CTP.L Regulatory News (CTP)

8 September 2014

Castleton Technology plc

 ("Castleton", "the Company" or "the Group")

Results for the year ended 31 March 2014 and Notice of AGM

Castleton Technology plc (AIM:CTP), the IT services Group, today announces its full year audited results for the year ended 31 March 2014. Copies of the annual report and accounts have today been posted to shareholders along with the notice of annual general meeting to be held at 12 noon on 30 September 2014 at the offices of finnCap, 60 New Broad Street, London. A copy of the annual report and accounts can also be found on the Company's website www.castletonplc.com.

Highlights

· The successful demerger of the network based managed service businesses to Redcentric plc on 8 April 2013

· Disposals during the year of Comunica Holdings Ltd and QAD software consultancy business for aggregate proceeds of £9.7 million

· Change of name from Redstone plc to Castleton Technology plc

· Profit from discontinued operations of £27.6 million (2013: loss of £2.2 million)

· Loss from continuing operations of £1.3 million (2013: loss of £1.8 million)

· Year-end cash position of £2.8 million, with further deferred cash consideration and other receivables of £2.1 million due in the current financial year, of which £0.6 million has already been received

· New strategy to become a leading provider of IT managed services to the public and not-for-profit sectors

· Post year-end acquisition of Montal Holdings Limited ("Montal"), a well-respected provider of IT managed services to the public and not-for-profit sector for £3.8 million in June 2014

· Post year-end disposal of ABS, a proprietary software and consultancy business for £0.75 million

Ian Smith, Chief Executive of Castleton commented:

"Whilst the Group results for the year to March 2014 reflect a period of change, they also demonstrate the progress the Group has made from this time last year. I believe the restructuring of the Group is now complete and the Group is now perfectly placed to execute its strategy of an IT managed services buy and build in the public and not-for-profit sectors. The post year end acquisition of Montal is a good first step on this journey.

The IT services market in the UK is a very interesting space at this time. It is very fragmented in nature, which presents the type of opportunities we, as the Board of Castleton, are looking for. The next phase of the strategy will be to find complementary businesses to put alongside Montal. I hope to be in a position to share with you progress in this area over the coming months."

Enquiries:

13/14 Preliminary Results

Chairman's Statement

I am pleased to report the audited results of the Group for the year ended 31 March 2014. It has been a year of significant change, which has seen the Group finish its restructure and embark on a new strategy to build a focused IT managed services business serving the public and not-for-profit sectors. The journey started with the demerger of the network based managed services business to Redcentric plc ("the Demerger") and moved post year-end to the acquisition, in June 2014, of Montal Holdings Limited ("Montal"), a well-respected niche IT managed services business. This year has also seen the Group change its name from Redstone plc to Castleton Technology plc. With the acquisition of Montal the Group is now on a clear path to achieving its goal of becoming a successful niche player in the public sector and not-for-profit IT managed services market place.

The results for the year highlight the fact that the Group has had a busy year: after the demerger of Redcentric, the Group disposed of two businesses. The most significant was the sale of Comunica Holdings Limited ("Comunica") in November 2013 to Coms plc for £9.5 million in cash, of which £1.85 million was deferred for 12 months, and resulted in the Group changing its name to Castleton Technology plc. The year has therefore seen significant reorganisation, which has involved a huge effort from many people: I would like to thank all those who have contributed, some of whom are no longer with the Group.

I feel the Group is embarking on an exciting path, on which I am sure we will see further significant events, as we build a public sector focused IT managed service Group.

Reported Results

The Group income statement for the year reports the trading contribution from the business units as 'discontinued', having been sold or held for sale. The remaining legacy assets of the Group have been classified as held for sale as the Board has deemed them to not be part of the Group's strategy in the future and consequently the Group will seek to dispose of them to provide further funding for growth. The income statement only reflects the costs of running the Group in the year, which are not attributed to the trading businesses. As a result, the Group loss for the year of £1.25 million includes no contribution from the trading business units, and with ABS, a proprietary ferry ticketing, erp and payroll software and consultancy business reported as 'held for sale', the Group's income statement and balance sheet have the appearance of a cash shell.

