TIDMRCN
RNS Number : 5105J
Redcentric PLC
29 June 2017
29(th) June 2017
Redcentric plc ("Redcentric" or "the Company")
Preliminary announcement for year ended 31(st) March 2017
Redcentric plc (AIM: RCN), a leading UK IT managed services
provider, today announces its unaudited results for the year ended
31(st) March 2017.
SUMMARY
-- A challenging year but trading in line with revised expectations
-- Finance function and processes materially strengthened
-- Strong sales & recurring business performance; good sales pipeline looking forward.
FINANCIAL HIGHLIGHTS*
-- Revenue of GBP104.6m, including GBP90.2m (86.2%) of recurring revenue
-- Adjusted EBITDA** of GBP17.3m, representing an adjusted EBITDA margin of 16.5%
-- Non-recurring charges of GBP5.5m***
-- Operating*** loss from operations of (GBP3.0m)
-- Adjusted EPS**** 4.45p. Statutory EPS loss of (1.60)p
-- Net debt GBP39.5m
-- No dividend is payable for the year
-- Banking facilities refinanced in April 2017.
*As a result of the scale of the restatements to the comparative
numbers and on the basis that the auditors intend to issue a
qualified audit report on the 2016 Income Statement, we have not
sought to comment on comparative trading performance figures.
**Earnings before interest, tax, depreciation, amortisation of
acquired intangibles, non-recurring costs and share based
payments.
***Operating loss from operations includes non-recurring costs
of GBP5.5m, of which GBP2.9m relates to additional debtor
provisions.
**** Adjusted Earnings per Share excludes amortisation of
acquired intangibles, non-recurring costs and share based payments
and replaces the reported tax credit with a notional tax charge at
the full rate of corporation tax.
OPERATIONAL HIGHLIGHTS
-- Sales targets met with 88 new logo wins in year totalling
GBP19.4m of total contract value from new customers ("TCV")
including Pizza Express and NHS Digital
-- Renewed three key Public Sector contracts
-- Net new business to cross sell new business ratio 35:65
-- New business sales pipeline (from new and cross-sale
opportunities) strong at approximately GBP89m TCV
-- Significant growth capacity in existing network and datacentre estates
-- Jon Kempster and Steve Vaughan both appointed non-executive directors
REMEDIAL PLAN
-- Appointment of Peter Brotherton as Chief Financial Officer
-- New auditors in place from May 2017
-- Balance sheet fully reviewed by three audit firms
-- Lending banks remain supportive with amended facilities agreed and in place
-- More robust internal controls around cash reconciliations and
improvements to billing and credit control management systems and
processes
-- Delivery underway for the replacement of multiple legacy back
office systems with standard integrated Microsoft platform
-- The forensic review incurred professional fees of
approximately GBP1.3m for the current financial year and have been
included in non-recurring items
-- Customer and staff loyalty and support very much in evidence through this turbulent period
-- We continue to co-operate fully with the ongoing FCA investigation.
This announcement contains inside information. There will be a
presentation for analysts held at 09:30hrs on 29(th) June 2017 at
the offices of Tulchan Communications, 85 Fleet Street, EC4 1AE.
Please contact redcentric@tulchangroup.com if you would like to
attend.
Chris Cole, Chairman, commented:
"During this challenging period for the Company our clients and
employees have remained loyal and focused, thus ensuring the
day-to-day externally-facing business operations have continued
satisfactorily. At the same time the financial structure and
personnel have been reinforced and changed to provide resilient and
accurate reporting. We now look forward to the business operating
normally and trading well in markets that provide opportunities for
growth".
Fraser Fisher, Chief Executive, added:
"I would like to thank our Redcentric team for their hard work
and dedication throughout the last 12 months. We have taken the
necessary actions to strengthen the business where it needed work.
We have a loyal client base and a solid market offering exemplified
by our new business and cross selling wins. The underlying business
is strong, sustainable and well positioned for the future."
Enquiries:
+44 (0)845 034
Redcentric plc 111
Fraser Fisher, Chief Executive
Officer
Peter Brotherton, Chief Financial
Officer
+44 (0)20 7353
Tulchan Communications 4200
James Macey White / Matt Low
Numis Securities Limited - Nomad +44 (0)20 7260
& Joint Broker 1000
Simon Willis / Oliver Hardy /
Ben Stoop
+44 (0)20 7220
finnCap Ltd - Joint Broker 0500
Stuart Andrews / Rhys Williams
Chairman's Statement
The year has been challenging following the Company's disclosure
in November concerning the financial misstatements arising from
past periods and the subsequent release of interim results in
December 2016. Despite these events, our clients and employees have
remained loyal and focused, thus ensuring that the business has
continued to provide reliable services and report results in line
with revised expectations.
A great deal of work has been carried out in the period. We have
made a number of key appointments to ensure the ongoing
strengthening and resilience of our financial management team, its
processes, structure and all adjacent activities. While we continue
to reinforce these activities, the overall operation of the group
has largely returned to business as normal.
Summary trading results
The revenue for the year was GBP104.6m. Operating loss for the
year was GBP3.0m and adjusted EBITDA* was GBP17.3m resulting in an
adjusted EBITDA margin of 16.5%. Adjusted basic EPS** was 4.45p
with a statutory EPS loss of (1.60)p.
Board and Employees
I would like to place on record my sincere thanks to all of our
employees. Despite the distractions and challenges of the events
from the past few months, they have carried on their work with
great dedication. This has meant that we have continued to provide
our clients with the support they rightly expect.
During the second half of the year a number of changes have
occurred to the Board. Tony Weaver resigned from the Board as
Non-Executive Director on 1 November 2016. Tim Coleman resigned
from the Board as Chief Financial Officer on 7 November 2016.
