31 Dec 2013 07:00
31 December 2013
Castleton Technology PLC (formerly Redstone plc)
("Castleton", "the Company" or "the Group")
Unaudited Interim Results for the six months ending 30 September 2013
Castleton Technology plc (AIM:CTP), the software and consultancy business, today announces its interim results for the six months ended 30 September 2013.
Highlights
§ Results reflect the demerger of the network based managed services businesses , and the later disposal of the ICT infrastructure, data centre and smart buildings solutions business of Comunica Holdings Limited ("Comunica") on 21 November 2013
§ Comunica sold to Coms PLC ("Coms") for total cash consideration of £9.5 million with £7.65 million of cash paid at completion and £1.85 million deferred for twelve months
§ Name changed to Castleton Technology PLC from Redstone PLC on the disposal of Comunica inclusive of all Redstone trademarks and intellectual property
§ Results of continuing operations reflect only the trading performance of the continuing software support and consultancy business
§ Adjusted EBITDA* before central costs of £0.4 million (2012 H1 £Nil)
§ Adjusted EBITDA* of £0.1 million (2012 H1 Loss £0.3 million)
§ Group net borrowings of £4.2 million (2012 £1.6 million). All borrowings repaid subsequent to the period end following the disposal of Comunica, returning the Group to a net cash position of approximately £3.0 million immediately on disposal
§ Group now set to seek new opportunities in the technology sector
David Payne, Chairman of Castleton commented:
"The disposal of Comunica presents a good opportunity for the Company, led by an experienced management team, to seek opportunities to maximize the value of the remaining trading businesses in order to generate higher returns for investors, which may include strategic acquisitions within the technology sector. The net cash position will be invested for these purposes."
*Before net finance costs, tax, depreciation, amortisation, integration & strategy costs and share based payments
Enquiries:
Castleton Technology plc Ian Smith, Chief Executive Peter Hallett, Chief Financial Officer | Tel. +44 (0)845 034 1111
|
finnCap Charlotte Stranner/Ben Thompson
MXC Capital Advisory LLP Marc Young | Tel. +44 (0)20 7220 0500
Tel. +44(0)20 7965 1849 |
Newgate Threadneedle Josh Royston / Hilary Millar | Tel. +44 (0)20 7653 9850
|
13/14 Interim Results
Chairman's Statement
Dear Shareholder
I am pleased to report the results of the Group for the six months ended 30 September 2013.
Background and Basis of Results
The results reflect the demerger of the Company's network based managed services business ("the Managed Services Business") to a new AIM listed Company, Redcentric plc ("Redcentric") on 8 April 2013 ("the Demerger"), and the subsequent disposal of the ICT infrastructure, data centre and smart buildings solutions business (the "Infrastructure Solutions Business") of Comunica Holdings Limited ("Comunica") on 21 November 2013 (the "Disposal") for a total cash consideration of £9.5 million, of which £7.65 million was paid at completion with the balance of £1.85 million deferred for twelve months.
Disposal of Comunica & Change of Name
Comunica is the holding company of Redstone Converged Solutions Limited ("RCS"), the Group trading company that carried out the infrastructure solutions business. Whilst the Directors believed a considerable opportunity existed to develop and grow this business, though the opportunity could be best exploited if the business was part of a larger, communications focused business.
The acquirer, Coms plc ("Coms"), is an AIM listed provider of cloud-based telephony services over the internet and mobile devices to customers and, enlarged by Comunica, will be well positioned to benefit from a broader product offering and as an end to end supplier of business critical communications services.
Your 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.
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 has been made in respect of the goodwill held for sale. The impairment reduces the net assets held for sale to an amount equivalent to the net Disposal proceeds.
The assets held for sale exclude the cash in the disposed business as this was retained by Castleton in accordance with the terms of the sale agreement.
Demerger of the Managed Services Business
Following a strategic review of options for maximising shareholder value, the Board did not believe that the market would fully value the attributes of the Managed Services Business whilst it was combined with the Infrastructure Solutions Business. Furthermore it was the opinion of the Board that the two businesses were less likely to maximise their potential performance if they continued to be operated as part of one Group. The Board therefore concluded that a demerger of the Managed Services Business was in the best interests of the Company and would deliver additional value to shareholders over time.
A capital reduction was required in Redstone to effect the Demerger by way of dividend in specie.
In order to do this, an application was made to the Court under Part 17, Chapter 10 of the Companies Act 2006, for a cancellation of the Company's deferred shares, share premium account, and capital redemption reserve and a proposed 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, in order to undertake a share consolidation on a 1 for 8 basis ("the Application").
