Redcentric Regulatory News (RCN)

16 June 2014

Redcentric plc

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

Audited Results for the period* ending 31 March 2014

Redcentric plc (AIM:RCN), a leading UK IT managed services provider, today announces its results for the period* ended 31 March 2014, being the maiden published results for the Company since incorporation and admission to AIM.

Highlights

· Strong results, with revenue, profit and cash all ahead of management expectations

· Revenue of £58.3m; 83% derived from services, 78% is recurring on a pro-forma** basis

· Adjusted EBITDA*** of £10.5m, representing an EBITDA margin of 18%

· Pro-forma revenues of £87.4m and EBITDA of £16.2m, synergies of £3m anticipated

· Strong cash-flow: net bank debt at 31 March 2014 of £12.3m, with cash conversion**** of 86% for the period (H2: 128%)

· Significant contract wins, with strong sales pipeline and momentum, over £10m of new contract wins announced since year-end

· Maiden dividend of 1.0p per share in respect of the period ending 31 March 2014

· Statutory profit of £1.8m

· Completion of reverse takeover of InTechnology Managed Services Limited ("IMS") and placing to raise £64 million in December 2013

· Integration of InTechnology Managed Services ("IMS") on track and delivering benefits in line with expectations

· Management confident about outlook

Richard Ramsay, Chairman of Redcentric commented:

"I am happy that these results demonstrate excellent progress in a year of transformation for the Company. The integration of IMS with Redcentric is on track, and is delivering the benefits anticipated at the time of the acquisition. The sales pipeline is strong, and there is growing momentum in the business, with a number of significant new contract wins demonstrating our customers' confidence. Whilst there will inevitably be challenges along the way, the Board has great confidence in the future of the business and looks forward to increasing value for shareholders over the years ahead."

Tony Weaver, Chief Executive of Redcentric commented:

"We are making great progress in integrating the managed services business which was demerged from Redstone with IMS, comfortably achieving the synergies identified at the time of acquisition. We have created a focused business of significant scale, and with the flexibility and expertise to respond to our customers and work with them closely to help deliver their objectives. Redcentric has the momentum, ambition and financial strength to expand its capabilities. The Board and management team have every confidence that we will be able to grow the Company and deliver increasing shareholder value in the future."

* The results reflect the twelve month trading period from the effective date of demerger from Redstone Plc ("Redstone") on 8th April 2013, although the accounts cover the period from incorporation on 11th February 2013. There was no trading activity in the Company prior to 8th April 2013.

 ** Including the results of IMS as if it had been part of the Group for the full twelve month trading period. These figures are based on unaudited management information.

*** Earnings before net finance costs, tax, depreciation, amortisation of acquired intangibles, transaction and integration costs and share based payments

 **** Ratio of operating cash-flow before capital expenditure, transaction and integration costs, interest, tax and acquisitions to EBITDA

Enquiries:

Redcentric plc Tel. +44 (0)845 034 1111

Tony Weaver, Chief Executive

Fraser Fisher, Chief Operating Officer

Tim Coleman, Chief Financial Officer

N+1 Singer - NOMAD & Joint Broker Tel. +44 (0)20 7496 3000

Jonny Franklin-Adams / Ben Wright

finnCap - Joint Broker Tel. +44 (0)20 7220 0500

Charlotte Stranner / Stuart Andrews

MXC Advisory LLP - Financial Advisor Tel: +44 (0)20 7965 8149

Marc Young

Newgate Threadneedle Tel: +44 (0)20 7653 9850

Josh Royston / Hilary Millar

Chairman's Statement

I am very pleased to present the first results for Redcentric as a standalone company, following its admission to AIM on 24th April 2013. The results reflect the twelve month trading period from the effective date of demerger from Redstone Plc ("Redstone") on 8th April 2013, although the accounts cover the period from incorporation on 11th February 2013.

An unusual feature of our accounts this year is a lack of comparative figures. The reason for this is that the acquisition of the former Redstone managed service business via a demerger constitutes a "business combination under common control" and as such the acquired entity's results and balance sheet are incorporated into the consolidated accounts from the date on which the business combination of entities under common control occurred. Comparatives are not shown, as the consolidated financial statements do not reflect the results of the acquired entity for the period before the transaction occurred.

Acquisition of IMS

On 6th December 2013, Redcentric completed the acquisition of InTechnology Managed Services Limited ("IMS") for a net cash consideration of £64.3m. This was financed by the issue of 80 million new ordinary shares at 80p per share, raising £64.0m before costs, and the completion of a new banking facility. The financial results of IMS are included from the date of acquisition.

Summary trading results

Revenue for the period was £58.3m, which was ahead of our expectations at the time of the demerger and the subsequent IMS acquisition. Within this, recurring revenue represented 71% of total revenue, which gives the Board significant levels of confidence in the underlying financial strength of the Company. Adjusted EBITDA* was £10.5m, representing an adjusted EBITDA margin of 18%.

Cash-flow recovered strongly in the second half of the period, with the working capital position noted in the interim results unwinding. Overall cash-conversion of adjusted EBITDA to Operating Cash-Flow for the period was 86% highlighting the cash-generative nature of the business. Net bank debt at period-end was £12.3m, with significant headroom against the Group's bank facilities of £23.2m.

The statutory profit for the period was £1.8m. The difference between adjusted EBITDA and the statutory profit is shown on the face of the Consolidated Income Statement.

Financial position and dividend

At the time of the equity issue in December 2013, the Board expressed its desire to return value to shareholders via dividends in the future. The Board is very satisfied with the underlying financial strength of the Company, and the strong cash-flow and high levels of recurring revenue provides confidence in the future. Trading performance is such that the Board is pleased to confirm the initiation of a dividend policy.

The Company announces a maiden dividend of 1.0p per share in respect of the period to 31 March 2014, which is expected to be paid in September 2014. The Board plans to adopt a progressive dividend policy and, whilst considering the financial requirements of the Group, intends to grow the dividend to provide attractive cash returns to shareholders.

