CTP.L Regulatory News (CTP)

4 July 2012

Redstone plc

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

Preliminary Results for the Year Ended 31 March 2012

Redstone plc (AIM:RED), the integrated ICT and Communications Solutions provider, today announces its preliminary results for the year ended 31 March 2012.

Highlights

§ Adjusted EBITDA* before central costs increased by £4.0 million to £6.5 million (10/11 £2.5 million)

§ Adjusted EBITDA* increased by £4.1 million or 379.4% to £5.2 million (10/11 £1.1 million)

§ Total Revenue increased by £0.1 million or 0.2% to £67.2 million (10/11 £67.1 million) in spite of continued difficult market conditions

§ Significant contract wins announced with cumulative revenues in excess of £55 million over the next five years

§ Operating Expenses (comprising selling & distribution costs and administrative expenses), including integration and strategy costs, decreased by £5.3 million or 14.3% to £31.6 million (10/11 £36.8 million)

§ A further £0.9 million of annualised cost savings identified and executed in Q3

§ Capital investment of £1.2 million lighting Solent MAN and in new shared service platform for cloud based services

§ Bank Borrowings reduced by £1.3 million or 10.4% to £10.8 million (10/11 £12.1 million). Gearing reduced to 44.3% (10/11 51.0%)

§ Extended banking facilities agreed post year end marking strength of banking relationship and underlying confidence in the business

Tony Weaver, Chief Executive of Redstone commented:

"The business has performed well when set against a very difficult market backdrop, all the more creditable considering that the predominately new sales team was in place for only part of a year in which we also implemented a new strategy. The strength of the Redstone brand carries credibility and authority in the market particularly in the financial services sector, where mission critical systems are routinely entrusted to the Group both on complex projects and continuing managed services.

The Company is successfully building an attractive and resilient recurring revenue base while improving its competitive offering including establishing a dedicated cloud services team to further leverage the investment in the core network and shared service platform. We also continue to win material and targeted project work which plays to Redstone's strengths. While the general economic outlook and consequently the marketplace for ICT spending remains uncertain the Board is encouraged by the growing market traction achieved in the year under the new strategy and which has continued into Q1 of FY2013."

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

Enquiries:

Redstone PLC

Full Year Report 2012

Chairman's Statement

Dear Shareholder

I am pleased to report the results of the Group for the year ended 31 March 2012, a year in which the tangible benefits of comprehensive restructuring undertaken in 2010/11 are well evident in the financial results and demonstrate that the Group now has a platform and strategy for future profitable growth.

In a difficult market Group revenue remained flat at £67.2 million (10/11 £67.1 million). Adjusted EBITDA* has, however increased to £5.2 million (10/11 £1.1 million) reflecting a stable gross margin of 46.6% (10/11 46.9%) and operating cost (aggregate selling, distribution and administrative costs) reductions of £5.2 million to £31.6 million (10/11 £36.8 million).

This substantial increase in adjusted EBITDA* has translated into a similar reduction in operating loss, from a reported £5.3 million operating loss in 10/11 to an almost break even £0.2 million loss in the current year.

In turn, the total loss for the year, is reduced by £9.4 million or 85.6% to £1.6 million (10/11 loss £11.0 million), as the impact of losses from discontinued businesses is reduced to £0.9 million (10/11 loss £5.1 million).

The Group has reduced bank borrowings further during the year to £10.8 million (10/11 £12.1 million) a reduction of £1.3 million or 10.4%. It is particularly pleasing to report that the Group generated £0.7 million in cash from operations, net of finance charges of £0.8 million and integration and strategic costs of £1.6 million. Resultant gearing, on enterprise value, is 42.3% as at 31 March 2012 (31 March 2011 51.0%).

It is important to note that whilst the major operational restructuring was completed by 31 March 2011, the Group was still assimilating the impact of the structural changes in the financial year. Therefore, whilst the results for the year to 31 March 2012 show a vast improvement on 2011, there is scope for further improvement. A continuing competitive cost base remains a priority and we keep our costs under regular review.

Bank and Equity Financing

The Group undertook a modest equity placing in August 2011, issuing 212 million new ordinary shares at a price of 1.25p, which raised approximately £2.4 million (net of expenses). The fundraising was significantly over subscribed and was conducted to provide funding to develop the Metropolitan Area Network ("MAN") in the Solent area, to further develop our shared service platform for Cloud based services, and to provide additional working capital. The Solent MAN became fully lit and operational in November 2011, Portsmouth City Council was connected as the first customer, and a strong business pipeline has been generated.

On 22 June 2012 the Group signed a new £15.5 million Revolving Credit Facility ("RCF") with Barclays Bank PLC on commercial terms. The granting of the new RCF marks the return to relationship banking following the comprehensive restructuring of the Group which was completed in 2011, during which the Bank played a crucial supportive role.

