REDSTONECONNECT PLC
Annual Report for the Year Ended 31 January 2018
CONTENTS
Highlights
Chairman’s statement
Strategic report: Strategy and operational review
Strategic report: Financial review
Strategic report: Principal risks
Directors and officers
Company information and advisers
Directors’ report
Independent auditor’s report
Consolidated statement of comprehensive income
Consolidated statement of financial position
Consolidated statement of cash flows
Consolidated statement of changes in equity
Company statement of financial position
Company statement of cash flows
Company statement of changes in equity
Notes to the financial statements
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HIGHLIGHTS
FINANCIAL HIGHLIGHTS:
• Revenue up 15% to £47.6 million (2017: £41.5 million)
• Gross profit up 45% to £13.4 million (2017: £9.2 million), with an increased gross
margin of 28% (2017: 22%)
• Adjusted EBITDA* up 60% to £3.2 million (2017: £2.0 million) reflecting the successful
implementation of the strategy to focus on higher quality, higher margin business
• Adjusted profit before tax** of £2.4 million (2017: £1.3 million)
• Profit before tax from continuing operations of £1.5 million (2017: £1.2 million)
• Profit after tax from continuing operations of £1.5 million (2017: £1.8 million)
OPERATIONAL HIGHLIGHTS:
• In May 2017, completed a successful placing to raise £6.5 million, of which £1.4 million was used to acquire Anders
+ Kern (“A+K”), a systems and solutions integrator specialising in meeting room management and audio visual
solutions:
o Integration of A+K is now complete, providing the group with an indirect sales channel to
sell the Group’s meeting room and space management software solutions to small and mid-
sized clients, both in the UK and overseas
o A+K made a positive contribution to the Group’s performance in the year
• £1.2 million of proceeds have been invested in development of the Group’s software platform:
o In December 2017 we released OneSpace Link a locally installed meeting room
management solution which integrates with Microsoft Outlook
o Ongoing development of a full web-based meeting room management tool which will be offered as a module
of the OneSpace platform
o Continued development of our OneSpace platform adding to existing modules which include desk
management, wayfinding, car parking, visitor management, frictionless vending and space management
• Cash at year end of £3.4 million (2017: £3.2 million) and net cash of £1.2 million (2017: £0.8 million)
• Basic earnings per share from continuing operations of 7.72 pence (2017: 11.14 pence)
• OneSpace continues to gain traction. In December 2017, we announced a deal with a market-
leading global technology business to provide an Original Equipment Manufacturer (“OEM”)
version of our platform. This deal was worth £2.25 million, our largest single contract for
OneSpace thus far
• Adjusted earnings per share from continuing operations 12.81 pence (2017: 13.13 pence)
• Continued strong performance and levels of renewals from our Managed Services division
* profit for the period from continuing operations before net finance costs, tax, depreciation, amortisation,
integration costs and transactional items, impairment charge and share based payments.
** adjusted profit before tax is before: integration costs and transactional items, impairment charge, share
based payments and amortisation recognised as a result of purchase price allocation under IFRS.
• Agreements secured in the year for the Company’s innovative in-Building Cellular (“IBC”) and
Distributed Antenna Systems (“DAS”) solutions
POST YEAR END:
• Announced the proposed sale of the Systems Integration and Managed Services divisions for
a total consideration of £23.0 million comprising; £19.6 million payable in cash on completion;
£2.0 million payable on or before 30 November 2018, subject to completion of an already
contracted project by Redstone Converged Solutions Ltd; and the waiver of loans owed by the
Company to the divisions of £1.4 million. Owing to its size the disposal requires the approval of
shareholders
• This disposal will allow the Group to focus on developing and growing the Company’s software proposition in the
smart building and co-working space markets both in the UK and internationally
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CHAIRMAN’S STATEMENT
Following the disposal of the Managed
Services and Systems Integration
business the Group will reduce in size
operationally. However, we plan to use
the funds realised from the disposal to
accelerate the growth of our Software
business. This growth will initially be
organic through the development of our
direct and indirect sales channels, both in
the UK and overseas. However, should we
identify appropriate targets, we also plan
to make acquisitions of businesses which
either have a customer base that can be
migrated onto our OneSpace platform or
offer complementary technology that can
add value to the OneSpace platform.
After what has been a very
traumatic number of years where
we have taken the business from
crisis to stabilisation we have
now reached another important
junction in the RedstoneConnect
journey. The disposal of the
Systems Integration and Managed
Services business brings to an end
the restructuring of the Group.
From here we see a very exciting
future where we build a business
which is focused on high margin
annuity revenues with significant
international growth potential.
Frank Beechinor
Chairman
29 May 2018
On 29 May 2018 we announced the
disposal of the Systems Integration
and Managed Services divisions.
The disposal, which owing to its
size, is subject to shareholder
approval at a meeting on 15 June
2018, will substantially change the
shape of the Group. The Board
has, for some time, considered
that the growth prospects for our
Systems Integration and Managed
Services divisions are lower than
those for the Software business.
For the future we wish to focus on
higher margin business in a less
mature market with better visibility
of revenues and with significant
potential to grow internationally.
The Systems Integration business
is predominantly project based
with the associated lack of forward
visibility of revenues with a lower
margin than we can achieve from
sales of software. The Board
therefore believes that by focusing
investment on the development
of the Software division, there is
greater scope to build higher levels
of better quality recurring earnings
and therefore generate more
attractive returns for shareholders.
Management believes the disposal
terms represent a good return for both
the Company and our shareholders.
The two businesses were acquired for a
combined consideration of £11.9 million
and the disposal is for £21.6 million, £19.6
million payable in cash on completion,
£2.0 million payable on or before 30
November 2018, subject to completion of
an already contracted project by Redstone
Converged Solutions Ltd, and the waiver
of loans owed by the Company to the
divisions of £1.4 million.
Following the disposal, the Group’s
focus will be entirely on building
our business in the world of smart
building and agile workplace
markets after a successful year for
the Group’s OneSpace offering
in the smart buildings space. The
Software division demonstrated
not only strong revenue growth
in the year but using some of the
funds raised in May 2017 further
developed its owned IP and
brought to market a number of new
modules in our OneSpace platform.
RedstoneConnect is continuing
to be seen as a visionary in the
workspace management solutions
market. We are working with a
number of enterprise clients who
recognise our vision that this new
generation of technology is a
way of optimising their corporate
real estate as well as creating a
better work environment for their
employees. I am encouraged by
the increased traction we are
experiencing for our software
solutions. We have secured a
number of engagements to
pilot our technology, with major
international businesses. These
pilots are the initial step to a full
rollout. The pricing model for these
deployments is a monthly fee per
desk / room. We are working hard
to ensure these relationships will
develop into meaningful contracts.
Whilst the focus will be on growing
the Group’s Software as a Service
(SaaS) based revenues through
multi-year contracts, over the near
team the Board believes there also
continue to be opportunities to
deliver licensed based agreements
aligned with the buying
requirements of the potential
customer base.
OUTLOOK
There is currently a tipping point
in the evolution of the workplace
technology market. Until relatively
recently the main focus of
technology in the context of smart
buildings has been on monitoring
and managing energy use. However,
today building operators are now
far more interested in occupant
well-being and space optimisation.
Because this workplace technology
market is in its infancy and is highly
fragmented, RedstoneConnect
has an opportunity to establish
leadership through technology.
The market is expanding rapidly
with estimated compound annual
growth rates between 2017 and
2022 of 25% in EMEA, North
America and Asia. We want to use
our available resources to capitalise
on this opportunity.
I am pleased to report another year of
solid progress for RedstoneConnect Plc
(“RedstoneConnect”). During this period,
we broadened our operational base
through acquisition, made significant
investment in software product
development and have grown our pre-tax
profits. It was also a year where we set in
motion the plan to focus on our Software
business through the disposal of our
Systems Integration and Managed Services
divisions. RedstoneConnect’s software
offering has been enhanced following the
fundraising in May 2017, which enabled
the Group to develop its owned IP and
release a number of new modules within
our OneSpace software platform.
Using the proceeds from the
fundraising, the Group acquired
A+K, a systems integrator
specialising in the meeting room
management and audio-visual
market, and I am delighted
to welcome the team to
RedstoneConnect. I am pleased
to report the business is now
fully integrated and making a
positive contribution to trading.
A+K will be the basis to build
our channel sales capability
allowing us to target mid-market
clients with our meeting room
and desk management solutions.
These partners operate in the
UK and internationally, and have
established customer bases with
meeting room hardware in place.
Our aim is to sell our software
through these channel partners
enabling their end users to get
more from their investment. As we
develop further OneSpace modules,
it is our intention also to offer these
through this partner network.
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STRATEGIC REPORT: STRATEGY
AND OPERATIONAL REVIEW
STRATEGY
The Group’s strategy has been to
provide a broad and innovative
platform of systems integration,
managed services and software
solutions to the Smart Buildings
and Smart Commercial Spaces
market. Once approved by
shareholders, the recommended
disposal of the Systems Integration
and Managed Services business
will enable the Company to focus
its resources on the Software
business, which the Board believes
has the greatest potential to drive
long-term growth in shareholder
value. An important component
of our strategy is to invest in the
development of our software IP.
The changing business environment
brings with it challenges for
modern organisations in how
to ensure both effective and
efficient working. This challenge
is one that faces all organisations
both big and small, but one that
becomes more difficult to manage
effectively, the larger and more
diverse the organisation. Speaking
with clients, we are finding the key
drivers for creating a successful
office environment are not only the
financial benefits associated with
an efficient working environment
by utilising space effectively, but
also the benefits of a modern
workplace when recruiting and
retaining talent. We believe a
digital experience is essential to
achieving employee wellbeing
and retention, through better
engagement with the workplace,
empowering employees to enjoy a
more engaging work experience,
driving productivity gains. We
see this change gathering pace as
more of the millennials join today’s
and tomorrow’s workforce and as
digitalisation continues to gather
pace.
In 2017, the global market for
occupancy analytics based
software services was estimated
to be worth $1.54 billion with
growth of 24.5% CAGR rising to
$4.60 billion in 2022 (Memoori,
Occupancy Analytics and In-
Building Location Based Services
in the Commercial Office Space
Report, Q1 2018). Industry
analysts, Memoori, position
RedstoneConnect’s software
technology as one of the top 6
global Workplace Management
Platforms and in a recent
market report Verdantix cited
RedstoneConnect as one of the
smart innovators in their analysis
of the space management market.
We intend to focus our energies on
exploiting the enormous potential
for growth in this market.
Our immediate key strategic
priorities to drive future growth
remain as follows:
• to focus on developing
technology-led intellectual
property based on OneSpace;
• to continue to grow our Smart
Buildings software offering
through a combination of organic
growth and acquisition both
in our domestic market and
overseas;
• to develop new sales channels to
market for our software solutions,
focusing where possible on SaaS
agreements; and
• to deliver higher quality earnings
which, in turn, improve cash
generation.
PRINCIPAL ACTIVITIES DURING
THE YEAR
During the year the Group
continued to trade through three
operating business segments:
Systems Integration, Managed
Services and Software.
