TIDMRCN
RNS Number : 7521S
Redcentric PLC
18 November 2021
Redcentric plc
("Redcentric" or the "Company")
Half year results for the six months ended 30 September 2021
(unaudited)
Redcentric plc (AIM: RCN), a leading UK IT managed services
provider, is pleased to announce its unaudited results for the six
months to 30 September 2021.
Key performance indicators on a reported basis excluding Piksel
Industry Solutions Limited ("Piksel") revenue and profit
contribution
As set out in the Company's most recent annual report and
accounts, we monitor our performance against our strategy with
reference to key performance indicators ("KPIs"). These KPIs are
applied on a Redcentric group ("Group") wide basis. Our headline
financial results for the six months to 30 September 2021 are set
out in the table below, together with the prior year comparatives.
Further information on alternative performance measures ("APMs")
can be found below.
Following discussions with the Company's advisors, the trading
results of Piksel for the two months ended 30 September 2021 have
been treated as an adjustment to the acquisition purchase price
rather than included in the consolidated statement of comprehensive
income as was presented in the trading update released on 27
October 2021. A full explanation and reconciliation is given in the
Chief Financial Officer's review below.
Six months Six months
to 30 Sept to 30 Sept
2021 (H1-22) 2020 (H1-21) Change
-------------------------------------- -------------- -------------- --------
Total revenue GBP44.3m GBP46.2m -4.1%
Recurring monthly revenue (RMR) GBP39.6m GBP41.0m -3.4%
Recurring monthly revenue percentage 89.4% 88.7% 0.7ppts
Adjusted EBITDA(1) GBP11.9m GBP12.3m -3.3%
Adjusted operating profit(1) GBP7.4m GBP7.6m -2.6%
Reported operating profit GBP3.3m GBP3.1m 6.5%
Adjusted cash generated from
operations(1) GBP10.0m GBP12.9m -22.5%
Reported cash generated from
operations GBP15.3m GBP10.4m 47.1%
Adjusted net debt(1) GBP0.4m GBP1.1m -63.6%
Reported net debt GBP15.4m GBP17.0m -9.4%
Adjusted basic earnings per share(1) 3.55p 3.61p -1.7%
Reported basic earnings per share 1.71p 1.39p 23.0%
(1) This report contains certain financial APMs that are not
defined or recognised under IFRS but are presented to provide
readers with additional financial information that is evaluated by
management and investors in assessing the performance of the
Group.
This additional information presented is not uniformly defined
by all companies and may not be comparable with similarly titled
measures and disclosures from other companies. These measures are
unaudited and should not be viewed in isolation or as an
alternative to those measures that are derived in accordance with
IFRS.
For an explanation of the APMs used in these results and
reconciliations to their most directly related GAAP measure, please
see the Chief Financial Officer's review
Financial Highlights
-- Total revenue was GBP44.3m (H1-21: GBP46.2m) with recurring
revenue of GBP39.6m (H1-21: 41.0m). Adjusting for the sale of
assets relating to the Company's contract with EDF (the "EDF
Contract") which was completed on 31 March 2021, total revenue
declined by 3.1% and recurring revenue declined by 2.4%.
-- Total revenue for the six-month period is now ahead of pre
Covid-19 levels by 3.7% (H1-20: GBP42.7m H1-21 GBP44.3m) after
adjusting for the EDF Contract.
-- The proportion of recurring revenue increased slightly to
89.4% of total revenue (H1-21: 88.7%).
-- Adjusted operating expenditure reduced by GBP0.6m (3.7%) to
GBP15.8m (H1-21: GBP16.4m) reflecting a continued focus on the cost
base in addition to the annualised impact of cost benefits realised
through the operational efficiencies over the last two financial
years.
-- Adjusted EBITDA(1) was GBP11.9m (H1-21: GBP12.3m) and
adjusted EBITDA margins increased marginally to 26.8% (H1-21:
26.5%). Adjusting for the sale of assets relating to the EDF
Contract which was completed on 31 March 2021 adjusted EBITDA for
H1-22 was in line with the prior year at GBP11.9m.
-- Adjusted operating profit(1) decreased by 2.6% to GBP7.4m
(H1-21: GBP7.6m) with operating margin improving to 16.7% (H1-21:
16.4%).
-- After accounting for exceptional items of GBP0.7m (H1-21:
GBP1.1m) and share-based payment costs of GBP0.3m (H1-21: GBP0.3m),
reported operating profit was 7.8% higher at GBP3.3m (H1-21:
GBP3.1m).
-- Net debt reduced by GBP0.2m since 31 March 2021 to GBP15.4m, reflecting:
o Operating cash flows of GBP10.0m (84% operating cash
conversion);
o the net cash impact of the acquisition of Piksel in the period
of GBP8.4m; and
o the receipt of GBP5.8m consideration resulting from the sale
of assets relating to the EDF Contract which completed on 31 March
2021.
-- Excluding leases previously classified as operating leases
under IAS17 net debt was GBP0.4m (31 March 2021: GBP1.0m cash).
-- Interim dividend maintained at 1.2p per share.
Operational Highlights
-- The acquisition of the entire issued share capital of Piksel
(the "Acquisition"), completed on 29 September 2021, significantly
enhances the Company's cloud services proposition, and provides
full access to the strongest growth areas of the market.
-- The integration of Piksel is currently ahead of plan with
GBP0.7m of annualised cost savings already realised and further
annualised savings of at least GBP0.4m to be realised for the next
financial year.
-- Continued investment in systems and platforms to enhance the
customer experience, drive efficiency and provide a better platform
for the integration of future acquisitions.
-- Work continues in identifying further acquisitions for both scale and capability.
Peter Brotherton, Chief Executive Officer commented:
" The business continues to perform well and is trading
significantly ahead of the pre-Covid period. The strategically
important acquisition of Piksel completes our cloud services
offering and gives us full access to the highest growing areas of
the market. After just six weeks, the integration of Piksel is
significantly ahead of plan with GBP0.7m of annualised synergies
already realised and confidence in delivering further substantial
savings.
The sales pipeline is slowly recovering, and the increasing
number of customer interactions is encouraging. November 2021 is on
target to be the best month for new sales orders this calendar year
and we are hopeful that this is indicative of a return to more
normalised trading levels.
The Company will continue to pursue acquisition opportunities
for both scale and capability and the Board expects the full year
results to be in line with its expectations."
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 / Charlie Beeson (Corporate
Finance)
Andrew Burdis / Sunila de Silva (ECM)
Chief Executive Officer's review
Context
These results demonstrate the robust nature of the business.
Throughout the period of the Covid-19 pandemic we have grown
revenues and increased profits substantially. The pandemic has
presented many unprecedented challenges and we continue to see the
aftershocks.
Immediately following the outbreak of the Covid-19 pandemic, the
Company reacted expediently to meet customer demand resulting from
the requirements of new working environments and this led to an
increase in sales activity in H1-FY21. Post this period we have
experienced a dearth of large-scale IT projects and, more recently,
a shortage of microchips has led to delays in projects which has
depressed both recurring and non-recurring revenues.
On 31 March 2021, the assets relating to the EDF Contract were
disposed of for GBP5.8m. The EDF Contract contributed revenue of
GBP0.5m and EBITDA of GBP0.35m in each six-month period up to and
including H2-FY21. To provide a better understanding of the results
for the six months ended 30 September 2021, the revenue and EBITDA
from the EDF Contract has been excluded from the prior periods in
the table shown above.
Compared to the equivalent pre Covid period (H1-FY20):
-- Revenues have increased 3.9%
-- Adjusted EBITDA has increased by 20.2%
-- Adjusted earnings have increased by 67.6%
Throughout the Covid period we did not take advantage of any
government support packages and profits have remained consistent at
GBP11.9m to GBP12.0m.
