10 Jun 2008 07:00
10 June 2008
REDSTONE PLC
("Redstone" or "the Group")
Unaudited Preliminary Results for the 12 months ended 31 March 2008
Redstone plc (AIM:RED.L), a leading provider of Integrated IT and Communications Solutions in the UK and Ireland, today announces its unaudited financial results for the 12 months ended 31 March 2008.
FINANCIAL HIGHLIGHTS
Revenues up by 78% to £200.7m (FY07: £113.0m)
Organic revenue growth*** of 14%
Gross profit margin increased to 39% (FY07: 36%)
Adjusted EBITDA* up by 82% to £14.1m (FY07: £7.7m)
Operating profit of £3.2m (2007: loss of £0.4m)
Adjusted profit after tax** of £7.6m (FY07: £2.1m)
Reported profit after tax of £3.2m (FY07: £0.1m)
Year end net debt of £20.2m**** (FY07: £18.0m)
*before net finance costs, tax, depreciation, amortisation, exceptional items and share based payment charges. Prior year adjusted EBITDA has been restated to include the holiday accrual charge of £162k.
** before amortisation of intangibles and the related tax effect.
***Growth of all current operations on a comparable basis after excluding revenue streams no longer continued, relating to the closure of the Symphony BV office, the withdrawal of Orange from the consumer business model and the decision to cease making 3-Mobile Network sales.
****Net debt excludes finance leases
OPERATIONAL HIGHLIGHTS
Successfully completed integration of Comunica and IDN
Continue to tender for, win and deliver larger contracts
Major contract wins during the year include:
- White City retail centre project worth over £13m.
- Regional support services contract with JP Morgan worth up to £13m, contract dated August 2007.
- Regional support services contract with additional major US investment bank worth up to £12m, contract effective March 2008.
Martin Balaam, Chief Executive Officer, Redstone, commented,
"The key objectives for the year were to fully integrate the acquisitions made towards the end of the previous year and to show a set of results where we achieve significant organic revenue and profit growth. I am pleased to report that we have delivered on both of these objectives. We are now seeing the benefits of the acquisitions emerging, with cross-selling initiatives gaining momentum and the increased capability and scale of Redstone enabling the Group to secure multi-million pound, multi-year projects. We are enjoying an improving profile and reputation in the ICT sector, giving us an excellent platform from which to proceed to our next stage of development, and we are further investing in our sales organisation in order to take full advantage of this. The Board is confident in the Group's ability to deliver its large scale contracts, progress its cross-selling and other sales initiatives and further develop the business both organically and acquisitively in order to increase shareholder value."
ENQUIRIES:
Redstone plc | Tel. +44 (0)845 200 2200 |
Martin Balaam, Chief Executive Officer | |
Tim Perks, Chief Financial Officer | |
ICIS Limited | Tel. +44 (0)20 7651 8688 |
Tom Moriarty | |
Bob Huxford |
Chief Executive's Statement
Introduction
Following a concerted period of acquisitions and re-organisation in the previous financial year, the goal for this year was to focus on the integration of the acquired companies and to deliver organic growth and increased profitability and EPS improvement in accordance with our business plan. I am pleased to report that we have delivered on our objectives, and that the Group has performed well. These results represent a clear view of the complete business, with all prior year acquisitions now fully integrated and I believe they show the true potential of the new Redstone.
Operational Review
Redstone is now an established market leader in the provision of end to end ICT and Communications Services to the corporate, enterprise and public sector markets. The Group can supply, either in whole or in part, dedicated ICT solutions and ongoing support to all parts of a customer's organisation.
As Redstone has grown in both scale and capability, it has been able to tender for, win and deliver major contracts with multi-year revenue streams. This has enabled the Group to consolidate its position within the market place and has given it increased visibility in terms of future revenues.
Redstone has also been able to reap the benefits of operational synergies resulting from the acquisitions it has made, generating revenues from cross-selling. Importantly, through realising synergies, it has generated a group margin which is greater than the sum of its parts. This is the key to the success of Redstone's corporate development strategy.
Redstone now employs over 1,000 people supporting over 20,000 established B2B customers in both the corporate enterprise and SME arenas, which compares to 16,000 in 2007. I am a firm believer that successful businesses generate both customer and employee loyalty, and Redstone is dedicated to retaining both its customers and its staff to ensure quality and continuity are maintained.
I would like to thank both the staff and the customers of Redstone for their help and support in making the Group the success that it is today.
Integration of acquisitions
The businesses acquired immediately prior to this financial year, Comunica and IDN, have been fully integrated within the Converged Solutions and Telecoms divisions respectively. Both businesses have been rebranded and now operate under the "Redstone" banner, their back and head office functions have been consolidated with Redstone's, and their operations aligned with their respective business divisions.
The successful integration of these businesses has been important to the Group's ability to secure major contracts. Both new businesses have contributed significantly to the success of the Group over the period. Redstone will continue to seek appropriate acquisition opportunities that increase the scale, operational capability and capacity of the Group. This will enable Redstone to capitalise on its now established market leadership position and to continue to win large scale ICT projects.
Business Development
Redstone announced a number of significant contract wins during the financial year. The focus placed by the management on integrating the new companies to enhance the Redstone offering to customers has been vital to the success the Group has enjoyed. Redstone has an increasing reputation for delivering major infrastructure projects and this credibility is an essential part in enabling the Group to successfully bid for contracts of a similar and greater scale going forward.
