How we’re financially weathering the storm of Covid-19

Virus with a financial graph in the background

In times of crisis, one of the most important steps any company can take is to provide clear and candid communications. So, one thing I can offer you – whether you’re a client, a colleague or an investor – is all of that in spades, and for this blog – clarity on our financial position.

I’ll start by setting the scene.

Due to the coronavirus pandemic our role as a ‘fourth utility’ – covering telecoms, data and IT – has come to the fore. If you question the voracity of this statement just ask your family whether they’d rather you keep the heating on or the broadband connection with IT attached.

Since Boris Johnson’s lockdown announcement on the 23rd March we’ve seen significant growth in demand for many of our services – from organisations of all sizes and industries, across both the public and private sector. As a clear example of how the team at AdEPT has risen to the challenge we’ve managed to help some 200,000 teachers and 900,000 students continue education through remote technology.

Of course, we would prefer for this demand to be the result of happier circumstances. Nevertheless, we are hugely grateful to everybody who continues to choose and trust us to keep their technology running through this crisis, and I am personally immensely grateful to the awesome team at AdEPT who have truly stepped up.

Behind the scenes, there’s much going on here to ensure we ride out this storm. Here’s a closer look.

The financial picture as it stands

We have a number of financial advantages worth highlighting.

The first core strength is our balanced client base. About 45 per cent of our turnover comes from public sector clients, including thousands of schools, the Cabinet Office, and the NHS. Clearly, at this time, such organisations have pressing technology and connectivity needs. But beyond the pandemic, the public sector’s digital transformation will continue – and perhaps become even more fast paced. During the election of 2019, ‘Digital Britain’ was a major manifesto commitment – and has been brought into stark relief over recent days.

As such, AdEPT and our partners have an invaluable role to play right now, and long into the future. Crucially, dealing with ‘government backed’ organisations means a secure flow of cash which is so important in uncertain times.

Our second core strength relates to the nature of our revenue. The majority of our income results from long-running and repeat contracts. Building this dependable revenue stream has been a core mantra of AdEPT for many years, a strategy that is bearing fruit for both our clients and us as a business during these challenging times.

Certainly, we have been more flexible than ever in light of the pandemic, helping our clients with short-term options, but we are able to be nimble and adaptive because of the bedrock of long-term visible cash flow.

Our third financial strength relates to a point I mentioned earlier: IT, communications and networking collectively being the ‘fourth utility’. Therefore, as a provider of these products and services, we play a critical role in the connectivity and communications of organisations. And – at the risk of stating the obvious – this means our services are not just a desirable, they’re essential. It’s therefore no surprise that our staff have been classified as key workers.

A fourth strength, though not strictly financial, lies in our people. As clichéd as this sounds, our people are our biggest asset. We’ve always nurtured – and been proud of – the breadth and depth of our people’s knowledge and their continued can-do attitude. However, this has become all the more striking in the face of the pandemic.

They say that culture is what happens in a business when you are not present in the office. With AdEPT now scattered across over 300 ‘offices’ – bedrooms, kitchens, studies and dining rooms – our positive culture is being demonstrated time and again. It is one of the main reasons why I know we will weather this storm. You can read more about how our people have been stepping up to the plate here.

These points are by no means an exhaustive list, but they do stand out in the wake of the pandemic. But what about our financial picture before the crisis, and beyond?

A look back

To look beyond our obvious financial strengths, it’s worth casting your mind back for a moment. As you may be aware, over the past few years we have been acquiring businesses to enhance and complement our portfolio of services.

For instance, in 2017, we acquired Our IT Department, incorporating this business into our group IT support services team. Also, that year, we acquired Atomwide, establishing a substantial presence in the education sector.

More recently, in 2018, we acquired Shift F7, growing our position as an IT provider. And last year, we acquired ACS, broadening our geographic reach and depth of capability in the education sector.

All of these acquisitions reflect our long-term strategic goal: to respond to the irrevocable blurring of the boundaries between telecoms, data and IT.

And so, in a relatively short time, we’ve become a leading independent provider of managed services for IT, unified communications, connectivity, voice and cloud services. Or, to put it more simply, a one-stop shop for all things ICT. This puts us on a strong footing for the future.

Looking ahead

You’ll have seen above some of our financial strengths that put us in good stead at this challenging time. But one thing worth mentioning here is that, prior to the pandemic taking hold – in February 2020 – we raised £4.25m in a share placing. Our plan at the time was to utilise these funds for more acquisitive activities, but given the situation we all find ourselves in, we have chosen the most sensible option – to conserve this cash as a buffer in the coming months.

In a clear demonstration that we are all in this together we have also cancelled the payment of dividends – we’ll review this decision later in the year, with a further update as part of announcements alongside our final results planned for July.

And, as our chief financial officer John Swaite tells Proactive Investors in this video, we have extensively stress-tested our finances to ensure we are as prepared as possible.

We’ve modelled various scenarios that have a low, medium and high impact on our business, looking at orders, lead times, delays to payments and business failures. In these scenarios, we will remain a cash-generative, profitable business.

Confident, but not complacent

Every organisation and every person is being shaken up by the coronavirus pandemic. We are fortunate that we have several levers at our disposal and structural strengths – all benefits of our strategy, our scale and our depth of expertise. However now is not a time to be complacent, and certainly we shall not be.

Written by Phil Race

CEO - AdEPT Technology Group