The Board has closely focused on cost control in the period, whilst it has sought suitable acquisition targets. During the year, and continuing post year-end, the cost of the Group overhead has been greatly reduced, with the Board taking half pay from 1 February 2014 to 30 June 2014: full pay was reinstated with the start of the current investment programme.

The Group's cash position at year-end of £2.8 million is before cash receivable by the Group from previous corporate transactions: the Group is owed £2.1 million at the year-end arising largely from the sale of Comunica, all of which is due in the current financial year and of which £0.6 million has already been received.

Whilst this year's results do not contain much in the way of guidance to the future, I expect with the scale that Montal brings to the Group and with the possibility of further acquisitions complementary to Montal and the Group's strategy, that the Group will look very different when it reports its results for the next financial year.

Banking and Financing

During the year, the Group settled all bank debt with the proceeds from the disposal of Comunica Holdings Limited, after which the Group had a net cash position of approximately £2.9 million. At year-end this stood at £2.8 million. Post the year-end, the Group financed the cash element of the consideration for the acquisition of Montal from existing Group cash resources. This included the early receipt of £0.6 million of deferred consideration from the disposal of Comunica. The Group has also agreed a new short‑term bank facility to November 2014 for £0.5 million, to be used to support working capital if required.

Equity

Prior to the Demerger the Group placed 75 million new ordinary shares at 8p per share. The £6 million raised was to provide sufficient working capital for each of the demerged businesses and to pay the costs associated with the Demerger.

Post balance sheet events

The acquisition of Montal for £3.83 million was funded via existing cash resources of £3.04 million and loan notes of £0.79 million. The loan notes are repayable in 12 months and carry a coupon of 8%. The deal represents an enterprise value of approximately £3.6 million and, at current run rate EBITDA, a value multiple of six.

Montal brings £6 million in annual revenues of which over 50% are recurring in nature. The business has delivered organic growth over the past three years with customer retention in excess of 90% and we are confident this trend will continue. The business offers a full suite of outsourced services including support, hosting, business solutions and consultancy and expertise and competencies across Microsoft, Citrix, Cisco, VMWare and CmpTIA. The business also has an experienced management team, which I have no doubt will prove to be a fantastic asset for the Group. Montal will be operated as a separate division of the Group and is self funding.

I welcome the team at Montal to the Castleton Group and look forward to working with them.

The one remaining business unit in the Group at the year-end was ABS, acquired as part of the Maxima Group in 2012; ABS is held for sale as reported in these accounts. The Board has evaluated the business and has decided that it will not be core to the Group's future strategy.

On 29 August 2014 the Group disposed of the trade and certain assets of ABS for a total cash consideration of £0.75 million. The consideration will be settled £0.30 million at completion with a further £0.30 million on 30 September 2014 and the remaining £0.15 million due on 31 March 2015.

The Board

The changes at Board level during the year included my appointment as non-executive Chairman on 8 April 2013 and the appointment of Spencer Dredge as interim Group Finance Director, with Peter Hallett stepping down after his resignation in June 2013. I would like to thank Peter for his contribution to the Group over the past four and a half years. Spencer joined the Board in February 2014 having previously worked with the Group, in a variety of Group and divisional finance roles.

Richard Ramsay, our former non-executive Chairman, has said he would like to step down as a non-executive Director and will do so, in due course, once we have found a suitable replacement.

Opportunity / Outlook

We see an enormous opportunity with the fragmented nature of the IT services sector. The public and not-for-profit sectors offer a very substantial market opportunity for IT services. We believe that, by consolidating quality IT managed service assets, we can build a Group of significant scale, with a vertical focus, which we can use to leverage our market position. Our aspiration is to become the leading niche public sector IT managed services provider. We believe we can achieve this aim and the Group has made a positive start with the acquisition of Montal. The Board is fully focused on its new strategy and with the proven track record of our CEO, Ian Smith, an M&A specialist in this industry, I believe we will see the transformation of the Group over the coming months and years. MXC Capital is a cornerstone investor in the Group and has recently executed very similar strategies with other listed businesses, with great results. I believe we have both the foundations in place, with the Montal acquisition, and the experience of Ian and MXC Capital, to deliver value to our shareholders.

