TIDMREDS
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 GBP2.1 million (2016: loss of GBP2.2 million)
-- Gross profit up 33% to GBP9.2 million (2016: GBP7.0 million),
with an increased gross margin of 22% (2016: 17%)
-- Revenue up 3.5% to GBP41.5 million (2016: GBP40.1 million)
-- Adjusted EBITDA* materially ahead of management expectations,
up 56% to GBP2.0 million (2016: GBP1.3 million) reflecting the
successful implementation of strategy to focus on higher quality,
higher margin business
-- Reported Profit before tax** of GBP1.5 million (2016: loss of GBP0.8 million)
-- Profit before tax from continuing operations of GBP1.2
million (2016: loss of GBP0.8 million)
-- Profit after tax from continuing operations of GBP1.8 million
(2016: loss of GBP0.7 million)
-- Cash generated from operations of GBP0.9 million (2016: cash out flow of GBP2.7 million)
-- Cash at year end of GBP3.2 million (2016: GBP1.0 million) and
net cash of GBP0.8 million (2016: GBP1.0 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 GBP0.7m 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 GBP0.3 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 via Vigo Communications
Mark Braund (CEO)
Spencer Dredge (CFO)
Cantor Fitzgerald Europe (Nominated
Adviser & Joint Broker)
Marc Milmo/Phil Davies/Catherine +44 (0)20 7894
Leftley/Callum Butterfield 7000
Whitman Howard Limited (Joint Broker) +44 (0)207 659
Nick Lovering 1234
Vigo Communications (Financial
Public Relations)
Jeremy Garcia / Ben Simons / Antonia
Pollock +44 (0)20 7830
reds@vigocomms.com 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 GBP41.5 million (2016: GBP40.1 million)
slightly ahead of the prior year. More importantly however, gross
profit increased by approximately 33% to GBP9.2 million (2016:
GBP7.0 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 GBP2.0 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
GBP1.328 million, satisfied by GBP1.028 million of cash and GBP0.3
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 GBP2.4
million. The consideration was satisfied by GBP2.3 million in cash
and GBP0.1 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 GBP41.5m (2016: GBP40.1 million)
increased by GBP1.4 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 GBP9.2 million (2016: GBP7.0 million), an increase of
GBP2.2 million (2016: GBP1.8 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 GBP2.0 million (2016:
GBP1.3 million). Operating profit also benefitted from the strong
trading performance, coupled with the reduction in integration and
transactional items, resulting in GBP1.2 million profit (2016: loss
of GBP0.7 million). The Group is profitable for the first time,
following its recent restructuring, recording profit after tax of
GBP1.8 million (2016: loss of GBP0.7 million) from continuing
activities and GBP2.1 million (2016: loss of GBP2.2 million)
including discontinued operations.
Year ended 31 January 2017
------------------------------------------------------------------------------------
Systems Managed Group
Integration Services Software Overhead Total
============================== ============ ========= ======== ========= ======
GBP000 GBP000 GBP000 GBP000 GBP000
============================== ============ ========= ======== ========= ======
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 Managed Group
Integration Services Software Overhead Total
============================= ============ ========= ======== ========= ======
GBP000 GBP000 GBP000 GBP000 GBP000
============================= ============ ========= ======== ========= ======
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 GBP24.6 million have increased GBP0.8 million
from the prior year to GBP23.8 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
GBP4.1 million (2016: GBP3.1 million). The increase in gross profit
during the year, has resulted in a GBP0.6 million improvement in
adjusted EBITDA at GBP1.1 million (2016: GBP0.5 million) and an
increase of GBP0.6m in operating profit at GBP0.9 million (2016:
GBP0.3 million).
Managed Services
Revenues of GBP15.3 million (2016: GBP16.3 million) and gross
profit of GBP3.7 million (2016: GBP3.8 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
GBP2.0 million (2016: GBP1.7 million) and operating profit of
GBP1.4 million (2016: GBP1.4 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 GBP1.6 million (2016: GBPnil) generated gross profit
of GBP1.4 million at a margin of 87.8% (2016: GBPnil), resulting in
a positive adjusted EBITDA contribution of GBP0.3 million (2016:
GBP0.01 million loss). Operating loss of GBP0.02 million is after
impairment of intangible assets of GBP0.1 million and integration
costs of GBP0.1 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 GBP1.1 million at an
operating level (2016: GBP2.4 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 GBP0.2 million (2016: charge GBP1.4 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 GBP0.4
million (2016: charge of GBP1.1 million) being offset by
transactional charges of GBP0.2 million (2016: GBP0.4 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 GBP0.2 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 GBP0.6 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 GBP9.7 million (2016: GBP5.6 million), of which we
anticipate utilising GBP3.6 million against future profits and as
such have recognised a deferred tax asset of GBP0.6 million (2016:
GBPnil) during the year.
