TIDMRCN
RNS Number : 9869I
Redcentric PLC
08 December 2022
Redcentric plc
("Redcentric" or the "Company")
Half year results for the six months ended 30 September 2022
(unaudited)
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 its
unaudited results for the six months to 30 September 2022
("H1-23").
Six months
to 30 Sept
2021 (H1-22)
Six months
to 30 Sept
2022 (H1-23) (Restated)(2) Change
-------------------------------------- -------------- --------------- ------------
Total revenue GBP61.5m GBP44.3m 38.8%
Recurring monthly revenue (RMR)
(1) GBP56.4m GBP39.6m 42.6%
Recurring monthly revenue percentage 91.7% 89.6% 2.1%
Adjusted EBITDA(1) GBP11.7m GBP11.9m (1.3%)
Adjusted operating profit(1) GBP4.7m GBP7.8m (40.5%)
Reported operating profit GBP5.2m GBP3.5m 48.1%
Adjusted cash generated from
operations(1) GBP2.2m GBP10.0m (78.4%)
Reported cash generated from
operations (GBP2.6m) GBP9.3m (128.3%)
Adjusted net debt(1) (GBP39.3m) (GBP0.4m) (10,673.9%)
Reported net debt (GBP65.8m) (GBP15.4m) (328.5%)
Adjusted basic earnings per share(1) 1.83p 3.77p (51.5%)
Reported basic earnings per share 2.27p 1.85p 22.7%
(1) This report contains certain financial alternative
performance measures ("APMs") that are not defined or recognised
under International Financial Reporting Standards ("IFRS") but are
presented to provide readers with additional financial information
that is evaluated by management and investors in assessing the
performance of the Redcentric group of companies (the "Group").
(2) See note 18 for an explanation and reconciliation in
relation to the prior year restatement arising from a change in
accounting policy following the Group's adoption of the
International Financial Reporting Interpretations Committee
("IFRIC") agenda decision on cloud implementation, configuration,
and customisation costs.
This additional information presented is not uniformly defined
by all companies and may not be comparable with similarly titled
measures and disclosures from other companies. These measures are
unaudited and should not be viewed in isolation or as an
alternative to those measures that are derived in accordance with
IFRS.
For an explanation of the APMs used in this announcement and
reconciliations to their most directly related Generally Accepted
Accounting Principles ("GAAP") measure, please refer to the Chief
Financial Officer's Review.
Financial Highlights
-- Total revenue grew by 38.8% to GBP61.5m (H1-22: GBP44.3m)
with recurring revenue of GBP56.4m (H1-22: GBP39.6m), reflecting
the impact of the three acquisitions made in the six months to 30
September 2022.
-- The proportion of recurring revenue increased by 2.1% to
91.7% (H1-22: 89.6%) reflecting the relative higher levels of
recurring revenue derived from the services provided by both 4D
Data Centres Limited ("4D") and business and assets relating to
three data centres acquired from Sungard Availability Services
Limited (In administration) ("Sungard DCs").
-- Adjusted operating expenditure increased by GBP16.0m (101%)
to GBP31.8m (H1-22: GBP15.8m) reflecting the impact of the three
acquisitions made in the six months to 30 September 2022. Group
headcount has increased by 135 since 31 March 2022 to 602 (FY-22:
467).
-- Adjusted EBITDA was GBP11.7m (H1-22: GBP11.9m) and adjusted
EBITDA margins decreased by 7.8% to 19.0% (H1-22: 26.8%) which
reflects:
o The acquisitions of 100% of the issued share capital of 4D,
and the consulting and risk and resilience business of Sungard
Availability Services Limited (in administration) (" Sungard
Consulting") and Sungard DCs, the latter of which was significantly
loss making prior to acquisition;
o Investment in the organisational senior management structure
to support the continued growth of the business.
-- Reported operating profit increased by 48.1% to GBP5.2m
(H1-22: GBP3.5m) reflecting total exceptional items of -GBP5.0m
(H1-22: GBP0.9m). Exceptional items largely consist of acquisition
and integration costs of GBP3.5m and negative goodwill of GBP9.7m
arising on the acquisition of Sungard DCs.
-- Net debt has increased by GBP49.1m since 31 March 2022 to GBP65.8m, reflecting:
o Consideration payable, net of cash acquired, for 4D, Sungard
DCs and Sungard Consulting, of GBP23.2m;
o Additional IFRS lease liabilities of GBP16.8m in relation to
certain data centre properties acquired with 4D and Sungard DCs
acquisitions;
o 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;
o An additional working capital requirement of GBP6.3m as the
Group worked to onboard the customers acquired as part of the
Sungard DCs acquisition. The invoicing relating to this onboarding
has now been brought up to date and hence this adverse working
capital impact is expected to reverse in H2 of this financial year
ending 31 March 2023 ("FY23");
o The cash cost of exceptional items 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.
-- Excluding leases previously classified as operating leases
under IAS17 net debt was GBP39.3m (31 March 2022: GBP1.5m).
-- The interim dividend will be maintained at 1.2p per share.
Peter Brotherton, Chief Executive Officer commented:
"The last six months have been a transformational period for the
business, with three acquisitions completed. These acquisitions,
together with the two acquisitions completed in the previous
financial year, have significantly enhanced our product offerings,
and substantially increased run rate revenues from c.GBP90m to
c.GBP150m.
The integration of the businesses acquired in the last six
months is progressing well, with annualised savings of c.GBP10m
already realised and initiatives underway to deliver a further
c.GBP7m of annualised savings.
The outlook for organic growth is also favourable, with positive
net new business achieved in each of the last six months to 30
November 2022.
We look forward to building on the success of the last six
months and to fully capitalise on the very significant
opportunities resulting from the enlarged customer base and
increased breadth of products and services ."
Enquiries:
Redcentric plc +44 (0)800 983 2522
Peter Brotherton, Chief Executive Officer
David Senior, Chief Financial Officer
finnCap Ltd - Nomad and Broker +44 (0)20 7220 0500
Marc Milmo / Simon Hicks / Charlie Beeson (Corporate
Finance)
Andrew Burdis / Sunila de Silva (ECM)
Chief Executive Officer's review
Overview of the six months ended 30 September 2022
The results for the first six months of FY23 are dominated by
the three acquisitions made in the period. Revenues have grown by
39% on the first half of FY22 and are currently at an annualised
run rate of cGBP150m (a 60% increase in the annualised run rate at
this time in FY22). Adjusted EBITDA for the six months ended 30
September 2022 was broadly flat on the equivalent period last year
and reflects the initial loss-making position of one of the
acquisitions and the additional costs associated with a new
divisional structure which was implemented to support the
significant growth of the business.
Over the first six months of the financial year, adjusted net
debt increased by GBP37.8m to GBP39.3m (31 March 2022: GBP1.5m),
primarily reflecting the costs associated with the acquisitions
made in the period. The total initial consideration payable for
acquisitions (net of cash acquired) was GBP23.2m and was funded out
of the GBP100m banking facility signed on 27 April 2022.
Execution of acquisition strategy
Overview
During the first six months of FY23 we successfully executed the
acquisition strategy that was outlined in the FY22 annual report
and accounts, with three acquisitions completed.
The acquisition of Sungard Consulting added significant
capability to our security division, complementing the previously
acquired capabilities from the Piksel Industry Solutions Limited
and 7 Elements Limited acquisitions, which were completed in the
previous financial year.
The acquisition of Sungard DCs along with the acquisition of 4D
added significant scale to the Group. The Sungard DCs acquisition
has also enhanced our data backup and business recovery product
offerings.
We have now completed five acquisitions over a ten-month period
which have significantly enhanced our product and solutions
capability and we feel that we now have one of the broadest product
offerings in the market.