The new RCF replaces the existing term loan and overdraft facility, and extends available committed facilities for 3 years to 1 July 2015. This is a net extension of 18 months on the old facility and provides up to £2.4 million of additional funding which will provide further working capital headroom rather than increase core borrowing. The reduction of borrowings remains a key objective for the Group with cash generation of 50% of adjusted EBITDA targeted for 2012/13.

Fujin Systems Limited ("Fujin")

Fujin was acquired by the Group on 8 November 2010, for a total consideration of up to £2.9 million, dependent on the achievement of a minimum profit before tax of £560,000 in the year to 31 October 2011.

I am pleased to report that Fujin has exceeded the earn-out target in the year to 31 October 2011. Fujin's contribution to full year profits to 31 March 2012 was £0.6 million and the business continues to perform to expectations.

As a result, the maximum consideration of £2.9 million was paid to the former shareholders of Fujin, and satisfied as follows:-

·; £0.4 million paid in cash on completion in November 2010

·; £2.0 million by the issue of 224,719,100 new ordinary shares at an issue price of 0.89p in December 2011

·; £0.5 million paid in cash in December 2011

Employees and the Board

The reshaping of the Group and focus on re-alignment of the cost base has resulted in total employees reducing from 446 at the start of the year to a current headcount of 409. In difficult market conditions Redstone staff have shown considerable determination and commitment to the business and, on behalf of the Board, I would like to acknowledge and thank them for their efforts.

My predecessor Ian Smith had indicated in his Chairman's Statement dated 7 September 2011 that he would remain an executive director. However, as will be seen in the accompanying results for the year to 31 March 2012, the business has made great progress during Ian's tenure, and on reflection Ian felt, with the Board's support, that continuing as a non-executive director was a more appropriate and cost-effective position for the Company.

Outlook

The economic outlook remains fragile on a macro level, with continued uncertainty as to how significantly the euro-zone debt crisis will ultimately impact UK business.

However, despite the difficult market conditions, and as demonstrated by these results, we have re-established Redstone as a sound and stable business and have protected and maintained the strength of our brand with our clients. Our balance sheet is strong and we are fortunate to have established relationships and credentials with a resilient and largely blue chip client base. We will continue to expand the capabilities of our core network to ensure we are at the forefront of the expected growth in cloud based shared services.

Redstone is therefore well positioned to compete in the current market and continue the progress made in the recently finished financial year and which has continued into Q1 of FY2013.

Richard Ramsay

Non-Executive Chairman

4 July 2012

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

Redstone PLC

Full Year Report 2012

Chief Executive's Review

Business Development

The business continues to establish and develop its position as the leading mid-market provider of network based end-to-end managed services, technology and infrastructure solutions, by delivering customer applications over leading edge technologies across Redstone's own high speed resilient network.

During the year, targeted and selective recruitment has increased the sales team to a full complement of 26 Full Time Employees by 31 August 2011, a team we regard as "best in class" in our areas of expertise. The sales team present Redstone as a single brand and marketed entity, showcase all the capabilities of the Group to the customer, and are no longer restricted to divisional denominated product sets. The majority of the sales team has relocated to new, designed for purpose, office premises in the City of London, which also provides first class demonstration facilities for existing and new clients.

The progress made in re-establishing a vibrant and cohesive sales presence is evidenced by the following contract wins:

·; 23 June 2011, £1.5 million new contract to deliver structured cabling to a major international bank

·; 27 June 2011, £10 million 4 year contract extension with a major customer in the financial sector to provide managed services, including the use of Redstone's proprietary software for the customer's critical IT Infrastructure

·; 29 September 2011, £21.9 million contract with a leading UK Bank for the design, and delivery of a new mission critical Data Centre over a period of 12 months to November 2012

·; 13 October 2011, preferred bidder on £10.2 million contract to deliver a Managed Wide Area Network over 5 years to a new customer over 1,900 sites across the UK and Ireland. Full roll out is expected to commence in early 2012 on completion of the pilot programme currently in progress

·; 27 June 2012 a £15 million 3 year renewal with a major international financial services client to provide managed services across critical IT infrastructure throughout the UK

The above contract wins not only evidence the momentum that the sales team are building within the business but also prove that Redstone remains a trusted partner of sophisticated global institutions and retains the high degree of expertise required to design, deliver and manage complex and sensitive IT infrastructure installations in a competitive market.

Operational Capability

Redstone has continued to invest in its core network and also to selectively develop new capability which enhance or complement the existing product set.