Chief Executive's Review

Overview

I am pleased to report the progress the Group has made during the financial year to 31 March 2014. The Group has undergone a strategic review following the demerger, and the Board is now confident that it can deliver its stated strategy of a 'buy and build' in the IT managed service space, with a focus on the public and not-for-profit sectors. The first building block has been put in place with the Montal acquisition in June 2014; the Board is committed to following this with further acquisitions, if the right opportunities present themselves.

Montal

Since the year-end the Group has made the important first step on its new journey, with the acquisition of Montal. Montal is a specialist outsourced IT managed service provider, with good penetration in the public and not-for-profit sectors, particularly within social housing and care providers. I have good knowledge of the Montal operation, having had the benefit of closely monitoring its performance over the past 18 months. I firmly believe that Montal is a quality asset and a great platform from which the Group can grow, both organically and through further acquisitions. Montal has a mature and successful management team, which further supports my belief that Castleton has made a good start to executing its strategy.

Current year Trading

Whilst the Group results for the year to March 2014 reflect a period of change, they also demonstrate the progress the Group has made from this time last year. The Group has sold the infrastructure business division, Comunica, for £9.5 million in cash followed by the disposal of QAD, a proprietary software consulting business, for £0.2 million in cash. With the post year-end disposal of ABS, this paves the way to building a 'pure play' IT managed services group of scale, without the distractions of a diverse strategy.

Outlook

The IT services market in the UK is a very interesting space at this time. It is very fragmented in nature, which presents the type of opportunities we, as the Board of Castleton, are looking for. The visible nature of recurring annuity revenues supported by scalable infrastructure platforms highlights the compelling value that scale adds in this business model, which underpins the Board's strategy.

The next phase of the strategy will be to find complementary businesses to put alongside Montal. My role in leading the Group is to identify and realise these opportunities. I hope to be in a position to share with you progress in this area over the coming months. Integrating the acquisitions as we make them will play a huge role in shaping the success of the Group during this period. The Board is fully aware that it needs to support the divisional management, providing the necessary tools and resource to deliver the value from this strategy.

Financial Review

I am pleased to present this report as interim Group Finance Director, having been appointed to the Castleton Technology plc Board on 5 February 2014. In this report I will cover the results for the year ended 31 March 2014 and look at the new opportunities that we see for the future of the Group.

Principal events and overview

Castleton Technology plc (previously Redstone plc) has undergone a significant period of change during the year. On 8 April 2013 the Group demerged the network based managed services businesses, now part of Redcentric plc. Later in the year followed two disposals, most notably the sale of Comunica Holdings Limited and its subsidiary Redstone Converged Solutions Limited on 5 November 2013, and also the disposal of the trade and assets of QAD, a proprietary software consultancy business on 3 March 2014.

At the balance sheet date the only remaining trading asset in the Group is our small niche proprietary software business unit ABS, based in Glasgow, with core products in ferry ticketing, ERP and payroll software. The Board has evaluated the business and has decided that it will not be core to the Group's future strategy. ABS has a good suite of products, a high level of recurring revenue and a strong software development team and consequently the Board believes it will be an attractive asset to potential acquirers.

Auditors

As part of the on-going review of Group related costs and corporate governance best practice, the Board took the decision to change Group auditors from PwC to Baker Tilly. Baker Tilly Corporate Finance also supported the Group in its recent acquisition of Montal Holdings Limited.

Trading Results

Because all of the Group's trading operations have either been sold, or are held for sale, the loss for the year from continuing operations presented in the Income Statement comprises only the essential costs of maintaining the AIM listing, Board salaries, and finance and advisory expenses.

The prior year results presented herewith have been re-stated accordingly to provide a 'like-for-like' comparison.

Revenue and Gross Profit

There were no Group revenues or gross profit from continuing activities in the year. The revenues and gross profit of the discontinued activities are shown in note 2.