Pre Covid During Covid
H1 FY20 H2 FY20 H1 FY21 H2 FY21 H1 FY22
Revenue
- Recurring 38.3 38.3 40.5 40.4 39.6
- Non-recurring 4.4 5.5 5.2 4.3 4.7
-------- -------- -------- -------- --------
42.7 43.8 45.7 44.7 44.3
Recurring Revenue% 89.8% 87.4% 88.6% 90.4% 89.4%
Adjusted EBITDA 9.9 10.0 11.9 12.0 11.9
-------- -------- -------- -------- --------
Adjusted EBITDA margin% 23.1% 22.9% 26.1% 26.8% 26.8%
Capex 4.8 1.9 2.2 1.9 2.1
Adjusted EBITDA less
Capex 5.1 8.1 9.7 10.1 9.8
-------- -------- -------- -------- --------
Adjusted EBITDA less
Capex margin% 12.0% 18.6% 21.2% 22.5% 22.0%
Adjusted earnings 3.3 3.2 5.2 5.3 5.5
-------- -------- -------- -------- --------
Overview of the six months ended 30 September 2021
The revenue performance for the six months ended 30 September
2021 reflects the trading conditions described above which has led
to a reduced volume of new orders from both existing and new
customers.
Whilst like for like (excluding the EDF Contract) revenues have
decreased by GBP0.4m (-0.8%) over the six-month period, costs have
been carefully managed with adjusted EBITDA broadly flat (-GBP0.1m)
on a like for like basis. Operating costs for the period reflect
the last remaining benefits of the data centre and network
rationalisation programme, which was actioned in the previous two
financial years.
Net debt over the period decreased by GBP0.2m primarily
reflecting normalised cash flows of GBP7.1m, GBP5.8m consideration
from the sale of assets relating to the EDF Contract, dividend
payments of GBP3.7m and the Acquisition for GBP8.4m (net of cash
acquired).
The Company has continued to invest in its operational systems
and platforms. These initiatives will improve efficiency and
customer service and provide a better platform for the integration
of future acquisitions:
-- The first stage of the new HR system is now live and when
fully implemented will replace five legacy systems. The new system
provides significantly enhanced information to both management and
employees and prevents duplicate data entry;
-- The first stage of the delivery workflow software is
currently in user acceptance testing with a view to being fully
released in December 2021. This will result in significant
efficiencies in the delivery team, an improvement to customer
service and enhanced customer and management reporting;
-- The Company's principal customer service management software
is in the process of being upgraded and once complete will provide
a better and more consistent customer experience. Pro-active
support using AI and machine learning, automated processes and
workflow tasks will also significantly improve efficiency;
-- A new cloud backup platform has been launched replacing our
previously outdated proposition. The new platform delivers
significantly enhanced functionality and brings our solution fully
up to date;
-- Substantial investment has been made in replacing cooling
equipment in our Harrogate data centre which has led to a circa 7%
reduction of electricity consumption at this site.
During the reporting period we commenced the execution of the
acquisition strategy outlined in the Company's annual report and
accounts for FY21 and on 29 September 2021 the Company completed
the strategically important Acquisition of Piksel. The Acquisition
gives Redcentric leading-edge skills and capabilities in public
cloud and security solutions. The Acquisition has been very well
received by both customer bases and we are already pursuing a good
number of cross-sell opportunities.
Integration of Piksel
Whilst only six weeks into the integration programme the Company
has already made significant progress, as follows:
-- Planning for a new cloud services division is complete and
the management positions are currently being filled with a view to
a new fully integrated management structure being in place by
December 2021. Employee TUPE discussions will commence in December
2021 with a view to all Piksel assets and employees being
transferred to Redcentric Solutions Ltd by the end of this
financial year;
-- Cross connects have been put in place in Telehouse (London)
and Equinix (Manchester) meaning that the Piksel network is now
fully integrated in to the Redcentric national network. Several
Piksel circuits have thus become redundant and ceased as a
result;
-- The equipment for a new cloud platform has been delivered and
is currently being configured in our Shoreditch data centre. Once
fully commissioned, customers will be migrated off the Piksel
platform and significant savings realised as a result of cancelling
racks in third party data centres;
-- The integration of the finance systems is nearing completion.
The opening balances as at 31 July 2021 have been migrated on to
the Company's ERP system, Microsoft Dynamics 365 ("D365"), and all
of the transactions for August and September 2021 have been
recreated. The October transactions are currently being processed
and we expect to be live by the end of the calendar year. Once live
we will cease paying for the Piksel accounting system and
transitional finance service cost;
-- The Piksel customer prospect database has been migrated onto
D365 and the contract for the legacy customer relationship
management system cancelled;
-- All Piksel suppliers have been contacted with the view to
either cancelling contracts or renegotiating better rates. Any new
purchase orders are being placed through Redcentric Solutions Ltd
and plans are in place to migrate suppliers across to Redcentric
Solutions Ltd by the end of the financial year; and
-- Discussions with customers have commenced with a view to
transferring all contracts to Redcentric Solutions Ltd by the end
of the financial year.
To date we have actioned annualised cost savings of GBP0.7m of
which some are effective immediately whilst others will be realised
over the course of the next twelve months. We are fully confident
of achieving at least GBP1.1m of synergies identified at the time
the acquisition was announced.
Environmental, Social and Governance
The Board of directors of the Company (the "Board") is cognisant
of the growing importance of ESG and is currently developing a
comprehensive corporate ESG strategy with targets to drive further
accountability across the business. A full ESG plan will be
published at the time of the Company's preliminary results
announcement.
Dividend policy
The Board has reviewed the financial performance of the business
and has decided to maintain an interim dividend payment of 1.2p per
share, which will be paid on 6 January 2022 to shareholders on the
register at the close of business on 25 November 2021. The
continuation of dividend payments whilst pursuing an acquisition
strategy demonstrates the Board's confidence in the Company and the
strong cash generative nature of the business.
Board changes
With these results, the Company is pleased to announce the
appointment of Nick Bate as independent non-executive chairman.
Nick is an experienced chairman with a proven track record of
successfully delivering both organic and inorganic growth
strategies in the IT managed services sector. Nick will join the
Board with immediate effect replacing Ian Johnson who has stepped
down from the Board and his position as chairman of the
Company.
The Company is also announcing today that Jon Kempster,
non-executive director and chairman of the Company's audit
committee, has notified the Board that he does not intend to stand
for re-election at the Company's next annual general meeting. A
further announcement will be made as soon as a suitable successor
has been appointed.
Summary and outlook
The business continues to perform well under difficult trading
conditions. The Acquisition is strategically important as it
completes our cloud services proposition and gives us full access
to the strongest growing areas of the market. The integration of
Piksel is currently ahead of plan with significant synergies
already realised and increased confidence in delivering further
substantial savings.
We continue to invest in our systems and platforms, which will
enable us to efficiently integrate future acquisitions and to grow
the business, whilst at the same time improving customer
service.
As previously noted, the market continues to be impacted by a
continued lack of IT projects and we will continue to navigate the
supply chain issues in the sector. It has been pleasing to see that
the sales pipeline is slowly recovering, and the increasing number
of customer interactions is encouraging, November 2021 is on target
to be the best month for new sales orders this calendar year which
we hope represents a step in the right direction in returning to
more normalised trading levels.
The Company will continue to pursue acquisition opportunities
for both scale and capability and the Board expects the full year
results to be in line with expectations.
Chief Financial Officer's Review
Accounting for the Acquisition
On 29 September 2021, the Company announced the Acquisition.
