Supplementary Disclosure

 

30 September 2013

 

REDCENTRIC PLC

("Redcentric" or the "Company" or the "Group")

SUPPLEMENTARY FINANCIAL TRACK RECORD DISCLOSURE FOR SIX MONTHS ENDED 31 MARCH 2013

Redcentric plc (AIM:RCN.L), a leading end to end managed service provider delivering innovative technology to improve business productivity and efficiency, today provides a summary of the trading performance of certain of its businesses prior to the incorporation and subsequent Admission to AIM of Redcentric plc.  The Company is required by the AIM Rules to issue further financial information for the six months to 31 March 2013 on the Group on the same basis as the carve out Financial Information disclosed in the AIM Admission Document dated 18 April 2013 ("Admission Document") issued in relation to the admission of Redcentric ordinary shares on AIM.

 

The results do not reflect the current structure and cost base of the Company but rather the combined performance of these businesses as constituent parts of Redstone PLC. It should be noted that the combined carve out numbers presented exclude the performance of certain trading activities that were not demerged from Redstone PLC, but which are now undertaken by Redcentric, in particular the ICT Projects business.

Highlights:

·      Adjusted EBITDA* on a carve-out basis, increased by 78% to £1.9 million (H2 2012: £1.1m) reflecting the successful restructuring of the businesses operations and cost savings made

·      Results presented exclude approximately £4 million of ICT project revenues

·      Trading in the period from 30 September 2012 to 31 March 2013 remained consistent with the six month period preceding, as presented in the Admission Document. The significant re-organisation in preparation for the demerger of the businesses that now form Redcentric from Redstone plc ("the Demerger") resulted in management accelerating the restructuring programme that was undertaken post the acquisition of Maxima Holdings plc. It is estimated that in excess of £4 million of annualised cost savings will have been achieved following the Demerger at a cost of less than £2.5 million. These savings are not fully reflected in these results

·      The operational integration of the demerged businesses into a single trading entity remains on track

·      Following the Demerger, business indicators and new contract wins are encouraging, while their multi-year nature augers well for future financial performance. The Company's opening net debt position at the Demerger effective date of 8 April 2013 was £11.2 million

*Total result for the period before net finance costs, tax, depreciation, amortisation, exceptional items, goodwill impairment and share based payment charges. Current trading and outlook

The Redcentric businesses have, as outlined in the trading update on 28 June 2013, since the date to which the latest financial information was included in the Admission Document, continued to renew existing contracts and win new business. The continuing trend is towards winning multi-year managed services contracts at attractive margins while ICT project activity has been lower than anticipated. This is a positive trend for the business in the medium term but will make the expected revenues and EBITDA for the current year second half weighted. Since the Demerger the Company has announced a number of contract wins, worth approximately £9.4 million of total revenue over five years. The Company has been pleased with the reception which the Demerger received in its core markets, with all major clients responding positively to the strength of the combined managed service offering, and the establishment of a clear and focused identity and corporate presence.

Tony Weaver, CEO of Redcentric plc, commented:

"The business continues to perform in line with our expectations and in keeping with our stated strategy we have focused on winning multi-year managed services business. I am delighted that our key customers are already seeing the advantages that the combined product offering brings, and have the confidence to award us new contracts and renewals with additional services."   Enquiries: Redcentric plc Tony Weaver, Chief Executive Tel. +44 (0)845 034 1111 N+1 Singer - Nomad & Joint Broker Tel: +44 (0)20 7496 3000 Jonny Franklin-Adams / Jenny Wyllie finnCap - Joint Broker Tel: +44 (0)20 7220 0500 Charlotte Stranner / Stuart Andrews MXC Capital Advisory LLP Marc Young Tel. +44 (0)20 7801 9596 Newgate Threadneedle Josh Royston / Hilary Millar Tel. +44 (0)20 7653 9850

COMBINED CARVED OUT RESULTS FOR SIX MONTHS ENDED 31 MARCH 2013

The financial information of the components that form the Redcentric Group disclosed in the Admission Document, comprised:-

 

(i)            Redstone Demerged Business combined historical financial information

The Admission Document included the combined historical financial information of the businesses that were demerged out of Redstone and which were owned throughout the track record period being the six month ending 30 September 2013, and the preceding three years ended 31 March 2012, 31 March 2011 and 31 March 2010.