On 22 July, we advised shareholders that we had plans to bring our Metropolitan Area Network ("MAN") in the Solent area into service, and wished to fund the investment required as part of a new equity raise of £2.4 million (net of expenses), which concluded in August 2011, to provide funds in order to develop the Solent MAN and to provide working capital to support the company's growth.

We completed the work required to bring the Solent MAN into operational service in November 2011. The Solent MAN comprises approximately 44.5 km of fibred ducting in the Portsmouth and Fareham area, comprising 17 carriageway and 241 footway boxes. The historic cost investment in this MAN was £4.9 million, with a current Net Book Value of £0.1 million. A further 10.0 km of fibred ducting in Southampton remains unlit.

Portsmouth City Council was signed up as the first customer connected to the Solent MAN. Redstone is providing all schools across Portsmouth with super-fast internet connectivity, critical to effective learning at half the previous cost to the Council. The Company also has significant fibre assets in Southampton and we are now investigating the feasibility of lighting this fibre to provide bandwidth and geographic reach to the Solent MAN.

Enhancement of our Cambridge MAN continues as we make additional new generation services such as IaaS (Infrastructure as a Service), SaaS (Software as a Service) and DdoS (Distributed Denial of Service) protection live and available. The roadmap of services to be added to the platform is in continuous development.

In addition, and complementary to the enhanced MANs and development of the core network we have recently completed a fourth data centre in Hertfordshire, leased within an existing tier III data centre. This new data centre provides both the capacity to support the expansion of our "cloud" services offering, and greater resilience for mission critical services provided to existing customers.

The new data centre is a showcase for Redstone's data centre expertise. We have built world class data centres for some of the world's largest financial institutions and to date have lacked a showcase to demonstrate our capability, in conjunction with our technology partners.

The new data centre is PCI (Payment Card Industry) and FSA compliant, is energy efficient and protected with the latest biometric security. This facility joins our three existing data centres in Cambridge, London and the Netherlands.

In addition to enhancing the asset base for the shared service platform, the business has invested operating expenses of £0.3 million in the year, in the formation of a dedicated cloud services management team. In profitability terms the team achieved break even in its first year, and have generated a strong pipeline of opportunities and leads going into the new financial year.

Trading & Profitability

Whilst the financial highlights are covered in detail in the CFO's Financial Review, I am particularly pleased to report a £4.1 million or 379.4% increase in adjusted EBITDA* to £5.2 million (10/11 £1.1 million) on maintained levels of trading in a difficult market and through significant cost reduction arising from last year's comprehensive restructuring and continuous realignment of costs.

Group revenue increased by £0.1 million or 0.2% to £67.2 million (10/11 £67.1 million), with an increase of £2.7 million or 8.9% in project revenue offset by a £2.6 million or 6.9% decrease in annuity revenues.

Project revenue in the year was boosted by early commencement of the first two phases of the £21.9 million project for a mission critical data centre for a leading UK Bank, representing approximately 50% of the total project.

In contrast, the Campus managed service business suffered a 17.6% fall in revenues as a result of reduced levels of discretionary activity witnessed across multiple clients as the Banks reined in internal operating costs, which particularly affected activity in Q3 FY2012. However, this appears to have been a temporary precaution as activity in Q1 FY2013 has returned to normalised levels.

Network connectivity and cloud services increased revenue by 16.9% in the year and continue to perform strongly and remain a priority growth engine for the business. The Cambridge MAN was a key contributor in this business and the business pipeline for the Solent MAN is growing strongly since becoming operational in late November 2011.

Gross profit decreased marginally by £0.2m to £31.3 million (10/11 £31.5 million) with margins at 46.6% (10/11 46.9%). The slight margin dilution was principally due to the cabling projects business, where margins fell from 34.1% to 30.2% due to a higher proportion of large individual projects. Margins in the annuity business grew strongly from 57.6% to 59.8%, producing a £0.3 million increase in gross profit on lower revenue. The growth was predominately due to increasing high margin network connectivity and cloud services and efficiency savings in delivery arising from restructuring.

Operating costs (selling, distribution and administrative costs) of £31.6 million (10/11 £36.8 million) have decreased by £5.3 million or 14.3%, evidencing the beneficial impact of restructuring last year and continuing re-alignment of costs during the current year, including measures implemented in Q3 to realise a further £0.9 million of annualised savings.

Operating adjusted EBITDA* (before central costs) was £6.5 million (10/11 £2.5 million) an increase of £4.0 million or 157.2%. Adjusted EBITDA* attributable to project and annuity business again both increased by 183.1% and 143% respectively.

The resilience of the restructured business is particularly demonstrated by the adjusted EBITDA* contributed by the core annuity business (comprising Connectivity, Campus and Hardware Maintenance), which achieved adjusted EBITDA* of £4.0 million (10/11 £1.6m) an increase of £2.3m or 143%, and representing 61.0% of total adjusted EBITDA before central costs.