The consideration for the Acquisition was US$13.0m (c.GBP9.5m)
payable in cash of which US$12.0m (cGBP8.8m) was paid on completion
of the transaction and US$1.0m (c.GBP0.7m) being held in escrow for
a period of 12 months. Pursuant to terms of the sale and purchase
agreement relating to the acquisition ("SPA") the purchase price
was subsequently increased by GBP0.1m due to a revised assessment
of Piksel's latest research & development tax claim submission
to HMRC.
The Acquisition was structured using locked box accounts with
the 31 July 2021 balance sheet providing the fixed point for the
valuation. Pursuant to the terms of the SPA, the economic benefits
of Piksel's trade in the period between 1 August 2021 to 29
September 2021 were transferred to Redcentric Solutions Ltd upon
completion of the Acquisition on 29 September 2021. It is the view
of the directors of Redcentric Solutions Limited (the "Directors")
that they exercised sufficient control during this period to enable
the trading for the two-month period to be consolidated into the
Group results. However, following detailed discussions with the
Company's advisors, trading for this period has now been offset
against the purchase price rather than consolidated into the
Company's results. This is purely a presentational adjustment, and
the consolidated statement of financial position remains the same
and reflects the benefit of the trading period.
The tables presented below show the movements in the primary
financial statements between the locked box date of 31 July 2021
and the completion date of 29 September 2021 and include
provisional fair value adjustments to align accounting policies
with Redcentric and to recognise fair values on acquisition which
are subject to revision within the measurement period which ends on
28 September 2022.
The Board considers the presentation of the Group results
including Piksel to be important information for shareholders as
they provide a better understanding of the structure of the
transaction and the economic contribution of Piksel to the
Group.
Reconciliation of reported results to trading update given on 27
October 2021 (unaudited)
Profit resulting from the trade in this period is reflected in
the consolidated net assets of the Group as at 30 September
2021.
Proforma
adjustments
in respect
of Piksel Six months
Six months IS Limited to 30 Sept
to 30 Sept 2 months 2021 Including
2021 (H1-22) trading* Piksel
Unaudited Unaudited Unaudited
-------------------------------------- -------------- ------------- ----------------
Total revenue GBP44.3m GBP2.1m GBP46.4m
Recurring monthly revenue (RMR) GBP39.6m GBP1.5m GBP41.1m
Recurring monthly revenue percentage 89.4% 71.0% 88.6%
Adjusted EBITDA(1) GBP11.9m GBP0.1m GBP12.0m
Adjusted net debt(1) GBP0.4m - GBP0.4m
Reported net debt GBP15.4m - GBP15.4m
*The pro forma adjustments in respect of Piksel trading noted
above, represent the results for the two-month period ended 30
September 2021 of the recently acquired Piksel over which
Redcentric took control from that date.
Reconciliation of net assets acquired (unaudited)
The movements below comprise the impact of Piksel's trading
during August and September 2021, plus provisional fair value
adjustments to align accounting policies with Redcentric and to
recognise fair values on acquisition.
Provisional
Net assets fair value
as at August and of net assets
31 July September Opening at 30 September
2021 2021 trading balance adjustments 2021
GBP'000 GBP'000 GBP'000 GBP'000
------------------------------- ---------- ------------- -------------------- ----------------
Intangible assets 19 13 - 32
Property, plant, and equipment 39 (3) - 36
Deferred tax asset 972 - - 972
Trade and other receivables 6,333 (768) 129 5,694
Cash and cash equivalents 300 665 - 965
------------------------------- ---------- ------------- -------------------- ----------------
Total assets 7,663 (93) 129 7,699
Trade and other payables (5,436) 209 (458) (5,685)
------------------------------- ---------- ------------- -------------------- ----------------
Net assets 2,227 116 (329) 2,014
Alternative performance measures
This interim report contains certain APMs that are not defined
or recognised under IFRS but are presented to provide readers with
additional financial information that is evaluated by management
and investors in assessing the performance of the Group.
This additional information presented is not uniformly defined
by all companies and may not be comparable with similarly titled
measures and disclosures by other companies. These measures are
unaudited and should not be viewed in isolation or as an
alternative to those measures that are derived in accordance with
IFRS.
Recurring monthly revenue
Recurring revenue is the revenue that annually repeats either
under contractual arrangement or by predictable customer habit. It
highlights how much of the Group's total revenue is secured and
anticipated to repeat in future periods, providing a measure of the
financial strength of the business. It is a measure that is well
understood by the Group's investor and analyst community and is
used for internal performance reporting.
Year
ended
Six months Six months 31 March
to 30 Sept to 30 Sept 2021
2021 Unaudited 2020 Unaudited Audited
GBP'000 GBP'000 GBP'000
----------------------- ---------------- ---------------- ----------
Reported revenue 44,322 46,241 91,399
Non-recurring revenue (4,752) (5,194) (9,502)
----------------------- ---------------- ---------------- ----------
Recurring revenue 39,570 41,047 81,897
----------------------- ---------------- ---------------- ----------
Total revenue decreased by 4% to GBP44.3m (H1-21: GBP46.2m)
reflecting a continued absence of large-scale IT projects together
with supply chain issues affecting both recurring and non-recurring
revenues. Excluding the previously disposed assets relating to the
EDF Contract that contributed GBP0.5m of recurring revenues in
H1-21, recurring revenues declined by 2.4% to GBP39.6m (H1-21:
GBP40.5m). Recurring revenues continue to make up 89% of total
revenue (H1-21: 89%).
Non-recurring revenue has decreased to GBP4.8m (H1-21: GBP5.2m)
reflecting lower activity on new projects together with supply
chain issues affecting our ability to deliver product sales. The
volatility of non-recurring revenue has increased since the
announcement of Brexit and more latterly Covid-19, both of which
continue to cause customers to reconsider the timing of largescale
IT investment decisions.
Adjusted EBITDA
Adjusted EBITDA is EBITDA excluding exceptional items (as set
out in note 6), share-based payments and associated national
insurance. Items are only classified as exceptional due to their
nature or size, and the Board considers that this metric provides
the best measure of assessing underlying trading performance.
Year ended
Six months Six months 31 March
to 30 Sept to 30 Sept 2021
2021 Unaudited 2020 Unaudited Audited
GBP'000 GBP'000 GBP'000
------------------------------------------- ---------------- ---------------- -----------
Reported operating profit 3,321 3,080 12,998
Amortisation of intangible assets arising
on business combinations 3,126 3,126 6,252
Amortisation of other intangible assets 407 541 1,085
Depreciation of tangible assets 2,606 2,755 3,408
Depreciation of ROU assets 1,451 1,370 4,932
EBITDA 10,911 10,872 28,675
Exceptional items 665 1,095 (4,782)
Share-based payments 284 294 687
------------------------------------------- ---------------- ---------------- -----------
Adjusted EBITDA 11,860 12,261 24,580
------------------------------------------- ---------------- ---------------- -----------
Adjusted EBITDA decreased by 3.3% to GBP11.9m (H1-21: GBP12.3m),
excluding the previously disposed assets relating to the EDF
Contract that contributed GBP0.4m to adjusted EBITDA in H1-21,
adjusted EBITDA for H1-22 was in line the prior year at
GBP11.9m
Adjusted cash from operations
Adjusted cash from operations is cash from operations excluding
the cash cost of exceptional items
Year ended
Six months Six months 31 March
to 30 Sept to 30 Sept 2021
2021 Unaudited 2020 Unaudited Audited
GBP'000 GBP'000 GBP'000
--------------------------------- ---------------- ---------------- -----------
Reported cash from operations 15,250 10,445 17,577
Cash costs of exceptional items (5,270) 2,452 8,884
--------------------------------- ---------------- ---------------- -----------
Adjusted cash from operations 9,980 12,897 26,461
--------------------------------- ---------------- ---------------- -----------
Maintenance capital expenditure
Maintenance capital expenditure is the capital expenditure that
is incurred in support of the Group's underlying infrastructure
rather than in support of specific customer contracts.
