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Redcentric PLC   -  RCN   

Half Year Results

Released 07:00 28-Nov-2019

RNS Number : 9170U
Redcentric PLC
28 November 2019
 

Redcentric plc

Half year results for the six months ended 30 September 2019 (unaudited)

Redcentric plc ("Redcentric", "the Company", or "the Group") (AIM: RCN), a leading UK IT managed services provider, today announces its unaudited results for the six months to 30 September 2019.

 

Financial measures

Six months to 30 Sept 2019 (H1-20)1

Six months to 30 Sept 2019 (H1-20) pre-IFRS 161

Six months to 30 Sept 2018 (H1-19)

Change1

Total revenue

£43.2m

£43.2m

£47.5m

-9%

Recurring monthly revenue (RMR) 2

£38.8m

£38.8m

£41.3m

-6%

 

 

 

 

 

Adjusted EBITDA2

£10.3m

£8.8m

£8.1m

+8%

Adjusted operating profit2

£5.5m

£5.0m

£4.1m

+23%

Reported operating profit

£1.9m

£1.4m

£0.5m

+219%

 

 

 

 

 

Adjusted cash generated from operations2

£10.2m

£8.7m

£9.2m

-6%

Reported cash generated from operations

£9.8m

£8.2m

£8.8m

-6%

Net debt

£(40.0)m

£(16.5)m

£(22.6)m

-27%

 

 

 

 

 

Adjusted basic earnings per share2

2.41p

2.48p

1.89p

+31%

Reported basic earnings per share

0.34p

0.41p

(0.38)p

+208%

Interim dividend per share

0.83p

0.83p

0.4p

+108%

 

1 The results for H1-20 are not directly comparable with the prior year due to the adoption of IFRS 16 Leases. Further details are provided in note 3 to the financial statements, and Appendix 1, which sets out the impact of IFRS 16 Leases on the primary statements. The % change figures reported above relate to H1-20 vs. H1-19 pre any IFRS 16 Leases impact.

 

2 For an explanation of the alternative performance measures used in this report, please refer to Appendix 2.

Financial Highlights

·      Total revenue down by 9% to £43.2m, but good future visibility with £38.8m recurring revenue representing 90% of total revenue (H1-19: 87%).

·      Gross margins improved to 64.5% from 59.8%.

·      Adjusted (pre-IFRS 16) EBITDA up 8% to £8.8m (H1-19 £8.1m), with margin improving to 20.3% (H1-19 17.1%).

·      Adjusted (pre-IFRS 16) operating profit up 23% to £5.0m (H1-19 £4.1m), with margin improving to 11.6% (H1-19 8.6%).

·      Continued strong cash flows with £8.7m of adjusted pre-IFRS 16 operating cash flow in the period (99% cash conversion).

·      Net debt, excluding the impact of IFRS 16, reduced by £1.1m in the period to £16.5m, with £4.8m capital expenditure and £1.5m of dividends paid in the period.

·      Interim dividend increased to 0.83p per share (H1-19 0.4p) , to be paid in January.

Operational Highlights

·      Q1-20 recurring revenues were flat on Q4-19 and Q2-20 recurring revenues were up on Q1-20, driven by both new logo wins and effective cross-selling.

·      Operating margins continued to improve due the cost measures undertaken in the second half of the last financial year.

·      £1.1m invested in our national network and a further £1.5m invested in our infrastructure as a service (IaaS) platform. We now have modern, resilient and scalable platforms and networks from which we can service our current and future customer base.

·      Product management and Development teams reorganised, with managed firewall and SD WAN launched in Q3-20 and further enhancement to our Collaboration and Security portfolios to be launched in Q4-20.

·      Strategic review of our data centre and network portfolios underway, with the expectation that this will result in annual savings of at least £2.8m in FY21 onwards.

 

Ian Johnson, Non-Executive Chairman, commented:

"Visibility of future revenues remains strong with recurring revenues reaching 90%. New customers were added in the period which, together with effective cross selling, led to quarter on quarter revenue growth.  This revenue growth has been achieved despite the ongoing FCA investigation, which continues to impact the pace at which we win new business.

Management continues to improve the operational efficiency of the business. The strategic data centre and network portfolios review now underway is expected to lead to the realisation of annual savings of at least £2.8m and further improvements in operating margins. 

Cash flow remains strong allowing significant investment into our network and a further reduction to net debt in the period.  The Board is confident that the business will continue to generate strong cash flows enabling it to return cash to shareholders by way of dividend and further share purchases via the share buy-back programme."

 

There will be a presentation for analysts held at 09:30hrs on 28 November 2019 at the offices of Tulchan Communications, 85 Fleet Street, EC4 1AE. Please contact redcentric@tulchanCompany.com if you would like to attend.

For further enquiries please contact:

Redcentric plc                                                                                         +44 (0)1423 850 000

Peter Brotherton, Chief Executive Officer

Dean Barber, Chief Financial Officer

Tulchan                                                                                                   +44 (0)20 7353 4200

James Macey White / Matt Low / Sophie Duckworth                                                                   

Numis Securities Limited - Nomad and Joint Broker                           +44 (0)20 7260 1000

Simon Willis / Oliver Hardy

FinnCap Ltd - Joint Broker                                                                      +44 (0)20 7220 0500

Stuart Andrews / Rhys Williams

 

Chief Executive Officer's review

Overview

We have had another productive six months, with progress made across all areas of the business.  As well as continuing to extract cost efficiencies, it is particularly pleasing to note that we have stemmed the decline in recurring revenues. Whilst the half year comparatives show a decrease in recurring revenue of 6%, this reflects the opening run rate position.  Indeed, our Q1 recurring revenues were flat on Q4 and Q2 recurring revenues were up on Q1.  Encouragingly, this was driven by both new logo wins and effective cross-selling.

Non-recurring revenues are less predictable by nature and have been impacted in the period by the industry trend to move away from on-premise to cloud solutions. Additionally, customers have delayed their discretionary spending due to the economic uncertainty surrounding the ongoing Brexit negotiations.  This is reflected in the half year numbers with non-recurring revenues down by £1.8m (-29%) on the equivalent period last year. 

Profitability and operating margins continue to improve as a result of the cost reduction measures undertaken in the second half of the last financial year. In addition to these measures, we have recently commenced a strategic review of our network and data centre portfolios, vacating third party data centres and rationalising our legacy network connectivity contracts. This will align our infrastructure better with our future strategy and customer requirements. It will also yield significant savings, outlined in more detail below, expected to be at least £2.8m in FY21 onwards. The review will be complete by the time we announce our full year results and full details will be provided at that point.

 

The cash flows for the 6 months ended 30 September 2019 include an acceleration of capital expenditure with £1.1m invested in our national network which will shortly have a core capacity of 100Gb.  A further £1.5m has been invested in our infrastructure as a service (IaaS) platform and £0.9m in our new internal ERP system.  With these investments, we now have modern, resilient and scalable platforms and networks from which we can service our current and future customer base. Going forward, we anticipate lower levels of capital expenditure which will further enhance cash flow performance.

