Final Results

RNS Number : 1835D
RedstoneConnect PLC
25 April 2017
 

25 April 2017

RedstoneConnect Plc

("RedstoneConnect", the "Group" or the "Company")

 

Final results for the year ended 31 January 2017

 

RedstoneConnect (AIM: REDS), a leading provider of technology and services for smart buildings and commercial spaces, announces its final results for the year ended 31 January 2017.

 

Financial Highlights:

 

·      Profit after tax of £2.1 million (2016: loss of £2.2 million)

 

·      Gross profit up 33% to £9.2 million (2016: £7.0 million), with an increased gross margin of 22% (2016: 17%)
 

·      Revenue up 3.5% to £41.5 million (2016: £40.1 million)

 

·      Adjusted EBITDA* materially ahead of management expectations, up 56% to £2.0 million (2016: £1.3 million) reflecting the successful implementation of strategy to focus on higher quality, higher margin business

 

·      Reported Profit before tax** of £1.5 million (2016: loss of £0.8 million)

 

·      Profit before tax from continuing operations of £1.2 million (2016: loss of £0.8 million)

 

·      Profit after tax from continuing operations of £1.8 million (2016: loss of £0.7 million)

 

·      Cash generated from operations of £0.9 million (2016: cash out flow of £2.7 million)

 

·      Cash at year end of £3.2 million (2016: £1.0 million) and net cash of £0.8 million (2016: £1.0 million)

 

·      Basic earnings per share from continuing operations of 0.11 pence (2016: loss of 0.06 pence)

 

·      Concluded the Group's financial restructuring with the early exit of the Stokenchurch office lease saving the Group approximately £0.7m over the remainder of the lease

 

* results for the period from continuing operations before net finance costs, depreciation, amortisation, integration costs and transactional items, impairment charge and share based payments.
 

**reported profit before tax includes; integration and transactional items, share based payment charge and £0.3 million of profits in the period from discontinued operations.

 

 

Operational Highlights:

 

·      Completed and fully integrated two diversifying and complementary acquisitions: Connect IB and Commensus, adding owned software IP and extending service capabilities
 

·      Upgraded OneSpace which is now a strategic module of the Group's cloud based Smart buildings software platform
 

·      Significant global master services agreements for OneSpace with UBS and UBM 
 

·      Renewal of all significant key customer Managed Service contracts which came up for renewal in the year, on three to five year terms
 

·      Key milestone achieved with Distributed Antenna System 'DAS' delivered as a service (DASaaS), with a contract secured for the design, installation and management at the London headquarters of a leading global technology group

 

·      Strong order book and new business pipeline achieved from both new and existing customers as we move into the new financial year

 

·      Successfully rebranded the Group to RedstoneConnect Plc

 

Mark Braund, CEO of RedstoneConnect, commented:

 

"RedstoneConnect has made significant progress this year having completed the restructuring of the business, acquiring and fully integrating both Connect IB and Commensus, whilst achieving positive momentum against all of our strategic priorities, in particular the building-out of our software offering and improving our business mix towards higher-margin recurring revenues.

 

Looking forward, the Group is well-placed to capitalise on the demand for Smart Building solutions, with our OneSpace product generating significant interest from both new and existing customers."

 

 

A copy of these final results together with the annual report and accounts and further information on the Company is available on the Company's website at: www.redstoneconnectplc.com.

 

Enquiries:

 

RedstoneConnect Plc

Mark Braund (CEO)

Spencer Dredge (CFO)

 

via Vigo Communications

Cantor Fitzgerald Europe (Nominated Adviser & Joint Broker)

Marc Milmo/Phil Davies/Catherine Leftley/Callum Butterfield

 

+44 (0)20 7894 7000

Whitman Howard Limited (Joint Broker)

Nick Lovering

 

+44 (0)207 659 1234

Vigo Communications (Financial Public Relations)

Jeremy Garcia / Ben Simons / Antonia Pollock

reds@vigocomms.com

+44 (0)20 7830 9700

 

About RedstoneConnect

 

RedstoneConnect is focused on technologies that make real estate more efficient and businesses more effective. Its businesses, Redstone, Connect IB and Commensus, provide the infrastructure capabilities and the software applications to deliver smart building and smart workspace solutions for commercial businesses, public sector organisations, real estate owners and managers. Visit our website at www.redstoneconnectplc.com.

 

 

Chairman's Statement

 

I am delighted to present the results for the year ended 31 January 2017, a year in which the Group has continued to make significant strategic progress, achieved key operational milestones and delivered strong financial results.

 

The Group remains firmly on course to become a leading provider of software, technology and services in the Smart Buildings and Commercial Spaces market.  The acquisition of Connect IB in March 2016 has accelerated our progress, bringing a scalable cloud-based software platform along with significant in-house 'smart building software solution' development capabilities to the Group.  The combination of OneSpace, our occupancy management tool, and the Connect platform's other modules, gives us a market leading Smart Buildings platform that is unmatched by our peers, especially as it is IoT ready.
 

Our platform is cloud-based and highly scalable, allowing us to sell on a SaaS pricing model. We have also mandated the software team to ensure that our individual modules are 'best in class' if sold standalone as point solutions. This enables us to cross-sell and up-sell across our customer base.

 

There are clear sales opportunities for our newly developed software offering in both the smart building and commercial office space markets, however we are also beginning to see opportunities arise in the retail, logistics, sports stadia and government sectors. With development of our platform almost complete we will now shift our focus to building an effective infrastructure for both direct and indirect sales, both in the UK and overseas.
 

