REDCENTRIC
REPORT & ACCOUNTS 2018
Year ended 31 March 2018
Redcentric plc
Redcentric at a glance
Efficient
data centres
Eliminating
the hassle of
upgrading and
managing PCs
Avoiding the
administrative
burden of email
100,000
registered IP
telephony users
We manage over
5,600 virtual desktops
for our customers
We run around
12,850 mailboxes
for customers
Our telephony users
make over 200 million
phone calls each year
Our Reading data
centre uses only 140W
to run the site for every
1,000W consumed by
customers. That’s an
improvement of 150W
over the last 12 months
Trusted
data storage
Powerful
computing
Connecting
customers
Keeping pace
with our
customers’
operations
We hold 880 terabytes
of records for our
customers – an increase
of 100Tb over the
last 12 months
Our customers
consume 6,100
virtual machines to
run their operations
20,000 managed
connections to our
network, 13Gbps
internet traffic
38 customer
configuration
changes every day
2
Redcentric Report & Accounts 2018 Contents
Strategic report
Chairman’s statement
Business model
Chief Executive’s review
Chief Financial Officer’s review
Risk management
Corporate responsibility
Governance
Directors’ profiles
Corporate governance report
Directors’ report
Statement of Directors’ responsibilities
Directors’ remuneration report
Independent auditors’ report
Financial Statements
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
7-9
10-17
18
19
20-21
22-24
25-27
28
29-34
35-37
38
39
39
40
41
42-68
69
70
71-73
3
Redcentric Report & Accounts 2018 Chairman’s statement
I am pleased to present Redcentric plc’s results for the year ended 31 March 2018.
My report last year was dominated by the accounting misstatements that were discovered in November
2016, and at the time I had every confidence that the Group would put this difficult period behind it.
In this year’s statement, I am pleased to say that this confidence was not misplaced, and I am happy to
present a more positive report along with details of the considerable progress that has been made during
the financial year. The business is now in a much stronger position and importantly, we have maintained
our principal customer base.
Financial results
Revenue declined by 4.4% to £100.0m and adjusted
EBITDA increased from £17.3m to £18.1m. The increase
in profitability reflects reduced adjusted operating costs.
Cash flows were very strong, with £22.6m adjusted cash
generated from operations, representing a 125.2% adjusted
cash conversion. Adjusted net debt fell from £39.5m to
£27.7m, a decrease of £11.8m in the year. The ageing of
overdue trade debtors improved materially, with debt greater
than three months overdue falling from £7.8m as at 31 March
2017 to £1.5m as at 31 March 2018.
Dividend
No dividend was paid during the year and the Board
has decided not to declare a final dividend in respect of
this financial year. The Board will continue to keep its
dividend policy under review and will advise further at
our interim results.
Post the accounting misstatements the Board set the
Executives five main challenges:
• To rebuild the finance function and transform the financial
control environment;
• To address the historical billing and collection issues;
• To reduce the cost base of the Group;
• To look after our customers and staff; and
• To grow both revenues and profitability.
The finance function has been restructured and rebuilt
over the last year embedding a tightly controlled financial
environment. This has had a significant positive impact on
the business.
In response to historical issues, work has been undertaken
to improve the billing and cash collection process resulting
in an improvement in working capital. The effect of this,
along with a solid business performance, is that adjusted net
debt has been reduced by £11.8m. Detailed work has gone
into rightsizing the Group’s cost base and this is reflected by
a reduction in adjusted operating costs. Direct costs have
also been tightly controlled and the resulting improved
gross margin has helped mitigate the effect of a reduced
revenue line.
Whilst profitability has improved, revenue has declined a
little, and this remains the biggest challenge for the Group.
The Management team is focused on growing the business
and new appointments at the Operating Board level have
been made to strengthen the sales function and drive future
growth initiatives.
Post the year end the Group was awarded the Yorkshire
and Humber Public Services Network (YHPSN) framework
contract. This represents the biggest revenue opportunity in
the history of Redcentric with revenues reaching a potential
£20m per annum once the contract is fully rolled out albeit
initially there are mobilisation costs to absorb.
4
Strategic report Redcentric Report & Accounts 2018
Chairman’s statement continued
Board changes
In June 2017, the Group appointed Stephen Vaughan to the
Board as a Non-Executive Director. Stephen brings a wealth
of industry experience to the Board.
In October 2017, Fraser Fisher resigned from the Board and
was replaced by Chris Jagusz. Chris has over twenty-five
years of experience in the telecommunications and managed
services industry.
On 31 March 2018, David Payne resigned from the Board.
Post David’s resignation, Stephen Vaughan has taken over
David’s positions of Senior Non-Executive and Chair of the
Remuneration Committee.
Outlook
There are a number of structural changes taking place in the
industry. As a dynamic organisation Redcentric is adapting
to these changes and is positioning itself within the areas of
the market that are growing. The actions and investments
we have made during the period will support this, as can
be evidenced by the recently awarded YHPSN contract,
which represents a significant milestone for Redcentric and
is expected to deliver attractive returns over the medium
term. We continue to be alert to appointments that may arise
from the changing landscape of the industry. Accordingly, the
Board is confident of the Group’s performance aligning to
the recent trading update.
Chris Cole
Non-Executive Chairman
27 June 2018
5
Strategic reportRedcentric Report & Accounts 2018 Business model
Redcentric’s customers are typically organisations with
hundreds to thousands of connected users who need
instant access to business critical information in order to
do their jobs. Our services are well suited to organisations
which are multi-sited, are information-intensive or require
flexibility in the manner and form in which information is
generated and consumed. Sectors in which the company
is particularly well-represented include retail, health and
social care, charities, professional services, legal, and central
government departments.
Redcentric’s aim is to transform, operate and evolve
its customers’ information technology infrastructure –
their processing, storage, network and applications to
align with their business strategies. We do this using a
consultative sales approach to understand our customers’
challenges and opportunities to create a roadmap for
their IT infrastructure.
This roadmap is then brought to life through our
four propositions:
Cloud
Connectivity
Computer processing and storage capacity rented
to customers and managed on Redcentric or
others’ facilities:
Networks to link customers’ sites to Redcentric
and others’ data centres, hyper cloud providers
and the internet:
• Processing and storing data
• Private networks dedicated to a customer
- In the hyperscale public clouds – Azure and AWS
- On systems dedicated to a customer
- On systems shared among many customers
• Oracle database support
• Data backup
• Data centre space
• Virtual private networks shared among many
customers
• Internet access
• Network security
Collaboration
Person-to-person communication:
• Telephone systems on customers’ premises
Information &
Communications Technology
Provision, installation and support of hardware on
customers’ premises to enable service delivery:
and in Redcentric data centres
• Wi-Fi for customers’ employees, visitors
• Video-conferencing – mobile, desktop and rooms
and customers
• Email
• Fixed and mobile telephone calls & lines
• Routers and switches to route customers’
data traffic
• Firewalls to keep networks secure
• Project management and technical consultancy
• Break-fix support
Our services are delivered from our own sizeable data centres in Harrogate and Reading over a network managed by
Redcentric and monitored by teams working around the clock in Hyderabad and Harrogate. Extensive commercial and public
sector accreditations demonstrate that we operate to the highest of externally verified standards.
6
Strategic report Redcentric Report & Accounts 2018 Chief Executive’s review
Overview
Managing our customers’ IT infrastructure puts Redcentric
at the heart of a dynamic industry full of opportunities,
balanced by the challenges that these industry changes
create. For the year ended March 2018, these changes were
set against a difficult backdrop for the business as a result of
the accounting misstatements discovered in November 2016.
However, the issues uncovered have all been addressed and
the Group is now on a much stronger footing.
Several major customers renewed and extended the scope
of their contracts, demonstrating confidence in Redcentric’s
ability and service levels. However, new customer acquisitions
and add-on sales to existing customers were below the level
required to create top-line growth.
Cost control was a key factor in our financial performance.
Targeted recruitment and a limited scale redundancy
programme reduced the number of UK employees from 387
in April 2017 to 347 by March 2018. We consolidated two
London offices into one and reduced the use of third party
data centres in favour of using our own facilities. Cost of
sales was managed more effectively with a focus on reducing
excess inventory in the network. Our Hyderabad office is a
key differentiator for Redcentric, giving us access to a large
pool of highly skilled professionals in a low-cost jurisdiction
with exceptional infrastructure.
In addition, the Redcentric management team has been
considerably strengthened with a number of appointments
in the finance function, and a new Chief Information Officer
appointed to drive business automation.
Redcentric’s many strengths – flexibility, completeness
of proposition and, customer relationships based on trust
– are a sound basis on which the business can capitalise
on the positive trends in the industry. We will need to
develop our business to address declining demand in some
markets and capitalise on the opportunities in others whilst
becoming more efficient. We believe we have the platform
to achieve this.
Performance
There is much to be proud of in Redcentric’s operational
performance over the past year. Service levels remained high,
allowing a high customer retention rate and we continued to
attract new customers. All this was achieved during a period
of leadership changes in the business and the resolution of
historical issues.
We have continued to invest to maintain our leading service
offerings and important accreditations. We became the
first fully certified provider of Health & Social Care Network
(HSCN) delivery for the UK Government with two significant
security accreditations. We also upgraded our security
standard to Cyber Essentials Plus and gained ISO 14001
accreditation for environmental management. All these
achievements are a reflection of a dedicated and committed
workforce which took on a challenge to deliver outstanding
service whilst managing significant change during a period of
evolution and strengthening of the company.
Nevertheless, the fact remains that the business did not
sell enough in the latter half of the year ended March 2017
and throughout this year to generate net revenue growth.
There are other sector-wide headwinds which are beginning
to act against some of our service offerings as currently
configured. It is a tribute to the resilience of the business that
much of the resultant revenue decline was mitigated through
a combination of careful management of cost of sales and
a drive on efficiency. The net result of all this was revenue
of £100.0m (2017: £104.6m) and adjusted EBITDA of £18.1m
(2017: £17.3m).
Challenges in the future
There are significant changes taking place in the way
customers buy the types of service which Redcentric
provides. For the company to grow, we must respond to
these market changes, evolve our infrastructure and develop
new ways to make profits from our customer relationships.
This will require change in many areas of the company.
We are fortunate that we have the opportunity to make
these changes in the context of our successes in retaining
and growing major customer relationships, and our recent
wins in a major procurement programme in one of our core
markets – health and social care.
Our strategy for change starts from areas of the business’s
strength, where Redcentric has much to build upon. Most
important is our reputation for excellent service and the
customer trust and loyalty that stems from it. Consequently,
we have a strong customer base, with a high degree of
repeat business, good product penetration and sector
expertise. We have excellent infrastructure for connecting
customers, enabling them to collaborate and manage their
data processing and storage.
Most prominent of the sector-wide changes is the emergence
of hyper cloud providers in our cloud market. Amazon Web
Services (AWS) and Microsoft (Azure) offer processing and
storage services in a flexible manner with low initial cost of
purchase. Separately, much of the public sector is mandated
to adopt the Government-sponsored Crown Hosting in
preference to commercial data centres like our own. We
anticipate that many public-sector entities will transfer some
of their requirements to Crown Hosting or hyper cloud
providers over time.
Our own data centres will increasingly host the customer-
specific elements of customers’ hybrid clouds – combining
the hyper cloud for less sensitive work with the specialised
hosting environments we manage. This trend also places a
premium on the breadth and quality of our network.
7
Strategic reportRedcentric Report & Accounts 2018 Chief Executive’s review continued
The increasing complexity of customer infrastructure is
another driver of change for our business. Software-as-a-
service is becoming more popular among our customers,
though many of them expect to retain some of their own
proprietary applications for the foreseeable future. These
hybrid software-as-a-service / proprietary software and
dedicated / hyper cloud environments are significantly more
complex to design, operate, keep secure and enhance.
The emergence of software defined networking technology
offers customers more flexibility whilst increasing technical
complexity. Redcentric must ensure that it is well-equipped
to help its customers in this demanding environment,
throughout the whole cycle from the design and sales
process, to the building of the infrastructure and its
subsequent operation.
Redcentric – some customer highlights 2018
New business examples
Renewal examples
Birmingham & Solihull CCG – Redcentric provides
telephony, Wi-Fi and network connections to the NHS
for hundreds of doctors’ surgeries in seven clinical
commissioning groups as part of this contract. We have
also provided Sandwell and West Birmingham CCG with
patient Wi-Fi for surgeries.
Caversham Finance (Brighthouse Stores) – renewal
for connectivity to 300 stores, five offices, data centre
services and dedicated connections to Microsoft Azure’s
cloud service.
Addison Lee Group – the leading provider of premium
mobility and transportation services, chose Redcentric
to create their hybrid cloud computing solutions. Across
these platforms, Addison Lee operate their mission-critical
passenger, driver and fleet services.
Upselling examples
Howdens Joinery – contract extension for connectivity
and telephony for 650+ depots and seven offices, along
with data centre services.
Legal Aid Agency – renewal of cloud services.
Inchcape – converted customer from traditional telephony
to cloud-based unified communications for 4,500 users.
Salvation Army – renewal of our contract to provide
connectivity and telephone services for 787 sites including
churches, community services centres, social services
centres and regional offices.
Look Ahead – added connectivity to 147 sites, 1,000
unified communications users and data centre services.
Singtel Ltd – renewal of data centre services for
Singapore’s leading mobile network provider.
Virgin Care – added 1,000 users to Redcentric’s
computing and virtual desktop services used by clinicians
and hospital staff.
Vp plc – renewal of services for Vp plc, the equipment
rental specialist.
8
Strategic report Redcentric Report & Accounts 2018 Chief Executive’s review continued
Finally, customers are expecting higher levels of service
including faster response times for implementation and the
ability to conduct business online (sometimes in a wholly
automated manner) all at increasingly competitive prices
which is presenting a challenge for the industry as a whole.
The way forward
We are responding to the opportunities and challenges
outlined above with an increased pace of change in the
shape of our infrastructure, the mix of our service offerings
and the cost efficiency of our operations. Shifts in our
physical infrastructure are inevitable given the rise of hyper
cloud providers reducing long-term demand for data centres
whilst increasing customers’ reliance on our networks and
ability to manage complex services.
Among our prime near-term opportunities is the Health
and Social Care Network (HSCN), of which Redcentric is an
accredited provider. HSCN is replacing the aged N3 (the
NHS National Network) in a national programme which
opens markets previously unavailable to Redcentric and other
service providers. As part of this programme, post year-end
Redcentric won its largest ever framework agreement, the
Yorkshire and Humber Public Services Network, which has the
potential to add up to £20m of annual revenue. This is one of
many procurements in 2018 in which Redcentric is active and
seeing success.
We will use the considerable revenue streams from YHPSN
and other similar contracts to invest in network and service
operations for a hybrid cloud world.
