RNS Number : 6833N
Redstone PLC
11 September 2013
 



 

11 September 2013

Redstone plc

 ("Redstone", "the Company" or "the Group")

Unaudited Preliminary Results for the year ending 31 March 2013 and Notice of AGM

 

Redstone plc (AIM:RED), the ICT Infrastructure, data centre and smart building solutions business, today announces its full year results for the year ended 31 March 2013.

 

Highlights

 

§ Final results presented before demerger of network based managed services businesses and subsequent flotation of Redcentric plc

§ Results of continuing operations reflect only the trading performance of the continuing ICT Infrastructure, data centre and smart buildings solutions business

§ Redstone now positioned as a leading IT infrastructure business providing solutions to large blue-chip organisations

§ Gross margin increased to 54.9% (2012 47.8%)

§ Adjusted EBITDA of £2.4 million (2012 £2.5million)

§ Annuity revenues now make up 45% of total revenues (2012 43%)

§ Strategic and integration costs of £3.9 million (2012 £0.4 million) principally include integration costs following the acquisition of Maxima and costs incurred in relation to the demerger

§ Net finance costs reduced to £0.8 million (2012 £1.4 million)

§ Total Group loss for the year of £4.0 million (2012 £1.6 million)

§ Significant contract wins and contract renewals in the period worth in aggregate in excess of £17 million including;

the renewal of two three year managed services contracts for £6.9 and £5.0 million respectively for major financial institutions

a £3.9 million contract with a leading UK bank for the design and delivery of a new mission critical data centre

§ Post  year end  demerger of Network Based Managed Services Business to a new AIM quoted Company - Redcentric plc - on 8 April 2013

In addition, Redstone announces that a notice convening the Company's Annual General Meeting ("AGM") has been sent to shareholders. The AGM will be held at the offices of finnCap Limited, 60 New Broad Street, London EC2M 1JJ, at 12 noon on 30 September 2013.

 

Ian Smith, Chief Executive of Redstone commented:

 

"The business performed creditably in 2013 throughout a period of great change and uncertainty for employees as the business re-organised following the acquisition of Maxima and in preparation for the demerger of the managed services business on 8 April 2013.

 

The business is now lean and fit for purpose and is trading in line with market expectations with a healthy pipeline of opportunities. The demerger presents the opportunity for strengths of the traditional Redstone core business to be better appreciated by the market and further facilitates the ability of Redstone to participate in anticipated consolidation within the market sector."

 

*Selling, distribution costs and administration expenses excluding depreciation, amortisation, stock compensation, impairment and strategic and integration costs

 

** Before net finance costs, tax, depreciation, amortisation, integration & strategy costs and share based payments (as reconciled to the statutory result on the face of the Income Statement)

 

 

 

 

Enquiries:

 

Redstone plc

Ian Smith, Chief Executive

Peter Hallett, Chief Financial Officer

Tel. +44 (0)845 201 0000

 



finnCap

Charlotte Stranner/Ben Thompson

Tel. +44 (0)20 7220 0500



Newgate Threadneedle

Josh Royston / Hilary Millar

Tel. +44 (0)20 7653 9850

        

 

 

 

 

 

 

  

 

 

12/13 Preliminary Results

 

Chairman's Statement

 

Dear Shareholder

I am pleased to report the results of the Group for the year ended 31 March 2013. This is my first report as Chairman, having been appointed on 8 April 2013 upon the demerger of the Company's network based managed services business ("the Managed Services Business") to a new AIM quoted Company, Redcentric plc ("Redcentric") ("the Demerger").

 

The proposed Demerger was announced to shareholders on 13 February and was concluded on 8 April following shareholder approval in the general meeting on 4 March 2013. Consequently, these results focus on Redstone's continuing operations.

 

Following the acquisition of Maxima Holdings plc ("Maxima") on 9 November 2012, which provided an important building block for the subsequent Demerger, Redstone is now primarily an Infrastructure Solutions business, providing innovative solutions to investment banks and other blue chip organisations via a strong annuity based campus network management business and a cabling projects business. In addition, post Demerger, Redstone also retains the former Maxima Information Group ("MIG") a small software support business. MIG supports a range of own developed and proprietary Enterprise Reporting Program ("ERP") and ferry reservation & ticketing and payroll software products.

 

The preliminary results presented herewith are for the continuing operations and reflect the businesses retained by Redstone post the Demerger, with comparative figures similarly adjusted. The assets and liabilities of the Managed Services Business are separately disclosed on the balance sheet as "held for distribution".

 

The extensive re-organisation required to assimilate these two material events should not be underestimated in terms of the management disruption caused to the normal trading of both continued and discontinued businesses. The results achieved during this extensive period of significant change and uncertainty are a testament to our employees. On behalf of the Board I thank them all for their contribution. These processes have now concluded successfully and the business is able to look to the future with confidence and with a level of autonomy not possible when its operations were more closely allied to the larger Managed Services Business.

 

The strategic focus of the business during the year ensured that Redstone focused on tendering only for projects that were likely to deliver sustainable gross margins allowing the Company to reduce its cost base accordingly and whilst revenues decreased by £8.9 million or 21.6% to £32.1 million, adjusted EBITDA* for the year from continuing operations decreased marginally by £0.1 million or 4.0% to £2.4 million (2012 £2.5 million) supported by a 7% increase in the gross margin to 54.9% (2012 47.8%). The business has continued to re-align capacity and direct overhead to reflect the competitive market conditions. We have been more selective in bidding for new projects and have reduced our reliance on low margin, high volume project revenue.

 

Adjusted EBITDA* has been largely sustained through increasing margins via a combination of better contract pricing and lower direct overhead. Gross margin increased to 54.9% (2012 47.8%) as a result of this change although decreased by £2.0 million or 9.9% in absolute terms to £17.6 million (2012 £19.6 million).

 

Additionally, Redstone has concentrated on its recurring base of campus management contracts renewing a number of significant contracts totaling more than £12 million in the financial year.

 

Operating expenses (selling, distribution and administrative costs and expenses) excluding depreciation, amortisation, stock compensation, impairment and restructure costs decreased by £1.8 million or 10.8% to £15.3 million (2012 £17.1 million).

 

The total loss before taxation for the period was £3.8 million (2012 loss of £1.3 million), an increase of £2.5 million. Losses were driven by significant integration and strategic costs of £3.9 million (2012 £0.4 million) incurred as a result of the acquisition of Maxima and in preparation for the Demerger, offset by a £0.5 million aggregate decrease in depreciation, amortisation, stock compensation and impairment charges and lower net finance costs of £0.8 million (2012 £1.4 million).

 

Acquisition of Maxima & Share Placing

On 9 November 2012 the Group acquired Maxima through a court sanctioned Scheme of Arrangement (under part 25 of Companies Act 2006) for a consideration of £9.9 million, satisfied by the issue of 987,319,228 new ordinary shares in Redstone at 1p per share. Maxima shareholders received 28 new Redstone shares for every ordinary share held.

 

Simultaneously, the Group completed a successful placing of 300,000,000 new ordinary shares at 1p, raising £3 million before expenses to fund the re-organisation of the Group following the acquisition of Maxima, and to cover the transaction fees incurred in the acquisition.

 

The acquisition of Maxima was strategically important for the Group, as it provided immediate and significant critical mass to the Managed Service Business (that now forms part of Redcentric) through enhanced revenues, customer scale and technical capability, and accelerated the development of its Cloud capability both technically and commercially.

 

From the date of acquisition, Maxima's contribution to profit before taxation and intangible amortisation in the year to 31 March 2013 was £0.5 million.

 

Demerger of the Managed Services Business, Capital Reduction & Placing

Following a strategic review of options for maximising shareholder value, the Board did not believe that the market would fully value the attributes of the Managed Services Business whilst it was combined with the Infrastructure Solutions business. Furthermore it was the opinion of the Board that the two businesses were less likely to maximise their potential performance if they continued to be operated as part of one Group.

