --------  --------  -------- 
At 31 March 2020           142        346    38,118     2,599       747    41,952 
--------------------  --------  ---------  --------  --------  --------  -------- 
 

Included within the Group's intangible assets is:

 
                                                                     March     March 
                                                                      2021      2020 
                                                     Useful life   GBP'000   GBP'000 
--------------------------------------------------  ------------  --------  -------- 
Centrix Limited - customer base                         17 years     6,030     6,575 
Comms Group UK Limited - customer base/website          17 years     3,174     3,544 
Our IT Department Limited - customer base/website       17 years     1,823     2,232 
CAT Communications Limited - customer base              10 years       699       845 
Atomwide Limited - customer base                        16 years     4,592     5,308 
Atomwide Limited - software/apps                         5 years     2,249     2,599 
Shift F7 Limited - customer base                        10 years     3,718     4,304 
ETS Communications Limited - customer base              10 years     2,747     3,110 
Advanced Computer Systems UK Limited - customer 
 base                                                   10 years     6,001     6,563 
Other customer bases - AdEPT Technology Group 
 plc trading business                                10-16 years     5,591     6,356 
--------------------------------------------------  ------------  --------  -------- 
 

Critical accounting estimates and key judgements made in reviewing intangible assets and goodwill for impairment

The key assumptions concerning the future and other key sources of estimation and uncertainty at the reporting date, which have a significant risk of causing a material adjustment to the carrying amounts of intangible assets and goodwill, are discussed below.

Measuring the fair value of intangible assets on acquisition

The main estimates used to measure the fair value of the intangible assets on acquisition are:

   --    churn rate; 
   --    discount rate; and 
   --    gross margins. 

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 2021 the net present value of future cash flows of certain cash-generating units was above the carrying value and therefore no impairment charge has been recorded (2020: GBPNil).

We tested our intangible assets and goodwill for impairment as at 31 March 2021. The carrying value of the intangible assets and the key assumptions used in performing the annual impairment assessment and sensitivities are disclosed below:

 
                                                       Book value 
                                                               of  Estimated 
                                                  cash-generating      value 
                                                             unit     in use 
                                                          GBP'000    GBP'000 
-----------------------------------------------  ----------------  --------- 
Centrix Limited and CAT Communications Limited              6,743     16,394 
Comms Group UK Limited and ETS Communications 
 Limited                                                    5,423      9,814 
Our IT Department Limited and Shift F7 Limited              5,653      9,548 
Atomwide Limited and Advanced Computer Systems 
 UK Limited                                                12,659     26,446 
-----------------------------------------------  ----------------  --------- 
 

What discount rate have we used?

The rate used to discount the future cash flows is the Group's pre-tax weighted average cost of capital (WACC) of 8.9% (2020: 8.5%). The directors have chosen to use WACC as it is a calculated figure using actual input variables where available and applying estimates for those which are not, such as the equity market premium. An increase in the Group's weighted average cost of capital to above 16.2% would materially impair the carrying value of the Group's intangible assets by more than GBP400,000.

What churn rate have we used?

For the customer bases which have been fully integrated into the AdEPT Technology Group plc trading business in Tunbridge Wells, the churn rate of 5.4% per annum is based upon the actual historical churn rate of the revenue stream from the customer bases.

For Centrix, Comms Group, Our IT Department, CAT Communications, Atomwide, Shift F7, ETS Communications and ACS the net present value of the discounted future cash flows is based on the actual revenues of the acquired customer bases. The actual historical churn rates for the acquired customer bases vary between nil and 6.6% per annum. Where an acquired customer base has shown growth, a default churn assumption of 3% per annum has been applied.

For the software and apps which have been developed by Atomwide the net present value of the discounted future cash flows is based on the actual revenues being derived from the customer base to which the software licences and charges relate. The actual historical churn rates for the software and app revenue stream is nil% per annum, but a default churn rate of 3% per annum has been applied for the purpose of impairment testing.

What margin have we used?

Gross margins applied are based upon actual margins achieved by the customer bases in the current and previous years. A proportion of overheads are applied to the gross margin to represent the actual operating cost required to support the acquired customer revenue stream, resulting in a net margin which is used for the discounted net present valuation.

