REDCENTRIC
REPORT & ACCOUNTS 2017
2
Redcentric | Report and Accounts 2017
CONTENTS
Chairman’s Statement
Operational Review
Financial Review
Directors’ Profiles
Corporate Governance
Directors’ Remuneration Report
Strategic Report
Directors’ Report
Statement of Directors’ Responsibilities
Independent Auditor's Report
Consolidated Income Statement
Consolidated Statement of Comprehensive Income
Consolidated Statement of Changes in Equity
Consolidated Statement of Financial Position
Consolidated Cash Flow Statement
Notes to the Consolidated Financial Statements
Company Balance Sheet
Company Statement of Changes in Equity
Notes to the Company Financial Statements
4-5
6-8
9-14
16-18
19-22
23-25
26-27
28-30
31
32-33
34
35
36
37
38
39-84
85
86
87-90
3
Redcentric | Report and Accounts 2017 CHAIRMAN’S STATEMENT
The year has been challenging, following the Company’s disclosure in November concerning the
financial misstatements arising from past periods and the subsequent release of interim results in
December 2016. Despite these events, our clients and employees have remained loyal and focused,
thus ensuring that the business has continued to provide reliable services and report results in line
with revised expectations.
Jon brings additional financial
experience to the Board while
Stephen brings a wealth of industry
experience.
These changes create a strengthened
Board which is important for the
long term outlook of Redcentric.
Furthermore, under Peter
Brotherton’s stewardship, the Finance
Team has also been significantly
reinforced to ensure the challenges of
this year cannot happen again.
A great deal of work has been carried
out in the period. We have made
a number of key appointments to
ensure the ongoing strengthening
and resilience of our financial
management team, its processes,
structure and all adjacent activities.
While we continue to reinforce these
activities, the overall operation of
the group has largely returned to
business as normal.
Board and employees
I would like to place on record
my sincere thanks to all of our
employees. Despite the distractions
and challenges of the events from the
past few months, they have carried on
their work with great dedication. This
has meant that we have continued to
provide our clients with the support
they rightly expect.
Summary trading results
The revenue for the year was
£104.6m. Operating loss for the year
was £(3.0)m and adjusted EBITDA*
was £17.3m, resulting in an adjusted
EBITDA margin of 16.5%. Adjusted
basic EPS was 4.45p with a statutory
EPS loss of (1.60)p.
Prior year restatements
As a result of the scale of the
restatements to the comparative
numbers and the qualification of
the audit report on the 2016 Income
Statement of the Group, we have not
sought to comment on comparative
trading performance figures.
During the second half of the year a
number of changes have occurred
to the Board. Tony Weaver resigned
from the Board as Non-Executive
Director on 1 November 2016.
Tim Coleman resigned from the
Board as Chief Financial Officer on
7 November 2016.
On 23 November 2016 the Company
announced the appointment of
Peter Brotherton ACA as Chief
Financial Officer, Company Secretary
and a Director of the Board. Peter has
over 25 years’ experience across a
number of senior roles. Jon Kempster
joined the Board as a Non-Executive
Director on 10 January 2017 and
Stephen Vaughan also joined the
Board as a Non-Executive Director
post year end on 13 June 2017.
4
Redcentric | Report and Accounts 2017 There remains significant opportunity
for the Company to continue to
establish itself as a market leader.
We see no change in our clients’
operational and strategic needs
being matched by the delivery of
our reliable and innovative services.
Therefore the Board is confident that
the Group will put this difficult period
behind it and progress to improve
Shareholder value.
Chris Cole
Non-Executive Chairman
26 July 2017
Dividend
While the Group remains cash
generative, the Board has decided
that it is not appropriate to pay a
dividend in respect of the year ended
31 March 2017. The Board will review
this situation on an ongoing basis.
Outlook
It is appropriate to register our thanks
for the support provided to the
Group by our banks and advisers.
The Board is mindful that this has
been an equally difficult period for
Shareholders and their ongoing
support has been appreciated.
We have a strengthened Board
and Management Team who are
absolutely focused on ensuring
Redcentric has a sustainable and
successful long term future. Our
strong contract base and recurring
nature of our business provides
a solid platform for ongoing
performance and growth.
* Adjusted EBITDA is defined as earnings before interest, tax, depreciation, amortisation of acquired intangibles, non-recurring costs and
share based payments.
5
Redcentric | Report and Accounts 2017 OPERATIONAL REVIEW
Overview
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. We are taking
the necessary actions, following
the accounting misstatements, to
strengthen the business. While
the business has had a turbulent
period, we have weathered the storm
and can now return to business as
usual, focussing on sales growth
and high quality customer services.
The underlying business is strong,
sustainable and well positioned for
the future.
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
as well as the technology to deliver
critical services to our customers.
6
We maintain very high levels of
accreditation, and undergo rigorous
audits from a range of external and
government bodies throughout
the year.
• Security We help protect customers
from deliberate malicious attacks,
or unintentional security threats
from unauthorised devices and a
range of other threats.
The data centres are connected
to our own fully resilient national
network, providing coverage and
access across the UK. From this
strong base of owned managed
infrastructure we are able to offer
a wide range of IT managed cloud,
communications and connectivity
services including;
• 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.
• Connectivity 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.
• Applications Services We provide
packaged solutions for many
sectors as well as application
management services from legacy
to current architecture.
• 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
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, while
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.
Redcentric | Report and Accounts 2017 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 the Financial
Review. We focus particularly on
recurring revenue, which was £90.2m
(86.2% of total revenue for the year).
Despite the challenges we have faced
through the year with regard to our
financial misstatements of previous
periods, it is important to note that
we have continued to be asked to
tender for business, have clients
renew contracts and win new clients.
We continue to generate growth
by winning new business from both
existing clients and new names.
The ratio remains healthy with 65%
of our new wins coming from cross
sell to existing customers and 35%
coming from brand new clients. The
sales performance throughout the
year was strong, with internal sales
targets being achieved and 88 new
names added to the client list. Some
significant wins include:
• Public Healthcare Sector: a £3.4m
new business win delivering
network services
• Private Healthcare Sector: a £2.9m
Strategy
five-year contract cross-sell to
provide Cloud services
• Public Sector: a £3.8m two-year
contract renewal for Cloud services
• Public Sector: a £2.4m two year
contract renewal
We continue to believe that
ownership of our own cloud,
communications and connectivity
infrastructure allow us to provide our
clients with the peace of mind that
they need as they continue to look
externally for the delivery of core
IT services.
In addition we have invested heavily
in ISO accreditation covering many
fields including service management,
business continuity and security,
ensuring that our high quality team
of people deliver a demonstrably
exemplary service.
Acquisitions
Whilst there were no acquisitions this
year, City Lifeline Ltd was acquired
in January 2016 with the integration
now complete and the data centre
“on-net”. The Shoreditch location
provides ample data centre space. It
also provides additional office space
allowing for the consolidation of our
London locations into a single site.
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. 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.
Our strategy for future growth
is simple;
• We will continue to win new
customers, sell more to existing
customers and renew our existing
customer contracts.
• We will continue to invest in
developing and enhancing our
own infrastructure so that we can
provide our customers with the
very highest levels of security and
service.
• 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.
7
Redcentric | Report and Accounts 2017 While being very aware of the impact
from this past year for Redcentric’s
shareholders, the Board does believe
that the business has a positive long
term outlook.
Fraser Fisher
Chief Executive Officer
26 July 2017
OPERATIONAL REVIEW
CONTINUED
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.
People
Redcentric’s success has always been
dependent on the hard work and
dedication of its employees in both
the UK and India. Staff numbers
have increased this year to 541, with
around 150 being located in our
Hyderabad office. We have invested
in additional space in both our
Harrogate and Hyderabad offices to
support the business. We are also
investing in our Shoreditch location
to allow the closure of our other
London office.
Our Save-As-You-Earn share-
save plan has been in place since
December 2014 and the Company
plans to launch a third round later
this year to include our staff based
in India for the first time. 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.
Outlook
A huge amount of work has been
carried out to ensure the challenges
of this year will not happen again.
Significant investment in our
finance department has materially
strengthened the personnel and
systems in place. The addition of the
new back office system toward the
end of the financial year will cement
into place a solid scalable back
office platform. The board has been
strengthened both by the addition of
a new Chief Financial Officer and two
experienced Non-Executive Directors.
The team at Redcentric remain
dedicated and loyal which is key
within a people business. Client
loyalty has also been very positive.
This has been demonstrable in both
contract renewal and cross sell wins.
The Company has also benefitted
from 88 new name customer wins
throughout the year demonstrating
the appeal of the Company’s market
offering. The sales team delivered
their target last year and the current
pipeline remains healthy. Redcentric
is a good business with solid market
potential underpinned by a robust
contract base.
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Redcentric | Report and Accounts 2017
FINANCIAL REVIEW
Summary of results
A summary of the Group’s financial performance is shown below.
Revenue
Loss from operations
Basic and Diluted earnings per share
Dividend (p)
Adjusted financial performance measures
Adjusted EBITDA
Adjusted EBITDA margin
Adjusted profit from operations
Adjusted Basic earnings per share
Adjusted Diluted earnings per share
Other key performance indicators
Net debt (including finance leases)
Operating cash flows to adjusted EBITDA
Accounting misstatements
2017
£000
104,623
(2,995)
(1.60p)
0p
17,273
16.5%
8,250
4.45p
4.32p
£39.5m
54.7%
Net assets and net debt
Following an internal review by the Company’s Audit Committee in relation to the interim results for the six months
ended 30 September 2016, materially misstated accounting balances in the Group’s balance sheet were discovered.
The Board acted promptly and appointed Deloitte and CMS Cameron McKenna Nabarro Olswang LLP to carry out an
independent forensic review. The majority of misstatements arose in the group’s main subsidiary, Redcentric Solutions
Limited. The forensic review found that both net assets and net debt as at 31 March 2016 had been materially misstated.
The misstatements arose due a combination of wilful misstatement and poor application of basic accounting controls
and processes. The investigation did not find any evidence of theft.
The review found that net assets as at 31 March 2016 had been overstated by £14.9m (subsequently revised to £15.8m as
per note 28). A number of accounting policies and practices, specifically those in respect of cost accrual, cost deferment
and revenue recognition had been incorrectly applied.
Net debt at 31 March 2016 had been understated by £12.5m. The forensic review uncovered misstatements regarding
the timing of cash receipts and cash payments. Cash receipts from customers received post year end had been
incorrectly recorded as having been received pre year end and cash payments to suppliers pre year end had been
incorrectly recorded as being made post year end.
9
Redcentric | Report and Accounts 2017 FINANCIAL REVIEW
CONTINUED
In addition to the accounting errors and misstatements, supplier payments had been very significantly delayed in order
to present a better net debt position (cash flows and net debt below).
Income statement prior year comparative figures
The scale and complexity of the misstatements, along with the length of time over which the misstatement occurred,
meant that the forensic review took a significant time to complete and a level of judgement was applied to the allocation
of profit reduction over a number of accounting periods. The forensic review focused on the 30 September 2016 and
31 March 2016 balance sheets and additional work was undertaken by the Company to analyse and attribute the
accounting misstatements back to 31 March 2015.