These are recurring earnings, and evidence the solid base on which the Group's growth strategy will continue to be focussed.

Outlook

The business has performed creditably in a very difficult market, and with a predominately new sales team and strategy. The strength of the Redstone brand carries credibility and authority in the market and particularly in the financial services sector, where mission critical systems are routinely entrusted to the Group both on material and complex projects and continuing managed services.

The Company is successfully building an attractive and resilient recurring revenue base while improving its competitive offering including establishing a dedicated cloud services team to further leverage the investment in the core network and shared service platform. We also continue to win material and targeted project work which plays to Redstone's strengths. While the general economic outlook and consequently the marketplace for ICT spending remains uncertain the Board is encouraged by the growing market traction achieved in the period under the new strategy and which has continued into Q1 of FY2013.

Tony Weaver

Chief Executive

4 July 2012

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

Redstone PLC

Full Year Report 2012

Financial Review

Segment Reporting

The operating segments have been re-defined in these financial statements, as announced in the CEO's report to shareholders dated 7 September 2011 and which accompanied the accounts for the year ended 31 March 2011.

The Group now segments the business performance between recurring "Annuity" business (comprising campus based managed services, connectivity and cloud services and hardware maintenance), non-recurring "Project" business (comprising cabling, ICT projects, equipment sales and consulting services) and "Central Costs".

As a result of this change the comparatives for 10/11 have been restated.

Revenue

Group revenue increased by £0.1 million or 0.2% to £67.2 million (10/11 £67.1 million), with an increase of £2.7 million or 8.9% in project revenue offset by a £2.6 million or 6.9% decrease in annuity revenues.

Revenue growth in the projects business was driven by early commencement of the first two phases of the £26.1 million data centre cabling contract for a leading UK bank. The increase in cabling revenues offset contraction in the ICT projects business which suffered from the rebuilding of the sales team which only reached full complement in August 2011. However, the new sales team had established a strong pipeline going into the new financial year.

The fall in annuity revenue was principally driven by low levels of discretionary activity during Q3 in the Campus managed services business, where many banks acted to reduce discretionary expenditure. However, discretionary activity returned to more normal levels in Q4 FY2012 and Q1 of the new financial year. Revenue growth of 16.9% was achieved in network connectivity and cloud based services.

The project/annuity revenue split for the year was 48%:52% (10/11 46%:54%).

Gross Profit

Gross profit decreased by 0.5% or £0.2 million to £31.3 million (10/11 £31.5 million), with gross margin declining to 46.6% (10/11 46.9%).

Gross profit decreased by £0.5 million to £10.0 million (10/11 £10.5 million) in the projects business, with a gross margin of 30.5% (10/11 33.2%). The decrease in gross profit was principally driven by lower ICT project revenue due to the absence of a full complement sales team for most of the year and a low pipeline carried forward from last year. The decrease in overall project gross margin was mainly attributable to a high proportion of larger, lower margin cabling contracts in the project business, which adversely affected margin mix.

However, gross profit increased by £0.3 million to £21.3 million (10/11 £21.0 million) in the annuity business on lower revenue, with a gross margin of 59.8% (10/11 57.6%). The increase in gross margin was predominately due to a push to high margin network connectivity and cloud services, where gross profit increased by £1.5 million; and efficiency savings in delivery arising from restructuring together offset the fall in campus managed services revenue. 

Overall margin mix has improved slightly, with higher gross margin annuity business accounting for 68% of total gross profit (10/11 67%).

Operating Expenses

Operating expenses (comprising selling and distribution costs and administrative expenses) including integration and strategy costs, decreased by £5.3million or 14.3% to £31.6 million (10/11 £36.8 million).

The £5.3 million decrease in operating expenses includes a £0.5 million decrease in integration and strategic costs to £1.6 million (10/11 £2.1 million) and a £0.5 million decrease in aggregate depreciation & amortisation of intangibles. The Group further reduced the cost base during Q3, realising a further £0.9 million of annualised cost savings.

The underlying decrease in operating expenses excluding integration and strategy costs and aggregate depreciation and amortisation of intangibles is £4.3 million reflecting the realisation of cost savings arising from last year's restructuring, together with further annualised savings identified in the current year relating to the final stages of integration of the residual businesses and sensible cost re-alignment.

Adjusted EBITDA* and Profitability

Adjusted EBITDA* for the year was £5.2 million (10/11 £1.1 million) an increase of £4.1 million or 379.4%.