Board and employees

On 28 June 2013, following successful completion of the demerger, Peter Hallett gave notice of his resignation as Chief Financial Officer in order to pursue new professional opportunities. Peter remained a Director until 31 January 2014, and the Board would like to extend its thanks to Peter for all he did for the Company and its predecessor Redstone. On 15 January 2014 Tim Coleman was appointed a Director of the Company and serves as its Chief Financial Officer.

This has been a transformational period for the business. Through the demerger from Redstone and the acquisition of IMS, the management team have created a focused, profitable and growing provider of managed services with the scale and flexibility to deliver first-class service to our customers. This would not have been possible without the hard work and dedication of all of the staff, and the Board would like to extend its sincere thanks to them all.

Outlook

The integration of IMS with Redcentric is on track, and is delivering the benefits anticipated at the time of the acquisition. The Company operates under a single, integrated organisation structure and progress on integrating technical architecture and back-office functions is proceeding to plan. The sales pipeline is strong, and there is growing momentum in the business, with a number of significant new contract wins demonstrating our customers' confidence. Our focus is on continuing to develop our business organically; however the fragmented nature of our market presents opportunities for acquisitions, which we would consider if financially and strategically attractive. Whilst there will inevitably be challenges along the way, the Board has great confidence in the future of the business and looks forward to increasing value for shareholders over the years ahead.

Richard Ramsay

Non-Executive Chairman

16 June 2014

\* Throughout this document reference to "Adjusted EBITDA" is defined as Earnings Before Interest, Tax, Depreciation and Amortisation and excludes transaction and integration costs and charges for share-based payments. The Board regards Adjusted EBITDA as the key measure of underlying profitability.

Operational Review

Overview

This has been a transformational year for the Group. Since its formation via the demerger from Redstone on 8th April 2013 and the subsequent acquisition of IMS, Redcentric has established itself as one of the leading providers of true managed services to mid-market organisations in the UK. We have the financial strength, scale and flexibility to provide our customers with best-in-class services, delivered over our own managed infrastructure.

Redcentric operates state-of-the-art data centres in Reading, Harrogate, London and Cambridge from which services are delivered, with a total capacity of 1,255 racks. 918 racks are currently being used, with existing capacity for expansion of 337 further racks. In addition we operate our own fully resilient MPLS network, providing coverage and access across the UK, along with metropolitan fibre networks in Cambridge and Portsmouth. From this strong base of owned managed infrastructure we are able to offer a wide range of true managed services including;

· Network Services. We are a significant ISP with a core MPLS network, metro networks and extensive experience in delivering networks for a broad range of organisations.

· Collaboration. Through IP telephony, messaging and video conferencing we help organisations enable their staff to communicate more effectively.

· Infrastructure. As a leading provider of infrastructure services, Redcentric offers a suite of Cloud services, including IaaS, SaaS and DRaaS, as well as colocation, data management and virtualisation services.

· Applications Services. We provide packaged solutions for many sectors as well as application management services from legacy to current architecture.

· Security. We help protect customers from deliberate DDoS attacks, or unintentional security threats from the likes of unauthorised devices and a range of other threats.

· Mobile. We provide a fully managed mobile service with flexibility, reliability and security.

The Company is headquartered in Harrogate, with additional offices in London, Reading, Theale, Cambridge and Hyderabad. The Hyderabad office operates as a fully integrated part of Redcentric, with highly skilled second and third line technical engineers complementing the support teams in the UK as well as providing back office services. The Hyderabad office provides access to one of the world's largest sources of highly skilled technical staff, and provides flexibility in delivering service to our customers.

Trading results

Revenue for the period was £58.3m, which was comfortably ahead of management expectations at the time of the IMS acquisition. Of this, £41.3m or 71% was recurring revenue, derived from providing our customers with a broad range of mission-critical services. On an unaudited pro-forma basis, as if IMS had been part of the Group for the whole year, revenue would have been £87.4m, with recurring revenue forming 78% of the total. Contract periods typically cover multiple years for these services, as customers value the stability and assurance a long term contract provides.

Since Redcentric's initial admission to AIM, we have announced a number of major new contracts with both existing and new customers. Whilst the value and length of these new contracts is significant, they also demonstrate the breadth of our customer base and the range of services our customers entrust us with. Our sales pipeline is strong, and we have a healthy volume of new orders each month. As we integrate IMS with Redcentric, we are beginning to see promising signs of cross-selling across the enlarged customer base, and have already secured six-figure contracts cross-selling through channel and direct routes.

Adjusted EBITDA of £10.5m was ahead of management expectations, and represents an adjusted EBITDA margin of 18.0%. Profitability is growing, and we fully expect that our targeted adjusted EBITDA margin of greater than 20% will be achieved in the current financial year. On an unaudited pro-forma basis, adjusted EBITDA for the twelve month trading period would have been £16.2m, representing a net margin of 18.6%.

Cash-flow for the period was strong, with cash conversion in the period of 86%. We ended the period with better than expected net bank debt of £12.3m, ahead of expectations and comfortably within our available bank facilities of £23.2m.

Integration progress

We were delighted that shareholders supported our acquisition of IMS in December 2013. The share placing we undertook to fund the transaction was heavily oversubscribed as existing and new shareholders backed the strategic benefits of the combination of the two businesses.

The integration of the two businesses is proceeding well, and is on track against our plan. We have dedicated project resource to co-ordinate and deliver the various integration work streams, and this activity is overseen by the senior management operating board. The Group is now headquartered in Harrogate supported by other offices in London, Cambridge, Theale, Reading and Hyderabad. We have closed two offices as part of this integration.

The dual MPLS networks are being consolidated and the data centre estate is being rationalised. The back office functions will be fully integrated in the first half of the current year, and we will be trading from a single entity and from a single IT platform by the end of the first half-year. The cost synergies of £3.0m identified at the time of the acquisition are being delivered in line with our plan. In the longer term, we expect to be able to generate further benefits from the growth of our Hyderabad office, which provides both highly skilled support to our customers and cost effective delivery of internal back office functions.