In addition to improved capability, we have also added
considerable scale, increasing the annualised revenue base from
c.GBP90m to c.GBP150m. The five acquisitions have added c.650
customers to the Group's existing base, and the majority of the
acquired customers to date primarily take one service only. This
represents a significant opportunity to further grow revenues by
cross selling Redcentric's broad range of services and products
across our enlarged customer base.
Integration initiatives
The Sungard Consulting acquisition has been fully integrated
into the Redcentric Cyber Security division. Given that this was a
capability acquisition, synergy cost savings have been limited. The
4D acquisition has largely been left as a standalone operation
whilst we focused our efforts on the larger and lossmaking Sungard
DC business. The 4D business will be fully integrated by the end of
FY23.
During the first five months of ownership, we have made
considerable progress integrating the Sungard DCs acquisition.
Following a three-month transitionary period, all the acquired
Sungard customers have been fully onboarded onto Redcentric's
operational platforms. The remaining integration activities for the
Sungard DCs acquisition are on track to be completed by the end of
this financial year.
One of our key strengths is our ability to extract synergies
from our acquisitions as demonstrated by the following annualised
synergies which have been realised in the period:
-- Employee headcount reductions generating savings of GBP3.2m;
-- Property lease negotiations have yielded year one savings of GBP4.5m;
-- The removal of non-required costs, renegotiation, and
alignment to Redcentric terms and in-sourcing of certain functions
have yielded combined savings of GBP2.3m.
Further initiatives are underway to remove an additional GBP7m
of annualised costs from the Sungard DCs and 4D acquisitions,
including significant energy conservation measures (c.GBP3m) and
the sale or closure of the Elland data centre facility which was
acquired as part of the Sungard DCs acquisition.
Energy conservation measures
The inherited Sungard DCs estate was extremely inefficient in
energy terms and whilst bringing these facilities up to
Redcentric's standard would always have been a priority, the sharp
increase in the price and volatility of electricity provided extra
incentive. During the second half of this financial year, we will
be making very significant investments in energy conservation
measures, and we anticipate related capital expenditure of
c.GBP3.0m in H2-FY23 with a further GBP1m in H1-FY24. Based on the
current government price guarantee of 21.1 p/kWh, we would expect a
payback of approximately one year and a material reduction in our
carbon emissions.
Forecast additional consideration
As part of the Sungard DCs acquisition, 162 customers were
acquired on long term contracts averaging 29 months and a further
57 customers were signed on rolling short term contracts averaging
3 months. The initial consideration was GBP10.1m with further
consideration payable contingent on the value of the short-term
contacts converting to long term contracts. Work continues to
convert as many of these short-term contracts as possible, and we
currently anticipate that c.GBP6m of annualised revenues should
convert from short term contracts into long term contracts as was
expected at the time that the acquisition was completed. Should
these short-term contracts convert as anticipated additional
consideration payments of GBP5.0m would become payable.
Divisional performance
As announced at the time of the full year results, the Group has
put in place a divisional structure to allow the Group to deliver
against its ambitious growth strategy. The divisions are focused on
the Group's core strengths of Cloud Services, Network Services,
Communication Services and Cyber Security, Consultancy and our
Support Services function providing support for the increased
divisional demand.
With our enlarged customer base bringing with it greater
cross-selling opportunities and requiring more dedicated product
expertise, our divisional structure will enable us to compete and
succeed across all areas of the market.
Cloud Services
The Group's Cloud Services division provides a range of cloud
hosting solutions, from colocation through to hybrid and public
cloud services. The three acquisitions made in the period have
substantially increased the customer base and have enhanced our
data backup and business recovery product offerings.
Following the acquisitions Cloud Services is now the Group's
largest division representing approximately 55% of the Group's
annualised recurring revenue.
Network Services
Network integration and data connectivity solutions has also
been one of our core strengths. Most of the Company's customers
take some sort of connectivity service, increasing their stickiness
and reducing potential churn. This division is currently the second
largest supplier of HSCN connectivity in the UK.
As indicated at the time of the full year results, we were
starting to see a return of large network projects and in the
period notable successes included several sizable SD-Wan rollouts.
Equipment shortages continue to hamper both project rollout
timescales and delivery of one-off product sales.
Network Services represents approximately 35% of the Group's
annualised recurring revenue.
Communication Services
This division remains a smaller part of the Group representing
approximately 7% of the Group's annualised recurring revenue. It
includes a wide product portfolio ranging from IP telephony to
UCaaS with a mobile product due to be launched in the second half
of the current financial year.
The period has seen continued recruitment into this division and
whilst it remains an underdeveloped revenue opportunity for the
Group, the Board remains confident that the new appointment of
UCaaS specialists and the launch of the new mobile product will
help drive growth.
Cyber Security, Consultancy/Support Services
Representing approximately 4% of the Group's annualised
recurring revenue, this division includes the Group's cyber
security offering that provides wrap around security services,
including penetration testing and managed vulnerability scanning.
With increased cyber security risk becoming a core focus for all
businesses, especially given the much-publicised ransomware attacks
suffered by several large organisations, we see this division as a
key driver of growth for the Group. In addition, through our
standalone consultancy/support services team, we are able to ensure
our customers remain our focus and that they receive a consistently
high level of service across all group divisions.
Sales performance
After an extremely challenging two-year period which was
dominated by the COVID-19 pandemic, businesses are now re-engaging
and revisiting previously postponed largescale IT projects. Post
the COVID-19 pandemic and as a result of the acquisitions we have
significantly increased the size and capability of our sales
function. A new sales director has been appointed and quota bearing
heads have increased from 25 as of 31 March 2021 to 43 as of 30
September 2022.
New sales volumes for the last six months are significantly
ahead of the pre COVID-19 pandemic levels, with the organic
customer base increasing for each of the last six months as a
result of new sales orders being in excess of cancellations and
renewal churn. We believe that this reflects our enlarged customer
base, the broadening of the product offering and the enhanced sales
team. Particularly pleasing is the number of new logo customers,
early cross selling success into the newly acquired customer bases
and the wider range of products being sold.
Dividend
The Board has reviewed the financial performance of the business
and has decided to maintain an interim dividend payment of 1.2p per
share, which will be paid on 27 January 2023 to shareholders on the
register at the close of business on 16 December 2022, with the
shares going ex-dividend on 15 December 2022. The last date for
dividend reinvestment plan (DRIP) elections is 6 January 2023.
As noted previously, the Board will continue to review its
policies in relation to dividends and share buybacks having regard
to the Company's debt position and additional acquisition
opportunities to continue the Group's M&A strategy.
Board changes
On 21 July 2022, Jon Kempster stood down from the Board as Chair
of the Audit Committee and Non-Executive Director and the Board was
delighted to welcome Alan Aubrey onto the Board as a Non-Executive
Director and Chair of the Audit Committee. Alan brings with him
considerable market knowledge and breadth and depth of skills and
experience.
Our thanks go to Jon for his service to the Group, together with
our best wishes for the future.
Summary and outlook
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. As a result of the five
acquisitions completed between September 2021 and July 2022, the
Group 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.
Having made excellent progress in the first six months of the
financial year, during the second half of the year we will focus on
completing the integration of the acquisitions, extracting further
cost synergies, and implementing the energy efficiency measures
across the Sungard DCs estate.
With the recently enhanced sales team, the increased breadth of
products and the enlarged customer base we are confident that
organic growth will be generated in addition to the inorganic
growth already demonstrated.
Taking into consideration the above, the Board is very confident
that the Group will continue to build on the progress made over the
last eighteen months, delivering enhanced growth for the Group.
Chief Financial Officer's Review
Alternative performance measures
This interim report contains certain alternative performance
measures that are not defined or recognised under IFRS but are
presented to provide readers with additional financial information
that is evaluated by management and investors in assessing the
performance of the Group.
This additional information presented is not uniformly defined
by all companies and may not be comparable with similarly titled
measures and disclosures by other companies. These measures are
unaudited and should not be viewed in isolation or as an
alternative to those measures that are derived in accordance with
IFRS.