The Systems Integration segment
remained product-agnostic with a
strong pedigree in addressing the
enterprise market. This division
offers physical, wireless and virtual
infrastructure solutions, including
fully integrated smart solutions
such as innovative location-based
services and in-building cellular
or Distributed Aerial Systems
(DAS). The Group’s Systems
Integration division has established
an extensive range of skills and
experience in the rapidly advancing
market for smart buildings. In
addition to the traditional project
implementation business, the
division has seen consulting
engagements become a growing
part of its portfolio of services.
Our Managed Services division
has a number of long standing
service engagements, typically
3-5 years’ duration, all with blue
chip enterprise-level customers.
The Managed Services division
combines an on-site client
engagement services offering, with
a hosted IT services capability.
The Software division’s principal
offering is a cutting-edge
workspace management platform
called OneSpace, with global reach
and application. The application
and services suite provides a broad
range of location-based services,
which originally established its
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STRATEGIC REPORT: STRATEGY AND
OPERATIONAL REVIEW continued
strong user experience credentials
in the smart city, retail and
hospitality sectors, markets which
remain active for our software
technology today. OneSpace
materially helps customers
optimise space and enhance
employee wellbeing.
The functionality includes:
• 2D/3D mapping;
• Wayfinding;
• Desk management;
• Visitor management;
• Car parking management;
• Meeting room management;
• Cashless vending; and
• Analytics.
The software suite is built to an
open-architecture standard, is
applicable to both on-premise and
cloud strategies and has a secure
API layer, allowing easy integration
with third party applications. The
data gathering, analytics and
dashboard functionality enables
clients to deploy mobile and agile
working strategies, configuring
space to achieve increased
engagement with the workforce
whilst realising significant cost
benefits. Whilst the corporate real
estate market presents a huge
opportunity, the combination of
the above functions and services
also apply to additional market
segments such as co-working
office environments.
The value in today’s world of
understanding business data cannot be
underestimated. Our software platform
aims to collect data from every end-
point and product API. The value adding
activities, which are enabled from both
the collection and analysis of this data
are what drives the financial return on
investment. This is certainly the case for
the OneSpace product. Understanding
current working behaviours and
utilisation of office and commercial spaces
enables clients to right size their office
portfolios. We have already seen existing
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clients experience a compelling return on
investment where the use of OneSpace
has enabled, multi-million pound savings
in both capital expenditure and annual
operating expense.
Our software offering is suited to
both direct and channel routes to
market. With the investment made
in the year, we believe our products
have a broader appeal beyond just
enterprises and can be deployed
to mid-market clients and SME’s.
Customers can purchase individual
modules allowing us to ‘land and
expand’ from an initial sale of,
say a meeting room management
solution to adopting the full
OneSpace suite.
OVERVIEW OF PERFORMANCE
We are pleased with the progress
the Group has made in the financial
year ended 31 January 2018 during
which we focused on three key
opportunities, namely:
• maximising organic growth
initiatives;
• investing in software
development; and
• leveraging the acquisition of A+K,
completed in May 2017.
Overall the Group delivered a good
operational performance in the
year, in both Managed Services and
more significantly, the Software
division, resulting in an increase
in the Group’s gross profit and
operating margins.
However, 2017 was challenging
for the Systems Integration
division which saw a marked
reduction in profitability. In the
year to 31 January 2018, Group
revenues increased by 15% to £47.6
million (2017: £41.5 million). More
significantly however, gross profit
increased by approximately 45%
to £13.4 million (2017: £9.2 million)
largely thanks to the excellent
growth seen in the Software
division in the year. Group gross
margin increased to 28% (2017:
22%). This strong headline trading
performance has been achieved
despite the challenges experienced
in the Systems Integration division
and is predominantly due to the
progress made in the year by the
Software division.
The Software division worked on a
number of high value assignments during
the year including a smart city UK project,
a smart shopping centre in Munich as
well as several corporate projects for
enterprise level customers. During the
year we increased the scope of the
global master framework agreements for
OneSpace with the investment bank UBS
and global media events company UBM,
with deployments of OneSpace into a
number of both companies’ international
offices. We continue to develop further
opportunities with OneSpace and already
have a number of revenue generating
pilot projects, which we hope in time
will develop into full deployments of the
solution.
In December 2017 we announced a major
contract with an Original Equipment
Manufacturer (“OEM”) to allow them to
embed OneSpace into their hardware
solutions. The contract, with a value of
£2.25 million, is the largest contract we
have signed to date for our OneSpace
product as is the first major contract to
embed our software into a third party
solution, a fantastic endorsement of the
OneSpace product.
The Board has been considering the
options available to it to maximise
shareholder value from the Systems
Integration and Managed Services
divisions given that they operate
in slower growth and lower margin
markets. The Systems Integration
division also has high levels of
project-based work with less
predictable revenues. There are
furthermore considerable swings
in the division’s working capital
requirements. Although the division
achieved lower revenues in the
current financial year, it had built
a strong pipeline of business at
the year end which will benefit
the following year and this led
to higher than normal levels of
working capital being employed in
the business at the year end, with
a resulting negative impact on the
Group’s net cash. The action which
the Board proposes to take in this
regard is explained in the proposed
post balance sheet events section
below.
The financial performance of the
Group for the year is covered in
more detail in the Financial Review.
SOFTWARE DEVELOPMENT
In May 2017 the Company
raised funds to accelerate the
development and functionality
of OneSpace, in particular, to
improve the platform architecture
and develop further modules. As
a result of the Board’s efforts and
the investments made to date in
the software offering, the Software
division has grown considerably
over the past twelve months.
During the year we invested £1.2 million
to improve scalability and enable the
technology to operate on multiple cloud
platforms. This supports deployments
of our software platform in smart city,
retail, hospitality and commercial real
estate markets. Importantly, we further
developed the OneSpace product family
to address the integrated Workspace
Management opportunity emerging in
commercial real estate, as organisations
adapt to more agile working environments
and greater workforce mobility. At the
end of the year we announced delivery
of the first new module for the OneSpace
family, an entry-level meeting room
scheduling tool called Link that integrates
with Microsoft Outlook to make room
scheduling and associated services such
as audio-visual equipment and catering,
easily booked from the desktop. Link
has also been integrated with Liso, a
well-established meeting room signage
product deployed across the world by
Swedish manufacturer, Evoko.
Other developments include
important enhancements to
OneSpace, some of which were
going through user-acceptance
testing as we closed out the year.
Specifically, we are adding web-
based resource scheduling for
meeting rooms, desks and car
parking to an already impressive
workspace management
technology that provides powerful
wayfinding and analytics for
workspace utilisation. Additionally,
all end user applications for
OneSpace are being made available
through a powerful new mobile
application available in both iOS
and Android variants.
Our development team has
also made significant progress
in developing our technology
platform to incorporate a
microservice architecture platform,
through which services and
applications can be deployed
across multiple cloud-provider
technologies. This modular
deployment provides a scalable
platform for a SaaS-based solution
as well as reducing the future
development time to create new
functions and modules.
ACQUISITION
As we create additional modules for
OneSpace we are productising them to be
channel ready so we may rapidly expand
market access in the future through
value-add partners. The acquisition of
A+K in May 2017 for £1.4 million cash has
brought with it expertise in designing
channel ready products and provides
the route to engaging with an important
channel to market, the AV reseller (audio-
visual). AV resellers operate across the
market spectrum from small to very
large businesses, providing solutions
to improve the quality, efficiency and
performance of meetings. New OneSpace
product modules fit this market well and
provide customers with a strong meeting
room management solution that can act
as a starting point for more innovative
functions available to support the modern
workplace, such as visitor management,
desk management, wayfinding (indoor
navigation) and analytics that help
workspace planners optimise the working
environment. We continue to develop this
theme within our product development
and go-to-market strategy.
The acquisition added a team of
20 staff to the Group and A + K
contributed revenues of £2.1 million
and EBITDA of £0.1 million in the
year.
PROPOSED POST BALANCE
SHEET DISPOSAL
Following the acquisition of
Connect IB in March 2016,
the Board has focused on the
development of the Company
into a software-led business. The
Board believes that the Group’s
capital resources are best utilised
in growing the technology-led
software business with the focus
on higher margin, recurring SaaS
revenue.
As a result, the Group announced on
29 May 2018 the proposed disposal of
the Systems Integration and Managed
Services divisions to Excel I.T. Services
Limited for a total consideration of £21.6
million in cash, of which £19.6 million
is payable on completion, and a further
£2.0 million payable on or before 30
November 2018, subject to completion of
an already contracted project by Redstone
Converged Solutions Ltd (“Additional
Consideration”). In addition, intercompany
loans to the divisions amounting to a
further £1.4 million will be waived.
The Additional Consideration
will be retained by the Purchaser
for working capital purposes
relating to a project, which is due
to complete in November 2018.
In the event that the Additional
Consideration is not sufficient
to cover the ongoing working
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STRATEGIC REPORT: STRATEGY AND
OPERATIONAL REVIEW continued
capital relating to the project,
the Company may be required to
provide additional working capital
equal to any such deficit, subject
to the terms of the Share Purchase
Agreement.
Under Excel I.T. Services’
ownership the Systems Integration
and Managed Services businesses
will continue to act as a channel for
the Company’s software products
and services.
As well as providing the Board
with the opportunity to focus
its energies on maintaining and
accelerating the progress in the
Software division, the disposal
of the Systems Integration and
Managed Services divisions will:
• provide the Board with a clear platform
to execute its strategy of becoming a
software led company focused on the
attractive smart buildings and co-
working technology markets;
• strengthen the Group’s balance
sheet, greatly improving our cash
position; and
• enable the Group to invest in its
technology as well as providing the
Group with the flexibility to take
advantage of potential acquisition
opportunities which broaden its software
suite of products into the smart building
and co-working space technology
markets.
The Board believes that the proposed
terms of the disposal represent good
value for shareholders. If approved
by shareholders, it is expected that
completion of the disposal will occur on 15
June 2018.
OUTLOOK
The Board believes there are substantial
opportunities for growth in the smart
software and co-working technology
markets, particularly in light of
increasing interest in agile working and
the connected office environment, a
core focus for the Group’s occupancy
management software platform,
OneSpace.
The Board further believes the
Group is in a strong position
following the investment made in
developing our software and smart
working solutions over the past
24 months. RedstoneConnect’s
software platform, services and
application suite have broad
appeal and we have increasing
interest and early engagements,
giving us confidence in securing
new client mandates over the
coming months. The opportunity
in the corporate real estate
market, which enables employee
and visitor engagements through
software technology, continues
to gather pace and we are ideally
positioned to benefit.
Our plan in the coming year is to invest
into sales and marketing to maximize the
opportunity in the market for workplace
technology. We will also continue to
invest in software product, focusing
development efforts on functionality
to enhance the existing offering thus
maintain competitive differentiation
through technology innovation. With the
benefit of the proceeds from the disposal
of the Systems Integration and Managed
Services businesses, we will be well placed
to explore opportunities to complement
the organic growth opportunity we see
for our software products with acquisition
opportunities that could deliver either a
complementary suite of software products
into the smart building and co-working
sectors or have the potential to increase
our customer base and geographic reach.
Finally, on behalf of the Board,
I wish personally to thank and
acknowledge my colleagues for
what they have achieved during
the year.
