TIDMADT

RNS Number : 5511H

AdEPT Technology Group PLC

07 April 2022

7 April 2022

The information contained within this announcement is deemed by the Company to constitute inside information pursuant to Article 7 of EU Regulation 596/2014 as it forms part of UK domestic law by virtue of the European Union (Withdrawal) Act 2018 as amended.

ADEPT TECHNOLOGY GROUP PLC

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

Trading and Strategy Update and Online Investor Events

AdEPT (AIM: ADT), one of the UK's leading independent providers of managed services for cloud, digital platforms, unified communications, and connectivity solutions, is pleased to announce a trading and strategy update.

The Board is pleased to report a strong finish to the financial year ended 31 March 2022 ("FY22" or the "Period"), in terms of order intake, and that it expects the Group revenue and adjusted EBITDA for the Period to be broadly in line with current market forecasts.

Following a strategic review of the business, undertaken during the Period, the Board considers the Group to be ideally placed to capitalise on its market position and focus on the organic growth opportunities available.

The Group's audited Final Results for FY22 are expected to be announced in July 2022.

Trading Update

This resilient FY22 performance has been delivered despite the challenges which have arisen from the enduring pandemic, which continued to impact during the Period, and in particular the subsequent supply chain disruption caused by electronic chip shortages, which delayed and continues to delay the delivery of projects dependent on hardware.

We are delighted to report that the Group added over 100 new customers in the Period with customer demand steadily gaining momentum to deliver markedly stronger order intake in the last four months of FY22. New customer wins demonstrate AdEPT's ability to attract respected organisations, such as; the Multi-Academy Trust the Co-op, Rolls Royce (won via a new partnership with Canon), the TUC and fast-growing automated payment management provider, Soldo.

The demand for the digitisation of organisations continues, which is driving the success of AdEPT's cloud centric services, with increasing revenues through the deployment of; managed networks, Microsoft solutions, cloud communications and services relating to cyber security.

During FY22, AdEPT used its senior debt facility to fund the Datrix acquisition; and post the initial consideration payment we have repaid GBP4.4m of the loan facility, leaving senior net debt as at 31 March 2022 at GBP29.3m, which is above expectations. This variance is largely attributable to:

 
 a)   One-off professional fees relating to an in-depth strategic 
       review; 
 b)   The acceleration of Project Fusion which has enabled further, 
       earlier than originally anticipated, divisional consolidation 
       which resulted in one-off costs; and 
 c)   The advance purchase of hardware, to reduce the impact of 
       inflation and minimize supply chain challenges on customer 
       projects. 
 

The Datrix earnout is due to be paid post-year end and is estimated at between GBP4-4.8m.

Strategic Review

During FY22, we undertook an in-depth strategic review with the support of EY Parthenon, exploring; market requirements, customer sentiment, our ability to capture market opportunity, operational capability, and the richness of the AdEPT portfolio.

This extensive research revealed a number of reassuring data points:

 
 --   A large market: The UK Core Addressable Market (CAM(1) 
       ) for AdEPT services is GBP11bn. 
 --   With fast growth: The high growth parts of this marketplace, 
       namely cloud services (c. 15% CAGR), are being fueled by 
       the growth in public cloud hosted Infrastructure as a Service 
       (IaaS), Software as a Service (SaaS), and cyber security 
       (CAGR of 9%). 
 

The report highlighted six macro trends that are driving demand for AdEPT's services:

 
 --   Changing pattern of demand: The high growth in overall 
       Small to Medium Business (SMB) traffic and data usage, driven 
       by increased adoption of new, cloud-hosted services and 
       growing popularity of 'as a Service models' (XaaS), provides 
       upsell and wrap around service opportunities for AdEPT; 
 --   Covid-19 long-term impact: The increased proportion of 
       SMB employees adopting hybrid / remote working patterns 
       post COVID-19 will lead to sustained reliance on cloud and 
       collaboration tools to enable remote working for a distributed 
       workforce, driving Unified Communication (UC) / Voice over 
       Internet Protocol (VoIP) adoption, as well as adoption of 
       higher specification connectivity; 
 --   Convergence of Telecom and IT infrastructure capabilities: 
       There is a growing convergence of telecoms, IT services 
       and infrastructure, with data, voice and applications shifting 
       to the internet, creating convergence among different types 
       of providers and distribution channels and an opportunity 
       to cross-sell services; 
 --   Next gen technologies (FTTP, 5G): Large Internet Service 
       Providers (ISPs) and Alternative Network Providers (AltNets) 
       are rolling out Fibre to the Premise (FTTP) at an accelerated 
       pace, which drives revenue and margin as customers shift 
       to newer technologies; 5G is being rolled-out rapidly and 
       is expected to drive a surge in the sales of 5G-enabled 
       handsets and data network services; 
 --   Growing SMB segment: AdEPT has a great presence across 
       SMBs, a sector that has shown a strong rebound in company 
       birth rates post-recessions that will drive demand. SMBs 
       are the fastest growing segment of the IT services market, 
       as a result of increased outsourcing, and are expected to 
       bounce back as they did post the 2008-09 financial crisis; 
       and 
 --   BT/Openreach's announcement of PSTN / ISDN switch-off by 
       2025: This will accelerate the migration to VoIP as well 
       as drive higher demand for broadband connections as businesses 
       move to unified communications. 
 

