CTP.L Regulatory News (CTP)

7 Jun 2007 07:01

Redstone PLC07 June 2007 7 June 2007 REDSTONE PLC ("Redstone" or "the Group") Unaudited Preliminary Results for the 12 months ended 31 March 2007 Redstone plc (AIM:RED.L), the national IT & Communications solutions provider,today announces its financial results for the 12 months ended 31 March 2007. FINANCIAL HIGHLIGHTS •Revenues up by 56% to £113.0m (FY06: £72.5m) •Gross profit up by 57% to £41.0m •Gross profit percentage stable at 36% •Adjusted EBITDA* profit of £7.9m compared with breakeven in 2006 •Profit after tax of £0.1m compared with a loss of £22.5m in 2006 •Cash balances over £10m £€31.5m revolving debt facility agreed with Barclays •Announcement of largest contract win in Group's history with a potential value of £16m * before goodwill impairment, amortisation of intangibles, restructuring costs,share based payment charges and holiday accrual OPERATIONAL HIGHLIGHTS • The acquisition of; Comunica, Symphony Telecom, IDN and the Tolerant group of companies • Major new contract wins, including the Lancashire Building Schools for the Future ("BSF") project **, and the Bristol and Leicester shopping centre infrastructure projects with a combined value of £3.4m • Preferred bidder status won for White City, the largest shopping centre development in Europe • Improved quality of business and reduced operational risk • In excess of 50% of present revenues are from IT services rather than traditional telecommunications • Addition of mobile service provider enabling Redstone to provide a complete products and solutions offering • Capital restructuring exercise to create distributable reserves enabling the Group to have the option of a dividend policy ** the combined ICT project is worth in the order of £16m. Redstone's phase 1contract for the first three schools is worth £6.3m and, as the exclusiveprovider of ICT equipment and management services for the entire project,expects to contract for phases 2 and 3 in due course. Martin Balaam, Chief Executive Officer, Redstone, commented, "This has been another very good year for Redstone, continuing thetransformation of the business that began last year. I am delighted at theprogress the Group has made, particularly with it now being able to offer a full"across the board" IT and Communications Solutions which include the newlyacquired mobile offering, and having the capacity to win and delivermulti-million pound, multi-year infrastructure projects. "In 2007, the Board wish to see growth within the business. With the corporateactivity of the last financial year completed Redstone has been transformed intoa substantial mid-market ICT player which is well positioned to take advantageof the convergence taking place in the sector. Industry convergence is expectedto continue and the Board believe that the Company is well placed for this.Redstone has a strong platform from which to grow and increasingly the Company'spresence is being felt by its larger peers." ENQUIRIES: Redstone plc Tel. +44 (0)845 200 2200Martin Balaam, Chief Executive OfficerTim Perks, Chief Financial Officer ICIS Limited Tel. +44 (0)20 7651 8688Tom Moriarty Or +44 (0)7769 937 626Paul Youens Investec Tel. +44 (0)20 7597 4000Chris GodsmarkJames SandfordBen Poynter Chief Executive's Statement Introduction Financial Highlights •Revenues up by 56% to £113.0m (FY06: £72.5m) •Gross profit up by 57% to £41.0m •Gross profit percentage stable at 36% •Adjusted EBITDA* profit of £7.9m compared with breakeven in 2006 •Profit after tax of £0.1m compared with a loss of £22.5m in 2006 •Cash balances over £10m £€31.5m revolving debt facility agreed with Barclays •Announcement of largest contract win in Group's history with a potential value of £16m * before goodwill impairment, amortisation of intangibles, restructuring costs,share based payment charges and holiday accrual Operational Highlights • The acquisitions of Comunica, Symphony Telecom, IDN and the Tolerant group of companies • Major new contract wins, including the Lancashire Building Schools for the Future ("BSF") project **, and the Bristol and Leicester shopping centre infrastructure projects with a combined value of £3.4m • Preferred bidder status won for White City, the largest shopping centre development in Europe • Improved quality of business and reduced operational risk • In excess of 50% of present revenues are from IT services rather than traditional telecommunications • Addition of mobile service provider enabling Redstone to provide a complete products and solutions offering • Capital restructuring exercise to create distributable reserves enabling the Group to have the option of a dividend policy ** the combined ICT project is worth in the order of £16m. Redstone's phase 1contract for the first three schools is worth £6.3m and, as the exclusiveprovider of ICT equipment and management services for the entire project,expects to contract for phases 2 and 3 in due course. The last 12 months represent a landmark change in the development of Redstone.Key acquisitions have been made to complete the Group's offering as an IT andCommunications Solutions provider and furthermore Redstone has announced anumber of large contract wins, some being the largest in the firm's history. Thesuccess during the year is a result of the execution of a corporate developmentstrategy that has seen Redstone become a significant player in the UK ITservices and telecommunications market. There were several strategic corporate actions such as the move to theAlternative Investment Market of the London Stock Exchange, the capitalrestructure and the share consolidation which the Board believes will assistRedstone in moving forward as a mid-tier IT and Communications provider. TheGroup is now focusing, in the short term, on consolidating its position,following a period of multiple acquisitions. This will realise tangiblesynergies across the Group and ensure it is well positioned for further growth.The Board believe that the outlook for the Group is positive and the Boardremains committed to delivering growth both organically and acquisitively in thedeveloping and consolidating IT and Communications sector. Operational Review Strategic acquisitions The focus of the last financial year has been preparing Redstone for growth andsuccess in the converging IT and Communications services industries. This wasachieved primarily through strategic acquisitions that strengthened the existingdivisions and also created a new division - Redstone Mobile. The acquisition of Symphony Telecom Holding plc ("Symphony") was announced inJune 2006, this was shortly followed by the acquisition of the Tolerant group ofcompanies ("Tolerant") in July. Both of these businesses are now fullyintegrated into the Redstone Telecom, Redstone Mobile, and Redstone ManagedSolutions divisions. In