REDCENTRIC
REPORT
& ACCOUNTS
2016
2
CONTENTS
CHAIRMAN’S STATEMENT
OPERATIONAL REVIEW
FINANCIAL REVIEW
DIRECTORS’ PROFILES
CORPORATE GOVERNANCE
DIRECTORS’ REMUNERATION REPORT
STRATEGIC REPORT
DIRECTORS’ REPORT
STATEMENT OF DIRECTORS’ RESPONSIBILITIES
INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF REDCENTRIC PLC
CONSOLIDATED INCOME STATEMENT
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
CONSOLIDATED BALANCE SHEET
CONSOLIDATED CASH FLOW STATEMENT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF REDCENTRIC PLC
COMPANY BALANCE SHEET
COMPANY STATEMENT OF CHANGES IN EQUITY
NOTES TO THE COMPANY FINANCIAL STATEMENTS
5
7
12
18
20
24
27
30
34
35
37
38
39
40
41
43
85
87
88
89
3
FINANCIAL SUMMARY
REVENUE & EBITDA
£120m
£100m
£80m
£60m
£40m
£20m
£0m
£109.5M
FY14 pro-forma
FY15
FY16
£94.3M
£87.4M
£25.8M
£21.4M
£16.2M
Revenue
EBITDA*
Redcentric has continued along its
established strategic plan with solid organic
growth and increased recurring revenue
which was complemented by two successful
acquisitions in the year.
4
CHAIRMAN’S STATEMENT
I am delighted to present the annual results for Redcentric plc for the year to 31 March 2016.
Redcentric has continued along its established strategic plan with solid organic growth and increased
recurring revenue which was complemented by two successful acquisitions in the year. We have
continued to invest in the business in support of future sustained growth.
Revenue for
the year was
£109.5m
Underlying EBITDA
growth of
21%
Summary trading results
The revenue for the year grew by
16% to £109.5m (2015: £94.3m).
This was a combination of organic
growth of 8% and the contribution
from the acquisitions of Calyx
Managed Services and City Lifeline.
Management’s key focus, recurring
revenue, grew organically by 11%
and now represents 82% of the
total revenue.
Operating profit was £8.4m (2015:
£8.7m). Underlying profitability
increased with adjusted EBITDA* up
21% to £25.8m (2015 £21.4m) and
adjusted EBITDA margins were 23.6%
(2015: 22.7%), reflecting improvements
in the quality of revenue, the benefits
of scale and successful execution of
the business model.
Business Development
Following a year with no acquisitions
and the consolidation of our
platform, in April 2015 Redcentric
acquired Calyx Managed Services
Ltd and in January 2016 acquired
City Lifeline Ltd. Calyx has been
integrated, the integration of City
Lifeline is proceeding to plan and
both businesses are performing in
line with expectations. The ability of
the business to successfully augment
organic growth with selective
acquisitions enables the strength of
the core platform to be leveraged.
The Board will remain alert to further
appropriate acquisition opportunities
which will be undertaken to the
Board’s strict investment criteria.
Returns to shareholders
The strong performance of the
business was reflected in underlying
earnings per share growth, with
adjusted EPS** growing by 24% to
10.5p (2015 8.5p). Earnings per share
on an unadjusted basis were 3.6p
(2015: 5.5p). The Board is pleased to
announce a final dividend of 3.0p per
share (2015 2.5p), which means an
increase of 29% in the total dividend in
respect of the year to 4.5p (2015: 3.5p).
The Group is cash generative and has
access to a wide range of financial
sources to support future investments.
Given this financial strength and
flexibility, the Board is committed to
a progressive dividend policy aligned
to the Group’s performance.
5
CHAIRMAN’S STATEMENT
CONTINUED
Board and employees
Outlook
In November 2015 Fraser Fisher,
previously Chief Operating Officer,
took over from Tony Weaver as Chief
Executive Officer. Tony remains
on the Board as a non-executive
Director. There have been no other
changes to the Board during the
year. The Board is well-balanced, with
four non-executive Directors and two
executive Directors, with a range of
complementary and relevant skills
and experience.
Our growth and good performance
have as always been possible through
the commitment and hard work of
our Management and Staff and the
Board is grateful to them for their
contribution.
There is significant opportunity for
Redcentric to establish itself as a
market leader in IT managed services
for the mid-market. Customers
continue to be attracted to the
ability of the business to deliver
reliable and innovative services from
its own secure and well invested
infrastructure. In addition it is a highly
fragmented market, which provides
opportunity to augment organic
growth with acquisitive growth.
The Board remains confident in
the ability of the business to deliver
increasing shareholder value over
the coming years.
Chris Cole
Non-Executive Chairman
16 June 2016
Dividends per
share of
4.5p
* Adjusted EBITDA is defined as earnings before interest, tax, depreciation, amortisation of acquired intangibles, transaction and integration costs
and share based payments.
** Adjusted Earnings Per Share excludes amortisation of acquired intangibles, transaction and integration costs and share based payments
and replaces the reported tax charge or credit with a notional tax charge at the full rate of corporation tax.
6
OPERATIONAL REVIEW
Overview
This year has been a period of great
success for Redcentric, achieving
growth both organically, and
through the successful execution of
acquisitions. Since it started life as a
new company in April 2013, Redcentric
has grown and developed into one
of the leading businesses in the UK
managed services market, successfully
delivering critical services to over
2,000 mid-market customers. We have
built a strong platform, delivering a
broad range of core services to our
customers, enabling them to focus on
improving their own businesses.
Redcentric’s proposition
Redcentric’s central aim is to provide
its customers with a wide range of
reliable, secure and innovative core
IT services from a well-invested base
of owned infrastructure. Redcentric
operates highly accredited, state-
of-the-art data centres in Harrogate,
Reading, London and Cambridge
which are connected to our network,
and from which services are delivered.
These are our own dedicated facilities,
held on long leases, and have been
fully resourced with well trained
and qualified staff and technology
to deliver critical services to our
customers. We maintain very high
levels of accreditation, and undergo
rigorous audit from a range of external
and government bodies throughout
the year.
The data centres are connected to
our own fully resilient national MPLS
network, providing coverage and
access across the UK, along with
metropolitan fibre networks
in Cambridge and Portsmouth.
From this strong base of owned
managed infrastructure we are able
to offer a wide range of IT managed
services including;
• Network Services. We are a
significant service provider with
a core backbone network, metro
networks and extensive experience
in delivering networks for a broad
range of organisations.
• Collaboration Services. Through
IP telephony, messaging and video
conferencing we help organisations
enable their staff to communicate
more effectively.
• Infrastructure. As a leading
provider of infrastructure services,
Redcentric offers a suite of Cloud
services, as well as colocation, data
management and virtualisation
services, all offered on an “As a
Service” basis.
• Applications Services. We provide
packaged solutions for many sectors
as well as application management
services from legacy to current
architecture.
• Security. We help protect customers
from deliberate malicious attacks, or
unintentional security threats from
unauthorised devices and a range of
other threats.
• Mobile. We provide a fully managed
mobile service with flexibility,
reliability and security.
Along with our own highly assured and
actively managed services, we also
offer customers the ability to operate
hybrid solutions. These may well
include operating customer premise
equipment, through to private or
shared cloud solutions in Redcentric’s
data centres, through to public cloud.
These can all be managed through
Redcentric’s assured “single pane of
glass” management platform, allowing
customers complete flexibility to
implement the right solution for their
needs, whilst enabling flexibility for
future change.
Redcentric’s headquarters are in
Harrogate, with additional offices in
London, Reading, Theale, Cambridge,
Hyde and Hyderabad. The Hyderabad
office operates as a fully integrated
part of Redcentric, with highly skilled
second and third line technical
engineers complementing the support
teams in the UK as well as providing
back office services. The Hyderabad
office provides access to one of the
world’s largest sources of highly skilled
technical staff, and provides flexibility
in delivering high quality services to
our customers.
7
OPERATIONAL REVIEW
CONTINUED
Redcentric sees its mission as enabling its customers to focus on enhancing their own businesses whilst relying on a trusted
partner to operate their underlying core IT infrastructure platform.
Performance
The financial performance of the company is covered in more detail in the Financial Review, however the headline revenue
growth of 16% to £109.5m (2015: £94.3m) is pleasing as it was delivered partly from strong organic growth of 8%, and partly
through the contribution from acquisitions. We focus particularly on recurring revenue, which grew by 17% to £90.2m (2015:
£76.8m), of which 11% was organic growth. The organic growth was derived broadly 40:60 from winning new customers and
from existing customers taking more services.
We have continued to experience good sales momentum, with 2016 proving to be a record year for sales order intake. On
average our contracts are three years long, which provides a good level of revenue visibility. Customer churn remains low
by industry standards at 5% p.a. Our qualified sales pipeline at the year-end stood at £95m, around 12% higher than at
September 2015.
Redcentric’s financial performance is covered in more detail elsewhere in this report, however the Company delivered a very
strong performance on all of the following key metrics:
Key Performance Indicator
FY16
FY15
Growth
Revenue
Recurring revenue
Recurring revenue as % of total
Operating profit
Adjusted EBITDA
Adjusted EBITDA margin
Ratio of net debt to adjusted EBITDA
Earnings per share
Adjusted earnings per share
Acquisitions
£109.5m
£90.2m
82%
£8.4m
£25.8m
23.6%
0.98x
3.6p
10.5p
£94.3m
£76.8m
81%
£8.7m
£21.4m
22.7%
0.34x
5.5p
8.5p
16%
17%
(3%)
21%
(35%)
24%
Organic
Growth
8%
11%
Following a year with no M&A activity, this year we completed two acquisitions to complement our organic growth.
In April 2015 we acquired Calyx Managed Services Ltd for an agreed Enterprise Value of £12.0m. Calyx had previously
disposed of its Break-Fix and Carrier Services divisions, and the remaining business delivered managed services to a very
similar, and complementary, customer base. Calyx was sub-scale however and was unprofitable, and following consultation
with staff, its main office in Didsbury, Manchester was closed in September 2015. From that date, all services have been
provided to the Calyx customers from Harrogate and Hyderabad, the business has been completely integrated within
Redcentric, and is delivering services profitably and in line with expectations. We have retained a small office in Hyde,
Manchester, from which specialist contract support is provided.
8
Our strategy for future growth is
threefold;
• Firstly, we will continue to invest in
expanding and enhancing our own
infrastructure so that we can provide
our customers with the very highest
levels of security and service.
• Secondly, we will use our scale
to explore and invest in new
technologies so that our customers
can benefit from the high levels of
innovation across the whole industry.
• Thirdly, we continue to look for
suitable acquisitions to enhance
our business.
Our acquisition criteria are strict, and
mean that we would only consider
buying a business which is similar to
our own, would accrete earnings, have
high recurring revenue, have synergies
available, and would not over-leverage
the Company.
We have a stable, growing and
well-funded business, operating
in a growing market, and we are
confident that our strategy will deliver
shareholder value in the coming years.
City Lifeline Ltd was acquired in
January 2016 for an agreed Enterprise
Value of £4.8m. City Lifeline operates
a well-established and well-connected
data-centre in the heart of London’s
Tech City. The acquisition provides
Redcentric with its own London
data-centre, with plenty of expansion
capacity. The integration is underway
and is relatively straightforward, and
the business is performing in line with
our expectations.
Both of the acquisitions were acquired
for cash, with no residual earn-outs
or liabilities to the previous owners.
The acquisitions were fully in line
with our growth strategy, providing
additional customers, services and
infrastructure similar to those already
existing within Redcentric.
Strategy
There are multiple different views of
the size of the UK IT services market,
however they all indicate a very
significant market, worth in excess of
£100bn spend per annum, showing
low single digit growth. Within this
market are a wide range of differing
sub-sectors, from high-growth new
technologies, to declining legacy
markets. Redcentric is not exposed
to markets in structural decline,
and our focus on connectivity,
infrastructure and cloud-based
solutions means the markets we
operate in are growing steadily.
EBITDA for the
year of
£25.8m
Organic recurring
revenue growth of
11%
9
OPERATIONAL REVIEW
CONTINUED
People
Outlook
Redcentric has continued along the
path established since its creation,
with strong organic growth, low
customer churn and high levels of
recurring revenue. We have been
able to strengthen our core platform
through well-executed acquisitions
and continuing organic investment.
We are operating in growing markets,
with no exposure to those markets in
structural decline. Our well established
teams support our customers from
the UK and India, with the scale and
flexibility to invest and innovate. The
sales pipeline is growing, with solid
order intake momentum, and we are
looking forward to further success in
the years ahead.
Fraser Fisher
Chief Executive Officer
16 June 2016
Redcentric’s success has been created
through the hard work and dedication
of its employees. The successful
business they have helped to build
has in turn created opportunities
for others to join the business. Staff
numbers have grown this year from
455 at the start of the year to 513 at
the year-end, with around 25% being
located in our Hyderabad office. We
are investing in additional space in
both our Harrogate and Hyderabad
offices to support our planned growth.
Our Save-As-You-Earn share-save
plan has continued its popularity;
in December 2015 we operated
the second annual grant of options
to employees. Since its launch in
December 2014, over 200 employees
have committed to the plan,
representing well over half of those
eligible. The plan provides employees
with a risk-free means of sharing in
the success of the Company, and I am
delighted that so many have been
able to participate.
Recurring revenue
as a % of total
82%
10
PERFORMANCE
MANAGED CHANGE IN REVENUE MIX
REVENUE
EBITDA
£100m
£90m
£80m
£76.8M
£68.1M
£70m
£90.2M
FY14 pro-forma
FY15
FY16
£60m
£50m
£40m
£30m
£20m
£10m
£0m
£11.6M £12.3M
£9.3M
£10.0M
£5.9M £7.0M
£25m
£23.8M
FY14 pro-forma
£20m
£19.4M
£15.1M
£15m
£10m
£5m
£0m
FY15
FY16
£3.4M
£2.7M
£1.6M
£0.5M
£0.2M
£0.2M
Recurring
Services
Product
Recurring
Services
Product
Redcentric has continued along the path
established since its creation, with strong
organic growth, low customer churn and
high levels of recurring revenue.
11
11
FINANCIAL REVIEW
Trading Performance
Revenue for the year increased by 16% to £109.5m (2015: £94.3), which was through a combination of 8% organic growth
supplemented by contributions from acquisitions during the year. The following table summarises the breakdown
of revenue for the year:
Recurring
Services
Product
Total
FY16
£m
90.2
12.3
7.0
109.5
FY15
£m
Reported
growth
Organic
growth
76.8
11.6
5.9
94.3
17%
6%
19%
16%
11%
4%
-19%
8%
The underlying growth in recurring revenue continued the pattern seen previously, with low churn levels of 5% enabling
contract wins during the year to grow the recurring base. Customers typically engage through multi-year contracts which
allows both the customer and Redcentric to plan ahead against a background of stability. Growth in the recurring contract
base was driven by a combination of new business wins, and by expanding services to existing customers. Recurring
revenue comprised 82% of total revenue in the year, and this proportion looks set to increase in the current year. Services
revenue grew by 4% on an organic basis following a significant increase in FY15. Although there was an increase in headline
revenue for Product sales, the underlying performance was a decline of 19%, continuing the pattern previously established.
Product sales attract low margins, is a highly competitive market with little room for differentiation, and is not considered to
be of strategic significance to the Group.
Operating profit was £8.4m (2015: £8.7m). Adjusted EBITDA grew by 21% to £25.8m (2015: £21.4m) representing an
adjusted EBITDA margin of 23.6% (2015: 22.7%). The margin increase was driven by a combination of an improved revenue
mix, cost synergies from acquisitions, the benefits of scale, and the effective execution of the Company’s business model.
The Group uses adjusted EBITDA to monitor the trading performance of the business. Adjusted EBITDA is reconciled to
statutory operating profit as follows:
FY16
£m
FY15
£m
25.8
21.4
(5.8)
(5.6)
(4.6)
(1.4)
8.4
(5.1)
(5.5)
(0.5)
(1.6)
8.7
Adjusted EBITDA
Depreciation
Amortisation of acquired intangible assets
Transaction and integration costs
Share-based payments
Operating Profit
12
The City Lifeline acquisition provides
Redcentric with a low-risk means of
expanding its owned infrastructure
footprint, and will allow Redcentric to
provide services to customers from a
location in London which is completely
controlled, managed and integrated
with the rest of the business.
In FY16 the Group recorded an
amortisation charge on acquired
intangibles of £5.5m (2015: £5.5m).
This charge was flat year on year as
the amortisation of new intangibles
acquired with Calyx and City Lifeline
offset a reduction in underlying
amortisation from previous
acquisitions.
Capital expenditure and
depreciation
Capital expenditure for the year grew
significantly to £9.0m (2015: £6.1m)
reflecting the nature and mix of
contracts won during the year, £4.4m
of which was funded through finance
leases (2015: £2.4m). Around a third
of the Group’s capital expenditure
programme is driven by investment
in the core underlying infrastructure,
with the balance being driven by
the requirements of new customer
contracts. Following this increased
investment, the depreciation charge
grew by 14% to £5.8m (2015: £5.1m).
Acquisitions and amortisation
of acquired intangibles
A central element of the Group’s
growth plan is the successful
identification, execution and
integration of complementary
businesses. Following a year with no
acquisition activity, during FY16 the
Group acquired two businesses.
On 10 April 2015, Redcentric
completed the acquisition of the
entire share capital of Calyx Managed
Services Ltd for an Enterprise Value
of £12.0m. During 2015 Redcentric
implemented an integration
programme with Calyx, transferring
most of its activities from its previous
location in Didsbury, Manchester to
provide service to customers from
Redcentric’s existing offices. As
part of this integration, the office in
Didsbury was closed in September
2015. The Group has booked a
provision to cover the remaining lease
liabilities, and incurred redundancy
costs through the integration,
part of which were funded by the
vendors. The Calyx business has now
been completely integrated within
Redcentric, and is operating in line
with the original acquisition plan.
On 28 January 2016, Redcentric
completed the acquisition of
City Lifeline Ltd for an Enterprise
Value of £4.8m from its founders.