Mark Braund
Chief Executive Officer
29 May 2018
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STRATEGIC REPORT:
FINANCIAL REVIEW
OVERVIEW
The main focus during the year has
been to continue to strengthen our
software offering. The Company
raised additional capital in May
2017 and has since invested some
of the funds raised to deliver a
defined program of software
development. This has resulted in
a broader OneSpace proposition
which has enhanced functionality
across the platform, its mobile
offering and various modular point
solutions. We have complemented
this development program with an
acquisition, which we anticipate will
benefit the Group in future years
as we take these new software
offerings to market. The acquisition
of A+K is seen as a key component
in our channel strategy.
During the year the Group reported
improved trading performance,
with its Software division recording
the biggest divisional increase in
both revenue and profit. Managed
Services has also performed
reasonably well with the added
benefit of a full year contribution
from Commensus. The Systems
Integration division however had
a challenging year, experiencing a
slow first half and whilst the second
half reported better performance,
full year revenue, gross margin
and profitability was not as strong
as the prior year. The Systems
Integration division is a projects
business and as a result gross profit
margins can fluctuate based on
the size and complexity of each
project.
SHARE CONSOLIDATION AND CAPITAL
REDUCTION
On 5 June 2017 the Group
held its AGM, at which a share
consolidation was approved
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whereby every 100 ‘Existing
Ordinary Shares’ with a nominal
value of 0.1 pence be consolidated
into one ‘New Issued Ordinary
Share’ with a nominal value of 10
pence.
The share consolidation involved
2,078,479,485 shares of 0.1 pence
in the issued share capital of the
Company being consolidated into
20,784,795 ordinary shares of 10
pence each, effective 6 June 2017.
At the same time, shareholders
approved a Reduction of Capital
which resulted in the following
transactions:
(a) the Company’s share premium
account was transferred to the
Company’s accumulated deficit
in distributable funds;
(b) the Company’s deferred shares
were cancelled and the capital
redemption reserve arising was
transferred to the Company’s
accumulated deficit; and
(c) the Company’s merger
reserve was transferred to the
Company’s accumulated deficit.
This resulted in the Company having an
accumulated surplus in distributable funds
of £12,410,292.
The Directors believe that, subject
to the future performance of
the Group, this should give the
Company the ability to make
distributions to Shareholders and/
or buy back its own ordinary
shares if, the Directors consider
that it is appropriate to do so. The
Reduction of Capital was approved
by the Courts and became effective
on 28 June 2017.
Where applicable, the comparative
figures relating to number or value
of shares throughout this report
have been amended to reflect the
effects of the share consolidation
had it been in place at the
beginning of the previous financial
year.
ACQUISITIONS
On 9 May 2017 (prior to the
Group’s share consolidation),
RedstoneConnect acquired 100%
of the share capital of Easter Road
Holdings Limited (“ERH”), and its
100% owned subsidiary Anders +
Kern U.K. Limited (“A+K”), for a
total consideration of £1.4 million.
Deal costs of £0.1 million were
incurred and recorded under
integration and transactional
items in the Income Statement.
The transaction was satisfied fully
by cash which was financed out
of the proceeds of a placing of
433,333,334 new ordinary shares
of 0.1 pence each (prior to the
share consolidation) at a price of
1.5 pence per share, raising £6.5
million, before expenses.
TRADING PERFORMANCE
Revenue for the year of £47.6
million (2017: £41.5 million)
increased by £6.1 million or 15%
year on year. This increase in
revenue was, in the most part,
achieved as a result of a full year
contribution from Commensus of
£2.4 million, the acquisition of A+K
in May 2017 (which contributed £2.1
million in revenue in the year), as
well as strong growth seen in the
Software division. The Software
division, benefitted from the OEM
software contract recorded in
the second half of the year which
contributed revenues of £2.25
million. These increases in revenue
were offset in part by the reduction
in revenue performance from the
Systems Integration division.
The Group reported gross profit for the year of £13.4 million,
which was 45% ahead of the prior year (2017: £9.2 million),
and gross profit margin at 28% which represents a 600 basis
points increase over the same period (2017: 22%). The uplift in
gross profit performance has been achieved through a greater
contribution from the Software division, with its high gross
margin at 83% and to a lesser extent, the Managed Services
division, with a full year contribution from Commensus with
its higher margin service offering, offset by lower margin
contribution from Systems Integration.
As a result of the strong gross profit performance, adjusted
EBITDA has increased in the year by 60% to £3.2 million (2017: £2.0
million), this increase being supported by an additional £1.5 million
EBITDA contribution from the Software division.
The improved trading performance resulted in a £0.4 million
increase at the operating level, with profit of £1.6 million (2017:
£1.2 million), representing a 32% year on year increase. The
Group reports its second consecutive profitable year following its
recent restructuring, recording profit before tax from continuing
operations of £1.5 million (2017: £1.2 million) and post-tax earnings
from continuing operations of £1.5 million (2017: £1.8 million), with
the prior year benefitting from a credit to tax of £0.6 million versus
£0.1 million credit in the current year.
Year ended 31 January 2018
Revenue
Gross profit
Gross margin
Adjusted EBITDA
Operating profit from continuing operations
Adjusted profit before taxation
Profit after taxation from continuing operations
Operating profit from continuing operations
Adjusting items:
Integration and transactional costs included within administrative
expenses
Depreciation
Amortisation
Share based payment charge
Adjusted EBITDA
Profit/(loss) before taxation from continuing operations
Adjusting items:
Integration and transactional costs included within administrative
expenses
Amortisation of intangible assets from business combinations
Share based payment charge
Adjusted profit before taxation
Amortisation split:
Development capitalised
Software capitalised
Business combinations
Amortisation of intangible assets
£000
24,213
3,777
15.6%
613
409
463
405
409
12
93
59
40
613
404
12
7
40
463
-
52
7
59
Systems
Integration
Managed
Services
Software
Group
Overheads
£000
18,023
5,140
28.5%
2,567
1,948
2,207
1,986
£000
5,338
4,441
83.2%
1,884
1,371
1,660
1,374
£000
-
-
-
(1,857)
(2,157)
(1,959)
(2,249)
Total
£000
47,574
13,358
28.1%
3,207
1,571
2,371
1,516
1,948
1,371
(2,157)
1,571
36
252
281
50
171
47
285
10
218
10
-
72
437
402
625
172
2,567
1,884
(1,857)
3,207
1,952
1,348
(2,249)
1,455
36
169
50
2,207
-
112
169
281
171
131
10
218
-
72
437
307
172
1,660
(1,959)
2,371
152
2
131
285
-
-
-
-
152
166
307
625
14
STRATEGIC REPORT:
FINANCIAL REVIEW continued
Year ended 31 January 2017
Revenue
Gross profit
Gross margin
Adjusted EBITDA
Operating profit from continuing operations
Adjusted profit before taxation
Profit after taxation from continuing operations
Systems
Integration
Managed
Services
Software
Group
Overheads
£000
24,586
4,084
16.6%
1,082
874
888
1,478
£000
15,310
3,714
24.3%
1,959
1,432
1,524
1,432
£000
1,625
1,426
87.8%
343
(19)
321
7
£000
-
-
-
(1,374)
(1,096)
(1,407)
(1,128)
Total
£000
41,521
9,224
22.2%
2,010
1,191
1,326
1,789
Operating profit from continuing operations
874
1,432
(19)
(1,096)
1,191
Adjusting items:
Integration and transactional costs included within administrative
expenses
Depreciation
Amortisation
Impairment of intangible assets
Share based payment charge
Adjusted EBITDA
9
122
70
-
7
50
281
183
-
13
1,082
1,959
77
20
118
146
1
343
(347)
(211)
1
-
-
68
424
371
146
89
(1,374)
2,010
Profit/(loss) before taxation from continuing operations
872
1,426
(16)
(1,128)
1,154
Adjusting items:
Integration and transactional costs included within administrative
expenses
Amortisation of intangible assets from business combinations
Impairment of intangible assets
Share based payment charge
Adjusted profit before taxation
Amortisation split:
Development capitalised
Software capitalised
Business combinations
Amortisation of intangible assets
9
-
-
7
50
35
-
13
888
1,524
21
49
-
70
43
105
35
183
77
113
146
1
321
3
2
113
118
(347)
(211)
-
-
68
148
146
89
(1,407)
1.326
-
-
-
-
67
156
148
371
15
SYSTEMS INTEGRATION
The Systems Integration division
had a challenging year following
a slow first half. It reported lower
revenues in the year at £24.2 million
(2017: £24.6 million), albeit with a
second half weighting which was
anticipated at the start of the year,
as result of order unwind and the
profile of new project wins and
delivery. The revenue shortfall was
a result of slower uptake and delays
in delivering infrastructure projects
for both Smart building and DAS
engagements.
Gross margin percentage at 15.6%
is down 100 basis points from 16.6%
in 2017, contributing a gross profit
of £3.8 million, down £0.3 million
(2017: £4.1 million). The decrease
in gross profit margin is a result of
two material infrastructure projects
one of which is traditional cabling
and the other a Smart Building
mandate, which are contracted at
lower margins. As a result, adjusted
EBITDA at £0.6 million (2017: £1.1
million) and operating profit on
continuing operations at £0.4
million (2017: £0.9 million) are both
down £0.5 million on the prior
year. A+K’s sales of AV products
and services contributed £0.7
million of revenues and £0.3 million
gross margin from the date of its
acquisition in May 2017.
MANAGED SERVICES
During the year, revenues grew by
18% to £18.0 million (2017: £15.3
million) and gross profit increased
by £1.4 million or 38% to £5.1
million (2017: £3.7 million). The year
ended 31 January 2018 was the
first full year of contribution from
Commensus which was acquired
in November 2016. The full year
contribution from Commensus was
£2.4 million of revenue (2017: £0.5
million) and £1.3 million (2017: £0.3
million) of gross profit. The increase
in gross margin has been offset
by a corresponding increase in
overheads of £0.8 million, resulting
in an increase in adjusted EBITDA
of £0.6 million to £2.6 million (2017:
£2.0 million) and operating profit of
£2.0 million (2017: £1.4 million).
SOFTWARE
This division includes revenues and profits
generated from Connect IB product
offerings including OneSpace.
Revenues of £5.3 million (2017: £1.6
million) generated gross profit of
£4.4 million at a margin of 83.2%
(2017: £1.4 million and a margin
of 87.8%), resulting in a positive
adjusted EBITDA contribution of
£1.9 million (2017: £0.3 million)
and operating profits of £1.4
million (2017: loss of £0.02 million
after £0.1 million impairment of
intangible assets). The performance
has been underpinned by a few
notable contracts, including the
£2.25 million OEM for OneSpace
alongside the mandates for a smart
city solution and a digital retail
solution.
Investment in overheads of £1.2
million has been made during the
year, with additional employees
complementing the existing team
and supporting a scalable business
platform, as we look to grow the
business following this year’s
period of investment in product.
The impact of the investments in
the Software business is beginning
to show positive signs and, we
have already seen increased client
engagements, which start with
a pilot or proof of concept. This
increase in client activity across
a range of vertical markets, we
hope over time will develop into
full contract engagements and
global mandates. We also see the
investment program as essential
in our strategy of developing
new channels to market, and
some of the investment has been
and will continue to be focused
on productising aspects of the
modular platform offering, to enable
other vendors and partners to take
our software products to market. We
see this as a big opportunity in 2019
and beyond.
The impairment charge in the
prior year arose as a result of the
development in previous years of
the original OneSpace product,
following the acquisition of Connect
IB and re-engineering of the product
to what it is today as a component
of our cloud platform. The charge
results from the now ‘end of life’
previous version of the OneSpace
product.