Year ended
Six months Six months 31 March
to 30 Sept to 30 Sept 2021
2021 Unaudited 2020 Unaudited Audited
GBP'000 GBP'000 GBP'000
--------------------------------- ---------------- ---------------- -----------
Reported capital expenditure 2,118 2,216 4,522
Customer capital expenditure (665) (1,601) (1,927)
--------------------------------- ---------------- ---------------- -----------
Maintenance capital expenditure 1,453 615 2,595
--------------------------------- ---------------- ---------------- -----------
Maintenance capital expenditure has increased by GBP0.8m from
H1-20 (GBP0.6m) and reflects increased investment in cooling
equipment in our main data centre which has already delivered an
electricity consumption reduction of c.7%. Our core network
continues to be upgraded and updated to ensure that capacity,
resiliency, and security are optimised.
Customer capital expenditure has decreased to GBP0.7m (H1-21:
1.6m) and reflects a lower level of new projects as customers
continue to defer investment decisions on large scale IT
projects.
Adjusted operating profit and adjusted earnings per share
Adjusted operating profit is operating profit excluding
amortisation on acquired intangibles, exceptional items, and
share-based payment charges. The same adjustments are also made in
determining the adjusted operating profit margin and in determining
adjusted earnings per share ("EPS"). The Board considers this
adjusted measure of operating profit to provide the best metric of
assessing underlying performance as it excludes exceptional items
and the amortisation of acquired intangibles arising from business
combinations which varies year on year dependent on the timing and
size of any acquisitions.
Year ended
Six months Six months 31 March
to 30 Sept to 30 Sept 2021
2021 Unaudited 2020 Unaudited Audited
GBP'000 GBP'000 GBP'000
------------------------------------------- ---------------- ---------------- -----------
Reported operating profit 3,321 3,080 12,998
Amortisation of intangible assets arising
on business combinations 3,126 3,126 6,252
Exceptional items 665 1,095 (4,782)
Share-based payments 284 294 687
Adjusted operating profit 7,396 7,595 15,155
------------------------------------------- ---------------- ---------------- -----------
The EPS calculation further adjusts for the tax impact of the
operating profit adjustments, as presented in note 9.
Adjusted operating costs
Adjusted operating costs are operating costs less depreciation,
amortisation, exceptional items, and share-based payments.
Year ended
Six months Six months 31 March
to 30 Sept to 30 Sept 2021
2021 Unaudited 2020 Unaudited Audited
GBP'000 GBP'000 GBP'000
----------------------------------------- ---------------- ---------------- -----------
24,317
Reported operating expenditure 24,317 25,573 49,448
Depreciation of ROU assets (1,451) (1,370) (4,932)
Depreciation of tangible assets (2,606) (2,755) (3,408)
Amortisation of intangibles arising on
business combinations (3,126) (3,126) (6,252)
Amortisation of other intangible assets (407) (541) (1,085)
Exceptional items (665) (1,095) 4,782
Other operating income - - (4,507)
Share-based payments (284) (294) (687)
15,778
Adjusted operating expenditure 15,778 16,392 33,359
----------------------------------------- ---------------- ---------------- -----------
Adjusted operating expenditure has reduced by 3.7% to GBP15.8m
(H1-FY21: GBP16.4m) primarily driven by:
-- UK employee costs being reduced by GBP0.2m, driven by lower
commission costs and a focus on overtime expenditure. Excluding
Piksel, the Company employed 301 UK employees at 30 September 2021
(H1-21: 292) with an average headcount of 296 (H1-21: 295);
-- offshore costs being also GBP0.2m lower than prior year,
reflecting a lower average headcount of 103 (H1-21: 135); and
-- a continued focus on rationalising and optimising our core
network resulted in a GBP0.2m reduction in costs.
Adjusted net debt
Adjusted net debt is net debt excluding leases that would have
been classified as operating leases under IAS 17.
Year ended
Six months Six months 31 March
to 30 Sept to 30 Sept 2021
2021 Unaudited 2020 Unaudited Audited
GBP'000 GBP'000 GBP'000
---------------------------------------- ---------------- ---------------- -----------
Reported net debt (15,351) (17,010) (15,569)
Supplier loans 1,038 - 1,491
Lease liabilities that would have been
classified as operating leases under
IAS 17 13,948 15,877 15,058
---------------------------------------- ---------------- ---------------- -----------
Adjusted net (debt) / cash (365) (1,133) 980
---------------------------------------- ---------------- ---------------- -----------
Profitability and dividend policy
Adjusted EBITDA (GBP11.9m) and adjusted operating profit
(GBP7.4m) were down 3.2% and 2.6% respectively, with an adjusted
EBITDA margin of 26.8% (H1-21: 26.5%) and adjusted operating margin
of 16.7% (H1-21: 16.4%).
After accounting for exceptional items of GBP0.7m (H1-21:
GBP1.1m) and share-based payment costs of GBP0.3m (H1-21: GBP0.3m),
reported operating profit was 7.8% higher at GBP3.3m (H1-21:
GBP3.1m).
Net finance costs for the period were GBP0.5m (H1:21: GBP0.8m)
including GBP0.4m (H1-21: GBP0.6m) of IFRS 16 finance charges.
The reported basic and diluted EPS both increased by 23% and
were 1.71p and 1.68p respectively (H1-21: 1.39p and 1.36p
respectively). Adjusted basic and diluted EPS both decreased
marginally by 2% to 3.55p and 3.47p respectively (H1-21: 3.61p and
3.54p respectively).
The Board has reviewed the financial performance of the business
and has decided to maintain an interim dividend payment of 1.2p per
share, which will be paid on 6 January 2022 to shareholders on the
register at the close of business on 25 November 2021.
Cash flow and net debt
The principal movements in net debt are set out in the table
below.
Six months Six months Year ended
to 30 September to 30 September 31 March
2021 2020 2021
Unaudited Unaudited Audited
GBP'000 GBP'000 GBP'000
--------------------------------------------- ----------------- ----------------- -----------
Adjusted EBITDA 11,860 12,261 24,580
Effect of exchange rates - 18 -
Working capital movements (1,880) 636 1,881
--------------------------------------------- ----------------- ----------------- -----------
Adjusted cash generated from operations 9,980 12,915 26,461
Cash conversion 84% 105% 107.7%
Capital expenditure - cash purchases (2,118) (1,235) (2,937)
Capital expenditure - finance lease
purchases - (981) (2,235)
Proceeds from sale and lease back of
assets - - 1,036
--------------------------------------------- ----------------- ----------------- -----------
Net capital expenditure (2,118) (2,216) (4,136)
Corporation tax (5) 149 (149)
Interest paid (292) (261) (398)
Loan arrangement fees/fee amortisation - 41 (17)
Finance lease/term loan interest (509) (634) (1,017)
Effect of exchange rates - 1 (27)
--------------------------------------------- ----------------- ----------------- -----------
Other movements in net debt (806) (704) (1,608)
Normalised net debt movement 7,056 9,995 20,717
--------------------------------------------- ----------------- ----------------- -----------
Cash cost of acquisitions net of cash (8,366) - -
acquired
Cash costs of exceptional items 5,270 (2,452) (8,884)
Remeasurement related to lease modification - 4,221 3,917
Supplier loans - - (1,207)
Share issues - 5,775 5,775
Sale of treasury shares 7 - 494
Cash received on exercise of share
options - - 36
Dividends (3,749) - (1,868)
--------------------------------------------- ----------------- ----------------- -----------
(6,838) 7,544 (1,737)
Decrease in net debt 218 17,539 18,980
Net debt at the beginning of the period (15,569) (34,549) (34,549)
--------------------------------------------- ----------------- ----------------- -----------
Net debt at the end of the period (15,351) (17,010) (15,569)
--------------------------------------------- ----------------- ----------------- -----------
Net debt reduced by GBP0.2m in the period to GBP15.4m and
consists of total borrowings of GBP5.0m (FY-21: GBP5.8m) and leases
previously classified as operating leases under IAS17 of GBP13.9m
(FY-21: 15.1m) less cash balances of GBP3.6m (FY-21: GBP5.3m).