City Lifeline operates a well-connected
and well-invested data centre in
Tech City, London, which has been
trading for over 20 years.
Adjusted EPS
growth of
24%
Dividend per share
growth of
29%
13
FINANCIAL REVIEW
CONTINUED
Transaction and integration costs
The Group’s transaction and integration costs in the year were £4.6m (2015: £0.6m). The costs relate to the acquisition and
integration of two acquisitions during the year, and are separately analysed in detail in note 5 to the accounts in order to
improve visibility and understanding of the Group’s underlying performance. The costs are summarised as follows:
Professional fees and costs of integrating subsidiaries
Fees and costs incurred in the acquisition of Calyx Managed Services
Fees and costs incurred in the acquisition of City Lifeline
Vacant property provision
Redundancy costs
Total
FY16
£m
0.8
0.6
0.2
1.7
1.3
4.6
FY15
£m
0.6
-
-
-
-
0.6
The largest single item is the provision for the closure of Calyx’s Didsbury office which has now been shut, with all
activities transferred to Redcentric’s Harrogate office. The cash cost in respect of transaction and integration costs was
£3.1m (2015: £2.3m).
Cash-flow
The business has inherently strong cash-flow characteristics, with high levels of recurring monthly billing providing a
stable platform from which to invest. Operating cash conversion before transaction and integration costs for the year
was 62% (2015: 74%) reflecting an increase in working capital of approximately £4m when compared to historical patterns,
caused partly by a structural change in the timing of some monthly billing, and partly by collection issues, which are
being addressed.
Operating cash-flow for the year was flat for the year at £15.2m (2015: £15.1m) with increases in profitability being offset
by higher transaction and integration costs and working capital requirements. As noted above, capital expenditure was
significantly higher, although the increased use of finance leases reduced the impact on cash balances. Finance leases at
the end of the year had grown by £3.0m to £5.4m (2015: £2.4m).
At 31 March 2016, the Group had net debt of £25.3m (2015: £7.2m), representing a ratio of 0.98x EBITDA (2015: 0.34x).
14
The income statement shows an
accounting tax charge of £2.2m (2015:
credit £0.2m) reflecting the unwinding
of the deferred tax assets during the
year. The Group paid no Corporation
Tax during the year, as a result of
utilising historic tax losses, and does
not expect to any Corporation Tax in
respect of the year to 31 March 2016.
The ability to utilise historic losses will
diminish thereafter, and the Group
expects to start paying Corporation
Tax on a proportion of its profits
during 2018 in respect of the current
financial year.
Interest expense in the year was £1.0m
(2015: £0.8m), which consists of interest
payments on bank facilities and finance
leases of £0.9m (2015: £0.6m) and
amortisation of loan arrangement fees
of £0.1m (2015: £0.2m).
During the year the Company issued
1,152,277 new ordinary shares as a
result of the exercise of options and
warrants over the Company’s shares,
raising a total of £1.0m additional
capital (2015: 817,754 shares issued,
raising £0.6m).
Taxation
Redcentric has the benefit of
significant tax trading losses, which
are being offset against corporation
tax liabilities wherever possible. As
at 31 March 2016 the losses totalled
approximately £17.5m (2015: £15.4m),
and a deferred tax asset of £1.6m
(2015: £5.9m) has been recognised in
respect of them.
Financing
On 2 April 2015, the Group entered
into new long-term bank facilities. The
facilities were established to re-finance
the Company’s previous bank facility,
and provide cost effective and long-
term funding stability for Redcentric.
The current facilities comprise a five-
year £40m Revolving Credit Facility
(“RCF”), along with a £5m Asset
Financing Facility and a £5m Overdraft
Facility, providing Redcentric
with £50m of available financing.
In addition, the RCF has a £20m
accordion feature, with the potential
to extend the RCF by a further £20m
on the same terms, subject to lender
approval. The structure of the facilities
provides the Group with very flexible,
cost effective credit arrangements,
which support a range of potential
future expansion opportunities.
In addition to the bank facilities, the
Group has access to vendor financing
to assist with the funding of capital
expenditure. During the year, the
Group took advantage of the facilities
to increase the proportion of capital
expenditure funded through finance
leases, both through the Asset
Financing Facility and various vendor
funding programmes.
15
Adjusted
EPS of
10.5p
FINANCIAL REVIEW
CONTINUED
During the year Redcentric returned
£5.8m (2015: £2.9m) to shareholders
in the form of dividends. The Board
has proposed a final dividend of 3.0p
per share, which together with the
interim dividend of 1.5p per share
paid in February 2016 will make a total
dividend in respect of the financial
year of 4.5p per share. This is an
increase of 29% on the 3.5p paid in
respect of the previous financial year
and represents the commitment of the
Board to growing shareholder value.
If approved by shareholders at the
AGM on 26 July 2016, the Company
intends to pay the final dividend on 21
September 2016 with an associated
record date of 26 August 2016.
Tim Coleman
Chief Financial Officer
16 June 2016
Share based payments, EPS
and dividends
The Group recorded a charge for
share based payments during the
year of £1.4m (2015: £1.6m), with the
year on year reduction being due to
the profile of some of the options
generating a higher charge in earlier
vesting periods.
The statutory earnings per share
(“EPS”) in the year was 3.6p (2015:
5.5p). On a diluted basis, EPS was
3.4p (2015: 5.3p), with the reduction
being due to the higher level of one-
off transaction and integration costs
in the year and the increase in the
accounting tax charge. The Group
also calculates an adjusted EPS figure
to measure underlying performance,
which excludes the effect of
amortisation of acquired intangibles,
share option charges and transaction
and integration costs, and applies a
normalised tax charge**. Adjusted
EPS grew by 24% in the year to 10.5p
(2015: 8.5p), with diluted adjusted EPS
growing 22% to 9.9p (2014: 8.2p).
* * The normalised tax charge applies a full rate of UK corporation tax of 20% (2015: 21%) to adjusted earnings, ignoring the effect of tax losses and
movements in deferred tax balances.
16
FINANCIAL REVIEW
EARNINGS PER SHARE & DIVIDEND
12p
10p
8p
6p
4p
2p
0p
10.5P
FY14
FY15
FY16
8.5P
6.5 P
Adjusted EBITDA* was
£25.8m
3.5P
1.0P
4.5P
Represents an adjusted
EBITDA* margin of
23.6%
Adjusted Earnings Per Share**
Dividend Per Share
* Throughout this document reference to “Adjusted EBITDA” is defined as Earnings Before Interest, Tax, Depreciation and Amortisation and excludes
transaction and integration costs and charges for share-based payments. The Board regards Adjusted EBITDA as the key measure of underlying profitability.
** Adjusted Earnings Per Share excludes the effect of amortisation of acquired intangibles, share option charges and transaction and integration costs,
and applies a normalised full UK tax charge of 20%, ignoring the effect of tax losses and movements in deferred tax balances.
17
17
DIRECTORS’ PROFILES
NON-EXECUTIVE DIRECTORS
Chris Cole
Independent Non-Executive Chairman
David Payne
Independent Non-Executive Director
Stephen Puckett
Independent Non-Executive Director
Stephen Puckett was appointed as
a non-executive Director on
17 November 2014. Stephen has
a wealth of senior boardroom
experience in a number of listed
companies, and was Group Finance
Director at Michael Page International
plc from 2001 to 2012. Stephen is also
non-executive Chairman of Hydrogen
Group plc and a non-executive
Director of ITE Group plc and
Chairman of the Audit Committee,
and is a Director of the charity
Kingston Carers’ Network.
Stephen is Chairman of the Audit
Committee and is a member of the
Remuneration and Nominations
Committees.
Chris Cole was appointed as a
non-executive Director and Chairman
of Redcentric with effect from
1 September 2014. Chris has a
strong track record and experience
with quoted companies, having
successfully led WSP Group plc as
CEO and subsequently non-executive
Chairman and Ashtead Group plc
as non-executive Chairman. Chris,
as a Chartered Engineer, founded
and led the development of WSP
both organically and acquisitively
into a global consultancy with 10,000
people operating in 40 countries.
Following WSP’s merger with Genivar
Inc. in August 2012, Chris is the
non-executive Chairman of the new
enlarged company, WSP Global Inc.
listed on the Toronto Stock Exchange.
In addition to the above Chris is the
non-executive Chairman of Applus
Services SA and Tracsis plc.
David Payne was appointed as a
non-executive Director of Redcentric
on 19 February 2013. David has a
varied background of management
and entrepreneurship in the IT,
leisure, and property industries.
For 20 years after leaving university
he worked for Juliana’s, a leisure
company that floated on the
main market of the London Stock
Exchange in 1983. David was
subsequently recruited by a venture
capital fund to become chairman of
Virtuality Limited, a company at the
forefront of developing virtual reality.
He oversaw the successful flotation
of this company on the main market
of the London Stock Exchange in
1994 and then left to devote more
time to the development of a quoted
property company.
David is Chairman of the
Remuneration Committee, and a
member of the Audit and Nomination
Committees, and is the Senior
Independent non-executive Director.
David is also Chairman of Castleton
Technology plc.
18
EXECUTIVE DIRECTORS
Tony Weaver
Non-Executive Director
Fraser Fisher
Chief Executive Officer
Tim Coleman
Chief Financial Officer
Tony was previously CEO of
Redcentric, having been the
Chief Executive of Redstone plc
from September 2010 up to the
de-merger to Redcentric and had
been responsible for effecting the
restructuring of that business and its
subsequent acquisition of Maxima
Holdings plc. He became a Director of
Redcentric plc on 11 February 2013.
Tony is a business leader and investor
with proven sales, operations and
management expertise in the ICT
sector. With an IT, communications
and electronics background that
started in the mid 1980s, Tony
established his first IT business in 1988
and has founded a number of other
successful IT companies. Tony has
also served on a number of private
and publicly quoted company boards
over the last 27 years.
Tony is also a founder of MXC Capital,
a specialist merchant bank that invests
and grows value in companies in the
TMT sector. Tony is a member of
the Remuneration and Nominations
Committees.
Fraser Fisher was appointed a
Director of Redcentric on 8 April 2013,
and became CEO on 9 November
2015. Fraser is an experienced IT
business leader having successfully
built and sold profitable businesses in
the sector. Fraser was most recently
Managing Director of Redstone
with responsibility for leading its
managed services offering while
integrating Maxima Holdings plc.
Prior to his appointment at Redstone,
Fraser had a number of senior roles,
including Managing Director at
Maxima and was latterly responsible
for developing its offshore support
function in Hyderabad.
Prior to his appointment at Maxima,
Fraser founded and was Managing
Director of Centric Networks Limited,
a mid-market managed and hosted
services provider and was a founding
Director of Netforce Group plc, an
ISP and managed services provider.
Tim Coleman was appointed CFO
of Redcentric plc in January 2014.
Tim has held a range of financial
roles in the technology and
telecoms sector since the early
1990s including senior positions
in quoted technology businesses.
Before Redcentric, Tim was CFO of
m-hance, a privately owned software
business. Prior to his role at m-hance,
Tim was CFO of Trafficmaster Plc and
was instrumental in the development
and eventual sale of the business to
private equity investors. Before this,
Tim spent several years as UK Finance
Director at Northgate Information
Solutions Plc through a period of
very high growth, both organic and
through acquisition, before it was
sold to KKR. This was preceded by
a number of roles in software and
telecoms businesses, including
PacketVideo, MFS Communications
and BT. Tim originally trained as
a chartered accountant with
Price Waterhouse.
19
CORPORATE GOVERNANCE
Formal agendas and reports are
provided to the Board on a timely
basis in advance of Board and
Committee meetings and the
Chairman ensures that all Directors
are properly briefed on issues to
be discussed at Board meetings.
Directors are able to obtain further
advice or seek clarity on issues raised
at the meetings from within the
Company or from external sources.
All Directors are subject to appraisal
by the Board. The non-executive
Directors are responsible for the
evaluation of the Chairman.
The Company’s Articles of Association
require that a minimum of one
third of the Directors must seek
re-appointment at the next Annual
General Meeting. Accordingly David
Payne and Tony Weaver will retire and
offer themselves for re-election at the
forthcoming Annual General Meeting.
There are three standing Board
Committees: Audit, Nominations
and Remuneration. Each of these
Committees acts within defined terms
of reference. Additional information
is set out later in this report and
also in the Directors’ Remuneration
Report in respect of the Remuneration
Committee.
Authority for the execution of the
approved policies, business plan
and daily running of the business is
delegated to the executive Directors.
David Payne is the Senior
Independent non-executive Director
and served throughout the year in
this position.
All Directors have access to the
advice and services of the Company
Secretary who is responsible for
ensuring that Board procedures and
applicable rules and regulations
are observed. The Board has a
procedure whereby any Director
may seek, through the Company
Secretary, independent professional
advice, at the Company’s expense, in
furtherance of his duties.
As an AIM listed company Redcentric
plc is not required to comply with
the principles and provisions of the
UK Corporate Governance Code
published by the Financial Reporting
Council in September 2014, however
the Board of Redcentric plc is
committed to the principles of good
corporate governance and follows, so
far as is practicable and appropriate
in view of the Group’s size, stage of
development and the nature of the
Company the provisions of the UK
Corporate Governance Code and
complies with the provisions of the
QCA Guidelines.
The Board of Directors
At the financial year end the Board
comprised the non-executive
Chairman, Chris Cole; the Chief
Executive, Fraser Fisher; the Chief
Financial Officer, Tim Coleman; and
non-executive Directors David Payne,
Stephen Puckett and Tony Weaver.
The business and management of
the Company and its subsidiaries are
the collective responsibility of the
Board. At each meeting, the Board
considers and reviews the trading
performance of the business. The
Board has a formal written schedule
of matters reserved for its review and
approval. These include the approval
of the annual budget, major capital
expenditure, investment proposals,
the interim and annual results, and a
review of the overall system of internal
control and risk management.
20
The Chief Financial Officer monitors
the level and nature of non-audit
services and specific assignments are
flagged for approval by the Audit
Committee as appropriate. The Audit
Committee reviews non-audit fees
and considers implications for the
objectivity and independence of the
relationship with the external auditors.
The Board is satisfied that the
Chairman of the Audit Committee
has recent and relevant financial
experience necessary to meet the
requirements of the Corporate
Governance Code.
Nominations Committee
Audit Committee
The Nominations Committee consists
of David Payne (Chairman), Stephen
Puckett and Tony Weaver.
The Audit Committee consists of
Stephen Puckett (Chairman) and
David Payne.
The Committee has formal terms
of reference (available on request
from the Company Secretary). These
include the recommendation of,
appointment, re-appointment and
removal of the external auditors,
the review of the scope and results
of the external annual audit by the
auditors, their cost effectiveness,
independence and objectivity. The
Committee also reviews the nature
and extent of any non-audit services
provided by the external auditors.
In addition, the Committee reviews
the effectiveness of internal controls,
considers the need for an internal
audit function and considers any
major accounting issues and reports
on such matters to the Board. The
Committee reviews the integrity of
the financial statements and formal
announcements. A whistle-blowing
arrangement exists whereby matters
can be confidentially reported to the
Committee. The executive Directors
are not members of the Committee
but attend the meetings by invitation,
as necessary, to facilitate its business.
For nominations, the Committee
meets as and when necessary
to consider the appointment of
new executive and non-executive
Directors.
A process is in place for the
appointment of new Directors
involving, if felt appropriate, the use
of external consultants followed by
meetings with both the Committee
and subsequently with the Board as a
whole. This ensures that the selection
process is both formal and objective.
The Committee has formal terms of
reference (available on request from
the Company Secretary) and meets at
least once a year to review succession
planning at both Board and senior
management level across the Group.
Remuneration Committee
The Remuneration Committee
consists of David Payne (Chairman),
Stephen Puckett and Tony Weaver.
Details of the Committee and its
policies are set out in the Directors’
Remuneration Report on pages 24 to
26. The Committee has formal terms
of reference (available on request from
the Company Secretary).
21
CORPORATE GOVERNANCE
CONTINUED
Internal control
The Board has overall responsibility
for the Group’s system of internal
control and for reviewing its
effectiveness. The implementation
and maintenance of the risk
management and internal control
systems are the responsibility of
the executive Directors and senior
management. The internal control
system is designed to manage risk
rather than eliminate it and can
therefore only provide reasonable
and not absolute assurance against
material misstatement or loss. In
accordance with the guidance set out
in the Turnbull Guidance on Internal
Control, the Group has an on-going
process for identifying, evaluating and
managing the significant risks faced
by it.
The Group is committed to
maintaining high standards of
business conduct and operates
under an established internal control
framework covering financial,
operational and compliance
controls. This is achieved through
an organisational structure that has
clear reporting lines and delegated
authorities. The management and
monitoring of risk and performance
occurs at multiple levels throughout
the Group. In addition, the Group
maintains written processes to control
expenditure, authorisation limits,
purchase ordering, sales order intake,
project management, inventories
and assets.
22
Shareholders are given the
opportunity to raise questions at the
Annual General Meeting and the
Directors are available both prior
to and after the meeting for further
discussion with shareholders.
During the year, the Chief Executive
Officer and the Chief Financial Officer
met with institutional investors after
the announcement of the preliminary
and interim results. Additional
meetings were arranged during the
year by the Group’s brokers Numis
Securities Limited and finnCap
Limited. Feedback arising from these
meetings was communicated to the
Board and the Company Secretary
also reports to the Board if there is
feedback from other shareholders.
David Payne, as Senior Independent
non-executive Director, is available
to shareholders if they wish to raise
any matters that contact through the
normal channels of non-executive
Chairman, Chief Executive Officer,
Chief Financial Officer or Company
Secretary has failed to resolve or for
which such contact is inappropriate.
The Board receives monthly financial
information which includes key
performance and risk indicators and
the Chief Executive Officer and the
Chief Financial Officer report on
significant changes in the business
and the external marketplace to the
extent they represent significant risk.
There is an established budgetary
system with an annual budget
approved by the Board. The Board
reviews the results against budget,
forecasts and prior year actual
figures together with other business
measures on a monthly basis.
