Adept4 : Prelim Results Yr end 30th Sept 12 January 2017 Click here for more info.

12 January 2017

Adept4 plc ("Adept4", the "Company" or the "Group") Preliminary results for the year ended 30 September 2016

Adept4 plc (AD4) the AIM quoted provider of IT as a Service is pleased to announce preliminary results for the year ended 30 September 2016.

Highlights Financial

Revenues from continuing operations of £4.9m, including only part-year contributions from companies acquired during the year, of which 66% are recurring1
Gross profit margin of 62%
Recurring gross profit covers 96% of trading overheads
Trading Group EBITDA2 of £0.9m from continuing operations
Profit from the legacy operations of Pinnacle (treated as discontinued operations) was £0.7m3
Loss for the period of £0.6m (2015: £1.3m)
Total of £9.8m new capital raised during the year for acquisitions, working capital and future growth:
•	£4.8m from a placing and open offer in February 2016; and
•	£5.0m from the issue of loan notes to the Business Growth Fund.
£4.3m cash at bank at 30 September 2016 (2015: £0.6m)

Operational

Transformational period with the disposal of legacy loss-making businesses and acquisition of three profitable businesses
Established a seasoned and incentivised management team
I	ntegration of acquisitions going well:
•	single operating structure implemented;
•	consolidated into two main offices: Warrington and Leeds;
•	roll-out of consolidated systems including a single service desk, accounting, CRM and scheduling system almost complete; and
•	integration plans have also included a focus on consolidated policies and processes
New single value proposition and brand well advanced and widely adopted
Over 100 full-time employees (FTEs) in the business of whom 70% are in a technical customer-facing role
I	n less than six months established a scalable platform for delivering IT as a Service

1	Recurring refers to revenues and gross profit from the provision of continuing IT services which have an ongoing billing and support element.
2	Trading Group EBITDA represents earnings before interest, tax, depreciation and amortisation, share based payment costs, separately identifiable costs and head office costs of £0.8m.
3	Profit from the legacy operations of Pinnacle includes the consideration of £2.8m received for the trade and assets of this business, trading losses in the period from this source prior to disposal and costs associated with reorganising and selling this business.

Gavin Lyons, Executive Chairman of Adept4, commented:

"Over the last 12 months we have fundamentally changed the shape of the business through a series of acquisitions, disposals and fundraisings. We exit the year with the turnaround activity complete and a solid platform to continue to build on. We have substantially improved our operating position, have high levels of recurring revenue, cash in the bank and a team of people that have worked incredibly hard and diligently to deliver against our plans. I would like to thank everyone for their contribution during the period and look forward to building on our solid foundations to ultimately deliver further shareholder value."

For further information please contact:
Adept4 plc Gavin Lyons, Executive Chairman Ian Winn, Finance Director and Chief Operating Officer	01925 204 844
N+1 Singer (Nominated Adviser and Broker) Shaun Dobson Liz Yong	020 7496 3000
MXC Capital Markets LLP Marc Young Charlotte Stranner	020 7965 8149

About Adept4

Adept4 delivers IT as a service to small and medium sized businesses across the UK. IT as a Service (ITaaS) provides you with exactly the amount of technology and support you need in accordance with business requirements, billed on a monthly basis, based on what is consumed.

Critically we underpin this delivery method with a 24 x 7 UK response team, strategic consulting, professional services and software development to provide exactly what organisations need from IT at any given time.

Whether an infrastructure is based on legacy or emerging technologies we will ensure organisations have the flexibility, agility and cost efficiencies required to run their business effectively, all through a single trusted provider.

Adept4 is a public company quoted on the AIM market of the London Stock Exchange. The company is headquartered in Warrington, with offices in Leeds, Aberdeen, and Brighton.

Chairman's Statement Introduction

I am pleased to report upon my first, and the Group's first, set of annual results as Adept4 Plc. It would be something of an understatement to describe the last twelve months as one of considerable change. We have fundamentally transformed the shape of the business through a series of acquisitions, disposals and fundraisings and consequently exited the year with the business in a substantially improved operating position with potential for further development.

Throughout a period of such significant change it would be remiss of me not to once again acknowledge the service of the former employees of the business who, because of the disposals, are no longer with the Group. Their efforts in the face of challenging circumstances were very much appreciated and ensured that we managed to effect these changes with minimal impact.

Results

For the period under review the legacy operations of Pinnacle have been treated as discontinued and therefore the results for the year contain the following:

•	Ancar-B Technologies Limited ("Ancar-B") and Weston Communications Limited ("Weston") results from February 2016 (eight months' contribution);
•	Adept4 Limited results from June 2016 (four months' contribution); and
•	Plc costs for the whole of the financial year - albeit with an increase in costs since December following the changes in composition of the Board and the level of activity undertaken.