 

The Board concluded that a demerger of the Managed Services Business was in the best interests of the Company and would deliver additional value to shareholders over time by:

 

·      allowing Redstone and Redcentric to pursue their strategic objectives independently with greater control over resources and opportunities;

·      increasing management and Board focus on the particular needs of each Company;

·      allowing the Managed Services Business of Redcentric to become a more focused managed services business; showcasing its improved operating margins; and

·      providing shareholders with added flexibility in their investment decisions.

 

A capital reduction was required in Redstone to effect the Demerger by way of dividend in specie.

 

In order to do this, an application was made to the Court under Part 17, Chapter 10 of the Companies Act 2006, for a cancellation of the Company's deferred shares, share premium account, and capital redemption reserve and a proposed reduction of the nominal value of each consolidated Redstone ordinary share from 0.8 pence to 0.1 pence, by cancelling paid up capital of 0.7 pence on each such ordinary share, in order to undertake a share consolidation on a 1 for 8 basis ("the Application").

 

On 4 March 2013 shareholders approved terms for the Demerger of the Managed Services Business to Redcentric, and the capital reduction. The Court subsequently approved the Application on 27 March 2013 and on 8 April 2013, the Demerger became effective.

 

The Demerger was effected by the declaration of a special dividend in Redstone, equal to the book value of Redstone's interests in the Managed Services Business. The dividend was satisfied, in specie, by the transfer by Redstone to Redcentric of the shares in Redcentric Holdings Limited a new wholly owned subsidiary of Redstone which was formed as a vehicle to hold the interests of the consolidated Managed Services Business (prior to the Demerger).

 

In return for this transfer, Redcentric issued ordinary shares to Redstone shareholders registered on the Redstone share register at 5.00 pm on 5 April 2013 on the basis of one Redcentric ordinary share for every 10 new Redstone ordinary shares (post consolidation and reduction of capital) then held. Shareholders continued to hold their existing shares in Redstone (as consolidated and following the subsequent reduction of nominal value pursuant to the reduction of capital). Immediately following the Demerger, each shareholder held substantially the same percentage of new Redstone ordinary shares and Redcentric ordinary shares.

 

In order to provide sufficient working capital for each of the demerged businesses and to pay the costs associated with the Demerger, the Company raised £6 million (before commission and expenses) by way of an equity placing of 75 million new ordinary shares in Redstone at a price of 8p per share (this price did not reflect the effect of the
Demerger and subsequent reduction in capital but was reflective of the associated share consolidation).  

 

Bank Financing

On 22 June 2012 the Group signed a new £15.5 million Revolving Credit Facility ("RCF") with Barclays Bank PLC on commercial terms. The granting of the new RCF marked the return to relationship banking following the comprehensive restructuring of the Group which was completed in 2011, during which the Bank played a crucially supportive role.

 

The new RCF replaced the existing term loan and overdraft facility, and extended available committed facilities for three years to 1 July 2015. This was a net extension of 18 months on the old facility and provided up to £2.4 million of working capital headroom.

 

On 12 November 2012 the Group extended the new RCF by a further £6.2 million to accommodate the existing borrowings of Maxima and provide for its future working capital requirements. The extended facility is subject to the same terms as the RCF dated 22 June 2012, save for some easing of certain short term covenants and a revised facility reduction schedule.

 

In the year to 31 March 2013, borrowing increased by £5.7million to £16.5 million (31 March 2012 £10.8 million) of which £11.2 million is included in liabilities held for distribution through demerger. Approximately £5.0 million of the increase reflected debt acquired as a result of the acquisition of Maxima.

 

As part of the Demerger, on 8 April 2013 the Bank Facilities were effectively split between Redstone and Redcentric. Under the terms of the Demerger Agreement, the total Redstone RCF then outstanding of £14.2 million was repaid in full by a combination of:

 

·      £11.2 million of cash funding provided by Redcentric to extinguish former inter-company indebtedness of the Managed Services Business arising in accordance with the terms of the Demerger Agreement; and

·      £3.0 million funded by new equity raised upon Demerger.

 

As a result of the above, the Redstone bank facility has been reduced to £5.0 million and remains committed up to 1 July 2015. Banking covenants have been modified to reflect the Demerger and the nature of the continuing Redstone business.

 

The Board

There were no changes in the constitution of the Board during the year. Following the Demerger on 8 April 2013, I was appointed as Chairman, replacing Richard Ramsay who remains as a non-executive director. In addition, Ian Smith was appointed CEO replacing Tony Weaver who also remains as a non-executive director.

 

On 28 June 2013, following the successful completion of the Demerger, Peter Hallett, CFO, gave notice of his resignation to pursue other professional interests. Peter joined the Board in October 2009, as a restructure and turnaround specialist, following a period of consultancy on behalf of the Bank. Peter has been instrumental in the refinancing and restructuring of the business over the last four years and which has now been successfully completed.

 

On behalf of the Board, I would like to thank Peter for all that he has done for the business during his tenure. His work in restructuring and refinancing the business has been outstanding and we wish him all the very best for the future. Peter will remain as CFO until a successor has been recruited.

 

Outlook

Redstone is a well-established ICT Infrastructure, data centre and smart building solutions provider to investment banks and other blue chip organisations, comprising a strong annuity based campus network management business and a cabling projects business.

 

Following the Demerger, the Directors believe the key strengths of the business will be more visible and easily understood:

·      An established track record of delivering solutions for complex mission critical systems to highly sophisticated clients;

·      A critical mass operation conveying high competency;

·      An established, long held and largely blue chip client base with strong offering to major investment banks; and

·      Annuity revenues of approximately 45%

 

In addition, the Demerger allows management to focus on strategic objectives without internal competition for resource with increased Board focus on the particular needs of the business.

 

Despite competitive market conditions, we have established Redstone as a sound and stable business and confirmed the strength of the brand with our clients. The Demerger has reinforced the identity of Redstone, leaving it well positioned to benefit from sector consolidation, as a stand-alone specialist Infrastructure Solutions business.

 

 

 

 

 

David Payne

Non-Executive Chairman

11 September 2013

 

*Before net finance costs, tax, depreciation, amortisation, integration & strategy costs and share based payments

 

 

 

 

Redstone PLC

 

12/13 Preliminary Results

 

Chief Executive's Review

 

Operational Impact of Maxima Acquisition and Demerger

The acquisition and subsequent operational integration of Maxima and preparation of the businesses for the Demerger has been the main operational focus of the business throughout the second half of the year. The combination of both of these significant events has had a fundamental impact on the operational infrastructure of the business in the financial year, but we are already seeing the benefit of these actions.

 

I have been delighted with the response of all our employees during this difficult time, which inevitably created a high degree of uncertainty and risk to the business. I would like to record my gratitude for the professionalism and effort of our employees in achieving a successful integration of the Maxima businesses and operational separation of the Managed Services Business. Following the Demerger on 8 April the two entities, Redstone and Redcentric, are operationally autonomous in terms of management and systems.

 

Business Development

The Redstone ICT Infrastructure, data centre and smart building solutions business provides innovative solutions to investment banks and other blue chip organisations via a strong annuity based campus network management business and a cabling projects business.

 

The business has traded solidly in the year as it continued to re-align operational capacity and direct overhead in what remains a competitive and difficult market. This has particularly enabled the cabling projects business to be more selective in competitive bids and less reliant on volume project work.

 

The campus network management business has been successful in securing the renewal of contracts with two key clients for a further three years.

 

Major contract wins in the year have included:

 

·        April 2012: the supply and installation of a high speed network, valued at £500k, within a museum network of four art museums that contain a collection of British Art, and International Modern and Contemporary Art;

·        June 2012: the renewal of a managed services contract for a further 3 years by an existing customer from within the financial sector, historically delivering £5 million of revenue per annum throughout the UK;

·        August 2012: a £3.9 million contract with a leading UK bank for the design, and delivery of a new mission critical Data Centre;

·        December 2012: a £600k contract with a premier racecourse to update their critical IT infrastructure network; and

·        March 2013: a £6.9 million 3year renewal with a major international financial services client to provide campus managed services and full desk side support services across the UK.