November 2006 Redstone announced the acquisition of IDN Telecom plc ("IDN")and this was completed early in 2007 and is nearing completion of integrationinto the Redstone Telecom and Redstone Mobile divisions. Most recently, theacquisition of Comunica plc ("Comunica") was announced in February 2007 and thisis currently being brought into the Converged Solutions division. These acquisitions leave Redstone well positioned to operate in both itsexisting markets and to move deeper into the fast developing IT andCommunications market. There are also cross-selling opportunities as eachacquisition brought its own customer base. Redstone now has 36,145 B2B customersmany of whom it is now able to target as potential customers for additionalservices that Redstone offers. This M&A strategy has brought four main elementsinto the Group: • A mobile business that is a service provider for both O2 and Vodafone in the UK, combined with a mobile distribution business servicing all five major mobile network operators in the UK: 3, O2, Orange, T-Mobile and Vodafone • A fixed line telecoms business which complements the existing Redstone fixed line minutes business • Additional scale to the Redstone Managed Solution business through the acquisition of Tolerant • Additional scale and capability to the Converged Solution business through the acquisition of Comunica, achieving preferred bidder status for the White City shopping centre project, the largest in Europe Strategy and market positioning The acquisitions over the past twelve months place Redstone in a strong positionto move forward and grow in the rapidly converging markets of IT andCommunication services. With over half of the Company's present revenues comingfrom the provision of Information & Communication Technologies ("ICT") and ITServices, Redstone has complemented its traditional telecommunications servicesand developed a 'full service' capability to meet its customer demands. Demand for IP enabled networks is ever increasing as more technologies use theIP network as their primary communication medium. Redstone is ideally positionedto take advantage of this, through the ability to design, deliver and managecomplex integrated IT and Communication solutions and to bid on larger scale,longer term IP projects. Redstone also has all the capabilities in-house tomanage the transition for its customers from existing and traditionaltelecommunications technologies into IP based solutions. At present the business is divided into five co-operating divisions. Thisstructure has enabled Redstone to expand rapidly via acquisition whilstminimising the disruption to other divisions and maintaining focus on costcontrol. Each division specialises in one of the core ICT technologies enablingRedstone to go to market both as a specialist and a "Total IT and CommunicationsSolution Provider". A summary of each division's activities for the year andstrategy moving forward is given below: Redstone Telecom - provides high quality and reliable telephony network servicesto both the private and public sector, including inbound and outbound telephony,line rental, non geographic services, SMS and premium rate services. The fixed line telecoms market is experiencing gradual decline due to both priceerosion and the move to IP based telecommunications, however, with very goodrelationships with British Telecom, who manage the Redstone network, and beingcustomer focused Redstone is confident that any decline will be backfilled bynew business wins. Furthermore, given the complete range of services thatRedstone can now offer, particularly the recent strength shown in RedstoneConverged Solutions division, it is likely that a high proportion of RedstoneTelecom customers will choose to make the move onto IP and can do so withRedstone as their provider. Until this mass migration to IP occurs, the Telecom division remains aconsistent source of valuable revenues for the Company, and has become a usefultool to acquire new customers quickly with the sales cycle within fixed linetelecommunication measured in weeks rather than months as experienced within theIT services businesses. Pressure on price has fallen away to an extent andRedstone achieves a high customer retention level in this division. Theacquisitions of Symphony and IDN have bolstered the Telecoms division in termsof customer numbers, and utilise the previously Redstone owned, BT managed fixedline network which was running under capacity. The various back and head officefunctions of both Symphony and IDN have been amalgamated with those of Redstone,allowing the addition of revenues without incurring a significantly larger costbase. Redstone Mobile - is a service provider for O2 and Vodafone, selling direct tobusinesses and also has a distribution business which supplies a network of over450 dealers around the UK with access to all five major mobile networks (3, O2,Orange, T-Mobile and Vodafone). The need for a mobile offering was a key element in the rationale of theSymphony acquisition. Redstone Mobile was created following this transaction. Atpresent only a small proportion of Redstone Mobile's revenues are achievedthrough the service provision model, the majority coming indirectly through thedealer channels. The focus moving forward will be to grow the service provisionsales through penetration of the existing Redstone customer base and to use theextensive Dealer Network business as a channel for other Redstone products andservices. Redstone Converged Solutions - is a leading provider of converged IP solutions,with expertise in contact centres, voice and video, networks and security. Although Converged Solutions' day to day revenue comes from supplying customerswith their ICT requirements, this tends to be relatively short term projects(one to three months duration). When Redstone embarked on the restructure in2005 a core objective was to break into larger, longer term ICT contracts thatwould give Redstone's IT services businesses greater revenue visibility. Twopossible areas where there was demand and where Redstone had some degree ofreferenceability - Building Schools for the Future and Intelligent BuildingsInfrastructure (Redstone's "OneNet" solution). It has been very satisfying to see Redstone have achieved success in securingcontracts in both these areas. Over the past twelve months Redstone has won, incombination with Redstone Managed Solutions and Redstone Technology, the largestever contracts in Redstone's history. In addition, it has built an impressivesales pipeline with further projects in the bidding process. As the industryincreasingly turns its focus to ICT solutions, Converged Solutions will be a keyelement to Redstone's strategy moving forward. Acquiring Comunica plc, in addition to removing a major competitor in theIntelligent Buildings Infrastructure market, was