Redcentric Regulatory News (RCN)

Redcentric plc

("Redcentric" or the "Company")

Trading update

Redcentric plc (AIM: RCN), a leading UK IT managed services provider, is today providing the following update on trading.

Year ended 31 March 2018 (FY18)

On 19 April 2018, the Board issued a trading update for FY18 reporting that trading results for the year were in line with their expectations and that net debt at 31 March 2018 was £27.7m which was better than the Board's expectations.

The Company expects to report FY18 revenue of £100m (of which approximately 87% is recurring), EBITDA of £18.1m and reaffirms the previously stated net debt position in its FY18 results which will be announced on 28 June 2018.

Year ending 31 March 2019 (FY19)

The Board has reviewed the trading outlook for the current financial year and provides the following update.

Hosting services

In line with a trend experienced across the sector, the Company is seeing the cancellation of some public sector hosting contracts as these customers have decided to move out of Redcentric's data centres into Government-backed facilities. Additionally, there has been some weakness in new business sales in recent months. The Company has already invested in its product functions and sales leadership to drive additional revenues from new and existing services, although the revenue and profit contribution from these initiatives are not expected to make up for the reductions in profit in FY19 from hosting services and recent slower sales. Mitigation of some of these negative effects through cost reductions and other operating efficiencies is possible and actions are already under way.

Impact of recent public sector contract wins

As previously announced on 26 April 2018, Redcentric was successful in securing the Yorkshire and Humber Public Sector Network contract, one of the largest procurements in the ongoing Health and Social Care Network programme undertaken by the NHS. As is common for these types of contracts, upfront investment and mobilisation costs will be front-end weighted with revenue expected to build significantly over the four year initial term of the contract. There are no changes to the previously announced expectations from this contract which is expected to be strongly positive and profitable over its term, and demonstrates Redcentric's service capabilities and credentials in this market. Redcentric has also been successful in securing one other smaller Health and Social Care Network contract as part of the programme and has a number of bids in various stages of the tender process. If successful, each of these contracts is also likely to have similar short term investment requirements and attractive returns over their lifetime.

Taken together, the up-front costs of the Yorkshire & Humber Public Sector Network programme, the loss of some public sector hosting business and recent sales softness will impact trading results in FY19.

Outlook

Because of these factors, the Board has revised its expectations for FY19 downwards with a c.5% reduction in revenue and c.10% reduction in EBITDA against its previous FY19 expectations. This reflects a continuing transition as the business is transforming its operating model to capture the opportunity of customers' adoption of the cloud, and delivering the financial benefits of its Health and Social Care Network contracts. The Board continues to be confident of the medium-term prospects and performance of the Company.

The information communicated in this announcement contains inside information for the purposes of Article 7 of the Market Abuse Regulation (EU) No. 596/2014.