Operating adjusted EBITDA* (before central costs) was £6.5 million (10/11 £2.5 million) an increase of £4.0 million or 157.2%. Adjusted EBITDA* attributable to the project and annuity businesses was £2.5 million and £4.0 million (10/11 £0.9 and £1.6 million) respectively, representing increases of 183.1% and 143.0% respectively.

The Project/Annuity adjusted EBITDA* split for the year is 39.0%:61.0% (10/11 35.4%:64.6%). The 10/11 split was affected by historically low levels of project business.

Central costs remain unchanged at £1.3 million (10/11 £1.4 million) and represent the current run rate of the business. Central costs are perpetually under review.

Integration and strategic costs amounted to £1.6 million (10/11 £2.1 million), and mainly comprise redundancy payments and employment related costs of staff made redundant as a consequence of integration, cost review and re-alignment.

The 10/11 integration and strategic costs of £2.1 million included a credit of £1.2 million in relation to the settlement of the loan from Eckoh plc, where the original loan of £2.7 million was settled by a cash payment of £0.5 million and the issue of new Ordinary shares at a value of £1.0 million. In addition, there were exceptional costs relating to redundancies and professional fees arising from restructuring amounting to £3.3 million.

The resulting operating loss of £0.2 million (10/11 loss £5.3 million) have been reduced by 95.9%.

Net finance costs amounted to £1.4 million (10/11 £1.2 million). The charge for the period includes £0.9 million of interest on bank borrowings (10/11 £1.0 million), a £0.2 million fair value write down on the interest rate swap (10/11 £0.3 million credit) and amortisation of finance charges incurred on refinancing of £0.2 million (10/11 £1.0 million). Net finance costs attributable to loan notes were £nil (10/11 £0.9 million credit).

The resulting loss before taxation is £1.6 million (10/11 loss £6.6 million), a reduction of £5.0 million or 75.7%. The tax credit for the period of £0.9 million (10/11 £0.7 million) arises predominately from the reduction in deferred taxation liabilities in line with amortisation of intangible assets recognised on acquisition.

The resulting loss for the period from continuing operations is therefore £0.7 million (10/11 loss £5.9 million), a reduction of £5.2 million or 88.2%.

Discontinued Operations

The loss for the period from discontinued operations amounted to £0.9 million (10/11 loss £5.1 million). The loss predominately arises from the write off of loan notes totalling £0.4 million outstanding from the disposal of the security business of Redstone Managed Security Limited in December 2010, and a £0.3 million provision for losses arising from a contractual liability attributable to the discontinued and disposed Avaya business.

The security business incurred significant losses following disposal by Redstone last year and has subsequently been acquired by a third party in the current financial year. It is prudent therefore to provide against the remaining loan notes, which represent operating costs incurred by Redstone on behalf of the purchaser in the period between exchange and completion last year.

The Avaya contract liability arises with a current client of the continuing project business, where the Avaya content of work undertaken in prior years requires reparation.

Overall Result for the Period

The net loss for the period from continuing and discontinued operations is £1.6 million (10/11 loss £11.0 million), a decrease of 85.6%.

Adjusted basic loss per share has decreased by 0.36p or 94.7% to a loss per share of 0.02p (10/11 loss of 0.38p).

Cash Flow

Cash generated from continuing operating activities before integration and strategic costs is £3.4 million (10/11 £2.5 million). This was made up of cash inflow from trading activity of £4.9 million (10/11 £1.8 million) offset by an increase in working capital of £1.5 million (10/11 decrease £0.7 million).

Integration and strategic costs absorbed £1.8 million of cash (10/11 £2.9 million), and largely comprises redundancy and related employment costs of employees made redundant as part of the reorganisation executed in the last quarter of 10/11 and continuing realignment of costs in the current year.

£0.8 million of cash was consumed by net finance charges, a reduction of £0.7 million or 44.9% on 10/11. The decrease reflects the reduction in average borrowings during the year compared to 10/11, and the absence of interest charged in respect of deferred VAT & PAYE liabilities (10/11 £0.3 million).

Discontinued operations were cash neutral in the period (10/11 outflow £2.9 million).

Cash flows from investing activities amounted to an outflow of £1.9 million 10/11 inflow £1.5 million) comprising the purchase of tangible and intangible assets of £1.4 million (10/11 £1.5 million), cash consideration for the acquisition of Fujin £0.5 million (10/11 £0.6 million) and inflows from the sale of business operations £nil (10/11 £3.7 million).

Net proceeds of issue of shares pursuant to the refinancing detailed earlier in this report amounted to £2.4million (10/11 £8.0 million). Repayment of borrowings amounted to £0.8 million (10/11 £5.6 million). Net proceeds from financing activities therefore amounted to £1.7 million (10/11 £2.4 million).