Administrative expenses

The administrative expenses from continuing activities were incurred in relation to the Group Board and its advisors. These costs also include occupancy, back office support services, and the fees associated with maintaining the AIM listing

Adjusted EBITDA*

Adjusted EBITDA for the year, a loss of £1.0 million (2013: loss of £0.6 million) comprises only the continuing operations and therefore arises as a result of the operating costs as explained above. The Board has continued to maintain tight cost controls on expenditure and, for the period between 1 February 2014 and 30 June 2014, only received half pay.

*Earnings for the year from continuing operations before net finance costs, depreciation, amortisation, integration and strategic costs, goodwill impairment and share based payment charges.

Finance income and costs

Finance income comprises the fair value gain on the interest rate swap held by the Group, and finance costs comprise interest payable on bank borrowings.

Profit for the year attributable to the owners of the parent company

The Group profit for the year to 31 March 2014 is £26.4 million (2013: loss of £4.0 million). This is a combination of the operating loss after tax from continuing operations of £1.3 million (2013: £1.8 million), which includes finance income and costs, and the profit from discontinued operations of £27.6 million (2013: loss of £2.2 million). The profit from discontinued operations is explained in note 2.

Cash flow

The principal cash outflows for the year were the cash absorbed by the loss on continuing and discontinued operations (£5.0 million), and the repayment of debt of £3.4 million. The principal cash inflows were from the disposal of Comunica and QAD software consultancy business (£7.8 million less £0.8m cash sold with the operations disposed of) and the proceeds of the placing of £6.0 million.

This resulted in an overall increase in funds of £4.6 million, giving a net cash position at the balance sheet date of £2.8 million. A further £2.1 million is due in the next financial year in relation to the demerger and the disposals made during the year, of which £0.6 million has already been received.

Since the year-end cash of £3.04 million has been utilised in the acquisition of Montal as further explained below.

Reporting metrics

The reporting metrics and Key Performance Indicators normally reviewed by the Board include the Income Statement categories as outlined in this report along with measures specific to individual business units and divisions and the available resources and strength of the balance sheet. In summary, the Group results for this year are not reflective of where the Group is expected to be at the next reporting date and further performance indicators will be developed relevant to the results and activities of the Group in the next half-year and Annual Reports.

Demerger

Redcentric plc

The demerger of the network based managed service businesses to Redcentric plc ("Redcentric") completed on 8 April 2013. The rationale for the transaction was to realise the 'trapped value' of the then combined infrastructure solution and network managed solution businesses.

The Board believed that the higher valuation attributable to the network managed services business could only be realised by separation.

The Demerger was effected by a special dividend of £53.3 million. The special dividend was equal to the fair value of Castleton's interests in the managed services business that became Redcentric.

The dividend was satisfied in specie, by the transfer of shares in Redcentric Holdings Limited to Redcentric. Redcentric Holdings Limited was a wholly owned subsidiary of Castleton, incorporated to act as the vehicle to hold the consolidated net assets of the managed services businesses, which became Redcentric on demerger.

The £53.3 million fair value of the net assets and subsequent dividend equalled the market value of the shares in Redcentric. The market value was determined by the mid-market price on the first day of admission of Redcentric to AIM.

The cost of the net assets demerged was £23.3 million, which resulted in a gain on demerger of £30.0 million. This gain on demerger has been calculated by comparing the fair value of the businesses transferred with the net assets disposed of.

The gain on demerger is disclosed in the Income Statement as part of the profit on discontinued activities

Disposals

Comunica Holdings Limited

On 5 November 2013 the Group disposed of its ICT infrastructure, data centre and smart building solutions business, Comunica Holdings Limited to Coms plc for a total cash consideration of £9.5 million with £7.65 million paid on completion and a further £1.85 million deferred for 12 months, becoming payable in November 2014. Subsequent to the year-end, Coms plc settled £0.6 million of the deferred balance early.

Following the disposal of Comunica Holdings Limited the Group changed its name to Castleton Technology plc, as all relevant intellectual property of Redstone including the Redstone brand, trademarks and domain names transferred across to Coms plc.