Discontinued activities
The credit to the income statement of GBP0.3 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 GBP0.4 million (2016: GBP0.1
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 GBP2.9 million and
goodwill by GBP2.4 million.
Amortisation of GBP0.1 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 GBP0.1 million (2016: GBPnil) has
been fully impaired during the year.
Cash flow
Cash and cash equivalents at the end of the year was GBP3.2
million (2016: GBP1.0 million), an increase of GBP2.2 million. This
resulted from cash flows generated from operating activities of
GBP0.9m, GBP3.0m raised from finance activities, and GBP2.3m from
bank loans offset by outflows in investing activities of GBP4.0m.
Net cash at the year-end amounted to GBP0.8 million (2016: GBP1.0
million).
Cash flows generated from operating activities of GBP0.9 million
(2016: cash out flow of GBP2.7 million) resulted from strong
trading performance during the year, offset by investments in
working capital.
Cash out flows from investing activities of GBP4.0 million
(2016: cash generated GBP2.1 million), resulted from the
investments in both Connect IB and Commensus totalling GBP3.1
million (net of cash acquired), investment in the development of
software IP including OneSpace of GBP0.4 million and investment in
fixed and intangible assets of GBP0.5 million.
Cash flows generated from financing activities of GBP5.2m (2016:
GBP2.0m) was made up of funds raised from the issue of new equity,
net of issue costs of GBP3.0m (2016: GBP2.1 million) and debt
finance of GBP2.3 million (2016: GBPnil) 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 GBP1.1 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
GBP0.7 million (includes cash exit cost). Other items include
various supplier issues of GBP0.4 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 GBP2.4 million via a bank loan of
GBP2.35 million and equity consideration of GBP0.1 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 GBP1.65 million was agreed (previously GBP2.5 million).
This facility will ratchet back up to a maximum of GBP2.5 million
in line with the repayments of the GBP2.35 million term loan.
Equity financing
During the year the Company issued 250,613,352 new ordinary
shares for a value of GBP3.0 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 GBP3.0 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
GBP000 GBP000
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
GBP000 GBP000
==================================== ======== ========
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
GBP000 GBP000
======================================= ======= =======
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
merger
capital reserve reserve deficit Total
GBP000 GBP000 GBP000 GBP000 GBP000
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
GBP1.65 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 Group
Integration Managed Services Software Overhead Total
====================================== ============ ================ ======== ========= ========
GBP000 GBP000 GBP000 GBP000 GBP000
====================================== ============ ================ ======== ========= ========
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 Group
Integration Managed Services Software Overhead Total
====================================== ============ ================ ======== ========= ========
GBP000 GBP000 GBP000 GBP000 GBP000
====================================== ============ ================ ======== ========= ========
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 GBP1.328 million. Deal costs of GBP41,000 were incurred and
recorded under integration and transactional items in the Income
Statement. The transaction was satisfied by GBP1.028 million in
cash and GBP300,000 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 GBP3.125 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
GBP2.4 million. Deal costs of GBP72,000 were incurred and recorded
under integration and transactional items in the Income Statement.
The transaction was satisfied by GBP2,252,290 million in cash and
GBP147,710 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 Fair Value Fair Value Book Fair Value Fair Value Fair Value
Value Adjustments to Group Value Adjustments to Group to Group
=========================== ====== ============ ========== ====== ============ ========== ===========
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
=========================== ====== ============ ========== ====== ============ ========== ===========
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 GBP539,000. The
best estimate at acquisition date of the contractual cash flows to
be collected was GBP539,000.
The goodwill arising from the acquisitions is not deductible for
income tax purposes.
Since acquisition date Connect IB Limited contributed
GBP1,600,000 in revenue and GBP83,000 to the Group's profit before
taxation in the year, whilst Commensus Plc contributed GBP516,000
in revenue and GBP48,000 to the Group's profit before taxation. Had
both acquisitions occurred at the beginning of the year, the
Group's revenue would have been GBP44,000,000 and the Group's
profit before taxation would have been GBP1,300,000 for the
year.
The identifiable intangible assets and related deferred tax
liability are as follows:
Connect IB Combined
Limited Commensus Plc
Fair Value Fair Value Fair Value
to Group to Group to Group
--------------------- ------------ ------------- ----------
GBP000 GBP000 GBP000
===================== =========== ============= ==========
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 Discontinued Total Continued Discontinued Total
operations operations operations operations
------------------------- ------------ ------------- ------ ------------ ------------- --------
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
(GBP000) 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.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR OKQDNOBKDQQB
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