Final Results

AdEPT Telecom plc

("AdEPT" or the "Company")

Final results for the year ended 31 March 2012

AdEPT (AIM: ADT), a leading UK independent provider of award-winning telecommunications services for fixed line, mobile, data connectivity and VoIP, announces its results for the year ended 31 March 2012.

Financial Highlights

·; 9th consecutive year of increased underlying EBITDA at £3.65m (2011: £3.62m)

·; Underlying EBITA margin % increasing by 1.4% to 16.7% (2011: 15.3%)

·; Excellent cash generation with free cash flow, after interest, of £2.2m (2011: £2.1m)

·; Net debt reduction of £2.1m year-on-year (2011: £1.8m) to £5.3m (2011: £7.4m)

·; 58% increase to Profit Before Tax to £1.2m (2011: £0.8m)

·; 123% increase to Profit After Tax to £0.6m (2011: £0.3m)

·; 11% increase to adjusted Earnings Per Share to 11.35p (2011: 10.25p)

·; Maiden full year dividend of 0.5p per share paid to shareholders in April 2012

Operational Highlights

·; 38% increase to data connectivity revenues year-on-year

·; 20% increase to inbound call revenue year-on-year

·; 91% of revenue generated from customers taking more than one product or service (2011: 89%)

·; 35% of revenue generated from customers taking 3 or more products (2011: 28%)

·; 12% increase in ARPU as at March 2012 to £97.28 (2011: £86.71)

Commenting upon these results Chairman Roger Wilson said:

"AdEPT has delivered a ninth consecutive year of increased EBITDA and continued to deliver consistent free cash flow generation, resulting in further deleveraging and the payment of the maiden dividend to shareholders in April 2012. Despite the continuing uncertainty over the general direction of the economy, the Board is confident that continued strong cash generation, and further reductions in the level of debt in future, should support a progressive dividend policy."

For further information on AdEPT Telecom please visit www.adept-telecom.co.uk or contact:

AdEPT Telecom Plc

Roger Wilson, Chairman 07786 111 535

Ian Fishwick, Chief Executive 01892 550 225

John Swaite, Finance Director 01892 550 243

Northland Capital Partners Limited

Shane Gallwey 020 7796 8823

CHAIRMAN'S STATEMENT

Review of Operations

Despite difficult economic conditions I am pleased to report a 9th consecutive increase to underlying EBITDA.

The continued focus on larger customers, generally businesses of 25 to 1,000 employees, has enhanced our ability to benefit from scale efficiencies and cross selling. The AdEPT Premier Customer division, comprising the 200 largest customers spending more than £1,000 per month, has grown during the year and now accounts for approximately 46% of total revenue (2011: 39%).

Our reliance on variable monthly call charges has been reduced further during the year, replacing them with fixed monthly line rentals. The proportion of revenue derived from fixed monthly charges now represents 57% of total revenue (2011: 54%).

AdEPT's continued strong cash flow generation resulted in £2.2m of free cash flow after interest. This was used to fund a £2.1m reduction in net borrowings, to £5.3m at 31 March 2012.

New products

AdEPT was originally established as a fixed-line telecom provider but is increasingly expanding and diversifying its product range and has become one of the UK's leading communication integrators offering best of breed products from all major UK networks.

The Company has broadened its product range further during the year, particularly with regard to data connectivity, which has seen 38% year-on-year revenue growth. Data services, such as MPLS networks, fibre broadband, bonded DSL, hosted and cloud telephony have been added to the product portfolio.

The second half of the year saw the first revenues generated from hosted and SIP solutions provided by the AdEPT VoIP for Business product range. The service, powered by BT Wholesale, includes 8 different ways of deploying VoIP for businesses. AdEPT VoIP for Business provides SIP trunking and hosted voice inter-working on a single BT network, with dual resilience offered by two data centres in London. All VoIP services are managed via a single web portal. The VoIP products offer comprehensive solutions for every size of business: large and small sites as well as homeworkers.

AdEPT has had continued success with 'cloud' or network-based inbound call handling solutions. These are now being provided to a number of major customers, which has resulted in a 20% year-on-year increase in inbound call revenue.

Cross selling of products

A key strategy for the Company remains to sell more products to new and existing customers to enhance customer retention and stability. Product penetration has increased during the year; at end of March 2012 35% of revenue was generated from customers taking three or more products (2012: 28%).

In the Premier Customer division (those spending more than £1,000 per month) we have seen further improvement in product penetration. At end of March 2012 customers taking three or more products increased to 68% (2011: 64%).

Employees

The improved profitability this year was made possible by the continued hard work and focus of all employees at AdEPT. As a Company we are immensely proud of the track record we have created in a relatively short period of time and on behalf of the Board I would like to take this opportunity to thank all of our employees for their hard work.

