Redstone PLC - Interim Results
RNS Number : 3511K
Redstone PLC
18 December 2008
18 December 2008
REDSTONE PLC
('Redstone', 'Company' or 'the Group')
Unaudited Interim Results for the six months ended 30 September 2008
Redstone (AIM:RED.L), a leading provider of Integrated IT and Communications
Solutions in the UK and Ireland, today announces its financial results for the
six months ended 30 September 2008.
FINANCIAL HIGHLIGHTS
* Revenues up by 10% (9% organic) to £106.0m (H108: £96.6m)
* Gross Profit up by 4% to £38.2m (H108: £36.6m)
* Adjusted EBITDA* decreased by 23% to £5.1m (H108: £6.5m)
* Adjusted Profit Before Tax** decreased to £2.8m (H108: £4.8m)
* Loss Before Tax of £1.8m (H108: Profit £0.2m)
* Cash of £7.2m (H108: £10.9m); Net debt £26.6m (H108: £20.7m)
*before interest, tax, depreciation, amortisation, exceptional items and stock
compensation charge.
** before amortisation of intangibles, exceptional items and stock compensation
charge.
OPERATIONAL HIGHLIGHTS
* Significant large scale OneNet projects completed or nearing completion.
* First BSF Schools completed in Lancashire.
* Telecoms Division moves away from BT/Redstone Network to give better
functionality and flexibility.
* With the exception of BSF, nearly all commercial large scale OneNet
projects now deferred.
* Company-wide cost reduction programme now initiated reducing overheads by
circa £7m.
* Strong revenue performance in Managed Services as demand for security
products and services rises.
* Launch of 'Redstone Select' tele-marketing initiative directed at
cross-selling to the SME market.
* Net cash outflow expected to reverse in H2 as working capital unwinds.
Martin Balaam, Chief Executive Officer, Redstone, commented,
'Redstone has continued to develop its proposition and increase its
cross-selling within its own customer base building on the prior period's
success. However the business has seen a significant reduction in orders,
specifically in large scale ICT
projects in recent months. We have acted decisively by materially reducing our
cost base as Redstone believes that the reduced levels of activity will exist
for the foreseeable future.
'The Board has taken a pragmatic approach and, to the extent that Redstone can
support it, we have continued to invest in long term organic growth
opportunities such as BSF, Fibre To The Home (FTTH), SME, cross selling,
security products and OneNet
capabilities.
'The Board expects that the market will continue to be challenging, however cost
reduction measures have been implemented in order to maintain EBITDA levels
during the second half of the year and potentially into the following year
unless it sees the
major project pipeline restored.
'The Board is taking a cautious view with regards to the current economic
environment and will seek to ensure that the Group is well positioned to take
advantage of improved trading and financial market conditions as and when they
arise.'
ENQUIRIES:
Redstone plc Tel. +44 (0)845 200 2200
Martin Balaam, Chief Executive Officer
Tim Perks, Chief Financial Officer
ICIS Limited Tel. +44 (0)20 7651 8688
Tom Moriarty
Bob Huxford
Investec Bank (UK) Limited Tel. +44 (0)20 7597 5000
Tim Pratelli
Carlton Nelson
Chief Executive's Statement
Introduction
As we all are aware, there has been a marked shift in the macro-economic climate
and these results reflect the changes in business conditions and the strategic
changes Redstone has made to counteract them. Almost all visibility around
timing and
delivery of retail construction projects and activities around financial
services has dramatically reduced. Month on month, in common with the rest of
the industry, we are seeing projects either suspended or cancelled. As a result
we have implemented a
cost reduction programme which will see our current cost base reduce by £7m by
the end of December 2008. We will continue to review all costs and will make
further reductions in our cost base if we believe demand will fall further.
One of our goals has always been to focus on winning long-term Managed Service
contracts that deliver profits and revenue visibility and we have been
successful in achieving this. As part of adapting to the current business
environment we have placed
more emphasis on this area. This has paid dividends in terms of revenues and
visibility though margins on these contracts tend to be much lower than complex
ICT projects. Overall, the interim figures represent a solid performance in
light of difficult
trading conditions. We have been very aware of the need to prepare the business
in advance of a difficult couple of years.
Market Strategy
One of the main considerations with regards to our business strategy going
forward is to identify where we are likely to see continued demand for our
skills and product offering. There is no question that the reticence of banks to
provide funding for
the construction industry will continue to have an effect on our business until
this situation is resolved. However, historically we have been very successful
in this area and are widely considered to be the leader in the provision of IT
infrastructure
for major construction projects. An obvious example is the Westfield shopping
centre in London; however there have also been many less high profile examples
of our work in this field. However, in the knowledge that such projects will
slow down in
frequency in the short term at least, our focus has to be on other areas. This
is where our diverse range of talents and success in major project management
and delivery comes into its own.
