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AdEPT Tech.Group PLC - Trading and Coronavirus update

RNS Number : 4977I
AdEPT Technology Group PLC
02 April 2020
 

AdEPT Technology Group PLC

("AdEPT" or the "Company" together with its subsidiaries the "AdEPT Group")

Trading and Coronavirus update

AdEPT (AIM: ADT), one of the UK's leading independent providers of managed services for IT, unified communications, connectivity and voice solutions, today announces a trading update for the year ended 31 March 2020, ahead of the audited final results which are expected to be announced in July 2020.

Ian Fishwick, Chairman commented:

The Government has named all AdEPT employees as key workers

The Government has declared our employees as key workers. In effect, IT and Telecommunications support has become a '4th Utility Service' in our nationwide attempt to keep Government, education and the economy going in this time of Coronavirus national crisis. 

All our employees have moved seamlessly to working remotely using our Office 365, Microsoft Teams and Avaya IX technologies, a benefit of 'Project Fusion'.

As expected, call volumes to our support teams increased by 85% over the last few weeks as people get used to working at home with technology that is new to many of them, whilst doctors and schools have been required to work in very different ways. We anticipate this will quickly fall over the next few weeks. We are pleased to report that we are receiving numerous plaudits from customers large and small and would like to thank the AdEPT team for their adaptability, hard work and long hours.

Transitioning customers to a new world of remote working and schooling

Our turnover is roughly 45% public sector - across the NHS, education and Government, and 55% commercial, of which there are thousands of customers.

In respect of education, AdEPT are working closely with London Grid for Learning (LGfL), other Education Authorities, academies and independent schools. We are proud to have played a key role in the transition of approximately 3,300 schools and over 100 universities and colleges to remote schooling.

In respect of the health sector, our new Kent Health and Social Care Network has performed excellently. Our data networks are supporting over 30 NHS Trusts and many large hospitals such as Great Ormond Street. The NHS and the private sector will be working ever more closely over the next few months and we continue to support approximately 70% of the private hospitals in London with both unified communications and data networks. Our IP voice service supports hundreds of GP practices, all of whom are dealing with a rapid change to remote working.

Central and Local Government are working effectively together, and we are supplying voice and data services to key central Government departments and over 100 local Councils.

In respect of our commercial customers many have transitioned effectively to homeworking, we have seen a surge in demand for laptops to provide technology in the home, a need to set up networks and a requirement to change permissions so that people can access systems remotely.  However, with all of this change we are warning companies about the potential cyber security threats from homeworking as anecdotally we are seeing an increase in phishing attacks.

Working closely with partners

During these testing times it has only re-enforced our long-held view that strong partnerships are instrumental to the success of AdEPT.  We have been working closely with all our key partners to address the challenges presented to us.  As examples:

 

·      LGfL we have accelerated Freedom2 Roam that enables Schools to work remotely, a service used by over 200,000 teachers and 900,000 pupils, which has been praised by one School as "probably been the biggest single godsend".  

·      Avaya we have been able to provide free licences to help customers work remotely. 

·      Microsoft Teams we have seen a substantial uptake, to facilitate video conferencing.  

·      Pragma has worked with us to set up cloud telephony to facilitate home working for private sector customers and doctors' surgeries, and;

·      Gamma has rapidly increased Internet Protocol (IP) internet-based call volume capabilities for our customers.

 

Trading Update, cash, net debt and liquidity

The Group has seen another strong year with further geographic expansion into Yorkshire. The acquisition of Advanced Computer Systems in Doncaster in April 2019 has gone well and our previous acquisition of ETS in Wakefield has now been integrated into the Doncaster office.

We anticipate that:

·     Sales and EBITDA* will be in line with market expectations of a 19% and 13% rise year-on-year respectively

·     Our cash position at year end was £12m. Our revolving credit facility contains sufficient liquidity to operate effectively under all scenarios we have modelled.

·     Net debt of £28m at year end is £3m below market expectations; primarily as a result of the share placing in February 2020 offset by several public sector organisations extending credit collection across year end absorbing more than £0.5m working capital.

·     The Board has in the interests of prudence resolved to cancel the £1.2m interim dividend due for payment in April 2020.

·     Given the current economic uncertainty due to Covid-19, it is possible that we may not pay a final dividend in respect of the year ending 31 March 2020. The Board will review the position with the finalisation of the results for the year ending 31 March 2020.