 

(ii)           Redcentric MS (formerly Maxima Managed Services Limited) consolidated historical financial information

Redcentric MS (formerly Maxima Managed Services Limited ("MMS")), was acquired by Redstone plc on 9 November 2012. The Admission Document included the consolidated financial information of MMS and its subsidiary undertakings (together "MMS Group") for the 5 months ended 31 October 2013, and the preceding three years ended 31 May 2012, 31 May 2011 and 31 May 2010

 

We now set out the further combined financial information for the Redstone Demerged Businesses and Redcentric MS for the six months to 31 March 2013 (with comparatives for 31 March 2012) as required in accordance with AIM requirements:

 

CONDENSED COMBINED INCOME STATEMENT

For the 6 months ended 31 March 2012 and 2013                    

		Unaudited Six months ended 31 March 2013	Unaudited Six months ended 31 March 2012
		£'000	£'000
Revenue		16,715	20,219
Cost of sales		(8,646)	(11,894)
Gross profit		8,069	8,325
Selling and distribution expenses		(769)	(1,037)
Administrative expenses		(8,817)	(7,859)
Adjusted EBITDA*		1,908	1,073
Depreciation Amortisation of Intangibles Exceptional items		(832) (434) (2,159)	(360) (434) (850)
Operating loss		(1,517)	(571)
Net Finance costs		(92)	(4)
Loss before taxation		(1,609)	(575)
Taxation		842	744
(Loss)/profit for the year		(767)	169

* Total result for the period before net finance costs, tax, depreciation, amortisation, exceptional items, goodwill impairment and share-based payment charges

 

NOTES TO THE CONDENSED COMBINED INCOME STATEMENT

1.   General Information

The condensed combined income statement presents the financial track record for the six month period ended 31 March 2013 (the "Interim Period") of those businesses that are now owned by Redcentric and its subsidiary undertaking Redcentric Holdings Limited (together the "Redstone Demerged Business"), at the date of admission of the ordinary shares of Redcentric on the AIM market operated by the London Stock Exchange, which were controlled by Redstone plc ("Redstone", together with its subsidiary undertakings, the "Redstone Group") during the Interim Period.

 

The Redstone Demerged Business comprises:

·      Redcentric Managed Solutions (formerly Redstone Managed Solutions Limited) ("RMS") - the whole of the RMS entity is included within the condensed consolidated income statement

 

·      Redstone Converged Solutions Limited ("RCS") - the proportion of the trading results and assets and liabilities of RCS associated with the Network-Based Managed Services Business which was demerged

 

·      Fujin Systems Limited ("Fujin") - the proportion of the trading results of Fujin associated with the Network-Based Managed Service Business which was demerged. The trading assets and liabilities of Fujin were transferred to RCS on 1 April 2012

In addition the condensed combined income statement aggregates the financial track record for the six month period ended 31 March 2013 (the "Interim Period") of Redcentric MS Limited (formerly Maxima Managed Services Limited) and its subsidiaries (together the "MMS Group"). The MMS Group was wholly owned by Redstone from 9 November 2012 following the acquisition by Redstone of Maxima Holdings plc, the MMS Group's immediate parent undertaking. Previously, and throughout the periods presented, the MMS Group was owned by Maxima Holdings plc (together with its subsidiaries, the "Maxima Group").

On 8 April 2013 the Redstone Demerged businesses and MMS Group were demerged from Redstone by way of dividend in specie to Redcentric plc.