In addition, the Group has delivered encouraging organic growth from Redstone, our leading IT and Smart Buildings infrastructure business.  Redstone operates as a Systems Integrator and Managed Services provider and continues to work with an impressive list of blue-chip enterprise clients. Both segments within Redstone have continued to trade well in the year. Our Systems Integration business delivered increased margins as a result of the strategic shift towards smart technologies and away from the commoditised end of this market.  The Managed Services operation has also been successful in renewing an impressive range of key customer contracts, which will underpin a significant amount of the division's revenue over the next three to five years.
 

The acquisition in November 2016 of Commensus Plc, a provider of hosted managed services, not only provided a complementary fit to our existing product offering, it also introduced a higher margin business that is both scalable and accretive.  The Group is now able to offer fully managed cloud-based IT services to both existing and new customers. 


Finally, we completed the restructuring programme that was started in 2015, marked by the early exit of the lease for the Stokenchurch office in August 2016, along with the conclusion of a number of other legacy issues, all of which relate back to assets disposed of in the prior year.  This is a key milestone for the business and has enabled management to focus fully on the future of RedstoneConnect.

 

Board and Management
There have been no changes to the composition of the Board during the year.  This stability has benefitted the development of the Group's strategy, which I believe is reflected in the achievements and performance during the year. 


In addition to the main Board, Keith Jump's appointment during the year as Group Chief Technical Officer, following the acquisition of Connect IB has complemented the senior leadership team.  The Group CTO role has strategic importance as we continue to innovate and build out the Group's software product portfolio. 

 

Outlook

 

We continue to make progress on improving the financial model of the business, focusing on higher quality business that generates higher margins and a stronger mix of long-term recurring revenue.  The Group has a unique end-to-end product, service and software offering which continues to appeal across multiple sectors and significantly in the Smart Buildings market. 

 

With the successful programme of software product development achieved during the year, the Group now has an enhanced offering and is well positioned to achieve further growth.  We are focusing our investment on building sales capabilities, enabling the business to rapidly scale and to fully capitalise on the market opportunity by becoming a leader in the supply of smart building solutions.

 

I look forward to sharing more of the same with you in the future.

 

 

Frank Beechinor

Chairman

25 April 2017

 

 

Operational Review

 

Overview

This year has been a period of operational success for RedstoneConnect, achieving growth both organically and through the successful completion of two complementary acquisitions.  In addition, we have further developed our software offering with the cloud-based platform acquired with Connect IB and have completed the integration of OneSpace, our occupancy management software, into the Connect platform suite.
 

Key priorities to drive future performance remain as follows:

 

·      To grow our Smart Buildings offering through a combination of organic growth and acquisition.

·      To focus on developing technology-led intellectual property, in particular, focusing on the Connect platform to ensure we achieve our 'best in class' objective for each module

·      To grow market share for our IP-led software solutions, deriving annuity revenues and profit from a growing installed base of customers

·      To maintain Redstone's reputation as a market leader for service excellence and technical competence in its field. We will focus on continuing to provide high quality services to Redstone's clients by investing in our talented colleagues who are experts, well-versed in the Company's products and our clients' needs alongside continuing to maintain our multiple ISO and vendor accreditations

·      To deliver improving profitability and cash generation

 

Our business proposition

The Group's proposition enables us to deliver end-to-end smart building design, installation, service and software applications.  This offering is not matched by any of our peers to the same extent.

 

Our service is comprised of three segments: Systems Integration, Managed Services and Software.
 

Redstone, our market leading Systems Integration division, has performed well during the year, delivering higher margin business, as the mix of projects executed moves towards more complex solutions involving more innovative products, for example our work delivering in-building cellular solutions, often referred to as distributed antenna systems (DAS).  Our DAS offering ensures mobile devices work anywhere within a building, typically for enterprise-scale commercial property customers and enables the servicing of multiple distributed buildings from a single, remote base station.  This opens the door to converting what would otherwise be project-only engagements into long term 'DAS as a Service' ('DASaaS') opportunities, the first of which is being delivered to a large global internet business for their campus in central London.

 

We continue to promote our Redstone brand; its proven strength and traction over many years provides us with a market leading reputation, which continues to be reflected in the quality of contracts won by this division. 

 

Our expertise in Smart Buildings network design and installation is also experiencing increased traction, as both landlords and occupiers recognise the material benefits to be gained from owning and occupying Smart Buildings.  Our design and installation project for UBS's new headquarters at 5 Broadgate, London, which we completed in the summer of 2016, is a perfect example, as this building is recognised as one of Europe's smartest; following the successful design and installation project, we have installed both a DAS solution at the same location and our workspace management software, OneSpace.

 

Our Managed Services offering has also continued to deliver strong performance in the year.  We have a number of long standing service engagements, typically 3-5 years' duration, all with blue chip enterprise-level customers.  All of the customers with contracts due for review during the period committed to renew with us. This represents 81% of our total Managed Services contracted customer base, providing solid visibility of these revenues for the next three to five years. The acquisition of Commensus in November 2016 builds out our service proposition, adding a fully managed IT support service offering, including a 24/7 monitoring and support desk capability. This acquisition also brought with it higher margin, contracted recurring revenues delivered through Commensus' cloud platform, with complementary engineering resources to deliver on-site services.  We now plan on cross-selling these services across our existing customer base and new customer engagements. 

 

Our Software applications business is the newest division of the Group. The acquisition of Connect IB has brought to the Group a scalable cloud based software platform and whilst the platform's heritage lies in the retail sector, it is both functionally rich and fully endorsed by customers in a variety of sectors including: Pharmaceuticals, Retail, Sports and Entertainment, Financial Markets and Real Estate. 