What is the estimated useful life of customer bases?

The method used to estimate the useful life of each customer base to conduct the impairment review is the revenue churn rate. The average useful economic life of all the customer bases has been estimated at 14 years (2020: 14 years) with a range of 10 to 17 years.

What sensitivities have we applied?

The calculations are sensitive to movements in the discount rate, margin or churn rate and may therefore result in an impairment charge to the income statement. A 1% change to the discount rate, churn rate and, gross margin would result in no additional impairment charges.

10. Property, plant and equipment

Group

 
                                      Right of     Short-term   Fixtures 
                               Motor       use      leasehold        and      Office 
                            vehicles    assets   improvements   fittings   equipment     Total 
                             GBP'000   GBP'000        GBP'000    GBP'000     GBP'000   GBP'000 
-------------------------  ---------  --------  -------------  ---------  ----------  -------- 
Cost 
At 1 April 2019                  320         -            294        569       1,941     3,124 
Adjustment from adoption 
 of IFRS 16                        -     1,848              -          -           -     1,848 
Additions                         87       324              1         48         570     1,030 
Disposals                       (50)     (183)              -       (14)       (625)     (872) 
-------------------------  ---------  --------  -------------  ---------  ----------  -------- 
At 1 April 2020                  357     1,989            295        603       1,886     5,130 
Additions                         78       514              4         25         599     1,220 
Disposals                      (183)     (439)          (238)          -       (164)   (1,024) 
-------------------------  ---------  --------  -------------  ---------  ----------  -------- 
At 31 March 2021                 252     2,064             61        628       2,321     5,326 
-------------------------  ---------  --------  -------------  ---------  ----------  -------- 
Depreciation 
At 1 April 2019                  238         -             44        371         999     1,652 
Charge for the year               66       825             19         88         530     1,528 
Disposals                       (38)     (100)              -        (7)       (605)     (750) 
-------------------------  ---------  --------  -------------  ---------  ----------  -------- 
At 1 April 2020                  266       725             63        452         924     2,430 
Charge for the year               44       758             15         98         590     1,505 
Disposals                      (182)     (434)           (39)          -       (163)     (818) 
-------------------------  ---------  --------  -------------  ---------  ----------  -------- 
At 31 March 2021                 128     1,049             39        550       1,351     3,117 
-------------------------  ---------  --------  -------------  ---------  ----------  -------- 
Net book value 
At 31 March 2021                 124     1,015             22         78         970     2,209 
-------------------------  ---------  --------  -------------  ---------  ----------  -------- 
At 31 March 2020                  91     1,264            232        151         962     2,700 
-------------------------  ---------  --------  -------------  ---------  ----------  -------- 
 

The right of use asset is made up as follows:

 
                        2021                2020 
                 ------------------  ------------------ 
                    Group   Company     Group   Company 
                  GBP'000   GBP'000   GBP'000   GBP'000 
---------------  --------  --------  --------  -------- 
Property              850       342       924       389 
Motor vehicles        140        54       183        80 
Other                  25        13       157        45 
---------------  --------  --------  --------  -------- 
                    1,015       409     1,264       514 
---------------  --------  --------  --------  -------- 
 

The depreciation charge for right of use assets is as follows:

 
                        2021                2020 
                 ------------------  ------------------ 
                    Group   Company     Group   Company 
                  GBP'000   GBP'000   GBP'000   GBP'000 
---------------  --------  --------  --------  -------- 
Property              472       111       506       110 
Motor vehicles        166        40        72        43 
Other                 120       112       247        64 
---------------  --------  --------  --------  -------- 
                      758       263       825       217 
---------------  --------  --------  --------  -------- 
 