central to Redstone's aim ofboth increasing presence in the Converged Solutions arena and significantlyenhancing Redstone's capabilities at delivering multiple large scale ICTprojects. Comunica has effectively doubled the size of this division and bringsadditional expertise in this area. Comunica is the preferred bidder for theWhite City shopping centre, which contract, amongst others, gives instant scaleto Redstone Converged Solutions. The increasing volume of planned and future Converged Solutions projects in theICT industry places a growing importance on winning these multi year contracts.The additional scale and visibility of revenue is extremely attractive andRedstone's success in winning these contracts gives a good base from which toscale and bid on larger contracts. Over the year, the Company has had manysuccesses in Converged Solutions, including the winning of major contracts withFoxtons, Xansa and the Building Schools for the Future ("BSF") contract forLancashire schools - with a potential contract value of up to £16m. Therelationships that have been built with major contractors such as Bovis LendLease, Sir Robert McAlpine and Hammerson are invaluable as a source of futurebusiness as is the successful implementation of a complete IP solution for RoyalAscot racecourse. Regardless of internal scale, Redstone Converged Solutions will select a numberof projects to bid on each financial year. The limiting factor is notnecessarily the ability to complete the contracts but rather the high costsassociated in bidding on such contracts. Projects are selected that fit withRedstone's contractor partners and the Company's skills to avoid unnecessaryrisk on bidding costs. Redstone Managed Solutions - provides a comprehensive portfolio of Microsoft,server/desk-top and Network Security & Management suitable for all businessesand public sector organisations. July 2006 saw the incorporation of the Tolerant group of companies into RedstoneManaged Solutions. The acquisition brought expertise in the network securityfield and 844 customers adding considerable scope to the Managed Solutionsdivision. Managed Solutions is another key element of Redstone's new focus on ICTsolutions. The year has been successful with the major project completed atRoyal Ascot racecourse and the contract win of Building Schools for the Futurein Lancashire, both in conjunction with Converged Solutions. In addition, thedivision had individual successes such as, significantly, the three yearcontract to provide "WebXchange", a high security web-based transfer system, toexam boards in England, Wales and Northern Ireland for the secure transfer ofexam results. The contract secured revenues in the region of £1m per annum forManaged Solutions. Redstone Technology - is a leading supplier of business critical servers,enterprise storage solutions, engineering support services and professionalservices and consultancy. Currently the Technology division operates predominantly in Ireland, a factorwhich is a legacy from the acquisition of Xpert. The division has an exclusiveworking agreement with HP in Ireland and holds a strong market position in theIrish market. Over the last 18 months Redstone have sought to gain revenue visibility byentering into multi-year framework agreements with major customers with a highdegree of success. Growth for this business over the short term will be drivenfrom expanding Consultancy Services around business continuity, storageoptimisation and virtualisation of server and storage environments. Over thelast twelve months Redstone have invested in upgrading the customer facilitiesand demonstration facilities. A natural move for Redstone Technology would be to expand into the UK where themarket for high-end server and storage solutions has few suppliers. All thenecessary ingredients are in place, premises, supplier arrangements, customerbase through the Redstone Group and are HP's Enterprise EMEA Partner of theYear. However, any start up, no matter how 'warm', will have in the short terman adverse P&L impact. As such Redstone Technology will expand into the UK assoon as the Group can absorb the initial start-up costs. Corporate Activity Placings of new Redstone shares were made to finance elements of theacquisitions of Symphony, Tolerant and Comunica. The Board received strongsupport from both the existing shareholders and new investors for theseplacings, with the following amounts raised from the equity markets: Symphony and Tolerant £20.0mComunica £18.0mTotal £38.0m The Board are pleased that over the period, a structured debt facility was putin place with Barclays Bank plc. This has given the Group a facility of up to£31.5m (including performance bonds issued), which has been part utilised tofund the whole of the IDN Telecom acquisition and an element of the Comunica,Symphony and Tolerant acquisitions. It has been beneficial to have the choice ofboth additional equity and debt for Redstone's corporate activities. In May 2006, Redstone made the move from the London Stock Exchange full list, tothe Alternative Investment Market of the Exchange ("AIM"). The move wascompleted in order to simplify administration requirements, reduce PLC costs andto increase scope for development opportunities, in particular, acquisitions ofcompanies were simplified. The Company completed a reduction of the share premium account as there were noreserves available for distribution, meaning the Board did not have the optionof issuing dividend payments. By effecting the capital reduction the Company nowhas distributable reserves and is able to consider a number of initiatives toenhance shareholder value. Most recently, on 30th March 2007, Redstone implemented a 10 to 1 shareconsolidation, reducing the issued ordinary share capital to approximately 145million New Ordinary Shares. Outlook The focus of 2006 was to establish Redstone in a competitive position within theconverging markets of telecommunications and IT services. Through internalreorganisation and key acquisitions, the Board feel that this has largely beenachieved. The Company is well placed for organic growth, especially in the areas ofConverged Solutions and Managed Solutions and the management of Redstone will befocused on ensuring that the existing five business units operate to the highestlevels possible. The Board will continue to consider acquisition opportunitiesas they arise, both to increase the skills and capabilities of the Group andalso where scale and synergies are attractive. Cross-selling is also beingimplemented by individual targeting by the divisions of specific customers and adedicated Sales Director has been recruited to ensure that businesses arealigned to cross-sell. Redstone has built a strong reputation in completing large scale IPinfrastructure projects, and the credentials from completing