In addition, we are gaining more contracts in the education and health markets, where various contracts have been won totaling in excess of £2 million in value.

 

Focus in the coming year will be on consolidating market share by offering new and exciting services to our client base, and particularly further developing our "smart building" range of products, to bring client experience and control of buildings to new levels, utilising the IP network, and facilitating collaboration between disparate building systems via an integrated platform.

 

Redstone also retains the former Maxima Information Group ("MIG") software support business. MIG supports a range of own developed and proprietary ERP, ferry reservation & ticketing and payroll software products.

 

Major developments and contract wins in the year include:

 

·    major upgrade to in-house ERP product "ICON" completed incorporating new features including a customer support management module. Ready to roll out this year;

·    two new ferry customers;

·    major new contract for Polish and Chinese customers supporting  ERP systems; and

·    recurring revenues now representing approximately 60% of total revenue.

The contract wins show that Redstone remains a trusted partner of sophisticated global institutions and major corporate clients and retains the high degree of expertise required to design, deliver and manage complex and sensitive IT infrastructure installations in a competitive market.

 

Trading & Profitability

Adjusted EBITDA* decreased by £0.1 million or 4.0% to £2.4 million (2012 £2.5 million) despite a largely managed £8.9 million or 21.6% decrease in revenue to £32.1 million (2012 £41.0 million), reflecting the re-alignment of the business to reduce its historic dependency on low margin project business.

 

The mitigation of the adverse impact of lower revenue has been achieved by increasing gross margin through a combination of reduction in operating cost/capacity across all operations and re-alignment of operating overhead. This has enabled us to operate profitably in a difficult market, be more selective in competitive project bids, and be less reliant on winning low margin project business.

 

Project revenue decreased by £5.6 million or 24.1% to £17.6 million (2012 £23.2 million), largely following completion of two major bank data centre projects in 2012. Adjusted EBITDA* for the project business was £0.4 million (2012 £1.0 million) a decrease of £0.6 million or 59.1%. Current year pipeline is encouraging.

 

Annuity revenue decreased by £3.3 million or 18.3% to £14.5 million (2012 £17.8 million), reflecting the full year impact of a loss making campus contract with a banking client who served notice in 2011. However, Adjusted EBITDA* for the annuity business increased by £0.2 million or 9.1% to £3.0 million (2012 £2.8 million) reflecting a reduction in operating costs and a first year contribution of MIG business support.

 

Central costs decreased by £0.2 million or 17.4% to £1.1 million (2012 £1.3 million).

 

Outlook

The business has performed creditably in a very difficult market, and throughout a period of great change and uncertainty for employees as the business re-organised following the acquisition of Maxima and in preparation for the demerger of the Managed Services Business on 8 April 2013.

 

Our strategic priority to re-align the business, and in particular the project business, to a lower volume environment, has stood us in good stead, and provides Redstone with an operational structure which can trade profitably post the Demerger. The strength of the Redstone brand carries credibility and authority in the market and particularly in the financial services sector, where mission critical systems are routinely entrusted to the Group both on material and complex projects.

 

The MIG software support business provides a balance to the traditional core business, and provides incremental margin, with opportunity for cross selling and development of smart building software products.

 

The business is now lean and fit for purpose and is trading in line with market expectations with a healthy pipeline of opportunities. The Demerger presents the opportunity for the strengths of the traditional Redstone core business to be better appreciated by the market, and further facilitates the ability of Redstone to participate in the anticipated consolidation of the market sector.

 

 

 

 

 

Ian Smith

Chief Executive

11 September 2013

 

*Before net finance costs, tax, depreciation, amortisation, integration & strategy costs and share based payments

 

 

 

 

 

 

 

 

 

 

 

Redstone PLC

 

12/13 Preliminary Results

 

Financial Review

 

Revenue

Group revenue decreased by £8.9 million or 21.6% to £32.1 million (2012 £41.0 million).

 

Project revenues fell by £5.6 million or 24.1% to £17.6 million (2012 £23.3 million) reflecting the re-alignment of the business to reduce its historic dependency on low margin project business. There were two major data centre cabling contracts which completed in 2012 and which were not replaced in 2013.

 

In addition, annuity revenues fell by £3.3 million or 18.3% to £14.5 million (2012 £17.8 million) despite a first contribution of MIG. The Campus business accounted for the decline which was principally attributable to the loss of a contract on which notice was served over two years ago, and in addition, general discretionary activity across the campus client base was lower than 2012.The annuity/project revenue split for the year was 54.7%:45.3% (2012 56.6%:43.4%).

 

Gross Profit

Gross profit decreased by £2.0 million or 9.9% to £17.6 million (2012 £19.6 million), however gross margin increased to 54.9% (2012 47.8%).

 

The improvement in gross margin was principally driven through more efficient staffing of campus operations and a first time contribution from the higher margin MIG business. Underlying project margins were largely unchanged.

 

Operating Expenses

Adjusted operating expenses (comprising selling and distribution costs and administrative expenses), excluding integration and strategy costs, decreased by £2.3 million or 12.2% to £16.8 million (2012 £19.1 million).

 

The £2.3 million decrease in operating expenses includes a £0.4 million aggregate decrease in depreciation and amortisation of intangibles to £1.2 million (2012 £1.6 million) and a £0.1 million decrease in share based payments to £0.3 million (2012 £0.4 million).

 

The underlying decrease in operating expenses, excluding integration and strategy costs and share based payments is £1.8 million, a 10.8% reduction, reflecting further cost savings made to re-align the business to lower volume revenue.

 

Integration and strategic costs total £3.9 million (2012 £0.4 million) and principally comprise the costs of integration of Maxima and the Demerger transaction fees.

 

Adjusted EBITDA* and Profitability

Adjusted EBITDA* for the period was £2.4 million (2012 £2.5 million) a decrease of £0.1 million or 4.0%.

 

Adjusted EBITDA* (before central costs) was £3.5 million (2012 £3.8 million) a decrease of £0.3 million or 8.6%.  Adjusted EBITDA* (before central costs) attributable to the annuity and project businesses was £3.0 million and £0.4 million (2012 £2.8 and £1.0 million) respectively, representing an increase of 9.1% and a decrease of 57.9% respectively.

 

The annuity/project adjusted EBITDA* (before central costs) split for the year is 87.8%:12.2% (2012 73.5%:26.5%), resulting from strategic prioritising of annuity managed services.

 

Central costs decreased by £0.2 million to £1.1 million (2012 £1.3 million) through further headcount reduction ahead of the Demerger.

 

The resulting operating loss was £3.0 million (2012 profit £0.03 million).

 

Net finance costs amounted to £0.8 million (2012 £1.4 million). The charge for the period includes £1.2 million of interest on bank borrowings (2012 £1.2 million), and a £0.4 million fair value reduction in the interest rate swap "mark to market" liability (2012 £0.2 million increase).

 

The resulting loss before taxation is £3.8 million (2012 loss £1.3 million), an increase of £2.5 million. The tax credit for the period of £0.3 million (2012 £0.3 million) arises predominately from the reduction in deferred taxation liabilities in line with amortisation of intangible assets recognised on acquisition.

 

The loss for the period from discontinued activities was £0.4 million (2012 £0.6 million) 

 

Overall Result for the Period

The resulting loss for the period is £4.0 million (2012 loss £1.6 million), an increase of £2.4 million.

 

Basic (and diluted) loss per share have increased by 0.49p or 175.0% to 0.77p (2012 loss of 0.28p).

 

Basic adjusted EBITDA* per share has decreased by 0.18p or 26% to 0.51p (2012 0.69p).

 

Cash Flow

Cash generated from continuing operations was £1.6 million (2012 £1.8 million). This was made up of cash inflow from trading activity of £2.2 million (2012 £3.0 million) offset by an increase in working capital of £0.6 million (2012 £1.2 million).

 

Integration and strategic costs absorbed £2.7 million of cash (2012 £0.9 million), and largely comprise redundancy and related employment costs of employees made redundant under reorganisation and continuing realignment of costs in the current year.