On 4 March 2013 shareholders approved terms for the Demerger, and the capital reduction. The Court subsequently approved the Application on 27 March 2013 and on 8 April 2013, the Demerger became effective.
The Demerger was effected by the declaration of a special dividend in the Company, equal to the book value of the Company's interests in the Managed Services Business. The dividend was satisfied, in specie, by the transfer by the Company to Redcentric of the shares in Redcentric Holdings Limited, a new wholly owned subsidiary of the Company which was formed as a vehicle to hold the interests of the consolidated Managed Services Business (prior to the Demerger).
In return for this transfer, Redcentric issued ordinary shares to shareholders registered on the Company's share register at 5.00 pm on 5 April 2013 on the basis of one Redcentric ordinary share for every 10 new ordinary shares in the Company (post consolidation and reduction of capital) then held. Shareholders continued to hold their existing shares in the Company (as consolidated and following the subsequent reduction of nominal value pursuant to the reduction of capital). Immediately following the Demerger, each shareholder held substantially the same percentage of new ordinary shares in the Company and Redcentric ordinary shares.
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 (before commission and expenses) by way of an equity placing of 75 million new ordinary shares in the Company at a price of 8p per share (this price did not reflect the effect of theDemerger and subsequent reduction in capital but was reflective of the associated share consolidation).
Results
Consequently, these results focus on Castleton as a technology company engaged in software support and consultancy as continuing operations. The results of the demerged and disposed businesses are included within discontinued operations.
The continuing business is now made up of two distinct software consultancy businesses which were originally acquired as part of the Maxima Holdings plc acquisition in November 2012:
· ABS, a software business focused on supporting a range of its own-developed and proprietary ERP, ferry reservation & ticketing and payroll software products (www.ferrysoftware.co.uk); and
· QAD, a software consultancy business focused on QAD consultancy and technical services to support ERP systems in the manufacturing and distribution sectors (www.maximaqadservices.co.uk)
Revenue in H1 was £1.2 million (2012 H1 £Nil). Gross margin was £0.6 million or 48.4% (2012 H1 £Nil). The businesses were acquired in November 2012 and therefore there are no comparatives in respect of H1 trading.
The Company generated an adjusted EBITDA* before central costs of £0.4 million in the period (2012 H1 £Nil), on revenue of £1.2 million (2012 H1 £Nil). However in the five months of ownership to 31 March 2013 adjusted EBITDA* before central costs was £0.7 million on revenue of £1.3 million.
Central costs in respect of the continuing business, post Demerger and Disposal, amounted to £0.3 million (2012 H1 £0.3 million), excluding depreciation, amortisation of intangible assets, integration and strategic costs and share based payments.
Adjusted EBITDA* amounted to £0.1 million (2012 H1 Loss £0.3 million).
Integration and strategic costs amounted to £0.2 million (2012 H1 £0.0 million) arising from redundancy costs in respect of further downsizing the residual post Demerger group.
Operating loss was £0.3 million (2012 H1 Loss £0.5 million). The movement primarily reflects the adjusted EBITDA* generated by the trading business of £0.4 million, offset by increases in integration and strategic costs and amortisation of intangibles of £0.2 million and £0.1 million respectively.
Net finance costs amounted to £0.1 million (2012 H1 £0.4 million). The reduction arises mainly from a £0.3 million fair value reduction in the interest rate swap derivative "mark to market" liability (2012 H1 £0.1 million). Underlying interest amounted to £0.4 million (2012 H1 £0.5 million), including payments made under the terms of the interest swap derivative.
The loss for the period from discontinued operations amounted to £3.0 million (2012 H1 profit £1.3 million). This includes a £3.4 million impairment charge in respect of goodwill arising from the Disposal. The impairment reduces the net assets held for sale to an amount equivalent to the net Disposal proceeds.
Basic loss per share from continuing activities was 0.05p (2012 H1 Loss 0.23p), a reduction of 78.3%.
*Before net finance costs, tax, depreciation, amortisation, integration & strategy costs and share based payments
Dividend in Specie & Gain on Demerger
The Demerger was effected by the declaration by the Company of a special dividend, equal to the fair value of the Company's interests in the Managed Services Business. The dividend was satisfied, in specie, by the transfer by the Company to Redcentric of the shares in Redcentric Holdings Limited a new wholly owned subsidiary of the Company, which was 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 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".