Improved profitability and cash generation have enabled us to declare an interim dividend of 0.83p per share (H1-19: 0.4p).  In addition to this, we have commenced a share buyback programme with purchases of £0.3m made as at 30 September 2019. 

Private sector

The private sector accounts for 85% of our recurring revenues.  Our focus on customer service has led to high levels of retention during the period and we continue to receive additional orders from existing customers.  As highlighted in last year's Annual Report, we believe that our margins are now reflective of the market and this is evidenced by significantly lower levels of price erosion on contracts renewed during the first half of the year.

Public Sector markets

Overview

Whilst the public sector accounted for just 15% of total recurring revenues, we continue to see significant opportunity for growth and anticipate that these revenues will represent an increasing percentage of future total revenues.

Health and Social Care Networks (HSCN)

In the FY19 Annual Report we listed 7 HSCN contract wins with annualised revenues of £3.1m.  Contract variations and additions in H1-20 have increased this figure to £3.4m.

The HSCN programme has added 66 new public sector logos to our customer base and represent a significant opportunity for us to cross sell additional products.  In addition to the HSCN revenues, a further £0.3m of annualised revenue from other products has been added to date.

Whilst these wins have been significant, the progress in implementing the contracts has been slower than expected, primarily due to customer resource constraints, resulting in only £178k of revenue being recognised in the first half of the year.  As at 30 September 2019, the run rate of installed HSCN contracts amounted to £648k per annum.  We are working closely with both our customers and NHS Digital to expedite these network rollouts.  Whilst the roll-out of the remaining revenue will continue in to FY21, we expect that the bulk of these contracts will be live by the end of this financial year.

Yorkshire and Humber Public Sector Networks (YHPSN)

YHPSN is the largest of the Public Sector framework contracts won by Redcentric in the past 18 months. After a difficult start to this framework award, we are starting to make some good progress.  70 organisations are part of the YHPSN framework and of these, 44 have placed orders with us.

To date the total value of orders received is £8.0m, which equates to an annualised revenue of £1.6m.

As with the other HSCN orders, progress in installing new circuits has been slower than anticipated but we are confident that the bulk of the current order book will be installed by the end of this financial year.

Our initial sales focus has been on selling HSCN circuits due to the need for health organisations to move off the N3 network which is scheduled to close in August 2020.  Going forward we will progress non-health opportunities and look to cross-sell additional products into this new customer base.

Public sector hosting

In last year's Annual Report, we highlighted the significant impact that the loss of public sector hosting contracts has had and will continue to have on the business.  In the six months to 30 September 2019, public sector hosting revenues amounted to £1.7m, £0.9m down on the equivalent period last year.

As previously notified, we expect the whole of this revenue to have migrated away from us by the end of the next financial year.

Products, platforms and networks

National network upgrade and efficiencies

Our core network has been upgraded to enable 10Gb connections to terminate on our network and we are in the process of expanding the network to give a 100Gb core.

During the period we completed the decommissioning of a network ring which originated from the historical inTechnology acquisition. The closure of this ring has realised £0.5m annualised savings effective 1 July 2019.

Infrastructure as a Service (IaaS) platform

We have commenced phase II of our IaaS platform upgrade which, once fully implemented, will bring our cloud product offering fully up to date.  We expect that this will be live by the end of the financial year.

New product launches

During the period we restructured the product management and development teams yielding immediate results, with new managed firewall and SD WAN products launched in Q3-20, and further enhancement to our Collaboration and Security portfolios to be launched in Q4-20

Data centre and network strategy review

We are now part-way through a strategic review of our network and data centre portfolios. Our aim is to vacate third party data centres and concentrate on our own managed facilities. This will allow us to rationalise legacy network connectivity contracts. The decisions taken to date will result in a £1.8m reduction to the annual cost base in FY21, with £0.4m benefit from this in H2-20. The review is ongoing and is expected to realise further savings of at least £1.0m in FY21, in addition to the £1.8m already being actioned. We expect to incur exceptional contract termination and exit costs of approximately £1.8m in H2-20.

These efficiency measures will not impact the required capacity to support future growth. By the end of the financial year the business will have an upgraded single UK wide network, with all of our customers located in Redcentric managed data centres and third-party facilities only utilised for interconnectivity purposes. No customer losses are expected as a result of this rationalisation programme.

People

PLC Board

On 16 October 2019 Ian Johnson joined the Board as Non-Executive Chairman replacing Chris Cole who resigned from the Board on the same day.  Ian Johnson is an experienced PLC chairman and we welcome him to the Company.  We thank Chris Cole for his considerable contribution to the Company over a five-year period and wish him well for the future.

Also, on 16 October 2019, Chris Rigg (Non-Executive Director) announced his intention to step down from the Board with effect from 31 December 2019 following his appointment as Chief Executive Officer of Mandata Limited.  Chris goes with our thanks and best wishes for the future.

Dean Barber joined the business on 2 September 2019 as Chief Financial Officer. Dean is a chartered accountant and joins us from EMIS Group plc where he was Group Financial Controller.

Operating Board

We have continued to invest in our staff and to strengthen the management teams in both the UK and India.  Several key appointments have been made in the first half of the financial year with the Operating Board strengthened as a result.  In addition, a new HR Director will be joining the senior management team in December.

The business currently has 465 employees all of whom are key to the success of the business.  The Board thanks them for their hard work and loyalty.

FCA

The FCA investigation is still ongoing and continues to deflect management's attention and to restrict the markets into which the Company can sell.  The FCA has not communicated how it intends to proceed and what, if any, action it might bring against the Company.  The Company continues to cooperate fully with the FCA and would like to bring the matter to a close as soon as possible.

Outlook and key areas of focus

We are cautiously optimistic for the future.  The changes we have made over recent periods are beginning to yield results in both the private and public sector.

Whilst we are operating in very competitive markets, we expect modest revenue growth in the second half and beyond.

We have invested significantly in our networks and platforms over the last two years to position the business for the future. Given this level of upfront investment we expect lower levels of capital expenditure over the medium term. This, combined with the cost efficiencies identified through the ongoing review of our data centre and network portfolio, should lead to further strong cash generation.

Our focus in the second half of the financial year will be fivefold:

·      To continue to grow revenue both by new customer acquisition and through cross selling of products to existing customers.

·      To expedite the delivery of public sector network wins.

·      To conclude the data centre and network strategy review

·      To enhance our product portfolio with new product launches and further product enhancements.

·      To continue to deliver strong cash flows which will be utilised to fund further share buy backs, pay dividends and reduce debt.

We anticipate that our FY20 results will be  in line with the Board's expectations.