We are also creating fresh propositions with Redcentric’s
new Cloud Transformation Practice which designs the
complex hybrid environments when customers use a mix
of private and clouds alongside traditional computing. This
is especially relevant to existing customers because of our
insight into their current infrastructure. We already manage
cloud production environments which can scale rapidly in
response to changing demand and we are working with lead
customers on hyper cloud proofs of concept. Our very strong
relationship with Microsoft as a leading Azure partner gives
us access to market and product insight which we can bring
to our customers. Meanwhile, customer interest in software-
defined networking will be tested this year with market trials,
and we are experiencing customers’ increased usage and
expectation of our network when they move to the hyper
cloud, another source of future growth.
The movement of some public-sector customers into
Crown Hosting creates project and service opportunities for
Redcentric. Customers need help managing these complex
and risky transitions, and Redcentric is already developing its
track record in this field. In parallel, a focus on selling
data centre space to commercial users will help offset some
of the customer losses from moves to Crown Hosting.
Our sales function is being realigned with Redcentric’s
business priorities. This includes new incentives to balance
retention and growth of existing clients with the acquisition
of new ones. Whilst it will take some months for the benefits
to materialise, we are making these changes now to secure
our future success. Post period-end a new sales leader was
appointed to implement this strategy.
In parallel with the development of our services, we are
making our operations more efficient as a response to pricing
pressure. Redcentric has already implemented the first
phase of Microsoft Dynamics as an ERP system which will
enable us to automate delivery of many back-office services.
Further investment will be required to automate customer
interactions, improve speed of response and reduce costs.
We have the benefit of a well-established low-cost centre in
Hyderabad and are moving work there where possible and
appropriate. We can do this whilst maintaining direct UK
customer contact.
Outlook
The IT infrastructure market is undergoing structural
changes. The adoption of the hyper cloud, software-defined
networking, the public sector shift to Crown Hosting, pricing
pressure, digital customer experience, along with the Health
and Social Care Network framework all create opportunities
and challenges in varying degrees.
Redcentric’s focus is to build on our strengths of customer
relationships and service platforms to shift the business to
high growth markets, turn the challenge of the hyper cloud
into opportunity, and mitigate the impact of some public
sector customers moving to Crown Hosting.
We will continue to invest in automation to bring down costs
and accelerate the pace of business, whilst expanding our
resource in established low cost locations where feasible, and
maintaining a UK-based direct customer experience.
We have the benefit of the assets, capabilities and customer
insight needed to succeed in a rapidly changing industry
– our plan is to make the most of the opportunities this
presents us.
Chris Jagusz
Chief Executive Officer
27 June 2018
9
Strategic reportRedcentric Report & Accounts 2018 Chief Financial Officer’s review
Financial highlights and overview
Statutory financial reporting measures
Revenue
Operating profit / (loss)
Basic earnings per share
Adjusted performance measures (APMs)
Adjusted net debt
Adjusted EBITDA
Adjusted EBITDA margin
Adjusted cash generated from operations
Adjusted cash conversion
Adjusted operating profit
Adjusted basic earnings per share
Year ended
31 March
2018
Year ended
31 March
2017
Variance
£100.0m
£104.6m
£(4.6)m
(4.4)%
£0.9m
0.34p
£(3.0)m
(1.60)p
£3.9m
1.94p
-
-
£27.7m
£18.1m
18.1%
£22.6m
125.2%
£9.8m
4.35p
£39.5m
£17.3m
16.5%
£9.4m
54.7%
£9.0m
4.45p
£(11.8)m
(29.9)%
£0.8m
£13.2m
£0.8m
(0.1)p
4.6%
1.6%
140.4%
(70.5)%
8.9%
(2.2)%
The Directors use the APMs as they are critical to understanding the financial performance of the Group. As they are not
defined by IFRS, they may not be directly comparable with other companies who use similar measures.
APM
Definition
Adjusted net debt
Adjusted EBITDA
Total bank borrowings (including current
and non-current borrowings as shown in
the consolidated balance sheet) less cash
and cash equivalents
Earnings before interest, tax, depreciation,
amortisation, exceptional costs and share-
based payments
Adjusted EBITDA margin
Adjusted EBITDA to revenue
Reconciliation to equivalent
IFRS measure of performance
Borrowings as outlined in Note 16
A reconciliation of this measure is provided in
the consolidated income statement
Adjusted EBITDA add exceptional costs and
share-based payments
Adjusted cash generated
from operations
Cash generated from operations add
exceptional costs
Adjusted cash generated from operations less
exceptional costs
Adjusted cash conversion
Adjusted operating profit
Adjusted basic earnings
per share
Adjusted cash generated from operations
to adjusted EBITDA
Operating profit add amortisation on
acquired intangibles, exceptional costs and
share based payments
Adjusted earnings – profit / loss add
amortisation on acquired intangibles,
share based payments, exceptional costs,
tax charge /credit
Cash generated from operations to EBITDA
Operating profit as disclosed on the
consolidated income statement
A reconciliation of this measure is provided
in Note 9
Adjusted operating costs
Operating costs less depreciation,
amortisation and share based payments
Operating expenditure as outlined in the
consolidated income statement
10
Strategic report Redcentric Report & Accounts 2018 Chief Financial Officer’s review continued
The results for the year reflect three key themes:
• a decline in revenue;
• a significant reduction in both direct and operating costs; and
• a material reduction in net debt.
Revenue
Revenue for the year ended 31 March 2018 was £100.0m, a decrease of £4.6m on the previous financial year.
Year ended
31 March
2018
Year ended
31 March
2017
Variance
£000
£000
£000
%
Recurring revenue
87,065
90,219
(3,154)
(3.5)%
Product sales
Services revenue
One-off revenue
Total revenue
7,180
5,745
12,925
6,278
8,126
14,404
902
(2,381)
(1,479)
14.4%
(29.3)%
(10.3)%
99,990
104,623
(4,633)
(4.4)%
The key revenue metric of RMR (recurring monthly revenue) was down 3.5% compared to last year and accounted for 87% of
total revenue in-line with 2017 at 86%.
Gross profit
Gross profit
Gross margin
Year ended
31 March
2018
Year ended
31 March
2017
Variance
£000
£000
£000
%
59,994
60,464
(470)
(0.8)%
60.0%
57.8%
The lower gross profit of £0.5m reflects the decrease in revenue offset by significant direct cost savings as a result of the
improved management of third party costs. This led to an improvement in gross margin to 60.0% (2017: 57.8%).
11
Strategic reportRedcentric Report & Accounts 2018 Chief Financial Officer’s review continued
Adjusted operating costs
Year ended
31 March
2018
Year ended
31 March
2017
Variance
£000
£000
£000
%
Staff costs (excluding share based compensation)
23,292
24,655
Office and data centre costs
Network and equipment costs
Other sales, general and administration costs
Offshore costs
6,942
6,805
3,010
1,860
7,512
5,804
3,576
1,644
(1,363)
(570)
1,001
(566)
216
41,909
43,191
(1,282)
(5.5)%
(7.6)%
17.2%
(15.8)%
13.1%
(3.0)%
Adjusted operating costs excludes depreciation, amortisation, exceptional costs and share based payments.
Employees
Year-end headcount
UK
India
Total
Average headcount
UK
India
Total
31 March
2018
31 March
2017
Variance
347
141
488
387
139
526
(40)
2
(38)
31 March
2018
31 March
2017
Variance
362
139
501
386
155
541
(24)
(16)
(40)
Overall, adjusted operating costs for FY18 were £1.3m (3.0%) lower than FY17. The principle variances were as follows:
• Staff costs have reduced as a result of a restructuring exercise undertaken during the year. The restructuring resulted in
one-off exceptional costs of £868k.
• Office and data centre costs were down by approximately 8% on last year reflecting the closure of the London office and
a third-party data centre.
• On 30 September 2016, the Company disposed of its fibre network to City Fibre and since then has paid a monthly rental
fee for use of certain parts of the network. This accounts for the increase in network and equipment costs in FY18.
• Savings have also been made in other sales, general and administration costs, achieved by reducing the number of
third party consultants in the business and a tighter control of marketing and corporate costs.
12
Strategic report Redcentric Report & Accounts 2018 Chief Financial Officer’s review continued
Adjusted Earnings Before Interest, Taxation, Depreciation and Amortisation (EBITDA)
Year ended
31 March
2018
Year ended
31 March
2017
Variance
£000
£000
£000
%
Adjusted EBITDA
Adjusted EBITDA margin
18,085
18.1%
17,273
16.5%
812
4.7%
Adjusted EBITDA is the key measure that the Company uses to assess the underlying profitability of the business. Adjusted
EBITDA excludes exceptional costs and share based payments.
Adjusted EBITDA increased by £0.8m or 4.7% to £18.1m reflecting the decrease in gross profit of £0.5m offset by the decrease
in operating costs of £1.3m. As a result, Adjusted EBITDA margin improved from 16.5% to 18.1%.
Exceptional costs
Professional fees associated with the forensic review
and Financial Conduct Authority (FCA) investigation
Staff restructuring
Integration costs
Non-recurring impairment of trade debtor balances
Sale of metro ring to City Fibre
Vacant property provisions
Year ended
31 March
2018
Year ended
31 March
2017
Variance
£000
£000
£000
%
672
868
132
-
-
-
1,291
187
471
(619)
681
(339)
(47.9)%
364.2%
(72.0)%
2,933
(2,933)
(100.0)%
207
385
(207)
(385)
(100.0)%
(100.0)%
1,672
5,474
(3,802)
(69.5)%
Overall, the level of non-recurring items has decreased from £5.5m to £1.7m. The key movements are as follows:
• Exceptional impairment of trade debtor balances;
- Following the audit of the 31 March 2017 annual results, a further debtor impairment charge was taken in FY17.
• Professional fees associated with the forensic review and FCA investigation;
- These costs relate to legal and forensic advice received in respect of the ongoing FCA investigation.
• Staff restructuring costs;
- During the year a restructuring exercise was undertaken which resulted in 18 redundancies.
• Integration costs;
- The integration costs relate to the integration of the City Lifeline acquisition which was undertaken in January 2016.
The integration process is complete, and no further costs will be incurred in this regard.
• Disposal of City Fibre network;
- On 30 September 2016, the Company disposed of its fibre network to City Fibre Limited. This led to an exceptional charge
of £0.2m in respect of the loss on disposal and legal fees.
• Vacant property provision;
- In FY17, the Birmingham and Hoddesdon offices were vacated, leading to a vacant property charge of £0.4m in the year.
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Strategic reportRedcentric Report & Accounts 2018 Chief Financial Officer’s review continued
Net financing costs
Interest receivable
Other interest receivable
Interest payable
Interest payable on bank loans and overdrafts
Interest payable on finance leases
Amortisation of loan arrangement fees
Net financing costs
Year ended
31 March
2018
£000
Year ended
31 March
2017
£000
(19)
(1)
1,241
143
68
1,452
1,433
869
317
68
1,254
1,253
The higher interest payable costs in FY18 reflect the higher margin on the RCF following the restructuring of the Group's senior
debt facilities in April 2017.
Share-based payments
SAYE schemes
Director and senior manager schemes
MXC options
Employers NI
Year ended
31 March
2018
Year ended
31 March
2017
Variance
£000
£000
£000
%
224
162
148
34
568
188
156
631
105
1,080
36
6
(483)
(71)
(512)
19.1%
3.8%
(76.5)%
(67.6)%
(47.4)%
The MXC shared based expense is in respect of legacy options which by the end of FY18 had been fully expensed.
NI is being accrued, where applicable, at a rate of 13.8% on the potential employee gain on share-based incentives granted.
During both FY17 and FY18 there was a high turnover of Directors and senior managers and this has reduced the share based
charge in both years.
14
Strategic report Redcentric Report & Accounts 2018 Chief Financial Officer’s review continued
Taxation
The tax credit for the year was £1.0m (FY17: credit of £1.9m) which was made up of a corporation tax charge of £1.1 (FY17:
charge of £0.1m) and a deferred tax credit of £2.1m (FY17: credit of £2.0m).
The corporation tax charge comprises a current year corporation tax charge of £0.3m, a prior year corporation tax charge of
£0.7m and an overseas tax charge of £0.1m.
The prior year corporation tax charge relates to the resubmission of the FY15 and FY16 tax computations. The Group is made
up several historical acquisitions some of which have tax losses brought forward. The streaming of these tax losses had been
incorrectly applied in the FY15 and FY16 tax computations and hence the reason for the prior year corporation tax adjustment.
As at 31 March 2018, the Group had £18.9m of tax losses carried forward comprising:
No tax losses carried forward
Losses carried forward:
- Stream 1
- Stream 2
- Stream 3
% of profits
Losses
available
27.01%
-
43.65%
954,091
19.64%
9,556,568
9.70%
8,349,967
100.00% 18,860,626
Earnings per share and dividends
Basic adjusted earnings per share for FY18 was 4.35p, compared to 4.45p in FY17. Diluted adjusted earnings per share for
FY18 was 4.32p compared to 4.32p in FY17.
The average share price during the year was 83.55p with the equivalent figure in FY17 of 140.52p. The decrease in average
share price accounts for the lower dilution effect of the options outstanding.
Dividends
No dividends were paid during FY18. In September 2016 a final dividend of £4.4m in respect of the year ended 31 March 2016
was distributed to shareholders.
Financial position
The summary financial position of the Group is set out below:
Non-current assets
Net current assets (excl. adjusted net debt)
Non-current liabilities (excl. adjusted net debt)
Adjusted net debt
Net assets
Year ended
31 March
2018
Year ended
31 March
2017
£000
£000
102,724
110,723
3,326
(421)
(27,707)
77,922
8,856
(3,319)
(39,531)
76,729
Net current assets have declined by £5.5m as a result of better working capital management and better conversion of debtors
in to cash. This, along with normalised funds generated from operations, accounts for the material decrease in net debt.
15
Strategic reportRedcentric Report & Accounts 2018 Chief Financial Officer’s review continued
Adjusted net debt and cash flows
Revolving credit facility
Term loans
Cash
Finance leases
Unamortised loan arrangement fees
Adjusted net debt
Year ended
31 March
2018
Year ended
31 March
2017
£000
£000
28,000
38,000
-
(6,089)
5,932
(136)
27,707
323
(4,340)
5,752
(204)
39,531
During FY18, adjusted net debt fell from £39.5m at 31 March 2017 to £27.7m as at 31 March 2018. The movements in
adjusted net debt are analysed below.
Adjusted EBITDA
Working capital movements
Adjusted cash generated from operations
Cash conversion
Capital expenditure
- Cash purchases
- Finance lease purchases
Corporation tax
Interest paid
Non-cash movements in adjusted net debt
Amortisation of loan arrangement fees
Effect of exchange rates
Decrease in adjusted net debt pre-exceptional costs
Exceptional costs
- Exceptional costs
- New share issues
Net (decrease) / increase in adjusted net debt
Adjusted net debt at the beginning of the period
Adjusted net debt at the end of the period
16
Year ended
31 March
2018
£000
18,085
4,559
22,644
125.2%
(3,982)
(2,976)
(6,958)
217
(1,246)
(68)
44
(24)
14,633
(3,002)
193
(2,809)
11,824
(39,531)
(27,707)
Strategic report Redcentric Report & Accounts 2018 Chief Financial Officer’s review continued
Working capital movements
Improved control of billing and collections has resulted in the positive working capital movement in FY18. In FY17 the negative
working capital movements were largely due to a £10m catch up in payments to trade creditors (in FY16 trade creditors had
been significantly stretched and this practice no longer takes place).