Royal Ascot,Northern Ireland Water (working with Xansa), and the BSF Lancashire project,combined with strong relationships with key contractors, give the Board greatoptimism for this area. In 2007, the Board wish to see growth within the business. With the corporateactivity of the last financial year completed Redstone has been transformed intoa substantial mid-market ICT player which is well positioned to take advantageof the convergence taking place in the sector. Industry convergence is expectedto continue and the Board believe that the Company is well placed for this.Redstone has a strong platform from which to grow and increasingly the Company'spresence is being felt by its larger peers. Trading for FY 2008 is encouragingand in line with the Board's expectations. Martin BalaamChief Executive 7 June 2007 Group Financial Review Trading For the year ended 31 March 2007, the Group is reporting an adjusted EBITDA* of£7.9 million, this compares with £0.1 million in the prior year. Operatinglosses were £0.4 million compared with £22.9 million in the year ended 31 March2006, an improvement of £22.5 million. Turnover increased by 55.8% to £113.0million from £72.5 million in 2006 as a result of the acquisitions of SymphonyTelecom plc, the Tolerant group of companies, IDN Telecom plc and Comunica. TheGroup has consolidated 8.5 months from both the Symphony and Tolerantacquisitions, 2 months from IDN and 1 month from Comunica. Underlying turnoverfrom organic operations declined by 10.2% overall, as the business continued tofocus on quality of revenues and margin in both its Converged Solutions andTelecom's divisions, where revenues fell by 18.7% and 17.3% respectively. Gross profit increased by 56.7% to £41.0 million from £26.2 million in 2006.This increase was again due in the main to the acquisitions made during theyear, which contributed £12.5 million. I am pleased to report gross margin wasmaintained at 36.3% compared with 36.1% last year. Redstone is now seeing thebenefits of creating focused autonomous business units. This has enabled us toremain competitive in a market place which can be subject to strong pricecompetition across all product ranges. Redstone Telecom continued to migrate away from the low margin Premium RateService ("PRS") revenues, which fell from £2.8 million to £2.3 million; a fallof 20.3%. However, this fall was more than compensated for by the move away froma direct sales model, as it looked to fill its spare network capacity throughits M&A activity. As a result of the Symphony and IDN transactions, it hasacquired significant minutes business which will enable it to continue tonegotiate competitive rates with all suppliers and give it the option ofincreasing the volume delivered through the BT network, adding significantsynergies through purchasing and cost savings. Redstone Mobile was acquired as part of the Symphony acquisition to enable theGroup to offer a more complete solution offering through its service providerlicenses with Vodafone and O2. For the 8.5 month period that it was part of theGroup, Redstone Mobile contributed revenues of £26.0 million, predominately fromthe indirect dealer distribution channel. Redstone Converged Solutions continued to build its longer term project pipelineand made a significant investment in the year directed at major infrastructureprojects, which will provide longer term revenue streams and increased futurevisibility. The first major success has been the award of the initial phase ofthe Lancashire Schools BSF contract, which is worth over £6 million, and has atotal initial contract value of up to £16 million. This investment will continuethroughout the next financial year, as the bid pipeline continues to grow, andRedstone looks to convert opportunity to order book. The company is currentlyshort listed for the Birmingham BSF tender, in a consortia which includesCatalyst Landlease and Capita Symonds Group, and is preferred bidder on theWhite City shopping centre project, currently the largest development of itstype in Europe. Redstone Managed Solutions delivered strong growth in the period, with turnoverincreasing by 163% to £10.7 million, compared with £4.1 million in 2006. Redstone Technology also delivered strong growth in the period, with turnoverwithin the period increasing turnover by 18.2% to £9.8 million from £8.3millionin 2006. * before goodwill impairment, amortisation of intangibles, restructuring costs,share based payment charges and holiday accrual Result for the Year Year ended Year ended 31 March 2007 31 March 2006 £000 £000------------------------------------ --------- --------- Adjusted EBITDA* 7,881 56Depreciation (1,241) (1,284)Goodwill impairment - (16,078)Amortisation of intangibles (2,804) (1,153)Restructuring costs (2,792) (4,006)Stock compensation and holidayaccrual (1,485) (430) Operating loss (441) (22,895) Net finance costs (603) (22) Loss on ordinary activities beforetaxation (1,044) (22,917) Operating Profit Operating expenses before goodwill impairment, amortisation of intangibles andrestructuring costs, increased to £36.0 million for the enlarged Group, comparedwith £28.4 million last year. As a result the adjusted EBITDA* improved to aprofit of £7.9 million compared with a £0.1 million profit in 2006. In thesecond half year the adjusted EBITDA* was £5.0 million, compared with £2.1million in 2006, as the benefits from the recent acquisitions were realised.Overall operating losses were £0.4 million compared with £22.9 million in theyear ended 31 March 2006, a decrease of £22.5 million. This decrease is due animproved trading performance, combined with lower restructuring costs and thegoodwill impairment of historical acquisitions written off in 2006 as outlinedabove. Other operating income relates to rent receivable. This has decreased to £0.2million from £0.6 million last year. Every effort continues to be made tosub-let vacant properties. The Group will continue to invest in developing an effective sales operation inthe current year, with a particular focus on the BSF and OneNet infrastructureprojects. Net finance costs There was interest receivable in the year of £0.2 million compared with £0.2million last year. Interest payable increased to £0.8 million in the year from £0.2 million in2006. During the year the Group negotiated a structured £31.5 million facilitywith Barclays Bank plc to support its M&A programme. Net borrowings increasedduring the year mainly due to drawdowns made as a result of the Symphony and IDNand Comunica acquisitions, resulting in the corresponding increase in interestcharges. * before goodwill impairment, amortisation of intangibles, restructuring costs,share based payment charges and holiday accrual Amortisation of intangibles Amortisation of intangibles of £2.8 million within the current year hasincreased by £1.6 