Some of the key contracts signed during the period include:
The provision of converged IT and communications infrastructure to the Highcross Quarter shopping centre in Leicester, and Bristol's Cabot Circus shopping centre, for a total initial value of £3.4m. Both projects are progressing well and are expected to complete on schedule for opening in December 2008.
The provision of an Internet Protocol ("IP") solution for the Westfield shopping centre development in White City, worth £13m. The project is expected to complete in October 2008.
The provision of regional support services to JP Morgan worth up to £13.4m over the next 5 years. This contract is progressing extremely well.
The provision of all changes to the communications infrastructure of a major US investment bank, in both office buildings and data centres, including cabling, desktops, voice recording and user devices. The contract is for a period of three years with one year rolling and is worth a minimum of £4m per annum.
The delivery of the initial stage of a five year project to supply University College Dublin with a complete Hewlett Packard storage system. The project is valued at up to £3.6m* over the next 5 years.
* Translated at a rate of Euro 1.26 to £1
Due to the scale and nature of organisations with which Redstone is now contracting, the Group has been unable to announce a number of major contract wins because of confidentiality clauses and publicity restrictions. However, Redstone is pleased to announce that this year, it has won 11 multi-year contracts each with a value surpassing £1m. These have contributed towards the Group's total potential order book value of £83m.
This progress is best evidenced by Redstone's progress in being short-listed for the Building Schools for the Future (BSF) contract. In addition to the £16 million Lancashire contract awarded last year, Redstone has been short-listed for the Birmingham BSF contract. This involves the complete rebuild or remodel of 89 Birmingham schools and is worth approximately £150 million in total. A final decision to appoint the preferred bidder is expected to be made in September 2008. There are a number of opportunities within the BSF programme, and Redstone has positioned itself to be able to participate in this exciting and growing market.
Divisional Highlights
Redstone Telecom
With the benefit of strategic relationships with network providers, Redstone Telecom guarantees the provision of high quality and reliable telephony network services to both private companies and public sector organisations. The division has performed well over the period, serving as a useful tool to acquire new customers quickly as the sales cycle for fixed line telecommunications is relatively short, typically weeks. This contrasts with the IT services business where sales cycles typically span a number of months. In addition the division has gained incremental revenue from the existing customers of other divisions. The Telecom division enjoyed high revenue visibility during the year and was cash generative.
Redstone has reviewed the renewal of the Redstone fixed line network, currently owned and operated by BT Wholesale on behalf of Redstone. On 6 May 2008 Redstone Telecom agreed with BT to terminate the existing strategic relationship and transition away from the current nework. This will allow Redstone to expand its own IP switched network and enable Redstone to achieve more competitive pricing for the purchase of some of its fixed line minutes than under the previous arrangement.
Redstone Mobile
As a service provider for O2 and Vodafone, Redstone Mobile is one of the UK's leading alternative providers of mobile telecommunication services. It provides standard and bespoke voice and data solutions for business and distribution to the independent mobile channel. This year has seen the division continue to grow and contribute to the success of the Group.
We have started to roll out additional Redstone products through this distribution channel and expect to continue to grow this as a significant channel for the whole Redstone Group.
Redstone Converged Solutions
Redstone Converged Solutions offers complete networking and communications infrastructure solutions focusing on converged IP technologies. With expertise in contact centres, voice and video, networks and security, it seeks to enhance business performance and deliver significant benefits for customers.
This year has been a successful one for Redstone Converged Solutions, and has seen the division perform especially well against its competition. In addition to securing some of the largest contracts in the Group's history, it has also picked up a number of projects that competitors were unable to complete. The integration of Comunica into the division has resulted in the unit being streamlined this year, while Comunica itself has seen improved performance since becoming part of the Group.
Redstone Managed Solutions
Redstone Managed Solutions provides a comprehensive portfolio of infrastructure and internet services suitable for all businesses and public sector organisations, including server and desktop deployment, network and system management, internet service provision and consultancy.
Although the business faced some operational challenges, swift management action has led to improved performance from the division as the year has progressed, and a number of organisational changes have resulted in the strengthening of a relationship with a key supplier. The Group is now seeing the benefits of this with the division beginning to deliver significant revenues and contribution.
Redstone Technology
Redstone Technology is a successful provider of leading-edge enterprise storage solutions, business critical servers, engineering support services and professional services and consultancy in Ireland. It has enjoyed another successful year of operation, and this has been epitomised by the division securing a five year Storage Area Network project with University College Dublin. Ireland is a relatively small market and in order to grow the division the UK market will need to be accessed. The most likely route for this will be through an acquisition; however we are also working with our major partners to develop UK opportunities.
Strategy and market positioning
Investment in sales organisation
As Redstone has grown in both scale and capability, it has seen the number of business opportunities available to it increase. In order to address these opportunities more effectively the Group has begun, and will continue, to make a measured investment in its sales organisation, so as to underpin medium term growth and strengthen its competitive position. Investment will be focused on enabling the Group to commit more resources to the tender processes for large multi-year contracts, better addressing the differing needs of the SME market versus the corporate market, and further exploiting cross-selling opportunities. Redstone has already taken steps to drive cross-selling within the group, including implementing specific sales incentives and a dedicated management structure to oversee the activity. As a result, 2008 saw cross-sales account for 2% of total Group sales, and it is the Board's desire to see a further expansion of cross-selling activity.
Strategic Partnerships
Redstone has utilised its strong relationships with partners to secure a number of its significant contract wins in the ICT arena during the 12 months. These partnerships include Catalyst Lend Lease, with whom Redstone has bid for the BSF contracts; Hammerson plc, enabling Redstone to bid for OneNET intelligent buildings network infrastructure contracts; and Hammerson and Westfield for the shopping centre contracts. The Group is confident that these partnerships will continue to be successful, and is actively seeking new partnerships to increase the already expanding customer reach of Redstone.