 

The cloud based platform is modular with core modules and strengths in: customer relationship management, analytics, 2D and 3D mapping and wayfinding, location based services including visitor management, meeting room and occupancy management, ticketing, cash/frictionless vending and car parking and content management.  The platform is multi-tenanted, multi-currency and multi-lingual and has been deployed in over 28 countries.

 

OneSpace, our occupancy management tool, forms a module of the Connect platform, which can also be purchased standalone and is plug and play. It is a compelling proposition providing a unique approach that leverages both existing technology and new IoT innovation to deliver significant gains in space utilisation and occupancy management.

 

The platform has a strong Application Programming Interface ('API') engine that is product agnostic, making it flexible and versatile and leverages the platform capability of the 2D and 3D mapping engine to rapidly map any office or commercial environment, enabling quick software application deployment. As a result RedstoneConnect is now well positioned to develop first mover advantage in what the market is referring to as the 'Connected Office'; a digital environment where OneSpace seamlessly integrates with other key intelligent systems in and around buildings including visitor management, car parking, access control, lift and meeting room management, food and beverage, AV facilities, electronic signage - in fact any digital service that supports the efficient and productive use of a building by its occupants.

 

Performance

The financial performance of the Company for the year is covered in more detail in the Financial Review.  In the year to 31 January 2017, revenues were £41.5 million (2016: £40.1 million) slightly ahead of the prior year. More importantly however, gross profit increased by approximately 33% to £9.2 million (2016: £7.0 million), as the quality and mix of revenues improved enabling gross margin to increase to 22% (2016: 17%).  This headline performance has been achieved in part through continued efficiencies in our core operations as well as the addition of software applications with significantly higher gross margins, which is starting to have a significant impact on our profitability.

 

Acquisitions

During the year the Group successfully completed two acquisitions: Connect IB in the first half of the year and Commensus in the second part of the year.

 

It is pleasing to report that both acquisitions have been fully integrated into the Group and made a positive contribution to the Group's strong trading during the year with adjusted EBITDA materially ahead of market expectations at £2.0 million.

 

Outlook

We have made significant operational progress, are profitable, have generated positive operational cash flow, delivered a net cash position at the year end and developed a strong order book and new business pipeline for 2017. 

 

The acquisitions made during the year are fully integrated with a period of post-acquisition development also being successfully delivered.  The focus now is on scaling the business, growing margins, penetrating the market with our product and service offerings and a continued strategic focus to assess the market for further opportunities to grow both organically and by acquisition.  Our restructuring is now complete and provides a stable and robust balance sheet, which the Company has not previously had in place.  That, combined with our clear strategic focus leaves us well positioned to accelerate our growth aspirations. 

 

The significant improvement in our operational performance is a clear reflection of the passion and quality of our people.  On behalf of the Board, I wish to personally thank and acknowledge my colleagues for what they have achieved during 2016 and for their ongoing commitment to RedstoneConnect.

 

 

Mark Braund

Chief Executive Officer

25 April 2017

 

 

Financial Review

 

Overview

Group trading results for the year have been strong and materially ahead when compared to the prior year.  As a result of the strategic progress made during the year with acquisitions and following a successful period of restructuring, this financial review presents a new segmental view of the Group.  The Board now manages the business aligned to the types of service and solutions it delivers. This differs from previous years, which were based around the separate legal entities and not service provision. 
 

The Systems Integration division delivers projects that cover a variety of technologies and more typically are delivering smart building solutions; the Managed Services division delivers both managed services and support and maintenance services both of which drive recurring revenue and contribution; and the Software Applications division provides software solutions.

 

Acquisitions

The Company made two acquisitions during the year, Connect IB Ltd in March 2016 and Commensus Plc in November 2016. 

 

Connect IB Ltd was acquired for a total consideration of £1.328 million, satisfied by £1.028 million of cash and £0.3 million in equity.  The cash consideration was funded from a placing of ordinary shares (see Equity Financing section below for details). The equity consideration was satisfied by the issue of up to 18,507,094 ordinary shares, of which 15,422,579 were issued on completion at a market price of 1.621 pence per share and 3,084,515 were deferred and are conditional on achieving certain future sales targets. The equity consideration, for the benefit of Keith Jump founder and MD of Connect IB, is subject to a lock up agreement for a period of 36 months.  

 

Commensus Plc was acquired for a total consideration of £2.4 million.  The consideration was satisfied by £2.3 million in cash and £0.1 million in equity.  The equity consideration was satisfied by the issue of 11,976,487 ordinary shares on completion at a market price of 1.23 pence per share, for senior Commensus management and is subject to lock up and orderly market arrangements for 24 months. 

 

Trading performance

Revenue for the year of £41.5m (2016: £40.1 million) increased by £1.4 million. This increased revenue was achieved as a result of the acquisitions made during the year.  However, a more important and relevant performance measure is gross profit.  During the year, the Group reported a 33% year on year increase in gross profit to £9.2 million (2016: £7.0 million), an increase of £2.2 million (2016: £1.8 million).  The increase in gross profit resulted from strengthening margin performance across all segments and the benefit of higher margin software products.   

 

As a result of the strong gross profit performance, adjusted EBITDA has increased in the year by 56% to £2.0 million (2016: £1.3 million).  Operating profit also benefitted from the strong trading performance, coupled with the reduction in integration and transactional items, resulting in £1.2 million profit (2016: loss of £0.7 million).  The Group is profitable for the first time, following its recent restructuring, recording profit after tax of £1.8 million (2016: loss of £0.7 million) from continuing activities and £2.1 million (2016: loss of £2.2 million) including discontinued operations.