On 23(rd) November 2016 the Company announced the appointment of
Peter Brotherton ACA as Chief Financial Officer, Company Secretary
and a Director of the Board. Peter has over 25 years' experience
across a number of senior roles. Jon Kempster joined the Board as a
Non-Executive Director on 10 January 2017 and Steve Vaughan also
joined the board as a Non-Executive Director post year end on 13
June 2017. Jon brings additional financial experience to the board
while Steve brings a wealth of industry experience.
These changes create a strengthened Board which is important for
the long term outlook of Redcentric. Furthermore, under Peter
Brotherton's stewardship, the Finance Team has also been
significantly reinforced to ensure the challenges of this year
cannot happen again.
Dividend
While the Group remains cash generative, the Board has decided
that it is not appropriate to pay a dividend in respect of the year
ended 31st March 2017. The Board will review this situation on an
ongoing basis.
Outlook
It is appropriate to register our thanks for the support
provided to the Company by our banks and advisers. The Board is
mindful that this has been an equally difficult period for
Shareholders and their ongoing support has been appreciated.
We have a strengthened Board and Management Team who are
absolutely focused on ensuring Redcentric has a sustainable and
successful long term future. Our strong contract base and recurring
nature of our business provides a solid platform for ongoing
performance and growth. There remains significant opportunity for
the Company to continue to establish itself as a market leader. We
see no change in our clients' operational and strategic needs being
matched by the delivery of our reliable and innovative services.
Therefore the Board is confident that the Company will put this
difficult period behind it and progress to improve Shareholder
value.
Chris Cole
Non-Executive Chairman
29th June 2017
* Adjusted EBITDA is defined as earnings before interest, tax,
depreciation, non-recurring costs and share based payments.
** Adjusted Earnings per Share excludes amortisation of acquired
intangibles, non-recurring costs and share based payments and
replaces the reported tax credit with a notional tax charge at the
full rate of corporation tax.
Operational Review
Overview
Since it started life as a new company in April 2013, Redcentric
has grown and developed into one of the leading businesses in the
UK managed services market, successfully delivering critical
services to over 2,000 mid-market customers. We have built a strong
platform, delivering a broad range of core services to our
customers, enabling them to focus on improving their own
businesses. We are taking the necessary actions, following the
accounting misstatements, to strengthen the business. While the
business has had a turbulent period, we have weathered the storm
and can now return to business as usual, focussing on sales growth
and high quality customer services. The underlying business is
strong, sustainable and well positioned for the future.
Redcentric's proposition
Redcentric's central aim is to provide its customers with a wide
range of reliable, secure and innovative core IT services from a
well-invested base of owned infrastructure. Redcentric operates
highly accredited, state-of-the-art data centres in Harrogate,
Reading, London and Cambridge which are connected to our network,
and from which services are delivered. These are our own dedicated
facilities, held on long leases, and have been fully resourced with
well trained and qualified staff as well as the technology to
deliver critical services to our customers. We maintain very high
levels of accreditation, and undergo rigorous audits from a range
of external and government bodies throughout the year.
The data centres are connected to our own fully resilient
national network, providing coverage and access across the UK. From
this strong base of owned managed infrastructure we are able to
offer a wide range of IT managed cloud, communications and
connectivity services including;
-- Collaboration Services. Through IP telephony, messaging and
video conferencing we help organisations enable their staff to
communicate more effectively.
-- Infrastructure. As a leading provider of infrastructure
services, Redcentric offers a suite of Cloud services, as well as
colocation, data management and virtualisation services, all
offered on an "As a Service" basis.
-- Connectivity Services. We are a significant service provider
with a core backbone network, metro networks and extensive
experience in delivering networks for a broad range of
organisations.
-- Applications Services. We provide packaged solutions for many
sectors as well as application management services from legacy to
current architecture.
-- Security. We help protect customers from deliberate malicious
attacks, or unintentional security threats from unauthorised
devices and a range of other threats.
-- Mobile. We provide a fully managed mobile service with
flexibility, reliability and security.
Along with our own highly assured and actively managed services,
we also offer customers the ability to operate hybrid solutions.
These include operating customer premise equipment, through to
private or shared cloud solutions in Redcentric's data centres,
through to public cloud. These can all be managed through
Redcentric's assured "single pane of glass" management platform,
allowing customers complete flexibility to implement the right
solution for their needs, while enabling flexibility for future
change.
Redcentric's headquarters are in Harrogate, with additional
offices in London, Reading, Theale, Cambridge, Hyde and Hyderabad.
The Hyderabad office operates as a fully integrated part of
Redcentric, with highly skilled second and third line technical
engineers complementing the support teams in the UK as well as
providing back office services. The Hyderabad office provides
access to one of the world's largest sources of highly skilled
technical staff, and provides flexibility in delivering high
quality services to our customers.
Redcentric sees its mission as enabling its customers to focus
on enhancing their own businesses whilst relying on a trusted
partner to operate their underlying core IT infrastructure
platform.
Performance
The financial performance of the company is covered in the
Financial Review. We focus particularly on recurring revenue, which
was GBP89.2m (85.3% of total revenue for the year). Despite the
challenges we have faced through the year with regard to our
financial misstatements of previous periods, it is important to
note that we have continued to be asked to tender for business,
have clients renew contracts and win new clients.
We continue to generate growth by winning new business from both
existing clients and new names. The ratio remains healthy with 65%
of our new wins coming from cross sell to existing customers and
35% coming from brand new clients. The sales performance throughout
the year was strong, with internal sales targets being achieved and
88 new names added to the client list. Some significant wins
include:
-- Public Healthcare sector: a GBP3.4m new business win delivering network services
-- Private Healthcare Sector: a GBP2.9m five-year contract cross-sell to provide Cloud services
-- Public Sector: a GBP3.8m two-year contract renewal for Cloud services
-- Public Sector: a GBP2.4m two year contract renewal
We continue to believe that ownership of our own cloud,
communications and connectivity infrastructure allow us to provide
our clients with the peace of mind that they need as they continue
to look externally for the delivery of core IT services.
In addition we have invested heavily in ISO accreditation
covering many fields including service management, business
continuity and security, ensuring that our high quality team of
people deliver a demonstrably exemplary service.
