CTP.L Regulatory News (CTP)

31 December 2014

Castleton Technology PLC

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

Unaudited Interim Results for the six months ended 30 September 2014

Castleton Technology plc (AIM: CTP), the software and managed services provider to the public and not-for-profit sectors, today announces its unaudited interim results for the six months ended 30 September 2014.

The Group's stated strategy of building a business focused on the public and not-for-profit sectors has good momentum following the acquisition during the period of Montal Holdings Limited and post period end of Documotive Limited.

Highlights

§ Acquisition of Montal Holdings Limited ("Montal"), a well-respected provider of IT managed services to the public and not-for-profit sector, in June 2014

§ Montal contributed revenues of £1.9 million, profit for the period of £0.08 million and EBITDA* pre central costs of £0.2 million post acquisition

§ Adjusted EBITDA* loss post central costs of £0.1 million (H1 2013: Loss £0.5 million)

§ Profit for the period of £0.03 million (H1 2013: £26.4 million)

§ Disposal of ABS, a proprietary software and consultancy business for £0.75 million in August 2014

Post Period End Highlights

§ Acquisition of Documotive Limited ("Documotive"), a document management software and scanning business focused on the social housing sector in November 2014

§ New equity funding of £5.65m raised in oversubscribed placing to fund the acquisition of Documotive

§ Early settlement and equity conversion of the loan notes issued as part consideration for Montal acquisition

David Payne, Chairman of Castleton, commented:

"The Group has embarked on a new journey to become a software and managed services provider to the public and not-for-profit sectors. The Group is ideally placed to build upon the foundations now in place via further complementary acquisitions and the good organic growth prospects we see in the sector. I believe that with the experience of our CEO Ian Smith and MXC Capital, the Group will deliver its stated strategy and value to our shareholders".

*Before net finance costs, tax, depreciation, amortisation, integration & strategy costs and share based payments

Enquiries:

Chairman's Statement

Dear Shareholder

I am pleased to report the results of the Group for the six months ended 30th September 2014.

Background and Basis of Results

The results for the first half of the financial year show evidence of clear progress, with the acquisition in June 2014 of Montal Holdings Limited ("Montal"), a specialist outsourced IT managed services business focused on the provision of tailored solutions to the public sector, for a total consideration of £3.83 million, satisfied as to £3.04 million in cash and £0.79 million in loan notes.

Post interim reporting period, the Group has continued on its journey to build a focused software and managed services business serving the public and not-for-profit sectors with the acquisition of Documotive Limited ("Documotive"), a leading software supplier to the social housing sector for £4.0 million, satisfied as to £3.0 million in cash and £1.0 million in zero coupon convertible loan notes.

I welcome both businesses and their employees to the Group. I believe they are both excellent acquisitions and I'm sure we will all enjoy a prosperous and exciting future together.

Disposal of ABS

During this first half year, the Group completed its divestment programme with the disposal of ABS, a proprietary software business. The disposal of ABS marks the last in a series of business disposals.

The disposal of ABS was for a total consideration of £0.75 million in cash, of which £0.6 million had been received at the reporting date, with the final £0.15 million due in March 2015. Castleton retained certain assets and liabilities, principally £0.13 million of recoverable debtors, some legacy assets (fully written down and of limited use) and leasehold property. Castleton has had the benefit of already collecting circa £0.2 million of annual maintenance revenues in the current year, so will achieve an exit enterprise valuation for the business approaching £1.0 million.

Results

The Group results for the six months include the performance of Montal for the period post acquisition as 'continuing' operations and reflect the performance from the disposed ABS business as 'discontinued' operations.

Montal has a track record of delivering IT solutions dating back to 1985 and the business has good penetration in the public and not-for-profit sectors, particularly within social housing and care providers. In the six months ended 31 March 2014 (pre-acquisition), Montal generated turnover of £3.2 million and EBITDA of £0.3 million.

Montal was acquired on 20 June 2014 therefore there are no comparatives in respect of H1 trading. Revenue in the period post acquisition was £1.9 million. Gross profit was £1.0 million, giving a margin of 53.0%.

