TIDMRCN
RNS Number : 3733G
Redcentric PLC
15 November 2022
This announcement contains inside information for the purposes
of Article 7 of the Market Abuse Regulation (EU) 596/2014 as it
forms part of UK domestic law by virtue of the European Union
(Withdrawal) Act 2018 ("MAR"), and is disclosed in accordance with
the company's obligations under Article 17 of MAR.
Redcentric plc
("Redcentric" or the "Company")
Trading update for the six month period to 30 September 2022
Redcentric plc (AIM: RCN), the leading UK IT managed services
provider offering cloud and data connectivity solutions to
mid-market and enterprise customers, is pleased to announce the
following update for the six months ended 30 September 2022
("HY23").
FINANCIAL HIGHLIGHTS
HY23 has seen the business continue to perform well, with both
revenue and adjusted EBITDA being in line with the expectations of
the board of directors of the Company (the "Board"). The Board
expects to announce the following trading results for HY23:
-- Revenues of GBP61.5m (HY22: GBP44.3m)
-- Adjusted EBITDA of GBP11.7m (HY22: GBP11.9m)
-- *Adjusted net debt of GBP39.3m (31 March 2022: GBP1.5m)
-- Capital expenditure of GBP1.5m (HY22: (restated) GBP1.9m)
The adjusted net debt reflects:
-- The initial cash consideration net of cash acquired of
GBP23.2m paid following the acquisitions of 4D Data Centres Limited
("4D") and certain business and assets from Sungard Availability
Services (UK) Limited (in administration) ("Sungard");
-- An investment of GBP3.2m, reflecting stock forward bought to
avoid significant price increases, protecting profitability, and to
ensure that supply chain issues do not delay network rollout
projects. It is anticipated that approximately half of this working
capital investment will reverse by the end of the financial
year;
-- An additional working capital requirement of GBP6.3m as the
Company worked to onboard the customers acquired as part of the
Sungard acquisition . The invoicing relating to this onboarding has
now been brought up to date and hence this adverse working capital
impact will reverse in H2 of the year ended 31 March 2023
("FY23");
-- Exceptional costs of GBP4.8m were incurred in the period,
GBP2.5m higher than anticipated due to additional integration and
restructuring costs in relation to the 4D and Sungard acquisitions.
Approximately half of these additional costs will result in like
for like additional annual savings in the financial year ending 31
March 2024.
* Adjusted net debt excludes supplier loans and lease
liabilities that would have been classified as operating leases
under IAS 17
OPERATIONAL HIGHLIGHTS
The first six months of FY23 have built on the progress made in
the financial year ending 31 March 2022 and have been
transformational for Redcentric. During the period the Company has
successfully completed two scale acquisitions and one capability
acquisition for a combined initial consideration net of cash
acquired of GBP23.2m.
As a result of the five acquisitions completed between September
2021 and July 2022, the Company has significantly strengthened its
cyber security, hyper-cloud and consulting capabilities, and
materially increased the annualised revenue base by c.70%. With
these acquisitions, we feel that we now have one of the broadest
product offerings in the market.
Other operational highlights for the period include:
-- The signing of a new GBP100m banking facility on 27 April
2022, giving the Company access to GBP80m of committed funds at
very competitive rates of interest to support and accelerate our
acquisition strategy; and
-- A significant increase in new sales orders during the second
quarter of FY23 with order levels now substantially ahead of
pre-covid levels. The increase in sales volumes reflects the
enlarged customer base, additional capability and a restructuring
and strengthening of the sales team.
INTEGRATION UPDATE
The key highlights are as follows:
-- Three months into the ownership of Sungard, we have fully
integrated the business and ceased all transitional service
arrangements, removing significant duplicated costs;
-- Phase one of a staff restructuring programme has been
completed, resulting in a reduction in annual salary costs of
GBP3.2m;
-- As part of the Sungard acquisition, the Company entered into
short term licenses to occupy three data centre facilities with the
administrator of Sungard. Of these:
o The largest facility is considered to be a long-term strategic
asset and the eight-year lease has been assigned to the Redcentric
group;
o The second facility is considered important in the medium term
and a new three-year agreement has been signed. As part of this
agreement, the short-term annualised license to occupy costs of
GBP8.5m have been replaced by a three-year agreement with a year
one annual cost of GBP4.1m, followed by annual indexation of
3%;
o The third facility is not considered as a core strategic
asset, and so this property continues to be occupied under a
short-term license whilst we explore options to either sell or exit
the facility;
o It was originally assumed that the license to occupy costs
would be treated as part operating and part exceptional costs.
Following discussions with the Company's accounting advisors, these
costs have all been classified as IFRS16 leases and therefore add
GBP2.6m to right of use depreciation charges in FY23. As this
reclassification relates to the license to occupy period only,
there will be no impact beyond FY23.
-- During the second half of FY23, several electricity
initiatives will be implemented to improve the efficiency of the
acquired data centres. These will result in additional capital
expenditure of c.GBP2m. Assuming a cost equivalent to the recent
government energy price guarantee, it is expected that these
measures will have a one-year payback;
-- With the exception of employee synergies, the acquired 4D
business has largely been left as a standalone business whilst
focus was placed on migrating away from the onerous Sungard
transitional arrangements. 4D will be fully integrated by the end
of the financial year.
OUTLOOK
The Board is pleased by the continued progress made by the
Company in the first six months of FY23 and remains confident in
delivering revenue and adjusted EBITDA for FY23 in line with its
expectations.
Of particular note, the Board is pleased to see a substantial
uplift in sales activity and order intake as a result of the
additional scale, breadth of product and enhanced sales team.
The Board is cognisant of the continuing volatility of
electricity prices and that this could significantly increase or
decrease profitability of the acquired businesses. Unlike the
acquired businesses, Redcentric has historically hedged electricity
prices and this will be replicated across the recently acquired
businesses once prices have stabilised.
Work continues to seek further synergies from the acquisitions
completed in the period and despite some of the current economic
headwinds, the Board is very confident that the Redcentric group
will build on the progress shown over the last eighteen months,
delivering enhanced revenue growth and EBITDA ahead of the Board's
expectations in FY24 as the benefits of the acquisitions are
realised.
NOTICE OF INTERIM RESULTS
Redcentric's unaudited interim results for the half year period
ended 30 September 2022 will be published on Thursday 8 December
2022.
Enquiries:
Redcentric plc
Peter Brotherton, Chief Executive Officer +44 (0)800 983
David Senior, Chief Financial Officer 2522
finnCap Ltd - Nomad and Sole Broker
Marc Milmo / Simon Hicks / Charlie Beeson
(Corporate Finance) +44 (0)20 7220
Andrew Burdis / Sunila de Silva (ECM) 0500
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END
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