Strategy

The market for managed services in the UK is fragmented, and is served by a broad spectrum of businesses from global telecommunication companies through hardware and software providers, system integrators and a range of independent managed service providers of varying sizes. The market is growing, driven by the adoption of remote and mobile access, and the provision of secure off-site storage to run applications and process and store data. Redcentric is very well placed within this market, being able to combine the benefits of a proprietary network and data centres with a flexible and technically skilled workforce able to deliver and support reliable services and solutions.

We seek to differentiate ourselves in three distinct ways:

· Innovation - innovation in the design and delivery of services;

· Reliability - the right technical skills, organised in the right way, to give predictable high quality results; and

· Value - service offerings that are designed to offer value for money to mid-market customers.

We believe that Redcentric is competitively positioned between the large network operators and system integrators whose solutions are often expensive and inflexible, and the smaller competitors that may lack delivery structure, reputation, reliability and financial strength. Our primary strategic aim is to grow the business organically. However, the fragmented nature of the market may present opportunities to acquire complementary businesses, which we would consider if they would enhance the capabilities of Redcentric, and were financially attractive.

Outlook

We are making great progress in integrating the managed services business which was demerged from Redstone with IMS. We have created a tightly focused business of significant scale, and with the flexibility and expertise to respond to our customers and work with them closely to help deliver their ambitions. Redcentric has the momentum, ambition and financial strength to expand its capabilities. The Board and management team have every confidence that we will be able to grow the Company and deliver increasing shareholder value in the future.

Financial Review

General

The financial results reflect the twelve month trading period from the effective date of demerger of the managed services business from Redstone Plc on 8th April 2013 (the "trading period"), although the accounts cover the period from incorporation on 11th February 2013. There were no trading activities in Redcentric prior to the demerger.

The demerger has been accounted for as a "business combination under common control" and as such the acquired entity's results and balance sheet are incorporated into the consolidated accounts from the date on which the business combination of entities under common control occurred. Comparatives are not shown, as the consolidated financial statements do not reflect the results of the acquired entity for the period before the transaction occurred. As a business combination under common control the company has opted to apply the predecessor values accounting method which requires that acquired assets and liabilities are shown at their historic carrying values. As a result there is no requirement to undertake a costly and lengthy attribution of fair valuation to the assets and liabilities of the acquired business.

Redcentric completed the acquisition of IMS on 6 December 2013, and its results from that date have been included in the consolidated financial statements of the Redcentric Plc Group.

Financial results

Revenue for the twelve month trading period was £58.3m, which was ahead of management expectations at the time of the equity issue and IMS acquisition in December 2013. Redcentric benefits from a very significant proportion of its revenue being recurring in nature (78% on a pro-forma basis as if IMS had been part of the Group for a full year). This recurring revenue is generated from a contract base comprising 2,000 customers, most of whom have committed to multi-year contracts. The billing profile of this base is predominantly monthly, with some quarterly and annual bills, which gives the group steady and predictable cash-flows. The remainder of the revenue was generated from project-related work, such as installation fees on new projects and professional consultancy services and the provision and installation of hardware and software where required by our customers.

Gross profit of £21.6m reflects an overall margin of 37.1%. Benefits from the integration of IMS with Redcentric are already being realised at the gross margin level, as more efficient ways of delivering service to customers are being implemented, and the benefits of a more significant procurement activity are felt.

Adjusted EBITDA was £10.5m for the twelve month trading period, representing an adjusted EBITDA margin on revenue of 18.0%. Cost synergies from the integration of IMS and the ongoing work to improve the performance of the demerged managed service business have started to be realised, and will have an increasingly significant impact on the profitability of the group.

On an unaudited pro-forma basis, as if IMS had been part of the Group for the whole twelve month trading period, revenues would have been £87.4m and adjusted EBITDA would have been £16.2m, representing an adjusted EBITDA margin of 18.6%. These pro-forma numbers represent historical trading and exclude the effect of the £3.0m synergies identified at the time of acquisition which are currently being delivered. Recurring revenues would have made up 78% of the total revenue. Un-audited pro-forma performance by segment would have been as follows;

The Group is focused on growing the higher margin recurring and service revenue streams, which not only provides more attractive margins but also much greater revenue and cash-flow visibility. Recurring and service revenues account for 89% of the Group's revenue on a pro-forma basis, and is growing as an overall proportion.

Transaction and integration costs of £5.5m are analysed more fully in Note 6 in the accounts. These comprise two main elements; the transaction costs and accounting charges relating to the demerger from Redstone, the equity raise and the acquisition of IMS (£2.9m), and the one-off costs of integrating the Redstone, Maxima (acquired in the previous period) and IMS businesses (£2.6m). Provision has been made for the closure of a number of legacy offices, which will take place during 2014. The cash impact of the Transaction and integration costs in the period was £2.3m. 

The Group has recorded a charge of £1.4m in its income statement relating to share-based payments. The largest single element is a charge relating to share options in Redstone Plc, which were replaced with Redcentric options on demerger. £0.4m relates to new options in Redcentric which were granted during the period, and £0.1m relates to National Insurance costs borne by the company on options exercised.

The statutory earnings per share ("EPS") in the period was 2.04p (diluted 1.99p). In addition, the Group has also calculated an adjusted EPS figure to measure underlying performance, which excludes the effect of amortisation of acquired intangibles, share option charges and Transaction and integration costs. Adjusted EPS in the period was 8.07p (diluted 7.88p).

Acquisition of IMS

On 18 November 2013 the company announced it had entered into a share purchase agreement to acquire the entire issued share capital of IMS. Under the AIM Rules, the transaction was classified as a reverse takeover and therefore required the approval of shareholders, which was provided in general meeting on 5th December 2013.

On 6 December 2013 Redcentric completed the acquisition of IMS, for a cash consideration of £65.0m on a cash and debt free basis, adjusted to reflect normalised working capital requirements of IMS. To fund this, the Company placed 80,000,000 ordinary shares at 80 pence per share with existing and new investors, raising £64.0m before expenses, with the remainder being financed through the renegotiation of an increase in the Company's existing banking facilities with Barclays Bank Plc, and now has a £23.2m facility in place. As part of the Sale and Purchase Agreement, a working capital adjustment of £0.7m was received by the company in February 2014.