QAD

On 3 March 2014 the Group disposed of the trade and assets relating to the QAD software consultancy business to Glantus Limited for a total cash consideration of £200,000, of which £50,000 is deferred and payable in August 2014. The QAD business unit focused on consultancy and technical services to support ERP systems in the manufacturing and distribution sectors. The business had not been an area of growth for the Group partly as a result of there being no vendor relationship. The Board felt that significant financial and management investment would have been required to turn the business around and that the business unit was not considered to fit with the future strategy of focusing on IT managed services.

Borrowings and Bank facilities

The Group did not have any borrowings at the balance sheet date. Following the disposal of Comunica, all bank debt was repaid.

As at the balance sheet date the Group continues to service the interest rate swap until it matures in September 2015. The liability for the interest rate swap as recorded in these financial statements is £0.85 million and is cash settled on a quarterly basis.

The Group continues its relationship with Barclays Bank and in connection with the acquisition of Montal post year-end, the Group has arranged a new secured £0.5 million facility at 2.5% above the bank's base rate. This new arrangement is in place until November 2014 when it expires.

Equity

Placing

In order to provide sufficient working capital for each of the demerged businesses and to pay the costs associated with the demerger and admission of Redcentric to trading on AIM, the Company raised by way of equity £6 million (before commission and expenses) by the issuance of 75,000,000 new ordinary shares at a price of 8 pence per share.

Total Group equity at 31 March 2014 was £2.9 million (2013: £23.7 million) and reflects the period of divestment.

Post balance sheet events

On 23 June 2014 Castleton announced the acquisition of the entire issued share capital of Montal for a total consideration of £3.83 million, payable £3.04 million in cash and £0.79 million in loan notes.

The £3.04 million cash consideration was funded out of existing Group cash resources including utilising the collateral cash set aside for the interest rate swap. In addition, Barclays extended a £0.5 million facility to support working capital should the need arise.

The loan notes carry an 8% coupon, and fall due to be settled within 12 months.

Montal specialises in providing outsourced IT services to the public and not-for-profit sectors, particularly within social housing and care providers and provides a full suite of outsourced services including support, hosting, business solutions and consultancy. Montal offers a broad range of expertise and competencies across Microsoft, Citrix, Cisco, VMware and CmpTIA platforms.

Montal has a proven track record, delivering turnover of £5.7 million and EBITDA of £0.5 million in its previous full year trading results.

On 29 August 2014 the Group disposed of the trade and certain assets of ABS, the ferry ticketing, ERP and payroll software and consultancy business operated by Maxima Information Group Limited, for a total cash consideration of £0.75 million. The consideration will be settled £0.30 million at completion with a further £0.30 million on 30 September 2014 and the remaining £0.15 million due on 31 March 2015.

Group Strategy

The Group's transformation period continues. Having successfully disposed of assets not aligned with the future strategy, the Group is fully focused on building a scale IT managed services business. The acquisition of Montal is the first step and provides a platform for consolidation; the strategy remains to seek further acquisitions in the technology sector to build a public sector focused managed services business. The Board feels that, given the fragmented nature of the sector, there will be ample opportunity to achieve its strategy, as access to available and suitable targets clearly exists, Montal being a good example.

Consolidated Income Statement

For the year ended 31 March 2014

* Total result for the year from continuing operations before net finance costs, tax, depreciation, amortisation, integration and strategic costs, goodwill impairment and share-based payment charges

 Consolidated Balance Sheet

As at 31 March 2014

Registered number 3336134

Consolidated Statement of Changes in Equity

For the year ended 31 March 2014

(a) Merger reserve

The merger reserve arose from the acquisition of Redstone Communications Limited (£216,000) and Maxima Holdings Limited (formerly Maxima Holdings plc) (£7,750,000) 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. As part of the reorganisation of capital effected on 27 March 2013 this was transferred to distributable (retained) earnings.

(c) Translation reserve

The translation reserve is used to record exchange differences arising from the translation of the financial statements of foreign subsidiaries. At the year-end the Group had no foreign subsidiaries and the balance of the reserve has been transferred to retained earnings/(accumulated loss).

(d) Gain on demerger and Dividend in specie

As more fully described in note 6 the Board decided that a demerger of the network-based managed services businesses ("Demerger") was in the best interests of the Company and would deliver additional value to shareholders over time.