million from £1.2 million last year. This increase has beengenerated by the acquisition of Symphony Telecom, Tolerant group of companies,IDN and Comunica during the year. Restructuring costs Restructuring costs of £2.8 million compared with £4.0 million last year, relateto the costs associated with integrating the newly acquired subsidiaries andcomprises staff costs - mainly redundancy and other payroll costs together withrelated costs of providing for the closure of excess properties. Balance sheet and cash flow Cash flow The Group's cash position increased in the year by £5.1 million to £10.4million. There was a cash outflow from operating activities of £0.4 million (2006 - £5.6million outflow), mainly due to the fact that the group paid restructuring costsof £2.1 million and made payments in respect of vacant property provisions of£2.2 million (including a £0.5 million dilapidations settlement on PremierHouse). Trade receivables have increased by £9.8 million as anticipated with thelarger Group and inventories have increased by £0.9 million due to stock held bythe mobile division of Symphony Telecom and Comunica. Provisions have decreasedto £2.3 million due to the release and utilisation of property provisions. The cash outflow from capital expenditure was £1.6 million during the year,compared with £0.9 million in the previous year, an increase of £0.7 million.The main reason for this was spend on the company's head office to accommodatethe integration and upgrades to the IT infrastructure. Debt The Group has a total facility with Barclays Bank plc of £31.5 million. This isa structured facility with a term loan of up to £20 million, a £10 millionrevolver facility and up to £1.5 million for performance bonds. The debtfacility was drawn down during the year to assist funding the transactions. IDNwas acquired wholly for debt. As at 31 March 2007, the amount outstanding was£22.2 million, which is repayable over the term of the agreement to November2009. The Group also has a loan with Eckoh Technologies plc of £4.7 million with £1.5million repayable in December 2007, £0.5 million in June 2008, £1.0 million inJune 2009 and £1.7 million in June 2010. It also has loan notes with formershareholders of acquired companies of £1.4 million. Of this, £1 million isrepayable in June 2007 and £0.4 million in January 2008. The total debt, net of cash at bank was £18.0 million at 31 March 2007. After making due enquiries, the Board has a reasonable expectation that theGroup has adequate resources to continue in operational existence for theforeseeable future. For this reason the going concern basis continues to beadopted in preparing the accounts. Treasury activities and policies The Group's treasury objectives and policies were agreed by the Board and aredesigned to manage the Group's financial risk and secure cost effective fundingfor the Group's operations. The Group finances its operations by cash and loannotes. Overdrafts are used to satisfy any short-term cash flow requirements.Other financial assets and liabilities, such as trade receivables and tradepayables, arise directly from the Group's operating activities. The Board hassanctioned a number of institutions with whom surplus funds may be invested witha view to maximising returns whilst minimising credit risks. The main risks associated with the Group's financial assets and liabilitiesinclude: Foreign currency risk The Group has invested in foreign operations outside the United Kingdom and alsobuys and sells goods and services denominated in currencies other than Sterling.As a result the value of the Group's non-Sterling revenues, purchases, financialassets and liabilities and cash flows can be affected by movements in exchangerates in general and in US Dollar and Euro rates in particular. The Group'spolicy on foreign currency risk is not to enter into forward contracts forpurchases until a firm commitment is in place. The Group considers using derivatives where appropriate to hedge its exposure tofluctuations in foreign exchange rates. The purpose is to manage the currencyrisks arising from the Group's operations. It is the Group's policy that notrading in financial instruments will be undertaken. Interest rate risk The Group's policy is to manage interest rate risk and to maximise its returnfrom its cash balances. The Group has entered into an interest rate swap agreement with Barclays Capitalwhereby the interest on the Barclays term loan of £20 million is capped once theLIBOR rate reaches 6%. Interest on financial instruments classified as floating rate is set at apercentage above Bank of England base rate. Interest on financial instrumentsclassified as fixed rate is fixed until maturity of the instrument. The otherfinancial instruments of the Group are non-interest bearing and are thereforenot subject to interest rate risk. Credit risk The Group's policies are aimed at minimising losses due to credit risk.Customers who demonstrate appropriate payment history and satisfycreditworthiness checks are granted deferred payment terms. Debtor days, baddebt and cash flows are reviewed weekly by management. Liquidity risk The Group aims to mitigate liquidity risk by managing cash within itsoperations. This is applied within the operations by setting cash collectiontargets and controlling expenditure by maintaining authorisation limits. Anyexcess cash is placed on low risk, short-term interest-bearing deposits. Other balance sheet areas Vacant property has continued to reduce during the year as the Group has handedback properties where leases have ended or managed to sub-let. As a result thecash outflow in respect of vacant property is expected to reduce from £2.2million in 2007 to £0.9 million next year. Goodwill of £69.6 million represents goodwill on the acquisition ofsubsidiaries. As required by IAS 36 the Board has conducted a review of thecarrying value of goodwill on the balance sheet, which has not resulted in anyimpairment charge. The intangible assets of £27.9 million comprise mainly thevalue attributed to acquired contracts and customer relationships. These weresubject to an amortisation charge of £2.8 million during the year in line withthe Group's amortisation policy. The value of property plant and equipment increased by £1.6m, to £4.1 million:this is mainly as a result of this year's acquisitions. The trade and other payables balance includes deferred income of £7.1 million(2006 - £8.0million). Shareholders' funds have increased to £71.3 million from£29.0 million in 2006. Cancellation of Share Premium account and of Deferred Shares During the period Redstone plc successfully cancelled its share premium accountand deferred shares. As a result the group's balance sheet is now showingretained earnings of £33.3 million. Share consolidation The issued share capital has increased from £13.0 