The principal treasury related risks
are documented and approved by
the Board. Details of any derivatives
and financial instruments are set out
in notes 18 and 19 to the financial
statements.
Relations with shareholders and
investors
Copies of the Annual Report and
Financial Statements are issued to
all shareholders who have requested
them and copies are available
on the Group’s website
www.redcentricplc.com. The Half Year
Report is also available on the Group’s
website. The Group makes full use
of its website to provide information
to shareholders and other interested
parties. The Company Secretary also
deals with a number of written or
e-mailed enquiries throughout
the year.
Substantial shareholders
As at 31 March 2016 and 31 May 2016 (being the latest practicable date before the publication of the report) the Company
had been notified of the following significant interests in its Ordinary, voting share capital:
Schroder Investment Management
Hargreave Hale
Kestrel Partners LLP
Liontrust Asset Management
Blackrock Investment Management
Henderson Global Investors
Slater Investments
Coltrane Asset Management LP
Investec Asset Management
MXC Capital Ltd *
31 March 2016
Number
31 March 2016
%
31 May 2016
Number
31 May 2016
%
12,497,346
11,551,135
9,840,637
7,884,380
7,427,537
7,808,175
6,640,000
6,613,392
5,858,940
5,849,108
8.57
7.92
6.75
5.40
5.09
5.35
4.55
4.53
4.02
4.01
12,497,346
11,229,865
9,848,137
8,683,185
7,314,756
7,289,948
6,640,000
6,546,681
5,858,940
5,849,108
8.57
7.70
6.75
5.95
5.01
5.00
4.55
4.49
4.02
4.01
* MXC Capital Ltd is a related party as Tony Weaver, a Director of Redcentric plc, is a founder and shareholder of MXC.
23
DIRECTORS’ REMUNERATION REPORT
UNAUDITED UNLESS STATED OTHERWISE
Remuneration Committee
Basic salary and benefits
Fees
The Remuneration Committee
comprises David Payne (Chairman),
Stephen Puckett and Tony
Weaver. The Committee makes
recommendations to the Board,
within agreed terms of reference,
on the remuneration and other
benefits, including bonuses and share
options, of the executive Directors.
In considering the remuneration for
the year, the Committee consulted
with the executive Directors about
its proposals. The Board sets the
fees payable to the non-executive
Directors.
Remuneration policy
The Group is committed to
maximising shareholder value over
time. Each year, the Remuneration
Committee reviews the incentive and
reward packages for the executive
Directors to ensure that they are
aligned with the Company’s objectives
and are appropriate to attract,
retain and motivate management
behaviour in support of the creation of
shareholder value.
Basic salaries are reviewed on a
discretionary basis.
The benefits provided for each
executive Director may include:
i. life assurance cover of 4 times salary;
ii. private medical insurance for
themselves, their spouse and
their children;
iii. a contribution to a private
pension plan.
Performance related bonus
The Remuneration Committee
determines the criteria for the award
of performance bonuses for the
executive Directors in advance of
each year. The bonuses are non-
pensionable. Non-executive Directors
do not receive a bonus.
Share options
Executive Directors are entitled to
participate in the Company share
option schemes. The Remuneration
Committee approves the granting of
any share options.
The Board, within the limits stipulated
by the Articles of Association and
following recommendation by the
executive Directors, determines
non-executive Directors’ fees. The
Chairman receives a fee of £70,000,
with the other non-executive Directors
receiving a fee of £35,000, with an
additional fee of £5,000 for chairing a
Board committee.
Service contracts
The Chief Executive Officer has a
service contract with a provision for
termination notice period of twelve
months, with the Chief Financial
Officer having a termination notice
period of six months.
Non-executive Directors have letters
of appointment. Appointments can be
terminated with between one and six
months’ notice. The remuneration of
the non-executive Directors takes the
form solely of fees which are
not pensionable.
24
The details of the executive and non-executive Directors’ service contracts are summarised below:
Date of contract
Notice period (months)
Executive Directors
Fraser Fisher
Tim Coleman
Non-executive Directors
David Payne
Chris Cole
Stephen Puckett
Tony Weaver
18 April 2013
15 January 2014
18 March 2013
1 September 2014
17 November 2014
18 March 2013
12
6
6
6
6
1
The service contracts continue until notice on either side is given.
Directors’ remuneration (audited)
The remuneration of the Directors in respect of the year was as follows:
Short-term benefits
Post-employment
benefits
Basic salary,
allowances
and fees
Bonus
Benefits
Pension
2016
Total
2015
Total
£000
£000
£000
£000
£000
£000
Executive
Fraser Fisher
Tim Coleman
Non-executive
Chris Cole
David Payne
Stephen Puckett
Tony Weaver
(a)
265
200
70
40
40
138
150
100
-
-
-
-
Total
753
250
1
-
-
-
-
-
1
13
10
-
-
-
-
429
310
70
40
40
138
311
250
41
40
15
204
23
1,027
861
(a) Directors’ emoluments for Tony Weaver were paid to Mathian Ltd, a company controlled by MXC Capital Limited, which
is a related party. Further details are provided in note 26. Tony Weaver was Chief Executive until 9 November 2014, when
he became a non-executive Director.
25
DIRECTORS’ REMUNERATION REPORT
CONTINUED
Share options (audited)
Details of share options in the Company held by the Directors during the year are as follows:
Exercise price
Balance
Granted
Exercised
Balance
Pence
31 March 2015
in the year
in the year
31 March 2016
Fraser Fisher
Tim Coleman
Tony Weaver
(a)
(b)
(c)
(d)
(c)
(e)
70
80
107
112
107
32
761,143
581,968
16,822
1,100,000
16,822
846,494
-
-
-
-
-
-
-
-
-
-
-
-
761,143
581,968
16,822
1,100,000
16,822
846,494
Further information regarding the
options noted above is set out below.
(a) The options were granted under
the Company’s EMI scheme.
294,623 of the options are
qualifying options, and 466,520 are
non-qualifying under the terms of
the scheme. For all of the options,
the performance conditions have
been met, the options have vested
and are exercisable.
(b) The options were granted under
the Company’s EMI scheme, and
all of the options are non-qualifying
under the terms of the scheme. The
options will vest on 15 November
2016 subject to the achievement of
performance conditions related to
the achievement of a pre-defined
level of share price growth.
(c) The options were granted pursuant
to the Company’s HMRC approved
Save-As-You-Earn Option Plan
2014, under which employees
contribute a monthly amount which
is saved over three years to buy
shares. The options are exercisable
from 31 March 2018. There are no
performance conditions.
(d) The options were granted under an
unapproved share option contract.
The performance conditions have
been met for 550,000 options,
and the options have vested and
are exercisable. The remaining
550,000 options are subject to
performance conditions being
achieved by 18 April 2017. The
performance conditions relate to
the achievement of certain financial
performance measurements
related to the approved budget.
(e) The options were granted under
the Company’s EMI scheme as
non-qualifying options. 282,165 of
the options have vested, with the
remaining 562,349 being subject
to performance conditions. The
performance conditions are linked
to the occurrence of a qualifying
transaction that will deliver a
predefined return to shareholders.
The options are held by Tony
Weaver as a Trustee under a
Declaration of Trust, the beneficiary
of which is MXC Capital Ltd.
Share price
The market price of the Company’s
shares on 31 March 2016 was 192p per
share. The highest and lowest market
prices during the year were 199p and
133p respectively.
David Payne
Chairman, Remuneration Committee
On behalf of the Board
16 June 2016
26
STRATEGIC REPORT
Review of the business
A detailed review of the business is set
out in the Chairman’s Statement on
pages 5 to 6 and in the Operational
Review on pages 7 to 10. The Financial
Review is set out on pages 12 to
17. Included in these reviews are
comments on the key performance
indicators that are used by the
Board on a monthly basis to monitor
and assess the performance of the
business. These key performance
indicators are: the level of revenue,
recurring revenue proportion, adjusted
EBITDA*, adjusted EBITDA margin,
the ratio of net bank debt to adjusted
EBITDA and adjusted earnings
per share.
The Consolidated Income Statement
for the year is set out on page 37.
Operating profit was £8.4m (2015:
£8.7m) and adjusted EBITDA of
the Group for the year was £25.8m
(2015: £21.4m). The Directors are
recommending the payment of a final
dividend of 3.0p per ordinary share.
Principal risks and uncertainties
Identifying, evaluating and managing
the principal risks and uncertainties
facing the Group is an integral part
of the way Redcentric does business.
There are policies and procedures
in place throughout the operations,
embedded within our management
structure and as part of our normal
operating processes.
Market and economic conditions are
recognised as one of the principal risks
in the current trading environment.
This risk is mitigated by the monitoring
of trading conditions and the constant
search for ways to achieve new
efficiencies in the businesses without
impacting levels of service.
Reliance on key personnel
and management
The success of Redcentric is
dependent on the services of
key management and operating
personnel. The Directors believe
that the Group’s future success will
depend largely on its ability to retain
and attract highly skilled and qualified
personnel, and to expand, train and
manage its employee base. There
can be no guarantee that suitably
skilled and qualified individuals will be
retained or identified and employed.
If the Group fails to retain or recruit
the necessary personnel, or if the
Group loses the services of any of its
key executives, its business could be
materially and adversely affected.
Competition
Redcentric operates in a highly
competitive marketplace and while
the Directors believe the Group enjoys
significant strengths and advantages
in competing for business, some of
the competitors are much larger with
considerable scale that could allow
them to offer similar services for
lower prices than the Group would
be prepared to match, therefore
competitors could materially adversely
impact the scale of the Group’s
revenues and its profitability. The
Group monitors competitor’s activity
and constantly reviews its own services
and prices to ensure a competitive
position in the market is maintained.
Technology
The market for Redcentric’s services
is in a state of constant innovation
and change. The Group actively
participates in a number of industry-
wide forums, and devotes significant
resource to the development of new
services, ensuring new technologies
can be incorporated and integrated
with the Group’s core services. The
nature of the Group’s services means
that they are exposed to a range of
technological risk, such as viruses,
hacking, and an ever-changing
spectrum of security risk. The Group
maintains constant pro-active vigilance
against such risks and maintains
membership of some of the highest
levels of security accreditation as part
of the service it offers its customers.
*Adjusted EBITDA is defined as earnings before interest, tax, depreciation, amortisation, transaction and integration costs and share-based payments.
27
STRATEGIC REPORT
CONTINUED
Infrastructure failure
The Directors believe that one of the
key differentiators Redcentric offers
is that its services are provided over
its own controlled and managed
infrastructure, such as its own networks
and data centres. Whilst this provides
customers with comfort over resilience
and reliability, the Group is also
exposed to risks of infrastructure
failure. A critical element of
Redcentric’s operating methodologies
and procedures is to mitigate such
risks through the careful construction,
maintenance and management of its
own infrastructure. All networks and
data centres have fully resilient
fail-over procedures with regular
testing of back-up and recovery plans.
Strategy
The market for IT managed services
in the UK is highly fragmented,
and is served by a broad spectrum
of businesses from global
telecommunication companies
through hardware and software
providers, system integrators and
a range of independent managed
service providers of varying sizes
through to companies providing
individual elements of the IT managed
services spectrum. The market is
growing, driven by the continued
move towards off-premise solutions
and mobile access to secure services.
Redcentric positions itself in the
market as being able to combine
the benefits of proprietary network
and data centres with a flexible and
technically skilled workforce able
to deliver and support critical
services and solutions in a highly
secure environment.
Redcentric seeks to differentiate itself
in three distinct ways:
• Innovation – innovation in the design
and delivery of services;
• Reliability – the right technical skills,
organised in the right way, to give
predictable high quality results; and
• Value – service offerings that are
designed to offer value for money to
mid-market customers.
Through these differentiators,
Redcentric aims to attract new
customers and to deepen and
broaden the relationship with existing
customers. The Board’s strategy for
growth comprises;
• Ongoing investment in expanding
and enhancing our own
infrastructure so that we can provide
our customers with the very highest
levels of security and service
• Effective use of our scale and
resources to explore and invest
in new technologies so that our
customers can benefit from the
high levels of innovation across the
whole industry
• Expansion through suitable
acquisitions to enhance the business.
Our acquisition criteria are strict, and
mean that we would only consider
buying a business which is similar to
our own, would accrete earnings, have
high recurring revenue, have synergies
available, and would not over-leverage
the Company.
The board believes that Redcentric’s
position between the very large system
integrators and network operators,
and the smaller competitors that may
lack delivery structure, reputation,
reliability and financial strength is
a very compelling one. Redcentric
has a strong and reliable set of core
infrastructure, and has developed a
delivery model that provides assurance
and certainty for customers. This
underlying platform is the core strength
of the Company, and the Company
will continue to consider augmenting
its underlying organic growth with
acquisitions to leverage this platform,
should there be a compelling strategic
and financial case.
By order of the Board
Tim Coleman
Company Secretary
16 June 2016
Central House
Beckwith Knowle
Harrogate
HG3 1UG
28
2929
DIRECTORS’ REPORT
The Directors present their annual report together with the audited financial statements for the year ended 31 March 2016.
Principal activity
The principal activity of the Group during the year was the supply of IT managed services. The Company is a
holding company.
The Strategic Report on page 27 contains a review of the business, future developments and the principal risks
and uncertainties.
Directors
The following were Directors of Redcentric plc during the year and at the date of approval of these financial statements:
Chris Cole
Stephen Puckett
David Payne
Tony Weaver
Fraser Fisher
Tim Coleman
As at 31 March 2016 the Directors beneficial interests and those of their families in the ordinary share capital of the
Company were as follows:
Fraser Fisher
David Payne
Tony Weaver
31 March 2016
Number of shares
31 March 2015
Number of shares
90,557
100,626
5,849,108
90,557
100,626
5,849,108
Tony Weaver’s interest in the ordinary shares of Redcentric plc is held through MXC Capital Ltd, a company in which he has
an interest.
David Payne and Tony Weaver will retire in accordance with the terms of the articles of the Company and, being eligible, will
offer themselves for re-election at the forthcoming Annual General Meeting.
Details of the Directors’ contracts, remuneration and share options granted are set out in the Directors’ Remuneration
Report on pages 24 to 26.
As permitted by the Articles of Association, the Directors have the benefit of an indemnity which is a qualifying third party
indemnity provision as defined by Section 234 of the Companies Act 2006. The indemnity was in force throughout the
last financial year and is currently in force. The Company also purchased and maintained Directors’ and Officers’ liability
insurance throughout the financial year in respect of itself and its Directors.
30
Staff policy
The Group’s employment policies are designed to ensure that they meet the statutory, social and market practices where
the Group operates. The Group systematically provides employees with information on matters of concern to them,
consulting them or their representatives regularly, so that their views can be taken into account when making decisions that
are likely to affect their interests. Employee involvement in the Group is encouraged, as achieving a common awareness
on the part of all employees of the financial and economic factors affecting the Group plays a major role in maintaining its
relationship with its staff.
The Group is committed to employment policies, which follow best practice, based on equal opportunities for all
employees, irrespective of sex, race, colour, disability or marital status. The Group gives full and fair consideration to
applications for employment for disabled persons, having regard to their particular aptitudes and abilities. Appropriate
arrangements are made for the continued employment and training, career development and promotion of disabled
persons employed by the Group. If members of staff become disabled the Group continues employment, either in the
same or an alternative position, with appropriate retraining being given if necessary.
Employees
The average number of employees employed during the year was as follows:
Directors
Senior managers
Other employees
Total average headcount
Share scheme
Male
Female
6
3
415
424
-
2
95
97
Total
6
5
510
521
The Group believes that having an effective employee share ownership programme helps to align employees’ interests
with shareholders, and provides an effective tool in attracting, retaining and motivating staff. In November 2014 the Group
launched the HMRC approved Redcentric plc Save-As-You-Earn Option Plan 2014. Under the Plan, employees contribute a
monthly amount which is saved over three years to buy shares in the Company at a pre-determined price.
Since inception, there have been two awards of options under the plan. On 14 December 2015 the Company granted
options over a total of 163,905 ordinary shares to 62 employees. These options are available for exercise from 31 March
2019, with an exercise price of 154p, which is a 20% discount to the average closing price on the three days ending 20
November 2015, the last trading date before the launch of the Plan on 23 November 2015. On 17 December 2014, the
Company granted options over a total of 1,134,886 ordinary shares of 0.1p each to 180 employees. The options are
available for exercise from 31 March 2018, with an exercise price of 107p.
31
DIRECTORS’ REPORT
CONTINUED
The Group intends to grant options under the plan to eligible employees in future years. As at 31 March 2016, the following
options had been granted under the plan:
Grant date
17 December 2014
14 December 2015
Total
Annual GeneraI Meeting
Exercise
price
Options
granted
Options
exercised
Options
cancelled
Options
remaining
107p
154p
1,134,886
163,905
1,298,791
4,251
-
4,251
146,119
5,376
985,824
158,529
151,495
1,144,353
The Annual General Meeting will be held at 10.00 a.m. at 100 Fetter Lane, London EC4A 1BN on 26 July 2016.
A resolution is to be proposed at the forthcoming AGM for the re-appointment of PricewaterhouseCoopers LLP as auditor
of the Company, at a rate of remuneration to be determined by the Audit Committee.
Dividend
The Company paid a final dividend in respect of the year to 31 March 2015 of 2.5p per ordinary share on 28 September
2015, with a total payment value of £3,618,000, making a total of 3.5p per share for the year. The Company paid an Interim
dividend of 1.5p per ordinary share on 17 February 2016, with a total payment value of £2,188,000. Total dividends paid
during the year amounted to £5,806,000.
The Directors are proposing a final dividend of 3.0p per share, which will make a total for the year of 4.5p per share. If
approved by shareholders at the AGM, the final dividend, which the Directors expect to amount to £4,376,000, will be paid
on 21 September 2016 to shareholders on record on 26 August 2016.
Financial risk management objectives and policies
The Company’s financial risk management objectives and policies are described in note 19 to the financial statements.