 

Year ended 31 January 2017

 

Systems Integration

Managed Services

Software

Group Overhead

Total

 

£000

£000

£000

£000

£000

Revenue

24,586

15,310

1,625

-

41,521

Gross Profit

4,084

3,714

1,426

-

9,224

Gross Margin

16.6%

24.3%

87.8%

-

22.2%

Adjusted EBITDA/(LBITDA)*

1,082

1,959

343

(1,374)

2,010

Operating profit/(loss) from continuing operations

874

1,432

(19)

(1,096)

1,191

Profit/(loss) after taxation from continuing operations

1,478

1,432

7

(1,128)

1,789

 

Year ended 31 January 2016

 

Systems Integration

Managed Services

Software

Group Overhead

Total

 

£000

£000

£000

£000

£000

Revenue

23,823

16,275

-

-

40,098

Gross Profit

3,129

3,821

-

-

6,950

Gross Margin

13.1%

23.5%

-

-

17.3%

Adjusted EBITDA/(LBITDA)*

483

1,733

(4)

(924)

1,288

Operating profit/(loss) from continuing operation

329

1,379

(10)

(2,394)

(696)

(Loss)/profit after taxation from continuing operations

341

1,429

(10)

(2,456)

(696)

 

* Result for the year from continuing operations before net finance costs, depreciation, amortisation, integration and transactional items, impairment charges and share based payment charge.

 

Systems integration

The Systems Integration division has recorded strong growth in the year.  Revenues of £24.6 million have increased £0.8 million from the prior year to £23.8 million.  This strong revenue performance, coupled with an increase in gross margin by 350 basis points to 16.6% from 13.1%, has generated increased gross profit of £4.1 million (2016: £3.1 million).  The increase in gross profit during the year, has resulted in a £0.6 million improvement in adjusted EBITDA at £1.1 million (2016: £0.5 million) and an increase of £0.6m in operating profit at £0.9 million (2016: £0.3 million).
 

Managed Services   

Revenues of £15.3 million (2016: £16.3 million) and gross profit of £3.7 million (2016: £3.8 million) are both marginally lower than the prior year.  However, as a result of higher margin contracts delivered during the year coupled with a reduction in overheads, this division has seen an increase in adjusted EBITDA of £2.0 million (2016: £1.7 million) and operating profit of £1.4 million (2016: £1.4 million). 
 

Encouragingly, a significant proportion of the Managed Services contracts that are delivered 'on the ground' have been renewed during the year, on three to five year terms, providing good visibility of the related revenue and contribution over the next few years.
 

The acquisition of Commensus towards the end of the financial year has contributed to the Managed Services divisional performance.

 

Software

This division includes revenues and profits generated from OneSpace and Connect IB.   

 

Revenues of £1.6 million (2016: £nil) generated gross profit of £1.4 million at a margin of 87.8% (2016: £nil), resulting in a positive adjusted EBITDA contribution of £0.3 million (2016: £0.01 million loss).  Operating loss of £0.02 million is after impairment of intangible assets of £0.1 million and integration costs of £0.1 million.  
 

The impairment charge has arisen as a result of the recent development of OneSpace following the acquisition of Connect IB. The charge results from the now 'end of life' previous version of the OneSpace product.
 

Group overhead

The Group reported central overheads of £1.1 million at an operating level (2016: £2.4 million). The reduction in overheads is due to charges and provisions made in the prior year, which related to the then on-going Group restructuring which is now fully concluded.

 

Integration and transactional items

A credit of £0.2 million (2016: charge £1.4 million) has been recorded in integration and transactional items from continued operations in the year, benefitting the income statement.  This credit has arisen as a result of the integration credit of £0.4 million (2016: charge of £1.1 million) being offset by transactional charges of £0.2 million (2016: £0.4 million). 
 

The credit in relation to integration items, is primarily a result of the exit and final settlement in August 2016 of the Stokenchurch property lease.  The exit of this lease gave rise to a reversal of the unused vacant property provision provided in the previous year.  
 

The transactional costs of £0.2 million incurred during the year directly relate to the two acquisitions, including the charge associated with raising the necessary funds.

 

Taxation

The tax credit reported in the income statement is a result of recording a deferred tax asset during the year of £0.6 million net of the deferred tax charge associated with the amortisation of intangible assets from business combinations. The Group has the benefit of trading losses which are available to offset against future profits. As at 31 January 2017, the tax losses in the Group totalled £9.7 million (2016: £5.6 million), of which we anticipate utilising £3.6 million against future profits and as such have recognised a deferred tax asset of £0.6 million (2016: £nil) during the year.
 

Discontinued activities

The credit to the income statement of £0.3 million recorded during the year is a result of the continued programme of restructuring, voluntarily liquidating dormant Group legal entities, specifically where the trade and assets have been previously sold. The discontinued result, represents one-off non-cash items and includes the reversal of unused provisions, built up in relation to supplier disputes from legacy telecom business operations.
 

Earnings per share - continuing operations

Basic earnings per share ("EPS") recorded in the year was 0.11 pence (2016: loss of 0.06 pence) - significantly ahead of the prior year.  EPS on a diluted basis, allowing for employee share options and warrants, was 0.10 pence (2016: loss of 0.06 pence).
 

Research & development

During the year the Group invested £0.4 million (2016: £0.1 million) in developing owned software IP which includes OneSpace.  This investment is capitalised and recorded in the balance sheet as an intangible asset.
 

Intangible assets & goodwill

As a result of the acquisitions of Connect IB Ltd and Commensus Plc, the Group intangible assets increased by £2.9 million and goodwill by £2.4 million.