 

£0.9 million of cash was consumed by net finance charges (2012 £0.8 million).

 

Net cash generated by discontinued activities (including integration & strategic costs) was £0.9 million (2012 £0.8 million).

 

Cash flows from investing activities amounted to an outflow of £5.3 million (2012 £1.3 million) comprising the purchase of tangible and intangible assets of £0.4 million (2012 £0.8 million), and cash outflows (debt) arising from the acquisition of subsidiaries of £4.9 million (2012 £0.5 million).

 

Net cash flows generated from discontinued investing activities total £2.0 million (2012 £0.6 million).

 

Cash flows from financing activities principally reflect £2.8 million (2012 £2.5 million) of proceeds from the issue of shares to part fund the acquisition of Maxima and increased net bank borrowings of £9.4 million (2012 repayment £0.75 million).

 

The increase in bank borrowings reflect a restructuring of bank debt under a new £15.5 million Revolving Credit Facility("RCF") signed on 22 June with Barclays Bank PLC, which was extended to £21.2 million on 12 November 2012 for the acquisition of Maxima. The facility provided funds to repay the existing term loan then outstanding, reduce the overdraft facility to £5.0 million from £8.0 million, and provide funds to absorb the £4.9 million of debt acquired with Maxima as well as additional working capital.

 

Therefore £15.2 million was drawn under the facility of which £5.8 million ( 2012 £0.3 million) was used to repay the outstanding term loan and meet RCF repayments, resulting in net cash inflow of £9.4 million (2012 repayment £0.75m). The net cash inflow was used to reduce the overdraft by £3.0 million (the agreed level under the new facility) and £4.9 million used to fund the repayment of debt acquired with Maxima with the balance of £1.5 million used to provide additional working capital headroom. 

 

The resulting net increase in cash and cash equivalents amounted to £3.8 million (2012 £0.6 million).

 

Borrowings and Bank Facilities

Total borrowings (net of cash and cash equivalents, and including £11.2 million of borrowings held for distribution by demerger, amounted to £16.5 million (31 March 2012 £10.8 million) an increase of 52.2% or £5.7 million.

 

Resultant gearing based on enterprise value (the aggregate of total equity and total borrowings, including borrowings held for distribution) is 41.0% (31 March 2012 42.3%) arising from increased borrowings and an increase in the total equity to £23.7 million (31 March 2012 £14.8 million).

 

As referred to above, on 22 June 2012 the Group signed a new £15.5 million Revolving Credit Facility ("RCF") with Barclays Bank PLC on commercial terms. The granting of the new RCF marks the return to relationship banking following comprehensive restructuring of the Group which was completed in 2011, during which the Bank played a crucial supportive role.

 

The new RCF replaces the existing term loan and overdraft facility, and extends available committed facilities for 3 years to 1 July 2015. This is a net extension of 18 months on the old facility and provides up to £2.4 million of additional funding which will provide further working capital headroom rather than increase core borrowing.

 

The RCF has fixed semi-annual repayment terms culminating in a bullet payment of £10 million at the end of its term on 1 July 2015.

 

On 12 November 2012 the Group extended the new RCF by a further £6.2 million to accommodate the existing borrowing of Maxima and provide for its future working capital requirements. The extended facility is subject to the same terms as the RCF dated 22 June 2012, save for some easing of certain short term covenants and a revised facility reduction schedule.

In addition the Group has the ability to raise capital lease or hire purchase finance in the ordinary course of business to a maximum of £3.0 million.

 

As part of the Demerger, on 8 April 2013 the Bank Facilities were effectively split between Redstone and Redcentric. Under the terms of the Demerger Agreement, the total RCF then outstanding of £14.2 million was repaid in full by a combination of:

 

·      £11.2 million of cash funding provided by Redcentric to extinguish former inter-company indebtedness of the Managed Services Business arising in accordance with the terms of the Demerger Agreement; and

·      £3.0 million funded by new equity raised upon the Demerger.

 

As a result of the above, the Redstone bank facility has been reduced to £5.0 million and remains committed unto 1 July 2015. Banking covenants have been modified to reflect the Demerger and the continuing Redstone business.

 

Equity

Total equity has increased by £8.9million to £23.7 million (31 March 2012 £14.8 million). The increase comprises the net loss for the period of £4.0 million (2012 £1.6 million), the increase in value of the Metropolitan Area Network assets of £0.9 million (2012 £0.2 million), share based payments in the period of £0.3 million (2012 £0.4 million) and the shares issued to fund the acquisition of Maxima £11.6 million.

 

 

 

 

 

Peter J Hallett

Chief Financial Officer

11 September 2013

 

*Before net finance costs, tax, depreciation, amortisation, integration & strategy costs and share based payments

 

 

 

 

 

 

 

 

Consolidated Income Statement

For the year ended 31 March 2013

 


Note

Year
ended
31 March
2013
£000

restated

31 March

2012

£000

Continuing Operations




Revenue

3

32,107

40,955

Cost of sales


(14,481)

(21,386)

Gross profit


17,626

19,569

Selling and distribution costs


(981)

(1,300)

Administrative expenses


(19,640)

(18,236)

Adjusted EBITDA*


2,369

2,467

Depreciation

 

(408)

(665)

Amortisation of intangibles

 

(808)

(948)

Integration and strategic costs included within administrative expenses

4

(3,859)

(438)

Share-based charges


(289)

(383)

Operating (loss) /profit


(2,995)

33

Finance income

 

341

0

Finance costs

 

(1,171)

(1,380)

Loss on ordinary activities before taxation


(3,825)

(1,347)

Income tax credit

 

300

330

Loss for the year from Continuing Operations attributable to owners of the parent company


(3,525)

(1,017)

Loss for the period from Discontinued Operations attributable to owners of the parent company

 

 

5

(438)

(570)

Loss for the year attributable to owners of the parent company


(3,963)

(1,587)

Earnings per share




Basic and diluted loss per share from continuing activities

 

(0.77p)

(0.28p)

Basic and diluted loss per share from discontinued activities

 

(0.10p)

(0.16p)

 

otal result for the year from Continuing Operations before net finance costs, tax, depreciation, amortisation, integration and strategic costs, goodwill impairment and share-based payment charges.

 

 

Consolidated Statement of Comprehensive Income



Year

ended

31 March

2012

£000

Year

ended

31 March

2012

£000

Loss for the year


(3,963)

(1,587)

Gain on revaluation


940

150

Currency translation differences


(3)

(354)

Total comprehensive income from continuing activities attributable to owners of the parent company


(3,528)

(1,371)

Total comprehensive income from discontinued activities attributable to owners of the parent company

502

(420)

Total comprehensive income attributable to owners of the parent company


(3,026)

(1,791)

 

 



Consolidated Balance Sheet

As at 31 March 2013

Registered number 3336134


Note

31 March

2013

£000

Restated

31 March

2012

£000

Assets




Non-current assets




Intangible assets


11,743

23,488

Property, plant and equipment


272

8,174

Deferred taxation asset


1,434

1,973

Other non-current assets


355

540



13,804

34,175

Current assets




Inventories


431

869

Trade and other receivables


11,241

15,921

Income tax receivable


170

15

Assets held  for  distribution


54,095

0

Cash and cash equivalents


122

290



66,059

17,095

Total assets


79,863

51,270

Equity and liabilities




Equity attributable to owners of the parent




Share capital

7

599

17,534

Share premium account


0

31,845

Other reserves


13,117

10,113

Retained earnings/(Accumulated loss)


9,964

(44,709)

Total equity attributable to the owners of the parent


23,680

14,783

Liabilities




Current liabilities




Derivative financial instruments


595

522

Trade and other payables


15,318

20,677

Borrowings

6

2,968

7,431

Provisions


292

194

Liabilities held for distribution


31,400

0



50,573

28,824

Non-current liabilities




Derivative financial instruments


892

1,306

Borrowings

6

2,434

3,690

Provisions


1,067

911

Deferred taxation liabilities


1,217

1,756



5,610

7663

Total liabilities


56,183

36,487

Total equity and liabilities


79,863

51,270

 

