(Alliance News) - Redcentric PLC shares were up on Friday morning following a positive trading update and announcement of a settlement agreement with a UK regulator over accounting misstatements.
The IT managed services provider has reached a settlement with the Financial Conduct Authority in connection with an FCA investigation relating to "certain historical accounting misstatements".
Redcentric will pay restitution of around GBP11.4 million to share purchasers between November 9, 2015 and November 4, 2016 but will not have to pay a financial penalty. The settlement concludes the investigation into accounting misstatements between those two dates.
Of the GBP11.4 million, part of this will be funded using the firm's own cash resources, and the rest via a placing and subscription of shares at 110 pence per share to raise GBP5.8 million.
On Friday morning, shares in Redcentric were up 23% at 125.04 pence, giving the company a market capitalisation of GBP185.7 million.
Shareholder approval for the share issue will be sought at a general meeting on July 13. The company has asked that shareholders not attend the meeting in person.
Chief Executive Peter Brotherton said: "I am pleased that we have now achieved an agreed settlement, having worked closely with the FCA over a number of years and having acted promptly to issue a corrective statement to the market when the misstatements were discovered. This is positive news for Redcentric and follows a positive start to the year.
"The conclusion of the investigation removes significant uncertainty and costs, enabling management to focus solely on future growth."
Redcentric also said Friday it has been encouraged but its trading performance in the year to date, with recurring revenue orders in its first financial quarter marginally exceeding the year before and significantly beating board expectations at the time of its April 3 trading update.
On top of this, customer installations in the quarter are likely to significantly surpass the prior year and expectations from the April 3 update.
Redcentric expects to complete the majority of its data centre and network restructuring programme by the end of June and to deliver annualised cost savings in its financial year ending March 2021, and beyond, of slightly more than the GP2.8 million previously forecast.
So far, none of Redcentric's employees have been furloughed with most working remotely.
"Following the positive start to the year, the board remains appropriately cautious on future trading due to the uncertainty around the economic effects of the Covid-19 pandemic. Whilst demand for new business in Q1 FY21 has been strong, the company has also experienced customers deferring decisions on large-scale IT projects due to Covid-19," said Redcentric.
Thus far, more than 90% of Redcentric's financial 2020 year-end trade debtor balance has been collected and the firm has been able to provide deferred payment support to some its customers with no significant bad debt incurred.
The firm has committed banking facilities to June 2022, comprising a GBP17.5 million revolving credit facility, of which GBP10 million has been drawn, plus a GBP5 million asset financing facility of which GP2 million has been drawn. This leaves GBP10.5 million of headroom.
No final dividend will be recommended for financial 2020, though dividends will be reinstated "once the outlook becomes more certain".
Redcentric will publish is financial 2020 results on July 21. Trading in that financial year met board expectations, the company said.
By Anna Farley; annafarley@alliancenews.com
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