The resulting net increase in cash and cash equivalents amounted to £0.6 million (10/11 decrease £1.0 million).

Borrowings and Bank Facilities

Total borrowings (net of cash and cash equivalents) amounted to £10.8 million (31 March 2011 £12.1 million) a decrease of 10.4% or £1.3 million.

Resultant gearing based on enterprise value (the aggregate of total equity and total borrowings) is 42.3% (31 March 2011 51.0%) arising from reduced borrowings and increase in the total equity to £14.8million (31 March 2011 £11.6 million).

On 22 June 2012 the Group signed a new £15.5 million Revolving Credit Facility ("RCF") with Barclays Bank PLC on commercial terms. The granting of the new RCF marks the return to relationship banking following comprehensive restructuring of the Group which was completed in 2011, during which the Bank played a crucial supportive role.

The new RCF replaces the existing term loan and overdraft facility, and extends available committed facilities for 3 years to 1 July 2015. This is a net extension of 18 months on the old facility and provides up to £2.4 million of additional funding which will provide further working capital headroom rather than increase core borrowing.

The RCF has fixed repayment terms culminating in a bullet payment of £10 million at the end of its term on 1 July 2015. The reduction of borrowings remains a key objective for the Group with cash generation of 50% of adjusted EBITDA targeted for the 2012/13.

In addition the Group has the ability to raise capital lease or hire purchase finance in the ordinary course of business to a maximum of £3.0 million.

Equity

Total equity has increased by £3.2 million to £14.8 million (31 March 2011 £11.6 million). The increase comprises an equity placing of £2.4 million (net of expenses), £2.0 million of deferred consideration shares issued for the acquisition of Fujin and equity based payments of £0.2 million, and a £0.2 million revaluation surplus on the Cambridge MAN, offset by the net loss for the period of £1.6 million.

The equity placing was made in August 2011, when 212 million new ordinary shares were issued at a price of 1.25p per share, raising approximately £2.65 million. The fundraising was significantly over subscribed and was conducted to provide funding to develop the Metropolitan Area Network ("MAN") in Portsmouth and to provide additional working capital.

Fujin was acquired by the Group on 8 November 2010, for a total consideration of up to £2.9 million, dependent on the achievement of a minimum profit before tax of £560,000 in the year to 31 October 2011. As a result, the maximum consideration of £2.9 million became payable to the former shareholders of Fujin and included £2.0 million of consideration satisfied by the issue of 224,719,100 new ordinary shares at an issue price of 0.89p in December 2011.

The balance sheet as at 31 March 2012, combined with the new £15.5 million RCF extended to 1 July 2015 places the Group in a strong financial position.

Peter J Hallett

Chief Financial Officer

4 July 2012

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

Consolidated Income Statement

for the year ended 31 March 2012

*Earnings before net finance costs, tax, depreciation, amortisation, integration and strategic costs, goodwill impairment and share-based payment charges.

Consolidated Statement of Comprehensive Income

Consolidated Balance Sheet

as at 31 March 2012

Registered number 3336134

Consolidated Statement of Changes in Equity

for the year ended 31 March 2012

(a) Merger reserve

The merger reserve resulted from the acquisition of Redstone Communications 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) Revaluation reserve

The Directors have revalued the metropolitan area network assets (MANs) residing in the property plant and equipment. This is permitted under IAS 16 where the value attributed to an asset is less than its fair value.

Fair value of the MANs has been established by the discounting of the cash flow of future income arising from the asset. The current operational MANs owned by the Group are the networks in Cambridge and Portsmouth. The Portsmouth ring only became operational during the year and the directors have valued this at cost in this annual report.

The effective date of the revaluation is 31 March 2012 and the principal assumptions used in the valuation model were as follows:

·; Annualised value of the current contract base £1.6 million per annum

·; Annual revenue growth - years 1-2, 20% ; years 3-4, 5% ; thereafter 2.5%

·; Discount rate applied to cash flows - 15%

·; The future pricing of contracts is based on the average value of current contracts in the base.

The fair value of the revalued assets was established at £5.65 million, resulting in a total non-distributable revaluation surplus of £4.85 million as at 31 March 2012, an increase of £0.15 million in the year to 31 March 2012.

The carrying amount that would have been recognised had the asset continued to be carried under the cost model was £0.8 million at 31 March 2012.

Consolidated Cash Flow Statement

for the year ended 31 March 2012

Notes to the Consolidated Financial Statements

year ended 31 March 2012

1 Accounting policies - Group

Redstone plc is a public limited company incorporated and domiciled in England and Wales, whose shares are publicly traded on the AIM division of the London Stock Exchange. The principal accounting policies, which have been applied consistently throughout the year and by all subsidiary companies, are set out below:

1.1 Basis of preparation

The consolidated financial statements of Redstone plc 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 land and buildings, financial assets and financial liabilities (including derivative financial instruments) at fair value through profit or loss. Certain elements of network infrastructure are recognised at fair value.