(1) CAM is defined as total UK spend by SMBs in the corporate sector (<250 FTE) and all organisations in the public sector on AdEPT's core product offerings (e.g., hosted cloud, voice and connectivity but excludes non-core offerings like IaaS) in regions of the country in which AdEPT has a strong presence (so, excludes Scotland, North England and Northern Ireland)

This review provides a wealth of information and reflects AdEPT's journey over recent years from; the creation of a firm foundation, to the diversification into ICT through acquisition, through to consolidation to bring core operational strength.

The strategy, resulting from this review, is to build upon the following three pillars going forward, all with the express intent of delivering stakeholder value.

 
 a)   Pillar one - Focus on organic growth. The Group's strategy 
       to date has been to consolidate a fragmented market through 
       debt-funded acquisitions. This enabled AdEPT to become a 
       fully capable, cloud centric, managed services business; 
       with a highly skilled workforce and the ability to wrap 
       solutions with consulting expertise to keep customers up 
       to date with the fast-changing market requirements. 
 
       The strategy review confirmed that, following the recent 
       successful acquisition of Datrix, AdEPT now has the capability 
       to capture a significant 'share of wallet' from our customers 
       due to our full portfolio of products and services, supported 
       by our strategic partners, delivered by the wealth of talent 
       within the business. 
 
       The Board is agreed that the Group is now ideally placed 
       to capitalise on its market position and focus on the organic 
       growth opportunities available. 
 b)              Pillar two - Structure for success. With the recent removal 
                  of all COVID restrictions across England, AdEPT has now 
                  adopted a full-flex working model, powered by the One AdEPT 
                  platform, delivered by Project Fusion. An initiative to 
                  integrate a collection of commercially available off the 
                  shelf systems (COTS) for use by all employees, who can now 
                  take advantage of a single set of operational and financial 
                  applications wherever they reside. This platform has created 
                  a foundation for greater operational efficiency, cross-selling 
                  and operational insight. 
 
                  The success of One AdEPT has enabled AdEPT to accelerate 
                  cost reductions arising from divisional and management consolidation, 
                  with the AdEPT Group transitioning from five divisions at 
                  the beginning of FY21 to two as we move into FY23 reflecting 
                  our geographical and market focus: AdEPT North & Education, 
                  and AdEPT South & Healthcare. 
 
                  Meanwhile Datrix, acquired in April 2021, completes its 
                  earnout period on the 31 March 2022 and is now fully integrated 
                  into the AdEPT South & Healthcare Division. 
 c)   Pillar three - Reduce gearing. The Group has a historically 
       low capital expenditure requirement and a proven ability 
       to generate free cash flow. The strategic objective of achieving 
       organic growth creates the opportunity to focus on decreasing 
       debt, with the plan to reduce the Group's EBITDA: Senior 
       Net Debt ratio to below 2x. 
 

Performance of Datrix

Datrix has proven to be a great success, with the team securing significant projects with organisations such as; Nottinghamshire County Council, the Royal Surrey County Hospital, Public Health England, Trident and Selwood Housing.

The solutions being deployed by this team encompass SD-WAN / SASE(2) , a marketplace that widely respected analyst IDC expects to grow through 2025 at a compound annual growth rate of 18.9%(3) .

(2) SD-WAN is software defined wide area networks, that allows highly effective and simply monitored deployments of networks, whilst SASE is a cloud platform for providing security at the edge of the network.

(3) IDC MarketScape: Worldwide SD-WAN Infrastructure 2021 - Vendor Assessment

Director change - Non-Executive Director

The Board recognises the importance of, and is committed to, ensuring that proper standards of sound Corporate Governance operate throughout the Company. Accordingly, the Group is committed to compliance with the provisions of the QCA Corporate Governance Code published by the Quoted Companies Alliance.

As part of an ongoing review of AdEPT Board practices, the Board acknowledges the guidance to retain Independent Non-Executive Directors with an appropriate length of service.

As a consequence of this review, AdEPT announces the retirement today of Roger Wilson as a Non-Executive Director from the Board. Roger has been a valued member of the AdEPT Board for 19 years, including in the role as Chairman for many years.