11. Deferred taxation

 
                                                   2021                2020 
                                            ------------------  ------------------ 
                                               Group   Company     Group   Company 
                                             GBP'000   GBP'000   GBP'000   GBP'000 
------------------------------------------  --------  --------  --------  -------- 
At 1 April 2020                              (7,738)     (279)   (6,362)     (122) 
Income statement credit/(charge)               1,025        89        52     (114) 
Movement in deferred tax on share options 
 taken to equity                                   4         4      (43)      (43) 
Deferred tax transferred from group 
 company                                           -      (10)         -         - 
Adjustments in respect of prior periods            9        24         -         - 
Deferred tax on business combination               -         -   (1,385)         - 
------------------------------------------  --------  --------  --------  -------- 
At 31 March 2021                             (6,700)     (172)   (7,738)     (279) 
------------------------------------------  --------  --------  --------  -------- 
 

The deferred tax (liability)/asset is made up as follows:

 
                                               2021                2020 
                                        ------------------  ------------------ 
                                           Group   Company     Group   Company 
                                         GBP'000   GBP'000   GBP'000   GBP'000 
--------------------------------------  --------  --------  --------  -------- 
Accelerated capital allowances             (181)      (58)     (213)     (124) 
Short-term temporary differences               5         -        18         2 
Convertible loan note equity element       (128)     (128)     (158)     (157) 
Deferred tax on business combinations    (6,410)         -   (7,385)         - 
Share options                                 14        14         -         - 
--------------------------------------  --------  --------  --------  -------- 
                                         (6,700)     (172)   (7,738)     (279) 
--------------------------------------  --------  --------  --------  -------- 
 

12. Inventories

 
                     2021                2020 
              ------------------  ------------------ 
                 Group   Company     Group   Company 
               GBP'000   GBP'000   GBP'000   GBP'000 
------------  --------  --------  --------  -------- 
Consumables        569       111       612         - 
------------  --------  --------  --------  -------- 
 

As at 31 March 2021, inventories of GBP25,765 (2020: GBP60,407) were fully provided for. During the year GBP7,320,490 has been recognised as an expense in the statement of comprehensive income.

There is no material difference between the replacement cost of inventories and the amount stated above.

13. Trade and other receivables

We initially recognise trade and other receivables at fair value, which is usually the original invoiced amount. They are subsequently carried at amortised cost using the effective interest method. The carrying amount of these balances approximates to fair value due to the short maturity of amounts receivable.

We provide services to consumer and business customers, mainly on credit terms. We know that certain debts due to us will not be paid through the default of a small number of our customers. Because of this, we recognise an allowance for doubtful debts on initial recognition of receivables, which is deducted from the gross carrying amount of the receivable. The allowance is calculated by reference to credit losses expected to be incurred over the lifetime of the receivable. In estimating a loss allowance we consider historical experience and informed credit assessment alongside other factors such as the current state of the economy and particular industry issues. We consider reasonable and supportable information that is relevant and available without undue cost or effort.

Once recognised, trade receivables are continuously monitored and updated. Allowances are based on our historical loss experiences for the relevant aged category as well as forward-looking information and general economic conditions. Allowances are calculated by individual customer-facing units in order to reflect the specific nature of the customers relevant to that customer-generating unit.

 
                                            2021                2020 
                                     ------------------  ------------------ 
                                        Group   Company     Group   Company 
                                      GBP'000   GBP'000   GBP'000   GBP'000 
-----------------------------------  --------  --------  --------  -------- 
Trade receivables                       8,480     3,793     9,842     3,177 
Other receivables                           -         -       119        21 
Amounts owed by Group undertakings          -     9,200         -     5,899 
Prepayments                             3,692     2,268     3,917     1,208 
Accrued income                            612        58       817         - 
-----------------------------------  --------  --------  --------  -------- 
                                       12,784    15,319    14,695    10,243 
-----------------------------------  --------  --------  --------  -------- 
 

The Group has one type of financial asset that is subject to IFRS 9's expected credit loss model:

   --    trade receivables for sales of inventory and from the provisions of consulting services. 

Trade receivables and contract assets

The Group applies the IFRS 9 simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance for all trade receivables and contract assets. As at 31 March 2021, trade receivables of GBP387,712 (2020: GBP411,319) were fully provided for.

