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Final results March 2012

AdEPT Telecom plc

 (“AdEPT” or the “Company”)

Final results for the year ended 31 March 2012

AdEPT (AIM: ADT), a leading UK independent provider of award-winning telecommunications services for fixed line, mobile, data connectivity and VoIP, announces its results for the year ended 31 March 2012.

Financial Highlights

  • 9th consecutive year of increased underlying EBITDA at £3.65m (2011: £3.62m)
  • Underlying EBITA margin % increasing by 1.4% to 16.7% (2011: 15.3%)
  • Excellent cash generation with free cash flow, after interest, of £2.2m (2011: £2.1m)
  • Net debt reduction of £2.1m year-on-year (2011: £1.8m) to £5.3m (2011: £7.4m)
  • 58% increase to Profit Before Tax to £1.2m (2011: £0.8m)
  • 123% increase to Profit After Tax to £0.6m (2011: £0.3m)
  • 11% increase to adjusted Earnings Per Share to 11.35p (2011: 10.25p)
  • Maiden full year dividend of 0.5p per share paid to shareholders in April 2012

Operational Highlights

  • 38% increase to data connectivity revenues year-on-year
  • 20% increase to inbound call revenue year-on-year
  • 91% of revenue generated from customers taking more than one product or service (2011: 89%)
  • 35% of revenue generated from customers taking 3 or more products (2011: 28%)
  • 12% increase in ARPU as at March 2012 to £97.28 (2011: £86.71)

Commenting upon these results Chairman Roger Wilson said:

“AdEPT has delivered a ninth consecutive year of increased EBITDA and continued to deliver consistent free cash flow generation, resulting in further deleveraging and the payment of the maiden dividend to shareholders in April 2012.  Despite the continuing uncertainty over the general direction of the economy, the Board is confident that continued strong cash generation, and further reductions in the level of debt in future, should support a progressive dividend policy.”

For further information on AdEPT Telecom please visit or contact:


AdEPT Telecom Plc

Roger Wilson, Chairman                   07786 111 535

Ian Fishwick, Chief Executive           01892 550 225

John Swaite, Finance Director          01892 550 243

Northland Capital Partners Limited

Shane Gallwey                                    020 7796 8823



Review of Operations

Despite difficult economic conditions I am pleased to report a 9th consecutive increase to underlying EBITDA.

The continued focus on larger customers, generally businesses of 25 to 1,000 employees, has enhanced our ability to benefit from scale efficiencies and cross selling. The AdEPT Premier Customer division, comprising the 200 largest customers spending more than £1,000 per month, has grown during the year and now accounts for approximately 46% of total revenue (2011: 39%).

Our reliance on variable monthly call charges has been reduced further during the year, replacing them with fixed monthly line rentals.  The proportion of revenue derived from fixed monthly charges now represents 57% of total revenue (2011: 54%).

AdEPT’s continued strong cash flow generation resulted in £2.2m of free cash flow after interest.  This was used to fund a £2.1m reduction in net borrowings, to £5.3m at 31 March 2012.

New products

AdEPT was originally established as a fixed-line telecom provider but is increasingly expanding and diversifying its product range and has become one of the UK’s leading communication integrators offering best of breed products from all major UK networks.

The Company has broadened its product range further during the year, particularly with regard to data connectivity, which has seen 38% year-on-year revenue growth. Data services, such as MPLS networks, fibre broadband, bonded DSL, hosted and cloud telephony have been added to the product portfolio.

The second half of the year saw the first revenues generated from hosted and SIP solutions provided by the AdEPT VoIP for Business product range.  The service, powered by BT Wholesale, includes 8 different ways of deploying VoIP for businesses. AdEPT VoIP for Business provides SIP trunking and hosted voice inter-working on a single BT network, with dual resilience offered by two data centres in London. All VoIP services are managed via a single web portal. The VoIP products offer comprehensive solutions for every size of business: large and small sites as well as homeworkers.

AdEPT has had continued success with ’cloud’ or network-based inbound call handling solutions.  These are now being provided to a number of major customers, which has resulted in a 20% year-on-year increase in inbound call revenue.

Cross selling of products

A key strategy for the Company remains to sell more products to new and existing customers to enhance customer retention and stability.  Product penetration has increased during the year; at March 2012 35% of revenue was generated from customers taking three or more products (2012: 28%). 

In the Premier Customer division (those spending more than £1,000 per month) we have seen further improvement in product penetration. At March 2012 customers taking 3 or more products increased to 68% (2011: 64%).