Recurring monthly revenue
Recurring revenue is the revenue that annually repeats either
under contractual arrangement or by predictable customer habit. It
highlights how much of the Group's total revenue is secured and
anticipated to repeat in future periods, providing a measure of the
financial strength of the business. It is a measure that is well
understood by the Group's investor and analyst community and is
used for internal performance reporting.
Year
ended
Six months Six months 31 March
to 30 Sept to 30 Sept 2022
2022 Unaudited 2021 Unaudited Audited
GBP'000 GBP'000 GBP'000
----------------------- ---------------- ---------------- ----------
Reported revenue 61,531 44,322 93,328
Non-recurring revenue (5,095) (4,752) (10,363)
----------------------- ---------------- ---------------- ----------
Recurring revenue 56,436 39,570 82,965
----------------------- ---------------- ---------------- ----------
Adjusted EBITDA
Adjusted EBITDA is earnings before interest, tax, depreciation,
and amortisation and excluding exceptional items (as set out in
note 5), share-based payments and associated national insurance.
Items are only classified as exceptional due to their nature or
size, and the Board considers that this metric provides the best
measure of assessing trading performance as it excludes items that
impact financial performance such as amortisation of acquired
intangibles arising from business combinations which vary year on
year depending on the timing and size of any acquisitions.
Six months Year ended
Six months to 30 Sept 31 March
to 30 Sept 2021 (Restated)(2) 2022
2022 Unaudited Unaudited Audited
GBP'000 GBP'000 GBP'000
------------------------------------------- ---------------- -------------------- -----------
Reported operating profit 5,233 3,533 6,607
Amortisation of intangible assets arising
on business combinations 3,913 3,126 6,498
Amortisation of other intangible assets 262 407 475
Depreciation of tangible assets 1,441 2,186 2,745
Depreciation of ROU assets 5,346 1,451 4,578
EBITDA 16,195 10,703 20,903
Exceptional items (5,030) 873 1,629
Share-based payments 536 284 1,181
------------------------------------------- ---------------- -------------------- -----------
Adjusted EBITDA 11,701 11,860 23,713
------------------------------------------- ---------------- -------------------- -----------
Adjusted cash from operations
Adjusted cash from operations is cash from operations excluding
the cash cost of exceptional items
Six months Year ended
Six months to 30 Sept 31 March
to 30 Sept 2021 (Restated)(2) 2022
2022 Unaudited Unaudited Audited
GBP'000 GBP'000 GBP'000
--------------------------------- ---------------- -------------------- -----------
Reported cash from operations (2,632) 9,292 17,168
Cash costs of exceptional items 4,790 688 2,091
--------------------------------- ---------------- -------------------- -----------
Adjusted cash from operations 2,158 9,980 19,259
--------------------------------- ---------------- -------------------- -----------
Cash from operations has reduced as a result of the short-term
working capital investment made following the Sungard DCs
acquisition (as detailed in note 17).
Maintenance capital expenditure
Maintenance capital expenditure is the capital expenditure that
is incurred in support of the Group's underlying infrastructure
rather than in support of specific customer contracts.
Six months
to 30 Sept Year ended
Six months 2021 31 March
to 30 Sept (Restated)(2) 2022
2022 Unaudited Unaudited Audited
GBP'000 GBP'000 GBP'000
--------------------------------- ---------------- --------------- -----------
Reported capital expenditure 1,542 1,910 3,226
Customer capital expenditure (595) (665) (1,076)
--------------------------------- ---------------- --------------- -----------
Maintenance capital expenditure 947 1,245 2,150
--------------------------------- ---------------- --------------- -----------
The reduction in customer capital expenditure is as a result of
the continued delays in large scale IT projects, however the Group
has significantly invested in inventories to deliver several
significant projects that have been signed with rollouts continuing
in H2.
Adjusted operating profit and adjusted earnings per share
Adjusted operating profit is operating profit excluding
amortisation on acquired intangibles, exceptional items, and
share-based payment charges. The same adjustments are also made in
determining the adjusted operating profit margin and in determining
adjusted earnings per share ("EPS"). The Board considers this
adjusted measure of operating profit to provide the best metric of
assessing underlying performance as it excludes exceptional items
and the amortisation of acquired intangibles arising from business
combinations which varies year on year dependent on the timing and
size of any acquisitions.
Six months
to 30 Sept Year ended
Six months 2021 31 March
to 30 Sept (Restated)(2) 2022
2022 Unaudited Unaudited Audited
GBP'000 GBP'000 GBP'000
------------------------------------------- ---------------- --------------- -----------
Reported operating profit 5,233 3,533 6,607
Amortisation of intangible assets arising
on business combinations 3,913 3,126 6,498
Exceptional items (5,030) 873 1,629
Share-based payments 536 284 1,181
Adjusted operating profit 4,652 7,816 15,915
------------------------------------------- ---------------- --------------- -----------
The EPS calculation further adjusts for the tax impact of the
operating profit adjustments, as presented in note 8.
Adjusted operating costs
Adjusted operating costs are operating costs less depreciation,
amortisation, exceptional items, and share-based payments. This
metric shows the trading operating expenditure of the Group,
excluding any non-trading and non-recurring items which impact
financial performance. These are controllable operating costs which
provide investors with useful information about how the Group is
managing its expenditure.
Six months
Six months to 30 Sept Year ended
to 30 2021 31 March
Sept 2022 (Restated)(2) 2022
Unaudited Unaudited Audited
GBP'000 GBP'000 GBP'000
----------------------------------------- ----------- --------------- -----------
Reported operating expenditure 38,307 24,105 53,046
Depreciation of ROU assets (5,346) (1,451) (4,578)
Depreciation of tangible assets (1,440) (2,186) (2,745)
Amortisation of intangibles arising on
business combinations (3,913) (3,126) (6,498)
Amortisation of other intangible assets (262) (407) (475)
Exceptional items 5,030 (873) (1,629)
Other operating income (70) - (103)
Share-based payments (536) (284) (1,181)
----------------------------------------- ----------- --------------- -----------
Adjusted operating expenditure 31,770 15,778 35,837
----------------------------------------- ----------- --------------- -----------
Adjusted operating expenditure has increased by 101% to GBP31.8m
(H1-FY22: GBP15.8m) as a result of acquisitions completed to date,
specifically:
-- Employee costs have increased by 71.6% due to the increased headcount within the Group;
-- Network and equipment costs have increased by 61.4%; and
-- Data centre costs have increased by 357% due to both
increased electricity unit costs and underlying operating costs
relating to the five additional data centres added to the Group's
portfolio.
Adjusted net debt
Adjusted net debt is net debt excluding leases that would have
been classified as operating leases under IAS 17 and supplier
loans.
Year ended
Six months Six months 31 March
to 30 Sept to 30 Sept 2022
2022 Unaudited 2021 Unaudited Audited
GBP'000 GBP'000 GBP'000
---------------------------------------- ---------------- ---------------- -----------
Reported net debt (65,775) (15,351) (16,645)
Supplier loans 540 1,038 1,004
Lease liabilities that would have been
classified as operating leases under
IAS 17 25,909 13,948 14,096
---------------------------------------- ---------------- ---------------- -----------
Adjusted net debt (39,326) (365) (1,545)
---------------------------------------- ---------------- ---------------- -----------
The increase in adjusted net debt is due to the GBP40m drawdown
on the revolving credit facility (GBP40m undrawn) which has been
used to fund the acquisitions completed in the period as well as
the associated short-term working capital investment. At the date
of approval of this announcement, GBP36.5m of the RCF remains
undrawn.
Profitability and dividend policy
Adjusted EBITDA (GBP11.7m) and adjusted operating profit
(GBP4.7m) were down 1.3% and 40.5% respectively, with an adjusted
EBITDA margin of 19.0% (H1-22: 26.8%) and adjusted operating margin
of 7.6% (H1-22: 17.6%).