 

* Earnings before interest, tax, depreciation, amortisation and excluding one off acquisition and restructuring costs and share based payments

 

Stress Testing our Financial Model

Immediately following the escalation of the Coronavirus crisis, we have conducted several stress test scenarios to understand the potential impact on our sales revenue, profitability and cash position over the coming year. Our stress tests assume that the next six months will see the most significant impact after which the Covid-19 outbreak will start to be under control.

Of course, these are early days, so we will constantly monitor the realism of this assumption. Our general approach is one of prudence and caution.

We have identified the following key variables and have modelled the following variances:

Variable

Coronavirus Impact

New order volumes

it is unlikely companies will order major contracts until such time stability returns and reduced order volumes are anticipated in the next 9 months

Installation times

increase as people are not on-site to commission and accept equipment

Credit collection periods

are extended in the next 6 months

Churn

increases as some customers shrink and others sadly go out of business

 

Under the stress test scenario the business remains profitable and cash generative. This demonstrates the strength of our business model with approximately 75% recurring revenues, a mix of public and private sector business, and minimal capital expenditure.

We will use all the tools available to us to reduce cost and cash outflows where appropriate. These include, but are not limited to:

·     Cancellation of the interim dividend payment

·     Pausing any acquisition activity

·     A pay and recruitment freeze

·     Replacement of overtime payments with time in lieu to be taken when activity quietens down

These stress tests do not assume any direct Government support, but we will seek to use any schemes that are available. For example, the Government has announced that there will be no VAT payments in the next quarter, but this must be caught up by the end of the 2020/21 tax year. The impact of this is to move approximately £1.3m of VAT payment from Q1 to Q4 for the financial year ending March 2021. 

Given the ongoing uncertainty regarding the duration of the Covid-19 outbreak, the Board is unable to provide guidance for the year ending 31 March 2021 at this time.

Revolving Credit Facility Covenants

We have an excellent relationship with both of our senior lending providers and have had positive discussions with them about the current economic challenges resulting from Covid-19. Our discussions have been encouraging and early indications suggest they would agree to a covenant waiver or extension, if required.

Board Appointment

Roger Wilson had originally planned to retire from the Board at the end of March 2020. He has agreed to postpone his retirement for six months.

We are pleased to announce that our Chief Operating Officer, Andy Lovett, has been appointed to the Board with immediate effect.

Andy joined AdEPT as COO in June 2019. He has significant experience in running the operational side of businesses spanning; software development, IT outsource, and mission critical client projects. Andy has a wealth of highly relevant skills having previously worked in senior roles for Banking software company DPR and global outsourcer Xchanging.

The following details in relation to the appointment of Paul Andrew Lovett, aged 49, are disclosed in accordance with Schedule 2(g) of the AIM Rules:

Current directorships

Past directorships held within the last five years

None

San Residential Properties Limited

 

Andy has 100,000 options over ordinary shares in the Company at an exercise price of 355 pence. These options were issued under the Company's Unapproved Share Option Scheme 2019.

There are no other disclosures in accordance with Schedule 2(g) of the AIM Rules.

Life after the virus

We are convinced that we are well-positioned to survive the economic challenges of the Coronavirus.

This crisis has revealed the critical nature of communications, technology and the reliance on high performance and reliable networks.   In the near term (post Covid-19) we hope to show that our IT and unified communications managed services are critical to the survival of any organisation and need to be up-to-date and performant.

We doubt that the world of work will return completely to 'as it was before', indeed we anticipate a 'new normal' where remote working is more prevalent - increasing the dependence on effective, unified communication, highly resilient networks and cloud technology.   This is what we do, it's our mission "uniting technology, inspiring people".  In conclusion, we expect to be well placed to address the changed demands that arise.

We will give another trading update with the final results for the year ended 31 March 2020 which are expected to be announced in July 2020.

Ian Fishwick, Chairman

Enquiries:

 

AdEPT Technology Group Plc

Ian Fishwick, Chairman

Phil Race, Chief Executive

John Swaite, Finance Director

 

 

 

07720 555 050

07798 575 338

01892 550 243

 

Cantor Fitzgerald Europe

Nominated Adviser & Broker

Phil Davies / Will Goode

 

020 7894 7000

 

 

About AdEPT Technology Group plc:

AdEPT Technology Group plc is one of the UK's leading independent providers of managed services for IT, unified communications, connectivity and voice solutions.  AdEPT's tailored services are used by thousands of customers across the UK and are brought together through the strategic relationships with tier-1 suppliers such as Openreach, Vodafone, Virgin Media, Avaya, Microsoft, Dell and Apple.

 

AdEPT is listed on the London Stock Exchange (Ticker: ADT). For further information please visit: www.adept.co.uk

 


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