AdEPT is successfully making the transition from a traditional fixed-line service provider to a complete communications integrator, supplying next generation products and data solutions, without any impact on profitability despite the recruitment of staff with new skill sets. During the year 5 new employees were recruited in next generation products and at 31 March 2012 20% of employees were working within the data connectivity and next generation product areas.

Shareholder Benefits Scheme

The AdEPT shareholder benefits scheme has continued to attract new members during the year. The scheme, which is available to all shareholders owning a minimum of 1,000 shares, provides eligible shareholders with free residential line rental worth approximately £120 per annum for as long as they remain eligible shareholders.

Post balance sheet events

On 9 May 2012 the Company signed an agreement to acquire the trade and assets of the fixed line telecommunications division of Expanse (UK) Communications Limited. The acquisition is to be funded from operating cash flow. The Company will continue to evaluate strategic acquisitions which will add value to our shareholders.

Outlook

The improved EBITDA and net debt reduction of £2.1m was underpinned by focus on underlying profitability through improving margins on customer contracts, operational efficiencies and tight credit control. The further broadening of the product offering will ensure that AdEPT can continue to provide complete communication solutions for customers. The Board is confident that continued strong cash generation, and further reductions in the level of debt in future, will support a progressive dividend policy.

The business focus for the coming year remains on continued development of organic sales, maintaining profitability and cash flow generation, which will be used to reduce net borrowings. We will therefore continue to grow our organic sales channels, invest in new products and complement this with continued investment in retention activities to retain customers.

Roger Wilson

Non-executive Chairman

FINANCIAL AND BUSINESS REVIEW

SUMMARY of three year financial performance:

* before non-recurring costs

REVENUE

Revenue by product area

Group revenue decreased by 7.7% to £21.9m (2011: £23.7m):

·; Traditional fixed line revenues reduced to £17.8m (2011: £20.1m), with this reduction driven by the impact of regulation reducing mobile call rates combined with call volume reductions which is a reflection of the continuing uncertain economic environment. The Company's reliance on call revenues has been reduced further with call revenue providing only 38.2% of total revenue in March 2012 (2011: 42.1%).

·; Inbound and cloud based call revenue increased by 19.8% during the year to £1.0m (2011: £0.8m). This arises from network-based solutions developed for Premier Customers during the year.

·; Data and broadband product revenues were up 38.4% to £2.5m (2011: £1.8m), with increases to the number of data circuits and connections in place. This significant increase reflects growth from some earlier contract wins and the launch of several new products including MPLS networks, bonded DSL and fibre broadband.

·; The second half of the year ended March 2012 saw the first revenues generated from hosted and SIP solutions provided by AdEPT VoIP for Business, albeit at a relatively low level.

During the year AdEPT has continued its diversification from a traditional fixed line service provider towards next generation products. Total revenue generated from data, mobile, inbound and other services represented 18.6% of total revenue in March 2012 (2011: 15.1%).

Fixed monthly revenue streams

The Company continues to focus on products delivering fixed monthly revenue streams to reduce revenue volatility. The proportion of revenue, which is fixed monthly values, increased to 57.0% of total revenue for the year ended March 2012 (2011: 53.9%) following the continued focus on multi-product sales (calls, line rental and data products) and the enhancement of the data connectivity product portfolio.

Cross selling

The proportion of revenue generated from customers taking more than one product or service has increased to 90.5% at March 2012 (2011: 89.3%) which should provide a more stable future revenue stream.

The proportion of higher spending customers (recurring revenues of more than £1,000 per month) taking 3 or more products increased to 68.3% at March 2012 (2011: 63.7%) which is driven by the revenue growth in next generation and data connectivity products.

Average spend per customer

The Company is continuing to focus on larger customers and AdEPT's largest 200 customers account for approximately one third of March 2012 revenue with the top 10 customers accounting for 15.0% of total revenue.

Average customer monthly spend for customers increased year-on-year by 12.2% to £97.28 in March 2012 reflecting the Company's success in gaining contracts with an increasing proportion of higher spending multi-product and multi-site business customers.

GROSS MARGIN

The regulatory impact of reduced mobile termination rates has resulted in revenue pressure for traditional fixed line services; however, gross margins have been maintained at an absolute level through management of wholesale supply contracts. Gross margins for data products were enhanced during the year through focus on underlying profitability of customer contracts combined with the negotiation of more competitive wholesale supply contracts. Revenues and gross margins generated from other revenue streams have reduced during the year due to competitive price pressure and the impact of regulatory changes.

As the product mix has moved towards the relative lower margin data and broadband revenue streams, this has provided downward pressure on total gross margins. Future gross margin pressure is anticipated as our product mix moves increasingly towards the relative lower margin line rental, data connectivity and broadband revenue streams.