Whilst the audits of the subsidiary companies had been completed, the statutory accounts for the year ended 31 March
2016 were not filed at the same time as the Redcentric plc group accounts. Given the material misstatements discovered,
the Group’s subsidiary accounts had to be re-audited by the predecessor auditor, PwC. This was a very time consuming
exercise and was completed when the subsidiary accounts were drawn up again and filed with Companies House on
28 April 2017. Whilst all of the Group’s subsidiaries received unqualified audit reports on the Statements of Financial
position, the Statement of Comprehensive income of Redcentric Solutions Limited received a qualified opinion as the
company’s former auditors, PwC, were unable to form an opinion within reasonable timescales. The directors took
the view that the time and cost of the further investigations necessary to provide sufficient audit evidence would be
disproportionate, and this conclusion also applies to the comparative consolidated Statement of Comprehensive Income
within these financial statements, leading to a qualified opinion being issued by KPMG.
As a result of the scale of the restatements to the comparative numbers and the qualification of the audit report on the
2016 income statement, we have not sought to comment on comparative trading figures.
Remedial plan
The forensic review identified a number of process and control failings which required prompt rectification action.
Significant progress has been made in improving the financial control environment post the forensic review:
• The finance team has been significantly strengthened in terms of numbers, experience and capability.
• Significantly enhanced financial controls have been applied across the business.
• Clear cash cut off policies are rigorously applied.
•
The replacement of the multiple legacy back office systems is underway and a fully integrated Microsoft platform will
be implemented by the start of the next financial year.
10
Redcentric | Report and Accounts 2017 Bank refinancing
As a result of the accounting misstatements, the Group’s historical financial results had to be restated and this meant that
previously reported banking covenant ratios had been breached.
The Group received covenant waivers for the historical breaches from its Banking Syndicate (Barclays, NatWest and
Lombard) and a revised facilities agreement was signed on 27 April 2017.
The revised facilities agreement was broadly in line with the original agreement save with an increased margin.
Financial Conduct Authority investigation
On 17 March 2017, the Financial Conduct Authority (“FCA”) notified Redcentric that it had commenced an investigation
in connection with the Company’s publication of accounting information and other announcements concerning
its financial position. This followed the completion of an independent forensic review commissioned by the Board
of Redcentric.
Redcentric is co-operating fully with the FCA and other relevant authorities concerning this matter.
Acquisitions and amortisation of intangibles
No acquisitions were undertaken during the year. In relation to the previous year’s acquisitions, with the exception of the
City Lifeline Ltd finance function, the Calyx Managed Services Ltd and City Lifeline ltd businesses were fully integrated
into the Group’s principal subsidiary Redcentric Solutions Ltd.
In the year ended 31 March 2017 the Group recorded an amortisation charge of £6.2m against a £6.0m restated charge
in the previous year. The increase in amortisation reflected a full years charge for City Lifeline (2 months in the year ended
31 March 2016).
Capital expenditure and depreciation
Capital expenditure for the year at £8.6m was broadly consistent with the previous year.
The depreciation charge for the year was £7.5m, reflecting the higher levels of capital expenditure in the last two
financial years.
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Redcentric | Report and Accounts 2017 FINANCIAL REVIEW
CONTINUED
Non-recurring items
Non-recurring costs amounted to £5.5m (Restated 31 March 2016: £6.7m) and comprise:
Non-recurring impairment of trade debtor balances
Professional fees associated with the forensic review and Financial Conduct Authority
(FCA) investigation
Integration and restructuring costs
Vacant property provisions
Disposal of City Fibre network
Settlement of supplier claims
2017
£000
2,933
1,291
658
385
207
5,474
2016
Restated
£000
-
-
3,028
1,698
-
1,954
6,680
The accounting irregularities experienced at the start of the financial year resulted in inadequate credit management
during part of the year, causing a significant build-up of overdue and uncollected debt. This together with a
reassessment of the basis for credit risk provisioning has resulted in one-off credit losses of £2.9m being recorded during
the year ended 31 March 2017.
A non-recurring charge of £1.3m was incurred in respect of professional fees paid to Deloitte and CMS Cameron
McKenna Nabarro Olswang LLP relating to the forensic exercise and FCA investigation.
Integration and restructuring costs relate primarily to the final operational integration of the City Lifeline and
Calyx businesses.
During the year, the Birmingham and Hoddesdon offices were vacated and this led to a vacant property charge of £0.4m
in the year.
During the year the Group disposed of its fibre network to City Fibre Limited and this resulted in an exceptional charge
of £0.2m in respect of the loss on disposal and legal fees.
The settlement of supplier claims resulted from a software licence audit in respect of prior years.
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Redcentric | Report and Accounts 2017
Cash flows / Net debt
A summary of the cash flows for the year are as follows:
Cash flows from operating activities
Operating cash flow before non-recurring costs and movements in working capital
Working capital movements
Non-recurring costs
Corporation tax received
Net cash inflow from operating activities
Cash flows from investing activities
Proceeds on disposal of property, plant and equipment
Purchase of property, plant and equipment
Net cash outflow from investing activities
Cash flows from financing activities
Dividends paid to shareholders
Interest paid
Repayment of borrowings
Drawdown on revolving credit facility
Proceeds of issue of shares less costs of issue
Net cash inflow from financing activities
Net increase (decrease) in cash and cash equivalents
Opening cash and cash equivalents (as restated)
Net increase (decrease) in cash and cash equivalents
Effect of exchange rates
Cash and cash equivalents
2017
£000
17,273
(7,831)
(3,159)
71
6,354
5,000
(6,744)
(1,744)
(4,406)
(1,209)
(2,435)
10,000
1,731
3,681
8,291
(3,970)
8,291
19
4,340
The cash flow statement is dominated by the £9.6m catch up in creditor balances. The delayed payments included trade
creditors and payroll creditors. Post the forensic review, the Group has had a policy of paying its suppliers in accordance
with their terms and this explains the £9.6m cash outflow.
13
Redcentric | Report and Accounts 2017 FINANCIAL REVIEW
CONTINUED
Taxation
The corporation tax charge for the year reflects the offset of available tax trading losses brought forward.
Share based payments
The Group recorded a charge for share based payments during the year of £1.1m. Of this amount, £0.5m related to staff
schemes and £0.6m to historic options. The staff charge for the year declined largely as a result of options lapsing due to
leavers.
EPS
The statutory basic and diluted earnings per share (“EPS”) in the year was (1.60)p. 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 non-recurring costs, and applies a normalised tax charge. Adjusted basic EPS was 4.45p with
adjusted diluted EPS 4.32p.
Dividends
During the year Redcentric returned £4.4m to shareholders in the form of dividends. Whilst the Group remains cash
generative, the Board has decided that it is not appropriate to pay a dividend in respect of the year ended 31 March
2017. The Board will review this situation on an ongoing basis.
Change of Auditor
KPMG were appointed as the Group’s auditors on 15 May 2017.
Peter Brotherton
Chief Financial Officer
26 July 2017
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Redcentric | Report and Accounts 2017 OUR EXPANDED NETWORK OPERATIONS CENTRE
HEAD OFFICE, CENTRAL HOUSE, HARROGATE
15
Redcentric | Report and Accounts 2017 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
engaged 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 and Nomination
Committees and a member of the
Audit Committee, and was the
Senior Independent non-executive
Director to 24 July 2017. David is also
Chairman of Castleton Technology plc.
16
Redcentric | Report and Accounts 2017 Jon Kempster
Independent Non-Executive Director
Stephen Vaughan
Non-Executive Director
Jon Kempster was appointed as a
non-executive Director on 10 January
2017. Jon was until recently the Chief
Financial Officer at Utilitywise, an
AIM listed energy consultancy, and
is currently a Non-Executive Director
of JVM Group, a private company
selling construction equipment in
Russia. Prior to these two roles,
Jon was Chief Financial Officer to
Wincanton plc, the logistics and
distribution group, from 2010 to 2012.
From 2006 to 2010 Jon was Chief
Financial Officer of Delta plc.
Jon is an ACA qualified chartered
accountant and will join the Audit,
Remuneration and Nominations
Committees.
Stephen Vaughan was appointed as
a non-executive Director on 13 June
2017. Through his career, Stephen
has held a number of executive and
non-executive roles focused on the
technology sector. He currently has
two non-executive roles, sitting on
the Board of ECSC plc, the AIM-listed
cyber security services provider, and
Progressive Equity Research, the
paid-for equity research house.
Until 2015, Stephen was Chief
Executive of Phoenix IT plc, the main-
market listed IT Infrastructure Services
business, and since then has been
non-executive director of Mobica,
a software development company,
and Chairman of NetNames, the
internet services and online brand
management company. He has
previously been Chief Executive at
Communisis plc and Synstar plc.
Stephen is a member of the
Remuneration, Audit and Nomination
Committees, and is the Senior
Independent non-executive Director
as of 24 July 2017.
17
Redcentric | Report and Accounts 2017
DIRECTORS’ PROFILES
CONTINUED
EXECUTIVE DIRECTORS
Fraser Fisher
Chief Executive Officer
Peter Brotherton
Chief Financial Officer
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.
Peter Brotherton was appointed
as Chief Financial Officer on 28
November 2016. Peter is a senior
and experienced Chief Financial
Officer with over 25 years' experience
across a number of senior finance
roles. Peter's two previous roles
were as Chief Financial Officer of
Gametech and Chief Financial Officer
at PKR Group.
Prior to those two roles, from 2011
to 2014, Peter was Chief Financial
Officer and then Chief Executive
of Meucci Solutions NV. Meucci
Solutions was an international
telecommunications and managed
services business. During his time at
Meucci Solutions, the business saw
strong sales and EBITDA growth while
also extensively reviewing its central
financial control function.
Peter also had senior finance roles
at Varla (UK) Limited, Cell Structures
Group plc and spent five years at
Kingston Communications plc,
becoming Director of Finance.
Peter trained at KPMG.
18
Redcentric | Report and Accounts 2017 CORPORATE GOVERNANCE
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, Peter Brotherton;
and Non-Executive Directors
David Payne, Jon Kempster and
Stephen Puckett.
Post the year end, Stephen Vaughan
joined the Board as a non-executive
Director.
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.
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 served as the Senior
Independent non-executive Director
throughout the year. David was
replaced as Senior Independent
non-executive Director by Stephen
Vaughan on 24 July 2017.
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.
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.
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. Given the
exceptional year it is the Board’s
intention that all Directors will stand
for election.
Nominations Committee
The Nominations Committee consists
of David Payne (Chairman), Stephen
Puckett, Jon Kempster, Stephen
Vaughan and Tony Weaver (until his
exit date).
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.
19
Redcentric | Report and Accounts 2017 CORPORATE GOVERNANCE
CONTINUED
Remuneration Committee
The Remuneration Committee
consists of David Payne (Chairman),
Stephen Puckett, Jon Kempster and
Stephen Vaughan.
Details of the Committee and its
policies are set out in the Directors’
Remuneration Report on pages 23 to
25. The Committee has formal terms
of reference (available on request
from the Company Secretary).
Audit Committee
The Audit Committee consists of
Stephen Puckett (Chairman), Jon
Kempster, David Payne and Stephen
Vaughan.
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
20
Committee. The executive Directors
are not members of the Committee
but attend the meetings by invitation,
as necessary, to facilitate its business.
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.
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.
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.
Redcentric | Report and Accounts 2017 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.
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.
Stephen Vaughan, 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.