The dividend is therefore reflected in the profit and loss account at £53.3 million, being the market value of the shares issued by Redcentric to effect the Demerger, as determined by the mid-market price on the first day of admission to AIM.
The cost to the Company of satisfying the dividend liability is the transfer of the net assets held for Demerger at the demerger date. The net assets held for demerger amounted to £23.5 million. The resulting gain of £29.8 million has been recorded as a change in equity as required by IFRIC 17.
Changes in equity
Opening equity of £23.7 million has been reduced by the fair value dividend in specie of £53.3 million, offset by the gain on demerger of £29.8 million, a net decrease of £23.5 million.
Loss for the period of £3.3 million (2012 H1 profit £0.4 million), share based payments of £0.1 million (2012 H1 £0.1 million) and the share issue of £6.0 million, increased the equity base by an additional £2.8 million.
The total decrease in equity was therefore £20.8 million, reducing shareholder equity to £2.9 million (31 March 2013 £23.7 million).
Cash Flow
Cash absorbed by operations amounted to £2.6 million (2012 H1 £2.1 million) comprising adjusted EBITDA* of £0.1 million (2012 H1 Loss £0.3 million) and working capital investment of £2.7 million (2012 H1 £1.8 million). The working capital investment arises from the unwind of central related creditors of £2.4 million (2012 H1 £2.7 million), which are not representative of the underlying continuing trading operations.
Net finance charges paid of £0.4 million (2012 H1 £0.4 million) largely reflect the cash cost of the interest swap derivative of £0.3 million (2012 H1 £0.3 million).
Net cash flow used in discontinued activities amounted to £1.7 million (2012 H1 inflow £2.5 million), and largely reflect the costs of the Demerger.
Proceeds of the share issue to fund the costs of the Demerger and provide working capital for the demerged business amounted to £6.0 million (2012 H1 Nil).
Repayments of borrowings amounted to £3.4 million (2012 H1 increase in borrowings £4.6 million).
The total decrease in cash and net cash equivalents was £2.3 million (2012 H1 increase £4.0 million), made up of cash used in continuing activities of £0.6 million (2012 H1 £2.2 million), and cash used in discontinued activities of £1.7 million (2012 H1 inflow £1.8 million).
Bank Financing
As part of the Demerger, on 8 April 2013 the Bank Facilities were effectively split between the Company and Redcentric. Under the terms of the Demerger Agreement, the total Group Revolving Credit Facility ("RCF") then outstanding of £14.2 million was repaid in full by a combination of:
· £11.2 million of cash funding provided by Redcentric to extinguish former inter-company indebtedness of the Managed Services Business arising in accordance with the terms of the Demerger Agreement; and
· £3.0 million funded by new equity raised upon the Demerger.
As a result of the above, the Group's bank facility was reduced to £5.0 million and remained committed up to 1 July 2015.
Following the Disposal 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 Group is obligated to service the derivative until its maturity in September 2015. The gross liability under the derivative stands at approximately £1.1 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, a Bank waiver of the cancellation fee of £0.1 million, and the inappropriate conditionality of any future utilisation.
Therefore the immediate net cash position of the Group following the Disposal amounted to approximately £3.0 million net of transaction expenses, including the restricted collateral account. This excludes deferred consideration of £1.85 million, expected to be received twelve months after the Disposal.
The Board
Following the Demerger on 8 April 2013, I was appointed as Chairman, replacing Richard Ramsay who remains as a non-executive director. In addition, Ian Smith was appointed CEO replacing Tony Weaver who also remains as a non-executive director.
On 28 June 2013, following the successful completion of the Demerger, Peter Hallett, CFO, gave notice of his resignation to pursue other professional interests. Peter joined the Board in October 2009, as a restructure and turnaround specialist, following a period of consultancy on behalf of the Bank. Peter has been instrumental in the refinancing and restructuring of the business over the last four years and which has now been successfully completed. Peter will remain as CFO until a successor has been recruited.
Outlook
The focus of the Board, following the disposal of Comunica, is on maximising the opportunity provided by the remaining businesses while considering the most appropriate way of utilising the net cash position created by the Disposal. Pending the redeployment of this cash the Board will be seeking to reduce the level of central overheads.
The Board has sought independent advice regarding potential capital distribution and has concluded that as a result of certain outstanding banking commitments and other liabilities which remain with the Group, the remaining contingent risks relating to previous disposals, and the element of deferred consideration, this would not be currently feasible.
The disposal of Comunica presents a good opportunity for the Company, led by an experienced management team, to seek opportunities to maximize the value of the remaining trading businesses and further reduce central costs in order to generate higher returns for investors, which will include strategic acquisitions within the technology sector. The net cash position will be invested for these purposes.