 

Financial Review

Overview

Total revenue in the period reduced by 9% to £43.2m (H1-19: £47.5m). Recurring monthly revenue fell by 6% to £38.8m (H1-19: £41.3m), representing 90% (H1-19: 87%) of the total revenue.

On a pre-IFRS 16 basis, both adjusted EBITDA (up £0.7m to £8.8m) and adjusted operating profit (up £0.9m to £5.0m) were higher than prior year, with an improvement to gross profit margin and further reductions to the operating cost base in the period.

On a post-IFRS 16 basis, adjusted EBITDA increased by £2.2m and adjusted operating profit increased by £1.4m. The Company recognised £1.1m of depreciation charges and £0.6m of interest costs in respect of finance leases that would have previously been recognised as a £1.6m operating lease expense. On transition to IFRS 16 the Company recognised a right of use asset of £22.2m and lease liabilities of £24.5m. Further disclosure is presented in note 3 to the financial statements.  

Revenue

Revenue is analysed into the following categories:

 

·      Recurring monthly revenue, lower at £38.8m (H1-19: £41.3m), reflecting the closing Q4-19 run-rate position. In the period, Q1-20 revenues were flat on Q4-19 with Q2-20 revenues up on Q1-20.

·      Non-recurring product revenue, which was lower at £2.1m (H1-19: £3.3m), impacted by the industry trend to move away from on-premise to cloud solutions and by customers delaying discretionary spending due to the economic uncertainty surrounding the ongoing Brexit negotiations.

·      Non-recurring services revenue, which was slightly lower at £2.3m (H1-19: £2.8m).

 

Gross profit

Gross profit decreased by 2% (£0.5m) reflecting the Company's lower revenue, with an improvement in gross margin to 64.5% (H1-19: 59.8%) driven by continued management of third-party operating costs and the reduction in lower margin product revenues.

 

Operating costs

The Company's pre-IFRS 16 adjusted operating costs (operating expenditure excluding depreciation, amortisation, exceptional items and share-based payments) are set out in the table below:

 

H1-20

H1-19

Change

 

 

£'000

£'000

£'000

Change %

UK staff costs

9,661

10,480

(819)

-8%

Office and data centre costs

3,704

3,462

242

+7%

Network and equipment costs

3,603

3,708

(105)

-3%

Other sales, general and administration costs

983

1,463

(480)

-33%

Offshore costs

1,123

1,140

(17)

-1%

Total adjusted operating costs, pre-IFRS 16

19,074

20,253

(1,179)

-6%

 

Adoption of IFRS 16 reduces operating costs by £1,571k to £17,503k. A right of use asset of £21,079k is recognised at 30 September in relation to leases that were previously classified as operating leases, with operating lease expenditure reduced by £1,571k in the period but depreciation and interest expense higher by £1,103k and £597k respectively.

 

Total adjusted operating costs for H1-20 were 6% (£1.2m) lower than prior year, primarily driven by:

 

·      UK staff costs down £0.8m, driven by lower headcount. The Company employed 318 UK staff at 30 September 2019 with an average headcount over the period of 314 (H1-19: 337).

·      Other sales, general and administration costs down £0.5m, with prior year including £0.5m of HSCN bid (consultancy) costs.

 

Offshore costs were in line with prior year with the Company employing 147 staff in India at 30 September 2019. Average Indian headcount over the period was 150 (H1-19: 146).

 

Profitability and dividend

Excluding the impact of IFRS 16 adoption, adjusted EBITDA (£8.8m) and adjusted operating profit (£5.0m) were up 8% and 23% respectively, with an EBITDA margin of 20.3% (H1-19: 17.1%) and adjusted operating profit margin of 11.5% (H1-19: 8.6%).

After accounting for exceptional items of £0.2m (H1-19: £0.2m) and share-based payment costs of £0.3m (H1-19: £0.2m), reported operating profit was higher at £1.4m (H1-19: £0.5m). On a post-IFRS 16 basis reported operating profit was £1.9m.

Net finance costs for the period were £1.1m (H1-19: £0.6m), including £0.6m of IFRS 16 finance charges.

The tax charge for the period was £0.4m (H1-19: £0.5m), comprising an income tax charge of £0.5m (H1-19: £nil), a current year deferred tax credit of £0.3m  (H1-19: £0.2m), and a deferred tax charge  in respect of prior years of £0.2m (H1-19: £0.7m).

Adjusted basic and diluted earnings per share (EPS) increased by 28% and 27% to 2.41p and 2.38p respectively (H1-19: 1.89p and 1.88p respectively). The reported basic and diluted EPS were also higher at 0.34p (H1-19: (0.38)p loss per share).

In accordance with the dividend policy previously announced, an interim dividend of 0.83p per share will be paid on 10 January 2020 to shareholders on the register at the close of business on 6 December 2019.

 

Cash flow and net debt

The principal movements in pre-IFRS 16 net debt are set out in the table below.

 

H1-20, pre-IFRS 16

H1-19

FY 2019

 

£'000

£'000

£'000

Adjusted EBITDA, pre-IFRS 16

8,759

8,115

16,714

Working capital movements

(82)

1,120

4,575

Adjusted cash generated from operations, pre IFRS 16

8,677

9,235

21,289

Cash conversion

99%

114%

127%

 

 

 

 

Capital expenditure - cash purchases

(2,267)

(2,884)

(5,229)

Capital expenditure - finance lease purchases

(2,484)

(185)

(2,506)

Proceeds from sale and lease back of assets

-

-

1,181

Proceeds from sale of fixed assets

-

-

665

Net capital expenditure

(4,751)

(3,069)

(5,889)

 

 

 

 

Corporation tax

(248)

(38)

(1,873)

Interest paid

(440)

(545)

(1,044)

Loan arrangement fees / fee amortisation

(4)

(34)

(68)

Effect of exchange rates

18

(32)

(8)

Other movements in net debt

(674)

(649)

(2,993)

 

 

 

 

Normalised net debt movement

3,252

5,517

12,407

 

 

 

 

Cash cost of exceptional items

(444)

(431)

(1,668)

Share buy-back

(278)

-

-

Dividends

(1,491)

-

(597)

 

(2,213)

(431)

(2,265)

 

 

 

 

Decrease in net debt

1,039

5,086

10,142

Net debt at the beginning of the period, pre-IFRS 16

(17,565)

(27,707)

(27,707)

Net debt at the end of the period, pre-IFRS 16

(16,526)

(22,621)

(17,565)

 

Net debt (pre-IFRS 16) of £16.5m at the end of the period consists of total borrowings of £12.7m plus finance leases of £6.0m, less cash balances of £2.2m. Pre-IFRS 16 adjusted cash generated from operations was £8.7m (H1-19: £9.2m), with the reduction driven by timing differences in working capital against a strong comparative period. Operating cash conversion was again high at 99% (H1-19: 113.8%).