Acquisitions
City Lifeline Ltd was acquired in January 2016 with the
integration now complete and the datacentre "on-net". The
Shoreditch location provides ample datacentre space. It also
provides additional office space allowing for the consolidation of
our London locations into a single site.
Strategy
There are multiple different views of the size of the UK IT
services market, however they all indicate a very significant
market, worth in excess of GBP100bn spend per annum. Within this
market are a wide range of differing sub-sectors, from high-growth
new technologies, to declining legacy markets. Redcentric is not
exposed to markets in structural decline, and our focus on
connectivity, infrastructure and cloud-based solutions means the
markets we operate in are growing steadily.
Our strategy for future growth is simple;
-- We will continue to win new customers, sell more to existing
customers and renew our existing customer contracts.
-- We will continue to invest in developing and enhancing our
own infrastructure so that we can provide our customers with the
very highest levels of security and service.
-- We will use our scale to explore and invest in new
technologies so that our customers can benefit from the high levels
of innovation across the whole industry.
We have a stable, growing and well-funded business, operating in
a growing market, and we are confident that our strategy will
deliver shareholder value in the coming years.
People
Redcentric's success has always been dependent on the hard work
and dedication of its employees in both the UK and India. Staff
numbers have increased this year to 523, with around 140 being
located in our Hyderabad office. We have invested in additional
space in both our Harrogate and Hyderabad offices to support the
business. We are also investing in our Shoreditch location to allow
the closure of our other London office.
Our Save-As-You-Earn share-save plan has been in place since
December 2014 and the Company plans to launch a third round later
this year to include our staff based in India for the first time.
The plan provides employees with a risk-free means of sharing in
the success of the Company, and I am delighted that so many have
been able to participate.
Outlook
A huge amount of work has been carried out to ensure the
challenges of this year will not happen again. Significant
investment in our finance department has materially strengthened
the personnel and systems in place. The addition of the new back
office system toward the end of the financial year will cement into
place a solid scalable back office platform. The board has been
strengthened both by the addition of a new Chief Financial Officer
and two experienced Non-Executive directors.
The team at Redcentric remain dedicated and loyal which is key
within a people business. Client loyalty has also been very
positive. This has been demonstrable in both contract renewal and
cross sell wins. The Company has also benefitted from 88 new name
customer wins throughout the year demonstrating the appeal of the
Company's market offering. The sales team delivered their target
last year and the current pipeline remains healthy. Redcentric is a
good business with solid market potential underpinned by a robust
contract base. While being very aware of the impact from this past
year for Redcentric's shareholders, the Board does believe that the
business has a positive long term outlook.
Fraser Fisher
Chief Executive Officer
29th June 2017
Financial Review
Summary of results
A summary of the Group's financial performance is shown
below.
2017
GBP'000
Statutory performance measures
Revenue 104,623
Loss from operations (2,995)
Basic and Diluted earnings
per share (1.60p)
Dividend (p) 0p
Adjusted financial performance
measures
Adjusted EBITDA 17,273
Adjusted EBITDA margin 16.5%
Adjusted profit from operations 8,250
Adjusted Basic earnings
per share 4.45
Adjusted Diluted earnings
per share 4.32
Other key performance indicators
Net debt (including finance GBP39.5m
leases)
Operating cash flows to
adjusted EBITDA 54.7%
Accounting misstatements
Net assets and net debt
Following an internal review by the Company's Audit Committee in
relation to the interim results for the six months ended 30
September 2016, materially misstated accounting balances in the
Group's balance sheet were discovered.
The Board acted promptly and appointed Deloitte and Nabarro to
carry out an independent forensic review. The majority of
misstatements arose in the group's main subsidiary, Redcentric
Solutions Limited. The forensic review found that both net assets
and net debt as at 31 March 2016 had been materially misstated. The
misstatements arose due a combination of wilful misstatement and
poor application of basic accounting controls and processes. The
investigation did not find any evidence of theft.
The review found that net assets as at 31 March 2016 had been
overstated by GBP14.9m (subsequently revised to GBP15.8m as per
note 28). A number of accounting policies and practices,
specifically those in respect of cost accrual, cost deferment and
revenue recognition had been incorrectly applied.
Net debt at 31 March 2016 had been understated by GBP12.5m. The
forensic review uncovered misstatements regarding the timing of
cash receipts and cash payments. Cash receipts from customers
received post year end had been incorrectly recorded as having been
received pre year end and cash payments to suppliers pre year end
had been incorrectly recorded as being made post year end.
In addition to the accounting errors and misstatements, supplier
payments had been very significantly delayed in order to present a
better net debt position (cash flows and net debt discussed
below).
Certain additional misstatements have been identified, relating
to 31 March 2016 and previous periods, during the preparation of
the statutory accounts for the year ended 31 March 2017. The impact
of these additional re-statements is to increase the overall
overstatement of net assets at 31 March 2016 by GBP0.9m to
GBP15.8m.
Income statement prior year comparative figures
The scale and complexity of the misstatements, along with the
length of time over which the misstatement occurred, meant that the
forensic review took a significant time to complete and a level of
judgement was applied to the allocation of profit reduction over a
number of accounting periods. The forensic review focused on the 30
September 2016 and 31 March 2016 balance sheets and additional work
was undertaken by the Company to analyse and attribute the
accounting misstatements back to 31 March 2015.
Whilst the audits of the subsidiary companies had been
completed, the statutory accounts for the year ended 31 March 2016
were not filed at the same time as the Redcentric plc group
accounts. Given the material misstatements discovered, the Group's
subsidiary accounts had to be re-audited by the predecessor
auditor, PwC. This was a very time consuming exercise and was
completed when the subsidiary accounts were drawn up again and
filed with Companies House on 28 April 2017. Whilst all of the
Group's subsidiaries received unqualified audit reports on the
Statements of Financial position, the Statement of Comprehensive
income of Redcentric Solutions Limited received a qualified opinion
as the company's former auditors, PwC, were unable to form an
opinion within reasonable timescales. The directors took the view
that the time and cost of the further investigations necessary to
provide sufficient audit evidence would be disproportionate, and
this conclusion also applies to the comparative consolidated
Statement of Comprehensive Income within these financial
statements, leading to a qualified opinion being issued by
KPMG.