21
Redcentric | Report and Accounts 2017 CORPORATE GOVERNANCE
CONTINUED
Substantial shareholders
As at 31 March 2017 and 30 June 2017 (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:
Coltrane Asset Management LP
Kestrel Partners LLP
Mr John Stanislas Albert Radziwill
Schroder Investment Management
Slater Investments
Mr Richard Griffiths
Commerzbank AG
Eugenia II Investment Holdings
Hargreaves Lansdown Asset Mgt
Hargreave Hale
31 March 2017
Number
31 March 2017
%
30 June 2017
Number
26 May 2017
%
21,231,691
17,001,468
14,909,662
13,348,327
8,954,221
8,542,965
5,975,494
4,746,043
3,265,703
3,253,249
14.26
11.42
10.02
8.97
6.02
5.74
4.01
3.19
2.19
2.19
22,231,961
19,662,913
14,909,662
13,348,237
8,905,307
8,648,435
4,855,859
5,540,495
2,939,756
2,527,794
14.93
13.21
10.02
8.97
5.98
5.81
3.26
3.72
1.97
1.70
22
Redcentric | Report and Accounts 2017 DIRECTORS’ REMUNERATION REPORT
(UNAUDITED UNLESS STATED OTHERWISE)
Remuneration Committee
Basic salary and benefits
Fees
The Remuneration Committee
comprises David Payne (Chairman),
Stephen Puckett, Jon Kempster,
Stephen Vaughan and Tony Weaver
(until his exit date). 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;
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.
iii. a contribution to a private pension
Service contracts
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 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.
23
Redcentric | Report and Accounts 2017 DIRECTORS’ REMUNERATION REPORT
(CONTINUED)
The details of the executive and non-executive Directors’ service contracts are summarised below:
Date of contract
Notice period (months)
Executive Directors
Fraser Fisher
Peter Brotherton
Non-executive Directors
David Payne
Chris Cole
Stephen Puckett
Jon Kempster
Stephen Vaughan
Tony Weaver (resigned November 2016)
112 months in the event of a takeover.
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:
18 April 2013
28 November 2016
19 February 2013
1 September 2014
17 November 2014
10 January 2017
13 June 2017
11 February 2013
12
61
6
6
6
6
6
1
Basic salary,
allowances
and fees
Payment
for loss of
office
Bonus
Benefits
Pension
£000
£000
£000
£000
£000
2017
Total
£000
2016
Total
£000
350
57
170
70
40
40
18
5
750
-
28
-
-
-
-
-
-
-
-
30
-
-
-
-
-
28
30
1
-
-
-
-
-
-
-
1
18
369
429
3
8
-
-
-
-
-
29
88
-
208
310
70
40
40
18
5
838
70
40
40
138
-
1,027
Executive
Fraser Fisher
Peter Brotherton
(Appointed November 2016)
Tim Coleman
(Resigned November 2016)
Non-executive
Chris Cole
David Payne
Stephen Puckett
Tony Weaver (a)
(Resigned November 2016)
Jon Kempster
(Appointed January 2017)
Total
(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 25.
24
Redcentric | Report and Accounts 2017
Share options (audited)
Details of share options in the Company held by the Directors during the year are as follows:
Exercise
price (p)
70
80
107
112
107
nil
32
Fraser Fisher
Tim Coleman
Peter Brotherton
Tony Weaver
(a)
(b)
(c)
(d)
(c)
(e)
(f)
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 earliest vesting date
for the options was 15 November
2016 and they are subject to the
achievement of performance
conditions related to the
achievement of a pre-defined level
of share price growth.
Balance
31 March
2016
761,143
581,968
16,822
1,100,000
16,822
Granted
Exercised
Forfeited /
Expired
Transferred
-
-
-
-
-
485,000
-
-
-
-
-
-
-
-
(1,100,000)
(16,822)
-
-
-
-
-
-
-
-
(846,494)
-
161,905
846,494
-
Balance
31 March
2017
276,143
581,968
16,822
-
-
161,905
-
(f) The options were granted under
the Company’s EMI scheme as
non-qualifying options. These were
transferred to MXC Capital Ltd and
were subsequently exercised in
January 2017.
Share price
The market price of the Company’s
shares on 31 March 2017 was 87p per
share. The highest and lowest market
prices during the year were 200p and
63p respectively.
David Payne
Chairman, Remuneration Committee
On behalf of the Board
26 July 2017
(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. Tim
Coleman’s options lapsed upon his
resignation from the company.
(d) The options were granted under
an unapproved share option
contract, and lapsed when
Tim Coleman resigned from
the company.
(e) The options were granted under
the Company’s Long Term
Incentive Plan (“LTIP”). The
options will vest on 21 June 2019
subject to the achievement of
performance conditions related to
the achievement of a pre-defined
level of share price growth.
25
Redcentric | Report and Accounts 2017
STRATEGIC REPORT
Review of the business
A detailed review of the business is set
out in the Chairman’s Statement on
pages 4 to 5 and in the Operational
Review on pages 6 to 8. The Financial
Review is set out on pages 9 to
14. 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 Group income
statement for the year is set out on
page 34. Operating loss was £3.0m
and adjusted EBITDA* of the Group
for the year was £17.3m.
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, non-recurring costs and share-based payments.
26
Redcentric | Report and Accounts 2017 • 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.
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.
By order of the Board
Peter Brotherton
Chief Financial Officer
26 July 2017
Infrastructure failure
The Directors believe that one of the
key differentiators that 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 also is
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.
27
Redcentric | Report and Accounts 2017 DIRECTORS’ REPORT
The Directors present their annual report together with the audited financial statements for the year ended
31 March 2017.
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 pages 26 to 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
Fraser Fisher
Peter Brotherton (appointed 28 November 2016)
Jon Kempster (appointed 10 January 2017)
Stephen Vaughan (appointed 13 June 2017)
Tony Weaver (resigned 1 November 2016)
Tim Coleman (resigned 6 November 2016)
As at 31 March 2017 the Directors beneficial interests and those of their families in the ordinary share capital of the
Company were as follows:
Fraser Fisher
David Payne
31 March 2017
Number of shares
31 March 2016
Number of shares
106,807
100,626
90,557
100,626
Relevant Directors 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 23 to 25.
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.
28
Redcentric | Report and Accounts 2017 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
5
4
427
436
-
3
102
105
Total
5
7
529
541
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.
29
Redcentric | Report and Accounts 2017 DIRECTORS’ REPORT
CONTINUED
The Group intends to grant options under the plan to eligible employees in future years. As at 31 March 2017,
the following options had been granted under the plan:
Grant date
17 December 2014
14 December 2015
Total
Annual General Meeting
Exercise
price
Options
granted
Options
exercised
Options
cancelled
Options
remaining
107p
154p
985,824
158,529
1,144,353
-
-
-
262,785
70,002
332,787
723,039
88,527
811,566
The Annual General Meeting will be held at 11.00am at CMS Cameron McKenna Nabarro Olswang LLP, Cannon Place,
78 Cannon Street, London EC4N 6AF on 4 September 2017.
Dividend
While the Group remains cash generative, the Board has decided that it is not appropriate to pay a dividend in respect of
the year ended 31 March 2017. The Board will review this situation on an ongoing basis.
Financial risk management objectives and policies
The Company’s financial risk management objectives and policies are described in note 18 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 28.
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.
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.
30
Redcentric | Report and Accounts 2017 STATEMENT OF DIRECTORS’ RESPONSIBILITIES
The Directors are responsible for preparing the Annual Report, the Directors’ Report and the Group and parent company
financial statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare Group and parent company financial statements for each financial
year. As required by the AIM Rules of the London Stock Exchange they are required to prepare the Group financial
statements in accordance with IFRSs as adopted by the EU and applicable law and have elected to prepare the parent
company financial statements in accordance with UK Accounting Standards and applicable law (UK Generally Accepted
Accounting Practice), including FRS 101 the Financial Reporting Standard applicable in the UK and Republic of Ireland.
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 parent company and of their profit or loss for that period. In
preparing each of the Group and parent company financial statements, the Directors are required to:
1. Select suitable accounting policies and then apply them consistently;
2. Make judgements and estimates that are reasonable and prudent;
3. For the Group financial statements, state whether they have been prepared in accordance with IFRSs as adopted by
the EU;
4. For the parent company financial statements, state whether applicable UK Accounting Standards have been followed,
subject to any material departures disclosed and explained in the financial statements; and
5. Prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and
the parent company will continue in business.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the parent
company’s transactions and disclose with reasonable accuracy at any time the financial position of the parent company
and enable them to ensure that its financial statements comply with the Companies Act 2006. They have general
responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent
and detect fraud and other irregularities.
The Directors are responsible for the maintenance and integrity of the corporate and financial information included on
the company’s website. Legislation in the UK governing the preparation and dissemination of financial statements may
differ from legislation in other jurisdictions.
By order of the Board
Peter Brotherton
Company Secretary
26 July 2017
Central House
Beckwith Knowle
Harrogate
HG3 1UG
31
Redcentric | Report and Accounts 2017 INDEPENDENT AUDITOR'S REPORT
TO THE MEMBERS OF REDCENTRIC PLC
We have audited the financial statements of Redcentric plc for the year ended 31 March 2017 set out on pages 34 to
38. The financial reporting framework that has been applied in the preparation of the Group financial statements is
applicable law and International Financial Reporting Standards (IFRSs) as adopted by the EU. The financial reporting
framework that has been applied in the preparation of the parent company financial statements is applicable law and UK
Accounting Standards (UK Generally Accepted Accounting Practice), including FRS 101 Reduced Disclosure Framework.
This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the
Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s members those
matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted
by law, we do not accept or assume responsibility to anyone other than the company and the company’s members, as a
body, for our audit work, for this report, or for the opinions we have formed.
Respective responsibilities of directors and auditor
As explained more fully in the Directors’ Responsibilities Statement set out on page 31, 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). Those standards require us to comply with the Auditing Practices Board’s Ethical
Standards for Auditors.
Scope of the audit of the financial statements
A description of the scope of an audit of financial statements is provided on the Financial Reporting Council’s website at
www.frc.org.uk/auditscopeukprivate
Basis for qualified opinion on financial statements
During the year ended 31 March 2017 the Audit Committee discovered a number of materially misstated balances in the
Group’s accounting records. The Directors commissioned an independent forensic review, which identified a significant
reduction in the previously reported net assets as at 31 March 2016 and 31 March 2015. During the preparation of the
31 March 2017 financial statements, the Directors identified additional misstatements in the previously reported Group
financial statements. Consequently the Group has recognised multiple prior year adjustments, as further explained in
note 28 to the financial statements, thus reducing net assets as at 31 March 2016 and 31 March 2015 by £15,771,000 and
£4,413,000 respectively, and reducing the profit for the year ended 31 March 2016 by £9,451,000.
Certain key individuals no longer work for the Group and the Directors have assessed that further investigation into the
above misstatements would represent a disproportionate cost and effort to the business. As a result, the Directors have
not been able to distinguish whether certain of the adjustments, which in aggregate resulted in a £9,451,000 reduction
in profit and net assets, related to the year ended 31 March 2016 or to prior periods, and consequently the income
statement effect of these adjustments has been recognised wholly within the income statement for the year ended
31 March 2016.
We were appointed as auditors subsequent to the 2016 year end and due to the above circumstances we were unable
to obtain sufficient appropriate audit evidence in relation to these misstatements. Any adjustments would have a
consequential effect on the Group’s profit for the year ended 31 March 2016 and its net assets at 31 March 2015.