Disclosure of information to auditors
The Directors who were members of the Board at the time of approving the Directors’ Report are listed on page 30. Having
made enquiries of fellow Directors, each of these Directors confirms that:
• To the best of each Director’s knowledge and belief, there is no information relevant to the preparation of their report of
which the Group’s auditors are unaware; and
• Each Director has taken all the steps a Director might reasonably be expected to have taken to be aware of relevant audit
information and to establish that the Group’s auditors are aware of that information.
32
Subsequent events
There have been no significant events between the balance sheet date and the date of approval of these accounts.
Future developments
Future developments and current trading and prospects are set out in the Chairman’s Statement and in the Operational and
Financial Reviews.
33
STATEMENT OF DIRECTORS’ RESPONSIBILITIES
The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable
law and regulations.
Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors
have prepared the Group financial statements in accordance with International Financial Reporting Standards (IFRSs)
as adopted by the European Union, and the parent company financial statements in accordance with United Kingdom
Accounting Standards (United Kingdom Generally Accepted Accounting Practice), including Financial Reporting Standard
101 Reduced Disclosure Framework (FRS 101). Under Company law the Directors must not approve the financial statements
unless they are satisfied that they give a true and fair view of the state of affairs of the Group and the Company and of the
profit or loss of the Group for that period.
In preparing these financial statements, the Directors are required to:
• select suitable accounting policies and then apply them consistently;
• make judgements and accounting estimates that are reasonable and prudent;
• state whether IFRSs as adopted by the European Union and applicable United Kingdom Accounting Standards, including
FRS 101 have been followed, subject to any material departures disclosed and explained in the Group and parent
company financial statements respectively;
• notify its shareholders in writing about the use of disclosure exemptions, if any, of FRS 101 used in the preparation of
parent company financial statements; and
• prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will
continue in business.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the
company’s transactions and disclose with reasonable accuracy at any time the financial position of the company and
enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for
safeguarding the assets of the company and the Group and hence for taking reasonable steps for the prevention and
detection of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity of the Company’s website. Legislation in the United
Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other
jurisdictions.
By order of the Board
Tim Coleman
Company Secretary
16 June 2016
34
Central House
Beckwith Knowle
Harrogate
HG3 1UG
INDEPENDENT AUDITORS’ REPORT
TO THE MEMBERS OF REDCENTRIC PLC
REPORT ON THE GROUP FINANCIAL STATEMENTS
Our opinion
In our opinion, Redcentric plc’s Group financial statements (the “financial statements”):
• give a true and fair view of the state of the Group’s affairs as at 31 March 2016 and of its profit and cash flows for the year
then ended;
• have been properly prepared in accordance with International Financial Reporting Standards (“IFRSs”) as adopted by the
European Union; and
• have been prepared in accordance with the requirements of the Companies Act 2006.
What we have audited
The financial statements, included within the Annual Report and Financial Statements (the “Annual Report”), comprise:
• the Consolidated Income Statement and the Consolidated Statement of Comprehensive Income for the year then ended;
• the Consolidated Statement of Changes in Equity for the year then ended;
• the Consolidated Balance Sheet as at 31 March 2016;
• the Consolidated Cash Flow Statement for the year then ended; and
• the notes to the financial statements, which include a summary of significant accounting policies and other
explanatory information.
The financial reporting framework that has been applied in the preparation of the financial statements is IFRSs as adopted
by the European Union, and applicable law.
In applying the financial reporting framework, the Directors have made a number of subjective judgements, for example
in respect of significant accounting estimates. In making such estimates, they have made assumptions and considered
future events.
Opinion on other matter prescribed by the Companies Act 2006
In our opinion, the information given in the Strategic Report and the Directors’ Report for the financial year for which the
financial statements are prepared is consistent with the financial statements.
Other matters on which we are required to report by exception
Adequacy of information and explanations received
Under the Companies Act 2006 we are required to report to you if, in our opinion, we have not received all the information
and explanations we require for our audit. We have no exceptions to report arising from this responsibility.
Directors’ remuneration
Under the Companies Act 2006 we are required to report to you if, in our opinion, certain disclosures of Directors’
remuneration specified by law are not made. We have no exceptions to report arising from this responsibility.
35
INDEPENDENT AUDITORS’ REPORT
TO THE MEMBERS OF REDCENTRIC PLC
RESPONSIBILITIES FOR THE FINANCIAL STATEMENTS AND THE AUDIT
Our responsibilities and those of the Directors
As explained more fully in the Statement of Directors’ Responsibilities set out on page 34, the Directors are responsible for
the preparation of the financial statements and for being satisfied that they give a true and fair view.
Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and
International Standards on Auditing (UK and Ireland) (“ISAs (UK & Ireland)”). Those standards require us to comply with the
Auditing Practices Board’s Ethical Standards for Auditors.
This report, including the opinions, has been prepared for and only for the company’s members as a body in accordance
with Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept
or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it
may come save where expressly agreed by our prior consent in writing.
What an audit of financial statements involves
We conducted our audit in accordance with ISAs (UK & Ireland). An audit involves obtaining evidence about the amounts
and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free
from material misstatement, whether caused by fraud or error. This includes an assessment of:
• whether the accounting policies are appropriate to the Group’s circumstances and have been consistently applied and
adequately disclosed;
• the reasonableness of significant accounting estimates made by the Directors; and
• the overall presentation of the financial statements.
We primarily focus our work in these areas by assessing the Directors’ judgements against available evidence, forming our
own judgements, and evaluating the disclosures in the financial statements.
We test and examine information, using sampling and other auditing techniques, to the extent we consider necessary
to provide a reasonable basis for us to draw conclusions. We obtain audit evidence through testing the effectiveness of
controls, substantive procedures or a combination of both.
In addition, we read all the financial and non-financial information in the Annual Report to identify material inconsistencies
with the audited financial statements and to identify any information that is apparently materially incorrect based on, or
materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of
any apparent material misstatements or inconsistencies we consider the implications for our report.
Other matter
We have reported separately on the company financial statements of Redcentric plc for the year ended 31 March 2016.
Arif Ahmad (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors, Leeds
16 June 2016
36
CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED 31 MARCH
Revenue
Cost of sales
Gross profit
Selling and distribution costs
Administrative expenses
Adjusted EBITDA*
Depreciation
Amortisation of acquired intangibles
Transaction and integration costs included within
administrative expenses
Share-based payments
Operating profit
Finance costs
Profit on ordinary activities before taxation
Tax (charge) /credit on profit on ordinary activities
Profit for the year (attributable to owners of the parent)
Earnings per share
Basic earnings per share
Diluted earnings per share
Note
2
10
11
5
22
6
8
9
9
* Earnings before interest, tax, depreciation, amortisation, transaction and integration costs and share-based payments.
The above consolidated income statement should be read in conjunction with the accompanying notes.
2016
£000
109,526
(45,050)
64,476
(8,688)
(47,349)
25,844
(5,825)
(5,548)
(4,591)
(1,441)
8,439
(995)
7,444
(2,188)
5,256
3.62p
3.43p
2015
£000
94,321
(40,596)
53,725
(9,285)
(35,770)
21,403
(5,099)
(5,507)
(558)
(1,569)
8,670
(843)
7,827
150
7,977
5.53p
5.32p
37
CONSOLIDATED STATEMENT
OF COMPREHENSIVE INCOME
Profit for the year
Total comprehensive income
2016
£000
5,256
5,256
2015
£000
7,977
7,977
38
CONSOLIDATED STATEMENT OF CHANGES
IN EQUITY
At 31 March 2014
Total comprehensive income
Transactions with owners:
Share based payments (SBP)
Deferred tax on SBP
Share issues less costs
Dividends
At 31 March 2015
Total comprehensive income
Transactions with owners:
Share based payments (SBP)
Deferred tax on SBP
Share issues less costs
Dividends
At 31 March 2016
Called up share
capital
Share
premium
Other
reserves
Retained
earnings
£000
£000
£000
£000
144
62,055
(9,454)
34,860
Total
equity
£000
87,605
7,977
-
-
-
1
-
-
-
-
613
-
-
-
-
-
-
7,977
1,403
1,403
26
-
26
614
(2,888)
(2,888)
145
62,668
(9,454)
41,378
-
-
-
1
-
-
-
-
999
-
-
-
-
-
-
5,256
1,336
935
-
(5,806)
146
63,667
(9,454)
43,099
94,737
5,256
1,336
935
1,000
(5,806)
97,458
39
CONSOLIDATED BALANCE SHEET
AS AT 31 MARCH
Assets
Non-current assets
Property, plant and equipment
Intangible assets
Total
Current assets
Trade and other receivables
Cash and short term deposits
Total
Total assets
Equity and liabilities
Equity
Called up share capital
Share premium account
Other reserves
Retained earnings
Total equity
Non-current liabilities
Provisions
Borrowings
Deferred tax liability
Total
Current liabilities
Trade and other payables
Corporation tax payable
Borrowings
Provisions
Total
Total liabilities
Total equity and liabilities
Note
10
11
12
13
20
21
16
8
14
16
21
2016
£000
28,669
92,285
120,954
35,762
8,492
44,254
165,208
146
63,667
(9,454)
43,099
97,458
1,940
31,912
5,139
38,991
26,570
-
1,855
334
28,759
67,750
165,208
2015
£000
23,397
82,572
105,969
18,350
3,199
21,549
127,518
145
62,668
(9,454)
41,378
94,737
489
9,412
1,631
11,532
18,542
1,488
1,033
186
21,249
32,781
127,518
The notes on pages 43 to 83 are an integral part of these financial statements. The consolidated financial statements of
Redcentric Plc (reg. No 08397584) on pages 37 to 83 were approved by the Board on 16 June 2016 and are signed on
its behalf by: Fraser Fisher, Director
Tim Coleman, Director
40
CONSOLIDATED CASH FLOW STATEMENT
FOR THE YEAR ENDED 31 MARCH
Note
2016
£000
2015
£000
23
19,148
18,222
Cash flows from continuing operating activities
Cash generated from operations (before Transaction
and integration costs)
Cash absorbed by Transaction and integration costs
Cash generated from operations
Interest paid
Corporation tax paid
Net cash generated from operating activities
Cash flows from investing activities
Acquisitions of subsidiaries net of cash acquired
Purchase of property, plant and equipment
Net cash used in investing activities
Cash flows from financing activities
Proceeds of issue of shares less costs of issue
Increase/(decrease) in bank loans and finance leases
Dividends paid to shareholders
Net cash flows generated from / (used in) financing activities
Net increase/(decrease) in cash and cash equivalents
29
10
(3,066)
16,082
(927)
-
15,155
(19,348)
(9,030)
(28,378)
1,000
23,323
(5,806)
18,517
5,294
Cash and cash equivalents at end of year
13
8,492
(2,315)
15,907
(809)
-
15,098
-
(6,094)
(6,094)
614
(7,445)
(2,888)
(9,719)
(715)
3,199
41
4242
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
YEAR ENDED 31 MARCH 2016
1 Accounting policies – Group
Redcentric plc is a public limited company incorporated and domiciled in England and Wales, whose shares are publicly
traded on the AIM division of the London Stock Exchange. Redcentric plc was incorporated on 11 February 2013, and
admitted to AIM on 24 April 2013.
The principal activity of the Group is the supply of IT managed services.
The principal accounting policies, which have been applied consistently in the preparation of these consolidated financial
statements throughout the period and by all subsidiary companies, are set out below:
1.1 Basis of preparation
The consolidated financial statements of Redcentric plc have been prepared on the going concern basis and in accordance
with EU adopted International Financial Reporting Standards (IFRS), IFRIC interpretations and the Companies Act 2006
applicable to companies reporting under IFRS. The consolidated financial statements have been prepared under the
historical cost convention.
The Directors are required to be satisfied that the Group has adequate resources to continue in business for the
foreseeable future. The validity of this assumption depends on the ability of the Group to meet its cash flow forecasts and
the continuing support of its bankers by providing adequate overdraft facilities and of its debt holders and shareholders.
On 2 April 2015 the Group signed a new banking facility agreement which runs until 2 April 2020. A high proportion of
the Group’s revenue is recurring in nature, which provides good visibility of future cash flows. However, there can be no
absolute certainty that the Group will achieve its EBITDA forecasts. The present cash flow forecasts indicate that the
Group will be able to operate within its banking facilities for at least 12 months from the date of approval of these financial
statements. For these reasons the Directors believe the going concern basis to be appropriate.
The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates.
It also requires management to exercise its judgement in the process of applying the Group’s accounting policies.
The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant
to the consolidated financial statements are disclosed in note 1.25 in the accounting policies.
1.2 Basis of consolidation
Subsidiaries are all entities (including structured entities) over which the Group has control. The Group controls an entity
when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to
affect those returns through its power over the entity. Subsidiaries are fully consolidated from the date on which control is
transferred to the Group. They are deconsolidated from the date that control ceases.
43
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
CONTINUED
The Group applies the acquisition method to account for business combinations. The consideration transferred for the
acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred to the former owners of the
acquiree and the equity interests issued by the Group. The consideration transferred includes the fair value of any asset or
liability resulting from a contingent consideration arrangement. Identifiable assets acquired and liabilities and contingent
liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. The Group
recognises any non-controlling interest in the acquiree on an acquisition-by-acquisition basis, either at fair value or at the
non-controlling interest’s proportionate share of the recognised amounts of acquiree’s identifiable net assets.
Acquisition-related costs are expensed as incurred.
Intercompany transactions, balances and unrealised gains on transactions between Group companies are eliminated.
Unrealised losses are also eliminated. When necessary, amounts reported by subsidiaries have been adjusted to conform
with the Group’s accounting policies.
Business Combinations under Common Control
Business combinations under common control are accounted for in the consolidated financial statements from the date
the Group obtains the ownership interest. Assets and liabilities are recognised upon consolidation at their historic carrying
amount in the consolidated financial statements of the ultimate parent entity, Redcentric plc. Any difference between the
fair value of the consideration paid and the amounts at which the assets and liabilities are recorded is recognised directly as
a common control reserve.
1.3 Intangible assets
Goodwill
Goodwill arises on the acquisition of subsidiaries and represents the excess of the consideration transferred, the amount of
any non-controlling interest in the acquiree and the acquisition-date fair value of any previous equity interest in the acquiree
over the fair value of the identifiable net assets acquired. If the total of consideration transferred, non-controlling interest
recognised and previously held interest measured at fair value is less than the fair value of the net asset of the subsidiary, in
the case of a bargain purchase, the difference is recognised directly to the income statement.
For the purposes of impairment testing, goodwill acquired in a business combination is allocated to each of the CGUs,
or Groups of CGUs, that is expected to benefit from the synergies of the combination. Each unit or Group of units to
which the goodwill is allocated represents the lowest level within the entity at which the goodwill is monitored for internal
management purposes. Goodwill is monitored at the operating segment level.
Goodwill impairment reviews are undertaken annually or more frequently if events or changes in circumstances indicate
a potential impairment. The carrying value of the CGU containing the goodwill is compared to the recoverable amount,
which is the higher of value in use and the fair value less costs of disposal. Any impairment is recognised immediately as an
expense and is not subsequently reversed.
44
Other intangible assets
Other intangible assets are carried at cost less accumulated amortisation and impairment losses (note 1.5).
Other intangible assets acquired separately from a business are carried initially at cost. An intangible asset acquired as part
of a business combination is recognised outside goodwill if the asset is separable or arises from contractual or other legal
rights and its fair value can be measured reliably.
Intangible assets with a finite life are amortised on a straight-line basis over their expected useful lives, as follows:
Customer contracts and related relationships
5-15 years
Trademarks
5 years
Impairment and amortisation charges are included within the administrative expenses line in the income statement.
1.4 Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated depreciation and any impairment in value (note 1.5). The
cost includes the original price of the asset and the cost attributable to bringing the asset to its current working condition
for its intended use.
Depreciation, down to residual value, is calculated on a straight-line basis over the estimated useful life of the asset which is
reviewed on an annual basis.
Motor vehicles
3 years
Leasehold improvements
5 years or over lease term if shorter
Network infrastructure, equipment, fixtures and fittings
2-20 years
An item of property, plant and equipment is de-recognised upon disposal or when no future economic benefits are
expected to arise from the continued use of the asset. Any gain or loss arising on de-recognition of the asset (calculated as
the difference between the net disposal proceeds and the carrying amount of the item) is included in the income statement
in the period the item is de-recognised.
1.5 Impairment of assets
Goodwill is reviewed for impairment annually or more frequently if events or changes in circumstances indicate that
the carrying value may be impaired. As at the acquisition date any goodwill acquired is allocated to each of the cash
generating units expected to benefit from the business combination’s synergies. Impairment is determined by assessing the
recoverable amount of the cash generating unit to which the goodwill relates. When the recoverable amount of the cash
generating unit is less than the carrying amount, including goodwill, an impairment loss is recognised.
Other intangible assets and property, plant and equipment are reviewed for impairment whenever events or changes in
circumstances indicate the carrying values may not be recoverable. In addition, the carrying value of capitalised development
45
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
CONTINUED
expenditure is reviewed for impairment annually. If any such indication exists and where the carrying amounts exceed the
estimated recoverable amount, the assets or cash generating units are written down to their recoverable amount.
The recoverable amount of intangible assets and property, plant and equipment is the greater of fair value less costs to sell
and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a
pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.
For an asset that does not generate largely independent cash inflows, the recoverable amount is determined by the cash
generating unit to which the asset belongs. Fair value less costs to sell is, where known, based on actual sales price net of
costs incurred in completing the disposal.
Non-financial assets that were impaired in the previous periods are annually reviewed to assess whether the impairment is
still relevant.
1.6 Share capital
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are
shown in equity as a deduction from proceeds.
1.7 Leases
Leases where the lessor retains substantially all the risks and benefits of ownership of the asset are classified as
operating leases.
Operating lease payments are recognised as an expense in the income statement on a straight-line basis over the
lease term.
Assets funded through finance leases are capitalised as property, plant and equipment and depreciated over the shorter
of their useful economic life and the lease term. The resulting lease obligations are included in borrowings net of finance
charges. Interest costs on finance leases are charged to the income statement.
