AdEPT Telecom plc (LON:ADT) Chief Financial Officer John Swaite caught up with DirectorsTalk for an exclusive interview to discuss their latest trading update
Q1: Now a positive trading update posted yesterday with some good figures beating market expectations, looking at the trading performance, there was a 33% increase in EBITDA and turnover up 30% on last years’ figures. What do you think’s driven these good numbers?
A1: Yes, these are a great set of numbers and we have seen significant increases to both revenue and profitability and the primary reason behind the growth year on year is the acquisition that we undertook in May last year which was the acquisition of a unified communications business called Centrix. That at the time we said we thought it would add 30% to the group run rate which it certainly has done in terms of turnover but it’s added a bit more in terms of EBITDA which is up 33% and it’s basically that Centrix has performed a little better than we expected. So it’s been very positive on the acquisition and then we’ve also had a number of organic wins in terms of the public sector business under the RM1045 Crown Commercial Service framework which we won in July last year so it’s all been very positive on the trading front.
Q2: More good news for investors in that the Board are recommending an increase in dividends to be paid in October, with a 37% increase on last year, is that a good show of confidence there?
A2: Yes it is, the dividend that we announced at 3.5 pence was up ahead of market expectation which was at 3 and 3.25 pence and that’s really a reflection of trading and profitability being slightly ahead of expectation and so we’re reflecting that in the dividend and also on the reflection on the fact that we’ve continued to generate strong cash flow. In terms of the outlook, we would be looking to follow a progressive policy in 2017 and 2018.
Q3: Your projection for March 2017 was 7 pence so I’m guessing it’s going to be re-evaluated already?
A3: Yes, we’re always re-evaluating the dividend in terms of AdEPT as a business continuing to generate strong free cash flows so it’s a question of what do we do with that cash flow. We’re a business that’s grown through acquisition and it’s a question of what do we do with our cash flow, do we reinvest it in the business through acquisitions or do we return it to shareholders and what we’d be looking for normally is a combination of both.
Q4: Net debt this year is also lower than anticipated, what were the key factors there and is this something that will continue?
A4: Well AdEPT Telecom has always been very strong at generating free cash flow in terms of the EBITDA cash flow conversion has always been around 85%-110% and this year we have outperformed the expectation in terms of debt reduction. The improvement is primarily driven due to a number of factors, the improvement of EBITDA dropping through in cash terms, continued management of working capital particularly in terms of maintaining terms with customers but also through treasury management to try and minimise our interests costs and the cost of debt, the combination of a number of factors. The improvement hasn’t just been driven by one factor, it’s a number of things all coming together.
Q5: So with cash flow in mind, does AdEPT Telecom have its eye on any potential acquisitions at the moment?
A5: Well where we are at year-end we’ve got significant head room within the current bank facility that we’ve got and so we are continually looking at potential acquisition targets. In terms of have we identified one or any, I’m not really at liberty to say at this point but we will continue to review them and if we identify a suitable strategic target at the right price then you’ll probably be reading some news from us on the Stock Exchange website.
Q6: Finally John, what should investors be looking for in terms of news flow?
A6: Well what we’re expecting to see over the next 12 months or so is continued progression in terms of public sector, at the half-year public sector and healthcare revenue was roughly a quarter of total turnover, and we’ve continued to focus on that under the various frameworks that we’ve got. Having more success, we’re now selling into 35 different councils and continuing to tender for business under those various government frameworks so expect to see continued progression on that and certainly maybe some announcements in terms of any large contract wins etc. AdEPT Telecom will continue to review acquisition targets in terms of corporate transactions and continue to focus on progressive dividend policy and maintaining our high free cash flow conversion.
