The company's revenues rose by 21% to £28.6m, against estimates of £28.3m, driven by the first full-year incorporation of Telecom Direct, acquired in 2008. Increasing organic sales effort through a strengthened sales channel was not quite enough to offset the general weakness in the economy so, as expected, revenues fell 4% in H2.
Astaire say however that average customer size grew, as the company increasingly penetrated larger, higher value accounts (now with more than half of the country’s Probation Services as customers, for example), and as ARPUs rose 3.8% year-over-year.
Adepts gross margins fell fractionally as expected, from 37.1% in 2008 to 36.2% in 2009, reflecting mix issues (a higher proportion of lower margin, but more stable, rental revenues), rather than to specific margin pressures on individual profit lines. Second half margins were 80 bp higher than last year.
SG&A expenses rose as a proportion of sales from 23.2% to 24.0%, which according to Astaire "reflected the investment in direct sales channels" and " this ratio should stabilise in the future".
Adepts EBITDA emerged at £3.49m, £0.16m better than Astaire's estimates.
Exceptional restructuring costs of £1.3m were incurred, post acquisition of Telecom Direct in 2008 and as a result of actions taken to reduce overhead expenses in H2.
Thanks to negligible capex spending and effective control of working capital, cash conversion was an impressive 103%, at £2.1m. Renegotiated bank facilities provides security of funding, although the principal short-term objective remains to pay down debt - £10.1m gross and £9.4m net at the end of the year.
The outlook statement is confident in its outlook, given the circumstances of a weak economy and the company’s relatively limited strategic flexibility. The operational focus is on further investment in organic sales channels and customer retention.
No change to estimates, pending detailed conversation with the company, although there is some scope to tweak up EBITDA numbers given the better than expected 2009 result.
Astaire view: An impressive management feat, to generate higher returns from an increasingly challenging environment. Another year of working down the debt should provide a base for a return to more aggressive consolidation activity, thereby allowing the company to leverage more effectively its strong operational platform. The shares are trading at 3.3x calendar pre-amortisation earnings, with a ca. 25% operating cashflow yield.