 

Amortisation of £0.1 million has been recognised in the income statement in respect of the acquired intangible assets.
 

As a result of the recent development of OneSpace, creating a new separate module in the Connect IB platform, the previous investment in OneSpace, which was also recorded as an intangible asset, with a carrying value of £0.1 million (2016: £nil) has been fully impaired during the year.

 

Cash flow

Cash and cash equivalents at the end of the year was £3.2 million (2016: £1.0 million), an increase of £2.2 million. This resulted from cash flows generated from operating activities of £0.9m, £3.0m raised from finance activities, and £2.3m from bank loans offset by outflows in investing activities of £4.0m. Net cash at the year-end amounted to £0.8 million (2016: £1.0 million).

 

Cash flows generated from operating activities of £0.9 million (2016: cash out flow of £2.7 million) resulted from strong trading performance during the year, offset by investments in working capital.

 

Cash out flows from investing activities of £4.0 million (2016: cash generated £2.1 million), resulted from the investments in both Connect IB and Commensus totalling £3.1 million (net of cash acquired), investment in the development of software IP including OneSpace of £0.4 million and investment in fixed and intangible assets of £0.5 million.    

 

Cash flows generated from financing activities of £5.2m (2016: £2.0m) was made up of funds raised from the issue of new equity, net of issue costs of £3.0m (2016: £2.1 million) and debt finance of £2.3 million (2016: £nil) which was used to fund the acquisition of Commensus Plc.

 

During the year the Group incurred one-off cash outflows relating to legacy activities of £1.1 million.  Whilst these legacy cash items relate to discontinued activities, as some of the contractual relationships resided in the parent company, these items had to be settled. It is not anticipated that this cash cost will recur. The most material item contribution to this cash outflow was the Stokenchurch property lease, with a cash cost of £0.7 million (includes cash exit cost). Other items include various supplier issues of £0.4 million in cash.

  

Borrowing and bank facility

On 14 November the Group entered into new long-term bank arrangements.  The facilities were established to finance the acquisition of Commensus Plc for £2.4 million via a bank loan of £2.35 million and equity consideration of £0.1 million.  The Group banks with Barclays, who provided the debt finance in full.  The loan is repayable over four years, with quarterly repayments, and carries a coupon of 3.5%.

 

As a result of the Group's new loan and facility arrangements, the following banking covenants are in place: -

·      Leverage cover: total borrowings must not exceed 200% of trailing twelve month EBITDA;

·      Debt service: adjusted cash flow as a ratio to adjusted debt service shall not fall below 2 times;

·      Interest cover: Earnings Before Interest and Tax, ("EBIT"), must exceed 2.5 times gross financing costs; and

·      Debtor cover: debtor book cover less than 90 days cannot fall below 3 times the drawn facility.
 

As a result of the fixed term loan, a reduced revolving loan facility of £1.65 million was agreed (previously £2.5 million). This facility will ratchet back up to a maximum of £2.5 million in line with the repayments of the £2.35 million term loan.

 

Equity financing

During the year the Company issued 250,613,352 new ordinary shares for a value of £3.0 million, net of costs.  The Company issued 238,636,865 in new equity in March 2016 via a placing of 223,214,286 ordinary shares at a market price per share of 1.4 pence, raising a total of £3.0 million, net of costs. Also in March 2016, the Company issued 15,422,579 shares at a market price of 1.621 pence per share as part of the consideration paid for Connect IB Ltd.  In November 2016, the Company issued 11,976,487 new ordinary shares at a market price of 1.23 pence per share, as equity consideration to part fund the Commensus acquisition.

 

 

Spencer Dredge

Chief Financial Officer

25 April 2017
 

 

Consolidated income statement

 

For the year ended 31 January 2017

 

 

Note

2017

2016

 

 

 

 

 

 

£000

£000

 

 

 

 

Revenue

2

41,521

40,098

 

 

 

 

Cost of sales

 

(32,297)

(33,148)

 

 

 

 

Gross profit

 

9,224

6,950

 

 

 

 

Administrative expenses

 

(8,033)

(7,646)

Operating profit/(loss)

             

1,191

(696)

 

 

 

 

Adjusted EBITDA*

 

2,010

1,288

 

 

1,

1,

Integration and transactional items included within administrative expenses

 

211

(1,439)

 

 

 

 

Depreciation

 

(424)

(370)

 

 

 

 

Amortisation

 

(371)

(128)

 

 

 

 

Impairment of intangible assets

 

(146)

-

Share based payment charge

 

(89)

(47)

Operating profit/(loss)

             

1,191

(696)

 

 

 

 

 

 

 

 

 

 

 

 

Net finance costs

 

(37)

(63)

 

 

 

 

Profit/(loss) before tax

 

1,154

(759)

 

 

 

 

Taxation

 

635

63

 

 

 

 

Profit/(loss) for the year after tax

 

1,789

(696)

 

 

 

 

Discontinued operations

           

316

(1,487)

 

 

 

 

Profit/(loss) for the year

 

2,105

(2,183)

 

 

 

 

Total comprehensive profit/(loss) for the year attributable to equity holders

 

2,105

(2,183)

Basic earnings/(loss) per share

 

 

 

Continuing operations

4

0.11p

(0.06p)

Discontinued operations

4

0.02p

(0.12p)

Total

4

0.13p

(0.18p)

 

 

 

 

Diluted earnings/(loss) per share

 

 

 

 

 

 

 

Continuing operations

4

0.10p

(0.06p)

 

 

 

 

Discontinued operations

4

0.02p

(0.12p)

Total

4

0.12p

(0.18p)

 

 

 

 

 

* Result for the year from continuing operations before net finance costs, depreciation, amortisation, integration and transactional items, impairment charges and share based payment charge.