Work on integrating IMS with Redcentric is proceeding to plan, with cost synergies identified at the time of the acquisition being delivered as expected. Dedicated project management resource is overseeing the integration, which is taking place across multiple work streams and disciplines.

Taxation

The net tax credit of £4.4m shown in the income statement is comprised mainly of movements in deferred tax balances. The Group paid Corporation Tax of £0.1m during the period, and has tax losses available of c£40m. Some of these losses are only available for offset against specific activities, and the group therefore expects to be paying Corporation Tax on a proportion of its profits in the future. The tax credit relates to the recognition of a deferred tax asset in respect of these tax losses.

Cash flow and funding

Underlying cash-flow in the twelve month trading period was strong, reflecting the cash-generative nature of the Group's activities and the improved financial strength of the business. There were a number of one-off items affecting cash balances, and the following table sets out the principal trading and non-trading cash-flows.

Operating cash conversion was 86.3% in the trading period. In the Company's Interim Results Announcement in December 2013 a significant build-up in working capital was noted, which was caused by suppliers restriction of credit to the newly formed Redcentric entity, and the migration of customer billing to a new billing platform for the demerged business. In the second half of the year cash-flow improved significantly as suppliers gained confidence in the new business and the new customer billing platform stabilised.

On 5 December 2013 the Group finalised a new £23.2m senior credit facility with Barclays Bank Plc, replacing the previous £14.2m facility which was put in place at the time of the demerger. The facility comprises a £5.0m committed overdraft and an £18.2m revolving credit facility, and runs until 15 November 2016. There are various semi-annual stepped reductions in the facility over the term, with the first being a £3.0m reduction on 30 June 2014. As usual with a facility of this nature, there are a number of covenants which the company must comply with.

As at the period-end, net bank debt was £12.3m, comprising cash balances of £3.9m and drawn debt of £16.2m. This equates to headroom of £10.9m against available committed bank facilities.

Dividend

The Company has announced a dividend of 1.0p per share, which is expected to be paid to shareholders in September 2014. Going forward, the Company intends to adopt a progressive dividend policy and, whilst considering the financial requirements of the Group, intends to grow the dividend to provide attractive cash returns to shareholders. The Company also intends to adopt a traditional dividend cycle, with an interim dividend announcement with its Interim Results in December 2014, and a final dividend proposal with its Preliminary Results in 2015.

Tim Coleman

Chief Financial Officer

16 June 2014

Consolidated Income Statement

*Whilst the period covered by these accounts covers the period from incorporation on 11 February 2013 to 31 March 2014, the trading results of the business comprise the period of ownership since the managed services business was effectively demerged from Redstone plc on 8th April 2013.

**Earnings before interest, tax, depreciation, amortisation, transaction and integration costs and share-based payments

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

Consolidated Statement of Comprehensive Income

*Whilst the period covered by these accounts covers the period from incorporation on 11 February 2013 to 31 March 2014, the trading results of the business comprise the period of ownership since the managed services business was effectively demerged from Redstone plc on 8th April 2013.

Consolidated Statement of Changes in Equity

Notes

(a) Business Combinations under Common Control

Where an acquisition represents a business combination under common control, the difference between the consideration paid for the acquisition and the amounts at which the acquired entity's assets and liabilities are recorded, is recognised as a common control reserve (see accounting policy note 1). The reserve of (£9,454) arises on the acquisition of Redcentric Holdings Limited, which was demerged from Redstone plc on 8 April 2013.

(b) Capital Reduction

In April 2013 the company reduced its capital by way of a Court approved capital reduction. Under SI2008/1915 Companies (Reduction of Share Capital) Order 2008 the profit created on a reduction of capital is distributable.

Consolidated Balance Sheet

Consolidated Cash Flow Statement

*Whilst the period covered by these accounts covers the period from incorporation on 11 February 2013 to 31 March 2014, the trading results of the business comprise the period of ownership since the managed services business was effectively demerged from Redstone plc on 8th April 2013.

Notes to the Consolidated Financial Statements

Period ended 31 March 2014

1 Accounting policies - Group

Redcentric 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. Redcentric plc was incorporated on 11 February 2013, and admitted to AIM on 24 April 2013. Whilst the period covered by these accounts covers the period from incorporation on 11 February 2013 to 31 March 2014, the trading results of the business comprise the period of ownership since the managed services business was demerged from Redstone plc on 8th April 2013. The acquisition of the former Redstone managed service business via demerger constitutes a "business combination under common control" and as such the acquired entity's results and balance sheet are incorporated into the consolidated accounts from the date on which the businesses combination of entities under common control occurred (in Redcentric's case this was the effective demerger date of 8th April 2013). Consequently, the consolidated financial statements do not reflect the results of the acquired entity for the period before the transaction occurred and comparatives are not presented.

The principal accounting policies, which have been applied consistently in the preparation of these consolidated financial statements throughout the period and by all subsidiary companies, are set out below:

1.1 Basis of preparation

The consolidated financial statements of Redcentric 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.

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 period the Group has completed an extension of its banking facilities until 15 November 2016. A high proportion of the Group's revenue is recurring in nature, which provides good visibility of future cash-flows. However, 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 its banking 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. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in Section 1.24 in the accounting policies.

1.2 Basis of consolidation

Subsidiaries are all entities (including special purpose entities) over which the group has the power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the group controls another entity. The group also assesses existence of control where it does not have more than 50% of the voting power but is able to govern the financial and operating policies by virtue of de-facto control. De-facto control may arise in circumstances where the size of the group's voting rights relative to the size and dispersion of holdings of other shareholders give the group the power to govern the financial and operating policies.

Subsidiaries are fully consolidated from the date on which control is transferred to the group. They are de-consolidated from the date that control ceases.

The group applies the acquisition method to account for business combinations. The consideration transferred for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred to the former owners of the acquiree and the equity interests issued by the group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. The group recognises any non-controlling interest in the acquiree on an acquisition-by-acquisition basis, either at fair value or at the non-controlling interest's proportionate share of the recognised amounts of acquiree's identifiable net assets.