Our strategy over the next few years:
* to increase our presence in Building Schools for the Future projects
(BSF);
* to open up more opportunities in Fibre To The Home;
* to expand our activities in other areas of the Public Sector such as Local
Government and the Academies programme;
* to improve the operational efficiencies of our business divisions; and
* to cross-sell our capabilities into our existing customer base.
Operational review
Telecoms
The main development in the Telecoms division is that we have migrated off the
BT network which will enable the Company to save, on average, £0.1m a month.
This follows investment in a state of the art IP soft switching technology that
brings
benefits to both Redstone and its customers. We can now switch between carriers
such as BT Wholesale, Cable & Wireless, Gamma or Opal and take advantage of the
best rates being offered at any one time. The new system also enables us to
offer
self-configuration to the customer, reducing our reliance on operators whilst
simultaneously improving our customers' experience, for whom it is now easier to
take advantage of the new functionality we now offer them. Examples of new
features now 'in the
network', include number provisioning, voice recording, voice to email, call
back, and tailored call routing.
Mobile
In line with the general trends in mobile, we have seen a significant increase
in data traffic. It is now common-place for people to have a phone, a blackberry
and a data dongle for their laptop. Latest laptops have a built-in port for a
SIM card.
Similar to the wider industry, we have seen a reduction in voice traffic in
terms of the number of calls made and this will put pressure on margins.
However, on a positive note, we are now seeing an industry move towards revenue
share per user, as opposed
to operator payments per connection. Redstone strongly supports this transition
in the telephony industry. The previous modus operandi of chasing the commission
on connection previously encouraged service providers to push their customers to
switch
networks as often as possible. The new arrangement, whereby service providers
take an on-going share of user revenue, focuses the industry on building a
healthier, longer-term and ultimately more profitable relationship with the
customer. As within our
telecoms business we have continued to invest in our mobile division to achieve
further operational efficiency in this division.
Converged Solutions
We have established a leading market position in the provision of what is known
as 'connected real estate' or Redstone's OneNet. As such, we have been involved
in a number of prestigious developments such as Royal Ascot and several shopping
centres at
White City, Leicester Shires and Cabot Square. It is clear that the demand for
these projects over the short term has fallen away due to the current
macro-economic environment but, given the success of this relatively small,
highly skilled team, we
believe it is in our best interests to protect these skills. We have therefore
taken steps to rationalise the operation.
Redstone is still awaiting a decision on the tenders for the Birmingham BSF and
Salford BSF bids, and remains one of two bidders for the ICT element of each
bid. The total ICT element is expected to be worth approximately £170m over 7
years from
2011. Over the past 2 years Redstone has invested over £2m in both people and
the funding of the bid process and is now an established bidder with whom
developers are seeking to partner for future BSF tenders. We are pleased to
announce that we were
recently short listed for the Blackburn BSF project.
As well as future BSF bids Redstone is actively exploring opportunities for ICT
business in new markets, such as Fibre To The Home, and is currently preferred
bidder at the Titanic Quarter development in Belfast.
Managed Services
I am pleased with the performance within our Managed Services division where we
have seen increased activity and orders. The main focus of Managed Services is
currently the connecting, securing and managing of Wide Area Networks. It is
clearly a
growth area as broadband wireless internet access becomes commonplace, both in
business and commercial environments. This market will show continued growth
particularly since it has now overcome one of its central obstacles, namely the
ability to roam
between WIFI cells and maintain the relationship with the original service
provider.
Technology
The division concentrates on complex enterprise server and storage area networks
and has had a successful year, largely due to its involvement with the
fulfilment of some large government IT contracts in the Republic of Ireland. We
are especially
pleased with the development of our consulting practice which has grown rapidly
and continues to have strong demand. We believe that even though the business is
focused primarily on Public Sector customers the demand for large scale IT
projects will fall
next year.
Sales and Marketing
Our focus will be pragmatic and on those sectors where there is demand for our
services. Typically our target markets will be where major project funding is
still in place, e.g. BSF and in the commercial sector products and services
which can
demonstrate rapid return on investment and pure cost savings.
Redstone will continue to invest in bidding for large, long term projects that
will deliver organic growth in the medium term.
In line with our strategy of increasing the level of cross-selling across
divisions, one of the recent highlights within Redstone has been to launch
Redstone Select. Essentially this is an outward bound telesales account
management team focused on our
SME customers. It is the first time Redstone has put in place a bespoke team to
establish a relationship with SME customers who would often be a customer of one
of our products, sometimes unaware that it is Redstone. By establishing a
stronger
relationship with our customers we can bring to their attention our other
capabilities we have and thereby enhance cross-selling.