 

There was an acceleration of capital expenditure in the period, with net capital expenditure of £4.8m (H1-19: £3.1m), principally relating to investment in our national network and our IaaS platform. £0.3m was spent on the share buy-back programme and £1.5m on dividends. After finance costs, tax, and the cash cost of exceptional items the Company ended the period with net debt, excluding IFRS 16 lease liabilities, of £16.5m (30 September 2018: £22.6m; 31 March 2019: £17.6m). Including IFRS 16 lease liabilities of £26.9m the Company's net debt at 30 September 2019 was £40.0m.

A further £7.5m of unutilised bank facility was cancelled during the period, leaving a total facility at 30 September 2019 of £25.5m, compromising a revolving credit facility (RCF) of £17.5m, an overdraft facility of £2.0m and a £6m asset financing facility. In addition, the Company has access to a £20m accordion facility. At 30 September 2019 £5.0m of the RCF and £2.0m of the overdraft was undrawn. 

The current facilities expire on 30 November 2020. Dialogue is underway with lenders to determine the appropriate quantum and facility required beyond this date.

 

Consolidated statement of comprehensive income for the six months ended 30 September 2019

 

 

 

Six months ended 30 September 2019

Unaudited

Six months ended 30 September 2018

Unaudited

 

Year ended

31 March

2019

Audited

 

Note

£'000

£'000

£'000

Revenue

8

43,152

47,452

93,260

Cost of sales

 

(15,319)

(19,084)

(36,895)

Gross Profit

 

27,833

28,368

56,365

Operating expenditure

 

(25,929)

(27,918)

(56,650)

 

 

 

 

 

Adjusted EBITDA

 

10,330

8,115

16,714

Depreciation

 

(4,274)

(3,493)

(7,330)

Amortisation of intangibles

 

(3,730)

(3,689)

(7,392)

Exceptional items

9

(169)

(243)

(1,911)

Share-based payments     

 

(253)

(240)

(366)

 

 

 

 

 

Operating profit / (loss)

 

1,904

450

(285)

 

 

 

 

 

Finance income

10

-

12

13

Finance costs

10

(1,017)

(584)

(1,091)

Profit / (loss) on ordinary activities before taxation

 

887

(122)

(1,363)

Income tax expense

11

(381)

(449)

(604)

Profit / (loss) for the period attributable to owners of the parent

 

506

(571)

(1,967)

 

 

 

 

 

Other comprehensive income

 

 

 

 

Items that may be classified to profit or loss:

 

 

 

 

Currency translation differences

 

39

(28)

8

Total comprehensive income / (loss) for the period

 

545

(599)

(1,959)

 

 

 

 

 

Earnings per share

 

 

 

 

Basic earnings/(loss) per share

12

0.34p

(0.38)p

(1.32)p

Diluted earnings/(loss) per share

12

0.34p

(0.38)p

(1.32)p

 

Consolidated statement of financial position as at 30 September 2019 

 

 

30 Sept 2019

Unaudited

30 Sept 2018

Unaudited

31 March 2019

Audited

 

Note

£'000

£'000

£'000

Non-Current Assets

 

 

 

 

Intangible assets

 

72,354

79,436

75,802

Property, plant and equipment

 

19,438

19,173

18,133

Right-of-use assets

14

21,079

-

-

Deferred tax asset

 

307

-

142

 

 

113,178

98,609

94,077

Current Assets

 

 

 

 

Inventories

 

302

443

357

Trade and other receivables

15

19,521

22,510

22,103

Cash and short-term deposits

 

2,183

6,282

7,206

 

 

22,006

29,235

29,666

Total assets

 

135,184

127,844

123,743

 

 

 

 

 

Current Liabilities

 

 

 

 

Trade and other payables

16

(19,622)

(19,617)

(22,297)

Corporation tax payable

 

(104)

(836)

-

Lease liabilities

 

(4,512)

-

-

Borrowings

17

(127)

(3,091)

(3,056)

Provisions

18

(150)

-

(149)

 

 

(24,515)

(23,544)

(25,502)

Non-current liabilities

 

 

 

 

Deferred tax liability

 

-

(506)

-

Lease liabilities

 

(25,009)

-

-

Borrowings

17

(12,565)

(25,812)

(21,715)

Provisions

18

(893)

(530)

(881)

 

 

(38,467)

(26,848)

(22,596)

Total liabilities

 

(62,982)

(50,392)

(48,098)

Net assets

 

72,202

77,452

75,645

 

 

 

 

 

Equity

 

 

 

 

Called up share capital

19

149

149

149

Share premium account

19

65,736

65,588

65,588

Capital redemption reserve

 

(9,454)

(9,454)

(9,454)

Own shares held in treasury

19

(278)

-

-

Retained earnings

 

16,049

21,169

19,362

Total Equity

 

72,202

77,452

76,645

 

 

Consolidated cash flow statement for the six months ended 30 September 2019

 

Six months to 30 Sept 2019

Unaudited

Six months to 30 Sept 2018

Unaudited

Year ended

31 March

2019

Audited

 

£'000

£'000

£'000

Operating profit

1,904

450

(285)

Adjustment for non-cash items

 

 

 

Depreciation and amortisation

8,004

7,182

14,722

Exceptional items

169

243

1,911

Share-based payments

253

240

366

Operating cash flow before exceptional items and movements in working capital

10,330

8,115

16,714

Loss on sale of fixed asset

-

-

(42)

Exceptional items and NI on share-based payments

(444)

(431)

(1,668)

Operating cash flow before changes in working capital

9,886

7,684

15,004

Changes in working capital

 

 

 

Decrease in inventories

55

223

309

Decrease in trade and other receivables

2,254

1,364

5,775

Decrease in trade and other payables

(2,391)

(466)

(1,467)

Cash generated from operations

9,804

8,805

19,621

 

 

 

 

Adjusted cash generated from operations1

10,248

9,236

21,289

Cash costs of exceptional items

(444)

(431)

(1,668)

Cash generated from operations

9,804

8,805

19,621

Tax paid

(248)

(38)

(1,873)

Net cash generated from operating activities

9,556

8,767

17,748

 

 

 

 

Cash flows from investing activities

 

 

 

Proceeds from sale of property, plant and equipment

-

-

665

Purchase of property, plant and equipment

(2,081)

(2,884)

(4,665)

Purchase of intangible fixed assets

(186)

-

(564)

Net cash used in investing activities

(2,267)

(2,884)

(4,564)

 

 

 

 

Cash flows from financing activities

 

 

 

Dividends paid

(1,491)

-

(597)

Share buy-back

(278)

-

-

Interest paid

(440)

(545)

(1,044)

Repayment of borrowings / finance leases

(1,550)

(1,613)

(1,918)

Payment of IFRS 16 lease liabilities

(1,571)

-

-

Repayment of revolving credit facility

(7,000)

(3,500)

(8,500)