The Group generated an adjusted EBITDA* loss of £0.1 million in the period (H1 2013: loss of £0.5 million).

The profit for the period was £0.03million (H1 2013: £26.4 million).

Central costs amounted to £0.3 million (H1 2013: £0.5 million), excluding net finance costs, depreciation, amortisation of intangible assets, integration and strategic costs and share based payments.

Integration and strategic costs amounted to £0.1 million (H1 2013: £0.1 million) arising from transaction related costs in the current year and redundancy costs in respect of further downsizing the residual post demerger group in the prior year.

Operating loss was £0.3 million (H1 2013: loss £0.8 million). The movement of £0.5 million primarily reflects the adjusted EBITDA* generated by the trading business of £0.2 million, reduced central costs of £0.2 million and reduced costs associated with share-based payments, integration and strategic costs and amortisation of intangibles of £0.1 million collectively.

The 'trading' performance of the Group during the period is explained in note 3 Segment reporting. The managed services segment relates to Montal and the £0.2 million EBITDA reflects the post-acquisition performance which is ahead of expectation, a period of just over three months.

Net finance costs amounted to £0.04 million (H1 2013: £0.1 million). The reduction arises from fully amortised loan costs in the prior period of £0.1 million.

The profit for the period from discontinued operations amounted to £0.3 million (H1 2013: profit £27.4 million).

*Before net finance costs, tax, depreciation, amortisation, integration & strategy costs and share based payment

Basic loss per share from continuing activities was 0.05p (H1 2013: Loss 0.15p), a reduction of 73%.

Changes in equity

Opening equity of £2.86 million has marginally increased in the period, by the reported profit for the period. Closing equity stood at £2.89 million.

Profit for the period is £0.03 million (H1 2013: profit of £26.4 million), with the prior period having the benefit of the profit on demerger of the Redcentric business.

Cash Flow

Cash used in continuing operations amounted to £0.3 million (H1 2013: cash used £1.9 million) comprising adjusted EBITDA* loss of £0.1 million (H1 2013: loss of £0.5 million) and working capital unwind of £0.2 million (H1 2013: investment of £1.4 million).

Net finance charges paid of £0.3 million (H1 2013: £0.4 million) largely reflect the cash cost of the interest swap derivative of £0.3 million (H1 2013: £0.3 million).

There were no debt repayments in the period (H1 2013: decrease in borrowings of £3.4 million).

The total decrease in cash and net cash equivalents was £2.7 million (2013: decrease £2.3 million), made up of cash used in continuing activities of £2.1 million (H1 2013: inflow £0.1 million), and cash used in discontinued activities of £0.6 million (H1 2013: inflow £2.4 million).

Cash received in the period in relation to disposals from previous periods was £1.4 million. Cash received after the interim reporting date, relating to monies due from prior year disposals of £0.9 million was received in October 2014.

On 17 November 2014, the Group raised £5.65 million in cash through the placing of shares and a broker option. This cash funded the £3.0 million cash consideration for the acquisition of Documotive and provides additional Group working capital.

Loan notes of £0.2 million issued to Montal equity holders as part consideration, which were due for settlement in June 2015, were converted to equity in November 2014. The loan notes issued to MXC Capital Limited ("MXC Capital") of approximately £0.6 million, being the consideration for MXC's holding in Montal, were settled early in cash in November.

Balance sheet

Included in the balance sheet at the reporting date is £5.0 million of intangible assets, which is attributed to the acquisition of Montal.

Total assets of £8.4 million at 30 September 2014 include deferred cash consideration receivable of approximately £1.3 million as a result of previous transactions; £0.9 million was received in October 2014 and the remaining consideration is due for settlement within the current financial year ending 31 March 2015.

As described above, post period end, in November 2014, the £0.8 million of loan notes issued as part consideration for the Montal acquisition were settled by way of £0.2 million converted to equity and £0.6 million settled in cash.