All debts which are older than 90 days relate to interim amounts in respect of large customer projects which have not yet fully completed and are considered to be fully recoverable on completion. The movement of the provision for impairment of trade receivables is as follows:

 
                                                               Group   Company 
                                                             GBP'000   GBP'000 
----------------------------------------------------------  --------  -------- 
At 1 April 2019                                                  326       120 
Receivables provided for during the year as uncollectable        149        33 
Receivables collected during the year which were 
 previously provided                                            (15)         - 
Receivables written off in the year which were 
 previously provided for                                        (64)      (72) 
Acquired through acquisition                                      15         - 
----------------------------------------------------------  --------  -------- 
At 1 April 2020                                                  411        81 
Receivables provided for during the year as uncollectable        245       245 
Receivables collected during the year which were 
 previously provided                                           (153)         - 
Receivables written off in the year which were 
 previously provided for                                       (115)      (51) 
Acquired through acquisition                                       -        25 
----------------------------------------------------------  --------  -------- 
At 31 March 2021                                                 388       275 
----------------------------------------------------------  --------  -------- 
 

The creation and release of a provision for impaired receivables have 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.

14. Trade and other payables

 
                                            2021                2020 
                                     ------------------  ------------------ 
                                        Group   Company     Group   Company 
                                      GBP'000   GBP'000   GBP'000   GBP'000 
-----------------------------------  --------  --------  --------  -------- 
Trade payables                          4,176     2,001     4,494     1,210 
Other taxes and social security 
 costs                                  1,998       741     1,982       508 
Other payables                            179        36       155        36 
Lease liability                           547       220       674       253 
Amounts owed to Group undertakings          -         -         -         - 
Accruals and deferred income            3,984     1,440     5,876       362 
Contingent consideration                    -         -     1,798     1,798 
-----------------------------------  --------  --------  --------  -------- 
                                       10,884     4,438    14,979     4,167 
-----------------------------------  --------  --------  --------  -------- 
 

The contingent consideration liability of GBPnil (2020: GBP1,797,738) represents the year-end fair value of the contingent consideration liabilities arising on the acquisitions made during the year. The fair value of the contingent consideration liability was initially determined by reference to the forecast growth rate for the customer base and applying the contingent consideration matrix as specified in the share purchase agreement.

15. Long-term borrowings

 
                                    2021                2020 
                             ------------------  ------------------ 
                                Group   Company     Group   Company 
                              GBP'000   GBP'000   GBP'000   GBP'000 
---------------------------  --------  --------  --------  -------- 
Between one and two years           -         -         -         - 
Between two and five years     45,634    45,322    40,444    40,079 
More than five years                -         -     6,340     6,340 
---------------------------  --------  --------  --------  -------- 
                               45,634    45,322    46,784    46,419 
---------------------------  --------  --------  --------  -------- 
 

The bank loan of GBP38,588,128 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 and fixed plant and machinery.

Included in long-term borrowings is an amount of GBP6,524,462 which is the debt component of the convertible loan instrument from BGF. This loan instrument is subordinated and ranks behind the bank loan.

Details of the interest rates applicable to the borrowings are included in Note 19.

Included within bank loans are arrangement fees amounting to GBP661,871 (2020: GBP211,928) which are being released over the term of the loan in accordance with IFRS 9.

16. Lease liability

Included within long-term borrowings (Note 21) between two and five years is an amount of GBP521,468 (2020: GBP655,001) which relates to the IFRS 16 lease liability.

 
                                    2021                2020 
                             ------------------  ------------------ 
                                Group   Company     Group   Company 
                              GBP'000   GBP'000   GBP'000   GBP'000 
---------------------------  --------  --------  --------  -------- 
Within one year                   547       220       674       253 
Between two and five years        521       218       655       291 
More than five years                -         -         -         - 
---------------------------  --------  --------  --------  -------- 
                                1,069       438     1,329       544 
---------------------------  --------  --------  --------  -------- 
 

Total cash payments in respect of IFRS 16 lease agreements during the year was GBP866,442 (2020: GBP836,580).