Business Combinations under Common Control

Business combinations under common control are accounted for in the consolidated accounts from the date the group obtains the ownership interest. Assets and liabilities are recognised upon consolidation at their historic carrying amount in the consolidated financial statements of the ultimate parent entity, Redcentric. Any difference between the fair value of the consideration paid and the amounts at which the assets and liabilities are recorded is recognised directly as a common control reserve.

Acquisition-related costs are expensed as incurred.

Goodwill is initially measured as the excess of the aggregate of the consideration transferred and the fair value of non-controlling interest over the net identifiable assets acquired and liabilities assumed. If this consideration is lower than the fair value of the net assets of the subsidiary acquired, the difference is recognised in profit or loss.

Inter-company transactions, balances, income and expenses on transactions between group companies are eliminated. Profits and losses resulting from intercompany transactions that are recognised in assets are also eliminated. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the group.

1.3 Intangible assets

Goodwill

Following initial recognition, goodwill is measured at cost less any accumulated impairment losses (note 12).

The carrying amount of goodwill allocated to a cash generating unit is taken into account when determining the gain or loss on disposal of the unit, or of an operation within it. Goodwill disposed of in this circumstance is measured on the basis of the relative values of the operation disposed of and the portion of the cash generating unit retained.

Other intangible assets

Other intangible assets are carried at cost less accumulated amortisation and impairment losses (Section 1.5).

Other intangible assets acquired separately from a business are carried initially at cost. An intangible asset acquired as part of a business combination is recognised outside goodwill if the asset is separable or arises from contractual or other legal rights and its fair value can be measured reliably.

Software and software licences are classified as intangible assets and include computer software that is not integral to a related item of hardware.

Intangible assets with a finite life are amortised on a straight-line basis over their expected useful lives, as follows:

Customer contracts and related relationships 10-15 years

Trademarks 5 years

Software 3-4 years

Impairment and amortisation charges are included within the administrative expenses line in the income statement.

1.4 Property, plant and equipment

Property, plant and equipment are stated at cost less accumulated depreciation and any impairment in value (Section 1.5). The cost includes the original price of the asset and the cost attributable to bringing the asset to its current working condition for its intended use.

Depreciation, down to residual value, is calculated on a straight-line basis over the estimated useful life of the asset which is reviewed on an annual basis.

Leasehold improvements 5 years or over lease term if shorter

Network infrastructure and equipment 1-20 years

Equipment, fixtures and fittings 2-5 years

An item of property, plant and equipment is de-recognised upon disposal or when no future economic benefitsare expected to arise from the continued use of the asset. Any gain or loss arising on de-recognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the item) is included in the income statement in the period the item is de-recognised.

1.5 Impairment of assets

Goodwill is reviewed for impairment annually or more frequently if events or changes in circumstances indicate thatthe carrying value may be impaired. As at the acquisition date any goodwill acquired is allocated to each of the cash generating units expected to benefit from the business combination's synergies. Impairment is determined by assessing the recoverable amount of the cash generating unit to which the goodwill relates. When the recoverable amount of the cash generating unit is less than the carrying amount, including goodwill, an impairment loss is recognised.

Other intangible assets and property, plant and equipment are reviewed for impairment whenever events or changes in circumstances indicate the carrying values may not be recoverable. In addition, the carrying value of capitalised development expenditure is reviewed for impairment annually. If any such indication exists and where the carrying values exceed the estimated recoverable amount, the assets or cash generating units are written down to their recoverable amount.

The recoverable amount of intangible assets and property, plant and equipment is the greater of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined by the cash generating unit to which the asset belongs. Fair value less costs to sell is, where known, based on actual sales price net of costs incurred in completing the disposal.

Non-financial assets that were impaired in the previous periods are annually reviewed to assess whether the impairment is still relevant.

1.6 Share capital

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction from proceeds.

1.7 Leases

Leases where the lessor retains substantially all the risks and benefits of ownership of the asset are classified as operating leases.

Operating lease payments are recognised as an expense in the income statement on a straight-line basis over thelease term.

Assets funded through finance leases are capitalised as property, plant and equipment and depreciated over the shorter of their useful economic life and the lease term. The resulting lease obligations are included in borrowings net of finance charges. Interest costs on finance leases are charged to the income statement.

1.8 Current and deferred income tax

Current tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation authorities, based on tax rates and laws that are enacted or substantively enacted by the balance sheet date.

Deferred income tax is provided for on all temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes, with the following exceptions:

• where the temporary difference arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss;

• in respect of taxable temporary differences associated with investments in subsidiaries, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future; and

• deferred income tax assets are recognised only to the extent that it is probable that taxable profits will be available against which deductible temporary differences carried forward tax credits or tax losses can be utilised.

1.9 Trade and other receivables

Trade and other receivables are recognised and carried at the lower of their original value and recoverable amounts. Provision is made where there is evidence that the balances will not be recovered in full. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency in payments are considered indicators that the trade receivable is impaired. Trade and other receivables are initially recognised at fair value and subsequently held at amortised cost. The amount of the provision is the difference between the asset's carrying amount and the present value of estimated future cash flows.

Amounts recoverable on contracts are stated at the net sales value of the work done after provision for contingencies and anticipated future losses on contracts, less amount received as progress payments on account.

The Group's trade and other receivables are non-interest bearing.

1.10 Cash and cash equivalents

Cash and cash equivalents in the balance sheet comprise cash at bank and in hand and short-term deposits with an original maturity of three months or less.

For the purpose of the consolidated cash flow statement, cash and cash equivalents consist of cash and cash equivalents as defined above, net of outstanding bank overdrafts.

1.11 Foreign currencies

The functional and presentation currency of Redcentric plc is Pounds Sterling (£) and the Group conducts the majority of its business in Sterling.

Transactions in foreign currencies are initially recorded in the functional currency by applying the rate of exchange ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency rate of exchange ruling at the balance sheet date. All differences are taken to the income statement, except for differences on monetary assets and liabilities that form part of the Group's net investment in a foreign operation. These are taken directly to equity until the disposal of the net investment, at which time they are recognised in the profit or loss.

