AdEPT Telecom plc (LON:ADT) Chief Financial Officer John Swaite caught up with DirectorsTalk to discuss their year-end results
Q1: Now John, you’ve just put out results for year-end, what’s driven the 30% improvement to revenue and the 34% increase to EBITDA?
A1: Yes, well we’ve recorded a 30% increase in revenue this year to the 31st March ’16 primarily as a result of an acquisition we did during the year, on 1st May 2015 we bought a business called Centrix, based down in Fleet, which is a unified communications business. At the time when we bought it we expected it to add about 30% to our run rate which it’s done basically, there’s an 11 month contribution in these numbers so the underlying revenue in the business pre-acquisition is pretty flat but Centrix basically delivered on its numbers. In terms of the increase to EBITDA, Centrix have the same sort of financial characteristics of AdEPT Telecom so for us it wasn’t a case of buying it for synergies, we were buying it for the product set and the economies of scale has kind of been delivered as we can see the increase to EBITDA at 34% ahead of the revenue increase. So basically the acquisition has gone as well and if not better than we expected.
Q2: Where do you see the future trends in revenue?
A2: AdEPT Telecom has been on the road of transitioning from a fixed line to a managed service provider for some time and at year-end in March 2015 we’ve managed to achieve 27% of our revenue coming through managed services but the acquisition of Centrix has accelerated that and that combined with some organic contract wins in the managed service space mean that at the year-end we had 44% of our revenue coming from managed services. Post year-end we’ve undertaken an acquisition of another unified communications business which means that managed services’ percentage of revenue should be increasing to somewhere around 47% but what we’re expecting to see over the next 12 month is for it to move more into the 50/50 and maybe beyond.
Q3: How is the drive into public and healthcare sector going?
A3: Yes, that’s going very well too. Back in July 2015 we were one of only a limited number of companies awarded a petition on the Crown Commercial Service RM1045 framework to provide telephony in unified communication into public sector bodies and healthcare. As a result of that, what we’ve seen is an increase in the number of councils coming on board with us, we’re now up to 40 councils being supplied by AdEPT compared to just 26 in 2015. On the back of that we’ve managed to transition into proving NHS Trusts also and we’re up to 6 NHS Trusts already so the percentage of revenue coming from the public sector stands at 27% currently, which is up from 17% in prior year. Some of that came through Centrix who we’ve been providing some unified communication services into customers but a lot of it is post-acquisition wins and a combined AdEPT Telecom/Centrix bid, a good example of that is the East Kent services where we managed to take an aggregated competition and win the services of Dover, Canterbury and Thanet council all in one go.
Q4: Has cash flow conversion being maintained and what’s the impact on debt?
A4: Well we’re still a CAPEX-like business and we don’t own any networking infrastructure so that hasn’t changed as a result of the acquisition. The post-tax cash flow has been maintained, we have an 86% conversion rate in the year to March ’16 and we’ve been using that cash flow to fund the acquisitions so we spent out £7.2 million of which £7 million was the initial consideration for the Centrix business. At March ’16 the debt position was £6 million but post year-end we’ve done the acquisition of Comms Group and also we paid the deferred consideration on Centrix so currently we’re sitting at around £10 million of debt. Our revolving credit facility still exists at the £15 million level which means we’ve roughly got that £5 million of the facility left and so we’re looking for potential other acquisitions earning enhancing for the shareholders.
Q5: What’s happening with the dividends?
A5: We’ve been following a progressive policy over the last 5 years and we’ve continued to do so. We’ve increased the dividend up to 6.5 pence which is a 37% increase over the 2015 dividend levels and we have every intention to continue our progressive policy. In terms of dividend cover, we’re still at 2.7 times cover which is more than comfortable of a business like ours which is so cash generative.
Q6: Has there been any events for AdEPT Telecom plc after the March 2016 year-end to note?
A6: The most significant one to note is as I referred to earlier was the acquisition of Comms Group which we undertook on 1st May 2016 which is an Avaya IP office specialist but it also bought us a small amount of IT services revenue which is our first sort of step into that side of the business because we can see increases convergent between IT services and Telecoms. So the Comms Group acquisition has added around £3.5 million of revenue and about £800,000 of EBITDA so we’re expecting the EBITDA level for the next year to increase, somewhere between 10-12% in run rate terms.