The resolution of legacy debt issues has also led to a significant improvement in the ageing of trade debtors with a significant
reduction in debtors aged > 90 days. As at 31 March 2018, there was £1.5m of debt more than 3 months overdue, a £6.3m
improvement on the previous year.
Current
1 to 30 days overdue
31 to 60 days overdue
61 to 90 days overdue
91 to 180 days overdue
> 180 days overdue
Gross trade debtors
Trade debtor impairment provision
Net trade debtors
Year ended
31 March
2018
Year ended
31 March
2017
£000
£000
11,323
1,951
1,417
550
945
593
16,779
(981)
15,798
9,095
2,950
2,220
704
3,277
4,580
22,826
(5,576)
17,250
Trade creditor days were 28 at 31 March 2018 compared to 33 as at 31 March 2017.
Financing and covenants
31 March 2018
31 March 2017
Available
Drawn
Undrawn
Available
Drawn
Undrawn
£000
£000
£000
£000
£000
£000
Committed
- Revolving credit facility
40,000
28,000
12,000
40,000
38,000
2,000
- Term loans
- Finance leases
Uncommitted
- Bank overdraft
- Finance leases
-
5,932
45,932
-
5,932
33,932
-
-
323
5,752
323
5,752
-
-
12,000
46,075
44,075
2,000
2,000
4,603
6,603
-
-
-
2,000
4,603
6,603
5,000
3,098
8,098
-
-
-
5,000
3,098
8,098
Total borrowing facilities
52,535
33,932
18,603
54,173
44,075
10,098
In addition to the above facilities, the Group has access to a non-committed £20m accordion facility.
The Group’s banking facilities were refinanced in April 2017. Whilst the covenant tests remained the same, the margin
increased as a result.
Peter Brotherton
Chief Financial Officer
27 June 2018
17
Strategic reportRedcentric Report & Accounts 2018 Risk management
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
business 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.
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
18
networks and data centres. Whilst this provides customers
with comfort over resilience and reliability, the Group is also
exposed to risks of infrastructure failure. A critical element
of Redcentric’s operating methodologies and procedures
is to mitigate such risks through the careful construction,
maintenance and management of its own infrastructure.
All networks and data centres have fully resilient fail-over
procedures with regular testing of back-up and recovery plans.
Strategy
The market for IT managed services in the UK is highly
fragmented, and is served by a broad spectrum of businesses
from global telecommunication companies through hardware
and software providers, system integrators and a range of
independent managed service providers of varying sizes,
through to companies providing individual elements of the IT
managed services spectrum. The market is growing, driven
by the continued move towards off-premise solutions and
mobile access to secure services.
Redcentric positions itself in the market as being able to
combine the benefits of proprietary network and data
centres with a flexible and technically skilled workforce able
to deliver and support critical services and solutions in a
highly secure environment.
Redcentric seeks to differentiate itself in three distinct ways:
• Innovation – innovation in the design and delivery
of services;
• Reliability – the right technical skills, organised in the right
way, to give predictable high-quality results; and
• Value – service offerings that are designed to offer value
for money to mid-market customers.
Through these differentiators, Redcentric aims to attract
new customers and to deepen and broaden the relationship
with existing customers. The Board’s strategy for growth
comprises of:
• 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; and
• 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.
Strategic report Redcentric Report & Accounts 2018 Corporate responsibility
Employees
Charitable activity
At Redcentric we actively encourage all employees to
raise funds for their chosen charities. All employees are
contractually entitled to receive one day of paid leave per
year to volunteer or support a charitable organisation.
We have a Charity Committee that meets every quarter to
discuss suggestions for charitable activity and we work with
several charities on a regular basis, including Sue Ryder,
Macmillan and Sports Relief. Through a combination of
funds raised by employees for their own chosen charities or
charitable donations from Redcentric, we contributed over
£10,000 to various charities in 2017.
By order of the Board
Peter Brotherton
Company Secretary
27 June 2018
Our colleagues have given much to the company over
the year. We are now a more efficient organisation, and
this improvement has not been gained at the cost of
effectiveness. On the contrary, our customers have told us
that they are more satisfied with us on every parameter we
survey. I would like to offer my sincere personal thanks to
each one of our employees in the UK and India who have
contributed to this achievement.
Through Redcentric’s apprenticeship programme, we have
given four young people the opportunity to develop their
careers with us and gain qualifications in networks, data
storage, computing and electrotechnical systems.
Gender pay report
Our first gender pay report showed that the overall difference
between men and women’s earnings at Redcentric was 23%
(mean) or 19% (median), based on hourly rates of pay at the
snapshot date of 5th April 2017. Like most organisations in
our industry, the primary reason for our gender pay gap is an
imbalance of male and female colleagues at different levels
across the organisation. We have fewer female colleagues
in more senior positions, which attract higher salaries. We
are confident that as we make progress towards achieving
greater gender balance across all roles within Redcentric,
particularly within our technical, sales management and senior
management roles, our gender pay gap will reduce.
Equality and diversity
Creating a diverse, inclusive and great place for our
colleagues to work is top of Redcentric’s people agenda.
Redcentric actively supports the principle of equal
opportunities in employment and is committed to ensuring
that individuals are treated fairly, with respect and are
valued. Redcentric opposes all forms of unlawful or unfair
discrimination on the grounds of colour, race, religion or
belief, nationality, ethnic or national origin, sex, gender
reassignment, sexual orientation, marital or civil partner
status, age or disability (the "Protected Characteristics").
It is important to Redcentric that no one receives less
favourable treatment or be disadvantaged on any of the
above grounds. Every possible step will be taken to ensure
that individuals are treated equally and fairly and that
decisions on recruitment and selection and opportunities for
training and promotion are based solely on objective and
job-related criteria.
19
Strategic reportRedcentric Report & Accounts 2018 Directors’ profiles
NON-EXECUTIVE DIRECTORS
Chris Cole
Stephen Puckett
Independent Non-Executive Chairman
Independent Non-Executive Director
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 (resigned 31st March 2018)
Independent Non-Executive Director
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 also Chairman of Castleton Technology plc.
During the year, David served as Chairman of the
Remuneration and Nomination Committees and as a member
of the Audit Committee to 31 March 2018, and was the Senior
Independent Non-Executive Director to 24 July 2017.
David retired from the Board of Directors effective
31 March 2018.
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. Stephen is
Chairman of the Audit Committee and is a member of
the Remuneration and Nomination Committees.
Jon Kempster
Independent Non-Executive Director
Jon Kempster was appointed as a Non-Executive Director
on 10 January 2017. Jon is the Chief Financial Officer and
member of the Board at Sports Direct. Prior to this role,
Jon was 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. Jon has also held Chief
Financial Officer positions at Wincanton plc, the logistics
and distribution Group, from 2010 to 2012 and from 2006 to
2010 Jon was Chief Financial Officer of Delta plc.
Jon is an ACA qualified chartered accountant and a member
of the Audit, Remuneration and Nomination Committees.
Stephen Vaughan
Independent Non-Executive Director
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. Stephen is also currently the
Chairman of 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 Chairman of the Remuneration Committee,
a member of the Audit and Nomination Committees and
is the Senior Independent Non-Executive Director as of
24 July 2017.
20
GovernanceRedcentric Report & Accounts 2018 Directors’ profiles continued
EXECUTIVE DIRECTORS
Chris Jagusz
Chief Executive Officer
Chris Jagusz was appointed Chief Executive Officer on
20 October 2017. Chris has over twenty-five years of
experience in the telecoms and managed services industry,
during which time he has built a track record of delivering
growth and business transformation.
Chris has enjoyed a mix of both executive and consultancy
roles through his career. From September 2014 to August
2016, Chris was Chief Executive of Azzurri Communications.
During this period, he led the transformation of the business,
refocusing on growth markets and driving margin and
efficiency improvements prior to its sale.
Prior to this role, from July 2012 to September 2014, Chris
was Managing Director of SSE Telecoms. During this period,
he drove the investment in advanced networks and products
which served as the foundation for its growth in commercial
markets. Other executive roles in the telecoms and managed
services industry include Managing Director at Daisy Group
plc (February 2010 – August 2011) and a number of senior
management roles at BT (1988 to 2006).
Peter Brotherton
Chief Financial Officer
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 whilst 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.
21
GovernanceRedcentric Report & Accounts 2018 Corporate governance report
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,
Chris Jagusz; the Chief Financial Officer, Peter Brotherton;
and Non-Executive Directors Jon Kempster, Stephen
Vaughan, Stephen Puckett and David Payne (resigned 31
March 2018).
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, Nomination 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.
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.
Nomination Committee
The Nomination Committee consists of Chris Cole (Chairman),
David Payne (to 31 March 2018), Stephen Puckett, Jon
Kempster and Stephen Vaughan.
For nominations, the Committee meets as and when
necessary to consider the appointment of new Executive
and Non-Executive Directors.
A process is in place for the appointment of new Directors
involving, if felt appropriate, the use of external consultants
followed by meetings with both the Committee and
subsequently with the Board as a whole. This ensures that
the selection process is both formal and objective. The
Committee has formal terms of reference (available on
request from the Company Secretary) and meets at least
once a year to review succession planning at both Board and
senior management level across the Group.
Remuneration Committee
The Remuneration Committee consists of Stephen Vaughan
(Chairman), David Payne (to 31 March 2018), Stephen Puckett
and Jon Kempster.
Details of the Committee and its policies are set out in the
Directors’ Remuneration Report on page 29. The Committee
has formal terms of reference (available on request from the
Company Secretary).
Audit Committee
Stephen Vaughan is the Senior Independent Non-Executive
Director and served from 24 July 2017 in this position
(formerly David Payne).
The Audit Committee consists of Stephen Puckett
(Chairman), David Payne (to 31 March 2018), Jon Kempster
and Stephen Vaughan.
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.
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
22
GovernanceRedcentric Report & Accounts 2018 Corporate governance report continued
statements and formal announcements. A whistle-blowing
arrangement exists whereby matters can be confidentially
reported to the Committee. The Executive Directors are
not members of the Committee but attend the meetings by
invitation, as necessary, to facilitate its business.
The principal treasury related risks are documented and
approved by the Board. Details of any derivatives and
financial instruments are set out in notes 18 and 19 to the
financial statements.
Relations with shareholders and investors
Copies of the Annual Report & Accounts 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.
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.
23
GovernanceRedcentric Report & Accounts 2018 Redcentric Report & Accounts 2018
Corporate governance report continued
Substantial shareholders
As at 31 March 2018 and 25 May 2018 (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
ND Capital Investments Limited
Kestrel Partners LLP
Mr Richard Griffiths
Slater Investments
Schroder Investment Management
Eugenia II Investment Holdings
31 March
2018
Number
31 March
2018
%
25 May
2018
Number
25 May
2018
%
29,172,303
20,113,885
19,658,511
15,848,285
8,625,877
7,455,274
5,540,495
19.56
13.49
13.18
10.63
5.78
5.00
3.72
28,672,303
20,113,885
19,788,958
16,435,919
8,625,877
7,455,274
5,540,495
19.23
13.49
13.27
11.02
5.78
5.00
3.72
24
GovernanceRedcentric Report & Accounts 2018 Directors’ report
The Directors present their annual report together with the audited financial statements for the year ended 31 March 2018.
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 4-19 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:
Peter Brotherton
Chris Jagusz (appointed 20 October 2017)
Fraser Fisher (resigned 20 October 2017)
Chris Cole
Stephen Puckett
David Payne (resigned 31 March 2018)
Jon Kempster
Stephen Vaughan
As at 31 March 2018 the Directors' beneficial interests and those of their families in the ordinary share capital of the Company
were as follows:
Peter Brotherton
Chris Jagusz
Chris Cole
Stephen Vaughan
David Payne
31 March
2018
31 March
2017
Number of
shares
Number of
shares
20,000
7,953
20,000
20,000
-
-
-
-
100,626
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 page 29.
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.
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.
25
GovernanceRedcentric Report & Accounts 2018
Directors’ report continued
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 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
Total
6
4
389
399
-
2
100
102
6
6
489
501
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 three awards of options under the plan.
• 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, which is a 20%
discount to the average closing price on the three days ending 21 November 2014, the last trading date before the launch
of the Plan on 24 November 2014.
• 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 30 August 2017, the Company granted options over a total of 1,223,390 ordinary shares to 91 employees. These options
are available for exercise from 30 August 2020, with an exercise price of 63p, which is a 20% discount to the average closing
price on the three days ending 4 August 2017, the last trading date before the launch of the Plan.
As at 31 March 2018, the following options had been granted under the plan:
Exercise
price
Options
granted
Options
exercised
Options
cancelled
Options
remaining
107p
154p
63p
1,134,886
163,905
1,223,390
2,522,181
-
-
-
-
(840,217)
(130,720)
294,669
33,185
(55,712)
1,167,678
(1,026,649)
1,495,532
Grant date
17 December 2014
14 December 2015
30 August 2017
Total
26
GovernanceRedcentric Report & Accounts 2018
Directors’ report continued
Annual General Meeting
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, Chief Executive’s review
and Chief Financial Officer’s review.
By order of the Board
Peter Brotherton
Company Secretary
27 June 2018
The Annual General Meeting will be held at 10am
at CMS Cameron McKenna Nabarro Olswang LLP,
Cannon Place, 78 Cannon Street, London EC4N 6AF
on 3 September 2018.
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 2018. 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 25. 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.
27
GovernanceRedcentric Report & Accounts 2018 Statement of Directors’ responsibilities
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 are responsible for such internal control as
they determine is necessary to enable the preparation of
financial statements that are free from material misstatement,
whether due to fraud or error, and 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.
Under applicable law and regulations, the Directors are also
responsible for preparing a Strategic Report and a Directors’
Report that complies with that law and those regulations.
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
27 June 2018
The Directors are responsible for preparing the Annual 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 International Financial Reporting
Standards as adopted by the European Union (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 Reduced Disclosure Framework.
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:
• select suitable accounting policies and then apply them
consistently;
• make judgements and estimates that are reasonable,
relevant, reliable and prudent;
• for the Group financial statements, state whether they
have been prepared in accordance with IFRSs as adopted
by the EU;
• 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;
• assess the Group and parent Company’s ability to continue
as a going concern, disclosing, as applicable, matters
related to going concern; and
• use the going concern basis of accounting unless they
either intend to liquidate the Group or the parent
Company or to cease operations, or have no realistic
alternative but to do so.