EBITDA

EBITDA has increased for the ninth consecutive year since AdEPT's inception in 2003 despite top line pressure. The Company has focussed on the underlying profitability of customers and revenue streams; as a result revenue reduction has been absorbed by gross margin improvement and the operational efficiencies and costs savings from managing larger customers.

FINANCE COSTS

Total interest costs have reduced by 34.0% to £606,882 arising from a reduced level of net borrowings combined with the full year impact of the renewal of the banking facilities during the previous financial year on more favourable terms. Finance costs for the year ended 31 March 2012 include £31,198 in relation to the fair value of the interest rate swap as required by IAS 39 'Financial Instruments'. This is not a reflection of an increase in the cost of borrowing as the interest rate swap provides a fixed rate of interest on borrowings.

PROFIT BEFORE TAX

This year the Company has recorded an £437,107 improvement to profit before tax with a reported £1,189,505 (2011: £752,399). This arises from gross margin improvement and operational efficiency combined with the reduction in finance costs arising from the significant reduction to net borrowings during the year.

EARNINGS PER SHARE

Adjusted earnings per share, based on retained earnings adding back amortisation and non-recurring costs (see Note 22), has increased by 10.7% to 11.35p per share (2011: 10.25p).

SHARE CAPITAL REDUCTION

On 20 July 2011 the Company received court approval for a conversion of the share premium account (of £7,965,381) into a distributable reserve. The conversion had no effect on the number of ordinary shares or the rights attached to the ordinary shares and the market price of the shares has not been adjusted as a result. The share premium account conversion was approved in order to maximise the capital structure of the Company by creating distributable reserves to facilitate the payment of dividends.

DIVIDEND PER SHARE

On the back of strong cash flow generation a maiden dividend of 0.5p per share was proposed at the interim date, which was paid to shareholders on 20 April 2012. The dividend absorbed £105,337 of shareholder funds (2011: £nil). The board constantly monitors shareholder value and is confident that the continued strong cash generation, and further reductions in the level of debt in future, will support a progressive dividend policy.

CASH FLOW

Cash conversion

The Company benefits from an excellent cash generating operating model, with EBITA turning into cash. Reported EBITA turned into net cash from operating activities is 80.2% (2011: 92.2%) which is lower than the comparative period due to higher corporation tax payment for the year ended 31 March 2011. There was a net working capital outflow of £0.7m during the year partly arising from the reduction in trade payables following the reduction in direct costs due to top line reductions.

Strong management of credit risk

The Company has continued to manage its credit risk in the current economic climate and the collections of trade receivables have been maintained during the year with customer collection periods of 31 days (2011: 30 days).

Increase in cash balances

After servicing its debt the Company achieved an increase in cash and cash equivalents of £0.5m during the year.

CAPITAL EXPENDITURE

The Company has low capital requirements and therefore expenditure on tangible assets is low at 0.1% of revenue (2011: 0.1%). Intangible asset additions were negligible during the year (2011: £0.1m).

NET DEBT

A key strength of AdEPT is its consistent, proven ability to generate strong free cash flow, which is supported by £5.5m reduction to net borrowings within the last 3 years. As a result of the Company's focus on underlying profitability and cash conversion, free cash flow after bank interest of £2.2m was generated during the year ended March 2012; with £2.1m being applied to net debt reduction during the year. Net debt, which comprises cash balances and bank borrowings, has therefore improved to £5.3m (2011: £7.4m).

The Company's available banking facilities are described in Note 23 to the financial statements. The Company continues to manage its exposure to interest rate risks arising from financing activities through interest rate swap contracts.

KEY PERFORMANCE INDICATORS (KPIs)

The KPIs outlined below are intended to provide useful information when interpreting the accounts.

RESILIENT BUSINESS MODEL

The Board believes that AdEPT operates a resilient business model and has a strong customer proposition which it is believed will present opportunities in the coming year. These features include:

·; highly cash generative with strong underlying profitability;

·; supplies are nearly all business critical - an essential part of the customer's daily operational requirements;

·; highly automated systems provides sector leading labour costs : turnover productivity;

·; low capital investment requirements relative to turnover;

·; continued focus on broadening the product range, particularly with regard to data connectivity;

·; customers are spread across all industries; the top ten customers account for approximately 15.0% of revenues;

·; trade suppliers and partners are all top tier suppliers, providing confidence in the continuity and reliability of service to customers;

·; 70.0% of the Company's customers pay by monthly direct debit, reducing the Company's credit risk;

·; the Company has agreed banking facilities through to September 2013; and

·; with the level of cash generation forecast, the Board expects the Company's net borrowing position to further improve over the next twelve months.

John Swaite

Finance Director

STATEMENT OF COMPREHENSIVE INCOME

All amounts relate to continuing operations. Notes 1 to 26 form part of these financial statements.