1.8 Current and deferred income tax
Current tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation
authorities, based on tax rates and laws that are enacted or substantively enacted by the balance sheet date.
Deferred income tax is provided for on all temporary differences at the balance sheet date between the tax bases of assets
and liabilities and their carrying amounts for financial reporting purposes, with the following exceptions:
• where the temporary difference arises from the initial recognition of goodwill or an asset or liability in a transaction that is
not a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss;
• in respect of taxable temporary differences associated with investments in subsidiaries, where the timing of the reversal
of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the
foreseeable future; and
46
• deferred income tax assets are recognised only to the extent that it is probable that taxable profits will be available
against which deductible temporary differences carried forward tax credits or tax losses can be utilised.
1.9 Trade and other receivables
Trade and other receivables are recognised and carried at the lower of their original value and recoverable amounts.
Provision is made where there is evidence that the balances will not be recovered in full. Significant financial difficulties
of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency
in payments are considered indicators that the trade receivable is impaired. Trade and other receivables are initially
recognised at fair value and subsequently held at amortised cost. The amount of the provision is the difference between the
asset’s carrying amount and the present value of estimated future cash flows.
The Group’s trade and other receivables are non-interest bearing.
1.10 Cash and cash equivalents
Cash and cash equivalents in the balance sheet comprise cash at bank and in hand and short-term deposits with an original
maturity of three months or less.
For the purpose of the consolidated cash flow statement, cash and cash equivalents consist of cash and cash equivalents as
defined above, net of outstanding bank overdrafts.
1.11 Foreign currencies
The functional and presentation currency of Redcentric plc is Pounds Sterling (£) and the Group conducts the majority of its
business in Sterling.
Transactions in foreign currencies are initially recorded in the functional currency by applying the rate of exchange ruling
at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the
functional currency rate of exchange ruling at the balance sheet date. All differences are taken to the income statement,
except for differences on monetary assets and liabilities that form part of the Group’s net investment in a foreign operation.
These are taken directly to equity until the disposal of the net investment, at which time they are recognised in the profit
or loss.
1.12 Trade payables
Trade payables are stated at their nominal value, recognised initially at fair value and subsequently valued at amortised cost.
1.13 Accruals and deferred income
The liability for costs which have been incurred in an accounting period but for which no invoice has been received are
recognised in the period the costs relate to. Income which has been invoiced in advance of its recognition criteria being
met is recognised on the balance sheet as deferred income until the recognition criteria are met.
47
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
CONTINUED
1.14 Provisions
Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is
probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable
estimate can be made of the amount of the obligation.
If the effect of the time value of money is material, provisions are determined by discounting the expected future cash
flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks
specific to the liability.
Vacant property
The Group currently has a number of vacant properties. Provisions have been recognised to cover the rents, business
rates and service charges for the period that each property is expected to be vacant, being up to the lease expiry or break
clause if earlier. Provisions are calculated using the contracted rates of rents and service charges on each individual lease
arrangement.
Dilapidations
The dilapidation provisions are built up over the life of the associated lease based on estimates of costs of work required to
fulfil the Group’s contractual obligation under the lease agreements to return the property to the same condition as at the
commencement of the lease.
1.15 Pensions
The Group operates a defined contribution scheme. Pension costs are charged directly to the income statement in the
period to which they relate on an accruals basis. The Group has no further payment obligations once contributions have
been paid.
1.16 Share-based payment transactions
The cost of equity-settled transactions with employees is measured by reference to the fair value of the award at the date
at which they are granted and is recognised as an expense over the vesting period, which ends on the date at which the
relevant employees become fully entitled to the award. Fair value is determined by an external valuer using an appropriate
pricing model for which the assumptions are approved by the Directors. In valuing equity-settled transactions, only vesting
conditions linked to the market price of the shares of the Company are considered.
No expense is recognised for awards that do not ultimately vest, except for awards where vesting is conditional upon a
market condition, which are treated as vesting irrespective of whether or not the market condition is satisfied, provided that
all other performance conditions are satisfied.
At each balance sheet date before vesting, the cumulative expense is calculated, representing the extent to which the
vesting period has expired and management’s best estimate of the achievement or otherwise of non-market conditions,
number of equity instruments that will ultimately vest or in the case of an instrument subject to a market condition, be
treated as vesting described above. The movement in the cumulative expense since the previous balance sheet date is
recognised in the income statement, with a corresponding entry in equity.
48
Where the terms of an equity-settled award are modified or a new award is designated as replacing a cancelled or settled
award, the existing charge is recognised immediately. In addition an expense is recognised over the remainder of the new
vesting period for the incremental fair value of any modification, based on the difference between the fair value of the
original award and the fair value of the modified award, both as measured on the date of the modification. No reduction is
recognised if this difference is negative.
Where an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any expense not
yet recognised for the award is recognised immediately. Any compensation paid up to the fair value of the award at the
cancellation or settlement date is deducted from equity, with any excess over fair value being treated as an expense in the
income statement.
The Group does not operate any cash settled share based payment schemes.
1.17 Financial assets
The Group classifies its financial assets as loans and receivables.
Loans and receivables are non-derivative financial assets with fixed or determinable payments which are not quoted in an
active market. They are included in current assets, except for maturities greater than 12 months after the balance sheet date
which are classified as non-current assets. The Group’s loans and receivables comprise ‘trade and other receivables’, ‘cash
and cash equivalents’, and other receivables which are expected to be settled in cash.
1.18 Interest-bearing loans and borrowings
All loans and borrowings are initially recognised at fair value less directly attributable transaction costs. After initial
recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the effective interest
method. Gains and losses arising on the repurchase, settlement or otherwise cancellation of liabilities are recognised in the
finance cost line in the income statement.
1.19 Finance costs
Loans are carried at fair value of initial recognition, net of unamortised issue costs of debt. These costs are amortised over
the loan term.
All other borrowing costs are recognised in the income statement on an accruals basis, using the effective rate method.
1.20 Revenue
Revenue is measured at the fair value of the consideration received or receivable, and represents amounts receivable
for services and goods supplied, stated net of discounts, returns and value added taxes. The Group recognises revenue
when the amount of revenue can be reliably measured; when it is probable that future economic benefits will flow to the
entity; and when specific criteria have been met for each of the Group’s activities, as described below. The Group does not
generally bundle various services and products. When bundles occur, the revenue is allocated to each segment based on
the fair value of each element within the contract.
49
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
CONTINUED
a) Recurring revenue
The largest portion of the Group’s revenue relates to a number of managed services, which the Group offers to its
customers. All of the revenue in this category is contracted, and includes a full range of managed support, maintenance,
subscription and service agreements. Revenue for these types of services is recognised evenly over the period of the
agreement as the services are provided. The costs incurred for this revenue stream typically match the revenue pattern.
Deferred income is recognised when billing occurs ahead of revenue recognition and the same applies to cost of sales.
Accrued income is recognised when the revenue recognition criteria were met but in accordance with the underlying
contract the sales invoice has not been issued yet. Deferred income is recognised within trade and other payables and
accrued income is recognised within trade and other receivables.
b) Service revenue
These professional services include mainly installation and consultancy services. Revenue from these services is recognised
in accordance with the underlying contracts. Customer acceptance of milestones is often required for the recognition
of consultancy and installation revenue. The costs incurred for this revenue stream generally match the revenue pattern,
however a significant portion of consultancy costs relate to staff costs, which are recognised as incurred.
The Group does not provide any of its professional services under fixed price contracts. Installations are typically completed
in a very short period of time and the revenue is recognised upon completion and/or customer acceptance. Consultancy
services are generally provided on a time and material basis.
c) Product sales
This revenue stream relates predominantly to the sale of third party equipment to customers, and almost always takes place
in connection with the provision of other services. Although the Group does not hold any inventory and the products are in
most cases delivered to customers directly by our suppliers, the Group has primary responsibility in selecting the product to
meet the customer requirements, delivering the product, establishing the price and bears the credit risk. Consequently, the
Group is acting as a principal in these arrangements. Revenue from the sale of product is recognised upon delivery to the
customer. The costs incurred for this revenue stream match the revenue pattern. Although returns of equipment are rare,
the Group bases its estimate of returns on historical patterns, taking into consideration the type of customer, the type of
transaction and the specifics of each arrangement.
1.21 Other income
Finance income
Income is recognised on an accrual basis using the effective interest method.
1.22 Transaction and integration costs
It is the policy of the Group to identify certain costs separately on the face of the Income Statement in order that the
underlying profitability of the business can be clearly understood. These costs are identified as Transaction and Integration
Costs, and comprise;
(a) Professional fees incurred in sourcing and completing acquisitions and disposals
(b) Professional fees incurred in restructuring and refinancing acquisitions
50
(c) Integration costs which are incurred by the Group when integrating one trading business into another, including
rebranding of acquired businesses
(d) Redundancy costs, including employment related costs of staff made redundant up to the date of their leaving as
a consequence of integration
(e) Property costs such as lease termination penalties and vacant property provisions and third party advisor fees
(f) Non-cash accounting charges relating to aligning accounting policies of acquired businesses with the Group where
traditional fair value accounting methods are not appropriate.
For further detail refer to note 5.
1.23 Holiday pay accrual
It is the Group policy to accrue for holiday pay to the extent of the total amount that would be paid out if all employees
of the Group left the business at its reporting date.
1.24 Segmental reporting
The Chief Operating Decision Maker (“CODM”) has been identified as the Group Chief Executive and the Chief Financial
Officer. The CODM reviews the Group’s internal reporting in order to assess performance and allocate resources.
Management has determined the operating segments based on these reports.
The Executive Board assess the performance of the operating segments based on adjusted EBITDA. Information provided
to the Executive Board is measured in a manner consistent with that in the Financial Statements.
1.25 Critical accounting estimates and assumptions
Estimates and judgements are continually evaluated and are based on historical experience and other factors, including
expectations of future events that are believed to be reasonable under the circumstances.
The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition,
seldom equal the related results. The estimates and assumptions that have a significant risk of causing a material
adjustment to the carrying amounts of assets and liabilities within the next financial year are:
• Estimated impairment of goodwill and intangible assets The Group tests annually whether goodwill and intangible
assets have suffered any impairment, in accordance with the accounting policy stated in note 1.5. The recoverable amount
has been determined based on value-in-use calculations. These calculations require the use of estimates (note 11).
• Deferred tax The Group has substantial tax losses and unclaimed capital allowances carried forward. A deferred tax
asset has been recognised in connection with trading losses carried forward to the extent that they are foreseen as being
recoverable based on future profitability of the Group which is based on projections. A 10% fall in the forecast available
profits would not result in a reduction in the deferred tax asset recognised.
51
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
CONTINUED
• Initial recognition of intangible assets on acquisition Following an acquisition, the Group undertakes an assessment
of the fair values attributable to the assets acquired, including an assessment of any intangible assets acquired. Valuation
of such intangible assets includes the use of judgements, which are made based on historical experience. The resultant
assets are included as part of the fair value balance sheet of the acquired company, and are tested for impairment as
noted above.
• Classification of Transaction and Integration costs The Directors have exercised judgement when classifying certain
costs as Transaction and Integration costs. They believe that these costs are all related to the costs described in note 1.22.
1.26 New and amended standards adopted by the Group
There are no IFRSs or IFRIC interpretations that are effective for the first time for the financial year that had a material impact
on the Group.
A number of standards and interpretations issued by the IASB are effective for financial statements after this reporting
period, including IFRS 9 ‘Financial instruments’ and IFRS 15 ‘Revenue from contracts with customers’, both of which are
effective for annual periods beginning on or after 1 January 2018, and IFRS 16 ‘Leases’ which is effective for annual periods
beginning on or after 1 January 2019. The Group is in the process of assessing the impact that the application of these
standards and interpretations will have on the Group’s financial statements.
2 Segment reporting
Operating segments are reported in a manner consistent with the internal reporting to the Chief Operating Decision
Maker (‘CODM’). The CODM has been identified as the Group Chief Executive and the Chief Financial Officer. The CODM
is jointly responsible for resources allocation and assessing the performance of the operating segments. The operating
segments are defined by distinctly separate product offerings or markets. All of the revenue derives from customers located
in the United Kingdom. No single customer accounted for more than 10% of the revenue of any operating segment. All
segment revenue is derived from external customers, and all segment results are derived from the United Kingdom.
Recurring revenue is derived from the provision of the Group’s services to customers under long-term agreements,
including data, connectivity, hosting, cloud, and support services. Services revenue is derived from the provision of
consultancy, or installation services regarding the provision and set-up of a new service. Product revenues are derived from
the sale of third party products, which comprises mostly hardware.
52
Results for the year ended 31 March 2016
Total segment revenue
Adjusted operating costs*
Adjusted EBITDA**
Depreciation
Share based payments
Amortisation of acquired intangible assets
Transaction and integration costs
Segment result
Net finance costs
Tax
Profit/(loss) for the year
Other segment information
Capital expenditure
Recurring
Services
Product
£000
£000
£000
Central
£000
Total
£000
90,172
(66,401)
23,771
(5,825)
-
(5,548)
-
12,397
-
(1,699)
10,699
12,310
(8,906)
3,404
-
-
-
-
3,404
-
(466)
2,938
7,044
(6,876)
168
-
-
-
-
168
-
(23)
145
-
109,526
(1,499)
(1,499)
-
(1,441)
-
(4,591)
(7,531)
(995)
-
(8,526)
(83,682)
25,844
(5,825)
(1,441)
(5,548)
(4,591)
8,439
(995)
(2,188)
5,256
Property, plant and equipment
9,029
-
-
-
9,029
53
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
CONTINUED
Results for the period ended 31 March 2015
Recurring
Services
Product
£000
£000
£000
Central
£000
Total
£000
76,807
(57,411)
19,396
(5,099)
-
(5,507)
-
8,790
-
112
8,902
11,598
(8,909)
2,689
-
-
-
-
2,689
-
35
2,724
5,916
(5,693)
223
-
-
-
-
223
-
3
226
-
(905)
(905)
-
(1,569)
-
(558)
(3,032)
(843)
-
(3,875)
94,321
(72,918)
21,403
(5,099)
(1,569)
(5,507)
(558)
8,670
(843)
150
7,977
Total segment revenue
Adjusted operating costs*
Adjusted EBITDA**
Depreciation
Share based payments
Amortisation of acquired intangible assets
Transaction and integration costs
Segment result
Net finance costs
Tax
Profit/(loss) for the year
Other segment information
Capital expenditure
Property, plant and equipment
6,094
-
-
-
6,094
* Operating costs excluding amortisation and transaction and integration costs
** Earnings before interest, tax, depreciation, amortisation, Transaction and integration costs and share-based payments
All of the depreciation, amortisation and capital expenditure has been allocated to the recurring revenue stream as this is
the primary element of the business within which investment is focused. The Services and Product revenue streams have
no capital expenditure, depreciation or acquired intangibles associated with them. All of the acquired goodwill has also
been allocated to the recurring revenue segment as this was the segment that was expected to benefit from the synergies
of the combination.
54
3 Expenses by nature
Amortisation of acquired intangible assets
Depreciation – owned assets
Depreciation – assets held under finance lease
Share-based payments
Operating lease payments
Employee benefits expense, excluding share based compensation
Cost of third party product recognised in Cost of sales
4 Auditors’ remuneration
Below are the fees payable to the auditors and their associates:
Audit services
Fees payable to Company auditor and its associates for the audit of parent
company and consolidated financial statements
Fees payable to Company auditor and its associates for other services:
The audit of Company’s subsidiaries
Tax advisory and compliance services
Total
2016
£000
5,548
4,592
1,233
1,441
2,934
24,664
5,832
2016
£000
30
96
54
180
2015
£000
5,507
4,565
534
1,569
3,056
20,304
4,409
2015
£000
26
80
60
166
5 Transaction and integration costs
In accordance with the Group’s policy of separately identifying transaction and integration costs, the following charges were
recognised in the year:
Redundancy costs
Contractors and one-off closure costs
Professional fees and costs incurred in the acquisition of subsidiaries
Professional fees and costs of integrating subsidiary
Vacant property provisions
Total
2016
£000
1,256
388
489
760
1,698
4,591
2015
£000
-
-
-
558
-
558
55
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
CONTINUED
As part of the acquisition and integration of other businesses, the Group incurs a range of one-off costs as set out in
the table above. These costs are incurred on the basis that substantial cost savings and operational improvements are
generated through the integration of acquired companies.
During the year the Group acquired Calyx and City Lifeline, and commenced integrating them into Redcentric. Redundancy
costs were paid to staff who left the Group as a result of the acquisition and integration of the business. The contractor and
one-off closure costs were incurred during the integration of Calyx and City Lifeline. The Group incurred professional fees in
relation to the acquisition of Calyx and City Lifeline, and incurred further costs in relation to the team of external integration
professionals who manage the integration activities. The vacant property provision was recorded in respect of the closure of
the main trading office of Calyx, which was no longer needed following the integration with Redcentric.
6 Finance costs
Finance costs
Interest payable on bank loans and overdrafts
Amortisation of loan arrangement fees
Total
7 Employee benefits expense
Staff costs for the year, including executive Directors, amounted to:
Wages and salaries
Social security costs
Pension costs
Share options granted to Directors and employees
Total
2016
£000
927
68
995
2016
£000
21,707
2,556
401
1,441
26,105
2015
£000
637
206
843
2015
£000
17,808
2,133
363
1,569
21,873
56
Average monthly number of people (including executive Directors) employed:
Operations
Selling and distribution
Administration
Total
The remuneration of the Directors in respect of the year was as follows:
2016
2015
376
95
50
521
334
75
48
457
Short-term benefits
Post-employment
benefits
Basic salary,
allowances
and fees
Bonus
Benefits
Pension
2016
Total
2015
Total
£000
£000
£000
£000
£000
£000
Executive
Fraser Fisher
Tim Coleman
Non-executive
Chris Cole
David Payne
Stephen Puckett
Tony Weaver
(a)
265
200
70
40
40
138
150
100
-
-
-
-
Total
753
250
1
-
-
-
-
-
1
13
10
-
-
-
-
429
310
70
40
40
138
311
250
41
40
15
204
23
1,027
861
(a) Directors’ emoluments for Tony Weaver were paid to Mathian Ltd, a company controlled by MXC Capital Limited, which
is a related party. Further details are provided in note 26. Tony Weaver was Chief Executive until 9 November 2014, when
he became a non-executive Director.