GROUP OVERHEADS
The Group reported central overheads of
£2.2 million at an operating level (2017:
£1.1 million). This includes a charge in the
current year relating to integration and
transactional items of £0.4 million (2017:
credit of £0.2 million). The previous year also
benefited from an exceptional credit of £0.2
million relating to the unwinding of accruals
associated with former premises, thus the
increase in continuing overheads was £0.3
million. This increase reflects investment
in additional headcount and marketing
activities.
INTEGRATION AND TRANSACTIONAL ITEMS
A charge of £0.4 million (2017: £0.2 million
credit) has been recorded in integration
and transactional items from continued
operations in the year. This charge
comprises an integration charge of £0.3
million (2017: £0.4 million credit) and a
transactional charge of £0.1 million (2017:
£0.2 million charge).
The integration charge includes £0.2 million
employee related costs and £0.1 million
business restructuring costs, whilst the
£0.1 million transactional items resulted
from professional fees associated with the
acquisition of A+K as well as fees incurred
in respect of the share placing, share
consolidation and capital reduction.
16
STRATEGIC REPORT:
FINANCIAL REVIEW continued
TAXATION
The tax credit reported in the income
statement of £0.1 million (2017: £0.6
million) is the release of the deferred tax
liability associated with the amortisation
of the corresponding intangible assets
from business combinations of £0.1 million
(2017: £0.03 million), with the prior year
also benefitting from the recording of a tax
asset of £0.6 million in relation to previous
years’ trading losses.
The Group has the benefit of trading
losses which are available to offset against
future profits. As at 31 January 2018, the
tax losses in the Group totalled £10.4
million (2017: losses of £9.7 million), of
which we anticipate utilising £3.6 million
against future profits and as such have
recognised a deferred tax asset of £0.6
million (2017: £0.6 million). The tax losses
primarily sit within the Systems Integration
division at £4.7 million, with £1.4 million
and £0.9 million trading losses relating
to the Managed Services and Software
divisions respectively, and the remaining
£3.4 million in relation to the central
function. Following the disposal of the
Systems Integration and Managed Services
divisions, £5.3 million of the tax losses will
leave the Group, with £5.1 million losses
remaining, £1.7 million in the Software
division and £3.4 million within the central
function.
EARNINGS PER SHARE - CONTINUING
OPERATIONS
Basic earnings per share (“EPS”) recorded
in the year was 7.7 pence, which was down
against the prior year at 11.1 pence. EPS
on a diluted basis, allowing for employee
share options and warrants, was 7.1 pence
(2017: 10.1 pence). An analysis is provided
in note 14 ‘Earnings per share’.
Adjusted basic earnings per share recorded
in the year was 12.8 pence, which was
marginally behind the prior year at 13.1
pence. Adjusted EPS on a diluted basis,
allowing for employee share options
and warrants, was 12.8 pence (2017: 11.9
pence). An analysis is provided in note 14
‘Earnings per share’.
17
On a comparable basis, both EPS and
adjusted EPS have been impacted by the
dilutive effect of the shares issued during
the year, with an additional 3.5 million
shares and 1.9 million weighted average
shares in 2018 on a basic and diluted basis.
The previous year also benefitted from
the credit to the income statement from
integration and transactional items of
£0.2 million (2018: charge of £0.4 million)
as well as the release of accruals of £0.2
million (2018: £nil) in relation to previous
premises and a tax credit of £0.6 million
(2018: £0.1 million credit).
RESEARCH AND DEVELOPMENT
During the year the Group has made a
significant investment of £1.2 million
(2017: £0.4 million) in further developing
the Software IP, as well as extending
the OneSpace product family, each one
bringing added functionality to the
product offering. New products launched
in the year included the Meeting Room
Management plug-in, a full web based
Meeting Room Management product, and
a market leading mobile application. There
has also been significant investment in the
core platform which hosts the OneSpace
product offering. The platform is now
multi-tenanted with a microservices
architecture and is truly cloud agnostic,
which allows for speedy deployment
and upgrades to all instances of installed
product. This investment is capitalised
and recorded in the statement of financial
position as an intangible asset. An analysis
is provided in note 16 ‘Other intangible
assets’. We anticipate more development
in 2019 as we further improve the software
offering, with already identified specific
enhancements.
INTANGIBLE ASSETS AND
GOODWILL
As a result of the acquisition
of A+K, the Group intangible
assets increased by £0.2 million
and goodwill by £1.1 million. A
breakdown of the intangible
assets and goodwill arising on the
acquisition is provided in note 6
‘Acquisitions of businesses’.
Amortisation of £0.3 million has
been recognised in the income
statement in respect of total
acquired intangible assets (2017:
£0.2 million).
Cash flows generated from financing
activities of £5.7 million (2017: £5.2 million)
comprised funds raised from the issue of
new equity, net of issue costs of £6.2 million
(2017: £3.0 million) and cash outflows
relating to repayment of debt and interest
totalling £0.6 million (2017: £2.3 million).
The funds raised during the year were
used to fund the acquisition of A+K and
investment made in software IP.
CASH FLOW
DIVIDEND POLICY
Cash and cash equivalents at the end
of the year was £3.4 million (2017: £3.2
million), an increase of £0.2 million. Net
cash at the year-end amounted to £1.2
million (2017: £0.8 million).
The business operations generated
cash of £2.7 million (2017: £1.9 million)
from profitable trading during the year.
Increased working capital requirements
primarily in the Software and Systems
Integration businesses resulted in a net
cash outflow from operating activities
of £2.3 million (2017: £0.9 million cash
inflow), largely as a result of higher debtors
and accrued income which resulted in an
outflow of £4.9 million (2017: £0.1 million).
In particular, this outflow has arisen from
substantially higher fourth quarter activity
in 2018 on infrastructure projects which
will benefit revenues in the next financial
year. In prior years, including 2017, quarter
four has traditionally been our slowest
quarter and has therefore seen working
capital inflows. The proposed disposal of
the Systems Integration and Managed
Services divisions involves the recovery of
£3.6 million of cash and excess working
capital tied up in those divisions at the
year end.
Cash outflows from investing activities
of £3.1 million (2017: cash outflows £4.0
million), resulted from the investments in
A+K of £1.2 million (net of cash acquired),
investment in the development of
software IP of £1.2 million and investment
in fixed and intangible assets of £0.6
million.
Following the capital reduction
implemented after last year’s AGM, the
Company is in a position to adopt a
dividend policy. The proposed disposal
of the Systems Integration and Managed
Services divisions will furthermore generate
a profit on disposal as well as substantial
cash resources. The Board considers that it
is in shareholders’ best interests to retain
resources in the Group to invest in further
software development and potential
acquisitions. However, should it become
apparent in the next 24 months that not
all of the available resources are required,
the Board will consider implementing a
distribution policy or return of capital to
shareholders.
BORROWING AND BANK FACILITY
As reported in 2017, on 14 November
2016 the Group entered into a long-term
arrangement with Barclays to finance the
acquisition of Commensus with a fixed term
loan of £2.35 million. The loan is repayable
over four years, with quarterly repayments
of £0.15 million, and carries a coupon of
3.5%. The first repayment was made in
February 2017 and a total of £0.6 million has
been repaid in the year ended 31 January
2018.
As a result of the fixed term loan, a reduced
revolving loan facility of £1.65 million was
agreed (previously £2.5 million). This facility
will ratchet back up to a maximum of £2.5
million in line with the repayments of the
£2.35 million term loan, and as such the
facility is £2.24 million at 31 January 2018.
The facility remains undrawn as at the
balance sheet date.
Subsequent to the acquisition of A+K in
May 2017, as part of the integration within
the Group the business moved its banking
facilities from Clydesdale Bank to Barclays.
At the time of acquisition, A+K had bank
loans with Clydesdale amounting to £0.3
million. As part of the bank transition a
£0.5 million mortgage, secured against
the property owned by A+K, was put in
place through Barclays and the funds used
in part to repay the Clydesdale loans. The
Barclays mortgage loan represents 69% of
the property value of £0.7 million, carries
a coupon of 2.5% and is repayable over
three years. Repayments are £0.01 million
quarterly, and represent repayment of
principal and interest.
As a result of the Group’s term loan and
facility arrangements, the following
banking covenants are in place: -
• Leverage cover: total borrowings must
not exceed 200% of trailing twelve month
EBITDA;
• Debt service: adjusted cash flow as a
ratio to adjusted debt service shall not fall
below 2 times;
• Interest cover: Earnings Before
Interest and Tax, (“EBIT”), must
exceed 2.5 times gross financing
costs; and
• Debtor cover: debtor book cover
less than 90 days cannot fall below
3 times the drawn facility.
These covenants must be tested
at each financial quarter, and must
be based on the previous 12 month
period results. During the year
to 31 January 2018 the covenants
have been tested at the quarterly
interval, and all have been within
the facility limits.
Should the disposal of the Systems
Integration and Managed Services
divisions be approved by shareholders, the
Group intends to use part of the proceeds
to repay the balance of the fixed term loan.
If the Group were to repay the outstanding
loan balance as the date of this report, the
maximum breakage costs incurred would
be £0.09 million.
Spencer Dredge
Chief Financial Officer
29 May 2018
18
STRATEGIC REPORT:
PRINCIPAL RISKS
PRINCIPAL RISKS AND
UNCERTAINTIES
The Group could potentially
be affected by a number of
uncertainties and risks that are not
wholly within its control:
REGULATORY CHANGES
RESULTING FROM THE UK’S EXIT
FROM THE EUROPEAN UNION
The Board continues to monitor its
operations as a result of the UK’s
referendum to leave the European
Union (“Brexit”). It is not expected
that Brexit will have either a
material impact on operations or
financial performance as the Group
looks to expand both in the UK and
geographically. The Board believes
that smart software technologies
will resonate with clients anywhere
in the world and therefore Brexit is
not a material concern.
RELIANCE ON KEY PERSONNEL
AND MANAGEMENT
The success of the Group will rely
upon attracting and retaining
the right calibre of talent. The
Group operates an active talent
and development program. The
Group continuously monitors
and develop this programme to
meet the ambitious requirements
of the business. The loss of key
staff would be detrimental to
the Group. The Group utilises a
number of tools to retain its senior
management including: an annual
bonus and long term incentive
plans.
TECHNOLOGICAL CHANGE AND
COMPETITION
The pace of technology
advancement in today’s world is
apparent and affects all aspects
of life. The Group strategy is
underpinned by our software
offering. We will continue to
understand client requirements and
research the market to ensure we
focus our product development
program to ensure we have the
most relevant software which is
competitive in the global market.
The risk should we not continue
to build upon recent investment
in software is considerable and
therefore identifying increased
product functionality and
differentiation, will ensure we
manage and mitigate this risk.
SALES AND CHANNEL
DEVELOPMENT
Key to our future success will be
developing successful channels to
market. Productising our software
offering is crucial to ensuring a
successful channel strategy, ease
of sale and installation are both
key components to ensure partner
adoption. Failure to develop
channels to market is likely to
impact our ability to scale the
business. Recent and ongoing
investment will ensure we have
products to share with channel
partners along with the necessary
training and installation support.
CLIENT DELIVERY
Our software solution addresses
many client requirements, some of
which can be complex installations.