Gross profit has been restated for the year ended 31 March 2011. Third party commissions payable of £1,441,486 have been reclassified as cost of sales as they are considered to be directly associated with the revenue generated.

STATEMENT OF FINANCIAL POSITION

The financial statements were approved and authorised for issue by the Board on 3 July 2012 and signed on its behalf.

Ian Fishwick

Director

Notes 1 to 26 form part of these financial statements.

Registered number 4682431

STATEMENT OF CHANGES IN EQUITY

Notes 1 to 26 form part of these financial statements.

STATEMENT OF CASHFLOWS

Notes 1 to 26 form part of these financial statements.

NOTES TO THE FINANCIAL STATEMENTS

1. Nature of operations and general information

AdEPT Telecom plc is one of the UK's leading independent providers of voice and data telecommunication services with award-winning customer service. The Company is focused on delivering a complete telecommunications service for small and medium sized business customers with a targeted product range including landline calls, line rental, broadband, mobile and data connectivity services.

AdEPT Telecom plc is incorporated under the Companies Act, domiciled in the UK and the registered office is located at One London Wall, London EC2Y 5AB. The Company's shares are listed on AIM of the London Stock Exchange.

2. Accounting policies

Basis of preparation of financial statements

The financial statements have been prepared in accordance with applicable IFRS as adopted by the EU, as issued by the International Accounting Standards Board.

Accounting standards require the directors to consider the appropriateness of the going concern basis when preparing the financial statements. The directors confirm that they consider that the going concern basis remains appropriate. The directors have taken notice of the Financial Reporting Council guidance 'Going Concern and Liquidity Risk: Guidance for Directors of UK Companies 2009' which requires the reasons for this decision to be explained. The directors regard the going concern basis as remaining appropriate as the Company has adequate resources to continue in operational existence for the foreseeable future based upon the Company's forecasts. The Company has adequate financing arrangements which can be utilised by the Company as required. Thus they continue to adopt the going concern basis of accounting in preparing the annual financial statements.

Certain new standards, amendments and interpretations of existing standards that have been published and which are effective for the Company's accounting periods beginning on or after 1 April 2011 and which are applicable to the Company, but which have not been adopted early, are:

·; IFRIC14 (Amendment) "Prepayments of a Minimum Funding Requirement" effective January 2011

·; Revised IAS 24 "Related Party Disclosures" (issued 4 November 2009) effective January 2011

·; IFRS 7 "Amendments to Financial Instruments Disclosures" effective January 2011

·; IFRS 1 "Amendments to Severe Hyperinflation and Removal of Fixed Dates for First-Time Adopters" effective July 2011

·; IAS 12 "Amendments to Deferred tax: Recovery of Underlying Assets" effective January 2012

·; IAS 1 (Amendment) "Presentation of Items of Other Comprehensive Income" effective July 2012

·; IAS 19 (Amendment) "Employee Benefits" effective January 2013

·; IAS 27 "Separate Financial Statements" effective January 2013

·; IAS 28 "Investments in Associates and Joint Ventures" effective January 2013

·; IFRS 10 "Consolidated Financial Statements" effective January 2013

·; IFRS 11 "Joint Arrangements" effective January 2013

·; IFRS 12 "Disclosure of Interests in Other Entities" effective January 2013

·; IFRS 13 "Fair Value Measurement" effective January 2013

·; IFRS 9 "Financial Instruments" effective January 2013

·; IFRIC 20 "Stripping Costs in the Production Phase of a Surface Mine" effective January 2013

The adoption of these standards, amendments and interpretations is not expected to have a material impact on the Company's profit for the year or equity. Application of these standards may result in some changes in presentation of information within the Company's financial statements.

The financial statements are presented in sterling which is the Company's functional and presentation currency. The figures shown in the financial statements are rounded to the nearest thousand pounds.

Segmental reporting

The directors have considered the requirements of IFRS 8 "Operating Segments" and have concluded that the Company has two segments. For further information see Note 4 of the financial statements.

Revenue

Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Company and can be reliably measured.

Revenue from calls, which excludes value added tax and trade discounts, is recognised in the income statement at the time the call is made. Calls made in the year, but not billed by year end, are accrued within receivables as accrued income.

Revenue from line rental is recognised in the month that the charge relates to, commencing with a full month's charge in the month of connection. Revenue and related costs from the sales of mobile handsets are recognised at the date of supply or connection.

Revenue arising from the provision of internet and other services is recognised evenly over the periods in which the service is provided to the customer.

Connection commissions received from mobile network operators are recognised when the customer is connected to the mobile network after providing for expected future clawbacks.

The whole of the revenue is attributable to the provision of voice and data telecommunication services to both residential and business customers. All revenue arose within the United Kingdom.