As a result of the scale of the restatements to the comparative
numbers and the qualification of the audit report on the 2016
income statement, we have not sought to comment on comparative
trading figures.
Remedial plan
The forensic review identified a number of process and control
failings which required prompt rectification action. Significant
progress has been made in improving the financial control
environment post the forensic review:
-- The finance team has been significantly strengthened in terms
of numbers, experience and capability.
-- Significantly enhanced financial controls have been applied across the business.
-- Clear cash cut off policies are rigorously applied.
-- The replacement of the multiple legacy back office systems is
underway and a fully integrated Microsoft platform will be
implemented by the start of the next financial year.
Bank refinancing
As a result of the accounting misstatements, the Group's
historical financial results had to be restated and this meant that
previously reported banking covenant ratios had been breached.
The Group received covenant waivers for the historical breaches
from its Banking Syndicate (Barclays, NatWest and Lombard) and a
revised facilities agreement was signed on 27 April 2017.
The revised facilities agreement was broadly in line with the
original agreement save an increased margin.
Financial Conduct Authority investigation
On 17 March 2017, the Financial Conduct Authority ("FCA")
notified Redcentric that it had commenced an investigation in
connection with the Company's publication of accounting information
and other announcements concerning its financial position. This
followed the completion of an independent forensic review
commissioned by the Board of Redcentric.
Redcentric is co-operating fully with the FCA and other relevant
authorities concerning this matter.
Acquisitions and amortisation of intangibles
No acquisitions were undertaken during the year. In relation to
the previous year's acquisitions, with the exception of the City
Lifeline Ltd finance function, the Calyx Managed Services Ltd and
City Lifeline Ltd businesses were fully integrated into the group's
principal subsidiary Redcentric Solutions Ltd.
In the year ended 31 March 2017 the Group recorded an
amortisation charge of GBP6.2m against a GBP6.0m restated charge in
the previous year. The increase in amortisation reflected a full
years charge for City Lifeline (2 months in the year ended 31 March
2016).
Capital expenditure and depreciation
Capital expenditure for the year at GBP8.6m was broadly
consistent with the previous year.
The depreciation charge for the year was GBP7.5m, reflecting the
higher levels of capital expenditure in the last two financial
years.
Non-recurring items
Non-recurring costs amounted to GBP5.5m and comprise:
2017 2016
Restated
GBP000 GBP000
---------------------------------- ------- ---------
Non-recurring impairment 2,933 -
of trade debtor balances
Professional fees associated 1,291 -
with the forensic review
and Financial Conduct Authority
(FCA) investigation
Integration and restructuring
costs 658 3,028
Vacant property provisions 385 1,698
Disposal of City Fibre network 207 -
Settlement of supplier claims - 1,954
5,474 6,680
================================== ======= =========
The accounting irregularities experienced at the start of the
financial year resulted in inadequate credit management during part
of the year, causing a significant build-up of overdue and
uncollected debt. This together with a reassessment of the basis
for credit risk provisioning has resulted in one-off credit losses
of GBP2.9m being recorded during the year ended 31 March 2017.
Given the non-recurring nature of this additional impairment
charge, this has been separately disclosed within "non-recurring
items".
Given the non-recurring nature of this additional impairment
charge, this has been separately disclosed within "non-recurring
items".
A non-recurring charge of GBP1.3m was incurred in respect of
professional fees paid to Deloitte and Nabarro relating to the
forensic exercise and FCA investigation.
Integration and restructuring costs relate primarily to the
final operational integration of the City Lifeline and Calyx
businesses.
During the year, the Birmingham and Hoddesdon offices were
vacated and this led to a vacant property charge of GBP0.4m in the
year.
During the year the Group disposed of its fibre network to City
Fibre Limited and this resulted in an exceptional charge of GBP0.2m
in respect of the loss on disposal and legal fees.
The settlement of supplier claims resulted from a software
licence audit in respect of prior years.
Cash flows / Net debt
A summary of the cash flows for the year are as follows:
Unaudited
Unaudited Restated
2017 2016
GBP000 GBP000
---------------- ------------ ----------
Net Debt
Cash at bank (4,340) 3,970
Finance leases 5,752 5,592
Borrowings 38,119 28,175
Net Debt 39,531 37,737
================ ============ ==========
Unaudited
2017
GBP000
------------------------------------------- ----------
Operating cash flow before non-recurring
costs and movements in working capital 17,273
Movements in inventories and trade
and other receivables 1,785
Movements in trade and other payables (9,616)
Non-recurring costs (3,159)
Corporation tax received 71
-------------------------------------------- ----------
Net cash inflow from operating activities 6,354
-------------------------------------------- ----------
Cash flows from investing activities
Proceeds on disposal of property,
plant and equipment 5,000
Purchase of property, plant and
equipment (6,744)
-------------------------------------------- ----------
Net cash outflow from investing
activities (1,744)
-------------------------------------------- ----------
Cash flows from financing activities
Dividends paid to shareholders (4,406)
Interest paid (1,209)
Repayment of borrowings (2,435)
Drawdown on revolving credit facility 10,000
Proceeds of issue of shares less
costs of issue 1,731
-------------------------------------------- ----------
Net cash inflow from financing activities 3,681
-------------------------------------------- ----------
Net increase (decrease) in cash
and cash equivalents 8,291
-------------------------------------------- ----------
Opening cash and cash equivalents
(as restated) (3,970)
Net increase (decrease) in cash
and cash equivalents 8,291
Effect of exchange rates 19
Cash and cash equivalents 4,340
-------------------------------------------- ----------
The cash flow statement is dominated by the GBP9.6m catch up in
creditor balances. Whilst the net debt position as at 31 March 2016
is correct in technical terms. The balance was materially misstated
as a result of significantly delayed payments to suppliers. The
delayed payments included trade creditors and payroll creditors.