Client IT environments are not
uniform and therefore delivery is a
key component to successful client
relationships. Project management,
with technically capable trained
resource and planning are
essential in delivering an excellent
installation experience ensuring
long term client retention.
ACCREDITATIONS AND INDUSTRY
STANDARDS
standards of practice.
IP PROTECTION
The barriers to entry in our
software markets are significant.
Therefore, we must maintain
protection around our IP otherwise
risk these barriers to competition.
Maintaining contractual disciplines
and vetting who we chose to
share any level of object or
source code, product knowledge
and wherewithal and general
secrets of how we operate are
constantly monitored and reviewed.
Confidentiality is a key component
to managing this risk and the Group
has legally binding agreements
to ensure this is robust and
maintained.
POST ACQUISITION RISK
The Board’s stated strategy is that
it is seeking to make acquisitions
to complement the Company’s
products and services. Integrating
new acquisitions involves risk
resulting from poor communication,
inadequate business processes,
loss of staff, loss of clients and
other factors. Therefore, integration
risk needs to be assessed and
monitored to ensure value is
achieved from any business
combination. Post-acquisition risk
is managed by both Executive and
senior management.
The Strategic Report, comprising
the Strategy and Operational
Review, Financial Review and
Principal Risks was approved by the
Board on 29 May 2018 and signed
on its behalf by:
Industry standards are constantly
changing with data and cyber security key
concerns for most organisations. Ensuring
the Group is planning and maintaining
its accreditations will mitigate the risk
associated with ever changing high
Mark Braund
Chief Executive Officer
29 May 2018
20
1919
DIRECTORS AND OFFICERS
Frank Beechinor (Chairman)
Frank was appointed Chairman of the Board on 10 July 2014 and
is Chairman of the Nominations Committee. He has significant
corporate experience, particularly of IT and Software services and
is also currently Non-Executive Chairman of dotDigital Group plc
and CEO of Cadence Performance Limited. Frank was previously
founder and CEO of OneClick HR plc from 1997 to 2011.
Mark Braund (Chief Executive Officer)
Mark was appointed CEO on 1 January 2016, following his stint as
a Non-Executive Director appointed on 9 March 2015.
He is a former director of IBM (EMEA) and an experienced
technology and business services executive with a proven ability
to turn around and grow businesses. He founded, developed and
then sold Barker Personnel Services to Carlisle Holdings plc and
subsequently led the turnarounds of TAC Europe, Lorien plc and
First Advantage Inc., all of which saw rapid increases in market
share and profitability before being sold to private investors. Mark
was CEO of InterQuest Group plc from April 2011 to December
2015, one of the leading digital technology contract services and
recruitment specialists in the UK.
Spencer Dredge (Chief Financial Officer)
Spencer was appointed as Director on 2 September 2015.
Spencer is a qualified Chartered Management Accountant
and has more than a decade of experience in the Technology
sector having held a number of senior positions for quoted
UK technology companies, including his previous role as CFO
of Castleton Technology Plc, where he helped complete the
Groups restructuring. He has experience in corporate finance,
playing a pivotal role in executing successful M&A programs
at Redstone plc, Maxima Holdings plc and Redcentric plc.
Guy van Zwanenberg (Non-Executive Director)
Guy joined the Board on 9 March 2015 and is Chairman of the
Remuneration Committee and a member of the Audit Committee
and the Nominations Committee. Guy has 40 years’ experience in
industry and practice. He qualified as a Chartered Accountant with
Grant Thornton and then spent three years working with James
Gulliver. Guy subsequently moved to become UK Finance Director
of an American computer accessory company which was taken
public in 1989. In 1991, he established his own interim financial
management business and has since been involved in a number of
SME businesses providing strategic and financial help.
Guy joined Gamingking PLC in 1998 on a part time basis as Finance
Director and became Company Secretary and Non-Executive
Director in 2006, remaining until May 2013. He joined Quixant plc
as a Non-Executive in March 2013 as part of the float team.
Guy is both a Fellow of The Institute of Chartered Accountants in
England and Wales and a Chartered Director.
Diana Dyer Bartlett (Non-Executive Director)
Diana was appointed to the Board in October 2013 and is Chairman
of the Audit Committee and a member of the Remuneration
and Nominations Committees. Diana acted as interim FD of the
Company between the end of 2014 and Spencer’s appointment in
September 2015.
With 30 years’ experience in accountancy, investment banking
and finance, Diana has an impressive track record in investments,
mergers and acquisitions, corporate governance and business
transformation in publicly quoted, venture capital and private
equity backed companies. Her previous roles include Chief
Financial Officer for Precious Cells International Limited, Company
Secretary for Tullett Prebon plc, Finance Director of Pelamis
Wave Power Limited and Chairman and Honorary Treasurer for
BreastCancer Haven.
Diana is an Associate of the Institute of Chartered Accountants in
England and Wales.
21
22
COMPANY INFORMATION
AND ADVISERS
DIRECTORS’ REPORT
REGISTERED OFFICE
40 Holborn Viaduct
London
EC1N 2PB
COMPANY NUMBER
5332126
COMPANY ADVISERS
NOMINATED ADVISER AND
JOINT BROKER
Cantor Fitzgerald
1 Churchill Place
Canary Wharf
London
E14 5RB
JOINT BROKER
Whitman Howard
First Floor
1 – 3 Connaught House,
Mount Street,
London
W1K 3NB
AUDITOR
KPMG LLP
Chartered Accountants &
Statutory Auditors
Arlington Business Park
Theale
Reading
Berkshire
RG7 4SD
REGISTRAR
Share Registrars Ltd
Craven House
West Street
Farnham
Surrey
GU9 7EN
BANKER
Barclays Bank Plc
1 Churchill Place
London
E14 5HP
The Directors’ submit this report together
with the accounts of RedstoneConnect
plc (‘the Company’) and its subsidiary
undertakings (together ‘the Group’) for the
year ended 31 January 2018.
PRINCIPAL ACTIVITIES
During the year the Group’s
principal activities were
infrastructure services, managed
services and software products.
DIRECTORS AND
THEIR INTERESTS
The Directors who held office
during the year were as follows:
RESULTS AND DIVIDEND
The results for the year are set out
in the consolidated statement of
comprehensive income on page 33.
The Directors do not recommend
payment of a dividend (2017: £nil).
REVIEW OF BUSINESS
A review of the business of the
Group, together with comments on
future developments is given in the
Strategic Report.
Frank Beechinor
Chairman
Mark Braund
Chief Executive Officer
Spencer Dredge
Chief Financial Officer
Diana Dyer Bartlett
Non-Executive Director
Guy van Zwanenberg
Non-Executive Director
The remuneration of the Directors who held office during the year was as follows:
DIRECTORS’ REMUNERATION
Salary
Bonus
Share
Based
Payment
Benefit
in kind
Total
Pension
2018
Total
2017
Total
£000
£000
£000
£000
£000
£000
£000
£000
65
300
150
40
40
-
50
30
-
-
6
40
16
4
2
-
4
1
-
-
71
394
197
44
42
-
38
9
-
-
71
432
206
44
42
65
365
190
42
40
Frank Beechinor
Mark Braund
Spencer Dredge
Diana Dyer Bartlett
Guy van Zwanenberg
23
24
DIRECTORS’ REPORT continued
The interests of those Directors serving during the year ended 31 January 2018, as at the year-end, all of which
are beneficial, in the share capital of the Company, were as follows:
DIRECTOR
Ordinary shares of 10p each
Frank Beechinor
Mark Braund
Spencer Dredge
Diana Dyer Bartlett
Guy van Zwanenberg
2018
No
90,000
144,853
32,126
40,000
30,000
2017
No
90,000
144,853
32,126
40,000
30,000
During the year, the Company effected a share consolidation, reducing the ordinary share capital by a factor of
100:1 which was approved by shareholders at the AGM held on 5 June 2017. The effect of the share consolidation
was to consolidate 2.1 billion 0.1p ordinary shares into 20.1 million 10p ordinary shares. The comparative figures in
the table above, and throughout this report have been amended to reflect the effects of the share consolidation
had it been in place at the start of the last reporting period.
The beneficial holdings include, where applicable, the holdings of connected parties.
DIRECTORS’ SHARE OPTIONS
As at 31 January 2018 the Company had granted the following share options to Directors of the Company which
remained outstanding at the year-end:
NO OF ORDINARY EXERCISE
DIRECTOR
INSTRUMENT SHARES OF 10p
PRICE GRANT DATE
Frank Beechinor
Mark Braund
Spencer Dredge
Diana Dyer Bartlett
Guy van Zwanenberg
Share option
Share option
Share option
Share option
Share option
100,000
650,000
260,000
70,000
30,000
92p
92p
92p
92p
92p
11/12/2015
11/12/2015
11/12/2015
11/12/2015
11/12/2015
None of the Directors had any beneficial interest in the shares of any subsidiary companies.
The movement on Directors share warrants and options during the year is set out below:
2018
2017
Number
Weighted average
exercise price
Number
Weighted average
exercise price
Outstanding at start of year
Outstanding at end of year
Exercisable at end of year
1,100,000
1,100,000
-
92p
92p
-
1,100,000
1,100,000
-
92p
92p
-
benefit from training and career
development programmes in
common with all employees. The
Group has continued its policy of
employee involvement by making
information available to employees
through the medium of frequent
staff meetings, together with
personal appraisals and feedback
sessions.
During the year the Group
introduced a SAYE share incentive
scheme in which all staff were
invited to participate, thereby
aligning their interests with those
of the shareholders.
SHARE CAPITAL
BOARD OF DIRECTORS
Details of the Company’s share
capital are disclosed in note 25 to
the financial statements.
FINANCIAL INSTRUMENTS
Details of the use of financial
instruments by the Company and
its subsidiary undertakings are
disclosed in note 29 to the financial
statements.
STATEMENT TO THE AUDITOR
So far as the Directors are
aware, there is no relevant audit
information (as defined by section
418 of the Companies Act 2006)
of which the Company’s auditor
is unaware, and each Director
has taken all the steps that he/
she ought to have taken as a
Director in order to make himself/
herself aware of any relevant audit
information and to establish that
the Company’s auditor is aware of
that information.
CORPORATE GOVERNANCE
Achieving good governance is
key to the long term success
of the business. It ensures we
remain a responsible Company
and underpins our culture and
reputation as an organisation.
As a Board we are conscious of
our obligations to think deeply,
thoroughly and on a continuing
basis regarding our duties.
The Group has Non-Executive
Board members with extensive
experience in areas critical to
the long term future success of
the Company, covering a deep
understanding of technology,
corporate strategy, finance and
investment. This experience
enables the Non-Executives to
add entrepreneurial leadership,
with open and rigorous debate
that provides a valuable external
and balanced perspective to the
Board. We believe that our Board
members complement each other,
delivering a broad and appropriate
balance of skills.
At the year end the Board
consisted of a Chairman, Chief
Executive, Chief Financial Officer
and two Non-Executive Directors.
The Board meets on a regular
basis and the agenda of matters
discussed and approved consists of
matters concerned with the future
direction of the business. The Board
is responsible for formulating,
reviewing and approving the
Group’s strategy, budgets and
major items of expenditure.