28
GovernanceRedcentric Report & Accounts 2018 Directors’ remuneration report (unaudited unless stated otherwise)
Annual statement by the Chairman of the Remuneration Committee
The Remuneration Committee comprises David Payne (Chairman to 31 March 2018), Stephen Vaughan (Chairman from
1 April 2018), Stephen Puckett and Jon Kempster. 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.
Terms of reference
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.
Chief Executive
On 10 August 2017, Fraser Fisher notified the Board of his intention to resign as a Director and Chief Executive Officer on
31 December 2017. Following the appointment of Chris Jagusz to the Board on 20 October 2017, Fraser Fisher resigned
as a Director on the same date.
Basic salary and benefits
Basic salaries are reviewed on a discretionary basis.
The benefits provided for each Executive Director may include:
i. life assurance cover of four times salary;
ii. private medical insurance for themselves, their spouse and their children;
iii. a contribution to a private pension plan.
Performance related bonus
The Remuneration Committee determines the criteria for the award of performance bonuses for the Executive Directors in
advance of each year. The bonuses are non-pensionable. Non-Executive Directors do not receive a bonus.
In addition to the Long-Term Incentive Programme, the Board put in place during the year a special bonus scheme for the two
Executive Directors which would pay out, in the event of a change of control, a sum linked to the growth in share price since
October 2017, subject to an initial uplift requirement.
Share options
Executive Directors are entitled to participate in the Company share option schemes. The Remuneration Committee approves
the granting of any share options.
Fees
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.
29
GovernanceRedcentric Report & Accounts 2018 Directors’ remuneration report (unaudited unless stated otherwise)
continued
Recruitment and promotion policy
The Committee proposes an Executive Director’s remuneration package for new appointments in line with the principles
outlined in the table below:
Element of remuneration
Policy
Base salary
Benefits
Pension
Annual bonus
Base salaries are set by the Committee on appointment and then normally reviewed
annually. In setting and reviewing salaries, the Committee considers the responsibilities of
the role, progression in the role, individual performance, skills, experience and pay levels
within the Group.
Benefits as provided to current Executive Directors. Benefits for each Executive Director
may include life assurance cover of four times salary and private medical insurance for
themselves, their spouse and their children.
A contribution to a private pension plan.
The Remuneration Committee determines the criteria for the award of performance
bonuses. An annual bonus would operate in the same way as current executives and would
be pro-rated to reflect the period of employment.
Long-term incentives
Executive Directors are entitled to participate in the Company share options schemes.
The Remuneration Committee approves the granting of any share options.
Service contracts
The Chief Executive Officer has a service contract with a provision for termination notice period of six months (twelve months in
the event of a takeover), with the Chief Financial Officer having a termination notice period of six months (twelve months in the
event of a takeover).
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.
The details of the Executive and Non-Executive Directors’ service contracts are summarised below:
Executive Directors
Chris Jagusz (appointed 20 October 2017)
Fraser Fisher (resigned 20 October 2017)
Peter Brotherton
Non-Executive Directors
David Payne (resigned 31 March 2018)
Chris Cole
Stephen Puckett
Jon Kempster
Stephen Vaughan
Date of contract
Notice period
(months)
Length of service at
31 March 2018
20 October 2017
8 April 2013
28 November 2016
19 February 2013
1 September 2014
17 November 2014
10 January 2017
13 June 2017
6*
12
6*
6
6
6
6
6
5 months
1 year 4 months
5 years 1 month
3 years 7 months
3 years 4 months
1 year 2 months
9 months
*12 months in the event of a takeover.
The service contracts continue until notice on either side is given.
30
GovernanceRedcentric Report & Accounts 2018 Directors’ remuneration report (audited) continued
The Executive Directors’ salaries for the 2018 financial year are set out in the table below:
Executive Directors
Chris Jagusz
Peter Brotherton
Salary
31 March
2018
£000
Salary
31 March
2017
£000
310
200
-
170
Chairman and Non-Executive Directors’ fees
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.
Chris Cole
David Payne (resigned 31 March 2018)
Stephen Puckett
Jon Kempster
Stephen Vaughan
Annual fee
31 March
2018
£000
Annual fee
31 March
2017
£000
70
40
40
35
28
70
40
40
5
-
Directors may claim reasonable business expenses within the terms of the Group’s expense policy and be reimbursed on
the same basis as all employees. The Group may reimburse business expenses which are in future classified as taxable benefits
by HMRC.
Total remuneration for the Chief Executive Officer
The table below shows the total remuneration figure for the Chief Executive Officer over a five-year performance period.
The total remuneration figure includes bonus and benefits.
Year
2018
2017
2016
2015
2014
Executive
Chris Jagusz
Fraser Fisher**
Fraser Fisher
Fraser Fisher
Tony Weaver †
Tony Weaver
Tony Weaver
** Fraser Fisher was Chief Executive Officer until his resignation on 20 October 2017. Chris Jagusz was appointed Chief Executive Officer at this time.
† Tony Weaver was Chief Executive Officer until his resignation on 1 November 2016. Fraser Fisher was appointed Chief Executive Officer at this time.
Total single
figure
£000
154
209
369
266
120
204
204
31
GovernanceRedcentric Report & Accounts 2018 Directors’ remuneration report (audited) continued
The remuneration of the Directors in respect of the year was as follows:
Basic salary,
allowances
and fees
£000
Bonus
£000
Payment
in lieu of
notice Holiday
Pension
Gain on
Option
Exercise
£000
£000
£000
£000
2018
Total
£000
2017
Total
£000
Executive
Chris Jagusz
(appointed 20 October 2017)
Peter Brotherton
Fraser Fisher
(resigned 20 October 2017)
Tim Coleman
(resigned 6 November 2016)
Non-Executive
Chris Cole
David Payne
Stephen Puckett
Tony Weaver
(resigned 1 November 2016)
Stephen Vaughan
Jon Kempster
Total
154
200
199
-
70
40
40
-
28
35
-
40
-
-
-
-
-
-
-
-
-
-
159
-
-
15
-
-
-
-
-
4
-
-
-
-
-
-
-
-
-
10
10
-
-
-
-
-
-
-
-
-
154
254
59
427
-
-
-
-
-
-
-
70
55
40
-
28
35
-
88
369
208
70
40
40
18
-
5
766
40
174
4
20
59
1,063
838
Details of share options in the Group held by the Directors during the year are as follows (audited):
Exercise
Price
Balance
31 Mar
2017
Granted
Forfeited /
Expired
Exercised
Chris Jagusz
Peter Brotherton
Fraser Fisher
(a)
(b)
(c)
(d)
(c)
(e)
(f)
(g)
nil
nil
nil
63p
nil
70p
80p
107p
-
349,800
161,905
-
-
-
192,481
28,571
161,905
221,052
-
-
-
-
-
-
421,052
(421,052)
276,143
581,968
16,822
-
-
-
-
-
(16,822)
-
-
-
-
-
-
(276,143)
Balance
31 Mar
2018
349,800
161,905
192,481
28,571
382,957
-
-
-
-
581,968
-
874,933
421,052
(437,874)
(276,143)
581,968
Further information regarding the options noted above is set out below.
(a) The options were granted on 4 December 2017 under the Group's Long-Term Incentive Plan. The options will vest post the
release of the Group's results for the year ended 31 March 2020 subject to the achievement of performance conditions related
to the growth in earnings per share.
(b) The options were granted on 28 December 2016 under the Group's Long-Term Incentive Plan. The options will vest post
the release of the Group's results for the year ended 31 March 2019 subject to the achievement of performance conditions
related to the growth in earnings per share.
32
GovernanceRedcentric Report & Accounts 2018 Directors’ remuneration report (audited) continued
(c) The options were granted on 29 June 2017 under the Group's Long-Term Incentive Plan. The options will vest post the
release of the Group's results for the year ended 31 March 2020 subject to the achievement of performance conditions related
to the growth in earnings per share. Fraser Fisher's options lapsed on him leaving the Company.
(d) The options were granted pursuant to the Group's HMRC approved Save-As-You-Earn Option Plan 2017 under which
employees contribute a monthly amount which is saved over three years to buy shares. There are no performance conditions.
(e) The options were granted on 18 April 2013 under the Group's EMI scheme. The options were exercised on 24 January 2018.
(f) The options were granted under the Group'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.
(g) The options were granted pursuant to the Group's HMRC approved Save-As-You-Earn Option Plan 2015 under
which employees contribute a monthly amount which is saved over three years to buy shares. There are no performance
conditions. Fraser Fisher's options lapsed on him leaving the Company.
Directors’ interests in shares
The interests (both beneficial and family interests) of the Directors in office at the date of this report in the share capital
of the Group were as follows:
Interests in ordinary shares £0.001
At 31 March
2018
At 31 March
2017
Executive
Chris Jagusz
Fraser Fisher
Peter Brotherton
Non-Executive
Chris Cole
David Payne
Stephen Puckett
Jon Kempster
Stephen Vaughan
Total
7,953
-
20,000
20,000
100,626
-
-
20,000
168,579
-
106,807
-
-
100,626
-
-
-
Interests in
share based
incentives
Options
(unvested)
349,800
581,986
382,957
-
-
-
-
-
207,433
1,314,743
33
GovernanceRedcentric Report & Accounts 2018 Directors’ remuneration report (audited) continued
Remuneration policy for Executive Directors compared to other employees
The table below shows the movement in the salary, benefits and annual bonus for the Chief Executive Officer between the
current and previous financial year compared to that of the total amounts for all employees of the Group for each of these
elements of pay.
Chief Executive Officer
Salary
Benefits
Annual Bonus
Average of all employees
Salary
Benefits
Annual Bonus
2018
£000
342
11
-
37
1
1
2017
£000
350
1
18
38
1
1.3
% change
(2.3)%
1000%*
-
(2.6)%
0%
(23)%
*In the 2018 financial year the Chief Executive Officer received a car allowance as part of his remuneration package.
Relative importance of the spend on pay
The table below shows the total pay for all Redcentric’s employees compared to other key financial indicators. Additional
information on the number of employees, total revenue and underlying profit has been provided for context.
Employee costs
Dividends to shareholders
Income tax
Average number of employees
Revenue
Adjusted EBITDA
2018
£000
23,860
-
1,004
501
99,990
18,085
2017
£000
25,350
4,406
(1,870)
541
104,623
17,273
% change
(5.9)%
(100)%
-
(7.4)%
(4.4)%
4.7%
Resignation arrangements for Fraser Fisher
Fraser Fisher's employment with the Group ended on 31 December 2017 following a handover period to ensure a smooth
transition process. Chris Jagusz was appointed as Chief Executive on 16th October 2017 and as a Director on 20th October
2017; on this date Fraser Fisher resigned from the Board.
The Committee determined that he will continue to be paid his salary and normal package benefits up to 10th August 2018
in line with his notice period of 12 months.
The remuneration arrangements for Chris Jagusz who replaced Fraser Fisher as Chief Executive Officer are in line with the
Remuneration Policy.
Share price
The market price of the Company’s shares on 31 March 2018 was 78p per share. The highest and lowest market prices during
the year were 97p and 70p respectively.
Stephen Vaughan
Chairman, Remuneration Committee
On behalf of the Board, 27 June 2018
34
GovernanceRedcentric Report & Accounts 2018 Independent auditor’s report to the members of Redcentric plc
1. Our opinion is unmodified
We have audited the financial statements of Redcentric Plc (“the Group”) for the year ended 31 March 2018 which comprise
the Consolidated Income Statement, the Consolidated Statement of Comprehensive Income, the Consolidated Statement of
Changes in Equity, the Consolidated Statement of Financial Position, the Consolidated Cash Flow Statement, the Company
Balance Sheet, the Company Statement of Changes in Equity and the related notes, including the accounting policies in note 1.
In our opinion:
• the financial statements give a true and fair view of the state of the Group’s and of the parent Company’s affairs as at
31 March 2018 and of the Group’s profit for the year then ended;
• the group financial statements have been properly prepared in accordance with International Financial Reporting Standards
as adopted by the European Union;
• the parent Company financial statements have been properly prepared in accordance with UK accounting standards,
including FRS 101 Reduced Disclosure Framework; and
• the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our
responsibilities are described below. We have fulfilled our ethical responsibilities under, and are independent of the Group in
accordance with, UK ethical requirements including the FRC Ethical Standard as applied to listed entities. We believe that the
audit evidence we have obtained is a sufficient and appropriate basis for our opinion.
Overview
Materiality:
£549k (2017: £520k)
Group Financial statements as a whole
0.55% of group revenue (2017: 0.50% of group revenue)
Coverage:
97% of group profit before tax (2017: 97%)
Risks of material misstatement:
Management judgement
Low risk, high value
Recoverability of trade receivables and accrued revenue
Carrying value of investments (parent company risk)
2. Key audit matters: our assessment of risks of material misstatement
Key audit matters are those matters that, in our professional judgment, were of most significance in the audit of the financial
statements and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified
by us, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit;
and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial
statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
In arriving at our audit opinion above, the key audit matters, in decreasing order of audit significance, were as follows.
Provision for trade receivables and accrued income £18.6m (2017: £20.4m), Risk vs 2017: down.
The risk: subjective estimate
The Group has a history of material charges against the recoverability of trade receivables and accrued income. Accordingly,
the Group has recognised a provision for irrecoverable items against both trade receivables and accrued income reflecting the
value of these balances which the Group anticipates will not be realised. As there is a significant level of judgement involved in
estimating the value of this provision there is a risk that the amount of provision recognised may be misstated and we consider
this to be a key audit matter.
35
GovernanceRedcentric Report & Accounts 2018 Independent auditor’s report to the members of Redcentric plc continued
Our audit procedures included:
• Historical comparisons: Considering the historical accuracy of provisions over trade receivables and accrued income by
comparing prior year provisions to actual utilisation in the year and actual levels of debtor and accrued income recovery;
• Our sector experience: Challenging key assumptions behind the provisions against accrued income and trade receivables
such as history of trading with clients, based on our knowledge of the Group;
• Our sector experience: Assessing whether the level of provision recognised by the Directors in respect of aged and
overdue trade receivables and accrued income reflected our knowledge of the Group or probable changes in the
business environment;
• Tests of details: Agreeing a sample of accrued trade receivables at the year end to post year end cash receipts; and
• Assessing transparency: Assessing the adequacy of the Group’s disclosures about the degree of estimation involved in
arriving at the provision.
Recoverability of parent company investment in subsidiaries £101.6m (2017: £101.0), Risk vs 2017: stable
The risk: forecast based valuation
The carrying amount of the parent company’s investments in subsidiaries are significant and at risk of irrecoverability due to
weakening demand in certain areas of the business. The estimated recoverable amount of these balances is subjective due to
the inherent uncertainty in forecasting trading conditions and cash flows used in the budgets for the subsidiary companies.