After accounting for exceptional items of -GBP5.0m (H1-22
Restated: GBP0.9m) and share-based payment costs of GBP0.5m (H1-22:
GBP0.3m), the reported operating profit was GBP5.2m (H1-22
Restated: profit of GBP3.5m).
Net finance costs for the period were GBP1.1m (H1:22: GBP0.5m)
including GBP0.4m (H1-22: GBP0.4m) of IFRS 16 finance charges.
The reported basic and diluted EPS both increased 23% and 24% to
2.27p and 2.24p respectively (H1-22: 1.85p and 1.81p respectively).
Adjusted basic and diluted EPS both decreased 51% to 1.83p and
1.81p respectively (H1-22: 3.77p and 3.69p respectively).
The Board has reviewed the financial performance of the business
and has decided to maintain an interim dividend payment of 1.2p per
share, which will be paid on 27 January 2023 to shareholders on the
register at the close of business on 16 December 2022, with the
shares going ex-dividend on 15 December 2022. The last date for
dividend reinvestment plan (DRIP) elections is 6 January 2023.
Cash flow and net debt
The principal movements in net debt are set out in the table
below.
Six months Six months Year ended
to 30 September to 30 September 31 March
2022 2021 (Restated)(2) 2022
Unaudited Unaudited Audited
GBP'000 GBP'000 GBP'000
-------------------------------------------- ----------------- -------------------- -----------
Operating profit 5,233 3,533 6,607
Depreciation and amortisation 10,962 7,170 14,296
Exceptional items (5,030) 873 1,629
Share based payments 536 284 1,181
-------------------------------------------- ----------------- -------------------- -----------
Adjusted EBITDA 11,701 11,860 23,713
Working capital movements (9,543) (1,880) (4,017)
Transfer from intangible assets to
cost of sales - - 140
Non-cash provision movements - - (577)
-------------------------------------------- ----------------- -------------------- -----------
Adjusted cash generated from operations 2,158 9,980 19,259
Cash conversion 18% 84% 81%
Capital expenditure - cash purchases (1,542) (1,910) (2,765)
Capital expenditure - finance lease
purchases - - (438)
Net capital expenditure (1,542) (1,910) (3,203)
Corporation tax (paid) / received (176) (5) 246
Interest paid (513) (292) (51)
Loan arrangement fee amortisation (133) - -
Finance lease / term loan interest (424) (509) (885)
Effect of exchange rates 38 - 27
-------------------------------------------- ----------------- -------------------- -----------
Other movements in net debt (1,208) (806) (663)
Normalised net debt movement (592) 7,264 15,393
-------------------------------------------- ----------------- -------------------- -----------
Acquisition of subsidiaries (net of
cash acquired) (23,229) (8,366) (10,422)
Cash costs of exceptional items (4,790) (688) (2,091)
Share buyback - - (2,666)
Non-capitalised finance lease purchases - - (145)
Cash received on sale of non-core business
unit - 5,750 5,750
IFRS16 lease additions (16,812) - (2,094)
IFRS16 lease disposals - - 813
Share issues - - 1
Cash received on exercise of share
options 12 7 12
Dividends (3,719) (3,749) (5,627)
-------------------------------------------- ----------------- -------------------- -----------
(48,538) (7,046) (16,469)
(Increase) / decrease in net debt (49,130) 218 (1,076)
Net debt at the beginning of the period (16,645) (15,569) (15,569)
-------------------------------------------- ----------------- -------------------- -----------
Net debt at the end of the period (65,775) (15,351) (16,645)
-------------------------------------------- ----------------- -------------------- -----------
(2) See note 18 for an explanation and reconciliation in
relation to the prior year restatement arising from a change in
accounting policy following the Group's adoption of the IFRIC
agenda decision on cloud implementation, configuration, and
customisation costs.
Net debt increased by GBP49.1m in the period to GBP65.8m and
consists of total borrowings of GBP42.5m (FY-22: GBP3.3m) and
leases previously classified as operating leases under IAS17 of
GBP25.9m (FY-22: GBP14.1m) less cash balances of GBP2.6m (FY-22:
GBP1.8m).
At 30 September 2022, the Company had committed a revolving
credit facility ("RCF") of GBP80m (GBP40m utilised at 30 September
2022) and a GBP7.0m asset financing facility (GBP0.9m utilised at
30 September 2022). In addition, the Company has access to a
GBP20.0m accordion facility (which remains undrawn).
Related party transactions
There have been no material changes in the related party
transactions described in the last annual report and accounts of
the Company.
Principal risks and uncertainties
The principal risks and uncertainties, which could have a
material impact upon the Group's performance over the remaining six
months of the financial year ending 31 March 2023, have not changed
from those set out on pages 31 and 32 of the Group's 2022 annual
report and accounts, which are available at www.redcentricplc.com .
These risks and uncertainties include, but are not limited to, the
following:
Market and economic conditions
Technology and cyber-security
Competition and market pressures
Business continuity
Loss of a major contract
Environmental impact
Following the completion of our recent acquisitions and the
increased scale of the business, the Group has increased its
exposure to any increase in price and volatility of electricity. As
noted in the statements above, to mitigate this, we are
implementing a series of energy conservation measures which will
help to reduce consumption across the Group's data centre estate.
In addition to this the Group intends to replicate its electricity
hedging policy across the recently acquired businesses once
electricity prices have stabilised.
Going concern
As stated in note 2 to the financial statements, the Board is
satisfied that the Group has sufficient resources to continue in
operation for the foreseeable future, a period of not less than 12
months from the date of this report. Accordingly, they continue to
adopt the going concern basis in preparing the condensed financial
statements.
By order of the Board,
Chief Executive Officer Chief Financial Officer
Peter Brotherton David Senior
7 December 2022 7 December 2022
Redcentric plc
Condensed consolidated statement of comprehensive income for the
six months ended 30 September 2022
Six months Six months Year ended
to 30 September to 30 September 31 March
2022 2021 (Restated)(2) 2022
Unaudited Unaudited Audited
Note GBP'000 GBP'000 GBP'000
---------------------------------------- ----- ----------------- -------------------- -----------
Revenue 4 61,531 44,322 93,328
Cost of sales (18,061) (16,684) (33,778)
---------------------------------------- ----- ----------------- -------------------- -----------
Gross Profit 43,470 27,638 59,550
Operating expenditure (38,307) (24,105) (53,046)
Other operating income 70 - 103
---------------------------------------- ----- ----------------- -------------------- -----------
Adjusted EBITDA (1) 11,701 11,860 23,713
Depreciation of property, plant,
and equipment (1,441) (2,606) (2,745)
Amortisation of intangibles (4,175) (3,113) (6,973)
Depreciation and Amortisation of
ROU assets (5,346) (1,451) (4,578)
Gain on bargain purchase 5 9,685 - -
Other exceptional items 5 (4,655) (873) (1,629)
Share-based payments (536) (284) (1,181)
Operating profit 5,233 3,533 6,607
Finance costs 6 (1,129) (549) (1,071)
---------------------------------------- ----- ----------------- -------------------- -----------
Profit before taxation 4,104 2,984 5,536
Income tax (expense)/credit 7 (567) (97) 1,404
---------------------------------------- ----- ----------------- -------------------- -----------
Profit for the period attributable
to owners of the parent 3,537 2,887 6,940
---------------------------------------- ----- ----------------- -------------------- -----------
Other comprehensive income
Items that may be classified to
profit or loss:
Currency translation differences (65) - (26)
Deferred tax movement on share options - - 58
---------------------------------------- ----- ----------------- -------------------- -----------
Total comprehensive income for
the period 3,472 2,887 6,972
---------------------------------------- ----- ----------------- -------------------- -----------
Earnings per share
Basic earnings per share 8 2.27p 1.85p 4.43p
Diluted earnings per share 8 2.24p 1.81p 4.36p
---------------------------------------- ----- ----------------- -------------------- -----------
(1) For an explanation of the APMs used in this report, please
refer to the Chief Financia Officers Review.