million to £14.5 million. Thismovement was the effect of a placing of 648,016,668 shares, consideration sharesof 64,973,547, elimination of 115,977,114 deferred shares and a 10 for 1consolidation approved by shareholders on 13 March 2007. Tim Perks Chief Financial Officer 7 June 2007Unaudited Consolidated Income Statement Year ended Year ended 31 March 2007 31 March 2006 Note £000 £000---------------------------- ------ --------- ---------Revenue 2 112,955 72,478 Cost of sales (71,932) (46,303)---------------------------- ------ --------- ---------Gross profit 41,023 26,175 Other operating income 154 568Selling and distribution costs (9,993) (9,016)Administrative expenses (28,833) (36,616)Restructuring costs (2,792) (4,006)---------------------------- ------ --------- ---------Adjusted EBITDA* 7,881 56Depreciation (1,241) (1,284)Goodwill impairment - (16,078)Amortisation of intangibles (2,804) (1,153)Restructuring costs (2,792) (4,006)Stock compensation and holidayaccrual charges (1,485) (430)---------------------------- ------ --------- --------- Operating loss 2 (441) (22,895) Finance income 199 199Finance costs (802) (221)---------------------------- ------ --------- --------- Loss on ordinary activitiesbefore taxation (1,044) (22,917) Tax on loss on ordinary 1,173 392activities ---------------------------- ------ --------- --------- Profit/(loss) for the year(attributable to equity holders inthe parent Company) 2 129 (22,525)---------------------------- ------ --------- --------- Earnings per share Basic and diluted earnings per share 0.12p (32.22)pBasic and diluted adjusted EBITDA* pershare 7.58p 0.08p * before goodwill impairment, amortisation of intangibles, restructuring costs,share based payment charges and holiday accrual Unaudited Consolidated Statement of Changes in Equity Called Share up share premium Other Retained Total capital account reserves earnings equity £000 £000 £000 £000 £000-------------------------- -------- -------- ------- --------- --------Equity as at 1 April 2005 8,472 185,336 216 (170,313) 23,711Loss for the year - - - (22,525) (22,525)Share-based payments - - - 466 466Currency translationdifferences - - 54 - 54Shares issued 4,550 24,270 - - 28,820Costs associatedwith share issue - (1,506) - - (1,506)-------------------------- -------- -------- ------- --------- --------Equity as at31 March 2006 13,022 208,100 270 (192,372) 29,020Profit for the year - - - 129 129Share-based payments - - - 472 472Currency translationdifferences - - 46 - 46Shares issued 7,130 35,189 - - 42,319Costs associatedwith share issue - (730) - - (730)Deferred shareelimination (5,683) - 5,683 - -Share Premiumcancellation - (225,047) - 225,047 --------------------------- -------- -------- ------- --------- --------Equity as at 31 March 2007 14,469 17,512 5,999 33,276 71,256-------------------------- -------- -------- ------- --------- -------- Merger reserve The merger reserve resulted from the acquisition of Redstone CommunicationsLimited (formerly Redstone Network Services Limited) and represents thedifference between the value of the shares acquired (nominal value plus relatedshare premium) and the nominal value of the shares issued. Translation reserve The translation reserve is used to record exchange differences arising from thetranslation of the financial statements of foreign subsidiaries. Share Premium cancellation / deferred share elimination During the year the Board obtained approval to redistribute share capitalreserves and eliminate deferred shares to reposition the Group and enable it toissue a dividend if the Directors decided it was in the best interests of theGroup. The result of this eliminated 115,977,114 deferred shares with a nominalvalue of £5,683,000. In addition an amount of £225,047,000 of share premium waswritten off against brought forward losses. Unaudited Consolidated Balance Sheet 31 March 31 March 2007 2006 Note £000 £000--------------------------------- ------- --------- --------- AssetsNon-current assetsIntangible assets 97,524 32,828Property, plant and equipment 4,083 2,449Deferred tax asset 3,401 2,147Other non-current assets 53 545--------------------------------- ------- --------- --------- 105,061 37,969--------------------------------- ------- --------- --------- Current assetsInventories 1,093 241Trade and other receivables 3 35,499 15,490Income tax 123 -Cash and cash equivalents 10,421 5,327--------------------------------- ------- --------- --------- 47,136 21,058--------------------------------- ------- --------- ------------------------------------------ ------- --------- ---------Total assets assets 152,197 59,027--------------------------------- ------- --------- --------- Equity and liabilitiesEquityCalled up share capital 14,469 13,022Share premium account 17,512 208,100Other reserves 5,999 270Retained earnings 33,276 (192,372)--------------------------------- ------- --------- --------- 71,256 29,020--------------------------------- ------- --------- --------- Current liabilitiesTrade and other payables 4 38,164 23,245Deferred consideration 2,849 -Income tax payable - 10Borrowings 4,943 -Provisions 5 868 1,989--------------------------------- ------- --------- --------- 46,824 25,244--------------------------------- ------- --------- --------- Non-current liabilitiesTrade and other payables 4 1,066 197Provisions 5 1,417 1,492Borrowings 23,444 643Deferred tax liability 8,190 2,431--------------------------------- ------- --------- --------- 34,117 4,763--------------------------------- ------- --------- ------------------------------------------ ------- --------- ---------Total equity and liabilities 152,197 59,027--------------------------------- ------- --------- --------- Unaudited Consolidated Cash Flow Statement Year ended Year ended 31 March 31 March 2007 2006 Note £000 £000-------------------------------------- ------- --------- ---------Cash flows from operating activitiesCash absorbed in operations 6 (274) (5,514)Income tax paid (133) (91)-------------------------------------- ------- --------- ---------Net cash flows used in operatingactivities (407) (5,605)-------------------------------------- ------- --------- --------- Cash flows from investing activitiesProceeds from sale of property,plant and equipment 53 6Purchase of property, plant,equipment (1,466) (726)Purchase of intangible assets (175) (133)Acquisition of subsidiaries, netof cash acquired (44,254) (21,442)-------------------------------------- ------- --------- ---------Net cash flows used in investingactivities (45,842) (22,295)-------------------------------------- ------- --------- --------- Cash flows from financing activitiesProceeds from issue of shares 38,021 26,045Transaction costs of issuing shares (730) (1,506)Proceeds from borrowings 22,150 -Repayment of borrowings (7,666) -Interest received 199 