Board Changes
Oliver Vaughan stepped down as a non-executive Director in September 2007. The Board would like to thank him for the considerable help and guidance that he has given during his time with Redstone. The Company has also announced, since the year end, the resignation of Gerard Spencer. Having now successfully made the transition from Telco to ICT and Services provider, and following the announcement of record results, it was felt this was an ideal time for Gerard to step down. His help over the past couple of years has been invaluable, and the Board would like to thank him for the contribution he has made.
The current Board now comprises three independent non-executive directors and two executive directors.
Outlook
The key objectives for the year were to fully integrate the acquisitions made towards the end of the previous year and to show a set of results where we achieve significant organic revenue and profit line growth. I am pleased to report that we have delivered on both of these objectives. We are now seeing the benefits of the acquisitions emerging, with cross-selling initiatives gaining momentum and the increased capability and scale of Redstone enabling the Group to secure multi-million pound, multi-year projects. We are enjoying an improving profile and reputation in the ICT arena, giving us an excellent platform from which to proceed to our next stage of development,and we are further investing in out sales organisation in order to take full advantage of this. The Board is confident in the Group's ability to deliver its large scale contracts, progress its cross-selling and other sales initiatives and further develop the business both organically and acquisitively in order to increase shareholder value.
Martin Balaam
Chief Executive
10 June 2008
Group Financial Review
Trading
For the year ended 31 March 2008, the Group is reporting an adjusted EBITDA* of £14.1 million, this compares with £7.7 million in the prior year. Operating profits were £3.2 million compared with a loss of £0.4 million in the year ended 31 March 2007, an improvement of £3.6 million. Turnover increased by 78% to £200.7 million from £113.0 million in 2007, partly as a result of including a full year of results of the acquisitions made in 2007.
Underlying turnover from organic operations increased by 14% overall. This is based on the growth of all current operations existing at the beginning of the year on a comparable basis after excluding revenue streams no longer continued relating to the closure of the Dutch office, the withdrawal of Orange from the consumer business model and the decision to cease 3-Mobile Network sales.
Gross profit increased by 91% to £78.2 million from £41.0 million in 2007. This increase was again partly due to the acquisitions made during 2007 being included for the full year. I am pleased to report gross margin increased to 38.9% compared with 36.3% last year. Redstone is now seeing the benefits of creating focused autonomous business units. This has enabled us to remain competitive in a market place which can be subject to strong price competition across all product ranges.
Redstone Telecom acquired significant minutes businesses as a result of the Symphony and IDN transactions in 2007. This has enabled it to continue to negotiate competitive rates with all suppliers and give it the option of increasing the volume delivered through the BT network, adding significant synergies through purchasing and cost savings.
Redstone Mobile has continued to grow and contributed revenues of £34.9 million (2007: £26.0 million), predominately from the indirect dealer distribution channel.
Redstone Converged Solutions has continued to build its longer term project pipeline and made a significant investment in the year in major infrastructure projects. This will provide longer term revenue streams and increased future visibility. There have been a number of contract wins of significance including the White City shopping centre project, currently the largest development of its type in Europe.
The Company is currently short listed for the Birmingham BSF tender, in a consortium which includes Catalyst Lendlease and Capita Symonds Group.
Redstone Managed Solutions has undergone some organisational changes and experienced a difficult first half of the year. It has now strengthened its relationship with a major supplier and has managed to increase turnover by 15% to £12.3 million, compared with £10.7 million in 2007.
Redstone Technology has enjoyed another successful year in Ireland where it predominantly operates and has also delivered strong growth in the period, with turnover within the period increasing by 26% to £12.3 million from £9.8 million in 2007.
*before net finance costs, tax, depreciation, amortisation, exceptional items and share based payment charges. Prior year adjusted EBITDA has been restated to include the holiday accrual charge of £162k.
Summary Financial Performance
| Unaudited |
| |
| Year ended | Year ended | |
| 31 March | 31 March | |
| 2008 | 2007 | |
£000 | £000 | ||
Adjusted EBITDA* | 14,074 | 7,719 | |
Depreciation | (1,849) | (1,241) | |
Amortisation of intangibles | (6,128) | (2,804) | |
Exceptional items | (2,748) | (2,792) | |
Share based payment charges | (190) | (1,323) | |
Operating profit/(loss) | 3,159 | (441) | |
Net finance costs | (2,265) | (603) | |
Profit/(Loss) on ordinary activities before taxation | 894 | (1,044) |
*before net finance costs, tax, depreciation, amortisation, exceptional items and share based payment charges. Prior year adjusted EBITDA has been restated to include the holiday accrual charge of £162k.
Operating Profit
Operating expenses before amortisation of intangibles, share based payment charges and exceptional items, increased to £66.0 million for the enlarged Group, compared with £34.7 million last year. As a result, the adjusted EBITDA* improved to a profit of £14.1 million compared with a £7.7 million profit in 2007. In the second half of the year the adjusted EBITDA* was £7.5 million, compared with £4.9 million in the prior year due to the contribution of Comunica and IDN and as the benefits from the 2007 acquisitions were realised. Overall operating profits were £3.2 million compared with a loss of £0.4 million in the year ended 31 March 2007, an improvement of £3.6 million. This is due to the acquired businesses and improved trading performance, partially offset by the increase in the amortisation of intangibles of £3.3 million over 2007, as a result of acquisitions made during that period.