The principal activity of the combined Redstone Demerged Business and the MMS Group is the provision of Network-Based Managed Services and all of the components are incorporated in the United Kingdom

2.   Accounting Policies and Basis of Preparation

The condensed combined Income Statement for the six months ended 31 March 2013 has been prepared in accordance with the Disclosure and Transparency Rules of the Financial Services Authority and with IAS 34, "Interim financial reporting", as adopted by the European Union together with the basis on which the combined historical financial information was prepared in the Admission Document for:

 

·      the six months ended 30 September 2012 and the preceding three years ended 31 March 2011, 31 March 2010 and 31 March 2010 for the Redstone Demerged businesses and

·      the five months ended 31 October 2012 and the preceding three years ended 31 May 2012, 31 May 2011 and 31 May 2010 for the MMS Group

The accounting policies and basis of preparation adopted for the condensed combined Income Statement for the six months ended 31 March 2013 are consistent with those adopted in the combined historical financial information contained in the Admission Document for the Redstone Demerged Businesses and MMS group for the periods detailed above. The condensed combined Income Statement should be read in conjunction with the combined historical financial information contained in the Admission Document.

Taxes on income in the Interim Period are accrued using the tax rate that would be applicable to expected total annual profit or loss.

3.   Critical Accounting estimates and judgements

The preparation of interim financial information requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates. In preparing the condensed combined income statement for the six months ended 31 March 2013, the significant adjustments made by management in applying the accounting policies and the key sources of estimation uncertainty were the same as those applied to the combined historical financial information contained in the Admission Document and in respect of the periods and entities detailed in note 2 above. 

 

4.   Segment reporting & adjusted EBITDA

The operations of the Group comprise one class of business segment, being provision of network based managed services in the United Kingdom.  The CODM reviews business activities, performance and strategic decisions of the Group as one single segment. Accordingly, the Group represents a single operating and reportable segment.

 

No single customer represented 10 per cent or mare of the Group's revenues in any of the periods ended 31 March 2013 or 2012.

 

Adjusted EBITDA is defined as earnings before interest, tax, depreciation, amortisation and exceptional items and is a key business performance measure. It is reconciled to the statutory operating profit/ (loss) as follows:

 

 

		Unaudited Six months Ended 31 March 2013	Unaudited Six months Ended 31 March 2012
		£000	£000
Adjusted EBITDA		1,908	1,073
Depreciation		832	360
Amortisation		434	434
Exceptional items		2,159	850
Operating profit		(1,517)	(571)

 

5.   Exceptional items

 

		Unaudited Six months Ended 31 March 2013	Unaudited Six months Ended 31 March 2012
		£000	£000
Costs of integration:
Staff redundancy costs and compromise agreements		435	381
Staff costs incurred up to the date of termination		404	377
Other costs		272	(9)
Other strategic costs:
Aborted transaction costs		-	4
Reorganisation costs		968	96
Occupancy costs		80	-
		2,159	850

 

                                                                               

6.   Subsequent events

On 8 April 2013 Redcentric Holdings Limited was demerged from Redstone plc by way of a dividend in specie to Redcentric.

 

Following the demerger of Redcentric Holdings Limited from Redstone plc, Redcentric secured a new Senior Revolving Credit Facility with Barclays Bank plc. The total facility of £14.2 million is subject to semi-annual reductions culminating in a bullet repayment of £8.0 million on 1 July 2015. Interest is levied at LIBOR plus 2.75 per cent. On 8 April 2013, Redcentric Holdings Limited drew £11.2 million of the new Revolving Credit Facility to satisfy the consideration obligations arising from the disposal of the business, including the Redstone Demerged Business and the MMS Group, by Redstone plc to Redcentric Holdings Limited.

 

CONDENSED COMBINED ASSETS AND LIABILITES HELD FOR DISTRIBUTION VIA DEMERGER BY REDSTONE PLC AS AT 31 MARCH 2013

The following is an extract of the Redstone plc Annual Report for the year ended 31 March 2013, which represents the audited fair value of assets and liabilities held for distribution via demerger by dividend in specie to Redcentric on 8 April 2013.

 

The assets and liabilities therefore represent the aggregate assets and liabilities of the Redstone Demerged Business and MMS Group as at 31 March 2013:

Assets held for distribution

	2013 £000
Intangible assets	31,000
Tangible assets	9,676
Deferred tax asset	1,402
Inventories	675
Trade and other receivables	11,180
Corporation tax	162
	54,095

Liabilities held for distribution                                                                                                                                               

 

	2013 £000
Trade and other payables	16,960
Borrowings	11,200
Deferred tax liability	3,240
	31,400