Financial Highlights
Revenues increased by 10% to £106.0m, from £96.6m in H108, predominantly through
the Support Services contracts announced last year. These are high quality
revenues with good visibility but at lower margins than the more volatile,
projects
based revenue streams. The Group has seen a decline in its Telecom revenues of
approximately 8%, particularly within the legacy higher margin products. These
were budgeted to decline, but the rate of drop-off has been higher than
anticipated.
Gross Profit increased by 4% to £38.2m (H108 restated: £36.6m), and the gross
profit margin decreased to 36.0% (H108 restated: 37.9%). Adjusted EBITDA* has
decreased to £5.1m compared with £6.5m for the corresponding period last
year, a decrease of 23%.
Operating expenses excluding exceptional items increased by £3.5m in the period
to £38.2m compared with £34.7m in H108 (restated). In order to seek to maintain
the growth achieved within the Converged Solutions Division last year,
£1.6m was invested principally within the areas of Sales, Pre-Sales and project
delivery.
Adjusted PBT** was £2.8m for the period compared with £4.8m in the corresponding
period last year. The reported Loss Before Tax was £1.8m (H108: Profit £0.2m)
for the period after charging £3.0m (H108: £3.0m) for
amortisation of intangibles, and a further charge of £1.6m (H108: £1.6m)
relating to exceptional items and stock compensation charges. As a result of the
increased debt facility finance charges for the period have increased from £1.1m
to
£1.3m, and include £0.2m in relation to the fees associated with the debt
refinancing and a charge for the interest rate swap. The Group has unwound
deferred tax liabilities in the period which has resulted in a tax credit of
£0.7m (H108:
1.0m). Adjusted basic EBITDA* per share has reduced from 4.52p per share to
3.48p per share, and basic earnings per share has reduced from 0.83p per share
to a loss of 0.73p per share.
Net cash outflow from operating activities was £3.4m (H108: inflow of £2.7m).
Cash as at the end of the period came to £7.2m and net debt currently stands at
£26.6m (H108: £20.7m)
* before interest, tax, depreciation, amortisation, exceptional items and stock
compensation charge.
** before amortisation of intangibles, exceptional items and stock compensation
charge.
Cash and debt refinancing
The Company meets its day-to-day working capital requirements through a
revolving credit facility which it successfully renewed, together with its term
loan, with Barclays Bank Plc in August 2008 for a further 4 years. It has
Capital repayments of
£5.0m per year, payable £2.5m every 6 months from 31 December 2008.
In recent months there has been a marked shift in the macro-economic climate and
almost all visibility around timing and delivery of retail construction projects
and activities around financial services have dramatically reduced.
The Company is forecasting that it should be able to operate within the level of
its current facility. However, given the change in the macro-economic climate,
the Company felt it prudent to enter into negotiations with its bankers to
ensure that its
facilities and covenants are appropriate if there are any further downturns. We
have received a positive response from our bankers, have agreed outline terms
and expect to conclude a revised facility agreement within the next few weeks.
The net outflow for the period is a result of 3 major projects spanning the half
year, all of which are due for completion and payment by the end of December,
these being Lancashire Schools for the Future, White City and a major data
centre roll out.
In addition, the Group experienced significant increases in Trade Debtors during
September, as many of its customers, particularly within the financial sector,
delayed payment. This has now begun to ease and the net debt at 31st October
2008 had reduced
by a further £4.2m to approximately £22.4m.
Outlook
At Redstone our principal focus is to ensure that the Group delivers a
reasonable level of profitability, whilst maintaining investment for growth in
what is clearly going to be a difficult trading environment for the foreseeable
future.
Notwithstanding the operational improvements we have made in several areas of
the business, the Board believes that the market will continue to be challenging
for the remainder of the current financial year, and potentially throughout the
following year,
until it sees its major project pipeline restored.
The Board feels this statement reflects a pragmatic assessment of the current
economic environment, and will seek to ensure the Group is positioned to take
advantage of improved trading conditions as and when they arise.
Martin Balaam
17 December 2008
Consolidated Income Statement
Unaudited Six months Restated unaudited
ended 30 Six months Restated audited
September 2008 ended 30 Year
September 2007 ended 31 March
2008
Note £000 £000 £000
Revenue 2 105,998 96,584 200,720
Cost of sales (67,826) (59,936) (124,355)
Gross profit 38,172 36,648 76,365
Other operating income 75 77 77
Selling and distribution costs (8,179) (7,507) (15,673)
Administrative expenses (30,023) (27,220) (54,862)
Exceptional items 3 (560) (945) (2,748)
Adjusted EBITDA* 5,066 6,546
14,074
(1,006) (893) (1,849)
Depreciation
Amortisation of intangibles (2,983) (3,020) (6,128)
Exceptional items (560) (945) (2,748)
Stock compensation (1,032) (635) (190)
Operating (loss)/profit (515) 1,053 3,159
Finance income 57 251 371
Finance costs (1,321) (1,131) (2,636)
Net finance cost (1,264) (880) (2,265)
(Loss)/profit on ordinary (1,779) 173 894
activities before taxation
Tax on (loss)/profit on 719 1,033 2,338
ordinary activities
(Loss)/profit for the period (1,060) 1,206 3,232
(attributable to shareholders
of the parent Company)
Earnings per share
Basic earnings per share 4 (0.73) p 0.83 p 2.23 p
Diluted earnings per share 4 (0.73) p 0.83 p 2.21 p
Basic adjusted EBITDA* per 3.48 p 4.52 p 9.69 p
share
Diluted adjusted EBITDA* per 3.48 p 4.51 p 9.62 p
share
*earnings before interest, tax, depreciation, amortisation, exceptional items
and stock compensation charge.