The assets and liabilities of foreign operations are translated into Sterling at the rate of exchange ruling at the balance sheet date. Income and expenses are translated at weighted average exchange rates for the period. The resulting exchange differences are taken directly to a separate component of equity.

On disposal of a foreign entity, the deferred cumulative amount recognised in equity relating to that particular foreign operation is recognised in the income statement.

1.12 Provisions

Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation.

If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability.

Vacant property

The Group currently has a number of vacant properties. Provisions have been recognised to cover the rents, business rates and service charges for the period that each property is expected to be vacant, being up to the lease expiry or break clause if earlier. Provisions are calculated using the contracted rates of rents and service charges on each individual lease arrangement.

Dilapidations

The dilapidation provisions are built up over the life of the associated lease based on estimates of costs of work required to fulfil the Group's contractual obligation under the lease agreements to return the property to the same condition as at the commencement of the lease.

1.13 Pensions

The Group operates a defined contribution scheme. Pension costs are charged directly to the income statement in the period to which they relate on an accruals basis. The group has no further payment obligations once contributions have been paid.

1.14 Share-based payment transactions

The cost of equity-settled transactions with employees is measured by reference to the fair value of the award at the date at which they are granted and is recognised as an expense over the vesting period, which ends on the date at which the relevant employees become fully entitled to the award. Fair value is determined by an external valuer using an appropriate pricing model for which the assumptions are approved by the Directors. In valuing equity-settled transactions, only vesting conditions linked to the market price of the shares of the Company are considered.

No expense is recognised for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition, which are treated as vesting irrespective of whether or not the market condition is satisfied, provided that all other performance conditions are satisfied.

At each balance sheet date before vesting, the cumulative expense is calculated, representing the extent to which the vesting period has expired and management's best estimate of the achievement or otherwise of non-market conditions, number of equity instruments that will ultimately vest or in the case of an instrument subject to a market condition, be treated as vesting described above. The movement in the cumulative expense since the previous balance sheet date is recognised in the income statement, with a corresponding entry in equity.

Where the terms of an equity-settled award are modified or a new award is designated as replacing a cancelled or settled award, the existing charge is recognised immediately. In addition an expense is recognised over the remainder of the new vesting period for the incremental fair value of any modification, based on the difference between the fair value of the original award and the fair value of the modified award, both as measured on the date of the modification. No reduction is recognised if this difference is negative.

Where an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any expense not yet recognised for the award is recognised immediately. Any compensation paid up to the fair value of the award at the cancellation or settlement date is deducted from equity, with any excess over fair value being treated as an expense in the income statement.

The Group does not operate any cash settled share based payment schemes.

1.15 Financial assets

The Group classifies its financial assets as loans and receivables.

Loans and receivables are non-derivative financial assets with fixed or determinable payments which are not quoted in an active market. They are included in current assets, except for maturities greater than 12 months after the balance sheet date which are classified as non-current assets. The Group's loans and receivables comprise 'trade and other receivables', 'cash and cash equivalents', and rent deposits in the balance sheet.

1.16 Interest-bearing loans and borrowings

All loans and borrowings are initially recognised at fair value less directly attributable transaction costs. After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the effective interest method. Gains and losses arising on the repurchase, settlement or otherwise cancellation of liabilities are recognised in the finance cost line in the income statement.

1.17 Finance costs

Loans are carried at fair value of initial recognition, net of unamortised issue costs of debt. These costs are amortised over the loan term. Where a significant change occurs in respect of a loan, any unamortised issue costs arising from previous issues of debt are fully recognised in the income statement in full.

All other borrowing costs are recognised in the income statement on an accruals basis, using the effective rate method.

1.18 Revenue

Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and can be reliably measured. Revenue is measured at the fair value of the consideration received, excluding discounts, rebates, Value Added Tax and other sales duty. The following specific recognition criteria must also be met before revenue is recognised:

Revenues relating to contracted support, maintenance and subscription agreements are recognised evenly over the period of the agreement.

Revenues from the delivery of infrastructure and services including initial set up fees are recognised as revenue on installation. Consultancy revenues are recognised when specified contractual milestones have been met or on project completion.

Revenues from the sale of goods are recognised when the significant risks and rewards of ownership of the goods have passed to the buyer.

1.19 Other income

Finance income

Income is recognised on an accrual basis using the effective interest method.

Rental income

Rental income generated by way of sub-letting property is recognised on a straight-line basis over the life of the lease term.

1.20 Transaction and integration costs

It is the policy of the Group to identify certain costs separately on the face of the Income Statement in order that the underlying profitability of the business can be clearly understood. These costs are identified as Transaction and Integration Costs, and comprise;

(a) Professional fees incurred in sourcing and completing acquisitions and disposals

(b) Professional fees incurred in restructuring and refinancing acquisitions

(c) Integration costs which are incurred by the Group when integrating one trading business into another, including rebranding acquired businesses

(d) Redundancy costs, including employment related costs of staff made redundant up to the date of their leaving as a consequence of integration

(e) Property costs such as lease termination penalties and vacant property provisions and third party advisor fees

(f) Non-cash accounting charges relating to aligning accounting policies of acquired businesses with the Group where traditional fair value accounting methods are not appropriate.

For further detail refer to note 6.

1.21 Holiday pay accrual

It is the Group policy to accrue for holiday pay to the extent of the total amount that would be paid out if all employees of the Group left the business at its reporting date.

1.22 Segmental reporting

The Chief Operating Decision Maker ("CODM") has been identified as the Group Chief Executive, The Chief Operating Officer and the Chief Financial Officer. The CODMs review the Group's internal reporting in order to assess performance and allocate resources. Management has determined the operating segments based on these reports.

The Executive Board assess the performance of the operating segments based on adjusted EBITDA. Information provided to the Executive Board is measured in a manner consistent with that in the Financial Statements.

1.23 Critical accounting estimates and assumptions

Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are:

• Estimated impairment of goodwill and intangible assets

The Group tests annually whether goodwill and intangible assets have suffered any impairment, in accordance with the accounting policy stated in 1.5. The recoverable amounts of cash generating units have been determined based on value-in-use calculations. These calculations require the use of estimates (note 12).