57
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
CONTINUED
Share options
Details of share options in the Company held by the Directors during the year are as follows:
Exercise price
Balance
Granted
Exercised
Balance
Pence
31 March 2015
in the year
in the year
31 March 2016
Fraser Fisher
Tim Coleman
Tony Weaver
(a)
(b)
(c)
(d)
(c)
(e)
70
80
107
112
107
32
761,143
581,968
16,822
1,100,000
16,822
846,494
-
-
-
-
-
-
-
-
-
-
-
-
761,143
581,968
16,822
1,100,000
16,822
846,494
Further information regarding the options noted above is set out below.
(a) The options were granted under the Company’s EMI scheme. 294,623 of the options are qualifying options, and 466,520
are non-qualifying under the terms of the scheme. For all of the options, the performance conditions have been met, the
options have vested and are exercisable.
(b) The options were granted under the Company’s EMI scheme, and all of the options are non-qualifying under the terms
of the scheme. The options will vest on 15 November 2016 subject to the achievement of performance conditions related to
the achievement of a pre-defined level of share price growth.
(c) The options were granted pursuant to the Company’s HMRC approved Save-As-You-Earn Option Plan 2014, under which
employees contribute a monthly amount which is saved over three years to buy shares. The options are exercisable from
31 March 2018. There are no performance conditions.
(d) The options were granted under an unapproved share option contract. The performance conditions have been met
for 550,000 options, and the options have vested and are exercisable. The remaining 550,000 options are subject to
performance conditions being achieved by 18 April 2017. The performance conditions relate to the achievement of certain
financial performance measurements related to the approved budget.
(e) The options were granted under the Company’s EMI scheme as non-qualifying options. 282,165 of the options have
vested, with the remaining 562,349 being subject to performance conditions. The performance conditions are linked to the
occurrence of a qualifying transaction that will deliver a predefined return to shareholders. The options are held by Tony
Weaver as a Trustee under a Declaration of Trust, the beneficiary of which is MXC Capital Ltd.
Share price
The market price of the Company’s shares on 31 March 2016 was 192p per share. The highest and lowest market prices
during the year were 199p and 133p respectively.
58
8 Tax on profit on ordinary activities
(a) Tax on profit on ordinary activities
Current income tax:
Current income tax
Prior year adjustment
Deferred tax:
Origination and reversal of timing differences
– Deferred tax asset: prior year adjustments
Total income tax (charge)/credit reported in the income statement
– Deferred tax asset: current year
– Deferred tax liability
2016
£000
2015
£000
-
1,914
(2,393)
(3,217)
1,508
(2,188)
(1,914)
-
1,947
(984)
1,101
150
(b) Reconciliation of the total income tax charge/(credit)
The tax on the Group’s profit before tax differs from the theoretical amount that would arise using the weighted average tax
rate applicable to profits of the consolidated entities as follows:
Profit before taxation
Profit multiplied by the UK standard rate of corporation tax of 20% (2015: 21%)
Expenses not deductible for tax purposes
Effect of rate changes on deferred tax
Effect of tax losses for which no deferred tax asset was recognised
Prior year adjustment in deferred tax
Prior year adjustment to current income tax
Total income tax charge/(credit) reported in the income statement
(c) Deferred tax
Deferred tax liability
Deferred tax asset
Net deferred tax liability at 31 March
2016
£000
7,444
1,489
65
(255)
410
2,393
(1,914)
2,188
2016
£000
(9,418)
4,279
(5,139)
2015
£000
7,827
1,644
121
6
-
(1,921)
-
(150)
2015
£000
(8,997)
7,366
(1,631)
59
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
CONTINUED
d) Deferred tax liability
Opening balance
Acquisition of subsidiaries
Acquired with subsidiaries
Credited to the income statement
At 31 March
2016
£000
8,997
1,743
186
(1,508)
9,418
2015
£000
10,098
-
-
(1,101)
8,997
Deferred tax liabilities arose in respect of the amortisation of intangible assets recognised on acquisitions made.
(e) Deferred tax assets
Share based
payments
temporary
differences
Property, plant
and equipment
temporary
differences
Tax losses
£000
£000
£000
709
-
267
-
936
1,912
5,888
1,587
(3,014)
(2,818)
-
1,643
769
-
(470)
425
-
724
Total
£000
7,366
1,587
(3,217)
(2,393)
936
4,279
At 31 March 2015
Acquired with subsidiaries
Recognised in the income statement
Prior year adjustment
Recognised in equity
At 31 March 2016
Deferred tax assets have been recognised where it is the view of the Directors that it is probable that there will be future
sustainable taxable profits from which prior tax losses can be offset. This is based on projections of future taxable profits
and indicators such as the level of orders that support the Directors’ projections.
Deferred tax assets have been netted off with deferred tax liabilities on the face of the Balance sheet. This is because
the Group has a legally enforceable right to set off current tax assets against current tax liabilities and the deferred tax
assets and the deferred tax liabilities relate to income taxes levied by the same taxation authority, being the UK’s HMRC.
The Group operates as one tax Group and settles its tax liabilities on a net basis. This is not expected to change in the
foreseeable future.
60
During the year, the UK main corporation tax rate was reduced from 21% to 20% from 1 April 2015. The Finance Act 2015
set the main corporation tax rate at 20% for the Financial Year 2016. On 18 November 2015 Royal Assent was given for a
reduction in the rate from 20% to 19% for the year beginning 1 April 2017, with a further reduction from 19% to 18% for the
year beginning 1 April 2020.
9 Earnings per share
Basic earnings per share has been calculated using profit after tax for the year of £5,256,000 (2015: £7,977,000) and a
weighted average number of shares of 145,223,982 (2015: 144,225,164). The dilutive effect of share options at 31 March 2016
increased the weighted average number of shares to 153,314,134 (2015: 149,887,342).
In addition the Board uses adjusted earnings per share figure, which has been calculated to reflect the underlying
performance of the business. This measure is derived as follows:
Profit from operations for the year
Tax charge / (credit)
Amortisation of acquired intangibles
Share based payments
Transaction and integration costs
Adjusted earnings before tax
Notional tax charge at standard rate of 20% / 21%
Adjusted earnings
2016
£000
5,256
2,188
5,548
1,441
4,591
19,024
(3,805)
15,219
2015
£000
7,977
(150)
5,507
1,569
558
15,461
(3,247)
12,214
Weighted average number of shares in issue
Weighted dilutive effect of options and warrants in issue
Diluted weighted average number of shares in issue
145,223,982
144,225,164
8,090,152
5,662,178
153,314,134
149,887,342
Statutory basic earnings per shares
Statutory diluted earnings per share
Adjusted basic earnings per share
Adjusted diluted earnings per share
3.62p
3.43p
10.48p
9.93p
5.53p
5.32p
8.47p
8.15p
61
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
CONTINUED
10 Property, plant and equipment
Motor
Vehicles
Leasehold
improvements
Network
infrastructure,
equipment,
fixtures and fittings
£000
£000
£000
Cost
At 31 March 2014
Additions
At 31 March 2015
Additions
Acquired with subsidiaries
At 31 March 2016
Accumulated depreciation
At 31 March 2014
Charge for the year ended 31 March 2015
At 31 March 2015
Charge for the year ended 31 March 2016
At 31 March 2016
Net book amount
At 31 March 2015
At 31 March 2016
68
19
87
-
-
87
(21)
(26)
(47)
-
(47)
40
40
477
-
477
61
140
678
(108)
-
(108)
(152)
(260)
369
418
Total
£000
25,328
6,094
31,422
9,029
2,068
42,519
(2,926)
(5,099)
(8,025)
(5,825)
24,783
6,075
30,858
8,968
1,928
41,754
(2,797)
(5,073)
(7,870)
(5,673)
(13,543)
(13,850)
22,988
28,211
23,397
28,669
Included in network infrastructure and equipment are assets held under finance leases with a carrying value of £5.7m at
31 March 2016 (2015: £2.9m). Of the £9.0m fixed assets acquired in the year, £4.4m were funded using finance leases (2015:
£2.4m).
62
11 Intangible Assets
Cost
At 31 March 2014
At 31 March 2015
Acquisition of subsidiaries
At 31 March 2016
Accumulated amortisation and impairment
At 31 March 2014
Amortisation charge for the year ended
31 March 2015
At 31 March 2015
Amortisation charge for the year ended
31 March 2016
At 31 March 2016
Customer
contracts
and related
relationships
Trademarks
£000
£000
52,614
52,614
9,683
62,297
(2,772)
(5,447)
(8,219)
(5,488)
275
275
-
275
(60)
(60)
(120)
(60)
Total
£000
90,911
90,911
15,261
106,172
(2,832)
(5,507)
(8,339)
(5,548)
(13,707)
(180)
(13,887)
Goodwill
£000
38,022
38,022
5,578
43,600
-
-
-
-
Carrying amount at 31 March 2015
Carrying amount at 31 March 2016
38,022
43,600
44,395
48,590
155
95
82,572
92,285
Customer contracts have a weighted average remaining amortisation period of 8 years and 11 months (2015: 9 years and
8 months).
Intangible assets are reviewed for impairment at least annually or more frequently if events or changes in circumstances
indicate that the carrying value may be impaired. Goodwill balances transferred on the demerger and arising on the IMS
acquisition were all allocated to the Recurring revenue segment, which also represents a cash generating unit (“CGU”),
as that was the segment that was expected to benefit from the synergies of the combination. Goodwill balances arising on
the acquisitions of Calyx and City Lifeline have also been allocated to the Recurring revenue segment. Goodwill is tested
for impairment at least annually.
The recoverable amount of the Recurring CGU was based on a value in use calculation using budgeted cash flow
projections for the period to 31 March 2017 and extrapolated for a further four years by growth rates applicable to the unit.
A terminal value based on a perpetuity calculation using 2% real growth was then added. Discount rates were then applied
to these projections reflecting management’s expected risk profile for the CGU.
63
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
CONTINUED
In addition to revenue growth, the key assumptions used in the impairment testing were as follows:
• Gross margin percentage of 66%;
• Pre-tax discount rate of 11%; and
• Terminal growth rate percentage of 2%.
The assumption of margins remaining flat after the budget period is based on the assumption that a mix of cost savings
in service delivery will be offset by competitive market influences, which is line with management’s experience and
historical patterns.
A pre-tax discount rate of 11% (post-tax 9.3%) was applied to the CGU which reflects management’s risk-adjusted estimate
of the weighted average cost of capital. The CGU has a significant element of recurring revenue through maintenance
contracts and this reduces the risk inherent in the business.
Over the five year period, revenues are projected to grow at an average of 10.1%. These growth rates were determined
based on management’s past experience and the detailed analysis of market trends.
A reasonably possible adverse movement in any of the above key assumptions made would not give rise to impairment.
12 Trade and other receivables
Trade receivables
Less: provision for impairment of trade receivables
Trade receivables – net
Other receivables
Prepayments
Accrued income
Total
2016
£000
21,693
(661)
21,032
8
5,777
8,945
35,762
2015
£000
10,208
(76)
10,132
25
2,833
5,360
18,350
As at 31 March 2016, trade receivables of £0.7m (2015: £0.1m) were impaired and fully provided for. The Directors monitor
the quality of the receivables not impaired and believe them to be recoverable. The non-impaired receivables are fully
performing and relate to independent customers with no history of default. The individually impaired receivables relate to
receivables over 365 days, customers in financial difficulty, customer acceptance issues and cancelled contracts.
64
As at 31 March 2016, trade receivables of £6.2m (2015: £1.3m) were past due but not impaired. In the table below, these
comprise the receivables over 30 days, which relate to a number of independent customers for whom there is no recent
history of default. The ageing analysis of net trade receivables is as follows:
Days outstanding
31– 60 days
61– 90 days
91–180 days
181–365 days
Total
2016
£000
3,940
1,158
795
280
2015
£000
486
202
338
284
6,173
1,310
The provision is calculated by management on a specific basis based on their best estimate of recoverability taking into
account the age and specific circumstances relating to the debtor. The maximum exposure to credit risk at the reporting
date is the fair value of each class of receivable mentioned above. The Group does not hold any collateral as security. The
carrying amounts of the Group’s trade and other receivables are denominated in pounds.
Movements on the Group provision for impairment of trade receivables are as follows:
Balance at the start of the period
Acquired with subsidiaries
Increase in impairment provision
Utilisation of impairment provision
At 31 March
2016
£000
76
93
715
(223)
661
2015
£000
1,426
-
-
(1,350)
76
The creation and release of a provision for impaired receivables has been included in ‘administrative expenses’ in the
income statement. Amounts charged to the allowance account are generally written-off, when there is no expectation of
recovering additional cash.
The other asset classes within trade and other receivables do not contain impaired assets.
65
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
CONTINUED
13 Cash and cash equivalents
Cash at bank
2016
£000
2015
£000
8,492
3,199
The Group’s cash is held at accounts with Barclays Bank PLC, which has a Standard and Poor’s rating of A.
14 Trade and other payables
Current
Trade payables
Other payables
Taxation and social security
Accruals
Deferred income
Total
2016
£000
12,126
971
4,866
3,959
4,648
2015
£000
7,582
111
3,063
3,871
3,915
26,570
18,542
15 Commitments and contingencies
a) Operating leases
Future aggregate minimum annual lease payments under non-cancellable operating leases as at 31 March are as follows:
Land and
Plant and
Land and
Plant and
buildings
machinery
buildings
machinery
2016
£000
2,411
7,078
7,733
17,222
2016
£000
197
92
-
289
2015
£000
1,966
6,331
8,929
17,226
2015
£000
234
214
-
448
Not later than 1 year
After 1 year but not more than 5 years
After 5 years
Total
66
The Group’s operating leases relate to property, motor vehicles and office equipment, and have remaining terms of
between 1 and 24 years. The amount recognised as an expense in the year is £2.9m (2015: £3.1m).
None of the above leases are sublet by the Group. There are no contingent rent arrangements and the Group does
not have a purchase option with respect to the above leases. The lease terms can only be extended if the terms of the
underlying contracts are approved by both the Group and the lessor.
(b) Capital commitments
The Group had no contracted but not provided for capital commitments at 31 March 2016 (2015: £nil).
16 Borrowings
Non-current
Bank loan
Finance leases
Unamortised loan arrangement fee
Total non-current
Current
Finance leases
Total current
2016
£000
28,674
3,510
(272)
31,912
1,855
1,855
2015
£000
8,000
1,412
-
9,412
1,033
1,033
At 31 March 2016 the Group was party to £50.0m of bank facilities with a termination date of 1 April 2020. The facilities
comprise a Revolving Credit Facility (“RCF”) of £40.0m with a £20.0m accordion, a £5.0m Overdraft Facility and a £5.0m
Asset Financing Facility.
The RCF has been provided jointly by Barclays Bank PLC and The Royal Bank of Scotland PLC, with Lombard Technology
Services Ltd providing the Asset Financing Facility and Barclays Bank PLC the Overdraft Facility.
67
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
CONTINUED
The movement in total net debt balances can be reconciled as follows:
Net cash generated from operating activities
Purchase of property, plant and equipment
Acquisitions of subsidiaries net of cash acquired
Share issues
Dividends
Other non-cash movements in debt
Total (increase) / decrease in net debt
2016
£000
15,155
(9,030)
(19,348)
1,000
(5,806)
-
(18,029)
2015
£000
15,098
(6,094)
-
614
(2,888)
(34)
6,696
Fair value of non-current borrowings
The carrying amounts and fair value of the non-current borrowings are as follows:
Non-current:
Bank loan
Carrying value
Fair value
Carrying value
Fair value
2016
£000
2016
£000
2015
£000
2015
£000
28,674
26,344
8,000
7,562
Fair values are based on discounted cash flows, using an effective interest rate based on the borrowing rates at 31 March
2016 of 2.15% (2015: 3.23%).
Present
Finance Future Lease
Present
Finance
Future Lease
Value
2016
£000
1,855
3,510
5,365
Charges
Payments
2016
£000
111
158
269
2016
£000
1,966
3,668
5,634
Value
2015
£000
1,033
1,412
2,445
Charges
Payments
2015
£000
78
108
186
2015
£000
1,111
1,520
2,631
Finance Leases
Not later than 1 year
After 1 year but not more
than 5 years
Total
68
17 Financial instruments by category
The objectives of the Group’s treasury activities are to manage financial risk, secure cost-effective funding where necessary
and minimise adverse effects of fluctuations in the financial markets on the value of the Group’s financial assets and
liabilities, on reported profitability and on cash flows of the Group.
The Group’s principal financial instruments for fundraising are bank borrowings, overdraft facilities and loans. The Group has
various other financial instruments such as cash, trade receivables and trade payables that arise directly from its operations.
Carrying Value
Fair Value
Carrying Value
Fair Value
2016
£000
2016
£000
21,032
21,032
5,785
8,945
8,492
5,785
8,945
8,492
44,254
44,254
12,126
4,930
9,514
33,767
60,337
12,126
4,930
9,514
33,767
60,337
2015
£000
10,132
2,858
5,360
3,199
21,549
7,582
3,982
6,978
10,445
28,987
2015
£000
10,132
2,858
5,360
3,199
21,549
7,582
3,982
6,978
10,445
28,987
Assets
Trade receivables
Other receivables and prepayments
Other current assets
Cash and cash equivalents
Total
Liabilities
Trade payables
Other payables and accruals
Other current liabilities
Borrowings
Total
18 Financial risk management
The Group’s activities expose it to a variety of financial risks: market risk (including foreign exchange, fair value interest
rate risk, cash flow interest rate risk, and price risk), credit risk, and liquidity risk. The Group’s overall risk management
programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the
Group’s financial performance. Risk management is carried out centrally under policies approved by the Board of Directors.