The notes on pages 10 to 16 form an integral part of this condensed consolidated
half-yearly financial information.
Consolidated Statement of Changes in Equity
Other reserves
Called up share Share premium Merger reserve (a) Capital Redemption
Translation reserve Retained earnings Total equity
capital account reserve (b)
(c)
£000 £000 £000 £000
£000 £000 £000
At 1 April 2007 14,469 17,512 216 5,683
100 33,276 71,256
Profit for the period - - - -
- 1,206 1,206
Stock compensation charge - - - -
- 476 476
Currency translation - - - -
14 - 14
differences
Consideration shares 61 390 - -
- - 451
At 30 September 2007 14,530 17,902 216 5,683
114 34,958 73,403
Profit for the period - - - -
- 2,026 2,026
Stock compensation charge - - - -
- 401 401
Currency translation - - - -
(66) - (66)
differences
Consideration shares 44 257 - -
- - 301
At 1 April 2008 14,574 18,159 216 5,683
48 37,385 76,065
Loss for the period - - - -
- (1,060) (1,060)
Stock compensation charge - - - -
- 1,032 1,032
Currency translation - - - -
(51) - (51)
differences
Purchase of own shares (d) - - - -
- (500) (500)
At 30 September 2008 14,574 18,159 216 5,683
(3) 36,857 75,486
(a) Merger reserve
The merger reserve resulted from the acquisition of Redstone Communications
Limited (formerly Redstone Network Services Limited) and represents the
difference between the value of the shares acquired (nominal value plus related
share premium) and the
nominal value of the shares issued.
(b) Capital redemption reserve
The capital redemption reserve arose on the elimination of deferred shares and
represents the nominal value of the deferred shares.
(c) Translation reserve
The translation reserve is used to record exchange differences arising from the
translation of the financial statements of foreign subsidiaries.
(d) Repurchase of own shares
Shares in Redstone plc purchased by and held in the Employee Benefit Trust have
been recognised in retained earnings, in accordance with SIC 12 and IAS 32.
The notes on pages 10 to 16 form an integral part of this condensed consolidated
half-yearly financial information.
Consolidated Balance Sheet
Unaudited 30 September Unaudited 30 September Audited 31 March
2008 2007 2008
£000 £000 £000
Assets
Non-current assets
Intangible assets 91,461 95,545 93,953
Investments 55 202 129
Property, plant and equipment 5,335 4,273 4,623
Deferred tax asset 3,215 3,616 3,215
Other non-current assets 637 34 525
100,703 103,670 102,445
Current assets
Inventories 2,463 1,310 1,195
Trade and other receivables 50,396 39,583 44,598
Income tax receivable 562 10 577
Cash and cash equivalents 7,155 10,850 9,609
60,576 51,753 55,979
Total assets 161,279 155,423 158,424
Equity and liabilities
Equity
Called up share capital 14,574 14,530 14,574
Share premium account 18,159 17,902 18,159
Other reserves 5,896 6,013 5,947
Retained earnings 36,857 34,958 37,385
Total equity 75,486 73,403 76,065
Current liabilities
Trade and other payables 44,553 39,776 44,009
Deferred consideration 100 - 100
Borrowings 5,568 6,900 7,660
Provisions 442 1,862 508
50,663 48,538 52,277
Non-current liabilities
Trade and other payables 99 1,272 58
Derivative financial 505 - 381
instruments
Borrowings 28,203 24,657 22,480
Provisions 949 216 1,070
Deferred tax liability 5,374 7,337 6,093
35,130 33,482 30,082
Total liabilities 85,793 82,020 82,359
Total equity and liabilities 161,279 155,423 158,424
The notes on pages 10 to 16 form an integral part of this condensed consolidated
half-yearly financial information.