REMUNERATION COMMITTEE
The Remuneration Committee
agrees the terms and conditions,
including annual remuneration,
of Executive Directors and
reviews such matters for other
senior personnel including their
participation in long term incentive
schemes.
AUDIT COMMITTEE
The Audit Committee recommends
the appointment, scope and fees
of the external auditor, discusses
issues that arise from the audit,
reviews reports of the external
auditors and internal control
procedures and considers any
financial statements before their
publication. The auditor also
attends meetings of the Audit
Committee as required by the
Committee to consider any issues
arising from the audit and the
auditor’s work.
NOMINATIONS COMMITTEE
The Nominations Committee makes
recommendations to the Board
for all Board appointments and
succession planning.
EMPLOYEES
The Group has continued to give
full and fair consideration to
applications made by disabled
persons, having regard to
their respective aptitudes and
abilities, and to ensure that they
25
26
DIRECTORS’ REPORT continued
SUBSTANTIAL SHAREHOLDINGS
As at the 25 May 2018, the following interests in 3% or more of the issued ordinary share capital had been notified to the Company:
SHAREHOLDER
NUMBER OF SHARES % HOLDING
Canaccord Genuity Group
JO Hambro Capital Management
Herald Investment Management
Close Brothers Asset Management
DIRECTORS’ RESPONSIBILITIES
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 (“IFRS’s”) as adopted
by the EU and applicable law
and have elected to prepare
the parent Company financial
statements on the same basis.
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
27
2,621,170
2,469,999
1,611,987
1,122,137
12.6%
11.9%
7.8%
5.4%
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.
LISTING
The Company’s ordinary shares
have been traded on London’s
AIM Market since 6 September
2006. Cantor Fitzgerald are the
Company’s Nominated Adviser,
and the Company has Joint
Brokers, Cantor Fitzgerald and
Whitman Howard. The closing
mid-market share price at 31
January 2018 was 109 pence (31
January 2017: 160 pence).
PUBLICATION OF FINANCIAL
STATEMENTS
The Company’s financial statements will
be made available on the Company’s
website www.redstoneconnectplc.
com. The maintenance and integrity of
the website is the responsibility of the
Directors. The Directors’ responsibility
also extends to the financial statements
contained therein. Shareholders who
estimates that are reasonable,
relevant and reliable
• state whether they have been
prepared in accordance with
IFRS’s as adopted by the EU;
• 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.
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
would like to receive a copy of the financial
statements by post, should apply to the
Company Secretary at the Company’s
registered office.
ANNUAL GENERAL MEETING
Further details in relation to the
Annual General Meeting shall be
provided in due course.
GOING CONCERN
The Group’s business activities
and performance, and the financial
position of the Group, its cash
flows and borrowing facilities,
together with the factors likely
to affect its future development,
performance and position, are
explained in the Strategic report.
Analysis of the Group’s key risks is
also set out in the Strategic report.
Further information regarding the
assessment of going concern is in
note 1 to the financial statements.
After making appropriate enquiries,
the Directors consider that the
Company and the Group have
adequate resources to continue
in operational existence for the
foreseeable future. For this reason,
they continue to adopt the going
concern basis in preparing the
financial statements.
AUDITOR
In accordance with section 485
of the Companies Act 2006, a
resolution proposing that KPMG
LLP be re-appointed as auditor
will be put to the Annual General
Meeting.
The Report of the Directors was
approved by the Board on 29 May
2018 and signed on its behalf by:
Spencer Dredge
Director
29 May 2018
28
28
INDEPENDENT AUDITOR’S REPORT TO
THE MEMBERS OF REDSTONECONNECT PLC
1. OUR OPINION IS UNMODIFIED
We have audited the financial statements
of RedstoneConnect Plc (“the Company”)
for the year ended 31 January 2018 which
comprise the consolidated statement of
comprehensive income, the consolidated
and company statement of financial
position, the consolidated statement
of changes in equity, the company
statement of changes in equity, the
consolidated and company statement
of cashflows, and the related notes,
including the accounting policies in note
2.
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
January 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 (IFRSs as adopted by the EU);
• the parent Company financial statements
have been properly prepared in
accordance with IFRSs as adopted by the
EU and as applied in accordance with the
provisions of the Companies Act 2006;
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.
2. KEY AUDIT MATTERS: OUR
ASSESSMENT OF RISKS OF MATERIAL
MISSTATEMENT
Key audit matters are those
matters that, in our professional
judgement, 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 (unchanged from 2017):
Systems Integration Revenue
2018: £24.2 million
(2017: £24.6 million)
Recoverability of parent
Company’s investment in
subsidiaries
2018: £14.4 million
(2017: £13.0 million)
29
The risk
Our Response
Substantive estimates:
Our procedures included:
Revenue for installation work in the
Systems Integration division is recognised
by reference to the stage of completion
of the contract at the end of the reporting
period. This is assessed by the proportion
of contract costs incurred to the total
expected cost to complete. Significant
judgement is required to estimate total
forecast costs and changes to this
estimate could give rise to material
variances in the amount of revenue and
margin recognised
- Controls design: We attended project meetings
where all contracts were discussed and cost
variances investigated;
- Our sector experience: We inspected those
live contracts contributing the highest level
of project revenue and considered estimates
for total contract costs and forecast costs
to complete including assessing historical
forecasting trends;
- Historical comparisons: We assessed the
accuracy of forecasting by comparing total cost
forecast to actuals; and
- Assessing Transparency: We assessed the
adequacy of the Group’s disclosures in respect
of Systems Integration revenue as a significant
judgement.
Low risk, high value
Our procedures included:
The carrying amount of the parent
Company’s investments in subsidiaries
represents 86% (2017: 90%) of the
parent Company’s total assets. Their
recoverability is not at a high risk of
significant misstatement or subject to
significant judgement. However, due to
their materiality in the context of the
parent Company financial statements,
this is considered to be the area that had
the greatest effect on our overall parent
Company audit.
-Test of details: Comparing the carrying amount
of 100% of investments with the relevant
subsidiaries’ draft balance sheets to identify
whether their net assets, being an approximation
of their minimum recoverable amount, were in
excess of their carrying amount and assessing
whether those subsidiaries have historically been
profit-making.
-Assessing subsidiary company audits: Assessing
the work performed by the subsidiary company
audit teams on all of those subsidiaries and
considering the results of that work, on those
subsidiaries’ profits and net assets.
3. OUR APPLICATION OF
MATERIALITY AND AN
OVERVIEW OF THE SCOPE OF
OUR AUDIT
Materiality for the Group financial
statements as a whole was set
at £480,000 (2017: £400,000),
determined with reference to
a benchmark of revenue of
£47,574,000 (2017: £41,521,000),
of which it represents 1.0% (2017:
1.0%). We consider total revenue
to be the most appropriate
benchmark as it provides a more
stable measure year on year than
Group profit before tax.
Materiality for the parent
Company financial statements
as a whole was set at £360,000
(2017: £400,000), determined
with reference to a benchmark
of parent Company net assets, of
which it represents 3.0% (2017:
6.0%).
We agreed to report to the
Audit Committee any corrected
or uncorrected identified
misstatements exceeding
£24,000 (2017: £20,000), in
addition to other identified
misstatements that warranted
reporting on qualitative grounds.
Of the Group’s 9 (2017: 8)
reporting components, we
subjected 6 (2017: 5) to full
scope audits for Group purposes.
The components within the
scope of our work accounted
for the percentages illustrated
opposite.
For the residual components,
we performed analysis at an
aggregated Group level to re-
examine our assessment that
there were no significant risks
of material misstatement within
these.
The Group team used component
materialities which ranged from
£360,000 to £63,000, (2017:
£300,000 to £50,000), having
regard to the mix of size and
Group revenue
Group profit before tax
0
0
100%
(2017 100%)
100
100
0
0
100%
(2017 100%)
100
100
Group total assets
0
0
100%
100
100
Key:
Full scope for group audit purposes 2018
Specified risk-focused audit procedures 2018
Full scope for group audit purposes 2017
Specified risk-focused audit procedures 2017
Residual components
30
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.
Derek McAllan
(Senior Statutory Auditor)
for and on behalf of KPMG LLP
Chartered Accountants & Statutory
Auditors
Arlington Business Park
Theale
Reading
Berkshire
RG7 4SD
29 May 2018
INDEPENDENT AUDITOR’S REPORT TO THE
MEMBERS OF REDSTONECONNECT PLC continued
risk profile of the Group across
the components. The work on all
components, including the audit
of the parent Company, was
performed by the Group team.
4. WE HAVE NOTHING TO
REPORT ON GOING CONCERN
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:
31
• we have not identified material
misstatements in the strategic
report and the directors’ report;
• 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:
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
• we have not received all the
information and explanations
we require for our audit.
We have nothing to report in
these respects.
7. RESPECTIVE
RESPONSIBILITIES
Directors’ responsibilities
As explained more fully in their
statement set out on page 27,
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.
A fuller description of our
responsibilities is provided on the
FRC’s website at www.frc.org.uk/
auditorsresponsibilities.
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
3232
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 January 2018
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 31 January 2018
NOTES 2018 2017
NOTES 2018 2 017
£000
£000
Revenue
Cost of sales
Gross profit
Administrative expenses
Operating profit
Adjusted EBITDA*
Integration and transactional items included
within administrative expenses
Depreciation
Amortisation
Impairment of intangible assets
Share based payment charge
Operating profit
Net finance costs
Profit before tax
Taxation
Profit for the year after tax
Discontinued operations
Profit for the year
Total comprehensive profit for the year attributable to equity holders
Basic earnings/(loss) per share
Continuing operations
Discontinued operations
Total
Diluted earnings/(loss) per share
Continuing operations
Discontinued operations
Total
4,5
10
8
10
10
9
10
10
12
13c
7
14
14
14
14
14
14
£000
47,574
(34,216)
13,358
(11,787)
1,571
£000
41,521
(32,297)
9,224
(8,033)
1,191
3,207
2,010
(437)
(402)
(625)
-
(172)
1,571
(116)
1,455
61
1,516
(7)
1,509
1,509
7.72p
(0.03p)
7.69p
7.72p
(0.03p)
7.69p
211
(424)
(371)
(146)
(89)
1,191
(37)
1,154
635
1,789
316
2,105
2,105
11.14p
1.97p
13.11p
10.12p
1.79p
11.91p
* Profit for the year from continuing operations before net finance costs, tax, depreciation, amortisation, integration and transactional
items, impairment charges and share based payment charge.
The notes on pages 40 to 71 are an integral part of these consolidated financial statements.
33
ASSETS
Non-current assets
Goodwill
Other intangible assets
Property, plant and equipment
Deferred tax
Total non-current assets
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Total current assets
Total assets
EQUITY and LIABILITIES
Capital and reserves attributable to equity shareholders
Share capital
Share premium
Merger reserve
Reverse acquisition reserve
Accumulated surplus/(deficit)
Total equity
Current liabilities
Overdraft
Bank loans
Trade and other payables
Corporation tax
Total current liabilities
Non-current liabilities
Provisions
Bank loans
Total non-current liabilities
Total liabilities
Total equity and liabilities
15
16
17
24
18
19
20
25
25
25
20
22
21
13a
23
22
12,232
4,212
1,614
34
18,092
224
13,605
4,423
18,252
36,344
2,078
-
-
(4,236)
24,560
22,402
980
638
10,595
-
12,213
141
1,588
1,729
13,942
36,344
The financial statements were approved by the Board of Directors and authorised for issue on 29 May 2018.