205Interest paid (802) (60)--------------------------------- ------- --------- ---------Net cash flows from financing activities 51,172 24,684-------------------------------------- ------- --------- --------- Net increase/(decrease) in cashand cash equivalents 4,923 (3,216)Effects of currency translation oncash and cash equivalents 171 30Cash and cash equivalents at 1 April 5,327 8,513-------------------------------------- ------- --------- ---------Cash and cash equivalents at 31 March 10,421 5,327-------------------------------------- ------- --------- --------- Non cash flow items As part of the purchase consideration for the acquisition of the Tolerant groupof companies 25,000,000 Ordinary Redstone shares with a value of £1,375,000 andloan notes of £800,000 were given as part payment. As part of the purchase consideration for the acquisition of Comunica HoldingsLimited, 39,973,547 Redstone Ordinary shares with a value of £2,948,049 anddeferred consideration of £2,847,923 were given as part payment. In both acquisitions these items had no cash impact. Notes 1 Accounting policies - Group The principal accounting policies have been applied consistently throughout theyear in the preparation of these unaudited preliminary results statements("financial statements"). (a) Basis of preparation The financial statements for the year ended 31 March 2007 have been prepared inaccordance with International Financial Reporting Standards, using accountingpolicies consistent with those set out in the Company's consolidated 2006statutory accounts. These statements do not constitute statutory accounts withinthe meaning of section 240 of the Companies Act 1985 and are unaudited. The balances and results as at 31 March 2006 have been extracted from thestatutory accounts, which have been filed with the Registrar of Companies. The auditors' report on those accounts was unqualified and did not contain anystatement under section 237 of the Companies Act 1985. The preliminary results for the year ended 31 March 2007 were approved by theBoard on 7 June 2007 and will be posted on the Company's web site,www.redstone.co.uk, on 7 June 2007 The financial information is presented in Sterling and all values are rounded tothe nearest thousand ("£000") except where otherwise indicated. (b) Basis of consolidation The consolidated financial statements comprise the financial statements ofRedstone plc and its subsidiaries as at and for the year ended 31 March of eachyear. Subsidiaries are consolidated from the date at which control is obtained by theGroup, and cease to be consolidated from the date at which the Group no longerretains control. Control comprises the power to govern the financial andoperating policies of the investee so as to obtain benefits from theiractivities, and is achieved through direct or indirect ownership of votingrights, currently exercisable or convertible potential voting rights, or by wayof contractual agreement. The financial statements of the subsidiaries areprepared for the same reporting year as the parent Company. All inter-company balances and transactions are eliminated in full. 2 Segment reporting Primary reporting format - Business segments The following tables present revenue, profit and certain assets and liabilityinformation regarding the Group's business segments for the years ended 31 March2007 and 2006. (a) For the year ended 31 March 2007 Telecom Mobile Converged Managed Technology Central Total Solutions Solutions £000 £000 £000 £000 £000 £000 £000---------------------- --------- ------- -------- -------- -------- ------ -------Revenue 36,715 25,995 29,763 10,713 9,769 - 112,955---------------------- --------- ------- -------- -------- -------- ------ -------Adjusted operatingcosts* (32,179) (24,187) (28,625) (9,198) (9,115) (1,770) (105,074)Adjusted EBITDA* 4,536 1,808 1,138 1,515 654 (1,770) 7,881Holiday accrual (10) (3) (101) (6) (12) (30) (162)Depreciation (214) (29) (280) (322) (55) (341) (1,241)Equity-settledshare-based payments (51) (2) (17) (39) (40) (323) (472)Cash-settled share-based payments - - - - - (851) (851)Amortisation of intangible assets (943) (337) (1,232) (130) (63) (99) (2,804)Restructuring costs (1,215) (341) (1,090) (25) (28) (93) (2,792)---------------------- --------- ------- -------- -------- -------- ------ -------Segment result 2,103 1,096 (1,582) 993 456 (3,507) (441)---------------------- --------- ------- -------- -------- -------- ------ -------Net finance costs (603)Tax 1,173---------------------- --------- ------- -------- -------- -------- ------ -------Profit for the year 129 Assets and liabilitiesSegment assets 46,440 11,821 66,786 11,886 11,904 3,360 152,197---------------------- --------- ------- -------- -------- -------- ------ ----------------------------- --------- ------- -------- -------- -------- ------ -------Segment liabilities 14,963 4,372 26,595 4,067 2,088 28,855 80,940---------------------- --------- ------- -------- -------- -------- ------ ----------------------------- --------- ------- -------- -------- -------- ------ ------- Other segment informationCapital expenditureProperty, plant andequipment 87 31 247 323 288 490 1,466Property, plant andequipment acquired -business combination 255 68 1,006 134 - - 1,463Intangibles - software 33 - - 142 175Intangible assetsacquired - businesscombinations 8,248 2,937 10,304 586 - - 22,075---------------------- --------- ------- -------- -------- -------- ------ -------Depreciation 214 29 280 322 55 341 1,241Amortisation 831 450 1,232 130 63 98 2,804---------------------- --------- ------- -------- -------- -------- ------ ------- * before goodwill impairment, amortisation of intangibles, restructuring costs,share based payment charges and holiday accrual 2 Segment reporting Primary reporting format - Business segments (b) For the year ended 31 March 2006 Telecom Converged Managed Technology Central Total Solutions Solutions £000 £000 £000 £000 £000---------------------- --------- ------- -------- -------- -------- -------Revenue 27,994 32,149 4,071 8,264 - 72,478---------------------- --------- ------- -------- -------- -------- -------Adjusted operatingcosts* (25,336) (34,546) (3,488) (7,499) (1,553) (72,422)Adjusted EBITDA* 2,658 (2,397) 583 765 (1,553) 56Holiday accrual 14 75 (12) (12) 33 98Depreciation (217) (240) (337) (34) (456) (1,284)Equity-settledshare-based payments (10) (114) (12) (17) (313) (466)Cash-settledshare -based payments - - - - (62) (62)Goodwill impairment (2,286) (13,792) - - - (16,078)Amortisation of intangible assets - (956) - (57) (140) (1,153)Restructuring costs (54) (1,674) (47) (248) (1,983) (4,006)---------------------- --------- ------- -------- -------- -------- -------Segment result 105 (19,098) 175 397 (4,474) (22,895)---------------------- --------- ------- -------- -------- -------- -------Net finance