• Deferred tax

The Group has substantial tax losses and unclaimed capital allowances carried forward. A deferred tax asset has been recognised in connection with trading losses carried forward to the extent that they are foreseen as being recoverable based on future profitability of the Group which is based on projections. A 10% fall in the forecast available profits would not result in a reduction in the deferred tax asset recognised.

• Accounting impact of the IMS acquisition

The Group used estimates and assumptions when it valued the assets and liabilities of the IMS acquisition. The valuation methods and assumptions used in valuing the intangible assets are described in detail in note 2,

• Classification of Transaction and Integration costs

The Directors have exercised judgement when classifying certain costs as Transaction and Integration costs. They believe that these costs are all related to the costs described in note 1.20.

2 Business combinations

2.1 Business combination under Common Control

On 8 April 2013 the group acquired 100% of the share capital of Redcentric Holdings Limited ("RCH") a UK IT managed services business from Redstone Plc. The business combination resulted from the demerger of the managed services business from Redstone.

The Board of Redstone plc did not believe that the market fully appreciated the attributes of this business while it was combined with the Infrastructure Solutions Business. Businesses with similar characteristics and profit margins to the Network-Based Managed Services Business historically command a valuation with a higher price/earnings multiple than that of the Redstone Group. Furthermore it was the opinion of the Board that the two divisions were less likely to maximise their potential performance if they continued to be operated as part of one group.

Given these factors, the Redstone Board, together with its advisers, evaluated several options for maximising shareholder value, giving due consideration to a range of alternatives and factors. The Board concluded that a demerger of the Network-Based Managed Services Business into a separate AIM listed company called Redcentric plc was in the best interests of the business and would deliver additional value to shareholders over time by:

• allowing Redstone and Redcentric to pursue their strategic objectives independently with greater control over resources and opportunities;

• increasing management and board focus on the particular needs of each company;

• allowing the Network-Based Managed Services Business of Redcentric to become a focused managed services business, showcasing it's improved operating margins; and

• providing shareholders with added flexibility in their investment decisions.

The Demerger was effected on 8th April 2013.

This acquisition of RCH via demerger from Redstone represents a "Business Combination under Common Control", and accordingly its' assets and liabilities have been recognised upon consolidation at their consolidated historic carrying amounts in the IFRS financial statements of Redstone.

The difference between the consideration for the acquisition (represented by the fair value of the shares issued to the Redstone shareholders) and the amounts at which the assets and liabilities have been recorded in Redstone plc consolidated accounts is recognised in the Common control reserve.

The information in the following table summarises the consideration paid for RCH and the amounts of assets acquired and liabilities assumed that were recognised at the acquisition date.

£000 £000

Consideration - fair value of demerger dividend shares issued 31,808

Intangible assets 14,089

Goodwill 16,911

Property, plant and equipment 9,676

Deferred tax asset 1,403

Inventories 676

Trade and other receivables 11,179

Income tax receivables 162

Trade and other payments (17,301)

Obligations to former parent (11,200)

Deferred tax liability (3,241)

Total net assets 22,354

Difference taken to common control reserve 9,454

2.2 Acquisition of InTechnology Managed Solutions Limited ("IMS")

On 18 November 2013 the company announced it had entered into a share purchase agreement to acquire the entire issued share capital of IMS, for a cash consideration of £65.0m on a cash and debt free basis, which was subsequently adjusted by £0.7m to reflect normalised working capital requirements of IMS and certain capital expenditure.

Under the AIM Rules, the transaction was classified as a reverse takeover and therefore required the approval of shareholders which was provided in general meeting on 5th December 2013.

The consideration was funded by an equity placing of 80 million new ordinary shares at a price of 80 pence per share, raising £64.0m before expenses, and an increase in banking facilities of £10.0m.

The acquisition was transformational for Redcentric, creating one of the largest independent mid-market managed services businesses in the UK, and delivering the following key benefits to the Enlarged Group:

· Enhancement of the Group's scale of operations and provisions of a broader product offering

· A larger managed data centre estate with capacity to add further racks within its existing facilities and scope to further extend its estate

· Significant up-selling opportunities between the Redcentric and IMS respective client bases

· The ability to achieve material cost synergies by rationalising duplicated network and data centre assets.

The book value of the IMS net assets acquired and their fair values are summarised below:

The above fair value adjustments relate predominantly to recognition of newly identified intangible assets (including the resulting deferred tax liability) and various property related provisions.

The purchase consideration was partly funded by way of a placing of 80,000,000 shares at a price of 80 pence per share with certain institutional investors to raise £64.0m (before expenses), with the remainder being financed by an increase in the Company's existing banking facilities.

On acquisition the Redcentric plc Directors assessed the business acquired to identify any intangible assets. Customer contracts and related relationships met the criteria for recognition as intangible assets as they have a measurable fair value, being the amount for which an asset would be exchanged between knowledgeable and willing parties in an arm's length transaction. For the customer contracts and related relationships the provisional fair value of the intangible assets was calculated by using the discounted cash flows arising from the existing contract base for the business. An attrition rate of 13% was applied and discount rates of 11%, the reasonable economic life of the customer relationships was assumed to be 10.5 years. The identifiable intangible asset and related deferred tax liability are as follows:

The goodwill arising on the acquisition is attributable to the acquired business model and the expected synergies.

From the date of acquisition to 31 March 2014, IMS achieved revenue of £14.1m and a profit before taxation of £2.0m. For the full period ended 31 March 2014, IMS revenue IMS was £39.1m and the profit before taxation was £0.1m. The revenue from the enlarged group, assuming the combination had taken place at the beginning of the year, would have been £87.4m, the loss for the year before taxation would have been £5.0 m and the adjusted EBITDA would have been £16.2m.

3 Segment reporting

Operating segments are reported in a manner consistent with the internal reporting to the Chief Operating Decision Maker ('CODM'). The CODM has been identified as the Group Chief Executive, The Chief Operating Officer and the Chief Financial Officer. The CODM 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. All of the revenue derives from customers located in the United Kingdom. No single customer accounted for more than 10% of the revenue of any operating segment.