 

 

Consolidated statement of financial position

 

As at 31 January 2017

 

 

 

 

2017

2016

 

 

 

 

 

 

£000

£000

ASSETS

 

 

 

Non-current assets

 

 

 

Goodwill

 

11,087

8,724

Other intangible assets

 

3,222

309

Property, plant and equipment

 

906

637

Deferred tax

 

62

-

 

 

15,277

9,670

Current assets

 

 

 

Inventories

 

143

181

Trade and other receivables

 

8,779

7,982

Cash and cash equivalents

 

4,468

2,430

 

 

13,390

10,593

Total assets

 

28,667

20,263

EQUITY and LIABILITIES

 

 

 

Capital and reserves attributable to equity shareholders

 

 

 

Share capital

 

3,687

3,436

Share premium

 

32,589

29,463

Merger reserve

 

1,911

1,911

Reverse acquisition reserve

 

(4,236)

(4,236)

Accumulated deficit

 

(19,470)

(21,664)

Total equity

 

14,481

8,910

Current liabilities

 

 

 

Overdraft

 

1,273

1,383

Bank loans

 

653

-

Trade and other payables

 

10,318

8,503

Corporation tax

 

11

-

Provisions

 

-

676

 

 

12,255

10,562

Non-current liabilities

 

 

 

Provisions

 

169

791

Bank loans

 

1,762

-

 

 

1,931

791

Total liabilities

 

14,186

11,353

Total equity and liabilities

 

28,667

20,263

 

The financial statements were approved by the Board of Directors and authorised for issue on 25 April 2017.

 

They were signed on its behalf by:

 

 

Spencer Dredge

 

Chief Financial Officer

25 April 2017

 

Company Number: 5332126

 

Consolidated statement of cash flows

 

For the year ended 31 January 2017

 

 

 

 

2017

2016

 

 

 

 

 

 

£000

£000

Cash flows from operating activities

 

 

 

Profit/(loss) for the year

 

2,105

(2,183)

Depreciation

 

424

531

Amortisation

 

371

218

Share based payment charge

 

89

47

Net finance costs

 

37

63

Taxation

 

(635)

(482)

Intangible asset impairment

 

146

-

Provisions (released)/recognised

 

(610)

589

Loss on sale of fixed assets

 

-

24

Loss on sale of discontinued operation, net of tax

 

-

576

Operating cash flows before movements in working capital

 

1,927

(617)

Decrease in inventories

 

37

32

(Increase)/decrease in receivables

 

(133)

2,394

Decrease in payables

 

(270)

(4,543)

Movement in provisions

 

(687)

-

Operating cash flows after movements in working capital

 

874

(2,734)

Tax refunded

 

39

49

Net cash generated from/(used in) operating activities

 

913

(2,685)

 

 

 

 

Cash flows from investing activities

 

 

 

Disposal of assets

 

-

2,500

Research and development

 

(367)

-

Acquisition of subsidiaries (net of cash acquired)

 

(3,140)

-

Acquisition of intangible assets

 

(138)

(355)

Proceeds from sale of property, plant and equipment

 

-

23

Acquisition of property, plant and equipment

 

(351)

(56)

Net cash (used in)/generated from investing activities

 

(3,996)

2,112

 

 

 

 

Cash flows from financing activities

 

 

 

Proceeds from issues of share capital (net of issue costs)

 

2,979

2,069

Loan drawn

 

3,789

-

Loan repaid

 

(1,500)

-

Net finance costs

 

(37)

(63)

Net cash generated from financing activities

 

5,231

2,006

 

 

 

 

Net increase in cash and cash equivalents

 

2,148

1,433

Cash and cash equivalents at start of year

 

1,047

(386)

Cash and cash equivalents at end of year

 

3,195

1,047

 

Cash and cash equivalents comprise cash at bank and other short-term highly liquid investments with maturity of three months or less, as adjusted for any bank overdrafts.

 

 

Consolidated statement of changes in equity

 

Attributable to equity holders of the Company

 

 

 

 

Share

Reverse

 

 

 

 

Share

premium/

acquisition

Accumulated

 

 

 

capital

merger reserve

reserve

deficit

Total

 

 

 

 

 

 

 

 

 

£000

£000

£000

£000

£000

 

 

 

 

 

 

 

At 1 February 2015

 

3,015

29,727

(4,236)

(19,528)

8,978

 

 

 

 

 

 

 

Loss for the year

 

-

-

-

(2,183)

(2,183)

 

 

 

 

 

 

 

Total comprehensive loss for the year

 

-

-

-

(2,183)

(2,183)

 

 

 

 

 

 

 

Transactions with the owners:

 

 

 

 

 

 

 

 

 

 

 

 

 

Proceeds from shares issued

 

421

1,697

-

-

2,118

 

 

 

 

 

 

 

Share issue costs

 

-

(50)

-

-

(50)

 

 

 

 

 

 

 

Share based payment charge

 

-

-

-

47

47

 

 

 

 

 

 

 

At 31 January 2016

 

3,436

31,374

(4,236)

(21,664)

8,910

 

 

 

 

 

 

 

At 1 February 2016

 

3,436

31,374

(4,236)

(21,664)

8,910

 

 

 

 

 

 

 

Profit for the year

 

-

-

-

2,105

2,105

 

 

 

 

 

 

 

Total comprehensive profit for the year

 

-

-

-

2,105

2,105

 

 

 

 

 

 

 

Transactions with the owners:

 

 

 

 

 

 

 

 

 

 

 

 

 

Proceeds from shares issued

 

251

3,272

-

-

3,523

 

 

 

 

 

 

 

Share issue costs

 

-

(146)

-

-

(146)

 

 

 

 

 

 

 

Share based payment charge

 

-

-

-

89

89

 

 

 

 

 

 

 

At 31 January 2017

 

3,687

34,500

(4,236)

(19,470)

14,481

 

 

 

 

 

 

 

 

Notes to the financial statements

 

1 General information

 

RedstoneConnect plc is a company incorporated in England and Wales under the Companies Act 2006 and listed on the AIM market. The nature of the Group's operations and its principal activities are set out in the Directors' report and in the Operational review.