Adjusted cash generated from operations of GBP9.9m (84% cash
conversion) has been impacted by the following:
-- In previous periods the age profile of trade debtors has
aided an offset against the normal H1 creditor outflow, the
implementation of D365 in October 2020 facilitated invoices to be
issued an average of 10 days earlier, which accelerated payment
from customers and benefitted H2-21; and
-- tactical decisions to deploy working capital resources to
optimise EBITDA resulting in a GBP0.6m outflow to working
capital.
During H1-22 there has been GBP5.8m of cash benefit due to the
receipt of the consideration for the sale of assets relating to EDF
Contract on 31 March 2021. The Acquisition net of cash balances as
at 30 September 2021 was GBP8.4m.
At 30 September 2021, the Company had committed a revolving
credit facility ("RCF") of GBP5.0m (GBPnil utilised at 30 September
2021) and a GBP7.0m asset financing facility (GBP1.6m utilised at
30 September 2021). In addition, the Company has access to a
GBP20.0m accordion facility.
Related party transactions
There have been no material changes in the related party
transactions described in the last annual report and accounts of
the Company.
Principal risks and uncertainties
The principal risks and uncertainties, which could have a
material impact upon the Group's performance over the remaining six
months of the financial year ending 31 March 2022, have not changed
from those set out on pages 30 and 31 of the Group's 2021 annual
report and accounts, which is available at www.redcentricplc.com .
These risks and uncertainties include, but are not limited to the
following:
Market and economic conditions
Technology and cyber-security
Competition and market pressures
Business continuity
Loss of a major contract
Environmental impact
Covid-19
Covid-19
The Covid-19 pandemic continues to create an unprecedented and
constantly changing challenge to all businesses. As the country
gradually emerges from the depths of the pandemic, businesses are
evaluating operating models and challenging cost bases to adopt the
most efficient way of working. This presents both risks and
opportunities to the Group as businesses evaluate migrating from
traditional on premise and cloud solutions to hyper-scale cloud and
hybrid solutions. The Acquisition furnishes the Group with the
skills and expertise required to provide these services to existing
and new customers and we are already beginning to see increased
activity in this area.
Going concern
As stated in note 2 to the financial statements, the Board is
satisfied that the Group has sufficient resources to continue in
operation for the foreseeable future, a period of not less than 12
months from the date of this report. Accordingly, they continue to
adopt the going concern basis in preparing the condensed financial
statements.
By order of the Board,
Chief Executive Officer Chief Financial Officer
Peter Brotherton David Senior
17(th) November 2021 17(th) November 2021
Redcentric plc
Condensed consolidated statement of comprehensive income for the
six months ended 30 September 2021
Six months Six months Year ended
to 30 September to 30 September 31 March
2021 2020 2021
Unaudited Unaudited Audited
Note GBP'000 GBP'000 GBP'000
---------------------------------------- ----- ----------------- ----------------- -----------
Revenue 5 44,322 46,241 91,399
Cost of sales (16,684) (17,588) (33,460)
---------------------------------------- ----- ----------------- ----------------- -----------
Gross Profit 27,638 28,653 57,939
Operating expenditure (24,317) (25,573) (49,448)
Operating income - - 4,507
---------------------------------------- ----- ----------------- ----------------- -----------
Adjusted EBITDA (1) 11,860 12,261 24,580
Depreciation of property, plant,
and equipment (2,606) (2,755) (3,408)
Amortisation of intangibles (3,533) (3,667) (7,337)
Depreciation and Amortisation of (4,932
ROU assets (1,451) (1,370) )
Exceptional items 6 (665) (1,095) 4,782
Share-based payments (284) (294) (687)
Operating profit 3,321 3,080 12,998
Finance costs 7 (549) (828) (1,460)
---------------------------------------- ----- ----------------- ----------------- -----------
Profit before taxation 2,772 2,252 11,538
Income tax expense 8 (97) (146) (2,311)
---------------------------------------- ----- ----------------- ----------------- -----------
Profit for the period attributable
to owners of the parent 2,675 2,106 9,227
---------------------------------------- ----- ----------------- ----------------- -----------
Other comprehensive income
Items that may be classified to
profit or loss:
Currency translation differences - 18 103
Deferred tax movement on share options - - (224)
---------------------------------------- ----- ----------------- ----------------- -----------
Total comprehensive income for the
period 2,675 2,124 9,106
---------------------------------------- ----- ----------------- ----------------- -----------
Earnings per share
Basic earnings per share 9 1.71p 1.39p 6.01p
Diluted earnings per share 9 1.68p 1.36p 5.93p
---------------------------------------- ----- ----------------- ----------------- -----------
(1) For an explanation of the alternative performance measures
used in this report, please see above
Redcentric plc
Condensed consolidated statement of financial position as at 30
September 2021
30 Sept 30 Sept 31 March
2021 2020 2021
Unaudited Unaudited Audited
Note GBP'000 GBP'000 GBP'000
-------------------------------- ----- ----------- ----------- ---------
Non-Current Assets
Intangible assets 73,106 65,697 65,929
Property, plant, and equipment 5,133 15,826 5,834
Right-of-use assets 17,456 15,694 18,787
Deferred tax asset 2,055 2,098 561
97,750 99,315 91,111
-------------------------------- ----- ----------- ----------- ---------
Current Assets
Inventories 969 134 1,061
Trade and other receivables 10 19,774 17,899 25,663
Cash and short-term deposits 3,553 6,946 5,250
-------------------------------- ----- ----------- ----------- ---------
24,296 24,979 31,974
-------------------------------- ----- ----------- ----------- ---------
Total assets 122,046 124,294 123,085
-------------------------------- ----- ----------- ----------- ---------
Current Liabilities
Trade and other payables 11 (24,054) (18,605) (22,459)
Corporation tax payable (684) (579) (641)
Loans and borrowings 12 (498) (66) (487)
Leases 12 (3,855) (4,030) (3,735)
Provisions 13 (548) (8,572) (574)
-------------------------------- ----- ----------- ----------- ---------
(29,639) (31,852) (27,896)
-------------------------------- ----- ----------- ----------- ---------
Non-current liabilities
Loans and borrowings 12 (540) (2,710) (1,004)
Leases 12 (14,011) (17,151) (15,593)
Provisions 13 (2,744) (2,806) (2,695)
-------------------------------- ----- ----------- ----------- ---------
(17,295) (22,667) (19,292)
-------------------------------- ----- ----------- ----------- ---------
Total liabilities (46,934) (54,519) (47,188)
-------------------------------- ----- ----------- ----------- ---------
Net assets 75,112 69,775 75,897
-------------------------------- ----- ----------- ----------- ---------
Equity
Called up share capital 14 156 156 156
Share premium account 14 73,267 72,931 73,267
Capital redemption reserve (9,454) (9,454) (9,454)
Own shares held in treasury 14 (19) (180) (32)
Retained earnings 11,162 6,322 11,960
-------------------------------- ----- ----------- ----------- ---------
Total equity 75,112 69,775 75,897
-------------------------------- ----- ----------- ----------- ---------
Redcentric plc
Condensed consolidated statement of changes in equity as at 30
September 2021
Share Share Capital Own Shares Retained Total
Capital Premium Redemption Held Earnings Equity
Reserve in Treasury
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------------------- --------- --------- ------------ ------------- ---------- --------
At 1 April 2020 149 65,734 (9,454) (724) 4,096 59,801
Profit for the period - - - - 2,106 2,106
Transactions with owners
Share-based payments - - - - 257 257
Issue of new shares 7 7,197 - - - 7,204
Share options exercised - - - 544 (155) 389
Other comprehensive income
Currency translation
differences - - - - 18 18
---------------------------- --------- --------- ------------ ------------- ---------- --------
At 30 September 2020 156 72,931 (9,454) (180) 6,322 69,775
Profit for the period - - - - 7,121 7,121
Transactions with owners
Share-based payments - - - - 325 325