32
Redcentric | Report and Accounts 2017 Qualified opinion on financial statements
In our opinion the parent company financial statements:
• give a true and fair view of the state of the parent company’s affairs as at 31 March 2017;
• have been properly prepared in accordance with UK Generally Accepted Accounting Practice; and
• have been prepared in accordance with the requirements of the Companies Act 2006.
In our opinion, except for the possible effect solely on the comparative information for the year ended 31 March 2016
and as at 31 March 2015 of the matters described in the basis for qualified opinion on financial statements paragraph,
the group financial statements:
• give a true and fair view of the Group’s state of affairs as at 31 March 2017 and of its loss for the year then ended;
• have been properly prepared in accordance with IFRSs as adopted by the EU; and
• have been prepared in accordance with the requirements of the Companies Act 2006.
Opinion on other matters prescribed by the Companies Act 2006
In our opinion the information given in the Strategic Report and the Directors’ Report for the financial year is consistent
with the financial statements.
Based solely on the work required to be undertaken in the course of the audit of the financial statements and from
reading the Strategic Report and the Directors’ Report:
• we have not identified material misstatements in those reports; and
•
in our opinion, those reports have been prepared in accordance with the Companies Act 2006.
Matters on which we are required to report by exception
In respect solely of the limitation on our work relating to the comparative Group information for the year ended 31 March
2016 and as at 31 March 2015, described above, we have not obtained all the information and explanations that we
considered necessary for the purpose of our audit.
We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you
if, in our opinion:
•
adequate accounting records had not been kept by the parent company, or returns adequate for our audit have not
been received from branches not visited by us; or
• the parent company financial statements are not in agreement with the accounting records and returns; or
• certain disclosures of Directors’ remuneration specified by law are not made.
John Pass (Senior Statutory Auditor)
for and on behalf of KPMG LLP, Statutory Auditor
Chartered Accountants
1 Sovereign Square
Sovereign Street
Leeds LS1 4DA
27 July 2017
33
Redcentric | Report and Accounts 2017 CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED 31 MARCH
Note
2017
£000
2
104,623
(43,304)
61,319
Restated
2016
£000
102,363
(44,553)
57,810
(64,314)
(62,756)
(2,995)
(4,946)
10
11
5
22
6
8
17,273
(7,507)
(6,207)
(5,474)
(1,080)
(2,995)
14,380
(5,294)
(6,016)
(6,680)
(1,336)
(4,946)
(1,253)
(1,195)
(4,248)
1,870
(2,378)
(6,141)
1,946
(4,195)
9
(1.60)p
(2.89)p
Revenue
Cost of sales
Gross profit
Operating expenditure
Operating Loss
Analysed as:
Adjusted EBITDA*
Depreciation
Amortisation of intangibles
Non-recurring costs
Share-based payments
Finance costs
Loss on ordinary activities before taxation
Tax (charge) /credit on profit on ordinary activities
Loss for the year (attributable to owners of the parent)
Earnings per share
Basic and diluted earnings per share
*Earnings before interest, tax, depreciation, amortisation, non-recurring costs and share-based payments.
The above consolidated income statement should be read in conjunction with the accompanying notes.
34
Redcentric | Report and Accounts 2017
CONSOLIDATED STATEMENT
OF COMPREHENSIVE INCOME
Loss for the year
Exchange differences arising on re-translation of foreign subsidiary
Total comprehensive income
2017
£000
(2,378)
94
(2,284)
Restated
2016
£000
(4,195)
(7)
(4,202)
35
Redcentric | Report and Accounts 2017
CONSOLIDATED STATEMENT OF CHANGES
IN EQUITY
Called up
share capital
Share
premium
Capital
redemption
reserve
Retained
earnings
£000
£000
£000
£000
145
-
145
62,668
(9,454)
41,378
-
-
(4,413)
62,668
(9,454)
36,965
-
-
-
1
-
-
-
-
-
-
999
-
-
-
-
-
-
-
-
-
-
-
-
-
3
-
-
-
-
-
1,728
-
-
-
-
-
-
-
-
146
63,667
(9,454)
27,328
Total
equity
£000
94,737
(4,413)
90,324
(4,195)
(7)
1,000
(5,806)
1,336
(965)
81,687
(2,378)
94
(4,202)
(4,202)
(4,195)
(7)
-
(5,806)
1,336
(965)
(2,378)
94
(2,284)
(2,284)
-
(4,406)
975
(974)
1,731
(4,406)
975
(974)
149
65,395
(9,454)
20,639
76,729
At 31 March 2015 – previously reported
Prior year adjustments
At 31 March 2015 – restated
Loss for the year (restated)
Other comprehensive gain (loss) – before tax
Total comprehensive income for the year
Transactions with owners:
Issue of new shares
Dividends to shareholders
IFRS2 Charge
Deferred tax on SBP
At 31 March 2016
Loss for the year
Other comprehensive gain (loss) – before tax
Total comprehensive income
Transactions with owners:
Issue of new shares
Dividends to shareholders
IFRS2 Charge
Deferred tax on SBP
At 31 March 2017
36
Redcentric | Report and Accounts 2017
Restated
2016
£000
Restated
2015
£000
CONSOLIDATED STATEMENT OF
FINANCIAL POSITION AS AT 31 MARCH 2017
Assets
Non-current assets
Property, plant and equipment
Intangible assets
Total
Current assets
Inventories
Trade and other receivables
Corporation tax receivable
Cash and short term deposits
Total
Total assets
Equity and liabilities
Equity
Called up share capital
Share premium account
Capital redemption reserve
Retained earnings
Total equity
Non-current liabilities
Provisions
Borrowings
Deferred tax liability
Total
Current liabilities
Overdraft
Trade and other payables
Corporation tax payable
Borrowings
Provisions
Total
Total liabilities
Note
10
11
12
13
20
21
16
8
13
14
16
21
2017
£000
21,998
88,725
110,723
234
25,839
369
4,340
30,782
141,505
149
65,395
(9,454)
20,639
76,729
1,207
41,092
2,112
44,411
-
17,247
-
2,779
339
20,365
64,776
26,026
94,191
120,217
429
31,038
531
-
31,998
152,215
146
63,667
(9,454)
27,328
81,687
1,940
31,389
3,110
36,439
3,970
27,407
-
2,378
334
34,089
70,528
23,630
80,503
104,133
-
16,474
-
3,295
19,769
123,902
145
62,668
(9,454)
36,965
90,324
489
9,412
31
9,932
-
20,909
1,518
1,033
186
23,646
33,578
123,902
Total equity and liabilities
141,505
152,215
The notes on pages 39 to 84 are an integral part of these financial statements. The consolidated financial statements of
Redcentric plc (Registration Number 08397584) on pages 34 to 84 were approved by the Board on 26 July 2017 and are
signed on its behalf by: Fraser Fisher, Director
Peter Brotherton, Director
37
Redcentric | Report and Accounts 2017
CONSOLIDATED CASH FLOW STATEMENT
FOR THE YEAR ENDED 31 MARCH
Cash flows from continuing operating activities
Note
Loss before taxation
Net finance expense
Operating loss
Depreciation and amortisation
Non-recurring items
Share based payments
Operating cash flow before non-recurring costs and movements
in working capital
Non-recurring costs and NI on share based payments
Operating cash flow before movements in working capital
Decrease (increase) in inventories
Decrease (increase) in trade and other receivables
(Decrease) increase in trade and other payables
Cash generated from operations
Corporation tax received
Net cash inflow from operating activities
Cash flows from investing activities
Acquisition of subsidiaries net of cash acquired
Proceeds on disposal of property, plant and equipment
Purchase of property, plant and equipment
Net cash outflow from investing activities
Cash flows from financing activities
Dividends paid to shareholders
Interest paid
Repayment of borrowings
Drawdown on revolving credit facility
Proceeds of issue of shares less costs of issue
Net cash inflow from financing activities
Net increase (decrease) in cash and cash equivalents
Opening cash and cash equivalents (as restated)
Net increase (decrease) in cash and cash equivalents
Effect of exchange rates
Cash and cash equivalents
38
2017
£000
(4,248)
1,253
(2,995)
13,714
5,474
1,080
17,273
(3,159)
14,114
196
1,589
(9,616)
6,283
71
6,354
-
5,000
(6,744)
(1,744)
(4,406)
(1,209)
(2,435)
10,000
1,731
3,681
8,291
(3,970)
8,291
19
4,340
2016
£000
(6,141)
1,195
(4,946)
11,310
6,680
1,336
14,380
(5,081)
9,299
(429)
(11,456)
833
(1,753)
(244)
(1,997)
(13,777)
-
(8,158)
(21,935)
(5,806)
(1,127)
-
22,600
1,000
16,667
(7,265)
3,295
(7,265)
-
(3,970)
Redcentric | Report and Accounts 2017
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS YEAR ENDED 31 MARCH 2017
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 27 April 2017 the Group signed a revised 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 cash flow 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.
39
Redcentric | Report and Accounts 2017 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.
40
Redcentric | Report and Accounts 2017 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.
41
Redcentric | Report and Accounts 2017
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS CONTINUED
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 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.
42
Redcentric | Report and Accounts 2017 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
•
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.
43
Redcentric | Report and Accounts 2017 NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS CONTINUED
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.
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.
44
Redcentric | Report and Accounts 2017 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.
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.
45
Redcentric | Report and Accounts 2017 NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS CONTINUED
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.
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. Revenue from the sale of product is recognised upon delivery to
the customer. The costs incurred for this revenue stream match the revenue pattern.
1.21 Other income
Finance income
Income is recognised on an accrual basis using the effective interest method.
46
Redcentric | Report and Accounts 2017 1.22 Non-recurring 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 Non-recurring costs, and
comprise;
(a) Professional fees incurred in sourcing and completing acquisitions and disposals
(b) Professional fees incurred in restructuring and refinancing acquisitions
(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
(g) Other non-recurring costs
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.
47
Redcentric | Report and Accounts 2017 NOTES TO THE CONSOLIDATED FINANCIAL
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS CONTINUED
STATEMENTS CONTINUED
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:
• Impairment of trade debtors The Group tests annually whether trade debtors have suffered any impairment.
A provision for impairment is established when there is evidence of a risk on non-payment, taking in to account ageing,
known post balance sheet corrections, previous losses experienced and general economic conditions.
• 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.
• 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.
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.
1.27 General information and basis of preparation
The Group prepares its annual consolidated financial statements in accordance with International Financial Reporting
Standards (IFRS) and International Financial Reporting Interpretations Committee (IFRIC) interpretations endorsed by
the European Union (EU) and with those parts of the Companies Act 2006 applicable to companies reporting under
IFRS. The consolidated financial information contained within this preliminary announcement is unaudited and has been
prepared under the historical cost convention.
48
Redcentric | Report and Accounts 2017 The financial information included in this preliminary announcement does not include all the disclosures required by
IFRS or the Companies Act 2006 and accordingly it does not itself comply with IFRS or the Companies Act 2006. The
unaudited consolidated financial information in this report has been prepared in accordance with the accounting policies
disclosed in the Group’s 2016 annual report and accounts.