The Board, and in particular Ian Smith and Tony Weaver (Chief Executive and Non-executive director respectively), has a proven track record of investment in this sector.
David Payne
Non-Executive Chairman
31 December 2013
Consolidated Income Statement
Unaudited Six months ended 30 September 2013 | Unaudited Six months ended 30 September 2012 | Audited Year ended 31 March 2013 | ||
Restated | Restated | |||
Note | £000 | £000 | £000 | |
Continuing operations | ||||
Revenue | 2 | 1,221 | - | 1,294 |
Cost of sales | (630) | - | (777) | |
Gross profit | 591 | - | 517 | |
Selling and distribution costs | (47) | - | (41) | |
Administrative expenses | (837) | (479) | (1,060) | |
Adjusted EBITDA* | 149 | (266) |
12 | |
Depreciation | (34) | (75) | (78) | |
Amortisation of intangibles | (173) | (50) | (195) | |
Integration and strategic costs included within administrative expenses | 3 | (176) | (13) | (178) |
Share-based payments | (59) | (75) | (145) | |
Operating (Loss) | (293) | (479) | (584) | |
Net finance costs | (105) | (421) | (791) | |
(Loss) on ordinary activities before taxation | (398) | (900) | (1,375) | |
Tax on profit/(loss) on ordinary activities | 55 | - | - | |
(Loss) for the period from continuing operations (attributable to shareholders of the parent Company) | (343) | (900) | (1,375) | |
(Loss)/Profit for the period from discontinued operations | 4 | (2,999) | 1,348 | (2,588) |
(Loss)/Profit for the period | (3,342) | 448 | (3,963) | |
Earnings per share | ||||
Basic (loss) per share from continuing activities | 5 | (0.05) p | (0.23) p | (0.25) p |
Basic (loss)/earnings per share from discontinued activities | 5 | (0.48) p | 0.35 p | (0.47) p |
*earnings from continuing operations before interest, 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
Unaudited Six months ended 30 Sep 13 £000
| Unaudited Six months ended 30 Sep 12 £000
|
Audited Year ended 31 Mar 13 £000
| |
Profit/(Loss) for the period | (3,342) | 448 | (3,963) |
Gain on demerger | 29,779 | - | - |
Gain on revaluation of Cambridge MAN | - | - | 940 |
Currency translation differences | - | - | (3) |
Total comprehensive income | 26,437 | 448 | (3,026) |
Consolidated Statement of Changes in Equity
|
| Called up share capital | Share premium account | Merger reserve (a) | Capital redemption reserve (b) | Translation reserve (c) | Revaluation reserve | Retained earnings | Total equity |
|
| £000 | £000 | £000 | £000 | £000 | £000 | £000 | £000 |
At 1 April 2012 |
| 17,534 | 31,845 | 216 | 5,683 | (641) | 4,855 | (44,709) | 14,783 |
Total comprehensive income |
| - | - | - | - | - | - | 448 | 448 |
Transactions with owners: |
|
|
|
|
|
|
|
|
|
Share based payments |
| - | - | - | - | - | - | 150 | 150 |
At 30 September 2012 |
| 17,534 | 31,845 | 216 | 5,683 | (641) | 4,855 | (44,111) | 15,381 |
(Loss) for the period Other comprehensive income |
| - - | - - | - - | - - | - (3) | - 940 | (4,411) - | (4,411) 937 |
Transactions with owners: |
|
|
|
|
|
|
|
|
|
Share based payments |
| - | - | - | - | - | - | 139 | 139 |
Merger relief |
| - | - | 7,750 | - | - | - | - | 7,750 |
Capital re organisation |
| (18,272) | (34,392) | - | (5,683) | - | - | 58,347 | - |
Share issue less costs |
| 1,337 | 2,547 | - | - | - | - | - | 3,884 |
At 1 April 2013 |
| 599 | - | 7,966 | - | (644) | 5,795 | 9,964 | 23,680 |
Loss for the period Gain on demerger (d) |
| - - | - - | - - | - - | - - | - - | (3,342) 29,779 | (3,342) 29,779 |
Revaluation reserve realised on Demerger |
|
- |
- |
- |
- |
- |
(5,795) |
5,795 |
- |
Transactions with owners: |
|
|
|
|
|
|
|
|
|
Share based payments |
| - | - | - | - | - | - | 118 | 118 |
Share issue |
| 75 | 5,925 | - | - | - | - | - | 6,000 |
Dividend in specie(e) |
| - | - | - | - | - | - | (53,325) | (53,325) |
At 30 September 2013 |
| 674 | 5,925 | 7,966 | - | (644) | - | (11,011) | 2,910 |
(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 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.