The Board provides principles for overall risk management, as well as policies covering specific areas, such as foreign
exchange risk, interest rate risk, credit risk, use of derivative financial instruments and non-derivative financial instruments,
and investments of excess liquidity.
69
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
CONTINUED
(a) Market risk
(i) Foreign exchange risk
The Group mainly operates within the UK and foreign exchange risk arises from certain transactions with counterparties
denominated in foreign currencies. This is not a significant risk for the Group.
(ii) Cash flow risk
The Group receives interest on cash and cash equivalents and pays interest on its borrowings.
Borrowings at variable rates expose the Group to cash flow interest rate risk. During the year ended 31 March 2016 the
Group’s borrowings at variable rate were denominated in Pounds Sterling with interest linked to Sterling interest rates.
The Group analyses its interest rate exposure on a dynamic basis. Various scenarios are simulated taking into consideration
refinancing, renewal of existing positions, alternative financing and hedging. Based on these scenarios, the Group calculates
the impact on profit or loss of a defined interest rate shift and manages its cash flow interest rate risk accordingly.
Based on the simulations performed, the impact on post-tax profit and equity of a +/– 1% shift in the interest rate would be
not be material. The simulation is done on a quarterly basis to verify that the maximum loss potential is within the limit given
by management.
(iii) Price risk
The Group is not exposed to significant commodity or security price risk.
(b) Credit risk
Credit risk arises from cash and cash equivalents, as well as credit exposures to customers. Individual risk limits are set based
on internal and external ratings in accordance with limits set by the divisions and review by the Board where appropriate.
The utilisation of credit limits is regularly monitored with appropriate action taken by management in the event of a breach
of credit limit.
(c) Liquidity risk
Management monitors rolling forecasts of the Group’s undrawn borrowing facility and cash and cash equivalents based on
expected cash flow. The Group’s liquidity management policy involves projecting cash flows and considering the level of
liquid assets necessary to meet these.
70
The table below analyses the Group’s financial liabilities into relevant maturity groupings based on the remaining period
at the balance sheet date to the contractual maturity date. These amounts disclosed in the table are the contracted
undiscounted cash flows. Balances within 12 months equal their carrying balances as the impact of discounting is not
significant.
At 31 March 2016
Borrowings
Finance leases
Trade and other payables
At 31 March 2015
Borrowings
Finance leases
Trade and other payables
19 Capital risk management
Within 1 year
£000
-
1,855
12,126
-
1,033
11,524
1-5 years
£000
28,674
3,510
-
10,445
1,412
-
Total
£000
28,674
5,365
12,126
10,445
2,445
11,524
The Group’s objectives when managing capital are to safeguard the Group’s future growth and its ability to continue as a
going concern in order to provide returns for shareholders and to maintain an optimal capital structure to reduce the cost
of capital. The Group operates in the managed services sector which, generally, does not require substantial fixed asset
investments. Consequently, the Group is financed predominantly by equity.
In order to maintain or adjust the capital structure the Group has previously both issued new shares and borrowed using
bank facilities. The Group monitors capital on the basis of the ratio of net bank debt to adjusted EBITDA. Net debt is
calculated as total bank borrowings (including ‘current and non-current borrowings’ as shown in the consolidated balance
sheet) less cash and cash equivalents, and adjusted EBITDA is defined as earnings before interest, tax, depreciation,
amortisation, transaction and integration costs and share-based payments. The Group’s strategy is to maintain the ongoing
ratio at below 2.0x, although the bank facilities can accommodate a higher ratio. The ratio was comfortably below this level
throughout the year, and at 31 March 2016 was 0.78x.
The bank facilities referred to in Note 16 contain various covenants relating to EBITDA, interest cover, net debt and cash
flow, which the Group monitors on a monthly basis. The Group adopts a risk-averse position with respect to borrowings,
and maintains a significant amount of head-room in its bank facilities to ensure that any unexpected situations do not create
financial stress.
The Group has committed to a progressive dividend policy, and intends to return a proportion of free cash-flow to
shareholders each year in the form of dividends, whilst retaining a prudent amount of capital in the business to fund
potential future expansion and to provide operational flexibility. The Group also grants share options to Directors and other
selected employees. However, these do not have a significant impact on the Group’s capital structure.
71
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
CONTINUED
20 Called up share capital
Ordinary shares of 0.1p each
2016
Number
2016
£000
2015
Number
Allotted, called up and fully paid share capital
Issued during the year
Issued shares as at 31 March
1,152,277
145,881,185
1
146
817,794
144,728,908
2015
£000
1
145
The number of share authorised is the same as the number of shares issued. Ordinary shareholders have the right to attend,
vote and speak at meetings, receive dividends, and receive a return on assets in the case of a winding up.
Share issues
During the year the following shares were issued:
Issued on the exercise of share options
Issued on the exercise of warrants
Total
2016
Number
354,251
798,026
1,152,277
2015
Number
291,000
526,794
817,794
The shares issued on the exercise of warrants relate to 1,381,055 warrants issued to certain shareholders (“Cornerstone
Investors”) on 6 December 2013 in connection with early stage commitment to raise equity to fund the acquisition of
Intechnology Managed Services Limited. The warrants issued to the Cornerstone Investors have all either been exercised or
have lapsed.
As at 31 March 2016 the Company had a total of 350,000 warrants in issue with an exercise price of 36p. The warrants were
issued to Barclays Bank PLC on demerger in April 2013 in exchange for warrants previously held in Redstone Plc, and can be
converted to shares at any time before the sale of the entire share capital of the Company.
72
7373
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
CONTINUED
21 Provisions
At 1 April 2014
Charged /(credited) to Income statement:
Used during the year
At 31 March 2015
Charged /(credited) to Income statement:
Additional provisions created during the year
Used during the year
At 31 March 2016
Vacant
Dilapidations
property
Total
provision
provision
provision
£000
£000
796
(154)
642
-
(49)
593
448
(415)
33
1,698
(50)
1,681
£000
1,244
(569)
675
1,698
(99)
2,274
The provisions have been discounted to present value using a risk free discount rate. The remaining terms of these property
leases range from 1 to 6 years.
Current and non-current analysis of provisions:
2016
Vacant
Dilapidations
property
Total
Dilapidations
provision
provision
provision
£000
£000
£000
provision
£000
Current
Non-current
Total
-
593
593
334
1,347
1,681
334
1,940
2,274
153
489
642
2015
Vacant
property
provision
£000
33
-
33
Total
provision
£000
186
489
675
74
22 Share-based payment plans
Share-based payments
During the year the Group recognised an expense for the following share-based payments:
Equity-settled share-based charge arising from share options*
National Insurance and other charges arising on share options
Total
* This is an IFRS 2 charge arising from share options issued in terms of a share-based payment plan.
2016
£000
1,336
105
1,441
2015
£000
1,403
166
1,569
The following table illustrates the number and weighted average exercise prices (WAEP) of, and movements in, share
options during the year.
Options
Outstanding at the start of the year
Issued in the year
Exercised in the year
Lapsed in the year
Outstanding at the end of the year
2016
Number of
options
14,567,621
163,905
(354,251)
(146,823)
14,230,452
2016
WAEP
82.3p
154.0p
102.1p
108.7p
82.4p
2015
Number of
options
12,372,099
2,684,886
(291,000)
(198,364)
14,567,621
2015
WAEP
75.5p
110.7p
66.0p
64.7p
82.3p
The weighted average fair value of the options granted in the year ended 31 March 2016 was 154.0p (2015: 110.7p) per
option. During the year ended 31 March 2016 there were new grants of 163,905 options (2015: 2,684,886 options) which
were issued under the HMRC approved Redcentric plc Save-As-You-Earn Option Plan 2014, with an exercise price of 154p.
75
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
CONTINUED
The weighted average remaining contractual life for the share options outstanding at 31 March 2016 is 7 years and 3 months
(2015: 8 years and 3 months). The range of exercise prices for options outstanding at the end of the year was 32p to 154p.
Share options outstanding at the end of the year with approximate remaining average life are as follows:
Range of prices
Number
31 March 2016
Weighted average life
at 31 March 2016
Number
31 March 2015
Weighted average life
at 31 March 2015
32p
70p
80p
102p
112p
117p
107p
154p
1,692,988
761,143
7,581,968
1,500,000
1,100,000
450,000
985,824
158,529
7 years, 1 month
7 years, 1 month
7 years, 7 months
7 years, 11 months
8 years, 5 months
8 years, 8 months
2 years, 6 months
3 years, 6 months
1,692,988
761,143
7,581,968
1,850,000
1,100,000
450,000
1,131,522
-
8 years, 1 month
8 years, 1 month
8 years, 7 months
8 years, 11 months
9 years, 5 months
9 years, 8 months
3 years, 6 months
-
14,230,452
7 years, 3 months
14,567,621
8 years, 3 months
The following table illustrates the status of the options outstanding at the end of the year:
Options
Performance conditions satisfied
Subject to performance conditions
Save-As-You-Earn
Outstanding at the end of the year
2016
Number of
options
2,668,417
10,417,682
1,144,353
14,230,452
2016
WAEP
53.5p
86.4p
113.5p
82.4p
2015
Number of
options
754,044
12,682,055
1,131,522
14,567,621
2015
WAEP
41.6p
82.6p
107.0p
82.3p
The fair value of the equity-settled share options granted is estimated as at the date of grant using a binomial model, taking
into account the terms and conditions upon which the options were granted.
76
The following table lists the inputs into the model used for the year ended 31 March 2016 and 31 March 2015. No change
has been made to the assumptions used for valuing options granted before 31 March 2014.
Grant Date
April
2013
April November
March
November
December December
2013
2013
2014
2014
2014
2015
August &
SAYE
SAYE
Option exercise price
32p
64p & 70p
Dividend yield (%)
nil
Vesting period (years)
0 to 0.6
Assumed volatility at
date of grant (% p.a.)
50%
3.0
1 to 3
50%
80p
3.0
3.6
50%
102p 112p & 117p
3.0
2.9 & 2.7
2.3 to 3.6
0.3 to 2.7
50%
37% & 36%
107p
2.4
3.0
34%
154p
2.1
3.0
27%
Risk-free discount rate
0.2% 0.5 to 1.0%
1.1% 0.8 to 1.3%
0.8 to 1.4%
1.0%
1.0%
Expected life of option
0.6 years
6.2 years
3.6 years
3.6 years
Fair value per option
Share price at grant
32.0p to
34.1p
64.0p
14.2p to
20.5p
64.0p
32.6p
40.9p to
46.5p
83.5p
113.5p
2.6 to 3.7
years
32.3p to
41.4p
119.5p to
130.5p
3.7 years
3.7 years
48.8p
44.0p
145.5p
188.0p
23 Net Cash-flows from continuing operating activities
Profit on ordinary activities before tax
Adjustments for:
Transaction and integration costs
Net finance costs
Depreciation of property, plant and equipment
Amortisation of acquired intangible assets
Share based payments
(Increase)/decrease in trade and other receivables
Increase/(decrease) in trade and other payables
Cash generated by continuing operations
2016
£000
2015
£000
7,444
7,827
4,591
995
5,825
5,548
1,441
(17,412)
10,716
19,148
2,315
843
5,099
5,507
1,569
2,279
(7,217)
18,222
77
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
CONTINUED
24 Pensions
The Group operates a defined contribution pension scheme for eligible employees. The charge for the year ended
31 March 2016 was £0.4m (2015: £0.4m). There were no prepayments or accruals relating to pension costs at the year end.
25 Subsidiaries
As at 31 March 2016, the Company had the following subsidiary undertakings:
Principal activity
Country of incorporation
% Ordinary share
capital owned
Held directly by Redcentric plc
Redcentric Holdings Limited
Redcentric Solutions Limited
Held indirectly
Holding company
England and Wales
Managed Services
England and Wales
Redcentric Solutions Private Limited
Support services
India
Redcentric MS Limited
Dormant*
England and Wales
Redcentric Managed Solutions Limited
Dormant*
England and Wales
Redcentric Communications Limited
Dormant*
England and Wales
Hotchilli Internet Limited
Redcentric US Limited
Calyx Managed Services Limited
City Lifeline Limited
Dormant*
England and Wales
Dormant
Dormant
Dormant
USA
England and Wales
England and Wales
City Lifeline Data Centre Limited
Dormant*
England and Wales
All of the Company’s subsidiaries have been consolidated in the Group financial statements.
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
* The companies marked with an asterisk are exempt from filing audited accounts under s394A of the Companies Act 2006 as they have been dormant
throughout the period.
78
26 Related parties
The Group has taken exemption not to disclose transactions with entities wholly-owned by the Group.
Directors’ emoluments are disclosed in the Remuneration Report.
MXC Capital
The Group has engaged MXC Advisory LLP to provide corporate finance advice and consultancy. MXC Advisory LLP is
owned by MXC Capital Limited (“MXC”), which is an AIM quoted merchant bank specialising in investing in technology
companies. MXC is a shareholder in Redcentric plc and has options over the ordinary shares of Redcentric plc (as disclosed
below) and therefore its interests are aligned with Redcentric plc’s other shareholders. Tony Weaver, a Director of Redcentric
plc, has an interest in MXC. Under the terms of the agreement, a fee representing a maximum of 2.5 per cent. of the
enterprise value of successful transactions consulted upon is payable by the Company to MXC.
During the year, fees of £497,124 were paid to MXC (£2015: £224,000), which included £137,629 (2015: £204,000) for Tony
Weaver’s Director’s fees, £59,495 (2015: £20,000) for the provision of corporate finance advice, and £300,000 (2015: £nil) for
advisory fees in respect of the acquisition of Calyx. The acquisition of Calyx from MXC on 10 April 2015 for an Enterprise
Value of £12.0m was a related party transaction.
As at 31 March 2016 MXC has the following interest in shares and options over ordinary shares in the Company:
Quantity
Grant date
Exercise price
Expiry date
Ordinary shares
Options (a)
Options (b)
5,849,108
1,692,988
7,000,000
-
18 April 2013
15 November 2013
-
32p
80p
-
18 April 2023
15 November 2023
(a) the performance conditions with respect to 564,330 of these options have been met, and the options have fully
vested. There is a performance condition in respect of 1,128,658 options linked to the occurrence of a qualifying
transaction that will deliver a predefined return to shareholders. 846,494 of the options are held by Tony Weaver as a
Trustee under a Declaration of Trust, the beneficiary of which is MXC Capital Ltd.
(b) The options have a performance condition which allows the option to be exercised if the average mid-market closing
price of the shares for the preceding 10 working days at any point after 15 November 2016 is greater than 112.4p.
79
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
CONTINUED
Other
There were no other transactions with related parties in the year to 31 March 2016 other than those disclosed in note 29.
During the year ended 31 March 2015, a subsidiary of the Group was party to a lease agreement relating to Redcentric
House, Banters Lane Trading Estate, Chelmsford, and paid rental and service charge payments of £124,000 to Moreland
Limited, a company which Fraser Fisher is a Director and shareholder of. The company terminated the lease agreement
on 31 March 2015, and paid £153,000 in respect of a contractual liability for dilapidations.
The balances outstanding at 31 March 2016 in respect of related parties was £30,000 payable to MXC.
27 Dividends
The Company paid a final dividend in respect of the year to 31 March 2015 of 2.5p per ordinary share on 28 September
2015, with a total payment value of £3.6m, making a total of 3.5p per share for the year. The Company paid an interim
dividend of 1.5p per ordinary share on 17 February 2016, with a total payment value of £2.2m. Total dividends paid during
the year amounted to £5.8m.
The Directors are proposing a final dividend of 3.0p per share, which will make a total for the year of 4.5p per share.
If approved by shareholders at the AGM, the final dividend, which the Directors expect to amount to £4.4m, will be paid
on 21 September 2016 to shareholders on record on 26 August 2016.
28 Subsequent events
There have been no significant events between the balance sheet date and the date of approval of these accounts.
29 Business combinations
29.1 Acquisition of Calyx
On 10 April 2015, Redcentric completed the acquisition of Calyx Managed Services Ltd (“Calyx”) for an enterprise valuation
of £12.0m. Calyx was acquired from MXC Capital following a period of significant restructuring, which included the
disposals of the Break Fix and Carrier Services divisions. The remaining business was a focused IT managed services and
professional and infrastructure services business. Calyx’s portfolio of services and its range of customers are an excellent
strategic addition for Redcentric.
The acquisition is considered a related party transaction under the AIM Rules for Companies on the basis that MXC is
a substantial shareholder in the Company and Tony Weaver, a Director of Redcentric, is a substantial shareholder of MXC.
In addition, Redcentric agreed a corporate finance advisory fee of £300,000 to MXC for advisory services in relation to
the acquisition under an existing engagement with MXC, which is retained as corporate finance adviser to the Company
(further details are in note 26 to the financial statements). The payment of the advisory fee is considered to be a related
party transaction under the AIM Rules for Companies.
80
The book value of the Calyx net assets acquired and their fair values are summarised below:
Intangible assets
Deferred tax asset
Trade and other receivables
Prepayments
Cash and loans
Deferred revenue
Trade and other payables
Accrued costs and tax
Deferred tax liability
Net assets
Fair value of net assets
Goodwill
Total purchase consideration paid in cash
Book
value
£000
-
-
1,676
1,475
5,465
(2,476)
(790)
(1,433)
-
3,917
Fair value
adjustments
Fair value
to Group
£000
£000
6,673
1,587
(93)
(192)
-
-
-
-
(1,201)
6,774
6,673
1,587
1,583
1,283
5,465
(2,476)
(790)
(1,433)
(1,201)
10,691
10,691
4,834
15,525
The fair value adjustments relate to the recognition of newly identified intangible assets, and the writing off of
unrecoverable debtors and accrued revenue. The purchase consideration paid included an adjustment to reflect the cash
proceeds of £4.9m from the disposal of the Break Fix and Carrier Services divisions and an adjustment of £1.5m to reflect
certain lease liabilities.