Other operating income relates to rent receivable. This has decreased to £0.1 million from £0.2 million last year due to a reduction in our vacant properties on the expiry of their leases. Every effort continues to be made to sub-let vacant properties.
Share based payments for the year resulted in a charge of £0.2 million down from £1.3 million last year. This is made up of equity settled share based payments of £0.9 million and a credit to the income statement for the cash settled share based payment of £0.7 million due to the surrender of the LTIP.
Net finance costs
There was interest receivable in the year of £0.4 million compared with £0.2 million last year.
Interest payable increased to £2.6 million in the year from £0.8 million in 2006. The interest payable includes £0.4m being the movement in the valuation of our interest rate swap. This is a non-cash item, and its value is calculated by reference to the estimated movements in interest rates over the next 4 years when compared to the rates at which the Group has hedged. In the current year the Group received a £0.1 million cash benefit as a result of this hedge.
Net borrowings increased during the current year and the latter part of 2007 mainly due to loans drawn down as a result of the Symphony, IDN and Comunica acquisitions, resulting in the corresponding increase in interest charges.
Amortisation of intangibles
Amortisation of intangibles of £6.1 million within the current year has increased by £3.3 million from last year. This increase has been generated by the acquisition of Symphony Telecom, the Tolerant group of companies, IDN and Comunica during 2007.
Exceptional items
Exceptional items are £2.7 million compared with £2.8 million last year. These primarily relate to the costs associated with integrating the newly acquired subsidiaries and comprise of staff costs, mainly redundancy and other payroll costs, together with related costs of providing for the closure of excess properties. In addition, the Group incurred £0.1m of costs relating to aborted transactions, and a further £0.5 million relating to the cost of acquiring a major strategic account within the banking sector.
Tax
Tax for the year is a credit of £2.3 million compared with £1.2 million last year. The main reason for this is the impact of prior year adjustments and the impact of the rate change on deferred tax.
Balance sheet and cash flow
Cash flow
The Group's cash position decreased in the year by £0.8 million to £9.6 million.
There was a cash inflow from operating activities of £6.8 million (2007: £0.3 million outflow), mainly due to the acquisitions made in 2007 and the improvement in trading.
The cash outflow from capital expenditure was £3.3 million during the year, compared with £1.6 million in the previous year, an increase of £1.7 million. The main reason for this is the increase in size of the overall group and the integration and upgrade to the IT infrastructure.
Debt
The Group has a total facility with Barclays Bank plc of £29.5 million (2007: £31.5 million). This is a structured facility with a term loan of up to £18.0 million (2007: £20.0 million), and an £11.5 million revolver facility. The debt facility was drawn down during the year to fund the balance of the Comunica acquisition and certain loan note repayments. As at 31 March 2008, the amount outstanding was £26.6 million compared to £22.2 million at the 31 March 2007. This is repayable over the term of the agreement to November 2009.
The Group also has a loan outstanding to Eckoh Technologies plc of £3.2 million relating to the acquisition of Symphony. Repayment of this loan is £0.5 million in June 2008, £1.0 million in June 2009 and £1.7 million in June 2010.
The total debt, net of cash at bank and excluding finance leases was £20.2 million at 31 March 2008 (2007: £18.0 million).
After making due enquiries, the Board has a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason the going concern basis continues to be adopted in preparing the accounts.
Treasury activities and policies
The Group's treasury objectives and policies were agreed by the Board and are designed to manage the Group's financial risk and secure cost effective funding for the Group's operations. The Group finances its operations by cash, loan notes and borrowings. Overdrafts are used to satisfy any short-term cash flow requirements. Other financial assets and liabilities, such as trade receivables and trade payables, arise directly from the Group's operating activities. The Board has sanctioned a number of institutions with whom surplus funds may be invested with a view to maximising returns whilst minimising credit risks.
The main risks associated with the Group's financial assets and liabilities include:
Foreign currency risk
The Group has invested in foreign operations outside the United Kingdom and also buys and sells goods and service denominated in currencies other than Sterling. As a result the value of the Group's non-Sterling revenues, purchases, financial assets and liabilities and cash flows can be affected by movements in exchange rates in general and in US Dollar and Euro rates in particular. The Group's policy on foreign currency risk is not to enter into forward contracts for purchases until a firm commitment is in place.
The Group considers using derivatives where appropriate to hedge its exposure to fluctuations in foreign exchange rates, the Group has not entered into any such arrangements in the year. The purpose is to manage the currency risks arising from the Group's operations.
Interest rate risk
The Group's policy is to manage interest rate risk and to maximise its return from its cash balances.
The Group has entered into an interest rate swap agreement with Barclays Capital whereby the interest on the Barclays term loan of £18 million is capped once the LIBOR rate reaches 6%. In the current year the Group received a £0.1 million cash benefit as a result of this hedge.
Interest on borrowings with a floating rate is set at a percentage above Bank of England base rate. Interest on fixed rate borrowings is fixed until maturity of the instrument. The other financial instruments of the Group are non-interest bearing and are therefore not 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 satisfy credit checks are granted deferred payment terms. Debtor days, bad debt and cash flows are reviewed weekly by management.
Liquidity risk
The Group's policy is to manage liquidity risk by ensuring that adequate available funding is in place through committed credit facilities. The Group monitors rolling cash forecasts of the Group's liquidity reserve and cash and cash equivalents on the expected cash flow.