Bank Financing

The Group did not have any borrowings at the start of the period or at the reporting date.

As a result of old Group banking arrangements, the Group is obligated to service a derivative contract until its maturity in September 2015. The derivative is an interest rate swap contract. The contract was entered into when the previous Board deemed it prudent to hedge against interest rate movements, in a period when the Group had in place a material bank term loan and debt facility. The gross liability under the derivative stands at approximately £0.6 million and will be fully settled on maturity, payable on a calendar basis at approximately £0.15 million per quarter.

The Board

During the period Richard Ramsey stepped down as senior independent Non-Executive Director and was replaced by Phil Kelly, who joins the Group having spent the last 30 years in the technology sector, having worked with both quoted and privately backed businesses. Phil will sit on both the Audit and Remuneration committees.

After the period end Spencer Dredge stepped down as interim Group Finance Director and is replaced by Haywood Chapman.

Haywood Chapman joined the Company on 24 November and has significant technology sector expertise having held senior finance roles in FTSE 250 and Fortune 300 companies. Most recently Haywood has been Group Financial Controller of Infinity SDC, a private equity backed Data Centre operator. Before that Haywood held a number of senior finance positions at Northgate Information Solutions, having trained at PwC and gained M&A experience working in PwC's transaction services team.

Tony Weaver today steps down from the Board as non-executive Director. Tony has held a main Board position since 2010, during which time the Group has been through significant change.

I welcome both Phil and Haywood to the Board. I also would like to thank Richard, Spencer and Tony for their considerable contributions to the Group and wish them well in the future.

Outlook

The Board remains committed to building a focused software and managed services business in the not-for-profit and social housing sector as evidenced by the acquisition of Montal and more recently Documotive; I expect more acquisitions will follow.

The Board, and in particular Ian Smith, has a proven track record of investment in this sector and I believe the Group will continue to grow and prosper.

David Payne

Non-Executive Chairman

31 December 2014

Consolidated Income Statement

*earnings from continuing operations before net finance costs, tax, depreciation, amortisation, integration and strategic costs and share-based payments.

The above consolidated income statement should be read in conjunction with the accompanying notes.

Consolidated statement of comprehensive income

From continuing operations (307) (920) (1,251)

From discontinued operations 335 27,357 27,640

Consolidated Statement of Changes in Equity

Attributable to shareholders of the parent company

(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) Translation reserve

The translation reserve is used to record exchange differences arising from the translation of the financial statements of foreign subsidiaries. At 31 March 2014, the Group had no foreign subsidiaries and the balance of the reserve was transferred to retained earnings/ (accumulated loss).

(c) Gain on demerger and Dividend in Specie

The Board decided that a demerger of the Managed Services Business ("the 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 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 Balance Sheet

Consolidated Cash Flow Statement

Notes to the half-yearly financial information

1 Basis of preparation and general information

The interim financial information is unaudited. This condensed consolidated interim financial information was approved by the Directors and authorised for issue on 31 December 2014.

The Company is a public limited liability company incorporated and domiciled in England. The address of its registered office is Castleton Technology plc ("Castleton"), Newton House, Cambridge Business Park, Cowley Road, Cambridge CB4 0WZ. The Company is listed on the AIM market of the London Stock Exchange.

This condensed, consolidated interim financial information for the six months ended 30 September 2014 does not comply with all the requirements of IAS 34, 'Interim financial reporting' as adopted by the European Union. The consolidated interim financial information should be read in conjunction with the annual financial statements of Castleton Technology plc (formerly Redstone plc) for the year ended 31 March 2014, which have been prepared in accordance with IFRS as adopted by the European Union.

This condensed consolidated interim financial information does not comprise statutory accounts within the meaning of section 434 of the Companies Act 2006. Statutory accounts for the year ended 31 March 2014 were approved by the Board of directors on 5 September 2014 and delivered to the Registrar of Companies. The report of the auditors on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under sections 498 (2) or (3) of the Companies Act 2006.