They were signed on its behalf by:
Spencer Dredge,
Chief Financial Officer,
RedstoneConnect Plc, Company Number: 5332126
11,087
3,222
906
62
15,277
143
8,779
4,468
13,390
28,667
3,687
32,589
1,911
(4,236)
(19,470)
14,481
1,273
653
10,318
11
12,255
169
1,762
1,931
14,186
28,667
34
CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended 31 January 2018
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Attributable to equity holders of the Company
NOTES 2018 2017
Cash flows from operating activities
Profit for the year
£000
1,509
£000
2,105
Depreciation 402 424
Note
Share
capital
Share
premium/
merger reserve
Reverse
acquisition
reserve
Accumulated
(deficit)/
surplus
Total
£000 £000 £000 £000 £000
3,436
31,374
(4,236)
(21,664)
8,910
At 1 February 2016
Profit for the year
Total comprehensive profit for the year
Transactions with the owners:
Proceeds from shares issued
25
251
Share issue costs
Share based payment charge
At 31 January 2017
At 1 February 2017
Profit for the year
Total comprehensive profit for the year
Transactions with the owners:
Proceeds from shares issued
25
Share issue costs
Capital reduction
Share based payment charge
-
-
-
-
3,687
3,687
-
-
433
-
-
-
3,272
(146)
-
-
-
-
-
-
2,105
2,105
-
-
89
2,105
2,105
3,523
(146)
89
34,500
(4,236)
(19,470)
14,481
34,500
(4,236)
(19,470)
14,481
-
-
6,067
(260)
(2,042)
(40,307)
-
-
-
-
-
-
-
-
1,509
1,509
-
-
42,349
172
1,509
1,509
6,500
(260)
-
172
At 31 January 2018 2,078 - (4,236) 24,560 22,402
Amortisation
Share based payment charge
Net finance costs
Taxation
Intangible asset impairment
Provisions released
Operating cash flows before movements in working capital
Decrease in inventories
Increase in receivables
Decrease in payables
Movement in provisions
Operating cash flows after movements in working capital
Tax (paid)/refunded
Net cash (used in)/generated from operating activities
Cash flows from investing activities
Research and development
Acquisition of subsidiaries (net of cash acquired)
Acquisition of intangible assets
Acquisition of property, plant and equipment
Net cash used in investing activities
Cash flows from financing activities
Proceeds from issues of share capital (net of issue costs)
Loan drawn
Loan repaid
Net finance costs
Net cash generated from financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at start of year
Cash and cash equivalents at end of year
9,16
625
172
116
(61)
-
(28)
2,735
92
(4,894)
(248)
-
(2,315)
(54)
(2,369)
(1,232)
(1,249)
(176)
(395)
(3,052)
6,240
1,150
(1,605)
(116)
5,669
248
3,195
3,443
371
89
37
(635)
146
(610)
1,927
37
(133)
(270)
(687)
874
39
913
(367)
(3,140)
(138)
(351)
(3,996)
2,979
3,789
(1,500)
(37)
5,231
2,148
1,047
3,195
Cash and cash equivalents comprise cash at bank and other short-term highly liquid investments with maturity of
three months or less, as adjusted for any bank overdrafts.
35
36
COMPANY STATEMENT OF FINANCIAL POSITION
As at 31 January 2018
COMPANY STATEMENT OF CASH FLOWS
For the year ended 31 January 2018
NOTES 2018 2017
2018 2017
ASSETS
Non-current assets
Investment in subsidiaries
Tangible assets
Total non-current assets
Current assets
Trade and other receivables
Cash and cash equivalents
Total current assets
Total assets
EQUITY and LIABILITIES
Capital and reserves attributable to equity shareholders
Share capital
Share premium
Merger reserve
Accumulated surplus/(deficit)
Total equity
Current liabilities
Overdraft
Bank loans
Trade and other payables
Total current liabilities
Non-current liabilities
Provisions
Bank loans
Total non-current liabilities
Total liabilities
Total equity and liabilities
30
19
25
25
25
20
22
21
23
22
£000
£000
14,375
45
14,420
2,274
29
2,303
16,723
2,078
-
-
10,544
12,622
-
588
2,283
2,871
55
1,175
1,230
4,101
16,273
12,975
3
12,978
1,519
-
1,519
14,497
3,687
32,589
1,911
(29,938)
8,249
639
588
3,204
4,431
55
1,762
1,817
6,248
14,497
The financial statements were approved by the Board of Directors and authorised for issue on 29 May 2018.
They were signed on its behalf by:
Spencer Dredge,
Chief Financial Officer,
Company Number: 5332126
37
Cash flows from operating activities
Loss before taxation
Depreciation
Share based payment charge
Net finance costs
Provisions released
Operating cash flows before movements in working capital
Increase/(decrease) in receivables
(Decrease)/increase in payables
Movement in provisions
Net cash used in operating activities
Cash flows from investing activities
Investment in subsidiary
Acquisition of property, plant and equipment
Net cash used in investing activities
Cash flows from financing activities
Proceeds from issues of share capital (net of issue costs)
Loans drawn
Loans repaid
Net finance costs
Net cash generated from financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at start of year
Cash and cash equivalents at end of year
£000
(1,939)
10
72
105
-
(1,752)
123
(1,798)
-
(3,427)
(1,400)
(52)
(1,452)
6,240
-
(588)
(105)
5,547
668
(639)
29
£000
(834)
1
68
30
(610)
(1,345)
(113)
660
(473)
(1,271)
(3,281)
(2)
(3,283)
2,979
3,850
(1,500)
(31)
5,298
744
(1,383)
(639)
38
COMPANY STATEMENT OF CHANGES IN EQUITY
Attributable to equity holders of the Company
At 1 February 2016
Loss for the year
Total comprehensive loss for the year
Transactions with the owners:
Proceeds from shares issued
Share issue costs
Share based payment charge
At 31 January 2017
At 1 February 2017
Loss for the year
Total comprehensive loss for the year
Transactions with the owners:
Proceeds from shares issued
Share issue costs
Capital reduction
Share based payment charge
At 31 January 2018
Share
premium/
merger reserve
Accumulated
(deficit)/
surplus
Total
£000
£000
£000
31,374
(29,172)
5,638
-
-
(834)
(834)
3,272
(146)
-
-
-
68
34,500
(29,938)
34,500
(29,938)
(834)
(834)
3,523
(146)
68
8,249
8,249
-
-
(1,939)
(1,939)
(1,939)
(1,939)
Note
Share
capital
£000
3,436
-
-
25
251
-
-
3,687
3,687
-
-
433
-
25
6,067
(260)
-
-
6,500
(260)
-
72
(2,042)
(40,307)
42,349
-
2,078
-
-
72
10,544
12,622
NOTES TO THE FINANCIAL STATEMENTS
1 GENERAL INFORMATION
RedstoneConnect plc is a company
incorporated in England and Wales
under the Companies Act 2006
and listed on the AIM market. The
address of the registered office
is given on page 23. The nature
of the Group’s operations and its
principal activities are set out in
the Directors’ report and in the
Operational review.
The financial statements are presented
in pounds sterling as that is the currency
of the primary economic environment in
which the Group operates. There are no
foreign subsidiaries in the Group.
GOING CONCERN
As detailed in the Directors’ report, the
Directors consider that the Company and
the Group have adequate resources to
continue in existence for the foreseeable
future. In assessing the outlook for the
Company and Group, the Board took
account of the £21.6 million consideration
for the proposed disposal of the Systems
Integration and Managed Services
divisions to Excel I.T. Services Limited,
of which £19.6 million is payable on
completion and a further £2.0 million by
30 November 2018, as well as the Group’s
£2.24 million overdraft facility.
The Directors have assessed the
Group’s current forecasts, taking into
account reasonable changes in trading
performance. The assessment considered
stress tests and mitigating actions
available to the Group. On the basis of
this review, the Directors believe that
the Group will continue to operate
within the resources currently available
to it. Furthermore, the Directors have
reviewed the projections in accordance
with the banking facility covenants and
current cash flow forecasts indicate that
the Group will not breach these terms
in the foreseeable future. The Directors
accordingly continue to adopt the going
concern basis in preparing the financial
statements.
2 BASIS OF PREPARATION
AND SIGNIFICANT
ACCOUNTING POLICIES
The consolidated financial
statements of RedstoneConnect
plc have been prepared in
accordance with International
Financial Reporting Standards as
adopted by the European Union
(IFRS’s as adopted by the EU),
IFRS Interpretations Committee
and the Companies Act 2006
applicable to companies reporting
under IFRS. The consolidated
financial statements have been
prepared under the historical cost
convention.
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 3.
Except as described below, the
accounting policies applied are
consistent with those of the
annual financial statements for the
period ended 31 January 2017 as
described in those annual financial
statements.
STANDARDS, AMENDMENTS
TO AND INTERPRETATION OF
EXISTING STANDARDS NOT YET
EFFECTIVE
At the date of approval of these
financial statements, the following
standards, interpretations and
amendments were issued but
not yet mandatory for the Group
and early adoption has not been
applied:
International Financial reporting
Standards (IFRS)
Recognition of Deferred Tax
Assets for Unrealised Losses –
Amendments to IAS 12
Disclosure Initiative – Amendments
to IAS 7
IFRS 9 Financial Instruments
IFRS 15 Revenue from Contracts
with Customers
Clarifications to IFRS 15 Revenue
from Contracts with Customers
Effective date of IFRS 15 –
amendment to IFRS 15
Classification and Measurement of
Share-based Payment Transactions
– Amendments to IFRS 2
IFRS 16 Leases
All other amendments to existing
standards are not yet endorsed by
the EU at the date of approval of
these financial statements.
As at the report date the Board
are not in a position to report on
the impact, if any, of the effect of
adoption of the above standards.
The Group have commissioned
an independent report to assess
the potential financial impact
of the adoption of IFRS 15 on
its consolidated statements.
This assessment will focus in
particular on the changes in
revenue recognition specific to the
treatment of software licences. The
majority of the Group’s software
licences are perpetual in nature
and recognised in full on delivery;
hence, the Group do not expect
that the implementation of IFRS 15
will lead to a material difference in
revenues reported in comparative
periods.
BASIS OF CONSOLIDATION
The consolidated financial
statements incorporate the financial
statements of the Company and
entities controlled by the Company
(its subsidiaries) made up to 31
January each year. Control is
achieved when the Company is
exposed, or has rights, to variable
39
40
NOTES TO THE FINANCIAL STATEMENTS continued
CATEGORY AND EXAMPLES ACCOUNTING TREATMENT
revenue recognition is appropriate
and consistent throughout the
Group. When products are
bundled together in one sales
transaction, it is necessary to apply
the recognition criteria to each
separately identifiable component
in order to reflect the substance
of the transaction. The associated
revenue is allocated between the
constituent parts of the bundle on
a relative fair value basis. When
customers are offered discounts on
bundled products and/or services,
the combined discount is allocated
to the constituent elements of the
bundle, based upon market prices
for each component.
The Group reports revenue under five
revenue categories and the basis of
recognition for each category is described
overleaf:
returns from its involvement with
the investee and has the ability to
affect those returns through its
power over the investee.