Ian Fishwick, Chairman of AdEPT, said:

"It has been an absolute delight to work with Roger for so many years. He has been an integral part of the company and a mentor to many of the Board during his time with AdEPT holding the post of Chairman for many years. We wish Roger every success in his retirement and thank him for his wise counsel and outstanding contribution."

Environmental, Social and Governance ("ESG")

On 31 March 2022, the AdEPT team now totals 340. This talented and diverse team, strengthened by the acquisition of Datrix, is enabling us to achieve increasingly high levels of customer satisfaction and product penetration.

AdEPT is committed to ensuring diversity, equity, and inclusivity. We have a team from diverse backgrounds and genders, and we continue to foster balance and promote equal opportunities. This mix of skill sets, experience, and backgrounds enables us to perform better.

We have recently undertaken our second Gender Pay Gap Report which showed modest positive progress, however, like many businesses in our sector, this highlights the challenges of hiring women into senior roles. We will use the report and work with our staff and stakeholders to shape policies that ensure an appropriate gender balance.

AdEPT has a social conscience, and the Board is focused on making the world a better place both for current generations and those of the future. AdEPT has updated the inaugural 17-point plan published during the Summer of 2021 and has made positive progress in advancing our position across each of the three pillars of i) Environmental Responsibility, ii) Social Responsibility, and iii) Governance.

This updated plan can be found on our website:

Adept - Investor Relations Website (adept-technology-group.co.uk)

Outlook

The macro environment of; inflationary pressures, the conflict in the Ukraine, continued supply chain challenges and the uncertainty of COVID cannot be ignored when considering the outlook for AdEPT. Furthermore, there will be the unavoidable additional operating cost of the 1.25% increase in National Insurance Contributions due to the Health & Social Care levy.

However, AdEPT is an efficient and well invested business, and the Board remains confident in the long-term market opportunity presented by the growing demand for technology in all its guises.

Our confidence is underpinned by; the Group's sales order successes in the latter part of FY22, the breadth of capability now within AdEPT following recent acquisitions, and the operational strength created by Project Fusion and the One AdEPT platform.

Ian Fishwick, Chairman of AdEPT, said:

"Our strategy to consolidate the fragmented market in which we operate has created a significant organisation serving many customers. AdEPT is now a strong business with full capability and is well placed to capitalise on the anticipated growth in its key markets and capture increasing 'wallet share' in the ICT space.

I look forward to providing a further update on the Group's progress in the Final Results in July 2022."

Phil Race, Chief Executive Officer of AdEPT, added:

"The UK is gradually emerging from the challenges of COVID and the constraints of lockdown and has witnessed changes to working patterns coupled with the demand for secure digital services in all its guises. We cannot ignore the macro environmental challenges; however, AdEPT anticipates that demand will rise as our prospects and clients assess their long-term ICT requirements - the strategic study undertaken during the period provides ample evidence of demand for; implementing and integrating cloud-centric technologies, streamlining contact centres, deploying new high-speed resilient networks, and adopting secure ICT platforms, which protect against a myriad of cyber threats.

With its comprehensive portfolio of capabilities, its extensive and strong industry partnerships, a number of flagship references from across the public and private sector, all underpinned by the One AdEPT platform, AdEPT is well placed to benefit from these accelerated strategic IT investments.

Our mission remains 'uniting technology, inspiring people'. We are optimistic for the future of the technology market, and in turn for the prospects of AdEPT and our highly talented team."

Investor Events

Investor Meet Company

Phil Race, CEO, and John Swaite, CFO, will host a Q&A session on the Investor Meet Company platform at 1.30pm BST on 11 April 2022. Questions may be submitted in advance via the Investor Meet Company dashboard until 9am on 10 April 2022 or at any time during the live event.

Access to the event is free: https://www.investormeetcompany.com/adept-technology-group-plc/register-investor . Investors who already follow AdEPT on the Investor Meet Company platform will be invited automatically.

Mello Monday

Chairman, Ian Fishwick will join Phil and John to present at Mello Monday on the evening of 11 April 2022. Anyone wishing to join the event, held on Zoom, should register in advance at:

https://us06web.zoom.us/webinar/register/WN_0MO6avB0SkeyCxtYHoZqKQ

Enquiries:

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

About AdEPT:

AdEPT is one of the UK's leading independent providers of managed services for cloud, digital platforms, unified communications, and connectivity 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 Microsoft, Openreach, Cato, Extreme Networks, Virgin Media, Avaya, Dell, and Apple.

AdEPT is listed on the London Stock Exchange (AIM: ADT). For further information please visit: www.adept.co.uk.

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