Redcentric Regulatory News (RCN)

Redcentric plc

("Redcentric" or the "Company")

Trading update and COVID-19 update

Redcentric plc (AIM: RCN), a leading UK IT managed services provider, is today issuing a trading update for the year ended 31 March 2020 along with an update in relation to the current impact of and measures taken by the Company in response to COVID-19.

Trading update for the year ended 31 March 2020

The Board is pleased to announce that the Company's trading performance for the year ended 31 March 2020 is expected to be in line with its expectations.

Net debt at 31 March 2020 was £13.5m, including £0.4m of share buy backs in the second half of the financial year.

The Company expects to report its full year results for the year ended 31 March 2020 on 25 June 2020.

COVID-19 update

Overview

The Company's overriding concern is the health, safety and wellbeing of its employees, customers and business partners. We are complying with all relevant government recommendations both in the UK and India and the vast majority of our staff have been working remotely since 17 March 2020. We pride ourselves in delivering excellent customer service and this has not been affected following these changes. This has been made possible by our employees' flexible and positive attitude and we thank them for their support during this time.

The duration and extent of the economic consequences of the pandemic are currently unknown and this makes predicting future demand for the Company's offerings difficult. However, the Board believes that the Company is well placed to withstand the current challenges. In particular:

· Our strategy of focusing on our network and platform infrastructure has put us in a good position to meet the increased demand for flexible and remote co-working.

· Our recent focus on the Public sector networks and, in particular, the Health and Social Care Networks (HSCN) has provided a large number of new logo customers where we have significant cross sell opportunities.

· 90% of our revenues are recurring in nature and over half of our non-recurring revenue has historically been derived from the Health sector.

· The business is operating profitably with pre IFRS16 EBITDA margins expected to increase.

· The business is cash generative and the recent network and platform upgrades mean that we have modern, scalable platforms which will require lower levels of capital expenditure over the medium term.

· We have low levels of borrowing with pre IFRS16 net debt currently less than one times annualised pre IFRS16 EBITDA. As at 31 March 2020, gross cash was £3.7m with a further £8.0m available from undrawn bank credit facilities.

Sales

In the second half of March 2020 we saw a material increase in sales opportunities as a result of the COVID-19 pandemic. Demand has been particularly strong for increased bandwidth and, in particular, for our secure remote access product. As a result, the volume of new recurring revenue contracts signed in March was materially above that seen in previous years.

We are currently working on closing out the remaining leads generated in March and as a result we expect April new sales volumes to be as anticipated for this time of the year. 

Looking further forward, we anticipate a reduction in sales to new customers and a slowdown in major change projects from existing customers until such time as the COVID-19 crisis is averted. We also anticipate that some of our customers may come under pressure as a result of the COVID-19 pandemic and this may lead to delayed customer receipts and increased business failures. 

Offsetting this, we expect a lower level of normalised cancellations and renewal churn in the same period.

Deliveries

Deliveries in the last quarter of FY20 have been strong as a result of significant additional temporary resource being employed to roll out the HSCN contracts. Whilst these networks have been slower to roll out than anticipated, circa 75% of the contracts are now implemented with the remainder expected to be live by the end of June 2020. 

The additional sales orders signed in March 2020 and those anticipated for April 2020 are all products that are very quick to install and require minimal third-party intervention.

With respect to the remaining unfulfilled orders, installations requiring on-site engineers are likely to be delayed and hence revenues will be delayed. At this time, it is impossible to know how long this situation is likely to continue.

Share buyback and dividend

The Board has taken the decision to temporarily halt the share buyback programme until such time as the outlook becomes more certain.

In addition, although the Board will continue to monitor the effects of Covid-19, in light of the current situation it is highly unlikely that a final dividend for the year will be recommended by the Board.

Enquiries:

Redcentric plc +44 (0)800 983 2522

Peter Brotherton, Chief Executive Officer

David Senior, Chief Financial Officer

finnCap Ltd - Nomad and Broker +44 (0)20 7220 0500

Marc Milmo/ Simon Hicks (Corporate Finance)

Andrew Burdis / Sunila de Silva (ECM)

END