Intangible fixed assets acquired as part of a business combination and amortisation

In accordance with IFRS 3 "Business Combinations", an intangible asset acquired in a business combination is deemed to have a cost to the Company of its fair value at the acquisition date. The fair value of the intangible asset reflects market expectations about the probability that the future economic benefits embodied in the asset will flow to the Company.

After initial recognition, intangible assets are carried at cost less any accumulated amortisation and any accumulated impairment losses. Impairment reviews are conducted annually from the first anniversary following acquisition.

The intangible asset "customer base" is amortised to the income statement over its estimated economic life on a reducing balance basis. The average useful economic life of all the customer bases has been estimated at 15 years (2011: 17 years).

Other intangible assets

Also included within intangible fixed assets are the development costs of the Company's billing and customer management system plus an individual licence. These other intangible assets are stated at cost, less amortisation and any provision for impairment. Amortisation is provided at rates calculated to write off the cost, less estimated residual value of each intangible asset, over its expected useful life on the following basis:

Customer management system - Three years straight line

Other licences - Contract licence period

Property, plant and equipment and depreciation

Property, plant and equipment are stated at cost, less depreciation and any provision for impairment. Depreciation is provided on all property, plant and equipment at rates calculated to write off the cost, less estimated residual value of each asset, over its expected useful life on the following basis:

Short-term leasehold improvements - The shorter of five years and the remaining period of the lease

Fixtures and fittings - Three years straight line

Office equipment - Three years straight line

Computer software - Three years straight line

Leasing and hire purchase commitments

Assets held under finance leases and hire purchase contracts, which are those where substantially all the risks and rewards of ownership of the asset have passed to the Company, are capitalised in the balance sheet and depreciated over their useful lives. The corresponding lease or hire purchase obligation is treated in the balance sheet as a liability.

The interest element of the rental obligations is charged to the income statement over the period of the lease and represents a constant proportion of the balance of capital repayments outstanding.

Rentals under operating leases, where substantially all of the benefits and risks of ownership remain with the lessor, are charged to the profit and loss on a straight line basis, even if payments are not made on such a basis.

Pensions

The Company contributes to personal pension plans. The amount charged to the income statement in respect of pension costs is the contribution payable in the year.

Capital instruments

The costs incurred directly in connection with the issue of debt instruments are charged to the income statement on a straight line basis over the life of the debt instrument.

Income tax

Income tax is the tax currently payable based on taxable profit for the year.

Deferred income tax is generally provided on the difference between the carrying amounts of assets and liabilities and their tax bases. However, deferred income tax is not provided on the initial recognition of goodwill, nor on the initial recognition of an asset or liability unless the related transaction is a business combination or affects tax or accounting profit.

Deferred income tax liabilities are provided in full, with no discounting. Deferred income tax assets are recognised to the extent that it is probable that the underlying deductible temporary differences will be able to be offset against future taxable income. Current and deferred income tax assets and liabilities are calculated at tax rates that are expected to apply to their respective period of realisation, provided they are enacted or substantively enacted at the balance sheet date.

Changes in deferred income tax assets or liabilities are recognised as a component of income tax expense in the income statement, except where they relate to items that are charged or credited directly to equity in which case the related deferred income tax is also charged or credited directly to equity.

Share-based payments

The cost of equity-settled transactions with employees is measured by reference to the fair value of the award at the date at which they are granted and is recognised as an expense over the vesting period, which ends on the date at which the relevant employees become fully entitled to the award. Fair value is appraised at the grant date and excludes the impact on non-market vesting conditions such as profitability and sales growth targets, using an appropriate pricing model for which the assumptions are approved by the directors. In valuing equity-settled transactions, only vesting conditions linked to the market price of the shares of the Company are considered.

No expense is recognised for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition, which are treated as vesting irrespective of whether or not the market condition is satisfied, provided that all other performance conditions are satisfied.

At each balance sheet date, the cumulative expense (as above) is calculated, representing the extent to which the vesting period has expired and management's best estimate of the achievement or otherwise of non-market conditions, the number of equity instruments that will ultimately vest or, in the case of an instrument subject to a market condition, be treated as vesting described above. The movement in the cumulative expense since the previous balance sheet date is recognised in the income statement, with a corresponding entry in equity.

Non-recurring items

Material and non-recurring items of income and expense are separated out in the income statement. Examples of items which may give rise to disclosure as non-recurring items include costs of restructuring and reorganisation of existing businesses, integration of newly acquired businesses and asset impairments. Non-recurring costs include the current year expense charged to the income statement in relation to restructuring which has taken place since the year end to derive the underlying profitability of the Group and Company.

Cash and cash equivalents

Cash and cash equivalents comprise cash on hand and demand deposits, together with other short-term, highly liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value.