17. Share capital

 
                                                       2021      2020 
                                                    GBP'000   GBP'000 
-------------------------------------------------  --------  -------- 
Authorised 
65,000,000 ordinary shares of 10p each                6,500     6,500 
-------------------------------------------------  --------  -------- 
Allotted, called up and fully paid 
25,029,957 (2020: 25,029,957) ordinary shares of 
 10p each                                             2,503     2,503 
-------------------------------------------------  --------  -------- 
 

18. Earnings per share

Earnings per share is calculated on the basis of a loss of GBP339,787 (2020: profit of GBP985,637) divided by the weighted average number of shares in issue for the year of 25,029,959 (2020: 23,812,509). 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 25,052,139 (2020: 23,945,655).

Adjusted earnings per share is used to reflect the non-cash nature of certain items which are charged to the income statement and the non-trading items, such as acquisition costs, to give a better indicator of the underlying cash generation of the Group. Adjusted earnings per share is calculated by adding back amortisation of intangible assets, impairment of goodwill, the taxation deduction on purchased customer contracts, deferred tax credits on amortisation charges, share option charges, adjustment to deferred consideration, acquisition fees and restructuring costs from retained earnings, giving GBP5,597,601 (2020: GBP6,716,948). This is divided by the same weighted average number of shares as above.

 
                                                             2021        2020 
                                                          GBP'000     GBP'000 
-----------------------------------------------------  ----------  ---------- 
Earnings for the purposes of basic and diluted 
 earnings per share 
Profit for the period attributable to equity holders        (340)         985 
Add: amortisation                                           5,793       5,772 
Less: taxation on amortisation of purchased customer 
 contracts                                                  (117)       (117) 
Less: deferred tax credit on amortisation charges           (963)       (235) 
Add: share option charges                                      67          29 
Add/(less): adjustment to deferred consideration                -       (654) 
Add: acquisition fees and restructuring costs                 974         555 
Add: interest unwind on loan note                             184         381 
-----------------------------------------------------  ----------  ---------- 
Adjusted profit attributable to equity holders              5,598       6,717 
-----------------------------------------------------  ----------  ---------- 
Number of shares 
Weighted average number of shares used for earnings 
 per share                                             25,029,957  23,812,509 
Weighted average dilutive effect of share plans            22,180     133,146 
-----------------------------------------------------  ----------  ---------- 
Diluted weighted average number of shares              25,052,137  23,945,655 
-----------------------------------------------------  ----------  ---------- 
Earnings per share 
Basic earnings per share                                  (1.36p)       4.14p 
Diluted earnings per share                                    N/a       4.12p 
Adjusted earnings per share 
Adjusted basic earnings per share                          22.36p      28.21p 
Adjusted diluted earnings per share                        22.34p      28.05p 
-----------------------------------------------------  ----------  ---------- 
 

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. Diluted earnings per share has not been calculated as the impact of share plans is anti-dilutive.

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, deferred tax credits on amortisation charges, share option charges, adjustment to deferred consideration and acquisition costs) by the weighted average number of ordinary shares in issue.

19. 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.

 
                                             2021                2020 
                                      ------------------  ------------------ 
                                         Group   Company     Group   Company 
                                       GBP'000   GBP'000   GBP'000   GBP'000 
------------------------------------  --------  --------  --------  -------- 
Loans and receivables at amortised 
 cost 
Cash and cash equivalents               13,166    10,652    11,849     6,619 
Loans and receivables                    8,472     3,793     9,961     3,197 
------------------------------------  --------  --------  --------  -------- 
                                        21,638    14,445    21,810     9,816 
------------------------------------  --------  --------  --------  -------- 
Financial liabilities at amortised 
 cost 
Liabilities at amortised cost           51,390    48,357    53,083    48,871 
Financial liabilities at fair value 
Contingent consideration                     -         -     1,798     1,798 
------------------------------------  --------  --------  --------  -------- 
                                        51,390    48,357    54,881    50,669 
------------------------------------  --------  --------  --------  -------- 
Amounts due for settlement 
Within twelve months                     4,987     2,257     6,965     3,297 
After twelve months                     46,403    46,100    47,916    47,372 
------------------------------------  --------  --------  --------  -------- 
                                        51,390    48,357    54,881    50,669 
------------------------------------  --------  --------  --------  -------- 
 

The Company has a three plus one year GBP50m committed revolving credit facility agreement with Natwest and Bank of Ireland. The revolving credit facility bears interest at 1.85-3.25% over LIBOR on drawn funds, dependent upon the net debt to EBITDA ratchet. The facility is repayable in full on the final repayment date in March 2024, or March 2025 if the one-year extension option is activated.

