Half Year Sep 08 results

AdEPT, a leading independent provider of award-winning telecommunications services for fixed line, mobile and data, announces its results for the year ended 30 September 2008.

Financial

Revenues increased by 59% to £14.76 million (2007: £9.27 million)
Underlying operating profit increased by 32% to £1.72 million (2007: £1.30 million)
Profit after tax (adjusted for amortisation and non-recurring costs) increased by 21% to £1.02 million (2007: £0.84 million)
EPS (adjusted for amortisation and non-recurring costs) increased by 21% to 4.84p (2007: 3.99p)
Underlying EBITDA : cash from operating activities conversion was 83.8% (2007: 69.5%)
Net debt reduced by £0.22 million to £11.08 million (March 2008: £11.30 million)

Operational

Continued increase in the revenue from business customers now 95% of total revenue (2007: 91%)
Line rental, which is a minimum 12 month contract, now represents 37% of revenue (2007: 29%)
Fixed fee revenues increased to 41.7% of total revenue (2007: 30.6%)
Proportion of payments under direct debit increased to 68.9% (2007: 63.1%)

Change of Company broker

Strand Partners Limited are being appointed as the Company's brokers with immediate effect, in addition to their continuing appointment as the Company's Nominated Adviser

Chairman's Statement

Roger Wilson "I am pleased to be able to announce a strong set of results for the first half of the year. Our sales revenues have increased by 59% following the acquisition of Telecom Direct Limited ("Telecom Direct"). This acquisition has enabled us to bid for larger, longer term contracts, and in particular to enter the data market at a different level to the one at which we had previously operated. It positions AdEPT to service larger customers on longer term contracts, providing us with more stable revenues, albeit at somewhat lower margins. The successful integration of the Telecom Direct business had largely been completed on schedule by the first half of the year and yielded the planned cost savings. Consequently the growth in net margin of 34% was matched by a 32% rise in underlying EBITDA.

Customer churn remains under control, at levels slightly below industry averages and new sales are strong. We have continued to develop our dealer channel, which is now one of the most powerful in the sector, and we have consistently grown the level of new sales for the first 9 months of 2008. The Company has strengthened many of its' Key Performance Indicators with Direct Debit customers now representing 69% of sales (2007: 63%) and fixed fee charges (such as line rental or broadband) now representing 42% of revenue (2007: 31%). AdEPT is now one of BT Openreach's 10 largest customers.

All acquisition earn-out payments have been completed and we continue to generate strong free cash flow. The business has no further earn-out payments to make and therefore we consequently expect to pay down our debt more rapidly in future periods."

Financial review

Turnover for the first six months was £14.76 million (2007: £9.27 million). This in turn has generated underlying EBITDA of £1.7 million (2007: £1.3 million) and reflects our ability to continue to generate industry leading EBITDA margins of 11.6%.

The strength of the Company's consolidated balance sheet has improved compared to the same period last year, with net assets of £26.21 million (2007: £20.46 million). The Company continues to generate positive cash with 84% of underlying EBITDA being converted into operating cash in the period under review. Net debt decreased to £11.08 million (2007; £11.30 million) following the commencement of the repayment of the borrowings in relation to the Telecom Direct acquisition.

Earnings per share (adjusted for amortisation and non-recurring costs) was 4.84p in the six months to 30 September 2008 (2007: 3.99p). It is the Board's intention to pay dividends in the future, however, at this stage in the Company's development the Board intends to retain surplus funds to grow the business.

As part of the process of complying with IFRS 2, the Company has taken a charge against profits of £10,000 in the first half year to cover the notional cost of stock options and warrants awarded to executives and employees.

Business review

Organic sales have remained high over the last six months as a result of increasing the number of business partners selling our services and cross-selling to our existing customers using our own call centre.

We have focused intently on improving retention levels across the customer base through increased investment in both customer services personnel and systems. As a result gross churn continues to be lower than this time last year.

The longer term stability of the customer base has been helped by the increasing proportion of line rental customers being on a minimum 12 month contract, now up to 37% of total revenues (2007: 29%). We have also been successful in continuing to increase the proportion of revenue from business customers, now up to 95% of total revenues (2006: 91%).

Acquisitions

In June 2007 the Company acquired 5,000 small business customers from Fizz Telecom Limited. In this half year the final earn-out payment of £190,000 was made.

In addition, in April 2008 the final earn-out payment of £400,000 was made for Telecom Direct.

The business has no further earn-out payments to make and therefore we consequently expect to pay down our debt finance more rapidly in future periods.

Outlook

Our increased scale positions us well to face the challenges of an uncertain economic climate, and we look forward to the future with confidence.

Finally, I would like to offer my sincere appreciation to our customers, our staff and our business partners for their commitment and support to AdEPT and I look forward to continuing to work together with them in the future.

Roger Wilson

4 November 2008