Post the forensic review, the group has had a policy of paying its
suppliers in accordance with their terms and this explains the
GBP9.6m cash outflow.
Taxation
The corporation tax charge for the year reflects the offset of
available tax trading losses brought forward.
Share based payments
The Group recorded a charge for share based payments during the
year of GBP1.1m. Of this amount, GBP0.5m related to staff schemes
and GBP0.6m to historic options. The staff charge for the year
declined largely as a result of options lapsing due to leavers.
EPS
The statutory basic and diluted earnings per share ("EPS") in
the year was (1.60)p. The Group also calculates an adjusted EPS
figure to measure underlying performance, which excludes the effect
of amortisation of acquired intangibles, share option charges and
transaction and integration costs, and applies a normalised tax
charge. Adjusted basic EPS was 4.45p with adjusted diluted EPS
4.32p.
*Adjusted earnings per share escludes amortisation of acquired
intangibles, non-recurring costs and share based payments and
rerplaces the reported tax credit with a notional tax charge at the
full rate of corporation tax.
Dividends
During the year Redcentric returned GBP4.4m to shareholders in
the form of dividends. Whilst the group remains cash generative,
the board has decided that it is not appropriate to pay a dividend
in respect of the year ended 31 March 2017. The board will review
this situation on an ongoing basis.
Change of Auditor
KPMG were appointed as the Group's auditors on 15 May 2017.
Peter Brotherton
Chief Financial Officer
29(th) June 2017
Consolidated Income Statement
For the year ended 31 March
Unaudited Unaudited
2017 Restated
2016
--------------------------------- ----- ---------- ----------
Note GBP000 GBP000
Revenue 104,623 102,363
Cost of sales (43,304) (44,553)
Gross profit 61,319 57,810
Operating expenditure (64,314) (62,756)
Operating Loss (2,995) (4,946)
Analysed as:
Adjusted EBITDA* 17,273 14,380
Depreciation (7,507) (5,294)
Amortisation of intangibles (6,207) (6,016)
Non-recurring costs 2 (5,474) (6,680)
Share-based payments (1,080) (1,336)
---------- ----------
(2,995) (4,946)
--------------------------------- ----- ---------- ----------
Finance costs (1,253) (1,195)
--------------------------------- ----- ---------- ----------
Loss on ordinary activities
before taxation (4,248) (6,141)
Tax (charge)/ credit on
profit on ordinary activities 1,870 1,946
Loss for the year (attributable
to owners of the parent) (2,378) (4,195)
================================= ===== ========== ==========
Earnings per share
Basic and diluted earnings
per share 3 (1.60)p (2.89)p
*Earnings before interest, tax, depreciation, amortisation,
non-recurring costs and share-based payments
The above consolidated income statement should be read in
conjunction with the accompanying notes.
Consolidated Statement of Comprehensive Income
Unaudited
Unaudited Restated
2017 2016
GBP000 GBP000
------------------------------- ------------ ----------
Loss for the year
Exchange differences arising (2,378) (4,195)
on re-translation of foreign
subsidiary 94 (7)
Total comprehensive income (2,284) (4,202)
=============================== ============ ==========
Consolidated Statement of Changes in Equity - Unaudited
Called Share Capital Retained Total
up share premium redemption earnings equity
capital reserve
--------------------------- ----------- ---------- ------------- ----------- ---------
GBP000 GBP000 GBP000 GBP000 GBP000
At 31 March 2015
- previously reported 145 62,668 (9,454) 41,378 94,737
Prior year adjustments - - - (4,413) (4,413)
---------------------------- ----------- ---------- ------------- ----------- ---------
At 31 March 2015
- restated 145 62,668 (9,454) 36,965 90,324
Loss for the year
(restated) - - - (4,195) (4,195)
Other comprehensive
gain (loss) - before
tax - - - (7) (7)
---------------------------- ----------- ---------- ------------- ----------- ---------
Total comprehensive
income for the
year - - - (4,202) (4,202)
Transactions with
owners:
Issue of new shares 1 999 - - 1,000
Dividends to shareholders - - - (5,806) (5,806)
IFRS2 Charge - - - 1,336 1,336
Deferred tax on
SBP - - - (965) (965)
At 31 March 2016 146 63,667 (9,454) 27,328 81,687
Loss for the year - - - (2,378) (2,378)
Other comprehensive
gain (loss) - before
tax - - - 94 94
---------------------------- ----------- ---------- ------------- ----------- ---------
Total comprehensive
income - - - (2,284) (2,284)
Transactions with
owners:
Issue of new shares 3 1,728 - - 1,731
Dividends to shareholders - - - (4,406) (4,406)
IFRS2 Charge - - - 975 975
Deferred tax on
SBP (974) (974)
At 31 March 2017 149 65,395 (9,454) 20,639 76,729
============================ =========== ========== ============= =========== =========
Consolidated Balance Sheet
As at 31 March
Unaudited Unaudited Unaudited
2017 Restated Restated
2016 2015
Note GBP000 GBP000 GBP000
Assets
Non-current assets
Property plant
and equipment 21,998 26,026 23,630
Intangible assets 88,725 94,191 80,503
------------------------------ ------------ ---------------------- ---------------------
110,723 120,217 104,133
------------------------------ ------------ ---------------------- ---------------------
Current assets
Inventories 234 429 -
Trade and other
receivables 25,839 31,038 16,474
Corporation tax
receivable 369 531 -
Cash and short
term deposits 4,340 - 3,295
------------------------------ ------------ ---------------------- ---------------------
30,782 31,998 19,769
------------------------------ ------------ ---------------------- ---------------------
Total assets 141,505 152,215 123,902
============================== ============ ====================== =====================
Equity and liabilities
Equity
Called up share
capital 5 149 146 145
Share premium
account 65,395 63,667 62,668
Capital redemption
reserve (9,454) (9,454) (9,454)
Retained earnings 20,639 27,328 36,965
------------------------------ ------------ ---------------------- ---------------------
Total equity 76,729 81,687 90,324
------------------------------ ------------ ---------------------- ---------------------
Non-current liabilities
Provisions 1,207 1,940 489
Borrowings 4 41,092 31,389 9,412
Deferred tax liability 2,112 3,110 31
------------------------------ ------------ ---------------------- ---------------------
