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Final Results March 2009

RNS Number : 2212V

AdEPT Telecom plc

07 July 2009

Final results for the year ended 31 March 2009

AdEPT, a leading independent provider of award-winning telecommunications services for fixed line, mobile and data connectivity, announces its results for the year ended 31 March 2009.

Financial Highlights

  • Revenue increasing by 21% to £28.6 million driven by the acquisitions made during the previous period
  • EBITDA excluding non-recurring costs increasing by 6% to £3.5 million (2008: £3.3m)
  • Excellent cash generation with free cash flow of £2.1m (2008: £0.8m)
  • 103% of EBITA (£2.0m) converted into cash generated from operating activities (£2.1m) (103% in 2008)
  • Net debt reduction of £0.5m year on year, despite significant non-recurring costs of £1.3m
  • Adjusted earnings per share, after adding back amortisation and non-recurring costs of 10.44p per share (2008: 11.43p)

Operational Highlights

  • Achieved a higher mix of business customers with total business revenue of 95% of the total this year (2008: 93%), increasing stability of overall customer base
  • Excellent progress in increasing revenue from fixed monthly charges, with line rental revenues at March 2009 up 45% at £11.3m (2008: £7.8m)
  • Line rental and data products represented 44% of total revenues at March 2009 (35% March 2008)
  • Overhead costs (excluding commissions and one-off restructuring costs) decreased to 17% of revenue (2008: 18%)
  • 81% of revenue generated from customers taking more than one product or service (2008: 78%)
  • Significant improvement to credit collection processes and debt management with year end debtor days of 34 (2008: 53 days)

Commenting upon these results Chairman Roger Wilson said:

“The business continues to perform well despite challenging economic conditions and be highly cash generative with an EBITA : Sales ratio amongst the sector leaders. AdEPT has no further acquisition payments to meet and therefore we look forward to a period of providing added investor value through deleveraging from continued strong operating cash generation.”


AdEPT Telecom PlcRoger Wilson, Chairman

Ian Fishwick, Managing Director

John Swaite, Finance Director

07786 111 535

01892 550 225

01892 550 243

Astaire Securities PlcShane Gallwey 020 7448 4400



It is with great pleasure that I announce our annual results.

For the year ended 31 March 2009 AdEPT Telecom plc (“AdEPT” or the “Company”) delivered another strong trading performance.

Review of Operations

The business was established to be a consolidator of the highly fragmented UK fixed line reseller sector which is estimated to include approximately 700, mostly smaller telecom businesses. To date AdEPT has acquired 16 competitors and/or their customer bases.

A critical part of the acquisition strategy is the ability to integrate the acquired customer bases into AdEPT’s systems within six weeks thus achieving economies of scale and cost efficiencies. However, this route to growth is increasingly being complemented by organic sales which have grown significantly in the past two years.


Our retention and customer service teams have reduced customer churn substantially in the year. Our indirect sales channel of independent business partners continues to grow with over 60 partners active in bringing us new customers in the year. We have seen an increase in the size of new customers with important wins such as eleven more of the regional Probation Services (we now have 20 in total, representing over half of the Probation Services in the UK), the Italian restaurant chain Carluccio’s and a 3000+ site data solution for the national gaming machine operator Gamestec.

Growing line rental revenues has been a key objective and we are delighted to report line rental revenues increased 45% to £11.3m compared to £7.8m in the prior year. Our revenue is becoming more stable as we reduce our reliance on variable monthly call charges, replacing them with fixed monthly line rentals.


As a Company we are immensely proud of the track record we have created in a relatively short period of time. Our success is a result of the efforts of all our employees and on behalf of the Board I would like to take this opportunity to thank them for all their hard work.

I would also like to take this opportunity to thank the former directors and non-executive directors who stepped down during the year for their substantial contributions to AdEPT and to wish them all the best for the future.

Shareholder Benefits Scheme

During the year AdEPT launched a new shareholder benefits scheme, which is available to all shareholders owning a minimum of 1,000 shares. Shareholders who register with the scheme are entitled to free residential line rental worth approximately £120 per annum for as long as they remain eligible shareholders.


The past year has seen an almost unprecedented turmoil in the financial and credit markets, which has had an inevitable knock-on effect into the real world. However, management took early action at the half-year point to reduce overheads and tighten credit management. This has enabled the Company to increase its EBITDA levels despite the economic downturn – no mean achievement under the circumstances. Management also took steps at the end of 2008 to renegotiate and extend our banking facilities for a three year term, giving us certainty of funding going forward. The business focus for this coming year will remain on developing organic sales, improving customer retention, generating cash and paying down debt. We will therefore continue to grow our organic sales channels, invest in new products and complement this with continued investment in retention activities to retain more customers.

We need to guard against complacency given the continued uncertainty in the economic outlook, but I am confident that the business is in a much stronger position than before with a more stable customer base, a higher proportion of fixed monthly revenues and increased focus on customers paying by direct debit. We will also continue to focus very closely on our debtors to ensure payment terms do not get extended.

Roger Wilson

Non-executive Chairman


SUMMARY of three year financial performance:

2009 Year-on-Year 2008 Year-on-Year 2007
£’000 Growth % £’000 Growth % £’000
Revenue 28,567 21% 23,618 25% 18,827
Gross margin 10,341 18% 8,754 20% 7,291
EBITDA* 3,490 6% 3,280 32% 2,490
Net Debt 10,843 11,295 2,910

* excluding non-recurring costs


Group revenue increased by 21% to £28.6m (2008: £23.6m) with growth primarily derived from the full twelve month contribution from the two acquisitions completed during 2008. The proportion of revenue derived from business customers has increased to 95% (2008: 92%).