 

Peter Hallett                                        Ian Smith

Director                                               Director

 

 

Consolidated Statement of Changes in Equity

For the year ended 31 March 2013

 





Other reserves





Note

Share

capital

£000

Share

premium

account

£000

Merger

reserve (a)

£000

Capital redemption reserve (b) £000

Translation reserve (c) £000

Revaluation

reserve (d)

£000

Accumulated loss

£000

Total

equity
£000

Equity as at 1 April 2011


17,093

27,713

216

5,683

(287)

4,705

(43,523)

11,600

(Loss) for the year


-

-

-

-

-

-

(1,587)

(1,587)

Other comprehensive income


-

-

-

-

(354)

150

-

(204)

Transactions with owners:










Share-based payments


-

-

-

-

-

-

401

401

Ordinary share issue less costs


441

4,132

-

-

-

-

-

4,573

Equity as at 1 April 2012


17,534

31,845

216

5,683

(641)

4,855

(44,709)

14,783

(Loss) for the year


-

-

-

-



(3,963)

(3,963)

Other comprehensive income


-

-

-

-

(3)

940

-

937

Transactions with owners:










Share-based payments


-

-

-

-

-

-

289

289

Merger relief

 



7,750





7,750

Capital reorganisation (e)

 

(18,272)

(34,392)


(5,683)



58,347

0

Ordinary share issue less costs

7

1,337

2,547

-

-

-

-

-

3,884

Equity as at 31 March 2013


599

-

7,966

-

(644)

5,795

9,964

23,680

 

(a) Merger reserve

The merger reserve resulted from the acquisition of Redstone Communications Limited (£216,000 ) and Maxima Holdings Limited (formerly Maxima Holdings plc) (£7,750,000) and represents the difference between the value of the shares acquired (nominal value plus related share premium) and the nominal value of the shares issued.

(b) Capital redemption reserve

The capital redemption reserve arose on the elimination of deferred shares and represents the nominal value of the deferred shares. As part of the reorganisation of capital this was transferred to retained  earnings.

(c) Translation reserve

The translation reserve is used to record exchange differences arising from the translation of the financial statements of foreign subsidiaries.

(d) Revaluation reserve

The Directors have revalued the Metropolitan Area Network assets ('MAN') residing in the property plant and equipment. This is permitted under IAS 16 where the value attributed to an asset is less than its fair value.

 (e) Capital reorganisation

On 27 March 2013, as part of the preparation for the demerger of the Network-Based Managed Services Business into a separate AIM listed company called Redcentric plc, the Company obtained the approval of the Court under part 17 of chapter 10 of the Companies Act 2006, to re-organise it's capital. 

This involved:

 (i) the cancellation of Redstone's Deferred Shares, share premium account and capital redemption reserve, which amounted to £54.5 million in aggregate; and

(ii) the reduction of the nominal value of each Consolidated Redstone Ordinary Share from 0.8 pence to 0.1 pence by  cancelling paid up capital of 0.7 pence on each such ordinary share

 

The Company's issued share capital had previously been re-organised on 26 March 2013 by the consolidation of every eight ordinary shares into one consolidated ordinary share.

 

 

 

Consolidated Cash Flow Statement

For the year ended 31 March 2013

 


Note

31 March

2013

£000

restated

31 March

2012

£000

Cash flows from continuing operating activities




Cash generated from operations

8

1,570

1,760

Cash absorbed by integration and strategic costs


(2,696)

(923)

Income tax


0

(15)

Finance charges paid


(922)

(837)

Net cash flows (used in) continuing operating activities


(2,048)

(15)

Net cash generated from discontinued operating activities


896

747

Cash flows from investing activities




Purchase of property, plant and equipment

 

(218)

(634)

Sale of property, plant and equipment



32

Purchase of intangible assets

 

(149)

(148)

Acquisition of subsidiaries, net of cash acquired


(4,936)

(500)

Net cash flows (used in)/generated from continuing investing activities


(5,303)

(1,250)

Net cash flows (used in)/generated from discontinued investing activities


(2,041)

(642)

Cash flows from financing activities




Proceeds from issuance of shares


3,000

2,650

Costs of share issue


(154)

(190)

Increase in/(repayment of) borrowings


9,445

(750)

Net cash flows generated from continuing financing activities


12,291

1,710

Net cash flows generated from discontinued  financing activities


-

-

Net increase in cash and cash equivalents from continuing activities


4,940

445

Net (decrease)/increase in cash and cash equivalents from discontinued activities


(1,145)

105

Cash, cash equivalents and bank overdrafts at 1 April


(5,641)

(6,191)

Cash, cash equivalents and bank overdrafts at 31 March


(1,846)

(5,641)

 




 

 



Bank overdrafts

6

(1,968)

(5,931)

Cash and cash equivalents


122

290

 


(1,846)

(5,641)

 




 




 




 

 

 



Notes to the Consolidated Financial Statements

Year ended 31 March 2013

1 Accounting policies - Group

Redstone plc is a public limited company incorporated and domiciled in England and Wales, whose shares are publicly traded on AIM division of the London Stock Exchange. The principal accounting policies, which have been applied consistently in the preparation of these consolidated statements throughout the year and by all subsidiary companies, are set out below:

1.1 Basis of preparation

The consolidated financial statements of Redstone plc have been prepared on the going concern basis and in accordance with EU adopted International Financial Reporting Standards (IFRS), IFRIC interpretations and the Companies Act 2006 applicable to companies reporting under IFRS. The consolidated financial statements have been prepared under the historical cost convention, as modified by the revaluation of the Metropolitan Area Networks and the revaluation of financial assets and financial liabilities (including derivative financial instruments) at fair value through profit or loss. Certain elements of network infrastructure are recognised at fair value.

The Directors are required to be satisfied that the Group has adequate resources to continue in business for the foreseeable future. The validity of this assumption depends on the ability of the Group to meet its cash flow forecasts and the continuing support of its bankers by providing adequate overdraft facilities and of its debt holders and shareholders. During the year the company has completed an extension of its banking facilities until 1 July 2015. The nature of the Group's business is such that there can be considerable variation in cash inflows, and the timing thereof. Whilst this adds risk to the Groups ability to forecast cash, the present cash flow forecasts indicate that the Group will be able to operate within the present overdraft facilities for at least 12 months from the date of approval of these financial statements. For these reasons the Directors believe the going concern basis to be appropriate.

The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group's accounting policies

1.2 Basis of consolidation

Subsidiaries are all entities (including special purpose entities) over which the group has the power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the group controls another entity. The group also assesses existence of control where it does not have more than 50% of the voting power but is able to govern the financial and operating policies by virtue of de-facto control. De-facto control may arise in circumstances where the size of the group's voting rights relative to the size and dispersion of holdings of other shareholders give the group the power to govern the financial and operating policies.

Subsidiaries are fully consolidated from the date on which control is transferred to the group. They are de-consolidated from the date that control ceases.

The group applies the acquisition method to account for business combinations. The consideration transferred for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred to the former owners of the acquiree and the equity interests issued by the group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. The group recognises any non-controlling interest in the acquiree on an acquisition-by-acquisition basis, either at fair value or at the non-controlling interest's proportionate share of the recognised amounts of acquiree's identifiable net assets.

Acquisition-related costs are expensed as incurred

Goodwill is initially measured as the excess of the aggregate of the consideration transferred and the fair value of non-controlling interest over the net identifiable assets acquired and liabilities assumed. If this consideration is lower than the fair value of the net assets of the subsidiary acquired, the difference is recognised in profit or loss.

Inter-company transactions, balances, income and expenses on transactions between group companies are eliminated. Profits and losses resulting from intercompany transactions that are recognised in assets are also eliminated. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the group.

1.3 Discontinued operations

Cash flows and operations that relate to a major component of the business or geographical region that has been disposed or is classified as held for sale/distribution are shown separately from continuing operations. Comparative amounts have been restated

Assets and businesses classified as held for distribution are measured at the lower of carrying amount and fair value less costs to distribute.