Issue of new shares - 336 - - - 336
Dividends paid - - - - (1,868) (1,868)
Share options exercised - - - 148 (43) 105
Other comprehensive income
Deferred tax movement
on share options - - - - 224 224
Currency translation
differences - - - - (121) (121)
---------------------------- --------- --------- ------------ ------------- ---------- --------
At 31 March 2021 156 73,267 (9,454) (32) 11,960 75,897
Profit for the period - - - - 2,675 2,675
Transactions with owners
Share-based payments - - - - 276 276
Issue of new shares - - - - -
Dividends paid - - - - (3,749) (3,749)
Share options exercised - - - 13 - 13
Other comprehensive income
Deferred tax movement - - - - - -
on share options
Currency translation - - - - - -
differences
---------------------------- --------- --------- ------------ ------------- ---------- --------
At 30 September 2021 156 73,267 (9,454) (19) 11,162 75,112
Redcentric plc
Consolidated cash flow statement for the six months ended 30
September 2021
Six months Six months Year ended
to 30 Sept to 30 31 March
2021 Sept 2020 2021
Unaudited Unaudited Audited
GBP'000 GBP'000 GBP'000
----------------------------------------------- ------------ ----------- -----------
Operating profit/(loss) 3,321 3,080 12,998
Adjustment for non-cash items
Depreciation and amortisation 7,590 7,792 15,677
Exceptional items 665 1,095 (4,782)
Share-based payments 284 294 687
----------------------------------------------- ------------ ----------- -----------
Operating cash flow before exceptional
items and movements in working capital 11,860 12,261 24,580
Loss on sale of fixed asset - - -
Exceptional items and NI on share-based
payments 5,270 (2,452) (8,884)
----------------------------------------------- ------------ ----------- -----------
Operating cash flow before changes in working
capital 17,130 9,809 15,696
Changes in working capital
Decrease / (increase) in inventories 390 757 (15)
Decrease in trade and other receivables 1,994 5,754 4,432
Decrease in trade and other payables (4,264) (5,875) (2,536)
----------------------------------------------- ------------ ----------- -----------
Cash generated from operations 15,250 10,445 17,577
----------------------------------------------- ------------ ----------- -----------
Tax (paid) / received (5) 149 (149)
----------------------------------------------- ------------ ----------- -----------
Net cash generated from operating activities 15,245 10,594 17,428
----------------------------------------------- ------------ ----------- -----------
Cash flows from investing activities
Acquisition of subsidiaries net of cash -
acquired (8,366) -
Purchase of property, plant, and equipment (1,664) (1,046) (1,541)
Purchase of intangible fixed assets (454) (189) (1,397)
Net cash used in investing activities (10,484) (1,235) (2,938)
----------------------------------------------- ------------ ----------- -----------
Cash flows from financing activities
Dividends paid (3,749) - (1,868)
Disposal of treasury shares on exercise
of share options 7 - 494
Cash received on exercise of share options - - 36
Interest paid (400) (823) (1,415)
Sale and leaseback - 1,439 1,036
Repayment of leases (2,316) (2,532) (4,481)
Repayment of revolving credit facility - (10,000) (12,500)
Issue of shares - 5,775 5,775
Net cash used in financing activities (6,458) (6,141) (12,923)
----------------------------------------------- ------------ ----------- -----------
Net (decrease) / increase in cash and cash
equivalents (1,697) 3,218 1,567
Cash and cash equivalents at beginning
of period 5,250 3,710 3,710
Effect of exchange rates - 18 (27)
Cash and cash equivalents at end of the
period 3,553 6,946 5,250
----------------------------------------------- ------------ ----------- -----------
Redcentric plc
Notes to the condensed set of financial statements for the six
months ended 30 September 2021
1. General information
The financial statements for the six months ended 30 September
2021 and the six months ended 30 September 2020 do not constitute
statutory accounts within the meaning of Section 434 of the
Companies Act 2006. Statutory accounts for the year ended 31 March
2021 were approved by the Board on 15 July 2021 and delivered to
the Registrar of Companies. The auditor's report on those accounts
was unqualified, did not contain an emphasis of matter paragraph
and did not contain any statement under Section 498 (2) or (3) of
the Companies Act 2006.
These condensed half year financial statements were approved for
issue by the Board on 17 November 2021.
Redcentric plc is a company domiciled in England and Wales.
These condensed half year financial statements comprise the Company
and its subsidiaries (together referred to as the "Company" or the
"Group"). The principal activity of the Company is the supply of IT
managed services .
2. Accounting policies
Basis of preparation
These condensed half year financial statements for the half year
ended 30 September 2021 have been prepared in accordance with the
AIM Rules for Companies, comply with IAS 34 Interim Financial
Reporting as adopted by the European Union and should be read in
conjunction with the annual financial statements for the year ended
31 March 2021, which have been prepared in accordance with
International Financial Reporting Standards (IFRS) as adopted by
the European Union.
Going concern
As at 30 September 2021 the Company was party to a GBP5.0m
revolving credit facility ("RCF") with a GBP20.0m accordion; both
have a termination date of 30 June 2022 and were undrawn as at the
reporting date. The Company also has a GBP7.0m asset financing
facility, with no fixed termination date, of which GBP1.6m was
utilised at the reporting date.
Following the preparation of the Company's budget, which is
planned to be completed in December 2021, the Company will
undertake a comprehensive re-financing exercise. This is expected
to be completed by 31 March 2022, to ensure that sufficient funding
is available for further acquisition activity.
The Board has reviewed a detailed trading and cash flow forecast
for a period which covers at least 12 months after the date of
approval of these condensed half year financial statements. As
Piksel is aligned to Redcentric's payment practices, a negative
working capital impact in the second half of FY22 is expected; it
is expected that Piksel will be cash generative in FY23.
Notwithstanding this, there is a high and continuing level of
recurring revenue and high cash conversion is anticipated for the
foreseeable future.
Whilst the Group's trading and cash flow forecasts have been
prepared using current trading assumptions, the operating
environment presents several challenges which could negatively
impact the actual performance achieved. These risks include, but
are not limited to, achieving forecast levels of order intake, the
impact on customer confidence because of general economic
conditions and Brexit. If future trading performance significantly
under-performs the Group's forecasts, this could impact the ability
of the Group to comply with its covenant tests over the period of
the forecasts.
The uncertainty as to the future impact on the Group of the
Covid-19 pandemic has been separately considered as part of the
Board's consideration of the going concern basis of preparation.
Whilst the Group has observed an absence of large-scale IT projects
these are not seen as materially negative and the trading
performance over the duration of the pandemic to date has been
positive. However, due to the continuing uncertainty over the
duration and extent of the impact of Covid-19, the Board has
modelled a severe but plausible downside scenario when preparing
the forecasts. The Board has also considered the impact of the
ongoing Covid-19 challenges in India on the employees and business
operations.
The downside scenario assumes significant economic downturn over
FY22 resulting in 50% reduction of forecast new order intake and
50% reduction in non-recurring revenues. This scenario also models
the impact of the loss of a key customer and severe negative
working capital assumptions with no mitigating actions implemented
to reduce discretionary spend. Under the downside scenario
modelled, the forecasts demonstrate that the Group is expected to
maintain sufficient liquidity and remain in compliance with
covenants whilst still maintaining adequate headroom against
overall facilities until March 2022 when a new bank facility is
expected to be put in place.