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 the continuing support of its bankers by providing adequate overdraft facilities and of its debt holders and shareholders. During the year the Group has raised further equity finance and subsequent to the year end it has completed an extension of its banking facilities until 1 July 2015. The nature of the Group's business is such that there can be considerable variation in cash inflows, and the timing thereof. Whilst this adds risk to the Groups ability to forecast cash and in the current economic environment there can be no absolute certainty that the Group will achieve its EBITDA forecasts, the present cash flow forecasts indicate that the Group will be able to operate within the present overdraft facilities for at least 12 months from the date of approval of these financial statements. For these reasons the Directors believe the going concern basis to be 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.

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) 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 12 months following the date of acquisition. The financial statements of the subsidiaries are prepared for the same reporting year as the parent company.

Any contingent consideration to be transferred by the group is recognised at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration that is deemed to be an asset or liability is recognised in accordance with IAS 39 either in profit or loss or as a change to other comprehensive income. Contingent consideration that is classified as equity is not remeasured, and its subsequent settlement is accounted for within equity.

All inter-company balances and transactions are eliminated in full.

1.3 Revaluations

From 31 March 2011, metropolitan area networks were carried at revalued amounts. Revaluations are carried out every year to ensure that the assets are carried at fair value at the balance sheet date. Revaluation surpluses that arise are taken directly to the revaluation surplus in equity, except to the extent that they reverse a revaluation decrease for the same asset previously recognised as an expense, in which case the surplus is credited to the income statement to the extent of the decrease previously charged. A decrease in carrying amount arising on the revaluation of an asset is charged as an expense to the extent that it exceeds the balance, if any, held in the asset's revaluation surplus relating to a previous revaluation of that asset. On the subsequent sale or retirement of a revalued asset, the attributable revaluation surplus in the reserve is transferred to retained earnings.

1.4 Integration and strategic costs

Strategic costs include the costs incurred in sourcing new acquisitions, identifying disposal opportunities which did not take place, related restructuring and refinancing. Integration costs are incurred by the Group when integrating one trading business into another. The types 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.

Both of the above costs are highlighted separately on 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.

1.5 Discontinued operations

Cash flows and operations that relate to a major component of the business or geographical region that has been sold or is classified as held for sale are shown separately from continuing operations.

Assets and businesses classified as held for sale are measured at the lower of carrying amount and fair value less costs to sell.

Assets and businesses are classified as held for sale if their carrying amount will be recovered or settled principally through a sale transaction rather than through continuing use. This condition is regarded as being met only when the sale is highly probable and the assets or businesses are available for immediate sale in their present condition or is a subsidiary acquired exclusively with a view to resale. Management must be committed to the sale, which should be expected to qualify for recognition as a completed sale within one year from the date of classification.

Finance income or costs are included in discontinued operations only in respect of financial assets or liabilities classified as held for sale or derecognised on sale.

2 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 resources allocation and assessing the performance of the operating segments. The operating segments are defined by distinctly separate product offerings or markets. The directors have changed the way they view the segments of the group from divisional entities to project and annuity activities and central costs. The following tables present information on revenue, profit and certain assets and liabilities in respect of the Group's business segments for the years ended 31 March 2012 and 2011.

(a) For the year ended 31 March 2012

* Earnings and operating costs before net finance costs, tax, depreciation, amortisation, goodwill impairments, integration and strategic costs and share-based payment charges.

Inter-segment revenues are accounted for on the same basis as third party transactions.

Included in the central segment assets are £0.2 million of property, plant and equipment (2011: £0.7 million), £0.2 million of intangible assets (2011: £0.3 million) and prepayments and other receivables of £0.2 million (2011: £0.6 million).

Included in the central segment liabilities, are the Group's Barclays' borrowings at 31 March 2012 of £10.7 million (2011: £12.3 million), provisions £0.9 million (2011: £1.0 million), accruals and other payables £1.9 million (2011: £3.1 million) and derivative financial instrument of £1.8 million (2011: £1.5 million).

No single customer represented 10% or more of the Group's revenue and the Group are not overly reliant on a single customer.

All revenue is earned and all assets are held within the UK.

Redstone has two operating divisions, namely Converged Solutions and Managed Solutions. All divisions operate within the UK. In addition there is a Central division including back office functions and executive management to support the Group. The divisions deliver independent products and services.