The Income Statement in respect of the six months ended 30 September 2013 has been re-stated to exclude the results of the discontinued businesses, and to align the accounting treatment of the gain on de-merger with that adopted in the financial statements for the year ended 31 March 2014.

Accounting policies

The accounting policies used in the preparation of the financial information for the six months ended 30 September 2014 are in accordance with the recognition and measurement criteria of International Financial Reporting Standards ("IFRS") as adopted by the European Union and are consistent with those which will be adopted in the annual statutory financial statements for the year ending 31 March 2015.

While the financial information included has been prepared in accordance with the recognition and measurement criteria of IFRS, as adopted by the European Union (EU), these financial statements do not contain sufficient information to comply with IFRS's.

Castleton Technology plc and its subsidiaries have not applied IAS 34, Interim Financial Reporting, which is not mandatory for UK AIM listed companies, in the preparation of this half-yearly financial report.

Integration and strategic costs

Strategic costs include the costs incurred in sourcing new acquisitions, identifying disposal opportunities, related restructuring and refinancing.

Integration costs are incurred by the Group when integrating one trading business with another. The type of costs include employment related costs of staff made redundant as a consequence of integration, due diligence costs, property costs such as lease termination penalties and vacant property provisions, third party advisor fees and rebranding costs.

Integration and strategic costs are disclosed on the face of the income statement, as management believe that they need to be considered separately to gain an understanding of the underlying profitability of the continuing trading businesses.

For further detail refer to note 4.

Going Concern

The consolidated interim financial information of Castleton has been prepared on the going concern basis.

The Directors have prepared detailed projections to March 2016 and the Board feels the Group will generate sufficient cash to both meet its debts as they fall due and fulfil its strategic objectives. The recent placing and associated exercise of the broker option in November 2014 raised £5.65 million in cash, of which £3.0m was used in the acquisition of Documotive. The additional cash will support the Group's working capital and provide funds for further acquisitions.

In addition to the cash at bank at the reporting date, the Group's balance sheet includes approximately £1.25 million of cash due from demerger/disposals, which is all due before 31 March 2015. Post-period end the Group received £0.9 million as settlement for the deferred cash consideration.

The Company is obligated to service the derivative until its maturity in September 2015. The gross liability under the derivative stands at £0.6 million.

Based on these facts, the Directors consider that the adoption of the going concern basis is appropriate.

The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group's accounting policies.

2 Business Combinations

On 20 June 2014 Castleton acquired 100% of the share capital of Montal, a specialist outsourced IT managed services business focused on the provision of tailored solutions to the public sector, for a total consideration of £3.83 million ("the Acquisition").

Total consideration £3.83 million was satisfied £3.04 million in cash and loan notes £0.79 million. The loan notes are repayable in 12 months and carry a coupon of 8 % per annum.

After the period end in November 2014, the loan notes issued for the acquisition of Montal were fully settled. MXC Capital's loan notes of approximately £0.6 million, being the consideration for MXC's holding in Montal, were settled early in cash.

The Acquisition was considered a related party transaction under AIM rules for companies on the basis that MXC Capital, a substantial shareholder in the Company representing the interests of Ian Smith, CEO of the Company, and Tony Weaver, Non-Executive Director, held 18 % of the ordinary share capital of Montal, being a portfolio investment made 12 months ago. The independent directors considered, having consulted with finnCap Limited, that the terms of transaction were fair and reasonable insofar as shareholders of the Company are concerned. MXC Capital Advisory LLP was not paid a fee by the Company in relation to the Acquisition. Montal engaged MXC Capital Advisory LLP to advise on its strategic options and paid it a success fee of £120,000 in relation to the Acquisition.

The Directors' assessment of the assets acquired and liabilities assumed has not been completed at the time of these interim results. The Directors have allocated provisional fair values in preparing these results.

From the date of acquisition to 30 September 2014, Montal recorded revenue of £1.9 million and a profit before taxation of £0.2 million. Assuming the combination had taken place at the beginning of the year, the interim reported revenue from Montal would have been £3.1 million and the profit for the year before taxation would have been £0.3 million.