Consolidated Cash Flow Statement
Unaudited Six months Unaudited Six months Audited Year
ended 31 March 2008
ended 30 ended 30
September 2008 September 2007
Note £000 £000 £000
Cash flows from operating
activities
Cash (absorbed)/generated in 6 (3,426) 2,635 6,769
operations
Income tax paid/(received) 15 78 (111)
Net cash flows (used (3,411) 2,713 6,658
in)/generated from operating
activities
Cash flows from investing
activities
Proceeds from sale of 4 - 80
property, plant and equipment
Purchase of property, plant (1,730) (1,016) (2,387)
and equipment
Purchase of intangible assets (463) (194) (960)
Purchase of investment - - (202)
Acquisition of subsidiaries, - (3,900) (3,541)
net of cash acquired
Net cash flows used in (2,189) (5,110) (7,010)
investing activities
Cash flows from financing
activities
Proceeds from issue of shares - 451 -
Proceeds from borrowings 7,785 4,200 6,450
Repayment of borrowings (3,500) (1,045) (4,945)
Interest received 58 258 382
Interest paid (1,197) (1,047) (2,347)
Net cash flows from/(used in) 3,146 2,817 (460)
financing activities
Net (decrease)/increase in (2,454) 420 (812)
cash and cash equivalents
Cash and cash equivalents at 1 9,609 10,421 10,421
April
Effects of currency - 9 -
translation on cash and cash
equivalents
Cash and cash equivalents at 7,155 10,850 9,609
30 September/31 March
The notes on pages 10 to 16 form an integral part of this condensed consolidated
half-yearly financial information.
Notes to the half-yearly financial information
1. Basis of preparation
The interim financial information is unaudited but has been reviewed by the
auditors, PricewaterhouseCoopers LLP, and their report to Redstone plc is set
out on page 18.
This condensed, consolidated half-yearly financial information for the half-year
ended 30 September 2008 has been prepared in accordance with IAS 34, 'Interim
financial reporting' as adopted by the European Union. The half-yearly
consolidated
financial report should be read in conjunction with the annual financial
statements for the year ended 31 March 2008, which have been prepared in
accordance with IFRSs as adopted by the European Union.
The financial information contained in the interim report does not constitute
statutory accounts as defined in Section 240 of the Companies Act 1985.
Statutory accounts for the year ended 31 March 2008 have been filed with the
Registrar of Companies.
The auditors' report on those accounts was unqualified and did not contain a
statement made under Section 237(2) or Section 237(3) of the Companies Act 1985.
The Company meets its day to day working capital requirements through a
revolving credit facility, which it successfully renewed, together with its term
loan, with Barclays Bank Plc in August 2008 for a further 4 years.
In recent months there has been a marked shift in the macro-economic climate and
almost all visibility around timing and delivery of retail construction projects
and activities around financial services have dramatically reduced.
The company is forecasting that it should be able to operate within the level of
its current facility. However, given the change in the macro-economic climate,
the Company felt it prudent to enter into negotiations with its bankers to
ensure that its
facilities and covenants are appropriate if there are any further downturns. We
have received a positive response from our bankers, have agreed outline terms
and expect to conclude a revised facility agreement within the next few weeks.
Consequently, the Directors have a reasonable expectation that the Group has
adequate resources to continue in operational existence for the foreseeable
future. Accordingly, they continue to adopt the going concern basis in preparing
these condensed
consolidated half-yearly financial statements for the six months ended 30
September 2008.
The interim report was approved by the Board on 17 December 2008.
Accounting policies
The accounting policies adopted are consistent with those of the annual
financial statements for the year ended 31 March 2008, as described in those
annual financial statements with the exception of:
Repurchase of own shares through Employee Benefit Trust
Shares acquired by the Company and held in the Employee Benefit Trust are
recorded as a reduction in equity and the full cost is recorded in retained
earnings in accordance with SIC 12 and IAS 32.
Reclassification of admin costs relating to acquired contracts to cost of sales
Costs of £3,632,000 relating to acquired on-site support contracts are recorded
within gross margin. Previously these costs have been recorded as administrative
expenses, but as they are considered a direct cost of sale they are now recorded
in
cost of sales. The prior periods have been restated as a result of this
reclassification (31 March 2008: £1,802,000 and 30 September 2007: £463,000).
New standards
The following standards, amendments and interpretations to existing standards
have been published and are mandatory for the Group's accounting periods
beginning on or after 1 April 2008 or later periods, but the Group has not early
adopted them:
* IAS 23 (Amendment), Borrowing costs.
* IFRS 8, Operating segments.
* IAS 1, Presentation of Financial Statements (revised 2007).
* Amendment to IAS 32, Financial Instruments: Presentation and IAS 1
Presentation of Financial Statements - Puttable Financial Instruments and
Obligations Arising on Liquidation.
* Amendment to IFRS 2, Share-based Payment - Vesting Conditions and
Cancellations.