The demerger was effected by the declaration of a special dividend in Castleton, equal to the fair value of Castleton's interests in the managed services business. The dividend was satisfied, in specie, by the transfer of the shares in Redcentric Holdings Limited ("RCH") to Redcentric plc. RCH was a new wholly owned subsidiary of Castleton, formed as a vehicle to hold the interests of the consolidated managed services business (prior to the demerger).

The Directors have attributed a fair value of £53.3 million to the dividend equivalent to the market value of the shares issued by Redcentric, as permitted under IFRIC 17 "Distribution of non-cash assets to owners". Market value was determined as the mid-market price on the first day of admission of the Redcentric plc shares to AIM on 8 April 2013.

The cost to the Company of satisfying the dividend liability was the transfer of the net assets held for demerger in RCH at the demerger date. The net assets held for demerger amounted to £23.3 million. The resulting gain of £30.0 million has been recorded in the consolidated statement of comprehensive income as required by IFRIC 17.

Consolidated Cash Flow Statement

For the year ended 31 March 2014

 Notes to the Results

Year ended 31 March 2014

1 Basis of preparation

Castleton Technology plc (Castleton) is a public limited company incorporated and domiciled in England and Wales, whose shares are publicly traded on AIM, the market of that name operated by the London Stock Exchange.

The consolidated financial statements contained in this preliminary announcement do not constitute statutory accounts as defined in Section 434 of the Companies Act 2006. The financial statements are extracted from the 2014 Group financial statements which were approved on 5 September but have not yet been delivered to the Registrar of Companies. The report of the auditors on the financial statements for the year ended 31 March 2014, which was unqualified, did not draw attention to any matters by way of emphasis without qualifying their report and did not contain a statement under section 498 (2) or 498 (3) of the Companies Act 2006. The financial information included in this preliminary announcement has been based on the Group's financial statements which are prepared in accordance with International Financial Reporting Standards (IFRS) as adopted for use in the EU. The principal accounting policies are set out in the Group's 2014 statutory accounts.

The comparative figures for the financial year ended 31 March 2013 are based on the statutory accounts for that year, restated to reflect the discontinued activities. The report of the auditors on the financial statements for the year ended 31 March 2013, which were prepared in accordance with IFRS, was unqualified, did not draw attention to any matters by way of emphasis without qualifying their report and did not contain a statement under section 498 (2) or 498 (3) of the Companies Act 2006. The financial statements for the financial year ended 31 March 2013 have been delivered to Companies House.

The consolidated financial statements of Castleton have been prepared on the going concern basis and in accordance with EU adopted International Financial Reporting Standards (IFRS), IFRIC interpretations and the Companies Act 2006 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.

The Directors are required to be satisfied that the Group has adequate resources to continue in business for the foreseeable future. The validity of this assumption depends on the ability of the Group to meet its cash flow forecasts and on the continuing support of its bankers by providing adequate overdraft facilities and of its debt holders and shareholders. Following the disposal of Comunica Holdings Limited ("Comunica") on 21 November 2013 for an initial cash consideration of £7.65 million, all bank debt was repaid, a condition of securing bank consent to the disposal, required under the terms of the bank facility. Disposal proceeds of £1.1 million were required to be transferred to an escrow account as collateral against the liabilities arising from the interest swap derivative, which remains with the Group.

The Company is obligated to service the derivative until its maturity in September 2015. The gross liability under the derivative stands at approximately £0.9 million, and the current annual cost is approximately £0.6 million.

Following a review in December 2013, the Directors decided to cancel the bank facility, in recognition of commitment fee savings of £0.1 million per annum and the waiver by the bank of the cancellation fee of £0.1 million. The net cash position of the Group immediately following the disposal of Comunica amounted to approximately £3.0 million net of transaction expenses, including the restricted collateral account, and excluding deferred consideration and other receivables of £2.1million, expected to be received within twelve months of disposal.