The financial information set out in this announcement does not constitute the Company’s statutory accounts within the
meaning of Section 434 of the companies Act 2006 for the years ended 31 March 2016 or 31 March 2017.
Whilst the financial information for the year ended 31 March 2016 is derived from the statutory accounts for that year,
which have been delivered to the Registrar of Companies, a number of adjustments have been made in respect of
material misstatements to the numbers presented in the Group’s 2016 annual report. These adjustments to the 31 March
2016 annual report, as set out in note 7, will be reported as prior period restatements within the statutory accounts for
the year ended 31 March 2017.
Because of uncertainty as to the extent to which these adjustments relate to the year ended 31 March 2016, or to the
year ended 31 March 2015, or to earlier periods, the annual report for the year ending 31 March 2017 will include a
qualified audit opinion in respect of the comparative income statement and cash flow statement (for the year ended 31
March 2016) and also in relation to the opening balance sheet as at 1 April 2015.
The statutory accounts for the year ended 31 March 2017 will be finalised on the basis of the financial information
presented by the Directors in this unaudited preliminary announcement and will be delivered to the Registrar of
Companies following the Annual General Meeting.
The financial information contained within this preliminary announcement was approved by the Board on 29 June 2017
and has been agreed with the Company’s auditors for release. Selected explanatory notes are included to explain events
and transactions that are significant to an understanding of the changes in financial position and performance of the
Group since the last annual consolidated financial statements which is available on the Group’s investor website.
The preliminary announcement will be published on the Company’s website. The maintenance and integrity of the
website is the responsibility of the directors. The work carried out by the auditors does not involve consideration of these
matters. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may
differ from legislation in other jurisdictions.
2 Segment reporting
IFRS 8 requires operating segments to be identified on the basis of the internal financial information reported to the
Chief Operating Decision Maker (CODM). The Group’s CODM is deemed to be the executive Directors on the Board,
who are primarily responsible for the allocation of resources to segments and the assessment of performance of the
segments. The CODM assess profit performance principally through adjusted profit measures consistent with those
disclosed in the annual report and accounts.
49
Redcentric | Report and Accounts 2017 NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS CONTINUED
Previously the Group has identified the operating segments of the Group as the separate product offerings or markets
in which the Group operates, being recurring, product and service revenue. 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.
During the year, the Board has changed the way in which it reviews the results of the business, such that it now believes
that the Group comprises a single reporting segment being the provision of managed services to customers. Whilst the
Board still reviews revenue streams of the three categories separately, the operating costs and operating asset base used
to derive these revenue streams are the same for all three categories and are presented as such in the Group’s internal
reporting to the CODM.
3 Expenses by nature
Amortisation of acquired intangible assets
Depreciation – owned assets
Depreciation – assets held under finance lease
Share-based payments
Operating lease payments
2017
£000
6,207
5,424
2,082
1,080
2,637
2016
£000
6,016
4,061
1,233
1,336
3,307
Employee benefits expense, excluding share based compensation
25,350
27,516
50
Redcentric | Report and Accounts 2017 4 Auditors’ remuneration
Below are the fees payable to the auditors and their associates:
Audit services – KPMG
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
Audit services – PwC
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
2017
£000
110
115
32
257
2017
£000
-
-
-
-
-
2016
£000
-
-
-
-
2016
£000
30
-
96
54
180
5 Non recurring costs
In accordance with the Group’s policy of separately identifying non-recurring costs, the following charges were
recognised in the year:
Non-recurring impairment of trade debtor balances
Professional fees associated with the forensic review and Financial Conduct Authority
(FCA) investigation
Integration and restructuring costs
Vacant property provisions
Disposal of City Fibre network
Settlement of supplier claims
Total
2017
£000
2,933
1,291
658
385
207
5,474
Restated
2016
£000
-
-
3,028
1,698
-
1,954
6,680
51
Redcentric | Report and Accounts 2017
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS CONTINUED
The accounting irregularities experienced at the start of the financial year resulted in inadequate credit management
during part of the year, causing a significant build-up of overdue and uncollected debt. This together with a
reassessment of the basis for credit risk provisioning has resulted in one-off credit losses of £2.9m being recorded during
the year ended 31 March 2017.
A non-recurring charge of £1.3m was incurred in respect of professional fees paid to Deloitte and CMS Cameron
McKenna Nabarro Olswang LLP relating to the forensic exercise and the FCA investigation and Integration & restricting
costs relate primarily to the final integration of the City Lifeline and Calyx businesses.
The vacant property provision relates solely to the Birmingham and Hoddesdon offices which were vacated during the
year. This resulted in a non-recurring charge of £0.4m
During the year the Group disposed of its fibre network to City Fibre Limited and this resulted in a non-recurring charge
of £0.2m in respect of the loss on disposal and legal fees.
Prior year non-recurring costs relate to the acquisition and integration of Calyx and City Lifeline.
The settlement of supplier claims resulted from a software licence audit in respect of prior years.
6 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
52
2017
£000
1,185
68
1,253
2017
£000
21,449
2,392
428
1,080
25,350
Restated
2016
£000
1,127
68
1,195
Restated
2016
£000
23,150
2,621
409
1,336
27,516
Redcentric | Report and Accounts 2017
Average monthly number of people (including executive Directors) employed:
Operations
Selling and distribution
Administration
Total
These numbers as split as follows:
UK
India
Total
2017
£000
427
81
33
541
2017
£000
386
155
541
2016
£000
376
95
50
521
2016
£000
374
147
521
53
Redcentric | Report and Accounts 2017 NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS CONTINUED
The remuneration of the Directors in respect of the year was as follows:
Basic
salary,
allowances
and fees
Payment
for loss of
office
Benefits
Benefits
Pension
£000
£000
£000
£000
£000
2017
Total
£000
2016
Total
£000
Executive
Fraser Fisher
Peter Brotherton
(Appointed November 2016)
Tim Coleman
(Resigned November 2016)
Non-executive
Chris Cole
David Payne
Stephen Puckett
Tony Weaver
(Resigned November 2016)
Jon Kempster
(Appointed January 2017)
Total
350
57
170
70
40
40
18
5
750
-
28
-
-
-
-
-
-
-
-
30
-
-
-
-
-
28
30
1
-
-
-
-
-
-
-
1
18
369
429
3
8
-
-
-
-
-
29
88
-
208
310
70
40
40
18
5
838
70
40
40
138
-
1,027
(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 25.
54
Redcentric | Report and Accounts 2017
Share options (audited)
Details of share options in the Company held by the Directors during the year are as follows:
Exercise
price (p)
70
80
107
112
107
nil
32
Fraser Fisher
Tim Coleman
Peter Brotherton
Tony Weaver
(a)
(b)
(c)
(d)
(c)
(e)
(f)
Balance
31 March
2016
761,143
581,968
16,822
1,100,000
16,822
Granted
Exercised
Forfeited /
Expired
Transferred
-
-
-
-
-
(485,000)
-
-
-
-
-
-
-
-
-
(1,100,000)
(16,822)
-
-
-
-
-
-
-
-
(846,494)
-
161,905
846,494
-
Balance
31 March
2017
276,143
581,968
16,822
-
-
161,905
-
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 earliest vesting date for the options was 15 November 2016 and they are 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. Tim Coleman’s options lapsed upon his
resignation from the company.
(d) The options were granted under an unapproved share option contract, and lapsed when Tim Coleman resigned from
the company.
(e) The options were granted under the Company’s Long Term Incentive Plan (“LTIP”). The options will vest on 21 June
2019 subject to the achievement of performance conditions related to the achievement of a pre-defined level of share
price growth.
(f) The options were granted under the Company’s EMI scheme as non-qualifying options. These were transferred to
MXC Capital Ltd and were subsequently exercised in January 2017.
Share price
The market price of the Company’s shares on 31 March 2017 was 87p per share. The highest and lowest market prices
during the year were 200p and 63p respectively.
55
Redcentric | Report and Accounts 2017
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS CONTINUED
8 Tax on profit on ordinary activities
(a) Tax on profit on ordinary activities
2017
£000
2016
£000
Current income tax:
Current income tax
Prior year adjustment
Deferred tax:
Origination and reversal of timing differences
– Deferred tax asset: prior year adjustments
– Deferred tax asset: current year
64
38
312
200
Total income tax charge/(credit) reported in the income statement
– Deferred tax liability: current year
(1,983)
(1,870)
– Deferred tax liability: prior year adjustments
(501)
47
(1,914)
677
752
-
(1,508)
(1,946)
(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%
Expenses not deductible for tax purposes
Movement in unprovided tax losses
Prior year adjustments
Effect of tax rate change
Impact of overseas tax rates
2017
£000
(4,248)
(850)
286
(847)
(151)
(318)
10
2016
£000
(6,141)
(1,228)
65
-
(1,237)
454
-
Total income tax charge/(credit) reported in the income statement
(1,870)
(1,946)
(c) Deferred tax
Deferred Tax
Deferred tax liability
Deferred tax asset
Net deferred tax liability at 31 March
56
2017
£000
(7,267)
5,155
(2,112)
2016
£000
(9,751)
6,641
(3,110)
Redcentric | Report and Accounts 2017
d) Deferred tax liability
Opening balance
Acquisition of subsidiaries
Acquired with subsidiaries
Recognised in the income statement
Prior year adjustment
At 31 March
2017
£000
9,751
-
-
(1,983)
(501)
7,267
2016
£000
9,330
1,743
186
(1,508)
-
9,751
Deferred tax liabilities arose in respect of the amortisation of intangible assets recognised on acquisitions made.
(e) Deferred tax assets
India –
deferred tax
asset
Share based
payments
temporary
differences
Tax losses
Property,
plant and
equipment
temporary
differences
Other timing
differences
£000
£000
£000
£000
£000
At 31 March 2016
(restated)
Recognised in the
income statement
Prior year adjustment
Recognised in equity
At 31 March 2017
27
-
-
-
27
947
4,943
76
-
(974)
49
525
(2,743)
-
2,725
724
(800)
2,420
-
2,344
-
(1)
11
-
10
Total
£000
6,641
(200)
(312)
(974)
5,155
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.
The Group has an unrecognised deferred tax asset of £1.1m which relates to trading losses. The deferred tax asset has not
been recognised due to the uncertainty of its ultimate recoverability.
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.
57
Redcentric | Report and Accounts 2017
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS CONTINUED
At Summer Budget 2015, the government announced legislation setting the Corporation Tax main rate (for all profits
except ring fence profits) at 19% for the years starting the 1 April 2017, 2018 and 2019 and at 18% for the year starting
1 April 2020. At Budget 2016, the government announced a further reduction to the Corporation Tax main rate (for all
profits except ring fence profits) for the year starting 1 April 2020, setting the rate at 17%.
The Group has no open tax position at 31 March 2017.
9 Earnings per share
Basic earnings per share has been calculated using loss after tax for the year of £2.4m (2016: £4.2m) and a weighted
average number of shares of 147,026,140 (2016: 145,223,982). The dilutive effect of share options at 31 March 2017
increased the weighted average number of shares to 151,093,267 (2016: 153,314,134).