* Amendments to IFRS 1, First-time Adoption of International Financial
Reporting Standards and IAS 27, Consolidated and Separate Financial Statements -
Costs of Investment in a Subsidiary, Jointly Controlled Entity or Associate.
* Amendment to IAS 39, Financial Instruments: Recognition and Measurement -
Eligible Hedged Items.
* IFRS 3, Business Combinations (Revised 2008).
* IAS 28, Investments in Associates and IAS 31 Joint Ventures -
Consequential amendments arising from amendments to IFRS 3.
* IFRIC 12, Service Concession Arrangements.
* IFRIC 13, Customer Loyalty Programmes.
* IFRIC 14, IAS 19 - The Limit on a Defined Benefit Asset, Minimum Funding
Requirements and their Interaction.
* IFRIC 15, Agreements for the Construction of Real Estate.
* IFRIC 16, Hedges of a Net Investment in a Foreign Operation.
IAS 1 (Revised 2007) affects the presentation of owner changes in equity and
introduces a 'Statement of Comprehensive income'. The standard is required for
annual periods beginning on or after 1 January 2009, and will affect Redstone
Plc after that
date.
IFRS 8 requires segments to be reported based on internal management reporting
information that are regularly reviewed by the chief operating decision maker.
The standard is required for annual periods beginning on or after 1 January
2009, and will
affect Redstone Plc after that date.
The amendments to IFRS 2 relates to vesting conditions and cancellations for
share options. None of the company's current share-based payment schemes is
affected by the amendments.
Management do not consider the remaining standards to be relevant for the
company.
2. Segment reporting
Primary reporting format - Business Segments
(a) Unaudited for the six months ended 30 September 2008
Telecom Mobile Converged Solutions Managed Technology Central Total
Solutions
£000 £000 £000 £000 £000 £000 £000
Total segment revenue 22,532 17,012 52,195 8,518 5,865 - 106,122
Inter-segment revenues (124) (124)
Revenue 22,532 17,012 52,071 8,518 5,865 - 105,998
Adjusted operating costs* (21,037) (16,088) (48,706) (8,058) (5,499) (1,668) (101,056)
Elimination of inter-segment - - 124 - - - 124
costs
Adjusted EBITDA* 1,495 924 3,489 460 366 (1,668) 5,066
Depreciation (66) (2) (336) (256) (117) (229) (1,006)
Equity-settled stock (38) (17) (208) (75) (43) (651) (1,032)
compensation charge
Amortisation of intangible (745) (380) (1,581) (98) (31) (148) (2,983)
assets
Exceptional items (181) - (53) - - (326) (560)
Segment result 465 525 1,311 31 175 (3,022) (515)
Net finance costs (1,264)
Tax 719
Loss for the year (1,060)
Assets and liabilities
Segment assets 45,360 12,377 69,696 16,130 10,899 6,817 161,279
Segment liabilities 12,589 3,229 24,120 7,455 2,519 35,881 85,793
Other segment information
Capital expenditure
Property, plant and equipment 802 26 212 251 52 387 1,730
Intangibles - software - 10 33 - - 420 463
Depreciation 66 2 336 256 117 229 1,006
Amortisation 745 380 1,581 98 31 148 2,983
* earnings before interest, tax, depreciation, amortisation, exceptional items
and stock compensation charge.
The main components of property, plant and equipment acquired in the period
include a new telecoms switch at a cost of £725,000, capitalised systems
development costs of £387,000 and various other IT equipment and network
infrastructure
assets.
2. Segment reporting
(b) Unaudited for the six months ended 30 September 2007
Telecom Mobile Converged Solutions Managed Technology Central Total
Solutions
£000 £000 £000 £000 £000 £000 £000
Revenue 24,448 17,772 43,082 5,989 5,293 - 96,584
Adjusted operating costs* (21,992) (16,648) (39,583) (5,708) (4,980) (1,127) (90,038)
Adjusted EBITDA* 2,456 1,124 3,499 281 313 (1,127) 6,546
Depreciation (122) (22) (313) (166) (73) (197) (893)
Equity-settled stock (52) (18) (155) (58) (54) (141) (478)
compensation charge
Cash-settled stock - - - - - (157) (157)
compensation charge
Amortisation of intangible (736) (337) (1,753) (98) (31) (65) (3,020)
assets
Exceptional items (266) (85) (83) - 10 (521) (945)
Segment result 1,280 662 1,195 (41) 165 (2,208) 1,053
Net finance costs (880)
Tax 1,033
Profit for the year 1,206
Assets and liabilities
Segment assets 47,402 12,172 66,749 12,218 11,059 5,823 155,423
Segment liabilities 17,489 4,266 22,917 4,719 2,002 30,627 82,020
Other segment information
Capital expenditure
Property, plant and equipment 6 13 224 239 161 373 1,016
Intangibles - software - - 53 - - 141 194
Depreciation 122 22 313 166 73 197 893
Amortisation 736 337 1,753 98 31 65 3,020
* earnings before interest, tax, depreciation, amortisation, exceptional items
and stock compensation charge.