Assets and businesses are classified as held for distribution if their carrying amount will be recovered or settled principally through a demerger transaction rather than through continuing use. This condition is regarded as being met only when the demerger is highly probable and the assets or businesses are available for immediate distribution in their present condition

 

2 Business Combinations

On 9 November 2012 Redstone acquired 100% of the share capital of Maxima Holdings plc  ("Maxima") when987,319,228 New Ordinary shares in Redstone were issued to the then shareholders in Maxima at a price of 1p per share. The market price of the shares was 0.885p per share. Costs of £526,000 were incurred and included under integration and strategic costs within Administrative expenses in the Income Statement. Redstone paid £4.9million to extinguish bank liabilities of Maxima and there was no deferred consideration.

 The acquisition of Maxima complemented Redstone's then strategy to be a leading provider of network based end to end managed services and technology and infrastructure solutions and the combination created an independent UK managed services provider with enhanced revenues, customer scale and technical ability. The combination of the businesses was complementary in terms of technical capabilities and provided good potential for cross selling into each company's respective client base.

At the date of the acquisition of Maxima Holdings plc, MXC Capital Limited held 3,322,333 ordinary shares in Maxima. Ian Smith and Tony Weaver, directors and shareholders of Redstone plc, are together, the controlling sahreholders of MXC Capital Limited.

 In addition, Ian Smith held 100,000 ordinary shares in Maxima in his personal capacity, representing, in aggregate, 9.74% of the issued ordinary share capital. Ian Smith was also a director of Maxima.

The book value of the Maxima net assets acquired and their fair values are summarised below:



Book 
value
£000

Fair value adjustments
£000

Fair value to Group
£000

Computer equipment


357

-

357

Stock


31

-

   31

Trade and other receivables


4,451

-

4,451

Prepayments


2,522

-

2,522

Bank Overdraft


(25)

-

(25)

Trade and other payables


(10,933)

-

(10,933)

Deferred Income


(5,754)

-

(5,754)

Deferred tax liability


(922)

(2,321)

(3,243)

Intangible assets


17,672

(3,572)

14,100



7,399

(5,893)

1,506

 

Fair value of net assets




1,506

Goodwill




7,232

Total purchase consideration




8,738






Shares issued at market value




8,738

Total purchase consideration




8,738






On acquisition the Redstone plc Directors assessed the business acquired to identify any intangible assets. Customer contracts and related relationships, and trademarks met the criteria for recognition as intangible assets as they are separable from each other and have a measurable fair value, being the amount for which an asset would be exchanged between knowledgeable and willing parties in an arm's length transaction. For the customer contracts and related relationships the provisional fair value of the intangible assets was calculated by using the discounted cash flows arising from the existing maintenance base for both the network based managed services business and the business solutions businesses. Attrition rates of 15% to 19% were applied and discount rates of 10% to 13%, the reasonable economic life of the customer relationships was assumed to be 5.5 to 10.5 years. In the case of the trade marks a relief from royalty method was used to calculate the fair value of the Intangible asset using a 1.5% royalty rate, 10% discount rate and a 2% long term growth rate.The identifiable intangible assets and related deferred tax liability are as follows:





Fair value to Group
£000

 

Customer contracts and related assets                                                                                                                                        13,800

Trade Marks                                                                                                                                                                                          300

Deferred tax liability                                                                                                                                                                         (3,243)

 

The goodwill arising on the acquisition is attributable to the acquired business model and the expected synergies. The whole goodwill amount is recognised within Assets held for distribution as It relates to the business which has been demerged subsequent to the balance sheet date.

From the date of acquisition to 31 March 2013, the portion of Maxima held within continuing activities achieved revenue of £1.3 million and a loss before taxation of £0.1 million. For the full year ended 31 March 2013, the revenue for the same portion of Maxima was £3.1 million and the profit before taxation was £0.2 million. The continuing revenue from the enlarged group, assuming the combination had taken place at the beginning of the year, would have been £33.9 million and a loss for the year before taxation would have been £3.7 million.

3 Segment reporting

Operating segments are reported in a manner consistent with the internal reporting to the Chief Operating Decision Maker ('CODM'). The CODM has been identified as the Group Chief Executive and the Chief Financial Officer.
The Group Chief Executive and the Chief Financial Officer are jointly responsible for resources allocation and assessing the performance of the operating segments. The operating segments are defined by distinctly separate product offerings or markets.  The CODM's assess the performance of the operating segments based in a measure of adjusted EBITDA, (excluding discontinued operations).The following tables present information on revenue, profit and certain assets and liabilities in respect of the Group's business segments for the years ended 31 March 2013 and 2012.

(a) For the year ended 31 March 2013

Continuing operations

 

Project
£000

Annuity
£000

Central
£000

Total
£000

Revenue

 

17,580

14,527

-

32,107

Adjusted operating costs*

 

(17,159)

(11,492)

(1,087)

(29,738)

Adjusted EBITDA*

 

421

3,035

(1,087)

2,369

Depreciation

 

(258)

(46)

(104)

(408)

Amortisation of intangible assets

 

(342)

(308)

(158)

(808)

Integration and strategic costs (note 6)

 

(584)

(571)

(2,704)

(3,859)

Share-based payments

 

(3)

(3)

(283)

(289)

Operating (loss)/profit

 

(766)

2,107

(4,336)

(2,995)

Net finance costs

 

(35)

(4)

(791)

(830)

Income tax credit

 

166

134

-

300

(Loss) /profit for the year

 

(635)

2,237

(5,127)

(3,525)

Assets and liabilities

Assets held for distribution

 

 

 

 

Segment assets

54,095

13,710

11,754

304

79,863

Segment liabilities

31,400

9,222

4,235

11,326

56,183

Other segment information


 

 

 

 

Capital expenditure


-

-

-

-

Property, plant and equipment

2,397

96

123

-

2,616

Intangibles - software

-

7

4

138

149

 

* Total result and operating costs before net finance costs, tax, depreciation, amortisation, goodwill impairments, integration and strategic costs and share-based payment charges.

Included in the central segment assets are £11,000 of property, plant and equipment (2012: £0.2 million), £0.1 million of intangible assets (2012: £0.2 million) and prepayments and other receivables of £0.2 million (2012: £0.2 million).

Included in the central segment liabilities, are the Group's Barclays' borrowings at 31 March 2012 of £6.3 million (2012: £10.7 million), provisions £0.9 million (2012: £0.9 million), accruals and other payables £2.4 million (2012: £1.9 million) and derivative financial instruments of £1.5 million (2011: £1.8 million).

No single customer represented 10% or more of the Group's revenue and the Group is not overly reliant on a single customer.

All revenue is earned and all assets are held within the UK.

Following the acquisition of Maxima in November 2012, Redstone comprised two main operating divisions, the Network-Based Managed Services Business and the Infrastructure Solutions Business. In addition there is a Central division including back office functions and executive management to support the Group. The divisions deliver independent products and services.

The retained Redstone Converged Solutions business is a provider of converged IP-based solutions, with expertise in data and contact centres, voice and video, IP networks, intelligent buildings and security. The division has recognised expertise in providing solutions to the banking and finance sector and is also experienced in providing solutions to businesses and organisations in the health, education, local government, retail, finance, energy, media and transport sectors. The division provides both project based and annuity based services.

The retained Maxima business provides consultancy and support services to a range of enterprise applications for owned and third party software applications. The business provides predominately annuity based services.