 

 

These financial statements are presented in pounds sterling as that is the currency of the primary economic environment in which the Group operates. There are no foreign subsidiaries in the Group.

 

Going concern

 

As detailed in the Directors' report, the Directors consider that the Company and the Group have adequate resources to continue in existence for the foreseeable future. In assessing the outlook for the Company and Group, the Board took account of the Group's £1.65 million overdraft facility.

 

The Directors have assessed the Group's current forecasts, taking into account reasonable changes in trading performance. The assessment considered stress tests and mitigating actions available to the Group. On the basis of this review, the Directors believe that the Group will continue to operate within the resources currently available to it. Furthermore, the Directors have reviewed the projections in accordance with the banking facility covenants and current cash flow forecasts indicate that the Group will not breach these terms in the foreseeable future. The Directors accordingly continue to adopt the going concern basis in preparing these financial statements.

 

 

2 Segmental reporting

 

The Group has undergone a period of transformation over the last two financial periods, with the disposal of the telecommunications business and the acquisition of Connect IB Ltd and Commensus Plc. In order to support this, the Board have amended the segments by which it reports the business activities of the Group.

 

In the opinion of the Directors the Group's activities comprise three material business segments which reflect the profiles of the risks, rewards and internal reporting structures within the Group.

 

These are as follows:

·     Systems Integration

·     Managed Services

·     Software

 

All activities were conducted within the United Kingdom and it is the opinion of the Directors that this represents one geographical segment.
 

Year ended 31 January 2017

 

Systems Integration

Managed Services

Software

Group Overhead

Total

 

£000

£000

£000

£000

£000

Revenue

24,586

15,310

1,625

-

41,521

Cost of sales

(20,502)

(11,596)

(199)

-

(32,297)

Gross Profit

4,084

3,714

1,426

-

9,224

Administrative expenses

(3,002)

(1,755)

(1,083)

(1,374)

(7,214)

Adjusted EBITDA/(LBITDA)*

1,082

1,959

343

(1,374)

2,010

Integration and transactional costs included within administrative expenses

(9)

(50)

(77)

347

211

Depreciation

(122)

(281)

(20)

(1)

(424)

Amortisation

(70)

(183)

(118)

-

(371)

Impairment of intangible assets

-

-

(146)

-

(146)

Share based payment charge

(7)

(13)

(1)

(68)

(89)

Operating profit/(loss)

874

1,432

(19)

(1,096)

1,191

Net finance costs

(2)

(6)

3

(32)

(37)

Profit/(loss) before taxation

872

1,426

(16)

(1,128)

1,154

Taxation

606

6

23

-

635

Profit/(loss) after taxation

1,478

1,432

7

(1,128)

1,789

 

Year ended 31 January 2016

 

Systems Integration

Managed Services

Software

Group Overhead

Total

 

£000

£000

£000

£000

£000

Revenue

23,823

16,275

-

-

40,098

Cost of sales

(20,694)

(12,454)

-

-

(33,148)

Gross Profit

3,129

3,821

-

-

6,950

Administrative expenses

(2,646)

(2,088)

(4)

(924)

(5,662)

Adjusted EBITDA/(LBITDA)*

483

1,733

(4)

(924)

1,288

Integration and transactional costs included within administrative expenses

(3)

(10)

-

(1,426)

(1,439)

Depreciation

(112)

(253)

(5)

-

(370)

Amortisation

(39)

(88)

(1)

-

(128)

Share based payment charge

-

(3)

-

(44)

(47)

Operating profit/(loss)

329

1,379

(10)

(2,394)

(696)

Net finance costs

-

(1)

-

(62)

(63)

Profit/(loss) before taxation

329

1,378

(10)

(2,456)

(759)

Taxation

12

51

-

-

63

Profit/(loss) after taxation

341

1,429

(10)

(2,456)

(696)

 

* results for the period from continuing operations before net finance costs, depreciation, amortisation, integration costs and transactional items, impairment charge and share based payments.

 

3 Acquisition of businesses

 

On 15 March 2016, RedstoneConnect acquired 100% of the share capital of Connect IB Limited ("Connect") for a total consideration of £1.328 million. Deal costs of £41,000 were incurred and recorded under integration and transactional items in the Income Statement. The transaction was satisfied by £1.028 million in cash and £300,000 in equity.  The cash element of the consideration was financed out of the placing of 223,214,286 new ordinary shares of 0.1 pence each at a price of 1.4 pence per share, raising £3.125 million, before expenses. Equity consideration was satisfied by, 15,422,579 ordinary shares of 0.1 pence and deferred equity consideration of 3,084,516 ordinary shares of 0.1 pence each, both at a price of 1.62 pence per share.

 

On 16 November 2016, RedstoneConnect acquired 100% of the share capital of Commensus Plc ("Commensus") for a total consideration of £2.4 million. Deal costs of £72,000 were incurred and recorded under integration and transactional items in the Income Statement. The transaction was satisfied by £2,252,290 million in cash and £147,710 in equity. The cash element of the consideration was financed through bank borrowings. Equity consideration was satisfied by 11,976,487 ordinary shares of 0.1 pence at a price of 1.23 pence per share.