(2) See note 18 for an explanation and reconciliation in
relation to the prior year restatement arising from a change in
accounting policy following the Group's adoption of the IFRIC
agenda decision on cloud implementation, configuration, and
customisation costs.
Redcentric plc
Condensed consolidated statement of financial position as at 30
September 2022
30 Sept 30 Sept 31 March
2022 2021 (Restated)(2) 2022
Unaudited
Unaudited Audited
Note GBP'000 GBP'000 GBP'000
-------------------------------- ----- ----------- -------------------- ---------
Non-Current Assets
Intangible assets 102,344 68,669 67,726
Property, plant, and equipment 15,219 5,133 5,372
Right-of-use assets 27,982 17,456 17,038
Deferred tax asset - 2,897 3,999
145,545 94,155 94,135
-------------------------------- ----- ----------- -------------------- ---------
Current Assets
Inventories 9 4,634 969 1,393
Trade and other receivables 10 32,696 19,774 22,123
Cash and cash equivalents 2,606 3,553 1,804
-------------------------------- ----- ----------- -------------------- ---------
39,936 24,296 25,320
-------------------------------- ----- ----------- -------------------- ---------
Total Assets 185,481 118,451 119,455
-------------------------------- ----- ----------- -------------------- ---------
Current Liabilities
Trade and other payables 12 (30,062) (24,054) (24,053)
Corporation tax payable ( 1,571) (684) (800)
Loans and borrowings 13 (40,240) (498) (508)
Leases 13 (8,066) (3,855) (4,086)
Provisions 14 (341) (548) -
Contingent consideration 15 ( 5,496) - (422)
-------------------------------- ----- ----------- -------------------- ---------
(85,776) (29,639) (29,869)
-------------------------------- ----- ----------- -------------------- ---------
Non-Current Liabilities
Loans and borrowings 13 280 (540) (496)
Leases 13 (20,355) (14,011) (13,359)
Deferred tax liability (2,998) - -
Provisions 14 (4,440) (2,744) (3,883)
-------------------------------- ----- ----------- -------------------- ---------
(27,513) (17,295) (17,738)
-------------------------------- ----- ----------- -------------------- ---------
Total Liabilities (113,289) (46,934) (47,607)
-------------------------------- ----- ----------- -------------------- ---------
Net Assets 72,192 71,517 71,848
-------------------------------- ----- ----------- -------------------- ---------
Equity
Called up share capital 16 157 156 157
Share premium account 16 73,267 73,267 73,267
Capital redemption reserve (9,454) (9,454) (9,454)
Own shares held in treasury 16 (1,336) (19) (2,673)
Retained earnings 9,558 7,567 10,551
-------------------------------- ----- ----------- -------------------- ---------
Total Equity 72,192 71,517 71,848
-------------------------------- ----- ----------- -------------------- ---------
(2) See note 18 for an explanation and reconciliation in
relation to the prior year restatement arising from a change in
accounting policy following the Group's adoption of the IFRIC
agenda decision on cloud implementation, configuration, and
customisation costs.
Redcentric plc
Condensed consolidated statement of changes in equity as at 30
September 2022
Share Share Capital Own Shares Retained Total
Capital Premium Redemption Held Earnings Equity
Reserve in Treasury
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------------------- --------- --------- ------------ ------------- ---------- --------
At 1 April 2021 156 73,267 (9,454) (32) 8,153 72,090
Profit for the period - - - - 2,887 2,887
Transactions with owners
Share-based payments - - - - 276 276
Dividends paid - - - - (3,749) (3,749)
Share options exercised - - - 13 - 13
Other comprehensive
income
Currency translation - - - - - -
differences
-------------------------- --------- --------- ------------ ------------- ---------- --------
At 30 September 2021
unaudited (Restated)(2) 156 73,267 (9,454) (19) 7,567 71,517
Profit for the period - - - - 4,054 4,054
Transactions with owners
Share-based payments - - - - 791 791
Share buyback - - - (2,666) - (2,666)
Issue of new shares 1 - - - - 1
Dividends paid - - - - (1,878) (1,878)
Share options exercised - - - 12 (14) 2
Other comprehensive
income
Deferred tax movement
on share options - - - - 58 58
Currency translation
differences - - - - (26) (26)
-------------------------- --------- --------- ------------ ------------- ---------- --------
At 31 March 2022 157 73,267 (9,454) (2,673) 10,551 71,848
Profit for the period - - - - 3,537 3,537
Transactions with owners
Share-based payments - - - - 449 449
Dividends paid - - - - (3,719) (3,719)
Share options exercised - - - 1,337 (1,325) 12
Other comprehensive
income
Currency translation
differences - - - - 65 65
-------------------------- --------- --------- ------------ ------------- ---------- --------
At 30 September 2022
unaudited 157 73,267 (9,454) (1,336) 9,558 72,192
(2) See note 18 for an explanation and reconciliation in
relation to the prior year restatement arising from a change in
accounting policy following the Group's adoption of the IFRIC
agenda decision on cloud implementation, configuration, and
customisation costs.
Redcentric plc
Consolidated cash flow statement for the six months ended 30
September 2022
Six months Six months Year ended
to 30 Sept to 30 31 March
2022 Sept 2021 2022
(Restated)(2)
Unaudited Unaudited Audited
GBP'000 GBP'000 GBP'000
----------------------------------------------- ------------ --------------- -----------
Profit before tax 4,104 2,984 5,536
Finance costs 1,129 549 1,071
----------------------------------------------- ------------ --------------- -----------
Operating profit 5,233 3,533 6,607
----------------------------------------------- ------------ --------------- -----------
Adjustment for non-cash items
Depreciation and amortisation 10,962 7,170 14,296
Exceptional items (5,030) 873 1,629
Share-based payments 536 284 1,181
----------------------------------------------- ------------ --------------- -----------
Operating cash flow before exceptional
items and movements in working capital 11,701 11,860 23,713
Transfer from intangible assets to cost
of sales - - 140
Non-cash provision movements - - (577)
Cash cost of exceptional items (4,790) (688) (2,091)
----------------------------------------------- ------------ --------------- -----------
Operating cash flow before changes in working
capital 6,911 11,172 21,185
Changes in working capital
Decrease / (increase) in inventories (3,241) 390 (185)
Decrease / (increase) in trade and other
receivables (9,663) 1,994 559
Increase / (decrease) in trade and other
payables 3,361 (4,264) (4,391)
----------------------------------------------- ------------ --------------- -----------
Cash generated from operations (2,632) 9,292 17,168
----------------------------------------------- ------------ --------------- -----------
Tax (paid) / received (176) (5) 246
----------------------------------------------- ------------ --------------- -----------
Net cash generated from operating activities (2,808) 9,287 17,414
----------------------------------------------- ------------ --------------- -----------
Cash flows from investing activities
Acquisition of subsidiaries net of cash
acquired (23,229) (8,366) (10,422)
Disposal of non-core contacts - 5,750 5,750
Purchase of property, plant, and equipment (1,364) (1,664) (2,264)
Purchase of intangible fixed assets (178) (246) (501)
Net cash used in investing activities (24,771) (4,526) (7,437)
----------------------------------------------- ------------ --------------- -----------
Cash flows from financing activities
Dividends paid (3,719) (3,749) (5,627)
Share buy back - - (2,666)
Cash received on exercise of share options 12 7 12
Interest paid (937) (400) (936)
Repayment of leases (5,836) (2,316) (3,745)
Repayment of term loans (464) - (487)
Drawdown of borrowings 45,500 2,000 4,500
Repayment of borrowings (5,500) (2,000) (4,500)
Repayment of loan arrangement fees (713) - -
Issue of shares - - 1
Net cash used in financing activities 28,343 (6,458) (13,448)
----------------------------------------------- ------------ --------------- -----------
Net increase / (decrease) in cash and
cash equivalents 764 (1,697) (3,471)
Cash and cash equivalents at beginning
of period 1,804 5,250 5,250
Effect of exchange rates 38 - 25
Cash and cash equivalents at end of the
period 2,606 3,553 1,804
----------------------------------------------- ------------ --------------- -----------
(2) See note 18 for an explanation and reconciliation in
relation to the prior year restatement arising from a change in
accounting policy following the Group's adoption of the IFRIC
agenda decision on cloud implementation, configuration, and
customisation costs.