Net cash used in financing activities

(12,330)

(5,658)

(12,059)

 

 

 

 

Net increase in cash and cash equivalents

(5,041)

225

1,125

Cash and cash equivalents at beginning of period

7,206

6,089

6,089

Effect of exchange rates

18

(32)

(8)

Cash and cash equivalents at end of the period

2,183

6,282

7,206

 

 

 

 

  

Consolidated statement of changes in equity

 

Share Capital

Share Premium

Capital Redemption Reserve

Own Shares Held in Treasury

Retained Earnings

Total Equity

 

£'000

£'000

£'000

£'000

£'000

£'000

Balance at 1 April 2018

149

65,588

(9,454)

-

21,565

77,848

Loss for the period

-

-

-

-

(571)

(571)

Transactions with owners

 

 

 

 

 

 

Share-based payments

-

-

-

-

204

204

Other comprehensive income

 

 

 

 

 

 

Currency translation differences

-

-

-

-

(28)

(28)

At 30 September 2018

149

65,588

(9,454)

-

21,170

77,453

Loss for the period

-

-

-

-

(1,396)

(1,396)

Transactions with owners

 

 

 

 

 

 

Share-based payments

-

-

-

-

149

149

Dividends paid

-

-

-

-

(597)

(597)

Other comprehensive income

 

 

 

 

 

 

Currency translation differences

-

-

-

-

36

36

At 31 March 2019

149

65,588

(9,454)

-

19,362

75,645

Adjustment on initial application of IFRS 16

-

-

-

-

(2,429)

(2,429)

Profit for the period

-

-

-

-

506

506

Transactions with owners

 

 

 

 

 

 

Share-based payments

-

-

-

-

62

62

Share buyback

 

 

 

(278)

-

(278)

Issue of new shares

-

148

-

-

-

148

Dividends paid

-

-

-

-

(1,491)

(1,491)

Other comprehensive income

 

 

 

 

 

 

Currency translation differences

-

-

-

-

39

39

At 30 September 2019

149

65,736

(9,454)

(278)

16,049

72,202

 

  

Notes to the half year financial statements

1.     General information

The financial statements for the six months ended 30 September 2019 and the six months ended 30 September 2018 do not constitute statutory accounts within the meaning of Section 434 of the Companies Act 2006. Statutory accounts for the year ended 31 March 2019 were approved by the Board of Directors on 25 June 2019 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 of Directors on 27 November 2019.

Redcentric plc ('the Company') 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.     Basis of preparation

These condensed half year financial statements for the half year ended 30 September 2019 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 2019, which have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union.

The directors have 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. There is a high and continuing level of recurring revenue and high cash conversion is anticipated for the foreseeable future.

As at 30 September 2019 the Company had committed a revolving credit facility (RCF) of £17.5m, an overdraft facility of £2.0m and a £6m asset financing facility. In addition, the Company has access to a £20m accordion facility. At 30 September 2019 £5.0m of the RCF and £2.0m of the overdraft was undrawn. During the period, the continuing strength of operating cash flows enabled the Company to cancel £7.5m of unused RCF facility. These current facilities expire on 30 November 2020, with dialogue underway with the lenders to determine the appropriate quantum and facility required beyond this date. The Directors are not aware of any facts or circumstances that would prevent this refinancing process from being successful.

After careful enquiry and review of available financial information, the directors have formed the conclusion that the Company has adequate resources to continue to operate for the foreseeable future and that it is therefore appropriate to continue to adopt the going concern basis of accounting in the preparation of these half year financial statements.

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.     Accounting policies

Except for the adoption of IFRS 16 Leases, detailed below, the accounting policies applied in these interim financial statements are the same as those applied in the Company's annual report and accounts for the year ended 31 March 2019. Following the adoption of IFRS 16, non-current assets now include the category of right-of-use assets, with depreciation provided on these on a straight-line basis over the shorter of the lease term and its useful life. For property, plant and equipment funded through finance leases, where there is reasonable certainty that the Company obtains ownership by the end of the lease term, depreciation is  provided on a straight line basis over the  useful life, otherwise it's provided over the shorter of the useful life and the lease term.

 

IFRS 16 Leases

The Company has adopted IFRS 16 Leases from 1 April 2019, replacing IAS 17, using the modified retrospective approach. The cumulative effect of initial application is recognised in retained earnings at 1 April 2019 and accordingly comparative information presented has not been restated.

 

IFRS 16 has introduced a single on-balance sheet accounting model for lessees. As a result, the Company, as a lessee, has recognised right-of-use assets representing its rights to use the underlying assets, and lease liabilities representing its obligation to make lease payments. The Company has presented its right-of-use assets and lease liabilities on the face of the balance sheet. The table below summarises the impact on transition, the Company recognising an adjustment of £2,429,000 to opening retained earnings.
 

 

1 April 2019

 

£'000

Right-of-use assets

22,182

Trade and other receivables (deferred lease incentives derecognised)

(132)

Current lease liabilities

(1,989)

Non-current lease liabilities

(22,490)

Retained earnings

(2,429)

 

In relation to those leases under IFRS 16, the Company now recognises depreciation and interest costs, instead of an operating lease expense. During the six months ended 30 September 2019, this amounted to £1.1m of depreciation charges and £0.6m of interest costs from these leases.

 

The impact of IFRS 16 on the consolidated income statement, consolidated statement of financial position, and consolidated cash flow statement for the six months ended 30 September 2019 is set out in Appendix 1.

 

At transition, for leases classified as operating leases under IAS 17, lease liabilities were measured at the present value of the remaining lease payments, discounted at an incremental borrowing rate which reflects the characteristics of the underlying lease, at 1 April 2019. The weighted average incremental borrowing rate applied is 5.1%.

 

Right-of-use assets are measured at either:

 

·      their carrying amount as if IFRS 16 had been applied since the lease commencement date, discounted by the Company's incremental borrowing rate as at 1 April 2019. The Company has applied this methodology to the majority of its property leases where the required historical information is available; or

·      an amount equal to the lease liability, adjusted for prepaid / accrued lease payments. This method has been applied to the small number of non-property leases.

 

The Company has applied the following practical expedients on transition:

 

·      leases for underlying assets that have a low value (less than £5,000) or where the remaining lease term on transition was less than 12 months have been excluded;

·      a single discount rate applied to its small portfolio of car leases; and

·      reliance on previous assessments on whether leases are onerous instead of performing impairment reviews under IAS 36

 

The table below reconciles the Company's operating lease commitment at 31 March 2019, under IAS 17, to the lease liability now being recognised under IFRS 16.