The Group aims to mitigate liquidity risk by managing cash within its operations. This is applied within the operations by setting cash collection targets and controlling expenditure by maintaining authorisation limits. Any excess 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 handed back properties where leases have ended or managed to sub-let. As a result, the cash outflow in respect of vacant property has reduced from £2.2 million in 2007 to £0.6 million in 2008. This is reflected in a reduction in provisions.
Goodwill of £71.0 million (2007: £69.6 million) represents goodwill on the acquisition of subsidiaries. As required by lAS 36 the Board has conducted a review of the carrying value of goodwill on the balance sheet, which has not resulted in any impairment charge. The intangible assets of £23.0 million (2007: £27.9 million) comprise mainly the value attributed to acquired contracts and customer relationships. These were subject to an amortisation charge of £6.1 million during the year in line with the Group's amortisation policy.
The value of property plant and equipment increased by £0.5 million, to £4.6 million, mainly as a result of systems implementations.
The trade and other payables balance includes deferred income of £9.5 million (2007 £7.1 million).
Shareholders' funds have increased to £76.1 million from £71.3 million in 2007.
Tim Perks
Chief Financial Officer
10 June 2008
Unaudited Consolidated Income Statement year ended 31 March 2008
Year ended | Year ended | ||||||
31 March | 31 March | ||||||
2008 | 2007 | ||||||
Note | £000 | £000 | |||||
Revenue | 2 | 200,720 | 112,955 | ||||
Cost of sales | (122,553) | (71,932) | |||||
Gross profit | 78,167 | 41,023 | |||||
Other operating income | 77 | 154 | |||||
Selling and distribution costs | (15,673) | (9,993) | |||||
Administrative expenses | (56,664) | (28,833) | |||||
Exceptional items | (2,748) | (2,792) | |||||
Adjusted EBITDA* | 14,074 | 7,719 | |||||
Depreciation | (1,849) | (1,241) | |||||
Amortisation of intangibles |
| (6,128) | (2,804) | ||||
Exceptional items |
| (2,748) | (2,792) | ||||
Share based payment charges | (190) | (1,323) | |||||
Operating Profit/(loss) | 2 | 3,159 | (441) | ||||
Finance income | 371 | 199 | |||||
Finance costs | (2,636) | (802) | |||||
Net Finance cost | (2,265) | (603) | |||||
Profit/(loss) on ordinary activities before taxation | 894 | (1,044) | |||||
Tax on profit/(loss) on ordinary activities | 2,338 | 1,173 | |||||
Profit for the year (attributable to shareholders in the parent company) | 2 | 3,232 | 129 | ||||
Earnings per share | |||||||
Basic earnings per share | 2.23p | 0.12p | |||||
Diluted earnings per share | 2.21p | 0.12p | |||||
Basic adjusted EBITDA* per share | 9.69p | 7.42p | |||||
Diluted adjusted EBITDA* per share | 9.62p | 7.42p |
*earnings before net finance costs, tax, depreciation, amortisation, exceptional items and share based payment charges. Prior year adjusted EBITDA has been restated to include the holiday accrual charge of £162k.
Unaudited Consolidated Statement of Changes in Equity
year ended 31 March 2008
Other reserves | ||||||||||||||||||
Called up up | Share | Capital | ||||||||||||||||
share | premium | Merger | Redemption | Translation | Retained | Total | ||||||||||||
capital | account | reserve (a) | reserve (b) | reserve (c) | earnings | equity | ||||||||||||
Note | £000 | £000 | £000 | £000 | £000 | £000 | £000 | |||||||||||
Equity as at 1 April 2006 | 13,022 | 208,100 | 216 | - | 54 | (192,372) | 29,020 | |||||||||||
Profit for the year | - | - | - | - | - | 129 | 129 | |||||||||||
Share-based payments | - | - | - | - | - | 472 | 472 | |||||||||||
Currency translation differences | - | - | - | - | 46 | - | 46 | |||||||||||
Proceeds from shares issued | 6,480 | 31,541 | - | - | - | - | 38,021 | |||||||||||
Consideration shares | 650 | 3,648 | - | - | - | - | 4,298 | |||||||||||
Costs associated with share issue | - | (730) | - | - | - | - | (730) | |||||||||||
Deferred share elimination | (b) | (5,683) | - | - | 5,683 | - | - | - | ||||||||||
Share Premium cancellation | (d) | - | (225,047) | - | - | - | 225,047 | - | ||||||||||
Equity as at 31 March 2007 | 14,469 | 17,512 | 216 | 5,683 | 100 | 33,276 | 71,256 | |||||||||||
Profit for the year | - | - | - | - | - | 3,232 | 3,232 | |||||||||||
Share-based payments | - | - | - | - | - | 877 | 877 | |||||||||||
Currency translation differences | - | - | - | - | (52) | - | (52) | |||||||||||
Consideration shares | 105 | 647 | - | - | - | - | 752 | |||||||||||
Equity as at 31 March 2008 | 14,574 | 18,159 | 216 | 5,683 | 48 | 37,385 | 76,065 |
(a) Merger reserve
The merger reserve resulted from the acquisition of Redstone Communications Limited (formerly Redstone Network Services Limited) and represents the difference between the value of the shares acquired (nominal value plus related share premium) and the nominal value of the shares issued.
(b) Capital redemption reserve
The capital redemption reserve arose on the elimination of deferred shares and represents the nominal value of the deferred shares.
(c) Translation reserve
The translation reserve is used to record exchange differences arising from the translation of the financial statements of foreign subsidiaries.
(d) Share Premium cancellation
During the year ended 31 March 2007 the Board obtained approval to redistribute share capital reserves in order to reposition the Group and enable it to issue a dividend if the Directors decided this was in the best interests of the Group. Share Premium of £225,047,000 was eliminated against brought forward losses.