Redcentric plc
Notes to the condensed set of financial statements for the six
months ended 30 September 2022
1. General information
The financial statements for the six months ended 30 September
2022 and the six months ended 30 September 2021 do not constitute
statutory accounts within the meaning of Section 434 of the
Companies Act 2006. Statutory accounts for the year ended 31 March
2022 were approved by the Board on 21 July 2022, revised by
supplementary note on 5 December 2022, and subsequently delivered
to the Registrar of Companies. The auditor's report on the revised
accounts was unqualified, did not contain any statement under
Section 498 (2) or (3) of the Companies Act 2006 and contained an
emphasis of matter paragraph relating to the revision of the Parent
Company Balance Sheet and Note 1 of the Parent Company financial
statements as the original financial statements omitted the
required disclosures under section 408 of the Companies Act
2006.
These condensed half year financial statements were approved for
issue by the Board on 7 December 2022.
Redcentric plc is a company domiciled in England and Wales.
These condensed half year financial statements comprise the Company
and its subsidiaries (together referred to as the "Company" or the
"Group"). The principal activity of the Company is the supply of IT
managed services .
2. Accounting policies
Basis of preparation
These condensed half year financial statements for the half year
ended 30 September 2022 have been prepared in accordance with the
AIM Rules for Companies, comply with IAS 34 Interim Financial
Reporting as adopted by the UK and should be read in conjunction
with the annual financial statements for the year ended 31 March
2022, which have been prepared in accordance with International
Financial Reporting Standards (IFRS) as adopted by the UK.
The financial information is presented in sterling, which is the
functional currency of the Company. All financial information
presented has been rounded to the nearest thousand.
Going concern
On 26 April 2022 the Group completed a refinancing of its debt
facilities that were due to mature on 30 June 2022. The new debt
facilities consist of an GBP80m revolving credit facility (RCF) and
a GBP20m accordion facility and are provided by a new four bank
group comprising NatWest, Barclays, Bank of Ireland, and Silicon
Valley Bank. The Group also has a GBP7.0m asset financing facility
provided by Lombard. At the 30 September 2022 the Group had
borrowed GBP40m of the RCF which has been used to fund acquisitions
and the associated short-term working capital requirements and had
utilised GBP0.9m of the asset financing facility.
The Board has reviewed a detailed trading and cash flow forecast
for a period which covers at least 12 months after the date of
approval of these condensed half year financial statements. The
Group's trading and cash flow forecasts have been prepared using
current trading assumptions, however, the economic environment
presents several challenges which could negatively impact the
actual performance achieved. These risks include, but are not
limited to, achieving forecast levels of order intake and customer
confidence to invest in new infrastructure. If future trading
performance significantly under-performs the Group's forecasts,
this could impact the ability of the Group to comply with its
covenant tests over the period of the forecasts, therefore a
downside scenario has been prepared.
The downside scenario assumes significant economic downturn over
the remainder of FY23 and the first half of FY24 with new order
intake reduced by 30% of base case forecast and a 13% reduction in
non-recurring revenues. This scenario also models the impact of
continued economic and inflationary pressures with interest rates
continuing to increase to 5.5% in January 2024 and increases to key
cost bases in the Group including salary rates and electricity
prices. Under the downside scenario modelled, management would
utilise the existing finance facilities but would not need to
undertake any mitigating actions. The forecasts demonstrate that
the Group is expected to maintain sufficient liquidity and remain
in compliance with covenants whilst still maintaining adequate
headroom against overall facilities.
The Board therefore remains confident that the Group has
adequate resources to continue to meet its liabilities as and when
they fall due within the period of at least 12 months from the date
of approval of these financial statements. Accordingly, the
financial statements have been prepared on a going concern
basis.
2. Critical accounting judgements and key sources of estimation uncertainty
Identification of intangible assets and fair value adjustments
on acquisition
The allocation of the value of the excess consideration less the
net assets acquired are identified as intangible assets arising as
part of a business combination. These require judgement in respect
of the separately identifiable intangible assets that have been
acquired. These judgements are based upon the Board's opinion of
the identifiable assets from which economic benefits are
derived.
As the Group continues with its acquisition strategy, there is a
requirement to fair value the assets and liabilities of any
business acquired during the financial year. The measurement period
will end when the Group receives the information it was seeking
about the facts and circumstances that existed at the date of
acquisition or learns that this information is not available. The
measurement period cannot be longer than twelve months from the
date of acquisition. The Group is required to identify, assess, and
value the intangible assets within the acquired business at the
time of acquisition. When reviewing the existence of intangible
assets consideration is required as to the potential intangible
assets arising such as customer relationships.
The estimation of the value of any potential identified
intangible assets, such as customer relationships, requires
estimates of the expected future cashflows that will be derived
from the existing relationships, and the associated useful life,
with a suitable discount rate required to calculate the present
value. The methods and assumptions included in determining the fair
values of acquired intangibles are therefore complex and subject to
estimation uncertainty.
Contingent consideration
Judgement is required when considering the level of contingent
consideration that will be payable in relation to the Sungard DCs
acquisition. Under the terms of the agreement, consideration is
payable and calculated with reference to contracted monthly
recurring revenue for a period that exceeds 12 months. Where
customers have initially contracted for a period of less than 12
months, judgement and estimation is required to assess the
likelihood of these contracts being extended to a period that
exceeds 12 months largely through discussions with customers. This
is therefore subject to estimation uncertainty.
3. Segmental reporting
IFRS 8 requires operating segments to be identified based on
internal financial information reported to the chief operating
decision-maker for decision-making purposes. The Group considers
that this role is performed by the Board. The Board believes that
the Group continues to comprise a single reporting segment, being
the provision of managed services to customers.
4. Revenue analysis
Revenue for the six months ended 30 September 2022 was generated
wholly from the UK and is analysed as follows:
Six months Six months Year ended
to 30 to 30 31 March
Sept 2022 Sept 2021 2022
Unaudited Unaudited Audited
GBP'000 GBP'000 GBP'000
------------------- ----------- ----------- -----------
Recurring revenue 56,436 39,570 82,965
Product revenue 2,460 2,875 6,187
Services revenue 2,635 1,877 4,176
Total revenue 61,531 44,322 93,328
------------------- ----------- ----------- -----------
5. Exceptional items
Six months Six months
to 30 to 30 Year ended
Sept 2022 Sept 2021 31 March
Unaudited (Restated)(2) 2022
Unaudited Audited
GBP'000 GBP'000 GBP'000
--------------------------------------------- ----------- --------------- -----------
Professional fees associated with Financial - 8 -
Conduct Authority investigation
Insurance advisor provision - - (483)
Staff restructuring - 128 159
Acquisition and integration costs 3,539 494 971
Historic share warrant exercise - - 310
Costs and settlement relating to a customer
dispute 812 - 119
Shareholder restitution scheme - 28 -
Impairment of intangible assets - - 205
Lease modification - - (119)
Sale costs - - 70
Cloud configuration and customisation costs 304 208 397
Gain from bargain purchase (note 17) (9,685) - -
Costs upon sale of non-core business unit - 7 -
(5,030) 873 1,629
--------------------------------------------- ----------- --------------- -----------
(2) See note 18 for an explanation and reconciliation in
relation to the prior year restatement arising from a change in
accounting policy following the Group's adoption of the IFRIC
agenda decision on cloud implementation, configuration, and
customisation costs.