Financial instruments

Financial assets and liabilities are recognised on the Company's balance sheet when the Company becomes a party to the contractual provisions of the instrument.

The Company makes use of derivative financial instruments to hedge its exposure to interest rate risks arising from financing activities. In accordance with its treasury policy, the Company does not hold or issue derivative financial instruments for trading purposes.

Derivative financial instruments are recognised initially at fair value, i.e. cost. Subsequent to initial recognition derivative financial instruments are measured at fair value. The gain or loss on re-measurement to fair value is recognised immediately in the income statement as a component of financing income or cost.

The fair value of the derivative financial instrument is the estimated amount that the Company would receive or pay to terminate the instrument at the balance sheet date, taking into account current interest rates and the current creditworthiness of the instrument counterparties.

Capital

The capital structure of the Company consists of debt, which includes the borrowings disclosed in Notes 18 and 25, cash and cash equivalents, and equity attributable to equity holders, comprising issued capital, reserves and retained earnings.

Borrowings and borrowing costs

Borrowings are recorded initially at the proceeds received, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost. Any differences between the proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the period of the borrowings using the effective interest method.

Borrowing costs are expensed to the income statement as incurred with the exception of arrangement fees which are deducted from the related liability and are released over the term of the related liability in accordance with IAS 39.

3. Critical accounting estimates and judgements

The key assumptions concerning the future and other key sources of estimation uncertainty at the balance sheet date, which have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities with the next financial year, are discussed below.

Key sources of estimation uncertainty are:

·; measuring the fair value of customer bases on acquisition;

·; subsequent impairment of customer bases; and

·; receivables.

Impairment of intangible assets

The Company determines whether intangible assets are impaired on at least an annual basis. This requires an estimation of the "value in use" of the cash-generating units to which the intangible value is allocated. Estimating a value in use amount requires management to make an estimate of the expected future cash flows from the cash-generating unit and also to choose a suitable discount rate in order to calculate the present value of those cash flows.

The main estimates used to measure the fair value of the customer bases on acquisition and the conduct the impairment review are:

·; the churn rate (turnover of customers);

·; discount rate; and

·; margins.

Churn rates are based upon actual historical churn rates.

The discount rate used to discount the cash flows is based upon the Company's Weighted Average Cost of Capital (WACC), which is the recommended discount rate suggested by International Financial Reporting Standards and is a calculated figure.

Margins are based upon actual margins achieved in previous years. The actual outcomes have been materially equivalent which is supported by the relatively low impairment charges over the past couple of years.

More details including carrying values are included in Note 12.

Receivables

Debts are recognised to the extent that they are judged recoverable. Management reviews are performed to estimate the level of provision required for irrecoverable debt. Provisions are made specifically against invoices where recoverability is uncertain. Further information on the receivables allowance account is given in Note 16.

4. Segmental information

IFRS 8 "Operating Segments" require identification on the basis of internal reporting about components of the Company that are regularly reviewed by the chief operating decision maker to allocate resources to the segments and to assess their performance.

The chief operating decision maker has been identified as the Board. The Board reviews the Company's internal reporting in order to assess performance and allocate resources. The operating segments are fixed line services and data, mobile and other services which are reported in a manner consistent with the internal reporting to the Board. The Board assesses the performance of the operating segments based on revenue, gross profit and EBITDA.

The assets and liabilities relating to the above segments have not been disclosed as they are not separately identifiable and are not used by the chief operating decision maker to allocate resources. All segments are in the UK and all revenue relates to the UK.

Transactions with the largest customer of the Company are less than 10% of total turnover and do not require disclosure for either 2011 or 2012.

5. Operating profit

The operating profit is stated after charging:

Included within the share option expense for the year is £16,430 relating to the warrant instrument issued to Barclays Bank plc: see Note 17.

6. Auditors' remuneration

7. Finance costs

Included within interest is a charge of £31,198 which relates to the movement in the fair value of the interest rate swap liability as calculated in accordance with IAS 39.

8. Employee costs

Staff costs, including directors' remuneration, were as follows:

8. Employee costs continued

The average monthly number of employees, including the directors, during the year was as follows:

Key personnel

The directors are considered to be the key management personnel of the Company, having authority and responsibility for planning, directing and controlling the activities of the Company.

9. Directors' emoluments

During the year retirement benefits were accruing to one director (2011: one) in respect of money purchase pension schemes. The value of the Company's contributions paid to a money purchase pension scheme in respect of the highest paid director amounted to £13,971 (2011: £13,968).

The share option expense recognised during the year in respect of the directors was £4,651 (2011: £2,881).

Directors' share options

10. Income tax expense

Factors affecting tax charge for year

The relationship between expected tax expense based on the effective tax rate of AdEPT at 26% (2011: 28%) and the tax expense actually recognised in the income statement can be reconciled as follows:

There were no material factors that may affect future tax charges.