2. Segment reporting
(c) Audited for the year ended 31 March 2008
Converged Managed
Telecom Mobile Solutions Solutions Technology Central Total
£000 £000 £000 £000 £000 £000 £000
Total segment revenue 48,248 34,937 93,045 12,297 12,314 - 200,841
Inter-segment revenues - - - - (121) - (121)
Revenue 48,248 34,937 93,045 12,297 12,193 - 200,720
Adjusted operating costs* (42,518) (32,931) (86,323) (11,456) (11,162) (2,377) (186,767)
Elimination of inter-segment - - - - 121 - 121
costs
Adjusted EBITDA* 5,730 2,006 6,722 841 1,152 (2,377) 14,074
Depreciation (197) (21) (651) (376) (195) (409) (1,849)
Equity-settled stock compensation (81) (37) (269)
(111) (100) (279) (877)
charge
Cash-settled stock compensation charge - - - - - 687 687
Amortisation of intangible (1,446) (738) (3,505) (195) (63) (181) (6,128)
assets
Exceptional items (1,283) (186) (941) (114) (16) (208) (2,748)
Segment result 2,723 1,024 1,356 45 778 (2,767) 3,159
Net finance costs (2,265)
Tax 2,338
Profit for the year 3,232
Assets and liabilities
Segment assets 46,270 12,179 71,820 12,141 11,120 4,894 158,424
Segment liabilities 13,518 3,465 26,180 4,737 2,943 31,516 82,359
Other segment information
Capital expenditure
Property, plant and equipment 72 - 547 625 418 725 2,387
Property, plant and equipment 18 - - - - - 18
acquired - business
combination
Intangibles - software - 83 141 135 - 601 960
Intangible assets acquired - 180 - - - - - 180
business combinations
Depreciation 197 21 651 376 195 409 1,849
Amortisation 1,446 738 3,505 195 63 181 6,128
*earnings before interest, tax, depreciation, amortisation, exceptional
items and stock compensation charges.
3. Exceptional items
During the period, the Group has undergone further restructuring mainly to
achieve synergies from recent acquisitions. The exceptional charge for the
period of £560,000 (31 March 2008: £2,748,000 and 30 September 2007: £945,000)
is made
up of integration costs of £277,000 (31 March 2008: £323,000 and 30 September
2007: nil), aborted transaction costs of £183,000 (31 March 2008: £81,000 and 30
September 2007: nil), occupancy costs of £25,000 (31 March 2008: a
credit of £102,000 and 30 September 2007: a credit of £44,000) and a fair value
charge of £75,000 which relates to a one off non-trading item. Also included in
exceptional items at 31 March 2008, was employee costs of £1,894,000 (30
September 2007: £989,000, including integration costs of £159,000), Group
reorganisation costs of £92,000 and a one off cost of £460,000 for back salaries
relating to acquiring the Morgan Stanley contract.
4. Earnings per share
Basic earnings per share is calculated using a loss of £1,060,000 (31 March
2008: profit £3,232,000 and 30 September 2007: profit £1,206,000) and a weighted
average number of shares of 145,732,516 (31 March 2008: 145,187,433 and 30
September 2007: 144,730,066).
Diluted earnings per share, is calculated using a diluted weighted average
number of shares of 145,732,516 (31 March 2008: 146,304,116 and 30 September
145,299,250). There was no dilutive effect of share options at 30 September 2008
(31 March 2008:
1,116,683 and 30 September 2007: 569,184).
In addition, adjusted EBITDA* per share has been shown on the grounds that it is
a common metric used by the market in monitoring similar businesses. This
measure is derived as follows:
Unaudited Six months Unaudited Six months Audited Year
ended 30 ended 30 ended 31
September September March
2008 2007 2008
£000 £000 £000
(Loss)/profit for the period (1,060) 1,206 3,232
Net finance expense 1,264 880 2,265
Tax credit (719) (1,033) (2,338)
Depreciation 1,006 893 1,849
Amortisation of intangibles 2,983 3,020 6,128
Stock compensation charge 1,032 635 190
Exceptional items 560 945 2,748
Adjusted EBITDA* 5,066 6,546 14,074
*earnings before interest, tax, depreciation, amortisation, exceptional items
and stock compensation charge.