The proportion of revenue, which is fixed monthly values, represent 44% of total revenue for the year ended March 2009 (2008: 34%) following the continued focus on multi-product sales (calls and line rental) and the introduction of a broad range of data connectivity products in 2008. The proportion of revenue generated from customers taking more than one product or service has increased to 81% for the year ended March 2009 (2008: 78%) which should provide a more stable future revenue stream.

Average customer monthly spend increased year-on-year by 3.8% to £72.49 in March 2009 reflecting the Group’s success in gaining contracts with higher spending customers and an increasing proportion of higher spending business customers.


Overall Group gross margin has increased by 18% year-on-year from £8.75m to £10.34m. Margins for calls, lines, data connectivity and broadband have remained broadly stable despite pressures arising from a highly competitive market, however, the net impact on overall margin arising from the changing sales mix is a decrease to 36.2% (2008: 37.1%) as lower margin line rental, data connectivity and broadband revenue is an increased proportion of the total.


Administration costs (excluding depreciation, amortisation and non-recurring costs) increased to £6.9m which is 24% of revenue (2008: 23%). Administration costs include commissions payable to business partners, the proportion of which increased significantly with the Telecom Direct acquisition. Excluding partner commissions, underlying administration costs have reduced by 1% in the year, from 18% to 17% of revenue. We believe that we remain one of the lowest cost operators in the industry.

The non-recurring costs are those incurred in the Telecom Direct division and restructuring costs which will not recur next year. The bulk of these costs are represented by staff, property and leases, which when stripped out leave the underlying administrative costs for the business. The close-out of the Telecom Direct division was completed during the year.


Excluding non-recurring costs EBITDA has increased by £0.2m during the year. Revenue growth has been absorbed in part by the margin reduction arising from changes in the sales mix towards lower margin revenue streams combined with the full year cost of partner commissions associated with the prior period acquisitions.


Adjusted earnings per share, based on retained earnings adding back amortisation and non-recurring costs (see note 5), has reduced by 9% to 10.44p per share (2008: 11.43p). This arises largely due to lower EBITA margin, driven by gross margin movement from changes to the sales mix, combined with a higher interest cost arising from a full year’s interest charge for the debt increase associated with the Telecom Direct acquisition.


The Group benefits from an excellent operating cash model, with EBITA turning into cash. Adjusted EBITA turned into net cash from operating activities is 99% (2008: 79%). Working capital movement during the year was neutral. The Group has focussed on managing its credit risk in the current economic climate and with the introduction of new processes collections of trade receivables were significantly improved during the year with a reduction of customer collection periods to 34 days (2008: 53 days) resulting in an absolute reduction of £0.8m to trade receivables being achieved.

After servicing its debt the Group achieved an increase in cash and cash equivalents of £0.6m during the year. All acquisitions have been paid for and no further earn-out payments are due.


The Group has low capital requirements and therefore expenditure on tangible assets is low at 0.1% of revenue (2008: 0.8%). Expenditure on intangible assets was £0.1m (2008: £7.4m), which is significantly lower than the prior year comparative which includes the investment in the two customer bases acquired during 2008.


Net debt, which comprises cash balances and bank borrowings, improved by £0.5m to £10.8m (2008: £11.3m). This reduction to net debt was achieved through strong cash flow and despite significant non-recurring costs of £1.3m during the year from the close-out of Telecom Direct Limited, restructuring costs and the bank arrangement fees in relation to the new facilities.

The Group continues to manage its exposure to interest rate risks arising from financing activities. After the year end the Group entered an agreement to manage the interest rate risk on 100% of the Group’s fixed term debts through to December 2011 at a more favourable rate than that which it replaced.


The KPIs outlined below are intended to provide useful information when interpreting the accounts. The KPIs outline the Group’s position as at the final month of the year, March, which provides an indication of the starting point for the following financial year.

Key Performance Indicators (as at 31 March)




2009 2008 2009 2008 2009 2008
Line rental 1.3% 1.1% 37.7% 32.1% 39.0% 33.2%
Calls 4.0% 6.9% 53.4% 56.3% 57.4% 63.2%
Broadband and data 0.0% 0.0% 2.2% 1.6% 2.2% 1.6%
Mobile 0.0% 0.0% 0.6% 0.5% 0.6% 0.5%
Other 0.0% 0.0% 0.8% 1.5% 1.5% 1.5%
Total 5.3% 8.0% 94.7% 92.0% 100.0% 100.0%
Average monthly spend per customer (ex VAT) £11.31 £12.93 £101.47 £95.23 £72.42 £69.76

Note: analysis only includes those customers who received a bill and customers are only billed if the bill exceeds £2.99.


Despite the unprecedented conditions in the UK economy the Board believes that AdEPT has a number of resilient features and a strong customer proposition which it is believed will present opportunities in the coming year. These features include:

  • highly cash generative with strong underlying profitability;
  • supplies are nearly all business critical – an essential part of the customer’s daily operational requirements;
  • highly automated systems provides sector leading labour costs : turnover productivity;
  • low capital investment requirements relative to turnover;
  • continued focus on broadening its product range, particularly with regard to data connectivity;
  • customers are spread across all industries, the top ten customers account for approximately 11% of revenues;
  • trade suppliers and partners are all top tier suppliers, providing confidence in the continuity and reliability of service to customers;
  •  65% of the Group’s customers pay by monthly direct debit, reducing the Group’s credit risk; and
  •  the Group has agreed banking facilities through to December 2011. With the elimination of the excess costs associated with the Telecom Direct acquisition, the reorganisation and the level of cash generation forecast, the Board expects the Group’s net borrowing position to improve significantly over the next twelve months.

John Swaite

Finance Director