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:
Statutory earnings
Tax charge / (credit)
Amortisation of acquired intangibles**
Share based payments
Non-recurring costs
Adjusted earnings before tax
Notional tax charge at standard rate of 20%/21%
Adjusted earnings
2017
£000
(2,378)
(1,870)
5,944
1,080
5,474
8,250
(1,650)
6,600
Restated
2016
£000
(4,195)
(1,946)
5,553
1,336
6,680
7,428
(1,560)
5,868
Weighted average number of shares in issue
Weighted dilutive effect of options and warrants in issue
Diluted weighted average number of shares in issue
148,448,225
145,223,982
4,295,881
8,090,152
152,744,106
153,314,134
Statutory diluted and basic earnings per shares
(1.60)p
(2.89)p
Adjusted basic earnings per share
Adjusted diluted earnings per share
**Amortisation charge per P&L
Amortisation of software
Customer contracts and related relationships
4.45p
4.32p
(6,207)
263
(5,944)
4.04p
3.83p
(6,016)
463
(5,553)
The Board feels that the adjusted EBITDA and adjusted EPS measures give a better view of the ongoing performance
of the business as these measures exclude non-recurring costs.
58
Redcentric | Report and Accounts 2017
10 Property, plant and equipment
Cost
At 31 March 2015
Additions
Acquired with subsidiaries
At 31 March 2016
Prior year adjustments
At 31 March 2016 – (Restated)
Additions
Disposals
Exchange differences
At 31 March 2017
Accumulated depreciation
At 31 March 2015
Charge for the year ended 31 March 2016
At 31 March 2016
Prior year adjustments charge
Prior year adjustments re-classification
At 31 March 2016 – (Restated)
Charge for the year ended 31 March 2017
Disposals
Exchange differences
At 31 March 2017
Net book amount
At 31 March 2016 – (Restated)
At 31 March 2017
Network
infrastructure,
equipment,
fixtures and fittings
Leasehold
improvements
£000
£000
Motor
Vehicles
£000
Total
£000
31,422
9,029
2,068
42,519
(3,839)
38,680
8,632
(6,409)
45
30,858
8,968
1,928
41,754
(3,839)
37,915
8,484
(6,364)
45
40,080
40,948
(7,870)
(5,673)
(8,025)
(5,825)
(13,543)
(13,850)
529
665
531
665
(12,349)
(12,654)
(7,176)
1,207
(42)
(7,506)
1,252
(42)
477
61
140
678
-
678
147
-
-
825
(108)
(152)
(260)
2
(258)
(293)
-
-
(551)
(18,360)
(18,950)
420
274
25,566
21,720
26,026
21,998
87
-
-
87
-
87
1
(45)
-
43
(47)
-
(47)
-
-
(47)
(37)
45
-
(39)
40
4
Included in network infrastructure and equipment are assets held under finance leases with a carrying value of £5.2m
at 31 March 2017 (2016: £5.7m). Of the £8.6m fixed assets acquired in the year, £2.5m were funded using finance leases
(2016 Restated: £4.1m).
59
Redcentric | Report and Accounts 2017
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS CONTINUED
11 Intangible Assets
Customer
contracts
and related
relationships
Trademarks
Software &
Licenses
£000
£000
£000
52,614
9,683
-
62,297
-
3
275
-
-
275
-
-
2,062
-
1,900
3,962
738
-
Goodwill
£000
37,691
5,578
-
43,269
-
-
Total
£000
92,973
15,261
1,900
109,803
738
3
Cost
At 31 March 2015 (Restated)
Acquisition of subsidiaries
Additions
At 31 March 2016 (Restated)
Additions
FOREX difference on carrying value
At 31 March 2017
43,269
62,300
275
4,700
110,544
Accumulated amortisation and impairment
At 31 March 2015 (Restated)
Amortisation charge for the year ended
31 March 2016
At 31 March 2016
Impairment
Amortisation charge for the year ended
31 March 2017
At 31 March 2017
-
-
-
-
(8,219)
(120)
(1,257)
(9,596)
(5,493)
(13,712)
-
(5,884)
(60)
(180)
-
(60)
(463)
(1,720)
(6,016)
(15,612)
(263)
(6,207)
(19,596)
(240)
(1,983)
(21,819)
Carrying amount at 31 March 2016 (Restated)
Carrying amount at 31 March 2017
43,269
43,269
48,585
42,704
95
35
2,242
2,717
94,191
88,725
Customer contracts have a weighted average remaining amortisation period of 7 years and 11 months (2016: 8 years and
11 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 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 2018 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.
60
Redcentric | Report and Accounts 2017
In addition to revenue growth, the key assumptions used in the impairment testing were as follows:
• Gross margin percentage of c.60%;
• Pre-tax discount rate of 11.0%; 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 11.0% (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
2017
£000
22,826
(5,576)
17,250
56
5,378
3,155
25,839
2016
£000
29,808
(7,005)
22,803
14
3,797
4,424
31,038
As at 31 March 2017, trade receivables of £5.6m (Restated 2016: £7.0m) 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.
As at 31 March 2017, net trade receivables of £8.3m were past due. 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. Due to
the prior year restatements a comparison is not available.
61
Redcentric | Report and Accounts 2017 NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS CONTINUED
The ageing analysis of trade receivables is as follows:
Days outstanding
1–30 days
31–60 days
61–90 days
91–180 days
Over 180 days
Total
2017
Gross
£000
2017
Provision
£000
2,950
2,220
704
3,277
4,580
13,731
(266)
(532)
(169)
(988)
(3,520)
(5,475)
2017
£000
2,684
1,688
535
2,289
1,060
8,256
In addition to the £5.5m provision against overdue debt there is a further £0.1m provided against debt not yet due.
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 as at 31 March 2017 are as follows:
Balance at the start of the period
Utilisation of impairment provision
Creation of Impairment provision treated as exceptional costs
Creation of impairment provision treated as operating costs*
At 31 March
Due to the prior year restatements a comparison is not available.
2017
£000
7,005
(5,639)
2,933
1,277
5,576
* 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.
62
Redcentric | Report and Accounts 2017
13 Cash and cash equivalents
Cash at bank
Restated
2016
£000
2017
£000
4,340
(3,970)
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
2017
£000
7,483
104
1,591
2,264
5,804
Restated
2016
£000
8,678
1,013
4,292
9,541
3,883
17,246
27,407
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:
Not later than 1 year
After 1 year but not more than 5 years
After 5 years
Total
Land and
Plant and
Land and
Plant and
buildings
machinery
buildings
machinery
2017
£000
2,095
3,040
4,586
9,721
2017
£000
169
102
-
271
2016
£000
2,411
7,078
7,733
17,222
2016
£000
197
92
-
289
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 £2.6m (2016: £3.3m).
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 2017 (2016: £nil).
63
Redcentric | Report and Accounts 2017
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS CONTINUED
16 Borrowings
Non-current
Bank loan
Finance leases
Unamortised loan arrangement fee
Total non-current
Current
Finance leases
Term Loans
Total current
2017
£000
38,000
3,296
(204)
41,092
2,456
323
2,779
Restated
2016
£000
28,308
3,353
(272)
31,389
2,239
139
2,378
At 31 March 2017 the Group was party to £71.0m 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 £6.0m
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.
As part of the loan refinancing the Group’s banking syndicate agreed to waive historical covenant breaches. The
breaches arose due to the restatement of the 2016 accounts and the very significant decrease of trade payables following
the cessation of cash window dressing through delaying payments to suppliers.
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
2017
£000
2017
£000
2016
£000
2016
£000
38,135
34,495
28,674
26,344
Fair values are based on discounted cash flows, using an effective interest rate based on the borrowing rates at 31 March
2017 of 3.4% (2016: 2.15%).
64
Redcentric | Report and Accounts 2017
Finance Leases
Not later than 1 year
After 1 year but not more
than 5 years
Total
Value
2017
£000
2,456
3,296
5,752
17 Financial instruments by category
Present
Finance Future Lease
Present
Finance
Future Lease
Charges
Payments
2017
£000
132
89
221
2017
£000
2,588
3,385
Value
2016
£000
2,237
3,355
5,973
5,592
Charges
Payments
2016
£000
154
239
393
2016
£000
2,391
3,594
5,985
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.
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
Other non-current liabilities
Total
Carrying Value
Fair Value
2017
£000
2017
£000
17,250
17,250
5,434
3,730
4,340
5,434
3,730
4,340
30,754
30,754
7,483
2,367
7,735
43,871
3,319
64,775
7,483
2,367
7,735
43,871
3,319
64,775
Carrying Value
Restated
Fair Value
Restated
2016
£000
22,803
3,811
5,384
-
31,998
8,678
10,554
8,509
37,737
5,050
70,258
2016
£000
22,803
3,811
5,384
-
31,998
8,678
10,554
8,509
37,737
5,050
70,258
65
Redcentric | Report and Accounts 2017
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS CONTINUED
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.
(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 2017 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.
Post the forensic review and the subsequent re-audit of the 2016 subsidiaries and 2017 Group audit, the Board has
adopted a more rigorous and prudent approach to debtor provisioning.
(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.
66
Redcentric | Report and Accounts 2017 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 2017
Borrowings
Finance leases
Trade and other payables
Term loans
At 31 March 2016 (Restated)
Borrowings
Finance leases
Trade and other payables
Term loans
19 Capital risk management
Within 1 year
£000
2,456
7,483
323
-
2,239
8,678
139
1-5 years
£000
38,000
3,296
28,308
3,353
-
Total
£000
38,000
5,752
7,483
323
28,308
5,592
8,678
139
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, non-recurring costs and share-based payments. The Group’s strategy is to maintain the ongoing ratio at
below 2.5x, although the bank facilities can accommodate a higher ratio. The ratio was comfortably below this level
throughout the year, and at 31 March 2017 was 2.2x.
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.
67
Redcentric | Report and Accounts 2017 NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS CONTINUED
20 Called up share capital
At 31 March 2015
New shares issued
At 31 March 2016
New shares issued
At 31 March 2017
Allotted and fully paid
Number
£’000
144,728,908
1,152,277
145,881,185
2,977,988
148,859,173
145
1
146
3
149
The number of shares 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
2017
2016
Number
Number
2,977,988
-
354,251
798,026
2,977,988
1,152,277
As at 31 March 2017 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.
68
Redcentric | Report and Accounts 2017 21 Provisions
At 31 March 2015
Charged /(credited) to Income statement:
Additional provisions created during the year
Used during the year
At 31 March 2016
Used during the year
At 31 March 2017
Vacant
Dilapidations
property
Total
provision
provision
provision
£000
£000
£000
642
33
675
-
(49)
593
(320)
273
1,698
(50)
1,681
(408)
1,698
(99)
2,274
(728)
1,273
1,546
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:
2017
Vacant
2016
Vacant
Dilapidations
property
Total
Dilapidations
property
Total
provision
provision
provision
provision
provision
provision
£000
£000
£000
£000
£000
Current
Non-current
Total
-
273
273
339
934
1,273
339
1,207
1,546
-
593
593
334
1,347
1,681
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.
2017
£000
975
105
1,080
£000
334
1,940
2,274
Restated
2016
£000
1,336
-
1,336
69
Redcentric | Report and Accounts 2017
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS CONTINUED
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
2017
Number of
options
14,230,452
919,048
(2,977,988)
(2,134,095)
10,037,417
2017
WAEP
82.4p
45.7p
58.1p
107.9p
80.5p
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
The weighted average fair value of the options granted in the year ended 31 March 2017 was 45.7p (2016: 154.0p) per
option. During the year ended 31 March 2017 there were new grants of 919,048 options (2016: 163,905 options) which
were issued under the Company’s Long Term Incentive Plan (“LTIP”).