(d) Gain on demerger and Dividend in Specie
The Board decided that a demerger of the Managed Services Business 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 £23.5 million. The resulting gain of £29.8 million has been recorded in the consolidated statement of comprehensive income as a change in equity as required by IFRIC 17.
Consolidated Balance Sheet
Unaudited 30 September 2013 | Unaudited 30 September 2012 | Audited 31 March 2013 | ||
Note | £000 | £000 | £000 | |
Assets | ||||
Non-current assets | ||||
Intangible assets | 1,209 | 22,698 | 11,743 | |
Property, plant and equipment | 108 | 8,176 | 272 | |
Deferred tax asset | - | 2,070 | 1434 | |
Other non-current assets | - | 406 | 355 | |
1,317 | 31,280 | 13,804 | ||
Current assets | ||||
Inventories | 27 | 1,064 | 431 | |
Trade and other receivables | 1,723 | 15,340 | 11,241 | |
Income tax receivable | 211 | 17 | 170 | |
Assets held for sale/distribution | 6 | 16,093 | - | 54,095 |
Cash and cash equivalents | 122 | 170 | 122 | |
18,176 | 18,661 | 66,059 | ||
Total assets | 19,493 | 49,941 | 79,863 | |
Equity and liabilities | ||||
Equity | ||||
Called up share capital | 674 | 17,534 | 599 | |
Share premium account | 5,925 | 31,845 | - | |
Other reserves | 7,322 | 10,113 | 13,117 | |
Retained (deficit)/profit | (11,011) | (44,111) | 9,964 | |
Total equity | 2,910 | 15,381 | 23,680 | |
Current liabilities | ||||
Derivative financial instruments | 570 | 1,750 | 595 | |
Trade and other payables | 2,858 | 18,480 | 15,318 | |
Liabilities held for sale/distribution | 6 | 6,813 | - | 31,400 |
Borrowings | 7 | 4,296 | 3,812 | 2,968 |
Provisions | 168 | 185 | 292 | |
14,705 | 22,477 | 50,373 | ||
Non-current liabilities | ||||
Derivative financial instruments | 571 | 1,750 | 892 | |
Borrowings | 7 | - | 7,827 | 2,434 |
Provisions | 1,067 | 914 | 1,067 | |
Deferred tax liability | 240 | 1,592 | 1,217 | |
1,878 | 12,083 | 5,610 | ||
Total liabilities | 16,583 | 34,560 | 56,183 | |
Total equity and liabilities | 19,493 | 49,941 | 79,863 |
Consolidated Cash Flow Statement
Unaudited Six months ended 30 September 2013
| Unaudited Six months ended 30 September 2012 Restated | Audited Year ended 31 March 2013 Restated | |||
Note | £000 | £000 | £000 | ||
Cash flows from continuing operating activities | |||||
Cash generated in operations | 8 | (2,588) | (2,051) | 1,173 | |
Cashflow absorbed by integration and strategy costs | (176) | (13) | (178) | ||
Income tax paid | - | (2) | - | ||
Cash flows (used in)/generated by continuing operating activities | (2,764) | (2,066) | 995 | ||
Net Finance charges paid | (450) | (363) | (922) | ||
Net cash flows (used in)/generated by continuing operating activities | (3,214) | (2,429) | 73 | ||
Net cash flows (used in)/generated from discontinued activities | (1,660) | 2,484 | (1,225) | ||
Cash flows from investing activities | |||||
Purchase of intangible assets | - | (8) | (138) | ||
Acquisition of subsidiaries, net of cash acquired | - | - | (4,936) | ||
Net cash flows used in continuing investing activities | - | (693) | (5,074) | ||
Net cash flows used in discontinued investing activities | (20) | (685) | (2,270) | ||
Cash flows from financing activities | |||||
Proceeds of issue of shares | 6,000 | - | 3,000 | ||
Costs of share issue | - | - | (154) | ||
(Repayment of)/increase in borrowings | (3,434) | 4,637 | 9,445 | ||
Net cash flows generated from financing activities | 2,566 | 4,637 | 12,291 | ||
Net (decrease)/increase in cash and cash equivalents from continuing activities | (648) | 2,200 | 7,290 | ||
Net (decrease)/increase in cash and cash equivalents from discontinued activities | (1,680) | 1,799 | (3,495) | ||
Cash and cash equivalents at beginning of period |
(1,846) |
(5,641) | (5,641) | ||
Cash and cash equivalents and bank overdraft at end of period | (4,174) | (1,642) | (1,846) | ||
Bank overdrafts |
(4,296) | (1,812) | (1,968) | ||
Cash and cash equivalents | 122 | 170 | 122 | ||
Cash and cash equivalents and bank overdraft at end of period | (4,174) | (1,642) | (1,846) | ||
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 for issue on 31 December 2013.