44,411 36,439 9,932
------------------------------ ------------ ---------------------- ---------------------
Current liabilities
Overdraft - 3,970 -
Trade and other
payables 17,247 27,407 20,909
Corporation tax
payable - - 1,518
Borrowings 4 2,779 2,378 1,033
Provisions 339 334 186
------------------------------ ------------ ---------------------- ---------------------
20,365 34,089 23,646
------------------------------ ------------ ---------------------- ---------------------
Total liabilities 64,776 70,528 33,578
------------------------------ ------------ ---------------------- ---------------------
Total equity and
liabilities 141,505 152,215 123,902
============================== ============ ====================== =====================
Consolidated Cash Flow Statement
For the year ended 31 March
Unaudited Unaudited
2017 2016
Note GBP000 GBP000
Cash flows from operating activities
Loss before taxation (4,248) (6,141)
Net finance expense 1,253 1,195
-------------------------------------- ----- ---------- ----------------
Operating loss (2,995) (4,946)
Depreciation and amortisation 13,714 11,310
Non-recurring items 5,474 6,680
Share based payments 1,080 1,336
-------------------------------------- ----- ---------- ----------------
Operating cash flow before
non-recurring costs and movements
in working capital 17,273 14,380
Non-recurring costs and NI
on share based payments (3,159) (5,081)
-------------------------------------- ----- ---------- ----------------
Operating cash flow before
movements in working capital 14,114 9,299
Decrease (increase) in inventories 196 (429)
Decrease (increase) in trade
and other receivables 1,589 (11,456)
(Decrease) increase in trade
and other payables (9,616) 833
-------------------------------------- ----- ---------- ----------------
Cash generated from operations 6,283 (1,753)
Corporation tax received 71 (244)
-------------------------------------- ----- ---------- ----------------
Net cash inflow from operating
activities 6,354 (1,997)
-------------------------------------- ----- ---------- ----------------
Cash flows from investing activities
Acquisition of subsidiaries
net of cash acquired - (13,777)
Proceeds on disposal of property,
plant and equipment 5,000 -
Purchase of property, plant
and equipment (6,744) (8,158)
-------------------------------------- ----- ---------- ----------------
Net cash outflow from investing
activities (1,744) (21,935)
-------------------------------------- ----- ---------- ----------------
Cash flows from financing activities
Dividends paid to shareholders 6 (4,406) (5,806)
Interest paid (1,209) (1,127)
Repayment of borrowings (2,435) -
Drawdown on revolving credit
facility 10,000 22,600
Proceeds of issue of shares
less costs of issue 1,731 1,000
-------------------------------------- ----- ---------- ----------------
Net cash inflow from financing
activities 3,681 17,994
-------------------------------------- ----- ---------- ----------------
Net increase (decrease) in
cash and cash equivalents 8,291 (7,265)
-------------------------------------- ----- ---------- ----------------
Opening cash and cash equivalents
(as restated) (3,970) 3,295
Net increase (decrease) in
cash and cash equivalents 8,291 (7,265)
Effect of exchange rates 19 -
Cash and cash equivalents 4,340 (3,970)
-------------------------------------- ----- ---------- ----------------
Selected notes to the Consolidated Financial Statements
Year ended 31 March 2017
1 General information and basis of preparation
The Group prepares its annual consolidated financial statements
in accordance with International Financial Reporting Standards
(IFRS) and International Financial Reporting Interpretations
Committee (IFRIC) interpretations endorsed by the European Union
EU) and with those parts of the Companies Act 2006 applicable to
companies reporting under IFRS. The consolidated financial
information contained within this preliminary announcement is
unaudited and has been prepared under the historical cost
convention.
The financial information included in this preliminary
announcement does not include all the disclosures required by IFRS
or the Companies Act 2006 and accordingly it does not itself comply
with IFRS or the Companies Act 2006. The unaudited consolidated
financial information in this report has been prepared in
accordance with the accounting policies disclosed in the Group's
2016 Annual report and accounts.
The financial information set out in this announcement does not
constitute the company's statutory accounts within the meaning of
Section 434 of the companies Act 2006 for the years ended 31 March
2016 or 31 March 2017.
Whilst the financial information for the year ended 31 March
2016 is derived from the statutory accounts for that year, which
have been delivered to the Registrar of Companies, a number of
adjustments have been made in respect of material misstatements to
the numbers presented in the Group's 2016 annual report. These
adjustments to the 31 March 2016 annual report, as set out in note
7, will be reported as prior period restatements within the
statutory accounts for the year ended 31 March 2017.
Because of uncertainty as to the extent to which these
adjustments relate to the year ended 31 March 2016, or to the year
ended 31 March 2015, or to earlier periods, the annual report for
the year ending 31 March 2017 will include a qualified audit
opinion in respect of the comparative income statement and cash
flow statement (for the year ended 31 March 2016) and also in
relation to the opening balance sheet as at 1 April 2015.
The statutory accounts for the year ended 31 March 2017 will be
finalised on the basis of the financial information presented by
the Directors in this unaudited preliminary announcement and will
be delivered to the Registrar of Companies following the Annual
General Meeting.
The financial information contained within this preliminary
announcement was approved by the Board on 29 June 2017 and has been
agreed with the Company's auditors for release. Selected
explanatory notes are included to explain events and transactions
that are significant to an understanding of the changes in
financial position and performance of the Group since the last
annual consolidated financial statements which is available on the
Group's investor website.