 

(b) For the year ended 31 March 2012 (restated)

Continuing operations

 

Project
£000

Annuity
£000

Central
£000

Total
£000

Revenue

 

23,173

17,782

-

40,955

Adjusted operating costs*

 

(22,172)

(15,000)

(1,316)

(38,488)

Adjusted EBITDA*

 

1,001

2,782

(1,316)

2,467

Depreciation

 

(232)

(19)

(414)

(665)

Amortisation of intangible assets

 

(372)

(285)

(291)

(948)

Integration and strategic costs (note 5)

 

(259)

47

(226)

(438)

Equity-settled share-based payments

 

(10)

(8)

(365)

(383)

Operating profit/(loss)

 

128

2517

(2,612)

33

Net finance costs

 

(74)

-

(1,306)

(1,380)

Income tax credit

 

187

143

-

330

(Loss)/profit for the year

 

240

2661

(3,918)

(1,017)

Assets and liabilities

Discontinued





Segment assets

28,319

12,737

9,698

516

51,270

Segment liabilities

10,130

6,885

1,515

17,957

36,487

Other segment information

 






Capital expenditure

 

 

 

 

 

Property, plant and equipment

 

303

233

-

536

Intangibles - software

 

3

2  

142

147

 

* Total result and operating costs before net finance costs, tax, depreciation, amortisation, goodwill impairments, integration and strategic costs and share-based payment charges.

 

4 Integration and strategic costs

In accordance with the Group's policy of integration and strategic costs the following charges/(credits) were incurred for the year:


 

 

Restated


 

2013
£000

2012
£000

Costs of integration:




Staff redundancy costs and compromise agreements


1,264

54

Staff costs incurred up to the date of termination


204

317

Other costs


153

67

Other strategic costs:



 

Reorganisation costs


508

-

Demerger transaction fees and associated costs


1,730

-



3,859

438

 

£408,000 of the above integration and strategic costs relate to services provided by MXC Capital Limited. 

 

5 Discontinued operations

Since the acquisition of Maxima, Redstone comprised two main operating divisions, the Network-Based Managed Services Business and the Infrastructure Solutions Business.

The Network-Based Managed Services Business and the Infrastructure Solutions Business are distinct business units with separate strategic, capital, and economic characteristics. Following the acquisition of Maxima in November 2012 and its subsequent integration, the Company had a Network-Based Managed Services Business with combined historic revenues of approximately £45 million based on the results for the financial year ended 31 March 2012 for Redstone and the results for the financial year ended 31 May 2012 for Maxima with a targeted divisional EBITDA margin of 20 per cent per annum.

The Board did not believe that the market fully appreciated the attributes of this business while it was combined with the Infrastructure Solutions Business. Businesses with similar characteristics and profit margins to the Network-Based Managed Services Business historically command a valuation with a higher price/earnings multiple than that of the Redstone Group. Furthermore it was the opinion of the Board that the two divisions were less likely to maximise their potential performance if they continued to be operated as part of one group.

Given these factors, the Board, together with its advisers, evaluated several options for maximising shareholder value, giving due consideration to a range of alternatives and factors.

The Board concluded that a demerger of the Network-Based Managed Services Business into a separate AIM listed company called Redcentric was in the best interests of the business and will deliver additional value to shareholders over time by:

• allowing Redstone and Redcentric to pursue their strategic objectives independently with greater control over resources and opportunities;

• increasing management and board focus on the particular needs of each company;

• allowing the Network-Based Managed Services Business of Redcentric to become a focused managed services business, showcasing its improved operating margins; and

• providing shareholders with added flexibility in their investment decisions.

The Demerger, completed subsequent to the year end on 8 April 2013, created two distinct entities with different strategic, operational and economic characteristics and with separate operational management teams.

Current year trading of the discontinued business is as follows:

 


 

Restated


Year ended
31 March
2013
£000

Year ended
31 March
2012
£000

Discontinued operations



Revenue

31,261 

26,244

Cost of sales

(17,700)

(14,478)

Gross profit

13,561

11,766

Selling and distribution costs

(3,380)

(3,386)

Administrative expenses

(11,624)

(8,632)

Adjusted EBITDA

3,092

2,725

Depreciation

(1,360)

(658)

Integration and strategic costs

(1,799)

(1,182)

Share based payments

-

(272)

Profit on Disposal

32

-

Intangible amortisation

(1,408)

(865)

Operating (loss)

(1,443)

(252)

Net finance charges

(100)

-

(Loss) on ordinary activities before taxation

(1,543)

(252)

Tax on loss on ordinary activities

1,105

573

(Loss) / profit for the period  from operations discontinued  this year

(438)

321

Loss for the period  from operations discontinued in the prior year

-

(891)

(Loss) from discontinued activities attributable to equity holders of the parent company

(438)

(570)

 

6 Borrowings

Current


2013
£000

2011
£000

Bank loan

1,000

1,500

Overdrafts

1,968

5,931


2,968

7,431

 

Non-current

 

2013
£000

2012
£000

Bank Loan

13,634

3,690

Included In liabilities held for distribution

(11,200)

-

Bank loan

2,434

3,690

 

As at 31 March 2013, arrangement fees of £66,000 (2012: £74,000) are included within borrowings.

Bank loan and overdrafts

 

On 22 June 2012 the Group amended the terms of its existing senior revolving credit facilities ("RCF") with Barclays Bank PLC and effected the following key changes:

 

·      An extension of the final repayment date to 1 July 2015;

·      A consolidation of the existing overdraft and term loan facilities into a senior revolving credit facility of £15.5 million;

·      Restructuring of the various fees payable in respect of the facilities; and

·      A variation of the financial covenants including a change from quarterly to bi annual testing of the debt service covenant

 

On 12 November 2012 the Group further extended the RCF (then standing at £15.0 million following a reduction of £0.5 million) by £6.2 million to £21.2 million to accommodate the borrowings of Maxima at acquisition, and to provide for future working capital requirements. The extended facility was generally subject to the same terms as the existing agreement save for a re-setting of financial covenants to reflect the acquisition of Maxima, and a revised facility reduction schedule.

 

At 31 March 2013, the Group held a total facility with Barclays Bank PLC of £19.2 million (2012 £13.2 million), which comprised an RCF of £14.2 million (2012 term loan of £5.2 million) and an overdraft of £5.0 million (2012 £8.0 million). At 31 March 2013, the total amount outstanding was £16.6 million (2012 £11.1 million), including £11.2 million of borrowings held for sale (2012 £nil).

 

Subsequent to the year end, on 8th April 2013, and under the terms of the Demerger, the total Redstone RCF was repaid in full principally by a combination of:

 

·      £11.2 million of cash funding provided by Redcentric to extinguish former inter-company indebtedness of the Managed Services Business arising in accordance with the terms of the Demerger; and

·      £3.0 million funded by new equity raised upon the Demerger.

 

Following the above, the Redstone Bank Facility has been reduced from £19.2 million to an overdraft facility of £5.0 million (of which £0.8 million was drawn on 8 April 2013) which remains committed unto 1 July 2015. Banking covenants have been modified to reflect the demerger and the continuing Redstone business, and comprise:

 

·      Debtors cover of Net Debt

·      Debt leverage

·      Interest cover

 

All bank loans are denominated in UK Pounds Sterling.

Fair value of current and non-current borrowings

The carrying amounts and fair value of the current and non-current borrowings are as follows:


Carrying amount

Fair value


2013
£000

2012
£000

2013
£000

2012
£000

Current:





Bank loan

1,000

1,500

1,000

1,500

Overdrafts

1,968

5,931

1,968

5,931

Non-current:





Bank loan

2,434

3,690

2,159

3,434

 

Fair values are based on discounted cash flows, using a rate based on the borrowing rates at 31 March 2013 and 2012 as per the table below.

The effective interest rate based on average forecast borrowings is:


2013
%

2012
%

Bank loan

6.94

6.27

 

7 Called up share capital


2013
Number

2012
Number

2013
£000

2012
£000

Allotted, called up and fully paid share capital





Ordinary shares of 0.1p (2012: 0.1p)





1 April

3,102,419,622

2,660,572,810

3,102

2,661

Share issues

1,287,319,234

441,846,812

1,287

441

Share consolidation

(3,841,021,499)

-

-

-

Capital reduction

-

-

(3,840)

-

Ordinary shares of 0.1p each

548,717,357

3,102,419,622

549

3,102

 

 

 

 

 

Redeemable preference shares of 10p

 

 

 

 

 

1 April

-

-

-

-

Share issue

500,000

-

50

-

Redeemable preference shares of 10p

 

500,000

-

50

-

 

 

 

 

 

Deferred shares of 9.9p each

 

 

 

 

1 April

145,772,810

145,772,810

14,432

14,432

Cancellation of deferred shares

(145,772,810)

-

(14,432)

 

Deferred shares of 9.9p each

-

145,772,810

-

14,432

 

 

 

 

 

Total issued share capital

549,217,357

3,248,192,432

599

17,534

 

Ordinary and preference 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. Deferred shareholders cannot attend, speak or vote at meetings nor receive dividends and only have a right to receive a return on assets equal to the paid up amount of shares after the repayment to ordinary shareholders.