Recurring revenue is derived from the provision of the Group's services to customers under long-term agreements, including data, connectivity, hosting, cloud, and support services. Services revenue is derived from the provision of consultancy, or installation services regarding the provision and set-up of a new service. Product revenues are derived from the sale of third party products, which comprises mostly hardware.

Results for the period ended 31 March 2014

* Earnings before interest, tax, depreciation, amortisation, Transaction and integration costs and share-based payments.

4 Transaction and integration costs

In accordance with the Group's policy of separately identifying transaction and integration costs, the following charges were recognised in the period:

5 Income tax

(a) Tax on loss on ordinary activities

The rate of income tax for the year beginning 1 April 2014 is 21% and the subsequent change to the recognised deferred tax asset that was previously calculated at a rate of 23% has been reflected in the reconciliation of the total income tax charge.

 (b) Reconciliation of the total income tax (credit)

The tax on the Group's loss before tax differs from the theoretical amount that would arise using the weighted average tax rate applicable to losses of the consolidated entities as follows:

(c) Unrecognised deferred tax

The Group has unrecognised deferred tax assets of £3.3m that are available indefinitely for offset against future tax profits of the companies in which the losses arose. The tax assets are composed of tax losses. Deferred tax assets have not been recognised in respect of losses where it is the view of the Directors that it is not probable that future taxable profits will be available to offset against any deferred tax asset.

The rate of income tax for the year beginning 1 April 2014 is 21% and the rate from 1 April 2015 is 20%.

Deferred Tax

(d) Deferred tax liability

Deferred tax liabilities arose in respect of the amortisation of intangible assets recognised on acquisitions made.

(e) Deferred tax assets

Deferred tax assets have been recognised where it is the view of the Directors that it is probable that there will be future sustainable taxable profits from which prior tax losses can be offset. This is based on projections of future taxable profits and indicators such as the level of orders that support the Directors' projections.

A number of changes to the tax rate were announced by the Chancellor in March 2013. These changes include a reduction of the main rate of corporation tax to 21% from 1 April 2014 and further reductions to the main rate of 1% per annum to 20% by 1 April 2015. These changes are not expected to have a significant impact on the Group.

6 Earnings per share 

Basic earnings per share is calculated using a weighted average number of shares of 89,050,125. The dilutive effect of share options at 31 March 2014 increased the weighted average number of shares to 91,803,510.

In addition, adjusted earnings per share has been calculated to reflect the underlying performance of the business. This measure is derived as follows:

6 Borrowings

As at 31 March 2014, unamortised arrangement fees of £206,000 were netted off within borrowings.

On 5th December 2013 the Group restructured its existing senior debt facilities with Barclays Bank PLC and effected the following key changes:

· A £10.0m increase in facility to £23.2m, comprising a revolving credit facility of £18.2m and a committed overdraft facility of £5.0m

· Extended the facility termination date to 15th November 2016.

· Restructure the facility reduction instalment profile to comprise semi-annual reductions of varying amounts commencing 30 June 2014, and culminating in a terminal reduction of £9.45m at the termination date

· Revised quarterly covenants, with commencement of testing scheduled for 31 March 2014

The additional finance provided has been utilised in the financing of IMS and will provide working capital for the enlarged group.

Fair value of non-current borrowings

The carrying amounts and fair value of the 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 2014 as per the table below.

The effective interest rate based on average forecast borrowings is:

8 Called up share capital

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

Share issues

During the period the following shares were issued: 2014

Total ordinary share capital comprises equity of £0.1m predominantly reflecting:

(a) the shares issued to Redstone shareholders in consideration for the acquisition of the demerged managed services business on 8 April 2013. The shares were originally issued at a nominal value of 51pence per share and subsequently reduced to 0.1 pence via application to the Court in April 2013. The effect of the reduction was to transfer the resulting share premium of £31.8m to distributable reserves as retained earnings, as permitted by the provisions contained in S12008/1915 Companies (Reduction of Share Capital) Order 2008.

(b) Shares issued to investors to fund the acquisition of IMS (see note 2)

In addition, the Company has issued various warrants which can be converted into ordinary shares in the Company as follows;

Holder Conversion price Number

Barclays Bank PLC 36p 350,000

Henderson Volantis Capital 80p 711,885

Guernsey Portfolios PCC Ltd 80p 159,462

Others 80p 509,708

Total 1,731,055

The 350,000 warrants issued to Barclays Bank PLC were issued on demerger in exchange for warrants previously held in Redstone Plc. The warrants can be converted to shares at any time before the sale of the entire share capital of the company.

The remaining warrants were issued on 6 December 2013 to various shareholders in exchange for early stage commitment to raising equity to fund the IMS acquisition. The warrants can be converted to ordinary shares at any time within two years of the issue date.

9  Net Cash flows from continuing operating activities

10 Related parties

The Group has taken exemption not to disclose transactions with entities wholly-owned by the Group.

Directors' emoluments are disclosed in Note 8 of the Accounts.

On 8 April 2013 the Group acquired all of the share capital of Redcentric Holdings Limited from Redstone plc by way of a demerger. This acquisition represented a business combination under common control and as such represents a related party transaction.

During the period the Group employed MXC Capital Limited, a specialist investment and advisory group, to assist with the acquisition of IMS and the demerger and flotation of Redcentric plc incurring fees of £0.8m of which £0.6m are included in transaction and integration costs (note 6 of the Accounts) and £0.2m are included in wages and salaries (note 8 of the Accounts).

During the period the Company granted 7,000,000 share options to MXC Capital Limited, which are exercisable at 80p per share. Ian Smith and Tony Weaver, directors and shareholders of Redcentric plc are directors, and together the controlling shareholders of, MXC Capital Limited.

During the period, various entities which were previously part of the Redstone Plc group recharged Redcentric for services with a total value of £1.7m.

A Group company is party to a lease agreement relating to Redcentric House, Banters Lane Trading Estate, Chelmsford, which includes rental and service charge payments of £0.2m per annum to Moreland Limited, a company which Fraser Fisher is a director and shareholder of. The company has served notice under this agreement, and will exit the premises in March 2015.