Unaudited Consolidated Balance Sheet as at 31 March 2008
31 March | 31 March | ||||||
2008 | 2007 | ||||||
Note | £000 | £000 | |||||
Assets | |||||||
Non-current assets | |||||||
Intangible assets | 93,953 | 97,522 | |||||
Investments | 129 | - | |||||
Property, plant and equipment | 4,623 | 4,083 | |||||
Deferred tax asset | 3,215 | 3,401 | |||||
Other non-current assets | 525 | 55 | |||||
102,445 | 105,061 | ||||||
Current assets | |||||||
Inventories | 1,195 | 1,093 | |||||
Trade and other receivables | 3 | 44,598 | 35,499 | ||||
Income tax receivable | 577 | 123 | |||||
Cash and cash equivalents | 9,609 | 10,421 | |||||
55,979 | 47,136 | ||||||
Total assets | 158,424 | 152,197 | |||||
Equity and liabilities | |||||||
Equity | |||||||
Called up share capital |
| 14,574 | 14,469 | ||||
Share premium account | 18,159 | 17,512 | |||||
Other reserves | 5,947 | 5,999 | |||||
Retained earnings | 37,385 | 33,276 | |||||
Total equity | 76,065 | 71,256 | |||||
Current liabilities | |||||||
Trade and other payables | 4 | 44,009 | 38,164 | ||||
Deferred consideration | 100 | 2,849 | |||||
Borrowings | 7,660 | 4,943 | |||||
Provisions | 508 | 868 | |||||
52,277 | 46,824 | ||||||
Non-current liabilities | |||||||
Trade and other payables | 4 | 58 | 1,066 | ||||
Derivative financial instruments | 381 | - | |||||
Borrowings | 22,480 | 23,444 | |||||
Provisions | 1,070 | 1,417 | |||||
Deferred tax liability | 6,093 | 8,190 | |||||
30,082 | 34,117 | ||||||
Total liabilities | 82,359 | 80,941 | |||||
Total equity and liabilities | 158,424 | 152,197 |
Unaudited Consolidated Cash Flow Statement year ended 31 March 2008
Year ended | Year ended | ||||||
31 March | 31 March | ||||||
2008 | 2007 | ||||||
Note | £000 | £000 | |||||
Cash flows from operating activities | |||||||
Cash generated/(absorbed) in operations | 5 | 6,769 | (274) | ||||
Income tax paid | (111) | (133) | |||||
Net cash flows generated from/(used in) operating activities | 6,658 | (407) | |||||
Cash flows from investing activities | |||||||
Proceeds from sale of property, plant and equipment | 80 | 53 | |||||
Purchase of property, plant, equipment | (2,387) | (1,466) | |||||
Purchase of intangible assets | (960) | (176) | |||||
Purchase of investment | (202) | - | |||||
Acquisition of subsidiaries, net of cash acquired | (3,541) | (44,253) | |||||
Net cash flows used in investing activities | (7,010) | (45,842) | |||||
Cash flows from financing activities | |||||||
Proceeds from issue of shares | - | 38,021 | |||||
Transaction costs of issuing shares | - | (730) | |||||
Proceeds from borrowings | 6,450 | 22,150 | |||||
Repayment of borrowings | (4,945) | (7,666) | |||||
Interest received | 382 | 199 | |||||
Interest paid | (2,347) | (802) | |||||
Net cash flows (used in)/from financing activities | (460) | 51,172 | |||||
Net (decrease)/increase in cash and cash equivalents | (812) | 4,923 | |||||
Cash and cash equivalents at 1 April | 10,421 | 5,327 | |||||
Effects of currency translation on cash and cash equivalents | - | 171 | |||||
Cash and cash equivalents at 31 March | 9,609 | 10,421 |
Non cash flow items
As part of the purchase consideration for the acquisition of Marcom Communications Limited 430,768 Ordinary Redstone shares with a value of £300,000 were given as part payment in addition to cash consideration of £300,000. The equity consideration had no cash impact.
As part of the purchase consideration for the acquisition of Comunica Holdings Limited, deferred consideration of £3,000,000 was paid out during the year as follows: cash of £2,549,000 which is included within cash flows from investing activities above and 611,800 Redstone Ordinary shares with a value of £451,000, which had no cash impact.
1 Accounting policies - Group
The Preliminary Announcement of unaudited results for the year ended 31 March 2008 is an extract from the forthcoming 2008 Annual Report and Accounts and does not constitute the Group's statutory accounts of 2008 nor 2007. Statutory accounts for 2007 have been delivered to the Registrar of Companies, and those for 2008 will be delivered following the company's Annual General Meeting. The auditors have reported on the 2007 accounts; their report was unqualified and did not contain statements under Sections 237(2) or (3) of the Companies Act 1985.
The principal accounting policies have been applied consistently throughout the year in the preparation of these financial statements with the exception of:
Long term contract accounting
Revenue from fixed price construction contracts is recognised on a percentage of completion method to the extent that the level of completion for a contract can be measured. Revenue includes expenses to the extent that they are recoverable. Where the percentage of completion cannot be reliably measured, revenue is recognised where specific contractual milestones are met or on project completion. Previously revenues were recognised when specified contractual milestones, that reflected the stage of completion, had been met. This adjustment decreased stock and increased goodwill in the 31 March 2008 balance sheet by £348,000. There was no effect on the income statement in prior periods.