5. Goodwill
Although there were no acquisitions made during the period the following
adjustments to goodwill have been made:
Telecom Mobile Converged Solutions Managed Solutions Technology Total
£000 £000 £000 £000 £000 £000
Goodwill net carrying amount 26,991 6,093 23,702 6,256 7,383 70,425
30 September 2007
Marcom acquisition 739 - - - - 739
Cost of acquisitions 113 - 131 - - 244
Fair value adjustments (99) 20 (334) - - (413)
Goodwill net carrying amount 27,744 6,113 23,499 6,256 7,383 70,995
31 March 2008
Fair value adjustments 27 - - - - 27
Goodwill net carrying amount 27,771 6,113 23,499 6,256 7,383 71,022
30 September 2008
6. Net Cash flows from operating activities
Unaudited Six months Unaudited Six months Audited Year
ended 30 ended 30 ended 31
September September March
2008 2007 2008
£000 £000 £000
Operating (loss)/profit (515) 1,053 3,159
Adjustments for:
Depreciation of property, 1,006 893 1,849
plant and equipment
Amortisation of intangible 2,983 3,020 6,128
assets
Equity-settled stock 1,032 478 877
compensation charges
Cash-settled stock - 157 (687)
compensation charges
Profit/(loss) on disposal of 3 (63) (9)
property, plant and equipment
Financial assets at fair value 75 - 73
through profit or loss
Movements in working capital
Increase in inventories (1,268) (217) (79)
Increase in trade and other (6,649) (4,084) (8,858)
receivables
Increase in trade and other 253 1,585 5,777
payables
(Increase)/decrease in (112) 21 (470)
non-current assets
Decrease in provisions (187) (208) (706)
Foreign exchange gains on (47) - (107)
operating activities
Other non-cash items - - (178)
Cash generated from operations (3,426) 2,635 6,769
Statement of Directors' Responsibilities
The Directors' confirm that this condensed set of financial statements has been
prepared in accordance with IAS 34 as adopted by the European Union.
The Directors of Redstone plc are listed in the Redstone plc Annual Report and
Accounts for 31 March 2008.
The Directors are responsible for the maintenance and integrity of the Company's
website. Legislation in the United Kingdom governing the preparation and
dissemination of financial statements may differ from legislation in other
jurisdictions.
By order of the Board
Independent Review Report to Redstone plc
Introduction
We have been engaged by the company to review the condensed set of financial
statements in the half-yearly financial report for the six months ended 30
September 2008, which comprises the consolidated income statement, consolidated
balance sheet,
consolidated statement of changes in equity, consolidated cash flow statement
and related notes. We have read the other information contained in the
half-yearly financial report and considered whether it contains any apparent
misstatements or material
inconsistencies with the information in the condensed set of financial
statements.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and has been approved
by, the directors. The directors are responsible for preparing the half-yearly
financial report in accordance with the AIM Rules for Companies.
As disclosed in note 1, the annual financial statements of the group are
prepared in accordance with IFRSs as adopted by the European Union. The
condensed set of financial statements included in this half-yearly financial
report has been prepared in
accordance with International Accounting Standard 34, 'Interim Financial
Reporting', as adopted by the European Union.
Our responsibility
Our responsibility is to express to the company a conclusion on the condensed
set of financial statements in the half-yearly financial report based on our
review. This report, including the conclusion, has been prepared for and only
for the company
for the purpose of the AIM Rules for Companies and for no other purpose. We do
not, in producing this report, accept or assume responsibility for any other
purpose or to any other person to whom this report is shown or into whose hands
it may come save
where expressly agreed by our prior consent in writing.
Scope of review
We conducted our review in accordance with International Standard on Review
Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information
Performed by the Independent Auditor of the Entity' issued by the Auditing
Practices Board for use
in the United Kingdom. A review of interim financial information consists of
making enquiries, primarily of persons responsible for financial and accounting
matters, and applying analytical and other review procedures. A review is
substantially less in
scope than an audit conducted in accordance with International Standards on
Auditing (UK and Ireland) and consequently does not enable us to obtain
assurance that we would become aware of all significant matters that might be
identified in an audit.
Accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe
that the condensed set of financial statements in the half-yearly financial
report for the six months ended 30 September 2008 is not prepared, in all
material respects,
in accordance with International Accounting Standard 34 as adopted by the
European Union and the AIM Rules for Companies.
PricewaterhouseCoopers LLP
Chartered Accountants
17 December 2008
Advisers
Financial Adviser and Broker
Investec Bank (UK) Limited, 2 Gresham Street London, EC2V 7QP
Auditors
PricewaterhouseCoopers LLP, Embankment Place, London, WC2N 6RH
Solicitors
Osborne Clarke, One London Wall, London, EC2Y 5EB
Registrars
Capita IRG Plc, The Registry, 34 Beckenham Road, Beckenham, Kent, BR3 4TU
Principal Bankers
Barclays Bank plc, 54 Lombard Street, London, EC3V 9EX
Company Number
3336134
Further details can be found on the Redstone website at the following address:
www.redstone.co.uk
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The company news service from the London Stock Exchange
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