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Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
---|---|---|---|---|---|
Redcentric PLC | AQSE:RCN.GB | Aquis Stock Exchange | Ordinary Share | GB00B7TW1V39 | Ordinary Shares 0.1p |
Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|---|---|
0.00 | 0.00% | 140.00 | 133.00 | 147.00 | 140.00 | 139.00 | 140.00 | 0.00 | 08:40:44 |
Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
---|---|---|---|---|---|
0 | 0 | N/A | 0 |
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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