Maintenance spares
Stocks of maintenance spares are recorded at cost and written off over three years or the period of the contract to which they relate, if that is a shorter period. Maintenance spares stocks are expensed as they are consumed. Previously all maintenance spares were expensed on purchase. The effect of this change in accounting policy has been to capitalise £250,000 of maintenance stock at 31 March 2008.
1.1 Basis of preparation
The consolidated financial statements of Redstone plc have been prepared in accordance with EU Endorsed International Financial Reporting Standards (IFRS), IFRIC interpretations and the Companies Act 1985 applicable to companies reporting under IFRS. The consolidated financial statements have been prepared under the historical cost convention, as modified by the revaluation of financial assets and financial liabilities (including derivative financial instruments) at fair value through profit or loss.
1.2 Basis of consolidation
The consolidated financial statements comprise the financial statements of Redstone plc and its subsidiaries as at and for the year ended 31 March of each year.
Subsidiaries are consolidated from the date at which control is obtained by the Group, and cease to be consolidated from the date at which the Group no longer retains control. Control comprises the power to govern the financial and operating policies of the investee so as to obtain benefits from their activities, and is achieved through direct or indirect ownership of voting rights, currently exercisable or convertible potential voting rights, or by way of contractual agreement.
Business combinations are accounted for using the purchase method. Goodwill on acquisition is initially measured at cost being the excess of the cost of the business combination (fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition) over the Group's acquired interest in the net fair value of the identifiable assets, liabilities and contingent liabilities. Provisional values are finalised within a maximum of twelve months following the date of acquisition. The financial statements of the subsidiaries are prepared for the same reporting year as the parent Company.
All inter-company balances and transactions are eliminated in full.
2 Segment reporting
Business segments
The following tables present revenue, profit and certain assets and liability information regarding the Group's business segments for the years ended 31 March 2008 and 2007.
(a) For the year ended 31 March 2008 | |||||||||||||||||
Converged | Managed | ||||||||||||||||
Telecom | Mobile | Solutions | Solutions | Technology | Central | Total | |||||||||||
£000 | £000 | £000 | £000 | £000 | £000 | £000 | |||||||||||
Total segment revenue | 48,248 | 34,937 | 93,045 | 12,297 | 12,314 | - | 200,841 | ||||||||||
Inter-segment revenues | - | - | - | - | (121) | - | (121) | ||||||||||
Revenue | 48,248 | 34,937 | 93,045 | 12,297 | 12,193 | - | 200,720 | ||||||||||
Adjusted operating costs* | (42,518) | (32,931) | (86,323) | (11,456) | (11,162) | (2,377) | (186,767) | ||||||||||
Elimination of inter-segment costs | - | - | - | - | 121 | - | 121 | ||||||||||
Adjusted EBITDA* | 5,730 | 2,006 | 6,722 | 841 | 1,152 | (2,377) | 14,074 | ||||||||||
Depreciation | (197) | (21) | (651) | (376) | (195) | (409) | (1,849) | ||||||||||
Equity-settled share-based payments | (81) | (37) | (269) | (111) | (100) | (279) | (877) | ||||||||||
Cash-settled share-based payments | - | - | - | - | - | 687 | 687 | ||||||||||
Amortisation of intangible assets | (1,446) | (738) | (3,505) | (195) | (63) | (181) | (6,128) | ||||||||||
Exceptional items | (1,283) | (186) | (941) | (114) | (16) | (208) | (2,748) | ||||||||||
Segment result | 2,723 | 1,024 | 1,356 | 45 | 778 | (2,767) | 3,159 | ||||||||||
Net finance costs | (2,265) | ||||||||||||||||
Tax | 2,338 | ||||||||||||||||
Profit for the year | 3,232 | ||||||||||||||||
Assets and liabilities | |||||||||||||||||
Segment assets | 46,270 | 12,179 | 71,820 | 12,141 | 11,120 | 4,894 | 158,424 | ||||||||||
Segment liabilities | 13,518 | 3,465 | 26,180 | 4,737 | 2,943 | 31,516 | 82,359 | ||||||||||
Other segment information | |||||||||||||||||
Capital expenditure | |||||||||||||||||
Property, plant and equipment | 72 | - | 547 | 625 | 418 | 725 | 2,387 | ||||||||||
Property, plant and equipment acquired - business combination | 18 | - | - | - | - | - | 18 | ||||||||||
Intangibles - software | - | 83 | 141 | 135 | - | 601 | 960 | ||||||||||
Intangible assets acquired - business combinations | 180 | - | - | - | - | - | 180 | ||||||||||
Depreciation | 197 | 21 | 651 | 376 | 195 | 409 | 1,849 | ||||||||||
Amortisation | 1,446 | 738 | 3,505 | 195 | 63 | 181 | 6,128 |
*earnings and operating costs before net finance costs, tax, depreciation, amortisation, exceptional items and share based payment charges.