 

1 April

 2019

 

£'000

Operating lease commitment at 31 March 2019 as disclosed in the Company's consolidated financial statements

32,665

Discounted using the incremental borrowing rate at 1 April 2019

24,513

Recognition exemption for leases of low value assets

(31)

Recognition exemption for leases with less than twelve months of lease term at transition

(3)

Lease liabilities recognised as at 1 April 2019

24,479

 

4.     Critical accounting judgements and key sources of estimation uncertainty

The key source of estimation uncertainty that carries a significant risk of material change to the carrying value of assets 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. The basis for this estimation is unchanged from the 2019 annual report and accounts.

 

The Company has adopted IFRS 16 for the first time in these financial statements, with £23.5m of IFRS 16 lease liabilities, principally property leases, recognised at 30 September 2019. Judgement has been applied in determining whether a contract contains a lease and the anticipated tenure length on these leases (whether or not break clauses will be exercised has been determined based on our historical experience and expectations for future trading and capacity requirements). Estimations have been made with regard to discount rates applied.

 

The FCA investigation is still ongoing and has not yet reached its conclusion. Until such stage as the FCA's intention becomes clearer, the Directors are not able to judge whether a fine will be likely, and accordingly, consistent with the treatment in the 2019 annual report and accounts, no provision has been made.

5.     Principal risks and uncertainties

The 2019 annual report and accounts describes the principal risks and uncertainties that could impact the Group's performance. These relate to reliance on key personnel and management, market and economic conditions, technology advancement and security, infrastructure failure, and the ongoing FCA investigation. These remain unchanged since the annual report was published and are not expected to change for the remaining six months of the financial year. Identifying, evaluating and managing the principal risks and uncertainties facing the Group is an integral part of the way Redcentric operates.

 

It is not anticipated that Brexit will have a material direct effect on the Group as it is not a significant exporter or importer of goods or services. There are potential indirect effects, including exchange rate volatility affecting the value of sterling, and delays in customers discretionary spending, which could have a negative impact on the Group's prospects, but the scale and timing of these is far from certain. The Group will continue to monitor the progress of the negotiations of the terms under which the UK will leave the EU.

 

6.     Forward-looking statements

Certain statements in this half year report are forward-looking. Although the Company believes that the expectations reflected in these forward-looking statements are reasonable, it can give no assurance that these expectations will prove to have been correct. Because these statements involve risks and uncertainties, actual results may differ materially from those expressed or implied by these forward-looking statements.

 

7.     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 main Board.  The Board believes that the Group continues to comprise a single reporting segment, being the provision of managed services to customers.

 

8.     Revenue analysis

Revenue is analysed as follows:

 

Six months to 30 Sept 2019 Unaudited

Six months to 30 Sept 2018 Unaudited

Year ended

31 March

2019

Audited

 

£'000

£'000

£'000

Recurring revenue

38,810

41,322

80,544

Product revenue

2,079

3,328

5,810

Services revenue

2,263

2,802

6,906

Total revenue

43,152

47,452

93,260

 

9.     Exceptional items

 

Six months to 30 Sept 2019

Unaudited

Six months to 30 Sept 2018 Unaudited

Year ended

31 March

2019

Audited

 

£'000

£'000

£'000

Professional fees associated with Financial Conduct Authority investigation

67

243

554

Staff restructuring

102

-

804

Vacant property provisions

-

-

553

 

169

243

1,911

 

10.   Finance income and costs

 

Six months to 30 Sept 2019

Unaudited

Six months to 30 Sept 2018

Unaudited

Year ended

31 March

2019

Audited

 

£'000

£'000

£'000

Finance income

 

 

 

Other interest receivable

-

12

13

 

-

12

13

 

 

 

 

Finance costs

 

 

 

Interest payable on bank loans and overdrafts

(308)

(509)

(947)

Interest payable on finance leases

(666)

(41)

(93)

Amortisation of loan arrangement fees

(43)

(34)

(51)

 

(1,017)

(584)

(1,091)

For the six months to 30 September 2019 interest payable on finance leases includes £597,000 of IFRS 16 interest expense.

 

11.   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% (H1-19: 19.0%)

 

12.   Earnings per share (EPS)

The calculation of basic and diluted EPS is based on the following earnings and number of shares.

 

Six months to 30 Sept 2019 Unaudited

Six months to 30 Sept 2018 Unaudited

Year ended

31 March

2019 Audited

Earnings

£'000

£'000

£'000

Statutory earnings

506

(571)

(1,967)

Tax charge

381

449

604

Amortisation of acquired intangibles

3,126

3,126

6,252

Share-based payments

253

240

366

Exceptional items

169

243

1,911

Adjusted earnings before tax

4,435

3,487

7,166

Notional tax charge at standard rate

(843)

(662)

(1,362)

Adjusted earnings

3,592

2,825

5,804

 

 

 

 

 

Weighted average number of ordinary shares

Number

'000

Number

'000

Number

'000

Total shares in issue

149,311

149,135

149,135

Shares held in treasury

(327)

-

-

For basic EPS calculations

148,984

149,135

149,135

Effect of potentially dilutive share options

1,915

1,455

1,141

For diluted EPS calculations

150,899

150,590

150,276

 

 

 

 

EPS

Pence

Pence

Pence

Basic

0.34p

(0.38)p

(1.32)p

Adjusted

2.41p

1.89p

3.89p

Basic diluted

0.34p

(0.38)p

(1.32)p

Adjusted diluted

2.38p

1.88p

3.86p

 

13.   Dividends

In relation to the 2019 financial year an interim dividend of 0.4p was paid on 21 December 2018 amounting to £597,000 followed by a final dividend of 1p on 6 September 2019 amounting to £1,491,000. For the 2020 financial year, the Directors have approved an interim dividend of 0.83p, which will be payable on 10 January 2020, to shareholders on the register at the close of business on 6 December 2019. This interim dividend, which will amount to approximately £1,237,000, has not been recognised as a liability in these financial statements.

 

14.   Right-of-use assets

 

 

Leasehold property

£000

Vehicles & computer equipment
£000

Total
£000

Cost

 

 

 

At 1 April 2018, 30 September 2018 and 31 March 2019

-

-

-

Effect of initial application of IFRS 16

29,423

657

30,080

At 30 September 2019

29,423

657

30,080

 

 

 

 

Accumulated depreciation

 

 

 

At 1 April 2018, 30 September 2018 and 31 March 2019

-

-

-

Effect of initial application of IFRS 16

7,898

-

7,898

Charged in period

1,005

98

1,103

At 30 September 2019

8,903

98

9,001

 

 

 

 

Net book value

 

 

 

At 30 September 2019

20,520

559

21,079

At 1 April 2018, 30 September 2018 and 31 March 2019

-

-

-

 

15.   Trade and other receivables

 

Six months to 30 Sept 2019

Unaudited

Six months to 30 Sept 2018

Unaudited

Year ended 31 March 2019

Audited

 

£'000

£'000

£'000

Trade Receivables

10,345

11,242

13,112

Less: credit note provision

(1,356)

(1,057)

(1,521)