The Board therefore remains confident that the Group has
adequate resources to continue to meet its liabilities as and when
they fall due within the period of at least 12 months from the date
of approval of these financial statements. Accordingly, the
financial statements have been prepared on a going concern
basis.
The financial information is presented in sterling, which is the
functional currency of the Company. All financial information
presented has been rounded to the nearest thousand.
3. Critical accounting judgements and key sources of estimation uncertainty
Trade debtors impairment provision
The key source of estimation uncertainty that carries a
significant risk of material change to the carrying value of assets
and liabilities within the next year is with regard to credit note
provisioning, where provision is made for the value of credit notes
that the Company expects to subsequently issue to correct for
estimated inaccurate invoices issued to date. Following the FY21
year end the basis for provision was reviewed considering the level
of historical credit notes raised, and accordingly, the provision
was 1.0% of recurring revenue.
Identification of intangible assets
The allocation of the value of the excess consideration less the
net assets acquired are identified as intangible assets arising as
part of a business combination, these require judgement in respect
of the separately identifiable intangible assets that have been
acquired. These judgements are based upon the Board's opinion of
the identifiable assets from which economic benefits are
derived.
Fair value of assets acquired on business combinations
In accordance with IFRS 3 'Business Combinations', on the
acquisition of Piksel Limited, discussed in note 15, the Group
measured the identifiable assets acquired and the liabilities
assumed at their acquisition--date fair values. In most cases the
fair value was not materially different from the carrying values;
however, GBP3.69m of intangible assets other than goodwill were
recognised.
The valuation was undertaken using a multi-period excess
earnings method and relief from royalty method for valuing customer
relationships and brands respectively. The key estimates which
underly these valuations in addition to management's estimate of
future revenue, profits and cash generation are:
Required rate of return 10.3%
Long term revenue growth
rate 2.0%
----------------------
EBITDA margin for FY24
onwards 11.5%
----------------------
Royalty rate based on
benchmark average 2.0%
----------------------
Corporation tax rate 19% to FY23, 25%
in FY24 and terminal
----------------------
4. Segmental reporting
IFRS 8 requires operating segments to be identified based on
internal financial information reported to the chief operating
decision-maker for decision-making purposes. The Group considers
that this role is performed by the Board. The Board believes that
the Group continues to comprise a single reporting segment, being
the provision of managed services to customers.
5. Revenue analysis
Revenue for the six months ended 30 September 2021 was generated
wholly from the UK and is analysed as follows:
Six months Six months Year ended
to 30 to 30 31 March
Sept 2021 Sept 2020 2021
Unaudited Unaudited Audited
GBP'000 GBP'000 GBP'000
------------------- ----------- ----------- -----------
Recurring revenue 39,570 41,047 81,897
Product revenue 2,875 3,254 5,072
Services revenue 1,877 1,940 4,430
Total revenue 44,322 46,241 91,399
------------------- ----------- ----------- -----------
6. Exceptional items
Six months Six months Year ended
to 30 to 30 31 March
Sept 2021 Sept 2020 2021
Unaudited Unaudited Audited
GBP'000 GBP'000 GBP'000
------------------------------------------------- ----------- ----------- -----------
Professional fees associated with Financial
Conduct Authority investigation 8 (13) 57
Insurance advisor provision - - 553
Staff restructuring 128 383 393
Vacant property lease provisions net of - 13 -
costs
Onerous service contracts - 224 148
Acquisition of subsidiaries 494 - -
Circuit termination charges - - 4
Restitution 28 (225) (2,172)
Loss on lease modification - 649 649
Sale costs - 64 93
Costs / (profit) upon sale of non-core business
unit 7 - (4,507)
665 1,095 (4,782)
------------------------------------------------- ----------- ----------- -----------
7. Finance income and costs
Six months Six months Year ended
to 30 Sept to 30 Sept 31 March
2021 2020 2021
Unaudited Unaudited Audited
GBP'000 GBP'000 GBP'000
----------------------------------------------- ------------ ------------ -----------
Finance income
Other interest receivable - - -
- - -
----------------------------------------------- ------------ ------------ -----------
Finance costs
Interest payable on bank loans and overdrafts (13) (151) (240)
Interest payable on leases (518) (634) (1,165)
Amortisation of loan arrangement fees (18) (43) (55)
----------------------------------------------- ------------ ------------ -----------
(549) (828) (1,460)
----------------------------------------------- ------------ ------------ -----------
For the six months to 30 September 2021 interest payable on
leases includes GBP433,000 (H1-21: GBP562,000) of IFRS 16 interest
expense.
8. Income tax expense
The tax expense recognised reflects management estimates of the
tax charge for the period and has been calculated using the
estimated average tax rate of UK corporation tax for the financial
year of 19.0% (H1-21: 19.0%)
9. Earnings per share (EPS)
The calculation of basic and diluted EPS is based on the
following earnings and number of shares.
Six months Six months Year ended
to 30 Sept to 30 Sept 31 March
2021 Unaudited 2020 Unaudited 2021 Audited
Earnings GBP'000 GBP'000 GBP'000
---------------------------------------------- ---------------- ---------------- --------------
Statutory earnings 2,675 2,106 9,227
Tax charge 97 146 2,311
Amortisation of acquired intangibles 3,126 3,126 6,252
Share-based payments 284 294 687
Exceptional items 665 1,095 (4,782)
Adjusted earnings before tax 6,847 6,767 13,695
Notional tax charge at standard rate (1,301) (1,286) (2,602)
---------------------------------------------- ---------------- ---------------- --------------
Adjusted earnings 5,546 5,481 11,093
---------------------------------------------- ---------------- ---------------- --------------
Number Number Number
Weighted average number of ordinary shares '000 '000 '000
---------------------------------------------- ---------------- ---------------- --------------
Total shares in issue 156,184 151,932 153,930
Shares held in treasury (21) (204) (439)
---------------------------------------------- ---------------- ---------------- --------------
For basic EPS calculations 156,163 151,728 153,491
Effect of potentially dilutive share
options 3,441 2,982 2,215
---------------------------------------------- ---------------- ---------------- --------------
For diluted EPS calculations 159,604 154,710 155,706
---------------------------------------------- ---------------- ---------------- --------------
EPS Pence Pence Pence
Basic 1.71p 1.39p 6.01p
Adjusted 3.55p 3.61p 7.23p
Basic diluted 1.68p 1.36p 5.93p
Adjusted diluted 3.47p 3.54p 7.12p
10. Trade and other receivables
Six months Six months Year ended
to 30 to 30 31 March
Sept 2021 Sept 2020 2021
Unaudited Unaudited Audited
GBP'000 GBP'000 GBP'000
----------------------------- ----------- ----------- -----------
Trade Receivables 9,015 8,414 10,268
Less: credit note provision (1,115) (1,145) (1,104)
----------------------------- ----------- ----------- -----------
Trade receivables - net 7,900 7,269 9,164
Other receivables 594 619 5,825
Prepayments 6,956 5,739 6,579
Commission contract asset 1,877 2,566 2,096
Accrued income 2,447 1,706 1,999
Total 19,774 17,899 25,663
----------------------------- ----------- ----------- -----------
Trade debtor days were 31 at 30 September 2021 (30 September
2020: 33). The ageing of trade receivables is shown below:
Six months Six months Year ended
to 30 to 30 31 March
Sept 2021 Sept 2020 2021
Unaudited Unaudited Audited
GBP'000 GBP'000 GBP'000
------------------------ ----------- ----------- -----------
Current 7,188 7,017 9343
1 to 30 days overdue 1,561 907 600
31 to 60 days overdue 126 530 282
61 to 90 days overdue 115 (74) 21
91 to 180 days overdue 25 46 21
> 180 days overdue - (12) 1
------------------------ ----------- ----------- -----------
Gross trade debtors 9,015 8,414 10,268
Credit note provision (1,115) (1,145) (1,104)
Net trade debtors 7,900 7,269 9,164
------------------------ ----------- ----------- -----------
11. Trade and other payables
Six months Six months Year ended
to 30 to 30 31 March
Sept 2021 Sept 2020 2021 Audited
Unaudited Unaudited
GBP'000 GBP'000 GBP'000
------------------------------ ----------- ----------- --------------
Trade Payables 7,245 6,454 8,470
Other Payables 982 349 243
Taxation and Social Security 3,128 2,021 2,390
Accruals 4,297 2,444 3,885
Deferred Income 8,402 7,337 7,471
Total 24,054 18,605 22,459
------------------------------ ----------- ----------- --------------
Trade creditor days were 41 at 30 September 2021 (30 September
2020: 36).