The improved profitability this year was made possible by the continued hard work and focus of all employees at AdEPT.  As a Company we are immensely proud of the track record we have created in a relatively short period of time and on behalf of the Board I would like to take this opportunity to thank all of our employees for their hard work.

AdEPT is successfully making the transition from a traditional fixed-line service provider to a complete communications integrator, supplying next generation products and data solutions, without any impact on profitability despite the recruitment of staff with new skill sets.  During the year 5 new employees were recruited in next generation products and at 31 March 2012 20% of employees were working within the data connectivity and next generation product areas. 

Shareholder Benefits Scheme

The AdEPT shareholder benefits scheme has continued to attract new members during the year. The scheme, which is available to all shareholders owning a minimum of 1,000 shares, provides eligible shareholders with free residential line rental worth approximately £120 per annum for as long as they remain eligible shareholders.

Post balance sheet events

On 9 May 2012 the Company signed an agreement to acquire the trade and assets of the fixed line telecommunications division of Expanse (UK) Communications Limited.  The acquisition is to be funded from operating cash flow. The Company will continue to evaluate strategic acquisitions which will add value to our shareholders.


The improved EBITDA and net debt reduction of £2.1m was underpinned by focus on underlying profitability through improving margins on customer contracts, operational efficiencies and tight credit control.  The further broadening of the product offering will ensure that AdEPT can continue to provide complete communication solutions for customers.  The Board is confident that continued strong cash generation, and further reductions in the level of debt in future, will support a progressive dividend policy.

The business focus for the coming year remains on continued development of organic sales, maintaining profitability and cash flow generation, which will be used to reduce net borrowings.  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 customers.

Roger Wilson

Non-executive Chairman



SUMMARY of three year financial performance:


Year ending March





Year-on-Year %




Year-on-Year %









Gross margin












Net debt




* before non-recurring costs


Revenue by product area

Group revenue decreased by 7.7% to £21.9m (2011: £23.7m):

  • Traditional fixed line revenues reduced to £17.8m (2011: £20.1m), with this reduction driven by the impact of regulation reducing mobile call rates combined with call volume reductions which is a reflection of the continuing uncertain economic environment.  The Company’s reliance on call revenues has been reduced further with call revenue providing only 38.2% of total revenue in March 2012 (2011: 42.1%).
  • Inbound and cloud based call revenue increased by 19.8% during the year to £1.0m (2011: £0.8m).  This arises from network-based solutions developed for Premier Customers during the year.
  • Data and broadband product revenues were up 38.4% to £2.5m (2011: £1.8m), with increases to the number of data circuits and connections in place.  This significant increase reflects growth from some earlier contract wins and the launch of several new products including MPLS networks, bonded DSL and fibre broadband.
  • The second half of the year ended March 2012 saw the first revenues generated from hosted and SIP solutions provided by AdEPT VoIP for Business, albeit at a relatively low level.

During the year AdEPT has continued its diversification from a traditional fixed line service provider towards next generation products.  Total revenue generated from data, mobile, inbound and other services represented 18.6% of total revenue in March 2012 (2011: 15.1%).

Fixed monthly revenue streams

The Company continues to focus on products delivering fixed monthly revenue streams to reduce revenue volatility. The proportion of revenue, which is fixed monthly values, increased to 57.0% of total revenue for the year ended March 2012 (2011: 53.9%) following the continued focus on multi-product sales (calls, line rental and data products) and the enhancement of the data connectivity product portfolio.

Cross selling

The proportion of revenue generated from customers taking more than one product or service has increased to 90.5% at March 2012 (2011: 89.3%) which should provide a more stable future revenue stream.

The proportion of higher spending customers (recurring revenues of more than £1,000 per month) taking 3 or more products increased to 68.3% at March 2012 (2011: 63.7%) which is driven by the revenue growth in next generation and data connectivity products.

Average spend per customer

The Company is continuing to focus on larger customers and AdEPT’s largest 200 customers account for approximately one third of March 2012 revenue with the top 10 customers accounting for 15.0% of total revenue.

Average customer monthly spend for customers increased year-on-year by 12.2% to £97.28 in March 2012 reflecting the Company’s success in gaining contracts with an increasing proportion of higher spending multi-product and multi-site business customers. 


The regulatory impact of reduced mobile termination rates has resulted in revenue pressure for traditional fixed line services; however, gross margins have been maintained at an absolute level through management of wholesale supply contracts. Gross margins for data products were enhanced during the year through focus on underlying profitability of customer contracts combined with the negotiation of more competitive wholesale supply contracts.  Revenues and gross margins generated from other revenue streams have reduced during the year due to competitive price pressure and the impact of regulatory changes.