Our audit procedures included:
• Benchmarking assumptions: Challenging the assumptions used in the cash flows included in the forecasts based on our
knowledge of the Group and the markets in which the subsidiaries operate;
• Historical comparisons: Assessing the reasonableness of the forecasts by considering the historical accuracy of the
previous forecasts;
• Our sector experience: Evaluating the current level of trading, including identifying any indications of a downturn in
activity, by examining the post year end management accounts and considering our knowledge of the Group and the
market; and
• Assessing transparency: Assessing the adequacy of the parent company’s disclosures in respect of the investment
in subsidiaries.
3. Our application of materiality and an overview of the scope of our audit
The materiality for the Group financial statements as a whole was set at £549k (2017: £520k), determined with reference to a
benchmark of Total Revenues of £100.0m (2017: £104.6m), of which it represents 0.55% (2017: 0.50%).
The materiality for the Parent company financial statements as a whole was set at £548k (2017: £490k), determined with
reference to a benchmark of gross assets of £101.6m (2017: £101.0m), of which it represents 0.54% (2017: 0.48%).
We report to the Audit Committee any corrected or uncorrected identified misstatements exceeding £27.0k (2017: £15.6k),
in addition to other identified misstatements that warranted reporting on qualitative grounds.
Of the Group’s 3 (2017: 5) reporting components, we subjected 2 (2017: 4) to full scope audits for group purposes.
All components subject to full scope audit were audited by the Group audit team at the Group’s head office. The other
component was subject to a desktop review.
The components within the scope of our work accounted for the following percentages of the Group’s results:
Audits for group reporting purposes
2 (2017: 4)
100% (2017: 100%)
97% (2017: 97%)
100% (2017: 100%)
Total
2 (2017: 4)
100% (2017: 100%)
97% (2017: 97%)
100% (2017: 100%)
Number of
components
Group
revenue
Group profit
before tax
Group total
assets
The Group audit team approved the component materialities, which ranged from £215k to £548k (2017: £145k to £490k),
having regard to the mix of size and risk profile of the Group across the components.
36
GovernanceRedcentric Report & Accounts 2018 Independent auditor’s report to the members of Redcentric plc continued
4. We have nothing to report on going concern
7. Respective responsibilities
We are required to report to you if we have concluded
that the use of the going concern basis of accounting is
inappropriate or there is an undisclosed material uncertainty
that may cast significant doubt over the use of that basis for
a period of at least twelve months from the date of approval
of the financial statements. We have nothing to report in
these respects.
5. We have nothing to report on the other
information in the Annual Report
The Directors are responsible for the other information
presented in the Annual Report together with the financial
statements. Our opinion on the financial statements does
not cover the other information and, accordingly, we do not
express an audit opinion or, except as explicitly stated below,
any form of assurance conclusion thereon.
Our responsibility is to read the other information and,
in doing so, consider whether, based on our financial
statements audit work, the information therein is materially
misstated or inconsistent with the financial statements or
our audit knowledge. Based solely on that work we have not
identified material misstatements in the other information.
Strategic report and Directors’ report
Based solely on our work on the other information:
Directors’ responsibilities
As explained more fully in their statement set out on page
28, the Directors are responsible for: the preparation of the
financial statements including being satisfied that they give
a true and fair view; such internal control as they determine
is necessary to enable the preparation of financial statements
that are free from material misstatement, whether due to
fraud or error; assessing the Group and parent Company’s
ability to continue as a going concern, disclosing, as
applicable, matters related to going concern; and using the
going concern basis of accounting unless they either intend
to liquidate the Group or the parent Company or to cease
operations, or have no realistic alternative but to do so.
Auditor’s responsibilities
Our objectives are to obtain reasonable assurance about
whether the financial statements as a whole are free from
material misstatement, whether due to fraud or error, and to
issue our opinion in an auditor’s report. Reasonable assurance
is a high level of assurance, but does not guarantee that an
audit conducted in accordance with ISAs (UK) will always
detect a material misstatement when it exists. Misstatements
can arise from fraud or error and are considered material
if, individually or in aggregate, they could reasonably be
expected to influence the economic decisions of users taken
on the basis of the financial statements.
• we have not identified material misstatements in the
Strategic report and the Directors’ report;
A fuller description of our responsibilities is provided on the
FRC’s website at www.frc.org.uk/auditorsresponsibilities.
• in our opinion the information given in those reports for
the financial year is consistent with the financial statements;
and
• in our opinion those reports have been prepared in
accordance with the Companies Act 2006.
6. We have nothing to report on the other
matters on which we are required to
report by exception
Under the Companies Act 2006, we are required to report to
you if, in our opinion:
• adequate accounting records have 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; or
8. The purpose of our audit work and to whom
we owe our responsibilities
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.
John Pass (Senior Statutory Auditor)
for and on behalf of KPMG LLP, Statutory Auditor
Chartered Accountants
1 Sovereign Square, Sovereign Street,
Leeds LS1 4DA
• we have not received all the information and explanations
27 June 2018
we require for our audit.
We have nothing to report in these respects.
37
GovernanceRedcentric Report & Accounts 2018
Consolidated Income Statement for the year ended 31 March 2018
Revenue
Cost of sales*
Gross profit
Operating expenditure
Exceptional costs
Operating profit / (loss)
Analysed as:
Adjusted EBITDA**
Depreciation
Amortisation of intangibles
Exceptional costs
Share-based payments
Interest payable
Interest receivable
Loss on ordinary activities before taxation
Tax credit on profit on ordinary activities
Profit /(loss) for the year (attributable to owners of the parent)
Earnings per share
Basic earnings per share
Diluted basic earnings per share
Note
5
10
11
5
22
6
6
8
9
9
2018
£000
99,990
(39,996)
59,994
(57,382)
(1,672)
2017
£000
104,623
(44,159)
60,464
(57,985)
(5,474)
940
(2,995)
18,085
(7,769)
(7,136)
(1,672)
(568)
940
(1,452)
19
(493)
1,004
511
17,273
(7,507)
(6,207)
(5,474)
(1,080)
(2,995)
(1,254)
1
(4,248)
1,870
(2,378)
0.34p
0.34p
(1.60)p
(1.60)p
* Certain costs in 2017 have been reclassified between cost of sales and operating expenditure – see Note 28.
** Earnings before interest, tax, depreciation, amortisation, exceptional costs and share-based payments.
The above consolidated income statement should be read in conjunction with the accompanying notes.
38
Financial StatementsRedcentric Report & Accounts 2018
Consolidated Statement of Comprehensive Income
Profit / (loss) for the year
Exchange differences arising on re-translation of foreign subsidiary
2018
£000
511
(45)
2017
£000
(2,378)
94
Total comprehensive income
466
(2,284)
Consolidated Statement of Changes in Equity
At 31 March 2016
Loss for the year
Other comprehensive gain – 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
At 31 March 2017
Profit for the year
Other comprehensive 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 2018
-
-
-
3
-
-
149
149
-
-
-
-
-
-
-
Called up
share
capital
£000
Share
premium
£000
Capital
redemption
reserve
£000
146
63,667
(9,454)
-
-
-
1,728
-
-
-
-
-
-
-
-
Retained
earnings
£000
27,328
(2,378)
94
(2,284)
-
(4,406)
975
(974)
Total
equity
£000
81,687
(2,378)
94
(2,284)
1,731
(4,406)
975
(974)
65,395
(9,454)
20,639
76,729
65,395
(9,454)
20,639
76,729
-
-
-
193
-
-
-
-
-
-
-
-
-
-
511
(45)
466
-
-
534
-
511
(45)
466
193
-
534
-
149
65,588
(9,454)
21,639
77,922
39
Financial StatementsRedcentric Report & Accounts 2018 Consolidated Statement of Financial Position as at 31 March 2018
Assets
Non-current assets
Property plant and equipment
Intangible assets
Current assets
Inventories
Trade and other receivables
Cash and short-term deposits
Total assets
Current liabilities
Creditors: amounts falling due within one year
Provision: amounts falling due within one year
Non-current liabilities
Creditors: amounts falling due after more than one year
Provision: amounts falling due after more than one year
Deferred tax liability
Total liabilities
Net assets
Equity and liabilities
Equity
Called up share capital
Share premium account
Capital redemption reserve
Retained earnings
Total equity
Note
2018
£000
2017
£000
10
11
12
13
14
21
16
21
8
20
20,238
82,486
102,724
666
26,120
6,089
32,875
21,998
88,725
110,723
234
26,222
4,340
30,796
135,599
141,519
26,585
-
30,671
376
45
20,040
339
41,092
1,207
2,112
57,677
64,790
77,922
76,729
149
65,588
(9,454)
21,639
77,922
149
65,395
(9,454)
20,639
76,729
The notes on pages 42 to 68 are an integral part of these financial statements. The consolidated financial statements of
Redcentric Plc (Registration Number 08397584) on pages 38 to 68 were approved by the Board on 27 June 2018 and are
signed on its behalf by:
Chris Jagusz, Director
Peter Brotherton, Director
40
Financial StatementsRedcentric Report & Accounts 2018
Consolidated Cash Flow Statement year ended 31 March 2018
Cash flows from operating activities
Loss before taxation
Net finance expense
Operating loss
Depreciation and amortisation
Exceptional costs
Share based payments
Operating cash flow before exceptional costs and movements in working capital
Exceptional 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
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
Bank fees
Repayment of borrowings
(Repayment) / drawdown on revolving credit facility
Proceeds of issue of shares less costs of issue
Net cash (outflow) / inflow from financing activities
2018
£000
2017
£000
(493)
1,433
940
14,905
1,672
568
18,085
(3,002)
15,083
(432)
1,079
3,912
19,642
217
19,859
-
(6,778)
(6,778)
-
(1,196)
(50)
(323)
(10,000)
193
(11,376)
(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
Net increase in cash and cash equivalents
1,705
8,291
Opening cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
Effect of exchange rates
Cash and cash equivalents
4,340
1,705
44
6,089
(3,970)
8,291
19
4,340
41
Financial StatementsRedcentric Report & Accounts 2018 Notes to the Consolidated Financial Statements year ended 31 March 2018
1 Accounting policies – Group
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.
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.
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 debtholders 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.
42
Financial StatementsRedcentric Report & Accounts 2018 Notes to the Consolidated Financial Statements year ended 31 March 2018 – continued
Accounting policies – Group (continued)
1.3 Intangible assets
1.4 Property, plant and equipment
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 cash-
generating units (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.
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
Trademarks
Software Licences
5-15 years
5 years
5 years (or over the contract
term if shorter)
Impairment and amortisation charges are included within the
administrative expenses line in the income statement.
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.
Office fixtures and fittings
4-5 years
Leasehold improvements
5-10 years
Vehicles and computer
equipment
3-5 years (or over the contract
term if shorter)
An item of property, plant and equipment is de-recognised
upon disposal or when no future economic benefits are
expected to arise from the continued use of the asset. Any
gain or loss arising on de-recognition of the asset (calculated
as the difference between the net disposal proceeds and
the carrying amount of the item) is included in the income
statement in the period the item is de-recognised.
1.5 Impairment of assets
Goodwill is reviewed for impairment annually, or more
frequently if events or changes in circumstances indicate that
the carrying value may be impaired. As at the acquisition
date any goodwill acquired is allocated to each of the
CGUs expected to benefit from the business combination’s
synergies. Impairment is determined by assessing the
recoverable amount of the CGU to which the goodwill
relates. When the recoverable amount of the CGU 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 CGU are written down to their recoverable amount.
43
Financial StatementsRedcentric Report & Accounts 2018 Notes to the Consolidated Financial Statements year ended 31 March 2018 – continued
Accounting policies – Group (continued)
The recoverable amount of intangible assets and property,
plant and equipment is the greater of fair value less costs to
sell and value in use. In assessing value in use, the estimated
future cash flows are discounted to their present value using a
pre-tax discount rate that reflects current market assessments
of the time value of money and the risks specific to the asset.
For an asset that does not generate largely independent cash
inflows, the recoverable amount is determined by the cash
generating unit to which the asset belongs. Fair value less
costs to sell is, where known, based on actual sales price net
of costs incurred in completing the disposal.
Non-financial assets that were impaired in the previous
periods are annually reviewed to assess whether the
impairment is still relevant.
1.6 Share capital
Ordinary shares are classified as equity. Incremental costs
directly attributable to the issue of new shares or options are
shown in equity as a deduction from proceeds.
1.7 Leases
Leases where the lessor retains substantially all the risks
and benefits of ownership of the asset are classified as
operating leases.
Operating lease payments are recognised as an expense in
the income statement on a straight-line basis over the lease
term. Assets funded through finance leases are capitalised
as property, plant and equipment and depreciated over the
shorter of their useful economic life and the lease term. The
resulting lease obligations are included in borrowings net of
finance charges. Interest costs on finance leases are charged
to the income statement.
1.8 Current and deferred income tax
Current tax assets and liabilities are measured at the amount
expected to be recovered from or paid to the taxation
authorities, based on tax rates and laws that are enacted or
substantively enacted by the balance sheet date.
Deferred income tax is provided for on all temporary
differences at the balance sheet date between the tax
bases of assets and liabilities and their carrying amounts for
financial reporting purposes, with the following exceptions:
• where the temporary difference arises from the initial
recognition of goodwill or an asset or liability in a
transaction that is not a business combination that at the
time of the transaction affects neither accounting nor
taxable profit or loss;
• i n 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.
A 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, 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.
44
Financial StatementsRedcentric Report & Accounts 2018 Notes to the Consolidated Financial Statements year ended 31 March 2018 – continued
Accounting policies – Group (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.
Dilapidations
The dilapidation provisions are built up over the life of the
associated lease based on estimates of costs of work required
to fulfil the Group’s contractual obligation under the lease
agreements to return the property to the same condition as
at the commencement of the lease.
1.15 Pensions
The Group operates a defined contribution scheme. Pension
costs are charged directly to the income statement in the
period to which they relate on an accruals basis. The Group
has no further payment obligations once contributions have
been paid.
1.16 Share-based payment transactions
The cost of equity-settled transactions with employees is
measured by reference to the fair value of the award at
the date at which they are granted and is recognised as an
expense over the vesting period, which ends on the date at
which the relevant employees become fully entitled to the
award. Fair value is determined by an external valuer using
an appropriate pricing model for which the assumptions
are approved by the Directors. In valuing equity-settled
transactions, only vesting conditions linked to the market
price of the shares of the Company are considered.
No expense is recognised for awards that do not ultimately
vest, except for awards where vesting is conditional upon a
market condition, which are treated as vesting irrespective
of whether or not the market condition is satisfied, provided
that all other performance conditions are satisfied.
At each balance sheet date before vesting, the cumulative
expense is calculated, representing the extent to which the
vesting period has expired and management’s best estimate
of the achievement or otherwise of non-market conditions,
number of equity instruments that will ultimately vest or in
the case of an instrument subject to a market condition, be
treated as vesting as 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.