Trade receivables - net

8,989

10,185

11,591

Other receivables

233

270

194

Prepayments

5,814

8,170

6,133

Commission contract asset

2,438

-

2,040

Accrued income

2,047

3,885

1,949

Corporation tax

-

-

196

Total

19,521

22,510

22,103

 

Trade debtor days were 40 at 30 September 2019 (30 September 2018: 44). The ageing of trade receivables is shown below:

 

Six months to 30 Sept 2019

Unaudited

Six months to 30 Sept 2018

Unaudited

Year ended 31 March 2019

Audited

 

£'000

£'000

£'000

Current

7,484

7,946

9,074

1 to 30 days overdue

1,777

1,112

2,628

31 to 60 days overdue

586

1,150

505

61 to 90 days overdue

217

182

99

91 to 180 days overdue

138

470

390

> 180 days overdue

143

382

416

Gross trade debtors

10,345

11,242

13,112

Credit note provision

(1,356)

(1,057)

(1,521)

Net trade debtors

8,989

10,185

11,591

 

16.   Trade and other payables

 

Six months to 30 Sept 2019 Unaudited

Six months to 30 Sept 2018 Unaudited

Year ended

31 March 2019 Audited

 

£'000

£'000

£'000

Trade Payables

5,989

6,524

6,603

Other Payables

391

233

275

Taxation and Social Security

2,281

2,142

3,249

Accruals

2,849

2,959

3,028

Deferred Income

8,112

7,759

9,142

Total

19,622

19,617

22,297

 

Trade creditor days were 44 at 30 September 2019 (30 September 2018: 31).

 

17.   Borrowings

 

Six months to 30 Sept 2019 Unaudited

Six months to 30 Sept 2018 Unaudited

Year ended

31 March

2019 Audited

 

£'000

£'000

£'000

Current

 

 

 

Finance Leases

-

3,091

2,762

Term Loans

187

-

294

Unamortised loan arrangement fees

(60)

-

-

Total

127

3,091

3,056

 

 

 

 

 

 

 

 

Non-current

 

 

 

Bank Loan

12,500

24,500

19,500

Finance leases

-

1,414

2,214

Term loans

69

-

69

Unamortised loan arrangement fees

(4)

(102)

(68)

Total

12,565

25,812

21,715

 

Following the adoption of IFRS 16, for the six months to 30 September 2019 current finance lease liabilities of £2,554,000, and non-current finance lease liabilities  of £3,462,000, have been presented as lease liabilities on the face of the consolidated statement of financial position.

 

18.   Provisions

 

 

Dilapidations provision

Vacant property provision

 

 

Total provision

 

£'000

£'000

£'000

At 1 April 2018

376

-

376

Additional provisions created during the period

154

-

154

At 30 September 2018

530

-

530

Additional provisions created during the period

(34)

538

504

Utilised during the period

-

(4)

(4)

At 31 March 2019

496

534

1,030

Additional provisions created during the period

60

-

60

Utilised during the period

-

(47)

(47)

At 30 September 2019

556

487

1,043

 

 

 

 

Analysed as:

 

 

 

Current

-

150

150

Non-current

556

337

893

 

556

487

1,043

 

19.   Share capital and share premium

 

Ordinary shares of 0.1p each

Share premium

 

Number

£'000

£'000

At 1 April 2018, 30 September 2018 and 31 March 2019

149,135,316

149

65,588

New shares issued

175,397

-

148

At 30 September 2019

149,310,713

149

65,736

 

During the period the Company purchased, and held in treasury, 326,905 of its ordinary share capital for total proceeds of £278,000. The total shares held in treasury at 30 September 2019 was 326,905 (30 September 2018: Nil; 31 March 2019: Nil)

 

 

Appendix 1: Impact of IFRS 16

Consolidated statement of comprehensive income

 

Six months to 30 Sept 2019 pre IFRS 16

Impact of IFRS 16

Six months to 30 Sept 2019 as reported

Six months to 30 Sept 2018

 

£'000

£'000

£'000

£'000

Revenue

43,152

-

43,152

47,452

Cost of sales

(15,319)

-

(15,319)

(19,084)

Gross Profit

27,833

-

27,833

28,368

Operating expenditure

(26,397)

468

(25,929)

(27,918)

 

 

 

 

 

Adjusted EBITDA

8,759

1,571

10,330

8,115

Depreciation

(3,171)

(1,103)

(4,274)

(3,493)

Amortisation of intangibles

(3,730)

-

(3,730)

(3,689)

Exceptional items

(169)

-

(169)

(243)

Share-based payments     

(253)

-

(253)

(240)

 

 

 

 

 

Operating profit / (loss)

1,436

468

1,904

450

 

 

 

 

 

Finance income

-

-

-

12

Finance costs

(420)

(597)

(1,017)

(584)

Profit / (loss) on ordinary activities before taxation

1,016

(129)

887

(122)

Income tax expense

(406)

25

(381)

(449)

Profit / (loss) for the period attributable to owners of the parent

610

(104)

506

(571)

 

 

 

 

 

Other comprehensive income

 

 

 

 

Items that may be classified to profit or loss:

 

 

 

 

Currency translation differences

39

-

39

(28)

Total comprehensive income / (loss) for the period

649

(104)

545

(599)

 

 

 

 

 

Earnings per share

 

 

 

 

Basic earnings/(loss) per share

0.41p

(0.07)p

0.34p

(0.38)p

Diluted earnings/(loss) per share

0.40p

(0.06)p

0.34p

(0.38)p

 

 

Consolidated statement of financial position

 

 

30 Sept 2019

pre IFRS 16

Impact of IFRS 16

30 Sept 2019

as reported

30 September 2018

 

£'000

£'000

 

£'000

Non-Current Assets

 

 

 

 

Intangible assets

72,354

-

72,354

79,436

Property, plant and equipment

19,438

-

19,438

19,173

Right-of-use assets

-

21,079

21,079

-

Deferred tax asset

307

-

307

-

 

92,099

21,079

113,178

98,609

Current Assets

 

 

 

 

Inventories

302

-

302

443

Trade and other receivables

19,653

(132)

19,521

22,510

Cash and short-term deposits

2,183

 

2,183

6,282

 

22,138

(132)

22,006

29,235

Total assets

114,237

20,947

135,184

127,844

 

 

 

 

 

Current Liabilities

 

 

 

 

Trade and other payables

(19,622)

-

(19,622)

(19,617)

Corporation tax payable

(129)

25

(104)

(836)

Lease liabilities

-

(4,512)

(4,512)

-

Borrowings

(2,681)

2,554

(127)

(3,091)

Provisions

(150)

-

(150)

-

 

(22,582)

(1,933)

(24,515)

(23,544)

Non-current liabilities

 

 

 

 

Deferred tax liability

-

-

-

(506)

Lease liabilities

-

(25,009)

(25,009)

-

Borrowings

(16,027)

3,462

(12,565)

(25,812)

Provisions

(893)

-

(893)

(530)

 

(16,920)

(21,547)

(38,467)

(26,848)

Total liabilities

(39,502)

(23,481)

(62,982)

(50,392)

Net assets

74,735

(2,533)

72,202

77,452

 

 

 

 

 

Equity

 

 

 

 

Called up share capital

149

-

149

149

Share premium account

65,736

-

65,736

65,588

Capital redemption reserve

(9,454)

-

(9,454)

(9,454)

Own shares held in treasury

(278)

-

(278)

 

Retained earnings

18,582

(2,533)

16,049

21,169

Total Equity

74,735

(2,533)

72,202

77,452

 

The impact of IFRS 16 on current lease liabilities of £4,512,000 comprises £1,958,000 of lease liabilities arising from the adoption of IFRS 16 and £2,554,000 of existing IAS 17 finance leases re-presented from current borrowings.