2 | Segment reporting | |||||||||||||||||
Business segments | ||||||||||||||||||
(b) For the year ended 31 March 2007 | ||||||||||||||||||
Converged | Managed | |||||||||||||||||
Telecom | Mobile | Solutions | Solutions | Technology | Central | Total | ||||||||||||
£000 | £000 | £000 | £000 | £000 | £000 | £000 | ||||||||||||
Revenue | 36,715 | 25,995 | 29,763 | 10,713 | 9,769 | - | 112,955 | |||||||||||
Adjusted operating costs* | (31,676) | (24,703) | (28,726) | (9,204) | (9,127) | (1,800) | (105,236) | |||||||||||
Adjusted EBITDA* | 5,039 | 1,292 | 1,037 | 1,509 | 642 | (1,800) | 7,719 | |||||||||||
Depreciation | (214) | (29) | (280) | (322) | (55) | (341) | (1,241) | |||||||||||
Equity-settled share-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) | |||||||||||
Exceptional items | (1,215) | (341) | (1,090) | (25) | (28) | (93) | (2,792) | |||||||||||
Segment result | 2,616 | 583 | (1,582) | 993 | 456 | (3,507) | (441) | |||||||||||
Net finance costs | (603) | |||||||||||||||||
Tax | 1,173 | |||||||||||||||||
Profit for the year | 129 | |||||||||||||||||
Assets and liabilities | ||||||||||||||||||
Segment 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 | 28,856 | 80,941 | |||||||||||
Other segment information | ||||||||||||||||||
Capital expenditure | ||||||||||||||||||
Property, plant and equipment | 87 | 31 | 247 | 323 | 288 | 490 | 1,466 | |||||||||||
Property, plant and equipment | ||||||||||||||||||
acquired - business combination | 255 | 68 | 1,006 | 134 | - | - | 1,463 | |||||||||||
Intangibles - software | - | - | 33 | - | - | 143 | 176 | |||||||||||
Intangible assets acquired - | ||||||||||||||||||
business combinations | 8,248 | 2,937 | 10,304 | 586 | - | - | 22,075 | |||||||||||
Depreciation | 214 | 29 | 280 | 322 | 55 | 341 | 1,241 | |||||||||||
Amortisation | 831 | 450 | 1,232 | 130 | 63 | 98 | 2,804 |
*earnings and operating costs before net finance costs, tax, depreciation, amortisation, exceptional items and share based payment charges. Prior year adjusted EBITDA and adjusted operating costs have been restated to include the holiday accrual charge of £162k.
Redstone has five operating business units, namely Telecom, Mobile, Converged Solutions, Managed Solutions and Technology. In addition there is a Central division including back office functions and executive management to support the Group. All divisions deliver independent products and services.
Redstone Telecom provides telephony network services to the private and public sector. The portfolio includes telephony services (both inbound and outbound calls), line rental, SMS (short message service) and premium rate services (inbound calls to '09' number ranges). Redstone Telecom has a strategic relationship with BT Wholesale guaranteeing service quality and availability. This is complemented by customer-focused services including dedicated account management and 24 hours a day, 7 days a week customer support.
Redstone Mobile which was acquired as part of the Symphony Group operates as a service provider and distributor of mobile telephony. It has strategic relationships with 02 and Vodafone.
Redstone Converged Solutions is a provider of converged IP solutions, with expertise in contact centres, voice and video, IP networks, intelligent building (OneNET) and security. The recent acquisition of Comunica brings further expertise to Redstone Converged Solutions' offerings providing solutions to businesses and organisations in the health, education, local government, retail, finance, energy, media and transport sectors.
Redstone Managed Solutions delivers a comprehensive portfolio of network management and internet services for businesses and public sector organisations. Solutions and services include security software, server and desktop deployment, application development, hosting and co-location, network and system management, internet service provision and consultancy.
Redstone Technology provides enterprise storage solutions and is a specialist in business critical enterprise-class servers and provides an array of professional, consulting, logistics and maintenance services throughout Ireland.
3 Trade and other receivables | ||
2008 | 2007 | |
£000 | £000 | |
Trade receivables | 24,618 | 20,942 |
Less provision for impairment of trade receivables | (1,934) | (1,929) |
Less customer retentions greater than one year | (480) | - |
Trade receivables - net | 22,204 | 19,013 |
Other receivables | 2,180 | 1,156 |
Prepayments | 6,103 | 3,437 |
Amounts recoverable on contracts | 9,444 | 6,982 |
Accrued income | 4,667 | 4,911 |
44,598 | 35,499 | |
4 Trade and other payables | ||
Current | ||
2008 | 2007 | |
£000 | £000 | |
Trade payables | 16,894 | 14,177 |
Other payables | 474 | 1,083 |
VAT and social security | 2,933 | 3,239 |
Accruals | 14,249 | 12,688 |
Deferred income | 9,459 | 6,977 |
44,009 | 38,164 | |
Non-current | ||
2008 | 2007 | |
£000 | £000 | |
Accruals | - | 913 |
Other payables | - | 5 |
Deferred income | 58 | 148 |
58 | 1,066 | |
Non-current accruals relate to cash-settled share-based payments. |
5 Net cash flows from operating activities | |||||
2008 | 2007 | ||||
£000 | £000 | ||||
Operating profit/(loss) | 3,159 | (441) | |||
Adjustments for: | |||||
Depreciation of property, plant and equipment | 1,849 | 1,241 | |||
Amortisation of intangible assets | 6,128 | 2,804 | |||
Equity-settled share-based payments | 877 | 472 | |||
Cash-settled share-based payments (credit)/charge | (687) | 851 | |||
(Profit)/Ioss on disposal of property, plant and equipment | (9) | (11) | |||
Financial assets at fair value through profit or loss | 73 | - | |||
Movements in working capital: | |||||
(Increase)/decrease in inventories | (79) | 149 | |||
(Increase)/decrease in trade and other receivables | (8,858) | 3,581 | |||
Increase/(decrease) in trade and other payables | 5,777 | (8,215) | |||
(Increase)/decrease in non-current assets | (470) | 492 | |||
Increase/(decrease) in provisions | (706) | (1,197) | |||
Foreign exchange gains on operating activities | (107) | - | |||
Other non-cash items | (178) | - | |||
Cash generated/(absorbed) in operations | 6,769 | (274) |