6. Finance costs
Six months Six months Year ended
to 30 to 30 31 March
Sept 2022 Sept 2021 2022
Unaudited Unaudited Audited
GBP'000 GBP'000 GBP'000
----------------------------------------------- ----------- ----------- -----------
Finance costs
Interest payable on bank loans and overdrafts (511) (31) (81)
Interest payable on leases (483) (518) (990)
Amortisation of loan arrangement fees (135) - -
----------------------------------------------- ----------- ----------- -----------
( 1,129) (549) (1,071)
----------------------------------------------- ----------- ----------- -----------
7. Income tax expense
The tax expense recognised reflects management estimates of the
tax charge for the period and has been calculated using the
estimated average tax rate of UK corporation tax for the financial
year of 19.0% (H1-22: 19.0%).
8. Earnings per share (EPS)
The calculation of basic and diluted EPS is based on the
following earnings and number of shares.
Six months
Six months to 30
to 30 Sept 2021 Year ended
Sept 2022 (Restated)(2) 31 March
Unaudited Unaudited 2022 Audited
Earnings GBP'000 GBP'000 GBP'000
---------------------------------------------- ----------- --------------- --------------
Statutory earnings 3,537 2,887 6,940
Tax charge 567 97 (1,404)
Amortisation of acquired intangibles 3,913 3,126 6,498
Share-based payments 536 284 1,181
Exceptional items (5,030) 873 1,629
Adjusted earnings before tax 3,523 7,267 14,844
Notional tax charge at standard rate (670) (1,381) (2,820)
---------------------------------------------- ----------- --------------- --------------
Adjusted earnings 2,853 5,886 12,024
---------------------------------------------- ----------- --------------- --------------
Number Number Number
Weighted average number of ordinary shares '000 '000 '000
---------------------------------------------- ----------- --------------- --------------
Total shares in issue 156,992 156,184 156,992
Shares held in treasury (1,000) (21) (420)
---------------------------------------------- ----------- --------------- --------------
For basic EPS calculations 155,992 156,163 156,572
Effect of potentially dilutive share options 2,138 3,441 2,803
---------------------------------------------- ----------- --------------- --------------
For diluted EPS calculations 158,130 159,604 159,375
---------------------------------------------- ----------- --------------- --------------
EPS Pence Pence Pence
---------------------------------------------- ----------- --------------- --------------
Basic 2.27p 1.85p 4.43p
Adjusted 1.83p 3.77p 7.68p
Basic diluted 2.24p 1.81p 4.36p
Adjusted diluted 1.81p 3.69p 7.54p
---------------------------------------------- ----------- --------------- --------------
9. Inventories
Six months Six months Year ended
to 30 to 30 31 March
Sept 2022 Sept 2021 2022
Unaudited Unaudited Audited
GBP'000 GBP'000 GBP'000
------------------ ----------- ----------- -----------
Goods for resale 4,634 969 1,393
------------------ ----------- ----------- -----------
Goods for resale includes components required to deliver managed
services to customers.
10. Trade and other receivables
Six months Six months Year ended
to 30 to 30 31 March
Sept 2022 Sept 2021 2022
Unaudited Unaudited Audited
GBP'000 GBP'000 GBP'000
----------------------------- ----------- ----------- -----------
Trade receivables 17,269 9,015 11,112
Less: credit note provision (669) (1,115) (884)
----------------------------- ----------- ----------- -----------
Trade receivables - net 16,600 7,900 10,228
Other receivables 221 594 737
Prepayments 6,194 6,956 6,434
Commission contract asset 2,183 1,877 2,098
Accrued income 7,498 2,447 2,626
Total 32,696 19,774 22,123
----------------------------- ----------- ----------- -----------
11. Trade and other receivables (continued)
Trade receivable days were 43 at 30 September 2022 (30 September
2021: 31). The ageing of trade receivables is shown below:
Six months Six months Year ended
to 30 to 30 31 March
Sept 2022 Sept 2021 2022
Unaudited Unaudited Audited
GBP'000 GBP'000 GBP'000
------------------------- ----------- ----------- -----------
Current 12,303 7,188 8,736
1 to 30 days overdue 3,525 1,561 1,997
31 to 60 days overdue 1,352 126 452
61 to 90 days overdue 42 115 80
91 to 180 days overdue 8 25 19
> 180 days overdue 39 - (172)
------------------------- ----------- ----------- -----------
Gross trade receivables 17,269 9,015 11,112
Credit note provision (669) (1,115) (884)
Net trade receivables 16,600 7,900 10,228
------------------------- ----------- ----------- -----------
12. Trade and other payables
Six months Six months Year ended
to 30 to 30 31 March
Sept 2022 Sept 2021 2022 Audited
Unaudited Unaudited
GBP'000 GBP'000 GBP'000
------------------------------ ----------- ----------- --------------
Trade Payables 10,330 7,245 8,910
Other Payables 1,209 982 1,130
Taxation and Social Security 2,819 3,128 2,433
Accruals 7,722 4,297 4,050
Deferred Income 7,982 8,402 7,530
Total 30,062 24,054 24,053
------------------------------ ----------- ----------- --------------
Trade creditor days were 33 at 30 September 2022 (30 September
2021: 32).
13. Borrowings
Six months Six months Year ended
to 30 to 30 31 March
Sept 2022 Sept 2021 2022 Audited
Unaudited Unaudited
GBP'000 GBP'000 GBP'000
----------------------------------- ----------- ----------- --------------
Current
Lease liabilities 8,066 3,855 4,086
Term loans 506 498 508
Bank loans 40,000 - -
Unamortised loan arrangement fees (266) - -
----------------------------------- ----------- ----------- --------------
Total 48,306 4,353 4,594
----------------------------------- ----------- ----------- --------------
Non-current
Lease liabilities 20,355 14,011 13,359
Term Loans 35 540 496
Bank Loans - - -
Unamortised loan arrangement fees (315) - -
----------------------------------- ----------- ----------- --------------
Total 20,075 14,551 13,855
----------------------------------- ----------- ----------- --------------
14. Provisions
Scheme fees Dilapidation Onerous
provision provision contract Total provision
provision
GBP'000 GBP'000 GBP'000 GBP'000
-------------------------------- ------------ ------------- ----------- ------------------
At 1 April 2021 553 2,695 21 3,269
Additional provisions in
the period - 49 - 49
Released during the period - - - -
Utilised during the period (26) - - (26)
-------------------------------- ------------ ------------- ----------- ------------------
At 30 September 2021 unaudited 527 2,744 21 3,292
Additional provisions in
the period - 1,140 - 1,140
Acquired through business
combination - - 577 577
Released during the period (527) - - (527)
Utilised during the period - (1) (598) (599)
-------------------------------- ------------ ------------- ----------- ------------------
At 31 March 2022 - 3,883 - 3,883
Additional provisions in
the period - 284 - 284
Acquired through business
combination - 614 - 614
Released during the period - - - -
Utilised during the period - - - -
-------------------------------- ------------ ------------- ----------- ------------------
At 30 September 2022 unaudited - 4,781 - 4,781
-------------------------------- ------------ ------------- ----------- ------------------
Analysed as:
Current - 341 - 341
Non-current - 4,440 - 4,440
-------------------------------- ------------ ------------- ----------- ------------------
At 30 September 2022 unaudited - 4,781 - 4,781
-------------------------------- ------------ ------------- ----------- ------------------
15. Contingent consideration
Six months Six months Year ended
to 30 to 30 31 March
Sept 2022 Sept 2021 2022
Unaudited Unaudited Audited
GBP'000 GBP'000 GBP'000
---------------------------------------------- ----------- ----------- -----------
Contingent consideration due on acquisitions
within one year:
7 Elements Limited
Sungard 436 - 422
Sungard DCs (note 17) 5,060 - -
Total 5,496 - 422
---------------------------------------------- ----------- ----------- -----------
16. Share capital and share premium
Ordinary shares Share
of 0.1p each premium
---------------------- ---------
Number GBP'000 GBP'000
-------------------------------- ------------ -------- ---------
At 1 April 2021 156,165,710 156 73,267
New shares issued 826,272 1 -
-------------------------------- ------------ -------- ---------
At 31 March 2022 156,991,982 157 73,267
-------------------------------- ------------ -------- ---------
New shares issued - - -
-------------------------------- ------------ -------- ---------
At 30 September 2022 unaudited 156,991,982 157 73,267
-------------------------------- ------------ -------- ---------
At the start of the period the Company held in treasury
2,170,203 of its ordinary share capital. During the period,
following notices of exercise in relation to employee share
options, 1,085,261 shares previously held in treasury were
transferred to satisfy the exercises. At 30 September 2022, the
Company's issued share capital consisted of 156,991,982 ordinary
shares of which 1,084,942 which remain in treasury.