As the product mix has moved towards the relative lower margin data and broadband revenue streams, this has provided downward pressure on total gross margins. Future gross margin pressure is anticipated as our product mix moves increasingly towards the relative lower margin line rental, data connectivity and broadband revenue streams.


EBITDA has increased for the ninth consecutive year since AdEPT’s inception in 2003 despite top line pressure.  The Company has focussed on the underlying profitability of customers and revenue streams; as a result revenue reduction has been absorbed by gross margin improvement and the operational efficiencies and costs savings from managing larger customers.


Total interest costs have reduced by 34.0% to £606,882 arising from a reduced level of net borrowings combined with the full year impact of the renewal of the banking facilities during the previous financial year on more favourable terms.  Finance costs for the year ended 31 March 2012 include £31,198 in relation to the fair value of the interest rate swap as required by IAS 39 ‘Financial Instruments’.  This is not a reflection of an increase in the cost of borrowing as the interest rate swap provides a fixed rate of interest on borrowings.


This year the Company has recorded an £437,107 improvement to profit before tax with a reported £1,189,505 (2011: £752,399).  This arises from gross margin improvement and operational efficiency combined with the reduction in finance costs arising from the significant reduction to net borrowings during the year.


Adjusted earnings per share, based on retained earnings adding back amortisation and non-recurring costs (see Note 22), has increased by 10.7% to 11.35p per share (2011: 10.25p).


On 20 July 2011 the Company received court approval for a conversion of the share premium account (of £7,965,381) into a distributable reserve.  The conversion had no effect on the number of ordinary shares or the rights attached to the ordinary shares and the market price of the shares has not been adjusted as a result.  The share premium account conversion was approved in order to maximise the capital structure of the Company by creating distributable reserves to facilitate the payment of dividends.


On the back of strong cash flow generation a maiden dividend of 0.5p per share was proposed at the interim date, which was paid to shareholders on 20 April 2012.  The dividend absorbed £105,337 of shareholder funds (2011: £nil).  The board constantly monitors shareholder value and is confident that the continued strong cash generation, and further reductions in the level of debt in future, will support a progressive dividend policy.


Cash conversion

The Company benefits from an excellent cash generating operating model, with EBITA turning into cash.  Reported EBITA turned into net cash from operating activities is 80.2% (2011: 92.2%) which is lower than the comparative period due to higher corporation tax payment for the year ended 31 March 2011.  There was a net working capital outflow of £0.7m during the year partly arising from the reduction in trade payables following the reduction in direct costs due to top line reductions. 

Strong management of credit risk

The Company has continued to manage its credit risk in the current economic climate and the collections of trade receivables have been maintained during the year with customer collection periods of 31 days (2011: 30 days).

Increase in cash balances

After servicing its debt the Company achieved an increase in cash and cash equivalents of £0.5m during the year.


The Company has low capital requirements and therefore expenditure on tangible assets is low at 0.1% of revenue (2011: 0.1%). Intangible asset additions were negligible during the year (2011: £0.1m).


A key strength of AdEPT is its consistent, proven ability to generate strong free cash flow, which is supported by £5.5m reduction to net borrowings within the last 3 years.  As a result of the Company’s focus on underlying profitability and cash conversion, free cash flow after bank interest of £2.2m was generated during the year ended March 2012; with £2.1m being applied to net debt reduction during the year.  Net debt, which comprises cash balances and bank borrowings, has therefore improved to £5.3m (2011: £7.4m). 

The Company’s available banking facilities are described in Note 23 to the financial statements.  The Company continues to manage its exposure to interest rate risks arising from financing activities through interest rate swap contracts.


The KPIs outlined below are intended to provide useful information when interpreting the accounts.








and other








Year ended 31 March 2012








Gross profit




Gross margin %







Year ended 31 March 2011








Gross profit




Gross margin %








The Board believes that AdEPT operates a resilient business model and has 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 the product range, particularly with regard to data connectivity;
  •                customers are spread across all industries; the top ten customers account for approximately 15.0% of revenues;
  •                trade suppliers and partners are all top tier suppliers, providing confidence in the continuity and reliability of service to customers;
  •                70.0% of the Company’s customers pay by monthly direct debit, reducing the Company’s credit risk;
  •                the Company has agreed banking facilities through to September 2013; and
  •                with the level of cash generation forecast, the Board expects the Company’s net borrowing position to further improve over the next twelve months.

John Swaite

Finance Director