The preliminary announcement will be published on the Company's
website. The maintenance and integrity of the website is the
responsibility of the directors. The work carried out by the
auditors does not involve consideration of these matters.
Legislation in the United Kingdom governing the preparation and
dissemination of financial statements may differ from legislation
in other jurisdictions.
2 Non recurring costs
In accordance with the Group's policy of separately identifying
non-recurring costs, the following charges were recognised in the
year:
Unaudited
Unaudited Restated
2017 2016
GBP000 GBP000
---------------------------------------- ------------ ----------
Non-recurring impairment of trade 2,933 -
debtor balances
Professional fees associated with 1,291 -
the forensic review and Financial
Conduct Authority (FCA) investigation
Integration and restructuring
costs 658 3,028
Vacant property provisions 385 1,698
Disposal of City Fibre network 207 -
Settlement of supplier claims - 1,954
5,474 6,680
======================================== ============ ==========
The accounting irregularities experienced at the start of the
financial year resulted in inadequate credit management during part
of the year, causing a significant build-up of overdue and
uncollected debt. This together with a reassessment of the basis
for credit risk provisioning has resulted in one-off credit losses
of GBP2.9m being recorded during the year ended 31 March 2017.
Given the non-recurring nature of this additional impairment
charge, this has been separately disclosed within "non-recurring
costs".
An exceptional charge of GBP1.3m was incurred in respect of
professional fees paid to Deloitte and Nabarro relating to the
forensic exercise and the FCA investigation and Integration &
restricting costs relate primarily to the final integration of the
City Lifeline and Calyx businesses.
The vacant property provision relates solely to the Birmingham
and Hoddesdon offices which were vacated during the year. This
resulted in an exceptional charge of GBP0.4m
During the year the Group disposed of its fibre network to City
Fibre Limited and this resulted in an exceptional charge of GBP0.2m
in respect of the loss on disposal and legal fees.
Prior year exceptional costs relate to the acquisition and
integration of Calyx and City Lifeline.
3 Earnings per share
Basic earnings per share has been calculated using loss after
tax for the year of GBP2.4m (2016: GBP4.2m) and a weighted average
number of shares of 147,026,140 (2016: 145,223,982). The dilutive
effect of share options at 31 March 2017 increased the weighted
average number of shares to 151,093,267 (2016: 153,314,134).
In addition the Board uses adjusted earnings per share figure,
which has been calculated to reflect the underlying performance of
the business. This measure is derived as follows:
Unaudited Unaudited
2017 Restated
GBP000 2016
GBP000
---------------------------------------- ------------ ------------
Statutory earnings (2,378) (4,195)
Tax charge / (credit) (1,870) (1,946)
Amortisation of acquired intangibles** 5,944 5,553
Share based payments 1,080 1,336
Non-recurring costs 5,474 6,680
---------------------------------------- ------------ ------------
Adjusted earnings before tax 8,250 7,428
Notional tax charge at standard
rate of 20%/21% (1,650) (1,560)
---------------------------------------- ------------ ------------
Adjusted earnings 6,600 5,868
======================================== ============ ============
Weighted average number of shares
in issue 148,448,225 145,223,982
Weighted dilutive effect of options
and warrants in issue 4,295,881 8,090,152
------------ ------------
Diluted weighted average number
of shares in issue 152,744,106 153,314,134
------------ ------------
Statutory diluted and basic earnings
per shares (1.60)p (2.89)p
Adjusted basic earnings per share 4.45p 4.04p
Adjusted diluted earnings per
share 4.32p 3.83p
**Amortisation charge per P&L (6,207) (6,016)
Amortisation of software 263 463
Customer contracts and related
relationships (5,944) (5,553)
-------- --------
The Board feels that the adjusted EBITDA and adjusted EPS
measures give a better view of the ongoing performance of the
business as these measures exclude non-recurring costs.
4 Borrowings
Unaudited Unaudited
2017 Restated
GBP000 2016
GBP000
---------------------------------- ---------- ----------
Non-current
Bank loan 38,000 28,308
Finance leases 3,296 3,353
Unamortised loan arrangement fee (204) (272)
---------------------------------- ---------- ----------
Total non-current 41,092 31,389
---------------------------------- ---------- ----------
Current
Finance leases 2,456 2,239
Term Loans 323 139
---------------------------------- ---------- ----------
Total current 2,779 2,378
---------------------------------- ---------- ----------
At 31 March 2017 the Group was party to GBP71.0m of bank
facilities with a termination date of 1 April 2020. The facilities
comprise a Revolving Credit Facility ("RCF") of GBP40.0m with a
GBP20.0m accordion, a GBP5.0m Overdraft Facility and a GBP6.0m
Asset Financing Facility.
The RCF has been provided jointly by Barclays Bank PLC and The
Royal Bank of Scotland PLC, with Lombard Technology Services Ltd
providing the Asset Financing Facility and Barclays Bank PLC the
Overdraft Facility.
The Group received covenant waivers for the historical breaches
from its Banking Syndicate (Barclays, NatWest and Lombard) and a
revised facilities agreement was signed on 27 April 2017
Unaudited
Unaudited Restated
2017 2016
GBP000 GBP000
---------------- ------------ ----------
Net Debt
Cash at bank (4,340) 3,970
Finance leases 5,752 5,592
Borrowings 38,119 28,175
Net Debt 39,531 37,737
================ ============ ==========
5 Called up share capital - Unaudited
Allotted
and fully GBP'000
paid
Number
------------------ ----------- ---------
At 31 March 2015 144,728,908 145
------------------ ----------- ---------
New shares issued 1,152,277 1
------------------ ----------- ---------
At 31 March 2016 145,881,185 146
------------------ ----------- ---------
New shares issued 2,977,988 3
------------------ ----------- ---------
At 31 March 2017 148,859,173 149
================== =========== =========
The number of share authorised is the same as the number of
shares issued. Ordinary shareholders have the right to attend, vote
and speak at meetings, receive dividends, and receive a return on
assets in the case of a winding up.