 

The acquisition of Connect and Commensus is in line with RedstoneConnect's strategy of delivering performance through both organic and acquisitive growth. In addition, both companies create significant synergies for the enlarged group in terms of potential new clients for RedstoneConnect and additional products that can be sold across Redstone's existing customer base.

 

The book value of Connect and Commensus net assets acquired and their fair values are summarised below:

 

 

Connect IB Limited

Commensus Plc

Combined

 

Book Value

Fair Value Adjustments

Fair Value to Group

Book Value

Fair Value Adjustments

Fair Value to Group

 

Fair Value to Group

 

£000

£000

£000

£000

£000

£000

£000

Intangible assets

-

1,236

1,236

135

1,554

1,689

2,925

Property, plant and equipment

19

-

19

398

(79)

319

338

Trade receivables

258

(26)

232

307

-

307

539

Other current assets

146

(123)

23

346

(240)

106

129

Cash

50

-

50

90

-

90

140

Loans

(126)

-

(126)

-

-

-

(126)

Trade payables

(166)

-

(166)

(219)

-

(219)

(385)

Other current liabilities

(149)

(379)

(528)

(900)

(182)

(1,082)

(1,610)

Deferred tax liability

-

(247)

(247)

-

(338)

(338)

(585)

 

32

461

493

157

715

872

1,365

 

 

 

 

 

 

 

 

Fair value of net assets acquired

 

 

493

 

 

872

1,365

Goodwill

 

 

835

 

 

1,528

2,363

Total consideration

 

 

1,328

 

 

2,400

3,728

 

 

 

 

 

 

 

 

Shares issued at market value

 

 

250

 

 

148

398

Cash

 

 

1,028

 

 

2,252

3,280

Contingent equity consideration

 

 

50

 

 

-

50

 

 

 

1,328

 

 

2,400

3,728

 

 

 

 

 

 

 

 

Cash

 

 

1,028

 

 

2,252

3,280

Less: cash acquired

 

 

(50)

 

 

(90)

(140)

Total cash consideration net of cash acquired

 

 

978

 

 

2,162

3,140

 

The fair value of the financial assets include trade receivables with a fair value and gross contractual value of £539,000. The best estimate at acquisition date of the contractual cash flows to be collected was £539,000.

 

The goodwill arising from the acquisitions is not deductible for income tax purposes.

 

Since acquisition date Connect IB Limited contributed £1,600,000 in revenue and £83,000 to the Group's profit before taxation in the year, whilst Commensus Plc contributed £516,000 in revenue and £48,000 to the Group's profit before taxation. Had both acquisitions occurred at the beginning of the year, the Group's revenue would have been £44,000,000 and the Group's profit before taxation would have been £1,300,000 for the year.

 

The identifiable intangible assets and related deferred tax liability are as follows:

 

 

Connect IB Limited

Commensus Plc

 

Combined

 

 

Fair Value to Group

Fair Value

to Group

Fair Value

to Group

 

 

 

£000

£000

£000

 

 

 

 

 

 

 

 

 

 

Customer contracts

 

 

606

 

 

1,689

2,295

 

IP

 

 

630

 

 

-

630

 

Deferred tax liability

 

 

(247)

 

 

(338)

(585)

 

Total

 

 

989

 

 

1,351

2,340

 

 

The Group has applied the 'Income Approach' valuation method to identify the above acquired intangible assets.

 

The Income Approach focuses on the income-producing capability of the subject asset. The underlying premise of this approach is that the value of an asset can be measured by the present worth of the net economic benefit (cash receipts less cash outlays) to be received over the life of the subject asset.

 

The steps followed in applying this approach include estimating the expected after-tax cash flows or profits attributable to the asset over its life and converting these after-tax cash flows to present value. This has been calculated using the Discounted Cashflow Methodology ("DCF").

 

The discounting process uses a rate of return, which accounts for both the time value of money and investment risk factors. Finally, the present value of the after-tax cashflows over the life of the asset is totalled to arrive at an indication of Fair Value of the asset.

 

For the Customer relationships we have approached this by way of ascertaining the post-tax annual value of these contracts after applying an attrition rate based on historical trends.

 

4 Earnings per share

 

 

Earnings per share data is based on the Group profit/(loss) for the year and the weighted average number of ordinary shares in issue.

 

 

 

 

2017

 

 

2016

 

 

Continued operations

Discontinued operations

Total

Continued operations

Discontinued operations

Total

Basic earnings/(loss) per share

0.11p

0.02p

0.13p

(0.06p)

(0.12p)

(0.18p)

Diluted earnings/(loss) per share

0.10p

0.02p

0.12p

(0.06p)

(0.12p)

(0.18p)

Profit/(loss) for the year attributable to owners of the parent company (£000)

1,789

316

2,105

(696)

(1,487)

(2,183)

 

 

 

 

 

2017

 

2016

 

 

 

 

 

 

Number of shares

 

 

No.

 

No.

Weighted average number of ordinary shares in issue

1,606,896,215

1,232,295,941

Weighted average number of potentially dilutive ordinary shares in issue

1,768,526,952

1,232,295,941

 

Warrants and employee share options are non-dilutive in loss making periods.

 

5 Annual General Meeting

 

The Annual General Meeting will be held at the offices of RedstoneConnect plc, 40 Holborn Viaduct, London, EC1N 2PB, the date and time of which will be confirmed in due course.

 


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