12. Borrowings
Six months Six months Year ended
to 30 to 30 31 March
Sept 2021 Sept 2020 2021 Audited
Unaudited Unaudited
GBP'000 GBP'000 GBP'000
----------------------------------- ----------- ----------- --------------
Current
Lease liabilities 3,855 4,030 3,735
Term loans 498 101 487
Unamortised loan arrangement fees - (35) -
----------------------------------- ----------- ----------- --------------
Total 4,353 4,096 4,222
----------------------------------- ----------- ----------- --------------
Non-current
Lease liabilities 14,011 17,151 15,593
Term Loans 540 233 1,004
Bank Loans - 2,500 -
Unamortised loan arrangement fees - (23) -
----------------------------------- ----------- ----------- --------------
Total 14,551 19,861 16,597
----------------------------------- ----------- ----------- --------------
13. Provisions
Scheme Vacant
Restitution fees provision Dilapidation property Total
provision provision provision provision
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------------------- -------------- ---------------- --------------- ----------- ------------
At 1 April 2020 11,429 - 2,526 698 14,653
Additional provisions in
the period 130 - 280 - 410
Released during the period (598) - - - (598)
Utilised during the period (2,761) - - (326) (3,087)
---------------------------- -------------- ---------------- --------------- ----------- ------------
At 30 September 2020 8,200 - 2,806 372 11,378
Additional provisions in
the period - 553 53 21 627
Released during the period (1,574) - (164) (193) (1,931)
Utilised during the period (6,626) - - (179) (6,805)
---------------------------- -------------- ---------------- --------------- ----------- ------------
At 31 March 2021 - 553 2,695 21 3,269
Additional provisions in
the period - - 49 - 49
Released during the period - - - - -
Utilised during the period - (26) - - (26)
---------------------------- -------------- ---------------- --------------- ----------- ------------
At 30 September 2021 - 527 2,744 21 3,292
---------------------------- -------------- ---------------- --------------- ----------- ------------
Analysed as:
Current - 527 - 21 548
Non-current - - 2,744 - 2,744
---------------------------- -------------- ---------------- --------------- ----------- ------------
At 30 September 2021 - 527 2,744 21 3,292
---------------------------- -------------- ---------------- --------------- ----------- ------------
14. Share capital and share premium
Ordinary shares of
0.1p each Share premium
----------------------
Number GBP'000 GBP'000
---------------------- ------------ -------- --------------
At 1 April 2020 149,310,713 149 65,734
New shares issued 6,854,997 7 7,533
---------------------- ------------ -------- --------------
At 31 March 2021 156,165,710 156 73,267
New shares issued 50,000 - -
---------------------- ------------ -------- --------------
At 30 September 2021 156,215,710 156 73,267
---------------------- ------------ -------- --------------
At the start of the period the Company held in treasury 33,284
of its ordinary share capital. During the period, following notices
of exercise in relation to employee share options, 13,581 shares
previously held in treasury were transferred to satisfy the
exercises. At 30 September, the Company's issued share capital
consisted of 156,215,710 ordinary shares of which 19,703 which
remain in treasury.
15. Business combinations
On 29 September 2021, the Company's subsidiary, Redcentric
Solutions Ltd, completed the Acquisition for US$13.0m (c.GBP9.5m)
payable in cash, of which US$12.0m (c.GBP8.8m) was payable
immediately and US$1.0m (c.GBP0.7m) held in escrow for a period of
12 months. Pursuant to terms of the sales and purchase agreement in
relation to the Acquisition, the purchase price was subsequently
increased by GBP0.1m due to a revised assessment of Piksel's latest
research & development tax claim submission to HMRC.
Piksel provides IT modernisation and digital transformation
services, focussing on public cloud. It also delivers security and
IT managed services and has a strong application development and
DevOps capability. Its managed IT services are provided across a
broad range of industry verticals, with a particular focus on
Amazon Web Services and Microsoft Azure. The Acquisition gives
Redcentric leading-edge skills and capabilities in public cloud and
security to enable it to immediately provide additional solutions
to an enlarged customer base.
As at 30 September 2021, Piksel had net assets of GBP1.9m
including an assumed intra-group debtor of GBP3.1m, which is to be
written off post acquisition, and cash on the balance sheet of
GBP1.0m. Subsequent to the locked box date, it was agreed that the
purchase price be increased by GBP0.1m due to a revised assessment
of Piksel's latest RDEC claim with HMRC.
In addition, a provisional payment price allocation exercise led
to the recognition of a GBP3.7m intangible asset, which comprises
value associated the Piksel tradename and customer relationships.
Note 3 details the methods used to value these identified
intangible assets and sets out the key estimates and uncertainties
inherent therein.
Effect of the Acquisition
The Acquisition had the following effect on the Group's assets
and liabilities:
Provisional
fair values
on acquisition
GBP'000
------------------------------- ---------------
Intangible assets 32
Property, plant, and equipment 36
Deferred tax asset 972
Trade and other receivables 5,694
Cash and cash equivalents 965
------------------------------- ---------------
Total assets 7,699
Trade and other payables (5,685)
------------------------------- ---------------
Net assets 2,014
Identified intangible assets 3,685
Net assets acquired 5,699
------------------------------- ---------------
Goodwill 7,013
Total consideration 12,712
------------------------------- ---------------
Satisfied by:
Cash 8,782
Cash held in escrow 732
------------------------------- ---------------
Total cash consideration 9,514
Subsequent adjustments to
consideration 129
Intra-group debtor to be
written off 3,069
------------------------------- ---------------
Total consideration 12,712
------------------------------- ---------------
Goodwill
Goodwill arising on the business combination represents the
excess of the cost of the Acquisition over the fair value of the
Group's share of the identifiable net assets of Piksel at the date
of the Acquisition excluding the intra group debtor, which is to be
written off. Goodwill includes intangible assets that do not
qualify for separate recognition such as the value of the future
income from new customers, the potential cross-selling opportunity,
and the assembled work force of highly skilled technical
individuals.
Acquired receivables
The fair value of acquired receivables of GBP2.3m is materially
the same as the gross contractual receivable less the best estimate
of contractual cash flows not expected to be collected.
Acquisition related costs
The Group incurred acquisition related cost of GBP0.5m related
to advisory fees and stamp duty land tax. These costs have been
included in exceptional costs in the Group's consolidated statement
of comprehensive income.
Revenue and profit contribution
As noted above, whilst the Group's consolidated statement of
comprehensive income does not include Piksel's results for August
and September, the consolidated statement of financial position
reflects the benefit generated in that period with Piksel
delivering GBP2.1m of revenue and GBP0.1m profit before tax.
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END
IR DKOBKDBDBPDD
(END) Dow Jones Newswires
November 18, 2021 02:01 ET (07:01 GMT)
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