On acquisition the Directors assessed the business acquired to identify any intangible assets. Customer contracts and
related relationships met the criteria for recognition as intangible assets as they have a measurable fair value, being the
amount for which an asset would be exchanged between knowledgeable and willing parties in an arm’s length transaction.
For the customer contracts and related relationships the provisional fair value of the intangible assets was calculated by
using the discounted cash flows arising from the existing contract base for the business. The reasonable economic life of
the customer relationships was assumed to be ten years, and has been discounted using a rate of 10.6%. The identifiable
intangible asset was valued at £6.7m.
The goodwill arising on the acquisition is attributable to the expected synergies.
From the date of acquisition to 31 March 2016, Calyx achieved revenue of £6.7m and a profit before taxation of £0.6m.
As Calyx was acquired close to the start of the year, the revenue and profit before tax if Calyx had been consolidated for the
full year would not be materially different.
81
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
CONTINUED
29.2 Acquisition of City Lifeline
On 28 January 2016, Redcentric completed the acquisition of City Lifeline Ltd (“City Lifeline”) for an enterprise valuation of
£4.8m from its founders.
City Lifeline is an established business, which has been trading for over 20 years. It was originally set up as a disaster
recovery and back-up site, and has been developed over the years into an independent data centre offering hosting and
colocation services from its well-connected and well-invested location in Tech City, London. The principal rationale behind
the acquisition was to acquire a London data centre, enhancing Redcentric’s go-to-market proposition based on the
ownership and control of the underlying infrastructure from which services are delivered.
The book value of the City Lifeline net assets acquired and their fair values are summarised below:
Intangible assets
Property, plant and equipment
Trade and other receivables
Prepayments
Cash and loans
Borrowings
Trade and other payables
Accrued costs and tax
Deferred tax liability
Net assets
Fair value of net assets
Goodwill
Total purchase consideration paid in cash
Book
value
£000
-
2,068
94
216
1,352
(722)
(251)
(330)
(187)
2,239
Fair value
adjustments
Fair value
to Group
£000
£000
3,010
-
-
-
-
-
-
(383)
(542)
2,085
3,010
2,068
94
216
1,352
(722)
(251)
(713)
(729)
4,324
4,324
744
5,068
The fair value adjustments relate to the recognition of newly identified intangible assets, a provision for contractual staff
bonuses which were crystallised at the point of acquisition, and a provision for corporation tax.
82
On acquisition the Directors assessed the business acquired to identify any intangible assets. Customer contracts and
related relationships met the criteria for recognition as intangible assets as they have a measurable fair value, being the
amount for which an asset would be exchanged between knowledgeable and willing parties in an arm’s length transaction.
For the customer contracts and related relationships the provisional fair value of the intangible assets was calculated by
using the discounted cash flows arising from the existing contract base for the business. The reasonable economic life
of the customer relationships was assumed to be ten years, and has been discounted at a rate of 10%. The identifiable
intangible asset was valued at £3.0m.
The goodwill arising on the acquisition is attributable to the additional data centre capacity acquired and expected synergies.
From the date of acquisition to 31 March 2016, City Lifeline achieved revenue of £0.6m and a profit before taxation of
£0.1m. If City Lifeline had been consolidated for the full year it would have achieved revenue of £3.5m and profit before tax
of £0.3m.
83
8484
INDEPENDENT AUDITORS’ REPORT
TO THE MEMBERS OF REDCENTRIC PLC
REPORT ON THE COMPANY FINANCIAL STATEMENTS
Our opinion
In our opinion, Redcentric plc’s company financial statements (the “financial statements”):
• give a true and fair view of the state of the company’s affairs as at 31 March 2016;
• have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and
• have been prepared in accordance with the requirements of the Companies Act 2006.
What we have audited
The financial statements, included within the Annual Report and Financial Statements (the “Annual Report”), comprise:
• the Company Balance Sheet as at 31 March 2016;
• the Company Statement of Changes in Equity for the year then ended; and
• the notes to the financial statements, which include a summary of significant accounting policies and other
explanatory information.
The financial reporting framework that has been applied in the preparation of the financial statements is United Kingdom
Accounting Standards, comprising FRS 101 “Reduced Disclosure Framework”, and applicable law (United Kingdom
Generally Accepted Accounting Practice).
In applying the financial reporting framework, the Directors have made a number of subjective judgements, for example
in respect of significant accounting estimates. In making such estimates, they have made assumptions and considered
future events.
Opinion on other matter prescribed by the Companies Act 2006
In our opinion, the information given in the Strategic Report and the Directors’ Report for the financial year for which the
financial statements are prepared is consistent with the financial statements.
Other matters on which we are required to report by exception
Adequacy of accounting records and information and explanations received
Under the Companies Act 2006 we are required to report to you if, in our opinion:
• we have not received all the information and explanations we require for our audit; or
• adequate accounting records have not been kept by the company, or returns adequate for our audit have not been
received from branches not visited by us; or
• the financial statements are not in agreement with the accounting records and returns.
We have no exceptions to report arising from this responsibility.
Directors’ remuneration
Under the Companies Act 2006 we are required to report to you if, in our opinion, certain disclosures of Directors’
remuneration specified by law are not made. We have no exceptions to report arising from this responsibility.
85
INDEPENDENT AUDITORS’ REPORT
TO THE MEMBERS OF REDCENTRIC PLC
REPORT ON THE COMPANY FINANCIAL STATEMENTS – CONTINUED
Responsibilities for the financial statements and the audit
Our responsibilities and those of the Directors
As explained more fully in the Statement of Directors’ Responsibilities set out on page 34, the Directors are responsible for
the preparation of the financial statements and for being satisfied that they give a true and fair view.
Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and
International Standards on Auditing (UK and Ireland) (“ISAs (UK & Ireland)”). Those standards require us to comply with the
Auditing Practices Board’s Ethical Standards for Auditors.
This report, including the opinions, has been prepared for and only for the company’s members as a body in accordance
with Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept
or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it
may come save where expressly agreed by our prior consent in writing.
What an audit of financial statements involves
We conducted our audit in accordance with ISAs (UK & Ireland). An audit involves obtaining evidence about the amounts
and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from
material misstatement, whether caused by fraud or error. This includes an assessment of:
• whether the accounting policies are appropriate to the company’s circumstances and have been consistently applied and
adequately disclosed;
• the reasonableness of significant accounting estimates made by the Directors; and
• the overall presentation of the financial statements.
We primarily focus our work in these areas by assessing the Directors’ judgements against available evidence, forming our
own judgements, and evaluating the disclosures in the financial statements.
We test and examine information, using sampling and other auditing techniques, to the extent we consider necessary
to provide a reasonable basis for us to draw conclusions. We obtain audit evidence through testing the effectiveness of
controls, substantive procedures or a combination of both.
In addition, we read all the financial and non-financial information in the Annual Report to identify material inconsistencies
with the audited financial statements and to identify any information that is apparently materially incorrect based on, or
materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any
apparent material misstatements or inconsistencies we consider the implications for our report.
Other matter
We have reported separately on the Group Financial Statements of Redcentric plc for the year ended 31 March 2016.
Arif Ahmad (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP,
Chartered Accountants and Statutory Auditors, Leeds, 16 June 2016
86
REDCENTRIC PLC
COMPANY BALANCE SHEET
AS AT 31 MARCH
Fixed assets
Investments
Current liabilities
Creditors – amounts falling due within one year
Net current liabilities
Net assets
Capital and reserves
Called up share capital
Share premium account
Profit and loss account
Total shareholders’ funds
Note
2016
£000
2015
£000
2
3
4
100,056
98,720
(9,198)
(9,198)
(4,392)
(4,392)
90,858
94,328
146
63,667
27,045
90,858
145
62,668
31,515
94,328
The notes on pages 89 to 93 are an integral part of these financial statements. The financial statements on pages 87 to 93
were approved by the Board on 16 June 2016 and are signed on its behalf by:
Fraser Fisher, Director
Tim Coleman, Director
87
COMPANY STATEMENT OF CHANGES
IN EQUITY
Called up share
capital
£000
144
-
1
-
Share
premium
£000
Retained
earnings
£000
Total
equity
£000
62,055
33,000
95,199
-
613
-
145
62,668
-
1
-
-
999
-
146
63,667
1,403
-
(2,888)
31,515
1,336
-
(5,806)
27,045
1,403
614
(2,888)
94,328
1,336
1,000
(5,806)
90,858
At 31 March 2014
Transactions with owners:
Share based payments (SBP)
Share issues less costs
Dividends
At 31 March 2015
Transactions with owners:
Share based payments (SBP)
Share issues less costs
Dividends
At 31 March 2016
88
NOTES TO THE COMPANY FINANCIAL
STATEMENTS
1 Accounting policies (FRS 101)
Redcentric plc has taken advantage of the exemption provided under Section 408 of the Companies Act 2006 not to
disclose the Company profit and loss account. Redcentric plc has taken advantage of the exemption provided under
Section 404 of the Companies Act 2006 not to disclose the Company statement of cash flows. The result of the Company
for the year was £nil (2015: £nil).
Redcentric plc is a public limited company incorporated and domiciled in England and Wales, whose shares are publicly
traded on the AIM division of the London Stock Exchange. Redcentric plc was incorporated on 11 February 2013, and
admitted to AIM on 24 April 2013.
The principal accounting policies, which have been applied consistently throughout the year in the preparation of the
financial statements:
(a) Basis of accounting
The financial statements have been prepared under the historical cost convention in accordance with the Companies Act
2006 and applicable accounting standards in the United Kingdom.
(b) Basis of preparation
The financial statements have been prepared on a going concern basis in accordance with FRS 101.
The Directors have assessed going concern for the Company, taking into account that it operates as part of the
Redcentric plc Group.
On 1 April 2015 the Group entered into new banking facilities, which run until 2 April 2020. A high proportion of the Group’s
revenue is recurring in nature, which provides good visibility of future cash flows. The present cash flow forecasts indicate
that the Group will be able to operate within the present banking facilities for at least 12 months from the date of approval
of these financial statements. For these reasons the Directors believe the going concern basis to be appropriate.
(c) Investments in subsidiaries
Investments are initially recognised at cost, being the fair value of the consideration given. The carrying value of investments
is reviewed for impairment if events or changes in circumstances indicate that the carrying value may not be recoverable.
(d) Current tax
Current tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation
authorities, based on tax rates and laws that are enacted or substantively enacted by the balance sheet date.
89
NOTES TO THE COMPANY FINANCIAL
STATEMENTS
CONTINUED
(e) Foreign currencies
The functional and presentation currency of Redcentric plc is Pounds Sterling.
Transactions in foreign currencies are initially recorded in the functional currency by applying the rate of exchange ruling
at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the
functional currency rate of exchange ruling at the balance sheet date. All differences are taken to the profit and loss.
(f) Employees and Directors emoluments
The Company had no employees during the period. The Directors emoluments are paid by other Group entities. Their
remuneration is disclosed in this annual report.
2 Investments
Investments in subsidiaries
Capital contribution related to share-based payments for subsidiaries
As at 31 March 2016, the Company had the following subsidiary undertakings:
2016
£000
98,720
1,336
100,056
2015
£000
96,062
2,658
98,720
Principal activity
Country of incorporation
% Ordinary share
capital owned
Held directly by Redcentric plc
Redcentric Holdings Limited
Redcentric Solutions Limited
Held indirectly
Holding company
England and Wales
Managed Services
England and Wales
Redcentric Solutions Private Limited
Support services
India
Redcentric MS Limited
Dormant*
England and Wales
Redcentric Managed Solutions Limited
Dormant*
England and Wales
Redcentric Communications Limited
Dormant*
England and Wales
Hotchilli Internet Limited
Redcentric US Limited
Calyx Managed Services Limited
City Lifeline Limited
Dormant*
England and Wales
Dormant
Dormant
Dormant
USA
England and Wales
England and Wales
City Lifeline Data Centre Limited
Dormant*
England and Wales
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
* The companies marked with an asterisk are exempt from filing audited accounts under s394A of the Companies Act 2006 as they have been dormant
throughout the period.
90
The Company does not have any associate operations.
3 Creditors – amounts falling due within one year
Amounts owed to subsidiaries
2016
£000
2015
£000
9,198
4,392
Amounts due to Group undertakings are unsecured, interest-free and have no fixed payment terms.
4 Called up share capital
Ordinary shares of 0.1p each
2016
Number
2016
£000
2015
Number
Allotted, called up and fully paid share capital
Issued during the year
At 31 March
1,152,277
145,881,185
1
146
817,794
144,728,908
2015
£000
1
145
Ordinary shareholders have the right to attend, vote and speak at meetings, receive dividends, and receive a return on
assets in the case of a winding up.
Share issues
During the year the following shares were issued:
Issued on the exercise of share options
Issued on the exercise of warrants
Total
2016
Number
354,251
798,026
1,152,277
2015
Number
291,000
526,794
817,794
The shares issued on the exercise of warrants relate to 1,381,055 warrants issued to certain shareholders (“Cornerstone
Investors”) on 6 December 2013 in connection with early stage commitment to raise equity to fund the acquisition of IMS.
The warrants issued to the Cornerstone Investors have all either been exercised or have lapsed.
As at 31 March 2016 the Company had a total of 350,000 warrants in issue with an exercise price of 36p. The warrants were
issued to Barclays Bank PLC on demerger in April 2013 in exchange for warrants previously held in Redstone Plc, and can be
converted to shares at any time before the sale of the entire share capital of the Company.
91
NOTES TO THE COMPANY FINANCIAL
STATEMENTS
CONTINUED
5 Auditors’ remuneration
The Company audit fee is £24,000 (2015: £20,000). This fee was borne by another Group company.
6 Related parties
The Group has taken exemption not to disclose transactions with entities wholly-owned by the Group.
Directors’ emoluments are disclosed in the Remuneration Report.
MXC Capital
The Group has engaged MXC Advisory LLP to provide corporate finance advice and consultancy. MXC Advisory LLP is
owned by MXC Capital Limited (“MXC”), which is an AIM quoted merchant bank specialising in investing in technology
companies. MXC is a shareholder in Redcentric plc and has options over the ordinary shares of Redcentric plc (as disclosed
below) and therefore its interests are aligned with Redcentric plc’s other shareholders. Tony Weaver, a Director of Redcentric
plc, has an interest in MXC. Under the terms of the agreement, a fee representing a maximum of 2.5 per cent. of the
enterprise value of successful transactions consulted upon is payable by the Company to MXC.
During the year, fees of £497,124 were paid to MXC (£2015: £224,000), which included £137,629 (2015: £204,000) for Tony
Weaver’s Director’s fees, £59,495 (2015: £20,000) for the provision of corporate finance advice, and £300,000 (2015: £nil) for
advisory fees in respect of the acquisition of Calyx. The acquisition of Calyx from MXC on 10 April 2015 for an Enterprise
Value of £12.0m was a related party transaction.
As at 31 March 2016 MXC has the following interest in shares and options over ordinary shares in the Company:
Quantity
Grant date
Exercise price
Expiry date
Ordinary shares
Options (a)
Options (b)
5,849,108
1,692,988
7,000,000
-
18 April 2013
15 November 2013
-
32p
80p
-
18 April 2023
15 November 2023
(a) the performance conditions with respect to 564,330 of these options have been met, and the options have fully vested.
There is a performance condition in respect of 1,128,658 options linked to the occurrence of a qualifying transaction that
will deliver a predefined return to shareholders. 846,494 of the options are held by Tony Weaver as a Trustee under a
Declaration of Trust, the beneficiary of which is MXC Capital Ltd.
(b) The options have a performance condition which allows the option to be exercised if the average mid-market closing
price of the shares for the preceding 10 working days at any point after 15 November 2016 is greater than 112.4p.
92
Other
There were no other transactions with related parties in the year to 31 March 2016 other than as described in note 29 of the
Group Financial Statements.
During the year ended 31 March 2015, a subsidiary of the Group was party to a lease agreement relating to Redcentric
House, Banters Lane Trading Estate, Chelmsford, and paid rental and service charge payments of £124,000 to Moreland
Limited, a company which Fraser Fisher is a Director and shareholder of. The company terminated the lease agreement on
31 March 2015, and paid £153,000 in respect of a contractual liability for dilapidations.
The balances outstanding at 31 March 2016 in respect of related parties was £20,000 payable to MXC.
93
REGISTRARS
Capita Registrars
The Registry
34 Beckenham Road
Beckenham
Kent BR3 4TU
AUDITORS
PricewaterhouseCoopers
33 Wellington Street
Leeds LS1 4JP
PRINCIPAL BANKERS
Barclays Bank PLC
Churchill Place
Canary Wharf
London E14 5RB
COMPANY NUMBER
08397584
ADVISERS
COMPANY SECRETARY
Tim Coleman
REGISTERED OFFICE
Central House
Beckwith Knowle
Harrogate HG3 1UG
NOMAD AND JOINT BROKER
Numis Securities Limited
The London Stock
Exchange Building
10 Paternoster Square
London EC4M 7LT
JOINT BROKER
finnCap Ltd
60 New Broad Street
London EC2M 1JJ
FINANCIAL PR
Tulchan Communications LLP
85 Fleet Street
London EC4Y 1AE
SOLICITORS
DAC Beachcroft LLP
100 Fetter Lane
London EC4A 1BN
94
95
HARROGATE (HEAD OFFICE)
Central House
Beckwith Knowle
Harrogate HG3 1UG
LONDON DATA CENTRE
Lifeline House
80 Clifton Street
London EC2A 4HB
READING
3-5 Worton Drive
Reading
RG2 0TG
LONDON
John Stow House
18 Bevis Marks
London
EC3A 7JB
CAMBRIDGE
Newton House
Cambridge Business Park
Cowley Road
Cambridge
CB4 0WZ
HYDE
Unit B, SK14 Industrial Park
Broadway
Hyde SK14 4QF
THEALE
2 Commerce Park
Brunel Road
Theale, Reading
RG7 4AB
INDIA
405-408 & 410-412
Block II, 4th Floor
White House
Kundan Bagh, Begumpet
Hyderabad 500016
CALL 0800 983 2522
EMAIL info@redcentricplc.com
VISIT www.redcentricplc.com