On 23 June 2014 Castleton announced the acquisition of the entire issued share capital of Montal Holdings Limited ("Montal") for a total consideration of £3.83 million payable £3.04 million in cash and £0.79 million in loan notes. On 16 June 2014 the Group secured a £0.5 million short-term facility from its bankers to assist with the integration of the acquisition, should it be required. This facility will remain in place until the sooner of 30 November 2014 and the receipt of the deferred consideration for the sale of Comunica.

The Directors have prepared detailed projections for the period to September 2015, based on the above facts and their knowledge of the Group's existing business. Whilst the Board believes that the Group as currently constituted will generate sufficient cash to enable it to pay its debts as they fall due, they are also confident of being able to raise additional financing should it be necessary to enable the Group to meet its strategic aims. In connection with this, MXC Capital Limited, a major shareholder, has undertaken to defer settlement of certain monies due to it and to provide additional funding should either be necessary. Based on this, the Directors consider that the adoption of the going concern basis is appropriate.

2 Discontinued operations

Demerger

Subsequent to the acquisition of Maxima in November 2012, Castleton comprised two main operating divisions, the Network-based managed services business and the infrastructure solutions business.

The Board did not believe that the market fully appreciated the attributes of this business while it was combined with the infrastructure solutions business. Businesses with similar characteristics and profit margins to the network-based managed services business historically command a valuation with a higher price/earnings multiple than that of the Group. Furthermore it was the opinion of the Board that the two divisions were less likely to maximise their potential performance if they continued to be operated as part of one Group.

Given these factors, the Board, together with its advisers, evaluated several options for maximising shareholder value, giving due consideration to a range of alternatives and factors.

The Board concluded that a Demerger of the network-based managed services business into a separate AIM listed company called Redcentric ("Demerger") was in the best interests of the business and will deliver additional value to shareholders over time by allowing Castleton and Redcentric to pursue their strategic objectives independently with greater control over resources and opportunities and increasing management and Board focus on the particular needs of each company.

The Demerger, completed on 8 April 2013, created two distinct entities with different strategic, operational and economic characteristics and with separate operational management teams. The assets and liabilities for the demerged business were reflected as "Held for sale" in the 2013 Balance Sheet.

Comunica Holdings Limited

On 5 November 2013 Castleton announced the sale of its ICT Infrastructure, data centre and smart building solutions business, Comunica Holdings Limited ("Comunica") to Coms Plc ("Coms") for a total cash consideration of £9.5 million to be settled by the payment of £7.65 million at completion and a consideration deferred for 12 months of £1.85 million. At the date of the disposal Comunica had net assets of £12.6 million resulting in a loss on disposal of £3.1 million.

The Board believes that the Disposal was in the best interests of both shareholders and Comunica stakeholders. Comunica was well positioned for sale, having delivered on many internal objectives in the current year, enabling existing shareholders to capitalise on the value created to date, as well as providing the acquirer with an opportunity to further build upon these successes.

As part of the disposal the Company sold all of the intellectual property and associated trademarks and web sites of Redstone, save for those relating to the businesses retained following the disposal, and it was therefore required under the terms of the disposal that the Company changed its name.

QAD Software Consultancy Business

On 3 March 2014 Castleton announced that it had agreed to sell the trade and certain assets of its QAD software consultancy business to Glantus Limited for a total cash consideration of £200,000, of which £50,000 is deferred for six months. The portion of the intangible assets relating to the QAD customer base was valued at £200,000 by the Directors and there was no profit or loss on the disposal.

The QAD software consultancy business is focused on QAD consultancy and technical services to support ERP systems in the manufacturing and distribution sectors. QAD is a US based Nasdaq quoted ERP vendor which previously had a formal working relationship with Maxima Information Group Ltd ("MIG"), a company acquired by Castleton in November 2012.

QAD withdrew its support for the business some years ago and the business has been in decline since that time. The QAD software consultancy business is reliant upon the people it employs and its remaining customer relationships, both of which have been negatively impacted in recent months. The Board believed that significant financial and management investment were required to turn the business around. As a result, the Board took the decision to sell the business in order to allow a new management team to invest the time and resources required to return the business to growth.