17. Business combinations
4D Data Centres Limited
On 27 June 2022, the Group's trading subsidiary, Redcentric
Solutions Limited, acquired 100% of the issued share capital of 4D
Data Centres Limited ("4D") for GBP10.1m consideration. The
business provides colocation, cloud, and connectivity services to
mid-market customers. The primary purpose of the business
combination is to scale the Group's existing revenues in the area
with significant synergies expected as the acquisition is
integrated into the Group.
The Group incurred acquisition-related costs of GBP0.2m on
acquisition fees and integration costs which are included in
exceptional costs (note 5).
The table below summarises the recognised amounts of assets and
liabilities assumed as at the date of acquisition of 4D using
provisional fair values:
Provisional fair value
of net assets acquired
unaudited
GBP'000
----------------------------------- ------------------------
Tangible fixed assets 2,447
Customer relationships intangible
asset 6,200
ROU Assets 1,286
Trade and other receivables 911
Cash and cash equivalents 1,061
Trade and other payables (1,646)
Deferred revenue (764)
Deferred tax (1,712)
Leases (1,976)
Provisions (692)
Corporation tax 187
----------------------------------- ------------------------
Total identifiable net assets
acquired 5,302
----------------------------------- ------------------------
Goodwill 4,821
----------------------------------- ------------------------
Cash 9,842
Deferred consideration 281
----------------------------------- ------------------------
Total cash consideration 10,123
----------------------------------- ------------------------
The goodwill arising on acquisition represents future income
from new customers together with the anticipated future operating
synergies from the new combination.
The fair value of assets acquired includes trade receivables
with a fair value of GBP0.7m comprised of the gross amounts due
under contracts, all of which is expected to be collectable.
The provisional fair value of the acquired customer
relationships is GBP6.2m. To estimate the fair value of the
customer relationships intangible asset, a multi-period excess
earnings method "MEEM" approach has been adopted, this approach
considers the present value of net cash flows expected to be
generated by the customer relationships, by excluding any cash
flows related to contributory assets.
The consulting and risk and resilience business of Sungard
Availability Services (UK) Limited (in administration)
On 7 June 2022, the Group's trading subsidiary, Redcentric
Solutions Limited, acquired the consulting business of Sungard
Availability Services Limited (in administration) for a
consideration of GBP4.2m paid in cash. The business provides
services in respect of business continuity, cloud and
infrastructure, cyber resilience, disaster recovery and hybrid
cloud transformation services alongside the provision and operation
of cloud related services. This acquisition adds significant
expertise into the Group's risk and resilience and consultancy
offering providing the potential to cross sell additional services
into the existing customer base. Given the nature of the business,
other than the established workforce acquired the provisional fair
value of net assets acquired is considered immaterial to the Group,
therefore the business combination has resulted in goodwill of
GBP4.2m.
Sungard DCs
On 6 July 2022, the Group's trading subsidiary, Redcentric
Solutions Limited, acquired certain assets, including customer
contracts, tangible fixed assets and a workforce, relating to three
data centres of Sungard Availability Services Limited (in
administration), which together carry out colocation and private
hosting services which are now being fulfilled by the Group and
which represent a business combination in accordance with IFRS 3
'Business Combinations' as it satisfies the substantive process
test.
The initial consideration paid was GBP10.1m, with further
contingent consideration of GBP5.1m dependent on customer retention
and certain performance criteria. Payment will be due once certain
performance criteria have been satisfied. The potential
undiscounted amount of the contingent payment is between GBPnil and
GBP19m. In considering the fair value, management assessed
contractual negotiations and estimated the value of short-term
contracts that are expected to convert to longer term (over 12
months).
Given the nature of the acquisition (being the purchase of a
business out of administration), work is ongoing to establish the
fair value of all associated assets and liabilities, specifically
around the valuation of tangible fixed assets. Therefore, the fair
values quoted and associated gain on bargain purchase is
provisional and may change once this work is completed and fair
values are finalised.
The Group incurred acquisition-related costs of GBP2.7m on
acquisition fees and integration costs which are included in
exceptional costs (note 5).
The provisional fair value of the acquired customer
relationships is GBP23.4m. To estimate the fair value of the
customer relationships intangible asset, a multi-period excess
earnings method "MEEM" approach has been adopted, this approach
considers the present value of net cash flows expected to be
generated by the customer relationships, by excluding any cash
flows related to contributory assets.
Once provisional fair values have been established, the business
combination has resulted in gain on bargain purchase of GBP9.7m
which has been credited to the income statement within exceptional
costs (note 5) for the period ended 30 September 2022.
The table below summarises the recognised amounts of assets and
liabilities assumed as at the date of acquisition of Sungard DCs
using provisional fair values:
Provisional fair value
of net assets acquired
unaudited
GBP'000
-------------------------------------- ------------------------
Tangible fixed assets 7,500
Customer relationships intangible
asset 23,400
ROU assets 2,624
Accruals (185)
Deferred tax (5,850)
IFRS16 leases (2,624)
-------------------------------------- ------------------------
Total identifiable net assets
acquired 24,865
-------------------------------------- ------------------------
Provisional gain on bargain purchase
(note 5) (9,685)
-------------------------------------- ------------------------
Cash 10,120
Contingent consideration (note
15) 5,060
-------------------------------------- ------------------------
Total consideration 15,180
-------------------------------------- ------------------------
18. Prior year restatement
As detailed in the Group's 2022 annual report and accounts, a
prior year restatement has been made on adoption of the IFRS
Interpretations Committee (IFRIC) agenda decision in relation to
the configuration and customisation costs incurred in implementing
Software-as-a-Service (SaaS) cloud computing arrangements released
in April 2021.
Upon adoption of this agenda decision the comparative period
ended 30 September 2021 has been restated to write off previously
capitalised costs totalling GBP0.2m which have now been expensed to
exceptional costs and amortisation costs of GBP0.4m previously
charged on the intangible asset have been reversed. In line with
the Group's 2022 annual report and accounts, amounts previously
capitalised prior to 1 April 2022 and any amortisation charged have
been corrected in the relevant periods and written off to retained
earnings.
A presentational restatement has also been made to align the
results for the 30 September 2021 with the results for the 31 March
2022 with the proceeds from the disposal of non-core contracts
previously disclosed within exceptional items reallocated to cash
flows from investing activities. Accordingly, reported cash
generated from operations within the cashflow statement has reduced
by GBP5.7m with a corresponding increase in cash flows from
investing activities.
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END
IR UBOARUNUURUA
(END) Dow Jones Newswires
December 08, 2022 02:00 ET (07:00 GMT)
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