11. Dividends

On 27 October 2011 the Directors approved a maiden dividend of 0.5p per Ordinary Share. This absorbed £105,337 of shareholders' funds.

12. Intangible fixed assets

Intangible assets are reviewed annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. The net present value of cash flows for each cash-generating unit is reviewed against the carrying value at the balance sheet date. At the final reporting date of 31 March 2012 the net present value of future cash flows of certain cash-generating units indicated that they were below the carrying value and the directors considered it appropriate to record an impairment charge of £116,421 (2011 - £137,737) and adjust the economic lives of the respective cash-generating units appropriately.

The Company has no internally generated intangible assets.

13. Property, plant and equipment

14. Deferred taxation

The deferred tax asset is made up as follows:

15. Inventories

There is no material difference between the replacement cost of inventories and the amount stated above.

16 Trade and other receivables

As at 31 March 2012, trade receivables of £165,851 (2011: £237,560) were impaired and fully provided for. The ageing of the trade receivables which are past due and not impaired are as follows:

Movement of the Company provision for impairment of trade receivables is as follows:

The creation and release of a provision for impaired receivables has been included in administration expenses in the income statement. Amounts charged to the allowance account are generally written off when there is no expectation of recovering cash. Management regularly reviews the outstanding receivables and does not consider that any further impairment is required. The other assets classes within trade and other receivables do not contain impaired assets.

17. Trade and other payables

18. Long-term borrowings

The bank loan is secured by a debenture incorporating a fixed and floating charge over the undertaking and all property and assets present and future including goodwill, book debts, uncalled capital, buildings, fixtures, fixed plant and machinery. Details of the interest rates applicable to the loans are included in Note 25.

Included within bank loans are arrangement fees amounting to £123,975 (2011: £148,875) which are being released over the term of the loan in accordance with IAS 39.

19. Share capital

On 20 July 2011 the High Court approved the order confirming cancellation of the share premium account of the Company. The High Court Order resulted in the creation of a new reserve of £7.965m which the Company has credited to its profit and loss reserve.

Share options

At 31 March 2012, the following options and warrants over the shares of AdEPT were in issue:

The weighted average fair values have been determined using the Black-Scholes-Merton Pricing Model with the following assumptions and inputs:

Share options continued

The expected average volatility was determined by reviewing the last 100 historical fluctuations in the share price prior to the grant date of each share instrument. An expected take up of 100% has been applied to each share instrument. Expected dividend yield is estimated at 0%; this estimate of Nil is per the requirement of IFRS 2 where a company such as AdEPT has no current dividend history. It does not bear any relation to the actual dividend policy of AdEPT Telecom plc.

During the year ended 31 March 2009 a warrant was issued to Barclays Bank plc over 5% of the diluted share capital of the Company. As at 31 March 2012 this entitled the holder to 1,214,277 shares. The weighted average fair value of this equity instrument of £60,779 has been determined using the Black-Scholes-Merton Pricing Model, applying the same assumptions as those applied to the other equity instruments issued during the period due to Barclays Bank plc being unable to provide a sufficiently reliable estimate of the value of services provided in relation to these warrants.

The mid-market price of the ordinary shares on 31 March 2012 was 47.75p and the range during the year was 21.1p.

20. Pension commitments

At 31 March 2012 there were no pension commitments (2011: £Nil).

21. Operating lease commitments

At 31 March 2012 the Company had lease commitments as follows:

Land and buildings

The Company leases its offices under non-cancellable operating lease agreements. There is no material contingent rent payable. The lease agreements do not offer security of tenure. The lease terms are for approximately five years.

Other

The Company leases various office equipment and motor vehicles under non-cancellable operating lease agreements. The lease terms are three years.

The lease expenditure charged to the income statement during the year is disclosed in Note 5.

22. Related party transactions

During the year CKR Holdings Limited and Rykesh Limited, companies controlled by Chris Fishwick, a director, provided consultancy services to the Company in the normal course of business and at an arm's length basis with a total value of £85,000 (2011: £85,000). There was no balance owed to CKR Holdings Limited or Rykesh Limited at the end of the year (2011: £Nil).

At the year-end dividends payable were owed to the following directors:

23. Capital commitments

At 31 March 2012 there were capital commitments of £nil (2011: £34,000).

24. Earnings per share

Earnings per share is calculated on the basis of a profit of £587,190 (2011: £263,500) divided by the weighted average number of shares in issue for the year of 21,067,443 (2011: 21,067,443). The diluted earnings per share is calculated on the assumption that the unapproved and EMI share options as disclosed in Note 17 to the financial statements are exercised. This would give rise to a total weighted average number of ordinary shares in issue for the period of 24,285,533 (2011: 24,097,225).