45
Financial StatementsRedcentric Report & Accounts 2018 Notes to the Consolidated Financial Statements year ended 31 March 2018 – continued
Accounting policies – Group (continued)
1.18 Interest-bearing loans and borrowings
All loans and borrowings are initially recognised at fair value
less directly attributable transaction costs. After initial
recognition, interest-bearing loans and borrowings are
subsequently measured at amortised cost using the effective
interest method. Gains and losses arising on the repurchase,
settlement or otherwise cancellation of liabilities are
recognised in the finance cost line in the income statement.
1.19 Finance costs
Loans are carried at fair value of initial recognition, net of
unamortised issue costs of debt. These costs are amortised
over the loan term.
All other borrowing costs are recognised in the income
statement on an accruals basis, using the effective
rate method.
1.20 Revenue
Revenue is measured at the fair value of the consideration
received or receivable, and represents amounts receivable for
services and goods supplied, stated net of discounts, returns
and value added taxes. The Group recognises revenue when
the amount of revenue can be reliably measured; when it
is probable that future economic benefits will flow to the
entity; and when specific criteria have been met for each of
the Group’s activities, as described below. The Group does
not generally bundle various services and products. When
bundles occur, the revenue is allocated to each segment
based on the fair value of each element within the contract.
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.
46
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.
1.22 Exceptional 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 exceptional 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 exceptional costs.
For further detail refer to note 5.
Financial StatementsRedcentric Report & Accounts 2018 Notes to the Consolidated Financial Statements year ended 31 March 2018 – continued
Accounting policies – Group (continued)
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 Board believes that the Group comprises a single
reporting segment, that being the provision of managed
services to customers. Whilst the Board still reviews revenue
streams of three categories separately (recurring, product and
service), 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.
The Executive Board assess the performance of the operating
segment based on adjusted EBITDA. Information provided to
the Executive Board is measured in a manner consistent with
that in the Financial Statements.
1.25 Critical accounting estimates and assumptions
Estimates and judgements are continually evaluated and are
based on historical experience and other factors, including
expectations of future events that are believed to be
reasonable under the circumstances.
The Group makes estimates and assumptions concerning
the future. The resulting accounting estimates will, by
definition, seldom equal the related results. The estimates
and assumptions that have a significant risk of causing a
material adjustment to the carrying amounts of assets and
liabilities within the next financial year are:
• Impairment of trade debtors
The group policy is to establish a provision for impairment
of trade debtors when there is evidence of a risk of
non-payment.
Historically the group has little history of non-payment
arising from business failure and, as such, specific
provisions are generally not required. A provision is created
as a result of timing differences when processing renewals
or where there is a risk of non-payment due to disputed
debtor balances.
Following a year of significant improvement in this
area, historical analysis shows that the reduced level of
provisioning is adequate to cover these eventualities.
Annually the group reviews the appropriateness of the
impairment provision by taking into account ageing,
known post balance sheet corrections, previous losses
experienced and general economic conditions.
Management complete an exercise assessing recoverability
of overdue balances based on an internal assessment of
the recoverability of balances. This allows management to
conduct sensitivity analysis of debtor balances and related
provisions reflecting alternative potential judgements. In
management's view, the sensitivities conducted do not
show material different outcomes with regards to the level
of provision recognised.
• Impairment of accrued income
The group assesses on an on-going basis the make-up
and recovery of accrued income balances. A provision for
impairment is established where there is evidence of a risk
of non-payment taking in to account ageing, known post
balance sheet corrections, previous losses experienced and
general economic conditions.
The ageing of accrued income can vary depending on the
length of project delivery schedules. Aged balances are
reviewed regularly and a provision is established where a
risk of non-payment has been identified.
1.26 IFRS 15 Revenue from Contracts with Customers
(effective date 1 January 2018)
The Group intends to adopt IFRS 15 retrospectively in
its consolidated financial statements for the year ending
31 March 2019. IFRS 15 replaces all existing revenue
requirements in IFRS and sets out principles for recognising
revenue that must be applied using a five step model.
Revenue should only be recognised when (or as) control of
goods or services is passed to the customer, when distinct
‘performance obligations’ are met, at the amount to which
the entity expects to be entitled.
The Group has completed its assessment of IFRS 15 and has
not identified any material differences between the Group’s
current revenue recognition policy and the requirements of
IFRS 15. Materially all of the Group’s revenues are derived
from a full range of contracted managed services which
includes support, maintenance subscription and service
agreements, which result in performance obligations being
met ‘over time’ rather than at a ‘point in time’. It is therefore
appropriate that these managed services revenues continue
to be recognised over the period that the services are
provided to the customer.
47
Financial StatementsRedcentric Report & Accounts 2018 Financial Statements
Notes to the Consolidated Financial Statements year ended 31 March 2018 – continued
Accounting policies – Group (continued)
Revenues enabling the provision of the managed services
such as customer premises equipment (CPE), cabling and
professional services, are often combined in the customers
contracts. Judgement will be required here to determine
whether these should be ‘bundled’ together or treated as
distinct and accounted for as separate performance obligations.
It is not expected that this aggregation will materially change
either the period over which revenue is recognised or how
the Group’s significant revenue streams (as set out in note
1.20) are classified and reported.
The Group’s sale of hardware has a performance obligation
that is met at a point in time, being the point in time when
hardware is delivered or installed. Revenue recognition for
hardware is unchanged under IFRS 15. The performance
obligations for the Group’s other material revenue streams,
set out in note 1.20, are satisfied over time, either as the
service is provided or the project delivered. Revenue
recognition would not change for these under IFRS 15.
IFRS 15 requires that the incremental costs of obtaining a
contract, including sales commissions paid to employees,
are recognised in line with the transfer of goods / services
to the customers. For those relevant costs that are currently
expensed as incurred, recognising these over the period that
performance obligations are satisfied would not result in a
material change to the financial results for the year.
1.27 IFRS 9 Financial Instruments (effective date
1 January 2018)
IFRS 9 Financial Instruments replaces IAS 39 Financial
Instruments: Recognition and Measurement and will be
adopted by the Group for the year ending 31 March 2019.
IFRS 9 covers the requirements for assessing the impairment
of financial assets.
The Group’s policy, in accordance with IAS 39, is to make
specific provisions against high risk trade receivable balances,
where balances are in dispute or where doubt exists about
the customer’s ability to pay.
IFRS 9 requires a consideration of the likelihood of default of
trade receivables; firstly by splitting out the high risk balances
and continuing to provide for these separately, and then
applying a ‘loss rate’ to the remaining balance where it is
known from experience that the loss rate is not nil. On the
basis that the Group has little or no history of unprovided
trade receivable write off it is not expected that the impact
will be material.
1.28 IFRS 16 Leases (effective date 1 January 2019)
IFRS 16 covers the requirements for the recognition,
measurement, presentation and disclosure of leases.
The standard provides a single lessee accounting model,
requiring lessees to recognise assets and liabilities for all
leases unless the lease term is twelve months or less or
the underlying asset has a low value. This is a significant
departure from the current standard, IAS 17 Leases, and will
result in most of the Group’s operating leases being brought
onto the balance sheet (and the associated operating lease
charge, currently charged to operating profit, being replaced
with a finance cost and depreciation charge).
The Group is in the process of assessing the impact of this
standard, which will be first applied for the year ending
31 March 2019.
Details of the Group’s operating leases, currently accounted
for under IAS 17 Leases, can be found in note 15.
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.
The Board believes that the Group comprises a single
reporting segment, that being the provision of managed
services to customers. Whilst the Board still reviews revenue
streams of three categories separately (recurring, product and
service), 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.
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. Service revenue is derived from the provision of
consultancy or installation services regarding the provision
and set-up of a new service.
48
Financial StatementsRedcentric Report & Accounts 2018 Financial Statements
Notes to the Consolidated Financial Statements year ended 31 March 2018 – continued
Segment reporting (continued)
Revenue for the year ended 31 March 2018 was generated wholly from the UK, and all non-current assets are based in the UK.
Recurring revenue
Product sales
Services revenue
One-off revenue
Total revenue
3 Expenses by nature
Amortisation of acquired intangible assets: owned
Amortisation of acquired intangible assets: leased
Depreciation – owned assets
Depreciation – assets held under finance lease
Share-based payments
Operating lease payments
Year ended
31 March
2018
Year ended
31 March
2017
£000
£000
87,065
90,219
7,180
5,745
12,925
6,278
8,126
14,404
99,990
104,623
2018
£000
7,111
25
5,174
2,595
568
2,837
2017
£000
6,207
-
5,425
2,082
1,080
2,791
Employee benefits expense, excluding share based compensation
23,292
24,270
4 Auditors’ remuneration
Below are the fees payable to the auditors and their associates:
2018
£000
2017
£000
Audit services – KPMG
Fees payable to Company auditor and its associates for the audit of parent company
and consolidated financial statements
The audit and interim review of Company’s subsidiaries
Fees payable to Company auditor and its associates for other services:
Tax advisory and compliance services
Total
24
115
12
151
110
115
32
257
49
Financial StatementsRedcentric Report & Accounts 2018 Notes to the Consolidated Financial Statements year ended 31 March 2018 – continued
5 Exceptional costs
In accordance with the Group’s policy of separately identifying exceptional costs, the following charges were recognised
in the year:
Professional fees associated with the forensic review and Financial
Conduct Authority (FCA) investigation
Staff restructuring
Integration costs
Non-recurring impairment of trade debtor balances
Sale of metro ring to City Fibre
Vacant property provisions
Year ended
31 March
2018
£000
Year ended
31 March
2017
£000
672
868
132
-
-
-
1,672
1,291
187
471
2,933
207
385
5,474
• Exceptional impairment of trade debtor balances;
- Following the audit of the 31 March 2017 annual results, a further debtor impairment charge was taken in FY17.
• Professional fees associated with the forensic review and FCA investigation;
- These costs relate to legal and forensic advice received in respect of the ongoing FCA investigation.
• Staff restructuring costs;
- During the year a restructuring exercise was undertaken which resulted in eighteen redundancies.
• Integration costs;
- The integration costs relate to the integration of the City Lifeline acquisition which was undertaken in January 2016.
The integration process is complete, and no further costs will be incurred in this regard.
• Disposal of City Fibre network;
- On 30 September 2016, the Company disposed of its fibre network to City Fibre Limited. This led to an exceptional charge
of £0.2m in respect of the loss on disposal and legal fees.
• Vacant property provision;
- In FY17, the Birmingham and Hoddesdon offices were vacated, leading to a vacant property charge of £0.4m in the year.
6 Finance costs
Year ended
31 March
2018
£000
Year ended
31 March
2017
£000
(19)
(1)
1,241
143
68
1,452
1,433
869
317
68
1,254
1,253
Interest receivable
Other interest receivable
Interest payable
Interest payable on bank loans and overdrafts
Interest payable on finance leases
Amortisation of loan arrangement fees
Net financing costs
50
Financial StatementsRedcentric Report & Accounts 2018 Notes to the Consolidated Financial Statements year ended 31 March 2018 – continued
7 Employee benefits expense
Staff costs for the year, including Executive Directors, amounted to:
Wages and salaries
Social security costs
Share options granted to Directors and employees
Pension costs
Average monthly number of people (including Executive Directors) employed:
Operations
Selling and distribution
Administration
These numbers as split as follows:
UK
India
2018
£000
20,655
2,240
568
397
23,860
2018
367
81
53
501
2018
362
139
501
2017
£000
21,450
2,392
1,080
428
25,350
2017
427
81
33
541
2017
386
155
541
The remuneration of the Directors in respect of the year was as follows:
Basic salary,
allowances
and fees
£000
Bonus
£000
Payment
in lieu of
notice
Holiday
Pension
Gain on
Option
Exercise
£000
£000
£000
£000
2018
Total
£000
2017
Total
£000
Executive
Chris Jagusz
(appointed 20 October 2017)
Peter Brotherton
Fraser Fisher
(resigned 20 October 2017)
Tim Coleman
(resigned 6 November 2016)
Non-Executive
Chris Cole
David Payne
(resigned 31 March 2018)
Stephen Puckett
Tony Weaver
(resigned 1 November 2016)
Stephen Vaughan
Jon Kempster
154
200
199
-
70
40
40
-
28
35
-
40
-
-
-
-
-
-
-
-
-
-
159
-
-
15
-
-
-
-
-
4
-
-
-
-
-
-
-
-
-
10
10
-
-
-
-
-
-
-
-
-
154
254
-
88
59
427
369
-
-
-
-
-
-
-
208
70
55
40
-
28
35
70
40
40
18
-
5
Total
766
40
174
4
20
59
1,063
838
51
Financial StatementsRedcentric Report & Accounts 2018 Notes to the Consolidated Financial Statements year ended 31 March 2018 – continued
Employee benefits expense (continued)
Details of share options in the Company held by the Directors during the year are as follows:
Exercise
Price
Balance
31 Mar
2017
Granted
Forfeited /
Expired
Exercised
Chris Jagusz
Peter Brotherton
Fraser Fisher
(a)
(b)
(c)
(d)
(c)
(e)
(f)
(g)
nil
nil
nil
63
nil
70
80
107
-
349,800
161,905
-
-
-
192,481
28,571
161,905
221,052
-
-
-
-
-
-
421,052
(421,052)
276,143
581,968
16,822
-
-
-
-
-
(16,822)
-
-
-
-
-
-
(276,143)
Balance
31 Mar
2018
349,800
161,905
192,481
28,571
382,957
-
-
-
-
581,968
-
874,933
421,052
(437,874)
(276,143)
581,968
Further information regarding the options noted above is set out below.
(a) The options were granted on 4 December 2017 under the Group's Long-Term Incentive Plan. The options will vest post the
release of the Group's results for the year ended 31 March 2020 subject to the achievement of performance conditions related
to the growth in earnings per share.
(b) The options were granted on 29 December 2016 under the Group's Long-Term Incentive Plan. The options will vest post
the release of the Group's results for the year ended 31 March 2019 subject to the achievement of performance conditions
related to the growth in earnings per share.
(c) The options were granted on 29 June 2017 under the Group's Long-Term Incentive Plan. The options will vest post the
release of the Group's results for the year ended 31 March 2020 subject to the achievement of performance conditions related
to the growth in earnings per share. Fraser Fisher's options lapsed on him leaving the Company.
(d) The options were granted pursuant to the Group's HMRC approved Save-As-You-Earn Option Plan 2017 under which
employees contribute a monthly amount which is saved over three years to buy shares. There are no performance conditions.
(e) The options were granted on 18 April 2013 under the Group's EMI scheme. The options were exercised on
24 January 2018.
(f) The options were granted under the Group'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.
(g) The options were granted pursuant to the Group's HMRC approved Save-As-You-Earn Option Plan 2015 under
which employees contribute a monthly amount which is saved over three years to buy shares. There are no performance
conditions. Fraser Fisher's options lapsed on him leaving the Company.
Share price
The market price of the Group’s shares on 31 March 2018 was 78p per share. The highest and lowest market prices during
the year were 97p and 70p respectively.