The Company is a 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 2013 has been prepared in accordance with 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 2013, 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 2013 were approved by the Board of directors on 17 September 2013 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.
Accounting policies
The accounting policies adopted are consistent with those of the previous financial year.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 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 3.
Going Concern
The consolidated interim financial information of Castleton has 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 interim financial information has 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 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 £1.1 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, a Bank waiver of the cancellation fee of £0.1 million, and the now inappropriate conditionality of any future utilisation.
The immediate net cash position of the Group following the disposal of Comunica amounted to approximately £3.0 million net of transaction expenses, including the restricted collateral account, and excluding deferred consideration of £1.85 million, expected to be received twelve months after disposal.
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.
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.
(a) Unaudited for the six months ended 30 September 2013
Continuing Operations | Software Services | Central | Total | ||
£000 | £000 | £000 | |||
Total segment revenue | 1,221 | - | 1,221 | ||
Adjusted operating costs* | (835) | (237) | (1,072) | ||
Adjusted EBITDA* | 386 | (237) | 149 | ||
Depreciation | (14) | (20) | (34) | ||
Share based payments
| - | (59) | (59) | ||
Amortisation of intangible assets | (140) |
(33) | (173) | ||
Integration and strategic costs | (117) | (59) | (176) | ||
Segment result | 115 | (408) | (293) | ||
Net finance costs | (1) | (104) | (105) | ||
Tax | 55 | - | 55 | ||
Loss for the year from continuing operations | 169 | (512) | (343) | ||
Assets and liabilities | Held for sale/distribution | ||||
Segment assets | 16,093 | 2,773 | 627 | 19,493 | |
Segment liabilities | 6,813 | 1,984 | 7,786 | 16,583 | |
Other segment information | |||||
Capital expenditure | |||||
Property, plant and equipment | - | ||||
Intangibles - software | - |
* earnings from continuing operations before interest, tax, depreciation, amortisation, integration and strategic costs and share-based payments.
(b) Unaudited for the six months ended 30 September 2012 (restated)
Continuing Operations | Software Services | Central | Total | |||
£000 | £000 | £000 | ||||
Total segment revenue | - | - | - | |||
Adjusted operating costs* | - | (266) | (266) | |||
Adjusted EBITDA* | - | (266) | (266) | |||
Depreciation | - | (75) | (75) | |||
Share based payments
| - | (75) | (75) | |||
Amortisation of intangible assets | - | (50) | (50) | |||
Integration and strategic costs | - | (13) | (13) | |||
Segment result | - | (479) | (479) | |||
Net finance costs | - | (421) | (421) | |||
Tax | - | - | - | |||
Profit for the year from continuing operations | - | (900) | (900) | |||
Assets and liabilities |
Held for sale
| |||||
sale/distribution | ||||||
Segment assets | 49,294 | - | 647 | 49,941 | ||
Segment liabilities | 15,651 | - | 18,909 | 34,560 | ||
Other segment information | ||||||
Capital expenditure | ||||||
Property, plant and equipment |
658 | - | - | 658 | ||
Intangibles - software | 27 | - | 8 | 35 |
* earnings from continuing operations before interest, tax, depreciation, amortisation, integration and strategic costs and share-based payments.
(c) Unaudited for the year ended 31 March 2013 (restated)
Continuing Operations | Software services | Central | Total | ||
£000 | £000 | £000 | |||
Total segment revenue | 1,294 | - | 1,294 | ||
Adjusted operating costs* | (611) | (671) | (1,282) | ||
Adjusted EBITDA* | 683 | (671) | 12 | ||
Depreciation | (16) | (62) | (78) | ||
Share based payments
| - | (145) | (145) | ||
Amortisation of intangible assets | (116) | (79) | (195) | ||
Integration and strategic costs | - | (178) | (178) | ||
Segment result | 551 | (1,135) | (584) | ||
Net finance costs | (7) | (784) | (791) | ||
Tax | - | - | - | ||
Profit for the year from continuing operations | 544 | (1,919) | 1,375 | ||
Assets and liabilities | Held for sale/distribution | ||||
Segment assets | 76,783 | 2,769 | 311 | 79,863 | |
Segment liabilities | 42,484 | 3,155 | 10,544 | 56,183 | |
Other segment information | |||||
Capital expenditure | |||||
Property, plant and equipment | 2,616 | - | - | 2,616 | |
Intangibles - software | 11 | 0 | 138 | 149 |
* earnings from continuing operations before interest, tax, depreciation, amortisation, integration and strategic costs and share-based payments.