Maxima Information Group Ltd (MIG)

Post the year-end Castleton has disposed of the balance of the business in MIG, a software business focused on supporting a range of its own developed and proprietary ERP, reservation and ticketing and payroll software products (www.ferrysoftware.co.uk). The company's services include the provision of software, hardware, development and continued support. Castleton intends to utilise the proceeds from the disposal to further its stated strategy of potential acquisitions within the technology sector. The assets and liabilities of MIG that have been sold with the business are reflected as "Held for sale" in the balance sheet.

Current year trading of the discontinued businesses is as follows:

* Earnings for the year from continuing operations before net finance costs, tax, depreciation, amortisation, integration and strategic costs, goodwill impairment and share-based payment charges

The net assets of the businesses disposed of in the year, at the date of disposal, were as follows:

During the year, these businesses contributed or utilised cash flows to the Group as follows:

3 Earnings/loss per share

Basic loss per share and diluted loss per share are calculated using a weighted average number of shares of 622,689,960 (2013: weighted average number of shares of 460,544,806, adjusted for the share consolidation). Adjusted EBITDA* has been shown on the grounds that it is a common metric used by the market in monitoring similar businesses.This measure is derived as follows:

* Total result for the year from Continuing Operations before net finance costs, tax, depreciation, amortisation, goodwill impairment, integration and strategic costs and share-based payment charges.

4 Assets and liabilities held for sale or distribution

Arising from the expected disposal of MIG described in note 2, Discontinued operations, the following assets and liabilities were held for sale at the 31 March 2014. The 2013 numbers relate to assets held for distribution pursuant to the Demerger also described in note 2:

Assets held for sale or distribution

Liabilities held for sale or distribution

5 Called up share capital

Ordinary shareholders have the right to attend, vote and speak at meetings, receive dividends, and receive a return on assets in the case of a winding up.

The redeemable preference shares may be redeemed at the Company's option at any time without payment of a premium. On a winding up they rank ahead only of the ordinary shares and will be repaid at par. Redeemable preference shareholders do not have the right to vote and speak at meetings nor to receive dividends.

Share issue

During the year the following shares were issued: 2014 2013

In order to provide sufficient working capital for each of the demerged businesses and to pay the costs associated with the demerger, the Company raised £6 million by way of an equity placing of 75 million new ordinary shares in the Company at a price of 8 pence per share.

On 27 March 2013 the Company received the approval of the court for the capital reorganisation in preparation for the demerger. The capital reorganisation was undertaken under Part 17 of Chapter 10 of the Companies Act 2006 and comprised:

(i) the cancellation of the Company's deferred shares, share premium account and capital redemption reserve; and

(ii) the reduction of the nominal value of each consolidated Redstone ordinary share from 0.8 pence to 0.1 pence by cancelling paid up capital of 0.7 pence on each such ordinary share.

On 26 March 2013, the Company's issued share capital was re-organised by the consolidation of every eight ordinary shares into one consolidated ordinary share.

In addition the Company has issued 3,500,000 warrants to Barclays Bank that can be converted to ordinary shares in the Company at any time before the sale of its entire share capital. The conversion price of these warrants is 0.4 pence per share.

6 Net cash flows from continuing operating activities

7 Subsequent events

On 23 June 2014 Castleton announced the acquisition of the entire issued share capital of Montal Holdings Limited ("Montal") for a total consideration of £3.83 million payable £3.04 million in cash and £0.79 million in loan notes. Montal specialises in providing outsourced IT services to the public sector and provides a full suite of outsourced services including support, hosting, business solutions and consultancy. The Group has not as yet completed the provisional assessment of the fair values of Montal.

On 16 June 2014 the Group secured a £0.5 million short-term facility from its bankers to assist with the integration of the acquisition. This facility will remain in place until the sooner of 30 November 2014 and the receipt of the deferred consideration for the sale of Comunica.

On 29 August 2014 the Group disposed of the trade and certain assets of ABS, the ferry ticketing, ERP and payroll software and consultancy business operated by Maxima Information Group Limited, for a total cash consideration of £0.75 million, which equates to the carrying value of the assets in the Group financial statements. The consideration will be settled £0.30 million at completion with a further £0.30 million on 30 September 2014 and the remaining £0.15 million due on 31 March 2015.