Share issues
During the year the following shares were issued:
2017 2016
Number Number
----------------------------------- --------- ---------
Issued on the exercise of share
options 2,977,988 354,251
Issued on the exercise of warrants - 798,026
----------------------------------- --------- ---------
2,977,988 1,152,277
=================================== ========= =========
As at 31 March 2017 the Company had a total of 350,000 warrants
in issue with an exercise price of 36p. The warrants were issued to
Barclays Bank PLC on demerger in April 2013 in exchange for
warrants previously held in Redstone Plc, and can be converted to
shares at any time before the sale of the entire share capital of
the Company.
6 Dividends
Unaudited Unaudited
2017 2016
GBP000 GBP000
--------------------------------------- ----------- ---------
Amounts recognised as distributions
to Shareholders in year:
Final dividend for year ended 31 March
2016 of 3.0p (2015: 3.0p) per share 4,406 3,618
Interim dividend for year ended 31
March 2017 (2016: 1.5p) per share - 2,188
--------------------------------------- ----------- ---------
4,406 5,806
======================================= =========== =========
The Company paid a final dividend in respect of the year to 31
March 2016 of 3.0p per ordinary share on 16 September 2016, with a
total payment value of GBP4.4m.
7 Error restatement
On 7 November 2016 Redcentric plc ('the Group') announced that
an internal review by the Group's audit committee had discovered
misstated balances in the Group's accounting records and
consequently a forensic review of the Group's net assets was
undertaken. Furthermore as part of the forensic review, work was
undertaken to validate the previously reported net debt position of
the Group.
The findings of the forensic review identified a reduction in
net assets of the Group of GBP14.9m. This misstatement relates to
prior periods and subsequently the prior year comparatives have
been restated with net assets at 1 April 2015 reducing by GBP6.0m
and as at 31 March 2016 by GBP14.5m.
Subsequent to this review, the Board have completed a further
review of net assets as at 31 March 2016 as part of the
finalisation of the 2017 annual report. As a result of this
investigation further restatements have been recognised:
- relating to the consolidation of the Group's Indian
subsidiary.
- other items, predominantly in relation to misstatement of and
taxation and deferred taxation balances.
The cumulative impact of the above adjustments on reported
profit for the year ended 31 March 2016 is GBP9.5m.
The accounting misstatements are discussed on pages 8-9 of the
financial performance review. The impact of the prior year
adjustments on the Groups income and equity arising from the
restatement exercise are summarised below.
Reconciliation of Consolidated Statement of Income
For the year ended 31 March 2016
Unaudited Unaudited Unaudited
Previously Error Restated
reported restatement 2016
------------------------------- ------------ ------------- ----------
GBP000 GBP000 GBP'000
Revenue 109,526 (7,163) 102,363
Cost of sales (45,050) 496 (44,553)
Gross profit 64,476 (7,659) 57,810
Operating expenditure (56,037) (6,717) (62,756)
Adjusted EBITDA* 25,844 (11,464) 14,380
Depreciation (5,825) 531 (5,294)
Amortisation of acquired
intangibles (5,548) (468) (6,016)
Non-recurring costs (4,591) (2,089) (6,680)
Share-based payments (1,441) 105 (1,336)
-------------------------------- ------------ ------------- ----------
Operating profit/ (loss) 8,439 (13,384) (4,946)
Finance costs (995) (200) (1,195)
Profit/ (loss) on ordinary
activities before taxation 7,444 (13,584) (6,141)
Tax charge on profit on
ordinary activities (2,188) 4,134 1,946
Profit/ (loss) for the
year (attributable to owners
of the parent) 5,256 (9,450) (4,195)
================================ ============ ============= ==========
Reconciliation of Consolidated Balance Sheet
For the year ended 31 March 16
Unaudited Unaudited Unaudited
Previously Error Restated
reported restatement 2016
GBP000 GBP'000 GBP000
------------------------------ ------------- -------------- ----------------------
Assets
Non-current assets
Property plant and
equipment 28,669 (2,643) 26,026
Intangible assets 92,285 1,906 94,191
------------------------------- ------------- -------------- ----------------------
120,954 (737) 120,217
------------------------------ ------------- -------------- ----------------------
Current assets
Inventories - 429 429
Trade and other receivables 35,762 (4,724) 31,038
Corporation tax receivable 531 531
Cash and short term
deposits 8,492 (8,492) -
------------------------------- ------------- -------------- ----------------------
44,254 (12,256) 31,998
------------------------------ ------------- -------------- ----------------------
Total assets 165,208 (12,993) 152,215
=============================== ============= ============== ======================
Equity and liabilities
Equity
Called up share capital 146 - 146
Share premium account 63,667 - 63,667
Capital redemption
reserve (9,454) - (9,454)
Reserves 43,099 (15,771) 26,328
------------------------------- ------------- -------------- ----------------------
Total equity 97,458 (15,771) 81,687
------------------------------- ------------- -------------- ----------------------
Non-current liabilities
Provisions 1,940 - 1,940
Borrowings 31,912 (523) 31,389
Deferred tax liability 5,139 (2,029) 3,110
------------------------------- ------------- -------------- ----------------------
38,991 (2,552) 36,439
------------------------------ ------------- -------------- ----------------------
Current liabilities
Overdraft - 3,970 3,970
Trade and other payables 26,570 837 27,407
Borrowings 1,855 523 2,378
Provisions 334 - 334
------------------------------- ------------- -------------- ----------------------
28,759 5,330 34,089
------------------------------ ------------- -------------- ----------------------
Total liabilities 67,750 1,497 69,247
------------------------------- ------------- -------------- ----------------------
Total equity and liabilities 165,208 (12,993) 152,215
=============================== ============= ============== ======================
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR OKCDNKBKKCAB
(END) Dow Jones Newswires
June 29, 2017 02:01 ET (06:01 GMT)
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