The weighted average remaining contractual life for the share options outstanding at 31 March 2017 is 5 years and
9 months (2016: 7 years and 3 months). The range of exercise prices for options outstanding at the end of the year was
0p 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 2017
Life at
31 March 2017
Number
31 March 2016
Life at
31 March 2016
419,048
2 years, 3 months
-
276,143
7,581,968
500,000
225,000
-
225,000
721,731
88,527
-
6 years, 1 month
6 years, 8 month
1 years, 3 months
6 years, 11 months
-
7 years, 8 months
1 years, 6 months
2 years, 6 months
-
1,692,988
761143
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
10,037,417
5 years, 9 months
14,230,452
7 years, 3 months
0p
32p
70p
80p
84p
102p
112p
117p
107p
154p
70
Redcentric | Report and Accounts 2017
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
2017
Number of
options
276,143
8,951,616
809,658
Outstanding at the end of the year
10,037,417
2017
WAEP
70p
78p
112.1p
80.5p
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
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.
The following table lists the inputs into the model used for the year ended 31 March 2017 and 31 March 2016. No change
has been made to the assumptions used for valuing options granted before 31 March 2014.
Apr
2013
Nov
2013
Mar
2014
Aug
& Nov
2014
SAYE
Dec
2014
SAYE
Dec
2015
LTIP
Dec
2016
Type 1
special
award
Dec
2016
Type 2
special
award
Dec
2016
Option exercise price
Dividend yield (%)
Vesting period (yrs)
Assumed volatility at
date of grant (% p.a.)
Risk-free discount rate
70p
3.0
1-3
80p
102p
117p
107p
154p
3.0
3.6
3.0
2.9 & 2.7
2.3-3.6
0.3-2.7
2.4
3.0
2.1
3.0
0p
3.4
2.5
84p
3.4
1
84p
3.4
2
50%
50%
50%
37% &
36%
34%
27%
46%
46%
46%
0.5-
1.0%
1.1%
0.8-
1.3%
0.8-1.4%
1.0%
1.0%
0.1%
0.1%
0.2
Expected life of option
6.2 yrs
3.6 yrs
3.6 yrs
2.6-3.7 yrs
3.7 yrs
3.7 yrs
2.5 yrs
2.5 yrs
3 yrs
Fair value per option
14.2p –
20.5p
32.6p
40.9p –
46.5p
Share price at grant
64.0p
83.5p
113.5p
32.3p -
41.4p
119.5p –
130.5p
48.8p
44.0p
81.6
27.1
29.1
145.5p
188.0p
87.5
87.5
87.5
71
Redcentric | Report and Accounts 2017
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS CONTINUED
23 Pensions
The Group operates a defined contribution pension scheme for eligible employees. The charge for the year ended
31 March 2017 was £0.4m (2016: £0.4m). At the year-end there was a pensions creditor of £0.1m (2016: £0.1m).
24 Subsidiaries
As at 31 March 2017, 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
Dormant*
England and Wales
Dormant
USA
Calyx Managed Services Limited
Dormant
England and Wales
City Lifeline Limited
Dormant
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%
All of the Group companies have a registered office of Central House, Beckwith Knowle, Harrogate HG3 1UG, except
Redcentric Solutions Private Limited which has a registered office of 606-611, 6th Floor, Manjeera Trinity Corporate, JNTU
– Hitech City Road, Kukatpally, Hyderabad – 72.
* 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.
72
Redcentric | Report and Accounts 2017
25 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 £97,500 were paid to MXC (2016: £497,124), which included £17,500 (2016: £137,629) for Tony
Weaver’s Director’s fees, £80,000 (2016: £59,495) for the provision of corporate finance advice, and £nil (2016: £300,000)
for advisory fees in respect of the acquisition of Calyx.
As at 31 March 2017 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)
1,692,988
18 April 2013
7,000,000
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.
Other
There were no other transactions with related parties in the year to 31 March 2017 other than those disclosed in note 29.
The balances outstanding at 31 March 2017 in respect of related parties was £30,000 payable to MXC.
73
Redcentric | Report and Accounts 2017 NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS CONTINUED
26 Dividends
Amounts recognised as distributions to Shareholders in year:
Final dividend for year ended 31 March 2016 of 3.0p (2015: 3.0p) per share
Interim dividend for year ended 31 March 2017 (2016: 1.5p) per share
2017
£000
4,406
-
4,406
2016
£000
3,618
2,188
5,806
The Company paid a final dividend in respect of the year to 31 March 2016 of 3.0p per ordinary share on 16 September
2016, with a total payment value of £4.4m.
27 Subsequent events
On 27 April 2017, the Group refinanced is loan facilities, details of which are summarised in the Financial Review on
pages 9 to 14.
There have been no other significant events between the balance sheet date and the date of approval of these accounts.
28 Error restatement
On 7 November 2016 Redcentric plc (‘the Group’) announced that an internal review by the Group’s audit committee
had discovered misstated balances in the Group’s accounting records and consequently a forensic review of the Group’s
net assets was undertaken. Furthermore as part of the forensic review, work was undertaken to validate the previously
reported net debt position of the Group.
The findings of the forensic review identified a reduction in net assets of the Group of £14.9m. This misstatement
relates to prior periods and subsequently the prior year comparatives have been restated with net assets at 1 April 2015
reducing by £6.0m and as at 31 March 2016 by £14.5m.
Subsequent to this review, the Board have completed a further review of net assets as at 31 March 2016 as part of the
finalisation of the 2017 annual report. As a result of this investigation further restatements have been recognised:
- Relating to the consolidation of the Group’s Indian subsidiary.
- Other items, predominantly in relation to misstatement of and taxation and deferred taxation balances.
The cumulative impact of the above adjustments on reported profit for the year ended 31 March 2016 was assessed to
be £9.5m.
The following disclosure provides further detail of the composition of these adjustments, with reference to the affected
primary statement captions where possible.
74
Redcentric | Report and Accounts 2017 Impact of forensic review
Certain assets of the Group recognised as PPE were identified as relating to inventory. Accordingly these assets were
reclassified from PPE to inventory (2016: £497k).
Certain amounts relating to accrued income and trade receivables were identified as being irrecoverable. As a result
further provisions against receivables balances were recognised and other balances were adjusted against revenue.
Overall, this reduced trade and other receivable balances (2016: £1,555k).
Certain customer receipts were recognised in advance of the date of the clearing of associated cash receipts.
This resulted in an overstatement of cash and cash equivalents and an understatement of net debt (2016: £8,242k).
In addition, certain cash payments relating to trade creditors were recorded in the wrong period, resulting in an
overstatement of cash and cash equivalents and an understatement of net debt (2016: £4,240k).
Certain costs relating to the year ended 31 March 2016 and 31 March 2015 had not been recorded as liabilities at the
relevant period end. This resulted in an understatement of trade creditor and accrual balances (2016: £3,193k), along with
associated cost of sales and operating expenses balances.
The deferred tax effect of the above items is £2,375k, driven by the increase in tax losses.
These forensic adjustments are consistent with those that were reflected in the financial statements of Redcentric
Solutions Limited at 31 March 2016.
India
The assets and liabilities of the Group relating to a subsidiary company, Redcentric Solutions Private Ltd, were previously
not consolidated into the Group’s financial statements.
The impact of this restatement is an increase in net assets of £0.4m as at 31 March 2016 with a corresponding increase in
profit after tax as at 31 March 2016 of £0.4m.
Other
Certain assets of the Group relating to capitalised software were identified to have been recognised as part of property,
plant and equipment instead of as an intangible asset. Accordingly management have reclassified these assets from PPE
to intangible assets (2016: £2,242k).
In addition, certain purchases of property plant and equipment were recorded in the wrong period, resulting in an
understatement of assets and trade payables (2016: £41k).
A further adjustment to reduce the intangibles balance by £317k has been recorded at 31 March 2016, relating to a
reduction in carrying value.
75
Redcentric | Report and Accounts 2017 NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS CONTINUED
Certain items of expenditure were incorrectly capitalised within the inventory caption and an adjustment was required to
correct this (2016: £68k).
Further amounts relating to accrued income and trade receivables were identified as being irrecoverable. As a result
further provisions against receivables balances were recognised in addition to the writing off of certain balances,
reducing trade and other receivable balances (2016: £3,604k).
Borrowings falling due within one year were reclassified to the current liabilities caption (£523k).
A corporation tax receivable was not recorded (2016: £531k), and an increase to the deferred tax liability (2016: £356k)
was recognised as a result of these other adjustments being recorded.
The forensic review identified certain costs relating to the year ended 31 March 2016 and 31 March 2015 as not having
been recorded at the relevant period end. However some of these costs had already been accrued for and therefore
needed to be reversed to avoid double counting. This adjustment resulted in a reduction of trade creditor and accrual
balances (2016: £2,500k), along with associated cost of sales and operating expenses balances.
The accounting misstatements are discussed on pages 9-11 of the financial performance review. The impact of the prior
year adjustments on the Group's income, equity and cash flows arising from the restatement exercise are summarised on
pages 77-81.
76
Redcentric | Report and Accounts 2017 28 Error restatement
Reconciliation of Consolidated Statement of Income – for the year ended 31 March 2016
Revenue
Cost of sales
Gross profit
Operating expenditure
Adjusted EBITDA*
Depreciation
Amortisation of acquired intangibles
Non-recurring costs
Share-based payments
Operating profit/(loss)
Finance costs
Profit /(loss) on ordinary activities before taxation
Tax charge on profit on ordinary activities
As previously
reported
Error
restatement
Restated
2016
£000
£000
£000
109,526
(45,050)
64,476
(56,037)
25,844
(5,825)
(5,548)
(4,591)
(1,441)
8,439
(995)
7,444
(2,188)
(7,163)
496
(6,667)
(6,717)
(11,464)
531
(468)
(2,089)
105
(13,385)
(199)
(13,584)
4,134
102,363
(44,554)
57,810
(62,756)
14,380
(5,294)
(6,016)
(6,680)
(1,336)
(4,946)
(1,194)
(6,141)
1,946
Profit /(loss) for the year (attributable to owners
of the parent)
5,256
(9,451)
(4,195)
* Adjusted EBITDA is defined as earnings before interest, tax, depreciation, amortisation of acquired intangibles, non-recurring costs and
share based payments.