 The impact of IFRS 16 on non-current lease liabilities of £25,009,000 comprises £21,547,000 of lease liabilities arising from the adoption of IFRS 16 and £3,462,000 of existing IAS 17 finance leases re-presented from non-current borrowings.

  

Consolidated cash flow statement

 

Six months to 30 Sept 2019

pre IFRS 16

Impact of IFRS 16

Six months to 30 Sept 2019

as reported

Six months to 30 Sept 2018

 

£'000

£'000

 

£'000

Operating profit

1,436

468

1,904

450

Adjustment for non-cash items

 

 

 

 

Depreciation and amortisation

6,901

1,103

8,004

7,182

Exceptional items

169

-

169

243

Share-based payments

253

-

253

240

Operating cash flow before exceptional items and movements in working capital

8,759

1,571

10,330

8,115

Loss on sale of fixed asset

-

-

-

-

Exceptional items and NI on share-based payments

(444)

-

(444)

(431)

Operating cash flow before changes in working capital

8,315

1,571

9,886

7,684

Changes in working capital

 

 

 

 

Decrease in inventories

55

-

55

223

Decrease in trade and other receivables

2,254

-

2,254

1,364

Decrease in trade and other payables

(2,391)

-

(2,391)

(466)

Cash generated from operations

8,233

1,571

9,804

8,805

 

 

 

 

 

Adjusted cash generated from operations

8,677

1,571

10,248

9,236

Cash costs of exceptional items

(444)

-

(444)

(431)

Cash generated from operations

8,233

1,571

9,804

8,805

Tax paid

(248)

-

(248)

(38)

Net cash generated from operating activities

7,985

1,571

9,556

8,767

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

Proceeds from sale of property, plant and equipment

-

-

-

-

Purchase of property, plant and equipment

(2,081)

-

(2,081)

(2,884)

Purchase of intangible fixed assets

(186)

-

(186)

-

Net cash used in investing activities

(2,267)

-

(2,267)

(2,884)

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

Dividends paid

(1,491)

-

(1,491)

-

Share buy-back

(278)

-

(278)

-

Interest paid

(440)

-

(440)

(545)

Repayment of borrowings / finance leases

(1,550)

-

(1,550)

(1,613)

Payment of IFRS 16 lease liabilities

-

(1,571)

(1,571)

-

Repayment of revolving credit facility

(7,000)

-

(7,000)

(3,500)

Net cash used in financing activities

(10,759)

(1,571)

(12,330)

(5,658)

 

 

 

 

 

Net increase in cash and cash equivalents

(5,041)

-

(5,041)

225

Cash and cash equivalents at beginning of period

7,206

-

7,206

6,089

Effect of exchange rates

18

-

18

(32)

Cash and cash equivalents at end of the period

2,183

-

2,183

6,282

 

Appendix 2: Alternative performance measures (APMs)

This report contains certain financial measures (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.

 

Six months to 30 Sept 2019 Unaudited

Six months to 30 Sept 2018 Unaudited

Year ended

31 March

2019

Audited

 

£'000

£'000

£'000

Reported revenue

43,152

47,452

93,260

Non-recurring revenue

(4,342)

(6,130)

(12,716)

Recurring revenue

38,810

41,322

80,544

 

Adjusted EBITDA and adjusted EBITDA margin

Adjusted EBITDA is EBITDA excluding exceptional items (as set out in note 9) and share-based payments. The same adjustments are also made in determining the adjusted EBITDA margin. 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.

 

Six months to 30 Sept 2019 Unaudited

Six months to 30 Sept 2018 Unaudited

Year ended

31 March

2019

Audited

 

£'000

£'000

£'000

Reported operating profit

1,904

450

(285)

Amortisation of intangible assets arising on business combinations

3,126

3,126

6,252

Amortisation of other intangible assets

604

563

1,140

Depreciation

4,274

3,493

7,330

EBITDA

9,908

7,632

14,437

Exceptional items

169

243

1,911

Share-based payments

253

240

366

Adjusted EBITDA

10,330

8,115

16,714

 

Adjusted operating profit, adjusted operating profit margin and adjusted earnings per share

Adjusted operating profit is operating profit excluding amortisation on acquired intangibles, exceptional items and share-based payments. 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.

 

Six months to 30 Sept 2019 Unaudited

Six months to 30 Sept 2018 Unaudited

Year ended

31 March

2019

Audited

 

£'000

£'000

£'000

Reported operating profit

1,904

450

(285)

Amortisation of intangible assets arising on business combinations

3,126

3,126

6,252

Exceptional items

169

243

1,911

Share-based payments

253

240

366

Adjusted operating profit

5,452

4,059

8,244

 

The EPS calculation further adjusts for the tax impact of the operating profit adjustments, presented in note 12.

Adjusted operating costs

Adjusted operating costs are operating costs less depreciation, amortisation, exceptional items and share-based payments.

 

Six months to 30 Sept 2019 Unaudited

Six months to 30 Sept 2018 Unaudited

Year ended

31 March

2019

Audited

 

£'000

£'000

£'000

Reported operating expenditure

25,929

27,918

56,650

Depreciation

(4,274)

(3,493)

(7,330)

Amortisation of intangibles

(3,730)

(3,689)

(7,392)

Exceptional items

(169)

(243)

(1,911)

Share-based payments

(253)

(240)

(366)

Adjusted operating expenditure

17,503

20,253

39,651

 

Adjusted cash generated from operations and adjusted operating cash conversion

Adjusted cash generated from operations adjusts for the cash costs of exceptional items, consistent with the adjusted EBITDA and operating profit measures. The same adjustments are also made in determining the adjusted cash conversion percentage.

 

Six months to 30 Sept 2019 Unaudited

Six months to 30 Sept 2018 Unaudited

Year ended

31 March

2019

Audited

 

£'000

£'000

£'000

Reported cash generated from operations

9,794

8,805

19,621

Share-based payments

444

431

1,668

Adjusted cash generated from operations

10,238

9,236

21,289

 

 


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