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Redcentric PLC (RCN)

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Tuesday 13 December, 2016

Redcentric PLC

Update on forensic review and remedial action plan

RNS Number : 7479R
Redcentric PLC
13 December 2016
 

 

13 December 2016

                                                                                Redcentric plc

("Redcentric" or the "Company")

 

Update on forensic review and remedial action plan

 

Redcentric (AIM:RCN) provides the following update on the progress made with its forensic review previously announced on 7 November 2016.

 

Initial findings from the forensic review 

 

As previously announced, following an internal review by the Company's audit committee in relation to the interim results for the six months ended 30 September 2016, misstated accounting balances in the Group's balance sheet were discovered.  Redcentric promptly appointed Deloitte LLP ("Deloitte") and Nabarro LLP ("Nabarro") to carry out an independent forensic review.  

 

The forensic review and management's initial findings are as follows.

 

• Net assets impairment: The cumulative overstatement of net assets and profits after tax up to 30 September 2016 is approximately £20.8 million.  The current position is that approximately £5.9 million of this misstatement (£4.7 million at the EBITDA level) arose in the six months ended 30 September 2016 and will be reflected in the Company's interim results when they are published this month. The remaining £14.9 million misstatement relates to periods prior to and including the year ended 31 March 2016.  To date there has been no evidence of theft and the misstatements are attributable to profit overstatement over a number of years with revenues being overstated and costs understated in broadly equal proportions.  

 

• Net debt: As previously reported, the net debt position for both 31 March 2016 and 30 September 2016 is materially higher than originally reported.  As at 31 March 2016, net debt was £37.8 million and as at 30 September 2016 net debt was £34.4 million. 

 

However, the net debt position as at the period ends mentioned above are not representative because creditors had been significantly stretched at those dates.  The average month end net debt position over the past eight months to 30 November 2016 was £42.0 million.  This is expected to reduce as billing and debtor collection processes are improved.   

 

Banking covenants

  

As noted in the announcement on 7 November 2016, the Company has recalculated its historic banking covenants due to the impact of various accounting adjustments. The Company is pleased to report that it has secured waivers from its Banks in relation to historic covenants such that it is fully compliant with its facilities. The Banks remain supportive of Redcentric and constructive discussions are ongoing in relation to the agreement of future covenant levels which reflect management's business plan.   

 

Remedial action plan

 

As well as promptly appointing Deloitte and Nabarro to carry out the independent forensic review, management have also prepared and are executing a remedial plan of action.  

 

Some important first steps have been made. These include the appointment of Peter Brotherton as Chief Financial Officer and Julian Llewellyn as Interim CFO.  Both are based at Redcentric's headquarters in Harrogate.  A full review of the entire finance function is underway, being directly led by Peter Brotherton.

 

A number of initial improvements have already been made including changes to billing and credit control management systems and processes.  The restructuring of the finance function will continue as necessary.  

 

Interim results announcement and outlook

 

The Company will report its interim results before 31 December 2016.

 

The Company currently expects to report for the six months ended 30 September 2016 revenue of approximately £53.0 million and EBITDA* of approximately £9.1 million.   Given the recurrent nature of a majority of the Group's revenue, being in excess of 80% of total Group revenue, the Board believes that this performance is indicative of the performance for the second half of the year.  The sales pipeline remains strong at approximately £93.0 million and the H1 sales targets were exceeded, incorporating 38 new client wins.  

 

Given the increase in the Company's net debt position, the Board has resolved not to declare an interim dividend.  With an anticipated improvement in net debt, the Board will review the Company's dividend policy at the time of the full-year results.

 

The Company has been very encouraged and appreciative of the supportive response from its employees, clients and prospective clients.  The Company is focused on completing the matters outstanding in response to the forensic review, reporting the interim results and engaging with our valued clients and staff. 

 

This announcement contains inside information.

 

 Enquiries:

 

Redcentric plc

via Tulchan Communications

Fraser Fisher, Chief Executive Officer

 

Peter Brotherton, Chief Financial Officer

 

 

 

Tulchan

+44 (0)20 7353 4200

James Macey White / Matt Low

 

 

 

Numis Securities Limited - Nomad & Joint Broker     

+44 (0)20 7260 1000

Simon Willis / Ben Stoop / Oliver Hardy

 

 

 

finnCap Ltd - Joint Broker

+44 (0)20 7220 0500

Stuart Andrews / Rhys Williams

 

 

  

* Earnings before interest, tax, depreciation, amortisation of acquired intangibles, transaction and integration costs and share based payments.


This information is provided by RNS
The company news service from the London Stock Exchange
 
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