An adjusted earnings per share is calculated by adding back amortisation of intangible assets and non-recurring costs to retained earnings, giving £2,391,792 (2011: £2,139,307). This is divided by the same weighted average number of shares as above.

Earnings per share is calculated by dividing the retained earnings attributable to the equity holders by the weighted average number of ordinary shares in issue.

Adjusted earnings per share is calculated by dividing the retained earnings attributable to the equity holders (after adding back amortisation and non-recurring costs) by the weighted average number of ordinary shares in issue.

25. Financial instruments

Set out below are the Company's financial instruments. The directors consider there to be no difference between the carrying value and fair value of the Company's financial instruments.

The Facility A term loan bears interest at 2.25-3.5% over LIBOR, dependent upon the EBITA ratchet, and is repayable by quarterly instalments of £312,500, with the final repayment due on 30 September 2015. At the year end the amount outstanding in respect of this facility was £4.332m.

The Facility B loan bears interest at 3.5% over LIBOR and is repayable in full on the final repayment date of 30 September 2013. At the year end the amount outstanding in respect of Facility B was £3m.

The financial assets of the Company are surplus funds, which are offset against borrowings under the facility, and there is no separate interest rate exposure.

Barclays Bank plc has a cross guarantee and debenture incorporating a fixed and floating charge over the undertaking and all property and assets present and future including goodwill, book debts, uncalled capital, buildings, fixtures, fixed plant and machinery.

The bank also holds a charge over the life assurance policies of Ian Fishwick and Amanda Woodruffe, directors of the Company, for £1,500,000 and £250,000 respectively.

Obligations under finance leases

As at 31 March 2012 the Company had no finance lease obligations.

Sensitivity analysis

At 31 March 2012 it was estimated that a movement of 1% in interest rates would impact the Company's profit before tax by approximately £81,000. Given the interest rate swap instrument in place, this impact on profit would be reduced should interest rates rise above 2.96%.

Interest rate risk

The Company's policy is to manage its interest cost using a mix of fixed and variable rate debts. The Company's policy is to keep at least 75% of its borrowings at fixed rates of interest. At 31 March 2012, after taking into account the effect of interest rate management, 100% of the Company's borrowings are at a fixed rate of interest (2011: 100%).

Credit risk

Credit risk associated with cash balances and derivative financial instruments is managed by transacting with financial institutions with high quality credit ratings. Accordingly the Company's associated credit risk is deemed to be limited.

The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at 31 March 2012 was £4,138,542 (2011: £3,658,001).

Loans and receivables

Credit risk refers to the risk that the counterparty will default on its contractual obligations resulting in financial loss to the Company. The Company has adopted a policy of only dealing with creditworthy counterparties and this policy has been implemented by requiring staff to carry out appropriate credit checks on customers before sales commence.

Trade receivables consist of a large number of customers, spread across diverse industries across the United Kingdom. Ongoing credit evaluation is performed on the financial condition of accounts receivable. The Company does not have any significant credit risk exposure to any single counterparty or any Company of counterparties having similar characteristics. The Company defines counterparties as having similar characteristics if they are connected parties.

Liquidity risk

The Company has an appropriate liquidity risk management framework for the management of the Company's short, medium and long-term funding and liquidity risk management requirements. The Company manages liquidity risk by maintaining adequate banking facilities and reserve borrowing facilities through cash flow forecasting, acquisition planning and monitoring working capital and capital expenditure requirements on an ongoing basis.

The following table analyses the Company's financial liabilities into relevant maturity groupings based on the remaining period at the balance sheet dated to the contractual maturity date. The amounts disclosed in the table are the contracted undiscounted cash flows. Discounting is not required as this has no material effect on the financial statements.

Amortised cost

Currency risk

The Company's operations are handled entirely in sterling.

Capital risk management

The Company is subject to the risk that its capital structure will not be sufficient to support the growth of the business. The Company's objectives when managing capital are to safeguard the Company's ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. There were no changes to the Company's approach to capital management during the year.

As part of the banking arrangements, the Company is required to comply with certain covenants including net debt to adjusted EBITA, interest cover and cash flow cover.

In order to maintain or adjust the capital structure, the Company may return capital to shareholders, issue new shares or sell assets to reduce debt.

26. Events after the balance sheet date

On 9 May 2012 the Company signed an agreement to acquire certain trade and assets from Expanse (UK) Communications Limited. Initial consideration of £400,000 has been paid in cash by the Company with the balance of consideration being deferred until April and October 2013. Total deferred consideration is estimated to be £412,000; this amount is contingent and is dependent upon the gross margin and remaining contractual term of the customer contracts acquired as at 1 December 2012. Total consideration is capped at £950,000. Acquisition related costs of £14,000 will be recognised as an expense in the statement of comprehensive income for the year ending 31 March 2013.