52
Financial StatementsRedcentric Report & Accounts 2018 Notes to the Consolidated Financial Statements year ended 31 March 2018 – continued
8 Tax on profit on ordinary activities
(a) Tax on profit on ordinary activities
Current income tax:
Current income tax
Adjustment in relation to prior year
Overseas tax
Deferred tax:
Origination and reversal of timing
differences
- Deferred tax asset: adjustment in relation to prior year
- Deferred tax liability: prior year adjustments
- Deferred tax liability: adjustment in relation to prior year
- Deferred tax liability: current year
Total income tax (credit) reported in the income statement
2018
£000
2017
£000
331
696
53
(604)
(410)
-
(1,070)
(1,004)
64
38
-
312
200
(501)
(1,983)
(1,870)
The tax credit for the year was £1.0m (FY17: credit of £1.9m) which was made up of a corporation tax charge of £1.1 (FY17:
charge of £0.1m) and a deferred tax credit of £2.1m (FY17: credit of £2.0m).
The corporation tax charge comprises a current year corporation tax charge of £0.3m, a prior year corporation tax charge of
£0.7m and an overseas tax charge of £0.1m.
The prior year corporation tax charge relates to the resubmission of the FY15 and FY16 tax computations. The Group has made
several historical acquisitions some of which have tax losses brought forward. The streaming of these tax losses had been
incorrectly applied in the FY15 and FY16 tax computations and hence the reason for the prior year corporation tax adjustment.
(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:
Loss before taxation
Profit multiplied by the UK standard rate of corporation tax of 19% / 20%
Expenses not deductible for tax purposes
Share scheme deduction under Part 12 CTA 2009
Movement in unprovided tax losses
Adjustment in relation to prior year
Effect of tax rate change
Impact of overseas tax rates
Fixed asset timing difference
Total income tax (credit) reported in the income statement
2018
£000
(493)
(94)
53
(12)
(1,000)
92
28
8
(79)
(1,004)
2017
£000
(4,248)
(850)
286
-
(847)
(151)
(318)
10
-
(1,870)
53
Financial StatementsRedcentric Report & Accounts 2018 Notes to the Consolidated Financial Statements year ended 31 March 2018 – continued
Tax on profit on ordinary activities (continued)
(c) Deferred tax
Deferred tax liability
Deferred tax assets
Net deferred tax liability at 31 March
(d) Deferred tax liability
Opening balance
Recognised in the income statement
Adjustment in relation to prior year
At 31 March
2018
£000
(6,197)
6,152
(45)
2018
£000
7,267
(1,070)
-
6,197
Deferred tax liabilities arose in respect of the amortisation of intangible assets recognised on acquisitions made.
(e) Deferred tax assets
Share
based
Payments
temporary
differences
India –
deferred tax
asset
Property,
plant and
equipment
temporary
differences
Other
timing
differences
Tax losses
£000
£000
£000
£000
£000
At 31 March 2017
Recognised in the income statement
Adjustment in relation to prior year
At 31 March 2018
27
(16)
-
11
49
8
-
57
2,725
(123)
604
3,206
2,344
523
-
2,867
10
1
-
11
2017
£000
(7,267)
5,155
(2,112)
2017
£000
9,751
(1,983)
(501)
7,267
Total
£000
5,155
393
604
6,152
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. There would have to be a material change in the
Groups’ trading activity for the Directors to reassess the recoverability of the asset.
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.
The adjustment in relation to prior year relates to the resubmission of the FY15 and FY16 tax computations. The Group is made
up several historical acquisitions some of which have tax losses brought forward. The streaming of these tax losses
had been incorrectly applied in the FY15 and FY16 tax computations and hence the reason for the prior year corporation
tax adjustment.
54
Financial StatementsRedcentric Report & Accounts 2018 Notes to the Consolidated Financial Statements year ended 31 March 2018 – continued
9 Earnings per share
Basic earnings per share has been calculated using profit after tax for the year of £0.5m (2017: loss after tax £2.4m) and a
weighted average number of shares of 148,890,948 (2017: 148,448,225). The dilutive effect of share options at 31 March 2018
increased the weighted average number of shares to 149,871,478 (2017: 152,744,106).
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
Exceptional costs
Adjusted earnings before tax
Notional tax charge at standard rate of 19% / 20%
Adjusted earnings
2018
£000
511
(1,004)
6,252
568
1,672
7,999
(1,520)
6,479
2017
£000
(2,378)
(1,870)
5,944
1,080
5,474
8,250
(1,650)
6,600
Weighted average number of shares in issue
Weighted dilutive effect of options and warrants in issue
Diluted weighted average number of shares in issue
148,890,948
148,448,225
980,529
4,295,881
149,871,477
152,744,106
Statutory basic earnings per shares
Statutory diluted earnings per shares
Adjusted basic earnings per share
Adjusted diluted earnings per share
*Amortisation charge per P&L
Amortisation of software
Customer contracts and related relationships
0.34p
0.34p
4.35p
4.32p
7,136
(884)
6,252
(1.60)p
(1.60)p
4.45p
4.32p
6,207
(263)
5,944
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 exceptional costs.
55
Financial StatementsRedcentric Report & Accounts 2018 Notes to the Consolidated Financial Statements year ended 31 March 2018 – continued
10 Property, plant and equipment
Cost
At 31 March 2017
Additions
Disposals
Exchange differences
At 31 March 2018
Accumulated depreciation
At 31 March 2017
Charge for the year ended 31 March 2018
Disposals
Exchange differences
At 31 March 2018
Net book amount
At 31 March 2018
At 31 March 2017
Leasehold
improvements*
Office fixtures
and fittings*
Vehicles &
computer
equipment*
£000
£000
£000
14,388
1,168
74
(566)
-
244
-
(40)
32,120
5,745
(8,028)
-
13,896
1,372
29,837
8,674
1,418
(566)
-
9,526
4,370
5,714
888
100
-
14
16,116
6,251
(8,028)
-
1,002
14,339
370
280
15,498
16,004
20,238
21,998
Total
£000
47,676
6,063
(8,594)
(40)
45,105
25,678
7,769
(8,594)
14
24,867
* In 2018, the split of the fixed assets between classes has been aligned across the group. The result of this is to bring the published results in line with
internal management reporting. None of the assets affected required any change in useful economic life. The total NBV as at 31 March 2017 of £21.998m
remains unchanged from prior published accounts.
Included in vehicle and computer equipment are assets held under finance leases with a carrying value of £4.9m at 31 March
2018 (2017: £5.2m). Of the £6.1m fixed assets acquired in the year, £3.0m were funded using finance leases (2017: £2.5m).
56
Financial StatementsRedcentric Report & Accounts 2018 Notes to the Consolidated Financial Statements year ended 31 March 2018 – continued
11 Intangible assets
Cost
At 31 March 2016
Additions
FOREX difference on carrying value
At 31 March 2017
Additions
Exchange differences
At 31 March 2018
Accumulated amortisation and impairment
At 31 March 2016
Amortisation charge for the year ended
31 March 2017
Impairment
At 31 March 2017
Amortisation charge for the year ended
31 March 2018
Impairment
At 31 March 2018
Customer
contracts
and related
relationships
Trademarks
Software
and licences
£000
£000
£000
Goodwill
£000
Total
£000
43,269
62,297
-
-
-
3
43,269
62,300
-
-
-
(16)
275
-
-
275
-
-
3,962
109,803
738
-
738
3
4,700
110,544
913
-
913
(16)
43,269
62,284
275
5,613
111,441
-
-
-
-
-
-
-
13,712
5,884
-
19,596
6,217
-
25,813
42,704
36,471
180
60
-
240
35
-
275
35
-
1,720
15,612
263
-
6,207
-
1,983
21,819
884
-
7,136
-
2,867
28,955
2,717
2,746
88,725
82,486
Carrying amount at 31 March 2017
Carrying amount at 31 March 2018
43,269
43,269
Included in software and licences are intangibles assets held under finance leases with a carrying value of £0.4m at 31 March
2018 (2017: £nil). Of the £0.9m intangible assets acquired in the year, £0.4m were funded using finance leases (2017: £nil).
Customer contracts have a weighted average remaining amortisation period of 6 years and 11 months (2017: 7 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 was based on the value in use calculation using forecast cash flow projections to the period of
31 March 2021 and extrapolated for a further two years by growth rates applicable. A terminal value based on a perpetuity
calculation using a 2.5% real growth was then added. Discount rates were then applied to these projections reflecting
management's expected risk profile.
In addition to revenue growth, the key assumptions used in the impairment testing were as follows:
• Gross margin percentage of c.58% reducing to c.48%;
• Pre-tax discount rate of 9.13% (post tax 7.39%); and
• Terminal growth rate percentage of 2.5%.
The assumption of margins remaining flat after the three-year management forecast 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.
57
Financial StatementsRedcentric Report & Accounts 2018
Notes to the Consolidated Financial Statements year ended 31 March 2018 – continued
Intangible assets (continued)
A pre-tax discount rate of 9.13% (post-tax 7.39%) was applied which reflects management’s risk-adjusted estimate of the
weighted average cost of capital. There is 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 7.68%. The first three years were derived from
management's forecast 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
Corporation tax repayable
2018
£000
16,779
(981)
15,798
265
7,211
2,846
-
26,120
2017
£000
22,826
(5,576)
17,250
71
5,377
3,155
369
26,222
As at 31 March 2018, trade receivables of £1.0m (2017: £5.6m) 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 2018, net trade receivables of £4.5m (2017: £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.
The ageing analysis of trade receivables is as follows:
Days overdue
Current
1 to 30 days overdue
31 to 60 days overdue
61 to 90 days overdue
91 to 180 days overdue
> 180 days overdue
Gross trade debtors
2018
Gross
£000
2018
Provision
£000
2018
Net
£000
2017
Gross
£000
2017
Provision
£000
11,323
1,951
1,417
550
945
593
16,779
(67)
(90)
(40)
(18)
(481)
(285)
(981)
11,256
1,861
1,377
532
464
308
9,095
2,950
2,220
704
3,277
4,580
15,798
22,826
(101)
(266)
(532)
(169)
(988)
(3,520)
(5,576)
2017
Net
£000
8,994
2,684
1,688
535
2,289
1,060
17,250
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.
58
Financial StatementsRedcentric Report & Accounts 2018 Notes to the Consolidated Financial Statements year ended 31 March 2018 – continued
Trade and other receivables (continued)
Movements on the Group provision for impairment of trade receivables as at 31 March 2018 are as follows:
Balance at 31 March 2016
Utilisation of impairment provision
Creation of Impairment provision treated as exceptional costs
Creation of impairment provision treated as operating costs*
At 31 March 2017
Utilisation of impairment provision
Creation of impairment provision treated as operating costs*
At 31 March 2018
£000
7,005
(5,639)
2,933
1,277
5,576
(5,459)
864
981
* The creation and release of a provision for impaired receivables has been included in ‘operating 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.
13 Cash and cash equivalents
Cash at bank
2018
£000
2017
£000
6,089
4,340
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
Provision
Deferred income
Finance Lease
Corporation Tax
Term loan
2018
£000
9,005
27
2,490
2,705
-
8,343
3,125
890
-
2017
£000
7,483
39
1,671
2,264
339
5,804
2,456
-
323
26,585
20,379
59
Financial StatementsRedcentric Report & Accounts 2018 Notes to the Consolidated Financial Statements year ended 31 March 2018 – continued
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
2018
£000
2,881
11,095
20,942
34,918
2017
£000
2,264
3,142
4,586
9,992
The Group’s operating leases relate to property, motor vehicles and office equipment, and have remaining terms of between
2 and 23 years. The amount recognised as an expense in the year is £2.8m (restated 2017: £2.8m).
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 2018 (2017: £nil).
16 Borrowings
Non-current
Bank loan
Finance leases
Unamortised loan arrangement fee
Total non-current
Current
Finance leases
Term Loans
Total current
2018
£000
2017
£000
28,000
2,807
(136)
30,671
3,125
-
3,125
38,000
3,296
(204)
41,092
2,456
323
2,779
At 31 March 2018, the Group was party to £68.0m of bank facilities with a termination date of 1 April 2020. The facilities
comprise a Revolving Credit Facility (“RCF”) of £40.0m (£28.0m utilised at 31 March 2018) with a £20.0m accordion (£nil
utilised at 31 March 2018), a £2.0m overdraft facility (£nil utilised at 31 March 2018) 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.
60
Financial StatementsRedcentric Report & Accounts 2018 Notes to the Consolidated Financial Statements year ended 31 March 2018 – continued
Borrowings (continued)
Reconciliation of adjusted net debt:
Instrument
Cash
RCF
Term loan
Finance lease
Total
As at
31 March
2017
£000
4,340
(37,796)
(323)
(5,752)
Net
cash
flow
£000
Net
non-cash
flow
As at
31 March
2018
£000
£000
1,705
10,000
323
(180)
44
(68)
-
-
(24)
6,089
(27,864)
-
(5,932)
(27,707)
(39,531)
11,848
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
2018
£000
Fair
value
2018
£000
Carrying
value
2017
£000
Fair
value
2017
£000
27,864
26,001
38,135
34,495
Fair values are based on discounted cash flows, using an effective interest rate based on the borrowing rates at 31 March 2018
of 3.4% (2017: 3.4%).
Finance leases
Present
value
2018
Finance
charges
2018
Future lease
payments
2018
£000
£000
£000
Not later than 1 year
After 1 year but not more than 5 years
3,125
2,807
5,932
68
21
89
3,193
2,828
6,021
17 Financial instruments by category
Present
value
2017
£000
2,456
3,296
5,752
Finance
charges
2017
Future lease
payments
2017
£000
£000
132
89
221
2,588
3,385
5,973
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.
61
Financial StatementsRedcentric Report & Accounts 2018 Notes to the Consolidated Financial Statements year ended 31 March 2018 – continued
Financial instruments by category (continued)
Carrying
value
2018
£000
Fair
value
2018
£000
Carrying
value
2017
£000
Fair
value
2017
£000
15,798
7,476
3,512
6,089
32,875
9,005
2,732
11,254
33,796
890
57,677
15,798
7,476
3,512
6,089
32,875
9,005
2,732
11,254
33,796
890
57,677
17,250
17,250
5,448
3,758
4,340
5,448
3,758
4,340
30,796
30,796
7,483
2,303
7,814
43,871
3,319
64,790
7,483
2,303
7,814
43,871
3,319
64,790
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
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 2018 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.
62
Financial StatementsRedcentric Report & Accounts 2018 Notes to the Consolidated Financial Statements year ended 31 March 2018 – continued
Financial risk management (continued)
(b) Credit risk
Credit risk arises from cash and cash equivalents, as well as credit exposures to customers. Individual risk limits are set based
on internal and external ratings in accordance with limits set by the divisions and review by the Board where appropriate.
The utilisation of credit limits is regularly monitored with appropriate action taken by management in the event of a breach
of credit limit.
(c) Liquidity risk
Management monitors rolling forecasts of the Group’s undrawn borrowing facility and cash and cash equivalents based on
expected cash flow. The Group’s liquidity management policy involves projecting cash flows and considering the level of liquid
assets necessary to meet these.