Share issue

During the year the following shares were issued:            

 

2013

2012

 

Number

Number

Placing with investors

1,287,319,234

212,000,000

Issued to employees

-

8,850,000

Issued in part settlement of Fujin deferred consideration

-

220,996,812


1,287,319,224

441,846,812

 

On 17 October 2012 at a General Meeting the placing of 300,000,000 new Ordinary shares at a price of 1p per share was approved. This has raised approximately £3.0 million (before commissions and expenses). The purpose of the placing was to provide funds to cover the costs of the implementation of the synergies between the businesses of Redstone and Maxima identified by the Board, as well as to meet the costs associated with the acquisition and to provide the enlarged group with general working capital.

On the same date approval was given to the placing of 987,319,228 new Ordinary shares issued to investors in terms of a scheme of arrangement whereby Maxima became a wholly owned subsidiary of Redstone plc

On 27 March 2013 the company received the approval of the court for the capital reorganisation in preparation for the demerger of Redcentric plc. The capital reorganisation was undertaken under part 17 of chapter 10 of the Companies Act 2006 and comprised:

 (i) the cancellation of Redstone's Deferred Shares, share premium account and capital redemption reserve; and

(ii) the reduction of the nominal value of each Consolidated Redstone Ordinary Share from 0.8 pence to 0.1 pence by cancelling paid up capital of 0.7 pence on each such ordinary share;

On 11 February 2013, the Company allotted and issued 500,000 redeemable shares of 10 pence each and on 26 March 2013, the Company's issued share capital was reorganised by the consolidation of every eight ordinary shares into one consolidated ordinary share.

 

8 Net cash flows from continuing operating activities


 

Restated


2013
£000

2012
£000

Loss on ordinary activities before taxation

(3,825)

(1,347)

Adjustments for:



Cash absorbed by integration and strategic costs

2,696

923

Net finance costs

830

1,380

Depreciation of property, plant and equipment

409

665

Amortisation of intangible assets

808

948

Equity-settled share-based payments

289

383

Loss on disposal of property, plant and equipment


 

Movements in working capital:



(Increase) in inventories

(109)

(13)

(Increase)/ decrease in trade and other receivables

(1,172)

3,537

Increase/(decrease) in trade and other payables

1,204

(4,666)

Decrease in non-current assets

185

96

(Decrease)/increase in provisions

255

(146)

Cash generated by continuing operations

1,570

1,760

 

9 Subsequent events

Demerger

Following the acquisition of Maxima, Redstone comprised two main operating businesses, the Network-Based Managed Services Business and the Infrastructure Solutions Business.

The Network-Based Managed Services Business and the Infrastructure Solutions Business are distinct business units with separate strategic, capital, and economic characteristics. Following the acquisition of Maxima in November 2012 and its subsequent integration, the Company had a Network-Based Managed Services Business with combined historic revenues of approximately £45 million based on the results for the financial year ended 31 March 2012 for Redstone and the results for the financial year ended 31 May 2012 for Maxima, with a targeted divisional EBITDA margin of 20 per cent per annum.

The Board did not believe that the market fully appreciated the attributes of this business while it was combined with the Infrastructure Solutions Business. Businesses with similar characteristics and profit margins to the Network-Based Managed Services Business historically command a valuation with a higher price/earnings multiple than that of the Redstone Group. Furthermore it was the opinion of the Board that the two divisions were less likely to maximise their potential performance if they continued to be operated as part of one group.

Given these factors, the Board, together with its advisers, evaluated several options for maximising shareholder value, giving due consideration to a range of alternatives and factors.

The Board concluded that a demerger of the Network-Based Managed Services Business into a separate AIM listed company called Redcentric plc was in the best interests of the business and would deliver additional value to shareholders over time by:

• allowing Redstone and Redcentric to pursue their strategic objectives independently with greater control over resources and opportunities;

• increasing management and board focus on the particular needs of each company;

• allowing the Network-Based Managed Services Business of Redcentric to become a focused managed services business, showcasing it's improved operating margins; and

• providing shareholders with added flexibility in their investment decisions.

The Demerger was effected on 8th April 2013.

 

The trading results of the Managed Service Business demerged from Redstone to Redcentric, for the financial year ended 31 March 2013, are summarised in Discontinued operations Note 7. Attributable assets and liabilities of the demerged business are separately disclosed as assets and liabilities held for distribution in the Consolidation Balance Sheet:-

                                                                                                                                   


2013


£000

Assets held for distribution

54,095



Liabilities held for distribution

(31,400)

 

 

To effect the Demerger on 8 April 2013, Redstone declared a special dividend equivalent to an estimated fair value of the demerged Managed Service Business of  £53.3 million, being the market value of 62,368,247 ordinary shares issued by Redcentric to Redstone shareholders registered on the Redstone share register at 5.00 pm on 5 April 2013 on the basis of one Redcentric ordinary share for every 10 Redstone ordinary shares held.

 

In addition, on 27 June 2013 Redcentric issued a further 8,873 ordinary shares to satisfy the fractional entitlements arising from the 8 April issue of shares to Redstone shareholders.

 

The special dividend was satisfied, in specie, by the transfer by Redstone to Redcentric of the shares in Redcentric Holdings Limited (a new wholly owned subsidiary of Redstone which was formed as a vehicle to hold the interests of the consolidated Managed Services Business prior to the Demerger). As a result, Redstone recorded a gain on demerger of £8.8 million calculated as follows:-

 

 


2013


£000

Estimated fair value of Special Dividend

53,325

Satisfied by:


Assets held for distribution

54,095

Liabilities held for distribution

(31,400)

Net assets held for distribution

22,695



Estimated gain on demerger

30,630



 

 

Share Placing

In order to provide sufficient working capital for each of the demerged businesses and to pay the costs associated with the demerger and Redcentric admission to AIM, the Company undertook a placing to raise £6 million (before commission and expenses) by the issuance of 75,000,000 New Redstone Ordinary Shares (post consolidation and reduction of capital) on 5 April 2013 at a price of 8 pence per share.

Changes in the Board

Following Dermeger on 8 April 2013, David Payne was appointed as Chairman, replacing Richard Ramsay who remains as a non-executive director. In addition, Ian Smith was appointed as Chief Executive Officer, replacing Tony Weaver who also remains as a non-executive director.

 

On 28 June 2013, following the successful completion of the demerger, Peter Hallett, Chief Financial Officer of the Company, gave notice of his resignation in order to pursue new professional challenges. Peter has been with the business for over four years and has successfully completed the restructuring of Redstone plc and the demerger and flotation of Redcentric plc. Peter has a twelve-month notice period and will remain as Chief Financial Officer of the Company until a successor has been recruited.

 

 

10 Related parties

The Group has taken exemption not to disclose transactions with entities wholly-owned by the Group.

During the year the Group employed MXC Capital Limited, a specialist investment and advisory group, to assist with the acquisition of Maxima and the demerger and flotation of Redcentric plc incurring fees of £408,000.

Ian Smith and Tony Weaver, directors and shareholders of Redstone plc are directors, and together the controlling shareholders of, MXC Capital Limited.

At the date of the acquisition of Maxima, MXC Capital Limited held 3,322,333 ordinary shares in Maxima and in his personal capacity Ian Smith held 100,000 ordinary shares in Maxima representing in aggregate 9.74% of the issued ordinary share capital.

 

 

 

 

 

 


This information is provided by RNS
The company news service from the London Stock Exchange
 
END
 
 
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