costs (22) Tax 392---------------------- --------- ------- -------- -------- -------- -------Loss for the year (22,525) Assets and liabilitiesSegment assets 6,694 30,169 4,669 11,362 6,133 59,027---------------------- --------- ------- -------- -------- -------- ----------------------------- --------- ------- -------- -------- -------- -------Segment liabilities 6,237 12,705 2,412 1,824 6,829 30,007---------------------- --------- ------- -------- -------- -------- ----------------------------- --------- ------- -------- -------- -------- -------Other segment informationCapital expenditureProperty, plant andequipment - 170 296 60 200 726Property, plant andequipment acquired -business combination - 384 - 42 - 426Intangibles - software - - - - 133 133Intangibles softwareacquired - businesscombinations - 8,898 - 496 - 9,394---------------------- --------- ------- -------- -------- -------- -------Depreciation 217 240 337 34 456 1,284Goodwill impairment 2,286 13,792 - - - 16,078Amortisation - 956 - 57 140 1,153---------------------- --------- ------- -------- -------- -------- ------- * before goodwill impairment, amortisation of intangibles, restructuring costs,share based payment charges and holiday accrual Redstone has five operating business units, namely Telecom, Mobile Telecom,Converged Solutions, Managed Solutions and Technology. In addition there is aCentral division including back office functions and executive management tosupport the Group. All divisions deliver independent products and services. Redstone Telecom provides telephony network services to the private and publicsector. The portfolio includes telephony services (both inbound and outboundcalls), line rental, SMS (short message service) and premium rate services(inbound calls to '09' number ranges). Redstone Telecom has a strategicrelationship with BT Wholesale guaranteeing service quality and availability.This is complemented by customer-focused services including dedicated accountmanagement and 24 hours a day, 7 days a week customer support. Redstone Mobile which was acquired as part of the Symphony Group and as a recentacquisition Anglia plc operates as a distributor of mobile telephony and hasstrategic relationships with the big five mobile providers, O2, Vodafone, 3,T-Mobile and Orange. Redstone Converged Solutions is a provider of converged IP solutions, withexpertise in contact centres, voice and video, IP networks, intelligent building(OneNET) and security. The recent acquisition of Comunica bring furtherexpertise to Redstone Converged Solutions offerings providing solutions tobusinesses and organisations in the health, education, local government, retailand finance sectors and now energy, media and transport sectors. Redstone Managed Solutions delivers a comprehensive portfolio of networkmanagement and internet services for businesses and public sector organisations.Solutions and services include server and desktop deployment, applicationdevelopment, hosting and co-location, network and system management, internetservice provision and consultancy. Redstone Technology provides enterprise storage solutions and is a specialist inbusiness critical enterprise-class servers and provides an array ofprofessional, consulting, logistics and maintenance services throughout Ireland. 3 Trade and other receivables 2007 2006 £000 £000------------------------------ -------- --------Trade receivables 19,013 9,186Other receivables 1,156 122Prepayments 3,437 3,627Accrued income 11,893 2,555------------------------------ -------- -------- 35,499 15,490------------------------------ -------- -------- 4 Trade and other payables Current 2007 2006 £000 £000------------------------------ -------- --------Trade payables 14,177 5,991Other payables 1,083 311VAT and social security 3,239 1,833Accruals 12,688 7,291Deferred income 6,977 7,819------------------------------ -------- -------- 38,164 23,245------------------------------ -------- -------- Non-current 2007 2006 £000 £000------------------------------ -------- --------Accruals 913 62Other payables 5 -Deferred income 148 135------------------------------ -------- -------- 1,066 197------------------------------ -------- -------- 5 Provisions The Group currently has a number of vacant properties. Provisions have beenrecognised to cover the rents and service charges for the period that eachproperty is expected to be vacant, being up to the lease expiry or break clauseif earlier, and any dilapidation expenditures on lease expiry. Provisions arecalculated using the current costs of rents and service charges on eachindividual lease arrangement and management's estimates of costs of workrequired to fulfil the Group's contractual obligation under the lease agreementsto return the property to the same condition as at the commencement of thelease. These expected costs have been offset by rental income that the Groupexpects to receive from sublets on each property provided. The provision hasbeen discounted at a rate of 5% based on management's best estimate. Theremaining terms of these property leases range from 1 to 14 years. --------------------------------------- ---------------- Vacant property Provision--------------------------------------- ---------------- £000--------------------------------------- ----------------At 1 April 2006 3,481Charge for the year 792Utilised during the year (1,949)Unwinding of discount (39)--------------------------------------- ----------------At 31 March 2007 2,285--------------------------------------- ----------------Current 868Non-current 1,417--------------------------------------- ---------------- 2,285--------------------------------------- ----------------At 31 March 2006Current 1,989Non-current 1,492--------------------------------------- ---------------- 3,481--------------------------------------- ---------------- 6 Net cash flows from operating activities 2007 2006 £000 £000-------------------------------------------------- -------- --------Operating loss (441) (22,895)Adjustments for:Depreciation of property, plant and equipment 1,241 1,284Amortisation of intangible assets 2,804 1,153Goodwill impairment charge - 16,078Equity-settled share-based payments 472 466Cash-settled share-based payments 851 62Loss/(profit) on disposal of property, plant andequipment 1 32Movements in working capital:Decrease/(increase) in inventories 149 825(Increase)/decrease in trade and otherreceivables 3,581 (2,235)Decrease in trade and other payables (8,227) (776)(Increase)/decrease in non-current assets 492 -Increase/(decrease) in provisions (1,197) 492-------------------------------------------------- -------- --------Cash absorbed in operations (274) (5,514)-------------------------------------------------- -------- -------- This information is provided by RNS The company news service from the London Stock Exchange