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 2018
Borrowings
Finance leases
Trade and other payables
At 31 March 2017
Borrowings
Finance leases
Trade and other payables
Term loans
19 Capital risk management
Within 1 year
£000
1-5 years
£000
Total
£000
-
2,828
9,005
-
2,456
7,483
323
28,000
3,104
-
38,000
3,296
-
-
28,000
5,932
9,005
38,000
5,752
7,483
323
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. Adjusted 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, exceptional 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 2018 was 1.5x (2017 – 2.2x).
The bank facilities referred to in Note 16 contain various covenants relating to EBITDA, interest cover, adjusted 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.
63
Financial StatementsRedcentric Report & Accounts 2018 Notes to the Consolidated Financial Statements year ended 31 March 2018 – continued
20 Called up share capital
At 31 March 2016
New shares issued
At 31 March 2017
New shares issued
At 31 March 2018
Allotted and fully paid
Number
145,881,185
2,977,988
148,859,173
276,143
149,135,316
£000
146
3
149
-
149
The number of share authorised is the same as the number of shares issued. Ordinary shareholders have the right to attend,
vote and speak at meetings, receive dividends, and receive a return on assets in the case of a winding up.
Share issues
During the year the following shares were issued:
Issued on the exercise of share options
2018
Number
2017
Number
276,143
276,143
2,977,988
2,977,988
Shares issue relate to the exercise of 276,143 options at an exercise price of 70p (nominal value 0.1p), creating £193,024 of
share premium.
21 Provisions
At 31 March 2017
Charged / (credited) to Income statement:
Prior Year Adjustment
At April 2017
Additional provisions created during the year
Utilised during the year
At 31 March 2018
Current and non-current analysis of provisions:
Dilapidations
provision
£000
Vacant property
provision
Total
provision
£000
£000
273
146
419
50
(93)
376
1,273
1,546
(146)
1,127
-
(1,127)
-
-
1,546
50
(1,220)
376
2018
Dilapidations
provision
2018
Vacant
property
provision
2018
Total
provision
2017
Dilapidations
provision
2017
Vacant
property
provision
2017
Total
provision
£000
£000
£000
£000
£000
£000
-
376
376
-
-
-
-
376
376
-
273
273
339
934
1,273
339
1,207
1,546
Current
Non-current
Total
64
Financial StatementsRedcentric Report & Accounts 2018
Notes to the Consolidated Financial Statements year ended 31 March 2018 – continued
22 Share-based payment plans
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.
2018
£000
534
34
568
2017
£000
975
105
1,080
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
2018
Number of
options
10,037,417
2,752,820
(276,143)
(2,590,973)
9,923,121
2018
WAEP
80.5p
28.0p
70.0p
57.1p
72.2p
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
The weighted average fair value of the options granted in the year ended 31 March 2018 was 28.0p (2017: 45.7p) per option.
During the year ended 31 March 2018 there were new grants of 2,752,820 options (2017: 919,048 options) which were issued
under the Group’s Long-Term Incentive Plan.
The weighted average remaining contractual life for the share options outstanding at 31 March 2018 is 5 years and 2 months
(2017: 5 years and 9 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 2018
Life at
31 March 2018
Number
31 March 2017
Life at
31 March 2017
0p
63p
70p
80p
84p
102p
117p
107p
154p
845,621
1,167,678
-
9 years, 2 months
2 years, 11 months
-
7,581,968
5 years, 3 months
-
-
-
294,669
33,185
9,923,121
-
-
-
0 years, 6 months
1 year, 6 months
5 years, 2 months
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 months
1 year, 3 months
6 years, 11 months
7 years, 8 months
1 year, 6 months
2 years, 6 months
10,037,417
5 years, 9 months
65
Financial StatementsRedcentric Report & Accounts 2018
Notes to the Consolidated Financial Statements year ended 31 March 2018 – continued
Share-based payment plans (continued)
The following table illustrates the status of the options outstanding at the end of the year:
Options
Performance conditions satisfied
Subject to performance conditions
Save-As-You-Earn
Outstanding at the end of the year
2018
Number
of options
0
8,427,589
1,495,532
9,923,121
2018
WAEP
0p
69p
74p
72p
2017
Number
of options
276,143
8,951,616
809,658
10,037,417
2017
WAEP
70p
78p
112.1p
80.5p
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.
SAYE schemes
Director and senior manager schemes
MXC options
Employers NI
2018
£000
224
162
148
34
568
2017
£000
188
156
631
105
1,080
At 31 March 2018, the Group had the following share-based payment arrangements:
i. Enterprise Management Incentives (EMI)
The Group has legacy position of EMI share options outstanding, issued prior to the formation of the Group.
ii. Long-Term Incentive Plan (LTIP)
The Group operates a Long-Term Incentive Plan under which the Executive Directors and key management personnel
are awarded nil cost options that will vest subject to the achievement of performance conditions relating to the growth in
earnings per share.
iii. Save As You Earn (SAYE)
The Group operates a HMRC approved SAYE scheme which offers its UK-based employees the opportunity to participate
in a share purchase plan. To participate in the plan, the employees are required to save an amount of their gross monthly
salary, up to a maximum of £500 per month, for a period of 36-months. Under the terms of the plan, at the end of the
three-year period the employees are entitled to purchase shares using funds saved at a price 20% below the market price
at grant date. Only employees who remain in service and save the required amount of their gross monthly salary for
36 consecutive months will become entitled to purchase the shares. Employees who cease their employment, do not
save the required amount of their gross monthly salary in any month before the 36-month period expires, or elect not to
exercise their options to purchase shares will be refunded their saved amounts.
66
Financial StatementsRedcentric Report & Accounts 2018 Notes to the Consolidated Financial Statements year ended 31 March 2018 – continued
Share-based payment plans (continued)
iv. MXC
Historic options awarded to MXC Capital Limited
EMI
LTIP
SAYE
MXC
Total
Balance at 31 March 2016
4,393,111
-
1,144,353
8,692,988
14,230,452
Issued in the year
Forfeited in the year
Cancelled in the year
Exercised in the year
Lapsed in the year
-
919,048
(1,250,000)
-
(1,285,000)
(550,000)
-
-
-
-
-
(44,448)
(288,339)
-
-
-
919,048
(1,294,448)
(288,339)
(1,308)
(1,692,988)
(2,979,296)
-
-
(550,000)
Balance at 30 March 2017
1,308,111
919,048
810,258
7,000,000
10,037,417
Issued in the period
Forfeited in the period
Cancelled in the period
Exercised in the year
Lapsed in the year
-
-
-
(276,143)
(450,000)
1,529,430
1,223,390
(1,602,857)
-
-
-
-
(538,116)
-
-
-
-
-
-
-
2,752,820
(1,602,857)
(538,116)
(276,143)
(450,000)
Balance at 30 March 2018
581,968
845,621
1,495,532
7,000,000
9,923,121
As at 31 March 2018 the Group 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 Group.
23 Pensions
The Group operates a defined contribution pension scheme for eligible employees. The charge for the year ended 31 March
2018 was £0.4m (2017: £0.4m). At the year-end there was a pension’s creditor of £0.1m (2017: £0.1m).
24 Subsidiaries
As at 31 March 2018, the Group 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
Redcentric Managed Solutions Limited
Redcentric Communications Limited
Hotchilli Internet Limited
Redcentric US Limited
Calyx Managed Services Limited
City Lifeline Limited
City Lifeline Data Centre Limited**
Dormant*
Dormant*
Dormant*
Dormant*
Dormant*
Dormant*
Dormant*
Dormant*
England and Wales
England and Wales
England and Wales
England and Wales
USA
England and Wales
England and Wales
England and Wales
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
All of the Company’s subsidiaries have been consolidated in the Group financial statements. 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.
** Dissolved 11 July 2017.
67
Financial StatementsRedcentric Report & Accounts 2018 Notes to the Consolidated Financial Statements year ended 31 March 2018 – continued
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
Up until 30 November 2016, the Group engaged MXC Advisory LLP to provide corporate finance advice and consultancy
(fees – 2017: £97,500). 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.
As at 31 March 2018 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)
7,000,000
15 November 2013
80p
15 November 2023
(a) 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 2018.
26 Dividends
Amounts recognised as distributions to Shareholders in year:
Final dividend for year ended 31 March 2017 of nil (2016: 3.0p) per share
2018
£000
2017
£000
-
-
4,406
4,406
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
There have been no significant events affecting the Company since the year end.
28 Cost reclassification
A cost reclassification was undertaken to align comparative periods with the Directors’ view of appropriate cost allocation.
31 Mar 2017
As previously
reported
£000
104,623
(43,304)
61,319
(64,314)
(2,995)
Cost
reclassification
31 Mar 2017
As reclassified
£000
-
(855)
(855)
855
-
£000
104,623
(44,159)
60,464
(63,459)
(2,995)
Revenue
Cost of sales
Gross profit
Operating expenditure
Operating loss
68
Financial StatementsRedcentric Report & Accounts 2018 Company Balance Sheet as at 31 March 2018
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
2018
£000
2017
£000
2
3
4
101,565
101,031
(11,680)
(11,680)
(11,873)
(11,873)
89,885
89,158
149
65,588
5,503
18,645
89,885
149
65,395
4,969
18,645
89,158
The notes on pages 71 to 73 are an integral part of these financial statements. The financial statements on pages 69 to 73
were approved by the Board on 27 June 2018 and are signed on its behalf by:
Chris Jagusz, Director
Peter Brotherton, Director
69
Financial StatementsRedcentric Report & Accounts 2018
Company Statement of Changes in Equity
Called up
share capital
£000
146
3
-
-
149
-
-
-
Share
premium
£000
Reserves
£000
Total
equity
£000
63,667
27,045
90,858
1,728
-
-
65,395
193
-
-
-
(4,406)
975
23,614
-
-
534
24,148
1,731
(4,406)
975
89,158
193
-
534
89,885
149
65,588
At 31 March 2016
Transactions with owners:
Issue of new shares
Dividends to shareholders
Share Based Payments (SBP)
At 31 March 2017
Transactions with owners:
Issue of new shares
Dividends to shareholders
Share Based Payments (SBP)
At 31 March 2018
70
Financial StatementsRedcentric Report & Accounts 2018 Notes to the Company Financial Statements
1 Accounting policies (FRS 101)
In these financial statements, the company has applied the exemptions available under FRS 101 in respect of the
following disclosures:
• A Cash Flow Statement and related notes;
• Comparative period reconciliations for share capital, tangible fixed assets, intangible assets and investment properties;
• Disclosures in respect of transactions with wholly owned subsidiaries;
• Disclosures in respect of capital management;
• The effects of new but not yet effective IFRSs;
• Disclosures in respect of the compensation of Key Management Personnel; and
• Disclosures of transactions with a management entity that provides key management personnel services to the company.
As the consolidated financial statements of Redcentric plc include the equivalent disclosures, the Company has also taken the
exemptions under FRS 101 available in respect of the following disclosures:
• IFRS 2 Share Based Payments in respect of group settled share based payments;
• Certain disclosures required by IAS 36 Impairment of assets in respect of the impairment of goodwill and indefinite life
intangible assets;
• Disclosures required by IFRS 5 Non-current Assets Held for Sale and Discontinued Operations in respect of the cash flows
of discontinued operations;
• Certain disclosures required by IFRS 3 Business Combinations in respect of business combinations undertaken by the
Company [in the current and prior periods including the comparative period reconciliation for goodwill; and]
• Certain disclosures required by IFRS 13 Fair Value Measurement and the disclosures required by IFRS 7 Financial
Instrument Disclosures.
The accounting policies set out above have, unless otherwise stated, been applied consistently to all periods presented in
these financial statements.
2 Investments
Investments in subsidiaries
Capital contribution related to share-based payments for subsidiaries
2018
£000
96,062
5,503
101,565
2017
£000
96,062
4,969
101,031
71
Financial StatementsRedcentric Report & Accounts 2018 Notes to the Company Financial Statements continued
Investments (continued)
At 31 March 2018, 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
Redcentric Managed Solutions Limited
Redcentric Communications Limited
Hotchilli Internet Limited
Redcentric US Limited
Calyx Managed Services Limited
City Lifeline Limited
City Lifeline Data Centre Limited**
Dormant*
Dormant*
Dormant*
Dormant*
Dormant*
Dormant*
Dormant*
Dormant*
England and Wales
England and Wales
England and Wales
England and Wales
USA
England and Wales
England and Wales
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.
** Dissolved 11 July 2017.
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.
3 Creditors – amounts falling due within one year
2018
£000
2017
£000
Amounts owed to subsidiaries
11,680
11,873
Amounts due to Group undertakings are unsecured, interest-free and have no fixed payment terms.
4 Called up share capital
At 31 March 2016
New shares issued
At 31 March 2017
New shares issued
At 31 March 2018
Allotted and
fully paid
Number
145,881,185
2,977,988
148,859,173
276,143
149,135,316
£000
146
3
149
-
149
The number of share authorised is the same as the number of shares issued. Ordinary shareholders have the right to attend,
vote and speak at meetings, receive dividends, and receive a return on assets in the case of a winding up.
72
Financial StatementsRedcentric Report & Accounts 2018
Notes to the Company Financial Statements continued
4 Called up share capital (continued)
Share issues
During the year the following shares were issued:
Issued on the exercise of share options
2018
Number
276,143
276,143
2017
Number
2,977,988
2,977,988
As at 31 March 2018 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 £24,000 (2017: £110,000). This fee was borne by another Group company.
6 Related parties
The Group has taken exemption not to disclose transactions with entities wholly-owned by the Group.
Directors' emoluments are disclosed in the Remuneration Report.
MXC Capital
Up until 30 November 2016, the Group engaged MXC Advisory LLP to provide corporate finance advice and consultancy
(fees – 2017: £97,500). 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.
As at 31 March 2018 MXC has the following interest in shares and options over ordinary shares in the Company:
Quantity
Grant date
Exercise price
Expiry date
Options (a)
7,000,000
15 November 2013
80p
15 November 2023
(a) 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 112.4p plus 12% p.a. with effect
from that date.
Other
There were no other transactions with related parties in the year to 31 March 2018.
73
Financial StatementsRedcentric Report & Accounts 2018 Advisers
Company Secretary
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
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
74
Redcentric Report & Accounts 2018 75
Redcentric Report & Accounts 2018 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
CAMBRIDGE
Newton House
Cambridge Business Park
Cowley Road
Cambridge CB4 0WZ
READING
3-5 Worton Drive
Reading
RG2 0TG
HYDE
Unit B, SK14 Industrial Park
Broadway
Hyde
SK14 4QF
INDIA
606-611, 6th Floor
Manjeera Trinity Corporate
JNTU – Hitech City Road
Kukatpally, Hyderabad – 72
0800 983 2522
sayhello@redcentricplc.com
www.redcentricplc.com