3 Segment reporting

Operating segments are reported in a manner consistent with the internal reporting to the Chief Operating Decision Maker ('CODM'). The CODM has been identified as the Group Chief Executive and the Chief Financial Officer.

The Group Chief Executive and the Chief Financial Officer are jointly responsible for resource allocation and assessing the performance of the operating segments. The operating segments are defined by distinctly separate product offerings or markets. The CODMs assesses the performance of the operating segments based on a measure of adjusted EBITDA. This measurement basis excludes discontinued operations.

In the periods ending 30 September 2013 and 31 March 2014 the income generating segments had all been discontinued and the figures in the Income Statement and Balance Sheet are In respect of the central cost centre which was the only remaining segment in those periods.

Unaudited for the six months ended 30 September 2014

*earnings from continuing operations before interest, tax, depreciation, amortisation, integration and strategic costs and share-based payments.

4 Integration and strategic costs

In accordance with the Group's policy for integration and strategic costs the following charges were incurred:

5 Discontinued operations

Current Period

On the 31 August 2014 Castleton announced the sale of the trade and certain assets of its subsidiary Maxima Information Group Limited ("MIG"), being ABS, a proprietary software business, for a total cash consideration of £0.75 million. The consideration is payable as follows: £0.3 million upon sale, £0.3 million paid 30 September 2014, with the balance of £0.15 million due by 31 March 2015, subject to certain conditions being met including the continuation of certain customer contracts. Results for the period for discontinuing operations reflects the trading performance of ABS only, which is detailed below.

Prior Period

Comunica Holdings Limited ("Comunica") is the holding company of Redstone Converged Solutions Limited ("RCS"), the Group trading company that carried out the infrastructure solutions business. Comunica was sold on 21 November 2013 for a total cash consideration of £9.5 million.

The assets and liabilities attributable to Comunica are disclosed in the balance sheet as at 30 September 2013 as "held for sale", and comprise assets of £16.1 million and liabilities of £6.8 million. A £3.4 million impairment charge was made in respect of the goodwill held for sale within intangible assets. The impairment reduces the net assets held for sale to an amount equivalent to the net disposal proceeds.

The trading results of the discontinued business are reflected below:

6 Earnings per share

Basic earnings/loss per share and diluted earnings/loss per share are calculated using a weighted average number of shares of 623,717,357 (March 2014 and September 2013: weighted average number of shares of 622,689,960). 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:

There is no significant dilutive impact of the potential ordinary shares in any of the periods under review.

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

7 Net Cash flows from continuing operating activities

8 Subsequent events

Acquisition of Documotive

On 31 October 2014 Castleton announced the acquisition of 100% of the share capital of Documotive for £4.0 million, satisfied £3.0 million in cash and £1.0 million in convertible zero coupon loan notes. The loan notes are redeemable on the anniversary of the deal. The acquisition of Documotive was funded by a share placing which raised £5.65 million (before commission and expenses), including £0.15 million raised via the exercise of the broker option. This provided sufficient cash to satisfy the cash consideration for the Documotive acquisition and to settle the deal costs and also provides additional working capital to the Group.

Documotive is a document management software and scanning business focused on the social housing sector.

The Montal loan notes were fully settled in November 2014 by way of cash and equity.

A copy of the interim results can be found on the Company's website www.castletonplc.com.

By order of the Board

Advisers

Financial Adviser and Broker

FinnCap, 60 New Broad Street London, EC2M 1JJ

Auditors

Baker Tilly UK Audit LLP, Portland, 25 High Street, Crawley, West Sussex, RH10 1BG

Solicitors

Beechcroft LLP, 100 Fetter Lane, London, EC4A 1BN

Registrars

Capita IRG Plc, The Registry, 34 Beckenham Road, Beckenham, Kent, BR3 4TU

Principal Bankers

Barclays Bank plc, 54 Lombard Street, London, EC3V 9EX

Company Number

3336134

Further details can be found on the Castleton website at the following address: www.castletonplc.com