77
Redcentric | Report and Accounts 2017 NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS CONTINUED
Reconciliation of Consolidated Balance Sheet – as at 31 March 2016
As previously
reported
Forensic
Review
India
Consolidation
Other
Restated
2016
£000
£000
£000
£000
£000
Assets
Non-current assets
Property plant and equipment
Intangible assets
Current assets
Inventories
Trade and other receivables
Corporation tax receivable
Cash and short term deposits
Total assets
Equity and liabilities
Equity
Called up share capital
Share premium account
Capital redemption reserve
Reserves
Total equity
Non-current liabilities
Provisions
Borrowings
Deferred tax liability
Current liabilities
Overdraft
Trade and other payables
Borrowings
Provisions
Total liabilities
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
26,026
94,191
120,217
429
31,038
531
-
31,998
152,215
146
63,667
(9,454)
27,328
81,687
1,940
31,389
3,110
36,439
(497)
-
(497)
497
(1,555)
-
(8,492)
(9,550)
(10,047)
56
21
77
-
435
-
-
435
512
-
-
(2,202)
1,885
(317)
(68)
(3,604)
531
-
(3,141)
(3,458)
-
-
-
(14,856)
(14,856)
399
399
(1,314)
(1,314)
(2,375)
(2,375)
3,991
3,193
-
-
7,184
4,809
-
(523)
356
(167)
-
3,970
(2,500)
27,407
523
-
(1,977)
(2,144)
(3,458)
2,378
334
34,089
70,528
152,215
(10)
(10)
(21)
144
-
-
123
113
512
Total equity and liabilities
165,208
(10,047)
78
Redcentric | Report and Accounts 2017
Reconciliation of Consolidated Balance Sheet – as at 31 March 2015
As previously reported
Error restatement
Restated 2015
£000
£000
£000
Assets
Non-current assets
Property plant and equipment
Intangible assets
Current assets
Inventories
Trade and other receivables
Corporation tax receivable
Cash and short term deposits
Total assets
Equity and liabilities
Equity
Called up share capital
Share premium account
Capital redemption reserve
Retained Earnings
Total equity
Non-current liabilities
Provisions
Borrowings
Deferred tax liability
Current liabilities
Overdraft
Trade and other payables
Corporation tax payable
Borrowings
Provisions
Total liabilities
Total equity and liabilities
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
233
(2,069)
(1,836)
-
(1,876)
96
(1,780)
(3,616)
-
-
-
(4,413)
(4,413)
-
-
(1,600)
(1,600)
-
2,367
30
-
-
2,397
2,393
(3,616)
23,630
80,503
104,133
-
16,474
-
3,295
19,769
123,902
145
62,668
(9,454)
36,965
90,324
489
9,412
31
9,932
-
20,909
1,518
1,033
186
23,646
33,578
123,902
79
Redcentric | Report and Accounts 2017 NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS CONTINUED
Reconciliation of Consolidated Cash Flow – for the year ended 31 March 16
As previously
reported
Error
Restatement
£000
£000
Restated
2016
£000
Cash flows from operating activities
Profit /(Loss) before taxation
Net finance expense
Operating loss
Depreciation and amortisation
Non-recurring items
Share based payments
Operating cash flow before non-recurring costs and
movements in working capital
Non-recurring costs and NI on share based payments
Operating cash flow before movements in working capital
Decrease (increase) in inventories
Decrease (increase) in trade and other receivables
(Decrease) increase in trade and other payables
Cash generated from operations
Corporation tax received
Net cash inflow from operating activities
Cash flows from investing activities
Acquisition of subsidiaries net of cash acquired
Purchase of property, plant and equipment
Net cash outflow from investing activities
Cash flows from financing activities
Dividends paid to shareholders
Interest paid
Drawdown on revolving credit facility
Proceeds of issue of shares less costs of issue
Net cash inflow from financing activities
Net increase (decrease) in cash and cash equivalents
Opening cash and cash equivalents (as restated)
Net increase (decrease) in cash and cash equivalents
Effect of exchange rates
Cash and cash equivalents
80
7,444
995
8,439
11,373
4,591
1,441
25,844
(3,066)
22,778
-
(17,412)
10,716
16,082
-
16,082
(19,348)
(9,030)
(28,378)
(5,806)
(927)
23,323
1,000
17,590
5,294
3,199
5,294
-
8,492
(13,585)
200
(13,385)
(63)
2,089
(105)
(11,464)
(2,015)
(13,479)
(429)
5,956
(9,883)
(17,835)
(244)
(6,141)
1,195
(4,946)
11,310
6,680
1,336
14,380
(5,081)
9,299
(429)
(11,456)
833
(1,753)
(244)
(18,079)
(1,997)
5,571
872
6,443
-
(200)
(723)
-
(923)
(12,559)
96
(12,559)
(13,777)
(8,158)
(21,935)
(5,806)
(1,127)
22,600
1,000
16,667
(7,265)
3,295
(7,265)
-
(12,462)
(3,970)
Redcentric | Report and Accounts 2017 Reconciliation of Earnings per share – for the year ended 31 March 16
Previously
reported 2016
Error
restatement
Restated
2016
Statutory earnings
Tax charge / (credit)
Amortisation of acquired intangibles
Share based payments
Non-recurring costs
Adjusted earnings before tax
Notional tax charge at standard rate of 21%
Adjusted earnings
£000
5,256
2,188
5,548
1,441
4,591
19,024
(3,805)
15,029
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
8,090,152
153,314,134
Statutory diluted and basic earnings per shares
Adjusted basic earnings per share
Adjusted diluted earnings per share
3.62p
10.48p
9.93p
£000
£000
(9,451)
(4,134)
5
(105)
2089
(11,596)
2,435
(9,161)
(4,195)
(1,946)
5,553
1,336
6,680
7,428
(1,560)
5,868
145,223,982
8,090,152
153,314,134
(2.89)p
4.04p
3.83p
81
Redcentric | Report and Accounts 2017 NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS CONTINUED
29 Business combinations – in the year ended 31 March 2016
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.
The book value of the Calyx net assets acquired and their fair values are summarised below:
Book
value
£000
-
-
1,676
1,475
5,465
(2,476)
(790)
(1,433)
-
3,917
Fair value
adjustments
Fair value
to Group
£000
6,673
1,587
(93)
(192)
-
-
-
-
(1,201)
6,774
£000
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
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
82
Redcentric | Report and Accounts 2017 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.
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.
83
Redcentric | Report and Accounts 2017 NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS CONTINUED
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
£000
3,010
-
-
-
-
-
-
(383)
(542)
2,085
Fair value
to Group
£000
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.
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.
84
Redcentric | Report and Accounts 2017 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
Share option reserve
Retained earnings
Total shareholders’ funds
Note
2017
£000
2016
£000
2
3
4
101,031
100,056
(11,873)
(11,873)
(9,198)
(9,198)
89,158
90,858
149
65,395
4,969
18,645
89,158
146
63,667
3,994
23,051
90,858
The notes on pages 87 to 90 are an integral part of these financial statements. The financial statements on pages 85 to
90 were approved by the Board on 26 July 2017 and are signed on its behalf by:
Fraser Fisher, Director
Peter Brotherton, Director
85
Redcentric | Report and Accounts 2017
COMPANY STATEMENT OF CHANGES
IN EQUITY
Called up
share capital
Share
premium
£000
£000
Reserves
£000
Total
equity
£000
At 31 March 2015
145
62,668
31,515
94,328
Transactions with owners:
Issue of new shares
Dividends to shareholders
Capital contribution related to share based payment
for subsidiaries
1
-
999
-
-
(5,806)
1,336
1,000
(5,806)
1,336
At 31 March 2016
146
63,667
27,045
90,858
Transactions with owners:
Issue of new shares
Dividends to shareholders
Share Based Payments (SBP)
At 31 March 2017
3
-
-
1,728
-
-
149
65,395
-
(4,406)
975
23,614
1,731
(4,406)
975
89,158
86
Redcentric | Report and Accounts 2017
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 (2016: £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.
(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.
87
Redcentric | Report and Accounts 2017 NOTES TO THE COMPANY FINANCIAL
STATEMENTS CONTINUED
(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
2017
£000
96,062
4,969
101,031
2016
£000
96,062
3,994
100,056
As part of the forensic review discussed in note 28 to the Group financial statements it was noted that the presentation
of the fixed asset investment note in 2016 had classified £2,658,000 as direct investment in subsidiaries as opposed to
increases in capital contributions. This classification has been correct in the year ended 31 March 2017 as stated above.
At 31 March 2017, 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
Dormant*
England and Wales
Dormant
USA
Calyx Managed Services Limited
Dormant
England and Wales
City Lifeline Limited
Dormant
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.
All of the Group companies have a registered office of Central House, Beckwith Knowle, Harrogate HG3 1UG, except
Redcentric Solutions Private Limited which has a registered office of 606-611, 6th Floor, Manjeera Trinity Corporate, JNTU
– Hitech City Road, Kukatpally, Hyderabad – 72.
The Company does not have any associate operations.
88
Redcentric | Report and Accounts 2017
3 Creditors – amounts falling due within one year
Amounts owed to subsidiaries
4 Called up share capital
At 31 March 2015
New shares issued
At 31 March 2016
New shares issued
At 31 March 2017
2017
£000
11,873
2016
£000
9,198
Allotted and fully paid
Number
£000
144,728,908
1,152,277
145,881,185
2,977,988
148,859,173
145
1
146
3
149
The number of shares 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
2017
£000
2,977,988
-
2016
£000
354,251
798,026
2,977,988
1,152,277
As at 31 March 2017 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.
5 Auditors’ remuneration
The Company audit fee is £110,000 (2016: £24,000). 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.
89
Redcentric | Report and Accounts 2017 NOTES TO THE COMPANY FINANCIAL
STATEMENTS CONTINUED
MXC Capital
Up until 30 November 2016, the Group 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 was a shareholder in Redcentric plc and still has options over the ordinary
shares of Redcentric plc and therefore its interests are aligned with Redcentric plc’s other shareholders. Tony Weaver,
is a former 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 £97,500 were paid to MXC (2016: £497,124), which included £17,500 (2016: £137,629) for Tony
Weaver’s Director’s fees, £80,000 (2016: £59,495) for the provision of corporate finance advice, and £nil (2016: £300,000)
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 2017 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)
1,692,988
18 April 2013
7,000,000
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.
Other
There were no other transactions with related parties in the year to 31 March 2017 other than those disclosed in note 29.
The balances outstanding at 31 March 2017 in respect of related parties was £30,000 payable to MXC.
90
Redcentric | Report and Accounts 2017 ADVISERS
COMPANY SECRETARY
SOLICITORS
CMS Cameron McKenna Nabarro
Olswang LLP
Cannon Place
78 Cannon Street
London EC4N 6AF
DAC Beachcroft LLP
100 Fetter Lane
London EC4A 1BN
AUDITORS
KPMG LLP (UK)
1 Sovereign Square
Sovereign Street
Leeds LS1 4DA
PRINCIPAL BANKERS
Barclays Bank PLC
Churchill Place
Canary Wharf
London E14 5RB
COMPANY NUMBER
08397584
Peter Brotherton
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
REGISTRARS
Capita Asset Services
The Registry
34 Beckenham Road
Beckenham
Kent BR3 4TU
Redcentric | Report and Accounts 2017
91
HARROGATE (HEAD OFFICE)
Central House
Beckwith Knowle
Harrogate
HG3 1UG
LONDON
Lifeline House
80 Clifton Street
London
EC2A 4HB
THEALE
2 Commerce Park
Brunel Road
Theale
Reading
RG7 4AB
HYDE
Unit B
SK14 Industrial Park
Broadway
Hyde
SK14 4QF
CAMBRIDGE
Newton House
Cambridge Business Park
Cowley Road
Cambridge
CB4 0WZ
INDIA
606-611, 6th Floor
Manjeera Trinity Corporate
JNTU – Hitech City Road
Kukatpally, Hyderabad – 72
READING
3-5 Worton Drive
Reading
RG2 0TG
0800 983 2522
sayhello@redcentricplc.com
www.redcentricplc.com