3 Integration and strategic costs
In accordance with the Group's policy for integration and strategic costs the following charges/ (credits) were incurred:
Unaudited Six months ended 30 September 2013
| Unaudited Six months ended 30 September 2012 Restated | Audited Year ended 31 March 2013 Restated | |
£000 | £000 | £000 | |
Costs of integration: Staff redundancy costs and compromise agreements |
116 |
10 | 123 |
Staff costs incurred up to the date of termination | 46 | - | 3 |
Other costs | 12 | 1 | 49 |
Strategic costs: | |||
Occupancy costs | 2 | 2 | 3 |
176 | 13 | 178 |
4. Discontinued operations
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 acquirer, Coms plc ("Coms"), is an AIM listed provider of cloud-based telephony services over the internet and mobile devices to customers, and enlarged by Comunica, will be well positioned to benefit from a broader product offering as an end to end supplier of business critical communications services.
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. It was therefore required under the terms of the Disposal that the Company changed its name and as such, the Company's name was changed to Castleton.
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, (see note 6). A £3.4 million impairment charge has been 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 assets held for sale exclude the cash in the disposed business as this was retained by Castleton in accordance with the terms of the sale agreement.
The trading results of the discontinued business are reflected below:
Unaudited Six months ended 30 September 2013 | Unaudited Six months ended 30 September 2012 | Audited Year ended 31 March 2013 | ||
Restated | Restated | |||
£000 | £000 | £000 | ||
Discontinued activities | ||||
Revenue | 12,936 | 28,035 | 62,654 | |
Cost of sales | (5,344) | (13,269) | (31,677) | |
Gross profit | 7,592 | 14,766 | 30,977 | |
Selling and distribution costs | (558) | (2,277) | (4,320) | |
Administrative expenses | (10,166) | (11,382) | (30,511) | |
Adjusted EBITDA* | 831 | 2,739 |
5,450 | |
Depreciation | (73) | (574) | (1,691) | |
Amortisation of intangibles | (286) | (776) | (2,020) | |
Impairment of goodwill | (3,414) | - | - | |
Integration and strategic costs included within administrative expenses | (271) | (207) | (5,449) | |
Share-based payments | (59) | (75) | (144) | |
Operating (Loss)/Profit | (3,132) | 1,107 | (3,854) | |
Net finance costs | - | (21) | (139) | |
(Loss)/Profit on ordinary activities before taxation | (3,132) | 1,086 | (3,993) | |
Tax on profit/(loss) on ordinary activities | 133 | 262 | 1,405 | |
(Loss)/Profit for the period from discontinued activities attributable to equity holders of the parent company | (2,999) | 1,348 | (2,588) | |
5 Profit per share
Basic loss per share for the six months ended 30 September 2013 of 0.03p per share (31 March 2013: loss per share (0.25p) and 30 September 2012 loss per share (0.23p)) is calculated using a loss from continuing operations of £201,948 (31 March 2013: loss £1,374,997 and 30 September 2012: loss £900,123) and a weighted average number of shares of 623,717,357 (31 March 2013: 548,717,357 and 30 September 2012: 387,802,453).
There was no significant dilutive effect of share options as at 30 September 2013, 31 March 2013 or 30 September 2012.
In addition, adjusted EBITDA* per share 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:
Unaudited Six months ended 30 September 2013
| Unaudited Six months ended 30 September 2012
| Audited Year ended 31 March 2013
| |
£000 | £000 | £000 | |
(Loss) from continuing operations for the period | (343) | (900) | (1,375) |
Net finance expense | 105 | 421 | 791 |
Tax credit | (55) | - | - |
Depreciation | 34 | 75 | 78 |
Amortisation of intangibles | 173 | 50 | 195 |
Share based payments | 59 | 75 | 145 |
Integration and strategic costs | 176 | 13 | 178 |
Adjusted EBITDA* | 149 | (266) | 12 |
Basic adjusted EBITDA* per share 0.02p 0.07p 0.00p
*earnings from continuing operations before interest, tax, depreciation, amortisation, integration and strategy costs and share based payments.
