AdEPT Telecom plc (LON:ADT) Chief Financial Officer John Swaite caught up with DirectorsTalk for an exclusive interview to discuss their final results for the year ended 31st March 2017
Q1: It looks like another strong year for AdEPT Telecom, can you give us a summary of the trading performance?
A1: Yes, it has been a pretty exceptional year for AdEPT, it’s been a very strong trading year particularly driven by some acquisitions we’ve done. The revenue has increased by 19% year-on-year to £34.4 million for the full year but we did undertake an acquisition in February, right towards the year end, so actually the revenue run rate is running significantly higher than that currently, more like the £40 million level.
So, that revenue increase has more than dropped through at the EBITDA level and in fact we’re up 27% on the underlying EBITDA number which is our 14th consecutive year of growth in the EBITDA and it’s quite pleasing to see the EBITDA margin itself has increased again up to 22.7, showing the efficiency of the operation that we’re running.
Below the EBITDA number, the adjusted earnings per share number is up 20% year-on-year to 23.1p and on the back of that 20% increase to the adjusted earnings per share, we’ve announced a 19% increase to the dividend, giving some of the money back to the shareholders so dividend is 7.75p for the full year.
So, it has been an excellent year for us.
Q2: Now, AdEPT is well-known for its profit to cash conversion, has this continued and how is the cash being deployed?
A2: Yes, it has. As you say, we’re very much focussed on profits to cash conversion, we are capex-like business, capital expenditure is running at less than 0.5% of revenue.
In terms of operating cash, we generated £5.8 million of operating cash during the year which is an EBITDA to cash conversion ratio of 82%, that’s within our normal range of 80%-100% so another good but normal year for us.
In terms of what we’ve done with that money, we’ve returned some of it to the shareholders through dividend which absorbed £1.5 million but we’ve actually spent the rest of the operating cash plus drawdown some of our debt facilities to fund acquisitions in the year. So, we bought a business called Comms Group in May ’16, we spent £3.6 million on the initial consideration for that, CAT Communications in November, spent £1 million on the initial consideration for that one and £4 million in February ’17 on the acquisition of OurIT. So, it’s been a busy year, put the cash flow to good use.
Q3: As you mentioned, you have undertaken 3 acquisitions during the year, can you give us some detail on these and their strategic fit?
A3: Yes, so back in May 2015, AdEPT Telecom bought an Avaya Aura-focussed business called Centrix which gave us managed services capability and unified communications within the medium-sized businesses, typically serving customers in 150-7,500 users. In May 2016, we extended that capability to give us at the smaller end of the customer market, in the 10-150 user range, and so we bought a business called Comms Group who are based in Northampton. That gave us the ability to service customers across the complete range so anywhere from 10 users right through to 7,500 so it was a good strategic fit because it was just giving us more of what we were already doing.
In November, we bought a business called CAT Communications which is another unified communication specialist, also focussed on the Avaya Aura product set on the larger customers, which had an excellent strategic fit with our business in Fleet. In fact, what we’ve done is we’ve completely integrated the customer base from CAT Communications into the Fleet operation and so they’re all being serviced and managed and build directly from Fleet so that integration went very well.
In February, we took our first step into the world of IT, increasing convergent between IT and telecoms, you’ve got telecoms on softphones on your desktop and so we can definitely see a good strategic fit for that within our business. So, in February, we bought a business called OurIT which is got 2 main offices, 1 in St Neots and another in Chingford in East London and that’s got the full range of IT services, anything from desktop support, it’s got a full range of cloud services like Skype for Business, Microsoft 365, Microsoft Azure, it’s also selling IT security and resilience services and cyber security with some IT procurement as well. Now, we’re fully confident that we’ve really extended the product range which has enabled us to sell more to the customers.
Q4: There was a new enlarged bank facility put in place in February, can you give us a summary of the facility and how AdEPT Telecom plans to use it?
A4: Yes, so in February, mainly to fund the OurIT acquisition that I referred to a moment ago, we did put in place a new bank facility. The new bank facility effectively doubled the size of our facility so prior to putting this one in place, we had a £15 million revolving credit facility, this has extended that to effectively a £30 million revolving facility. This is the first time that we’ve moved to a dual-bank scenario, prior to this deal we solely banked with Barclays and have done for the previous 13 years, we’ve now moved to a syndicate of 2 banks which is Barclays and RBS. Both provide the facility on a 50/50 basis, it’s on a 5-year term and I think the underlying pricing is the same as pretty much as our old bank facility but this is just bigger and more flexible so it gives us plenty of opportunities.
In terms of what we plan to do with it, it’s mainly for the acquisition funding really, we’ve used some of it to fund their OurIT acquisition but we’ve still got approximately half of the facility left which is available for funding future deals.
Q5: What do you think shareholders can look forward to in the future periods from AdEPT Telecom plc?
A5: Largely more of the same. In terms of acquisitions, we’re always looking, they do tend to be opportunistic, we’ve got a fairly well-defined set of criteria that we’re looking for and we continually monitor the market to look for those earnings-enhancing acquisitions. In terms of the business as it stands, we’re continuing to focus on the underlying profitability and cash conversion and then seeking to maintain the progressive policy returning some of the value back to the shareholders.