Our key performance indicators for the year under review do not provide complete clarity due to the significant changes undertaken in the year. However, these will remain the same moving forward and therefore they do provide a useful summary of performance:

•	recurring revenues of £3.2m, which represent 66% of Group revenues. We are targeting this to be in excess of 65% in the future as it is imperative that our business has good visibility of future revenues and is not hugely dependent upon one-off sales (whether they be Product or Professional Services), which can be more unpredictable;
•	gross profit margin of 62%. We are targeting this to be in excess of 60% as we need to focus on providing added value through our value proposition, which in turn generates longer-term profitable relationships;
•	recurring gross profit of £2.0m, which represents 67% of Group gross profit. We are targeting this to be over 65% of Group gross profit;
•	trading Group EBITDA of £0.9m. We believe trading Group EBITDA is a more appropriate measure of the success of the business in the early years. At this stage we recognise Plc costs are not aligned with the size of our trading business, but whilst we establish scale this is required for our continued M&A activities and building brand presence; and
•	cash balances at 30 September 2016 of £4.3m.

Summary and outlook

My first hope is that the next twelve months, whilst subject to change, will not produce anything like the same level of upheaval we have experienced in the last financial year.

As I have explained, we now have a sound platform created through the hard work and diligence of our people, who remain our biggest asset. We have a clear strategy for delivering success which I have articulated.

I look forward to building on these foundations and delivering against our plans in the current financial year and beyond to deliver shareholder value.

Gavin Lyons Executive Chairman 12 January 2017

Business overview

Our customers What is our customers' problem?

Fundamentally, every customer we deal with has the same problem - they are dependent on IT to run their business but do not have the time, specialist knowledge or in-house skills to do so effectively or efficiently. Every customer wants to focus on their core business rather than IT and therefore turns to a specialist and trusted adviser to help them.

Although the main customer problem is the same, the customer "use cases" that we see are different as it depends on the customer's approach to and desires from IT. We have therefore developed four strategies to deal with the IT issues faced by our customers, depending upon an assessment of their IT maturity. We believe that being a single provider able to address four distinct phases of our customers' development is something which differentiates us from our competitors. This is explained more fully in "Our Approach" below.

What are the market dynamics?

Provision of IT as a Service to small and medium-sized enterprises (SMEs) in the UK is a sizeable market characterised by both large and small providers. Even allowing for the large providers it is a fragmented and regionalised but nonetheless sizeable market which has been estimated at £53bn per annum in recent research by Santander, with Gartner predicting that the pace of growth of IT spend of SMEs in 2016 will outpace that of the Enterprise sector.

There are also many structural changes afoot, a key one being the growth and move to the cloud, all of which drive the need for a "trusted partner". This is evidenced by the growth in Microsoft Azure and Office 365 revenues, which have been growing at over 70% quarter on quarter. A recent survey by a leading IT service provider (Daisy Group) in the UK provides further clear evidence of this shift, reporting that 48% of SMEs would be increasing their use of cloud computing and over 10% of SMEs now use cloud computing for more than 25% of their IT requirements.

Likewise, the market for managed services is also growing, with the same survey indicating that by 2020 over a third of UK businesses aim to have outsourced the management of their IT environment, with the most likely services to be outsourced being application management, service desk and network management.

Clearly with an appropriate "go-to-market strategy" there continue to exist opportunities to build a successful and growing business in this sector.

Who are our target customers?

We have focused, in identifying the market opportunity, on looking at the dynamics of the SME sector (typically organisations employing up to 250 employees). However, our target customer base is a little broader in that we focus on two groups: small/medium businesses (SMB) which are organisations with up to 150 employees; and medium-sized businesses, which are ones with between 150 and 1,000 employees (Enterprise).

We have no real vertical market concentrations. Our customers are UK based and, certainly within the SMB group, more likely to be located within a 40-mile radius of our offices. However, we do provide services to organisations which sit outside of this geographical range; these are more likely to be within our Enterprise customers.

A typical SMB customer may take up to four or five products from us, ranging from telephony, hardware support, connectivity, hosting and software. A typical contract value will range from £600 to £12,000 per annum of recurring revenues.

Our Enterprise customers will take more services from us, as typically they are looking for a fuller service and will take more of our range of services - particularly consulting services, transition services and Service Desk and Disaster Recovery as a Service. The typical contract value will range from £50,000 to £500,000 per annum, depending upon the number of employees and range of services taken.