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.

Natwest and Bank of Ireland have 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 and fixed plant and machinery.

The banks also hold a charge over the life assurance policy of Ian Fishwick, director of the Company, for GBP1,500,000.

In August 2017 the Group raised GBP7,293,726 in the form of a convertible loan instrument from BGF to part fund the acquisition of Atomwide. The convertible loan instrument is excluded from the leverage calculations by the senior debt partners, Natwest and Bank of Ireland. The Group has applied the principles of IAS 32 and IFRS 9 in the recognition and measurement of the convertible loan. The net present value of the loan of GBP7,090,201 has been split between the debt and equity components and an amount of GBP1,158,317 has been recorded in equity, with GBP5,931,884 being included within long-term debt at the initial date of recognition.

BGF has the right to convert the loan to 1,855,910 ordinary shares at a share price of GBP3.93 per share at any time. The loan instrument can be redeemed by the Company from the third anniversary. The convertible loan instrument bears an interest rate of 7%. In addition, the transaction costs with a net present value of GBP203,525 are being recognised in the interest charge in the income statement across the term of the convertible instrument. The equity component of the convertible loan is included in the share option reserve in the statement of changes in equity and statement of financial position.

20. Business combinations

Contingent consideration obligations

Reconciliation of the movement in the fair value of contingent consideration:

 
                      Advanced 
                      Computer 
                       Systems 
                    UK Limited     Total 
                       GBP'000   GBP'000 
-----------------  -----------  -------- 
At 1 April 2020          1,798     1,798 
Settled in cash        (1,798)   (1,798) 
-----------------  -----------  -------- 
At 31 March 2021             -         - 
-----------------  -----------  -------- 
 

The earnout period for Advanced Computer Systems Limited ended on 31 March 2020 and deferred consideration of GBP1,797,738 was paid on 9 May 2020.

21. Subsequent events

Acquisition of Datrix Limited

On 12 April 2021 the Company acquired the entire issued share capital of Datrix Limited ('Datrix') a well-established, award-winning supplier of advanced cloud-based networking, communications, and cyber security solutions, headquartered in London, with expertise in the growing Software Defined Wide Area Networking ("SD-WAN") market focused on the public and healthcare sector.

Initial consideration of GBP9.0m, on a debt free cash free basis, was paid in cash. Pursuant to the terms of the share purchase agreement, the effective date of the acquisition is 1 April 2021. Further contingent deferred consideration of up to GBP7.0m may be payable in cash dependent upon the trading performance of Datrix in the twelve month period ended 31 March 2022. The contingent deferred consideration will be determined by reference to the gross margin of the acquired business and applying the contingent deferred consideration calculation 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 these results as the completion balance sheet was not available.

The last filed statutory accounts of Datrix for the year ended 30 June 2020 reported turnover, operating loss and loss before tax of GBP10.3m, GBP0.1m and GBP0.1m respectively. There was GBP0.2m of capital expenditure in the year ended 30 June 2020. Net liabilities and gross assets at that date were GBP2.1m and GBP5.5m respectively. Acquisition related costs will be recognised as an expense in the statement of comprehensive income for the year ending 31 March 2022.

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.

RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our Privacy Policy.

END

FR BLGDRBGGDGBL

(END) Dow Jones Newswires

July 07, 2021 02:00 ET (06:00 GMT)

Adept Technology (LSE:ADT)
Historical Stock Chart
From Dec 2021 to Jan 2022 Click Here for more Adept Technology Charts.
Adept Technology (LSE:ADT)
Historical Stock Chart
From Jan 2021 to Jan 2022 Click Here for more Adept Technology Charts.