Redstone Converged Solutions is a provider of converged IP based solutions, with expertise in data and contact centres, voice and video, IP networks, intelligent building 10neNET and security. The division has recognised expertise in providing solutions to the banking and finance sector and is also experienced in providing solutions to businesses and organisations in the health, education, local government, retail, finance, energy, media and transport sectors. The division provides both project based and annuity based services.

Redstone Managed Solutions delivers a comprehensive portfolio of network management and internet services for businesses and public sector organisations. Solutions and services include server and desktop deployment, application development, hosting and co-location, network and system management, internet service provision and consultancy. The division provides predominately annuity based services.

(b) For the year ended 31 March 2011 (restated)

* Earnings and operating costs before net finance costs, tax, depreciation, amortisation, goodwill impairments, integration and strategic costs and share-based payment charges.

3 Integration and strategic costs

In accordance with the Group's policy of integration and strategic costs the following charges/(credits) were incurred for the year:

Note (a)

The Group agreed a settlement in relation to the Eckoh loan of £2.7 million. Eckoh was paid £0.5 million in cash and received 200,000,000 Ordinary Shares in consideration for waiving all sums due under the loan. This resulted in a gain of £1.2 million.

4 Trade and other receivables

The Group had a number of contracts in progress as at the year ended 31 March 2011 and 2012. The aggregate amount of costs incurred for contracts in progress at the year end were £25.1 million (2011: £16.5 million). The aggregate amount of recognised profits (less recognised losses) for contracts in progress at the year end was £3.8 million (2011: £2.2 million).

As at 31 March 2012, trade receivables of £0.1 million (2011: £0.4 million) were impaired and fully provided for. The quality of trade receivables can be assessed by reference to the historical default rate of £122,348 (2011: £102,000) for the preceding 365 days at 1.2% of the opening trade receivables balance (2011: 0.7%). The carrying value of trade receivables that would otherwise be past due or impaired but whose terms were renegotiated were nil (2011: nil). The individually impaired receivables relate to receivables over 365 days, customers in financial difficulty, customer acceptance issues and cancelled contracts.

As at 31 March 2012, trade receivables of £5.6 million (2011: £3.8 million) were past due but not impaired. In the table below, these comprise the receivables over 30 days, which relate to a number of independent customers for whom there is no recent history of default. The ageing analysis of net trade receivables is as follows:

In calculating the amounts above, the bad debt provision has been allocated based on aging, by allocating the provision to the oldest balances first. The provision is calculated by local management in each division on a specific basis based on their best estimate of recoverability taking into account the age and specific circumstances relating to the debtor. The maximum exposure to credit risk at the reporting date is the fair value of each class of receivable mentioned above. The Group does not hold any collateral as security. The carrying amounts of the Group's trade and other receivables are denominated in pounds.

 Movements on the Group provision for impairment of trade receivables are as follows:

The creation and release of a provision for impaired receivables has been included in 'administrative expenses' in the income statement. Amounts charged to the allowance account are generally written-off, when there is no expectation of recovering additional cash.

The other asset classes within trade and other receivables do not contain impaired assets.

5 Trade and other payables

6 Borrowings

Current

Non-current

As at 31 March 2012, arrangement fees of £74,000 (2011: £116,000) are included within borrowings.

Bank loan and overdrafts

Subsequent to the year end The Group has amended the terms of its existing senior debt facilities with Barclays Bank PLC to effect the following key changes:

·; an extension of the final repayment date to 1 July 2015;

·; a consolidation of the overdraft and term loan facilities into a revolving credit facility of £15.5 million;

·; restructuring of the various fees payable in respect of the facilities;

·; a variation to the financial covenants including a change from quarterly to bi annual testing for the cash flow covenant.

At 31 March 2012 the Group held a total facility with Barclays Bank PLC of £13.2 million (2011 £14.0 million). This was a structured facility with a term loan of up to £5.2 million (2011: £6.0 million) and an overdraft facility of £8.0 million (2011: £8.0 million). As at 31 March 2012, the amount outstanding was £11.1 million (2011 £12.2 million).

The term loan could be repaid in whole or in part (if in part a minimum of £200,000 and an integral multiple of £50,000). The term loan and overdraft facilities carried interest charged at a rate based on a margin above LIBOR. The margin was 2% at the year end. The borrowing facilities are subject to certain financial and non-financial covenants, and are secured on the assets of the Group. The undrawn borrowing facility at 31 March 2012 was £2.5 million (2011: £1.8 million).

All bank loans are denominated in UK Pounds Sterling.

Fair value of current and non-current borrowings

The carrying amounts and fair value of the current and non current borrowings are as follows:

Fair values are based on discounted cash flows, using a rate based on the borrowing rates at 31 March 2012 and 2011 as per the table below.

The effective interest rate based on average forecast borrowings is:

7 Net cash flows from continuing operating activities