6 Assets and liabilities held for sale / distribution
The Comunica assets and liabilities held for sale at 30 September 2013 and the assets and liabilities held for distribution in respect of the demerged Managed Services Business at 31 March 2013 are summarised below. A £3.4 million impairment charge has been made in respect of the Comunica 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.
Unaudited Six months ended 30 September 2013 Held for sale | Unaudited Six months ended 30 September 2012
| Audited Year ended 31 March 2013 Held for distribution |
£000 | £000 | £000 |
Intangible assets 6,662 - 31,000
Tangible assets 77 - 9,676
Deferred tax asset 1,433 - 1,402
Inventories 298 - 675
Trade and other receivables 7,592 - 11,180
Corporation tax 31 - 162
Total assets held for sale/distribution 16,093 - 54,095
Unaudited Six months ended 30 September 2013
| Unaudited Six months ended 30 September 2012
| Audited Year ended 31 March 2013
|
£000 | £000 | £000 |
Trade and other payables 5,900 - 16,960
Provisions 124 - -
Deferred tax liability 789 - 3,240
Borrowings - - 11,200
Total liabilities held for sale/distribution 6,813 - 31,400
Net assets held for sale/distribution 9,280 - 22,695
7 Borrowings
|
Unaudited Six months ended 31 March 2013 | Unaudited Six months ended 30 September 2012 | Audited Year ended 31 March 2013 |
| ||||||
| ||||||||||
£000 | £000 | £000 |
| |||||||
Current | |||
Bank loan | - | 2,000 | 1,000 |
Overdrafts | 2,980 | 1,812 | 1,968 |
2,980 | 3,812 | 2,968 | |
Non - current | |||
Bank loan | - | 7,827 | 2,434 |
Following the disposal of 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.
8 Net Cash flows from continuing operating activities
Unaudited Six months ended 30 September 2013
| Unaudited Six months ended 30 September 2012 Restated | Audited Year ended 31 March 2013 Restated | |
£000 | £000 | £000 | |
Profit/(loss) on ordinary activities before tax | (398) | (900) | (1,375) |
Adjustments for: | |||
Cash absorbed by integration and strategic costs | 176 | 13 | 178 |
Net finance costs | 104 | 421 | 791 |
Depreciation of property, plant and equipment | 34 | 75 | 78 |
Amortisation of intangible assets | 173 | 50 | 195 |
Equity-settled share based payments | 59 | 75 | 145 |
Movements in working capital:- | |||
(Increase)/Decrease in trade and other receivables | (314) | 905 | (33) |
(Decrease) in trade and other payables | (2,422) | (2,685) | 991 |
Decrease in provisions | - | (5) | 203 |
Cash (used in)/ generated by continuing operations | (2,588) | (2,051) | 1,173 |
9 Subsequent events
Disposal of Comunica & Change of Name
On 21 November 2013, Comunica the holding company of Redstone Converged Solutions Limited ("RCS"), the Group trading company that carried the infrastructure solutions business, was sold to Coms plc for total considerations of £9.5 million. Cash consideration of £7.65 million was paid at completion with the balance of £1.85 million deferred for twelve months.
The acquirer Coms plc ("Coms") is an AIM listed provider of cloud-based telephony services over the internet and mobile devices to customers.
Immediately on Disposal all bank debt was repaid, a condition of securing bank consent to the disposal, which was required under the terms of the Bank Facility. Disposal proceeds of £1.1 million were also required to be transferred to an escrow account as collateral against the liabilities arising from the interest swap derivative which remains within the Group.
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 Castleton businesses retained following the Disposal, and it was therefore agreed under the terms of the Disposal that the Company changed its name to Castleton Technology plc.
10 Contingent liabilities
The banking facilities in place are secured through fixed and floating charges over all property and assets of the Group. Following the disposal of Comunica on 21 November 2013, the facilities were repaid in full and subsequently cancelled.
Statement of Directors' Responsibilities
The Directors confirm that this condensed set of financial statements has been prepared in accordance with IAS 34 as adopted by the European Union.
Following the Demerger on 8 April 2013, David Payne was appointed as Chairman, replacing Richard Ramsay who remains as a non-executive director. In addition, Ian Smith was appointed CEO replacing Tony Weaver who also remains as a non-executive.
The Directors are responsible for the maintenance and integrity of the Company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. 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
PricewaterhouseCoopers LLP, 1 Harefield Road, Uxbridge, UB8 1EX
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