On acquisition, the assets and
liabilities and contingent liabilities
of a subsidiary are measured at
their fair values at the date of
acquisition. Any excess of the cost
of acquisition over the fair values of
the identifiable net assets acquired
is recognised as goodwill.
All intra-group transactions,
balances, income and expenses are
eliminated on consolidation.
Where necessary, adjustments are
made to the financial statements of
subsidiaries to bring the accounting
policies used into line with those
used by the Group.
As permitted by section 408 of the
Companies Act 2006 the company
has elected not to present its own
profit and loss account for the year.
The Company reported a loss for
the financial year ended 31 January
2018 of £1,939,000 (2017: loss of
£834,000).
REVERSE ACQUISITION
ACCOUNTING
The acquisition of Coms.com Limited
in the year ended 31 January 2007 was
accounted for as a reverse acquisition
of RedstoneConnect plc by Coms.com
Limited. The consolidated financial
statements prepared following the
reverse takeover were issued in the name
of RedstoneConnect plc, but they are a
continuance of the financial statements
of Coms.com Limited. Therefore, the
assets and liabilities of Coms.com Limited
were recognised and measured in the
consolidated financial statements at
their pre-combination carrying values.
The financial statements reflect the
continuance of the financial statements of
Coms.com Limited.
The retained earnings and other
equity balances recognised in these
consolidated financial statements
at the time of the acquisition were
41
the retained earnings and other
equity balances of Coms.com
Limited immediately before the
business combination.
Under reverse acquisition
accounting:
• an adjustment within
shareholders’ funds is required to
eliminate the cost of acquisition
in the issuing Company’s books,
and introduce a notional cost
of acquiring the smaller issuing
Company based on the fair value
of its shares
• an adjustment is required to
show the share capital of the
legal parent in the consolidated
balance sheet rather than that of
the deemed acquirer
Both adjustments have been
included in the reverse acquisition
reserve.
MERGER RESERVE
The merger reserve is used when
a share issue is undertaken and
merger relief is available.
The conditions for merger relief
are when the consideration for
shares in another company includes
issued shares of the acquirer and
on completion of the transaction,
the company issuing the shares will
have secured at least 90% equity
holding in the acquiree.
Following a capital re-organisation
in the year this reserve was
transferred to accumulated funds.
REVENUE RECOGNITION
Revenue is recognised when it is probable
that future economic benefits will flow
to the Group and those benefits can be
measured reliably. Revenue is measured at
the fair value of the consideration received
or receivable and represents amounts
received or receivable for goods and
services provided in the normal course of
business, net of discounts and VAT.
The revenue recognition criteria as
set out under IAS 18 is applied to
each sales transaction, to ensure
Systems integration projects
Smart cabling & building
installations
Revenue from system integration projects is a mix of revenue from
installation works along with revenue from the sale of hardware used
in those projects.
Revenue generated from the sale of hardware is recognised when
delivered, whilst revenue from installation works is measured and
recognised by reference to the stage of completion of the contract at
the end of the reporting period.
In order to measure the stage of completion, an assessment is made
by comparing the proportion of contract costs incurred to date to
the total expected costs to complete. Revenue from such projects are
typically invoiced at various stages during the contract as specified in
the contract.
Any revenue recognised during the period but not invoiced at the
end of the reporting period is classified as ‘amounts recoverable on
contracts’ in the balance sheet, whilst any invoiced revenue at the end
of the reporting period which relates to future periods is classified as
deferred income on the balance sheet.
Recurring revenue is revenue earned from customers for the provision
of services, where risks and rewards are transferred to the customer
over the term of a contract, with the customer getting the benefits of
those services over that period.
Recurring revenue is recognised on a straight-line basis over the term
of the contract.
Revenue invoiced at the end of the reporting period which relates to
future periods is classified as deferred income on the balance sheet.
Software licence fees as well as specified upgrades revenue are
recognised when the risks and rewards of ownership relating to the
licence have been transferred and it is probable that the economic
benefits associated with the transaction will flow to the Group.
This is deemed to be when the goods have been delivered to the
customer, either physically or electronically, and when acceptance of
such products has been demonstrated by the client.
In the case of term software licences, revenue is recognised in full at
the point of delivery to the customer as the risk and rewards of the
licences have transferred at that point to the buyer and the Group
does not retain managerial involvement or effective control over the
software or the licences.
Recurring revenue
Managed services
Maintenance and support
contracts
Software as a service
DASaaS
Software
Perpetuity and term
software licences
Upgrades to licences
Software related products
Hardware
Hardware revenue is recognised when the products have been
delivered to the customer.
Professional services
Consultancy
Installation
Training
Analysis and reporting
Professional services revenue combines consultancy projects as well
as ad-hoc specific consultancy services.
Typically ad-hoc consultancy services include installation days,
training days and analysis and reporting days. These type of services
are purchased in advance by clients and used when required. Revenue
from these services is recognised upon delivery of the services to the
client.
Consultancy projects revenue is measured and recognised by
reference to the stage of completion of the contract at the end of the
reporting period.
42
NOTES TO THE FINANCIAL STATEMENTS continued
PROPERTY, PLANT AND
EQUIPMENT
Property, plant and equipment are
stated at cost of acquisition less
accumulated depreciation and
impairment losses. Depreciation
is provided on a straight-line
basis at rates calculated to write
off the cost less the estimated
residual value of each asset over
its expected useful economic life.
The residual value is the estimated
amount that would currently be
obtained from disposal of the asset
if the asset were already of the age
and in the condition expected at
the end of its useful life.
DEPRECIATION
Property, plant and equipment are
depreciated using the straight-line
method based on estimated useful
lives.
The annual rates of depreciation
for each class of depreciable asset
across the Company are:
Fixtures and fittings – 20-25%
straight line
Office equipment – 25-33.3%
straight line
Leasehold improvements – 20%
straight line
Freehold Land – 2% straight line
The carrying value is assessed
annually and any impairment is
charged to the income statement.
FINANCIAL ASSETS
The Group classifies its financial
assets into one of the categories
below, depending on the purpose
for which the asset was acquired.
TRADE RECEIVABLES AND OTHER
DEBTORS
These are non-derivative financial
assets with fixed or determinable
payments that are not quoted in an
active market. They arise principally
through the provision of goods and
services but also incorporate other
43
types of contractual monetary
assets. They are initially recognised
at fair value plus transaction costs
that are directly attributable to
their acquisition or issue, and are
subsequently carried at amortised
cost using the effective interest
rate method, less provision for
impairment. A provision for
impairment is established when
there is objective evidence that the
Group will not be able to collect
all amounts due according to the
original terms of the receivables.
CASH AND CASH EQUIVALENTS
These include cash in hand,
deposits held at call with banks and
bank overdrafts.
FINANCIAL LIABILITIES
The Group’s financial liabilities are
trade payables, bank borrowings
and other financial liabilities. These
are initially recognised at fair
value and subsequently carried at
amortised cost using the effective
interest rate method.
PROVISIONS
A provision is recognised in the
balance sheet when the Group
has a present legal or constructive
obligation as a result of a past
event, and it is probable that an
outflow of economic benefits will
be required to settle the obligation.
If the effect is material, provisions
are determined by discounting
the expected future cash flows
at a pre-tax rate that reflects the
current market assessment of the
time value of money and, where
appropriate, the risks specific to the
liability.
CORPORATION TAX
The tax expense represents the
sum of the tax currently payable
and deferred tax.
The tax currently payable is based
on taxable profit for the year.
Taxable profit differs from net
profit as reported in the income
statement because it excludes
items of income or expense that are
taxable or deductible in other years
and it further excludes items that
are never taxable or deductible.
The Group’s liability for current tax
is calculated using tax rates that
have been enacted or substantively
enacted by the balance sheet date.
DEFERRED TAX
Deferred tax is the tax expected
to be payable or recoverable on
differences between the carrying
amounts of assets and liabilities
in the financial statements and
the corresponding tax bases used
in the computation of taxable
profit, and is accounted for
using the balance sheet liability
method. Deferred tax liabilities
are generally recognised for all
taxable temporary differences
and deferred tax assets are
recognised to the extent that it is
probable that taxable profits will be
available against which deductible
temporary differences can be
utilised. Such assets and liabilities
are not recognised if the temporary
difference arises from goodwill or
from the initial recognition (other
than in a business combination)
of other assets and liabilities in a
transaction that affects neither the
tax profit nor the accounting profit.
Deferred tax liabilities are
recognised for taxable temporary
differences arising on investments
in subsidiaries and associates, and
interests in joint ventures, except
where the Group is able to control
the reversal of the temporary
difference and it is probable that
the temporary difference will not
reverse in the foreseeable future.
The carrying amount of deferred
tax assets is reviewed at each
balance sheet date and reduced
to the extent that it is no longer
probable that sufficient taxable
profits will be available to allow all
or part of the asset to be recovered.
Deferred tax is calculated at the tax
rates that are expected to apply in
the year when the liability is settled
or the asset is realised. Deferred
tax is charged or credited in the
income statement, except when it
relates to items charged or credited
directly to equity, in which case the
deferred tax is also dealt with in
equity.
OTHER INTANGIBLE ASSETS
All intangible assets excluding
goodwill are stated at cost less
accumulated amortisation and any
accumulated impairment losses.
GOODWILL
Goodwill represents the amount by
which the fair value of the cost of a
business combination exceeds the
fair value of net assets acquired.
Goodwill is not amortised and is
stated at cost less any accumulated
impairment losses.
The recoverable amount of
goodwill is tested for impairment
annually or when events or changes
in circumstance indicate that it
might be impaired. Impairment
charges are deducted from the
carrying value and recognised
immediately in the income
statement. For the purpose of
impairment testing, goodwill is
allocated to each of the Group’s
cash generating units expected to
benefit from the synergies of the
combination. If the recoverable
amount of the cash generating unit
is less than the carrying amount
of the unit, the impairment loss
is allocated first to reduce the
carrying amount of any goodwill
allocated to the unit and then to
the other assets of the unit pro-
rata on the basis of the carrying
amount of each asset in the unit.
An impairment loss recognised
for goodwill is not reversed in a
subsequent period.
RESEARCH AND DEVELOPMENT
Expenditure on research activities
is expensed as incurred.
Internally-generated intangible
assets arising from the
development are recognised only
if all of the following conditions are
met:
• an asset is created that can be
identified (such as software and
new processes);
• it is probable that the asset
created will generate future
economic benefits;
• the development cost of the asset
can be measured reliably;
• an intention to complete the
intangible asset and use or sell it;
• ability to use or sell the intangible
asset, and
• the availability of adequate
technical financial and other
resources to complete the
development and to use or sell
the intangible asset.
ACQUIRED INTANGIBLE ASSETS
Following business combinations,
the assets acquired are classified
into tangible and intangible assets
and fair values applied using the
principles of IFRS 3. This leads
to creation of intangible assets
recognised on the balance sheet.
AMORTISATION
Internally-generated intangible
assets are amortised on a straight-
line basis over their estimated
useful life. Where no internally-
generated intangible asset can
be recognised, development
expenditure is recognised as an
expense in the year in which it is
incurred.
IMPAIRMENT OF TANGIBLE AND
INTANGIBLE ASSETS
At each balance sheet date,
the Group reviews the carrying
amounts of its tangible and
intangible assets to determine
whether there is any indication
that those assets have suffered
an impairment loss. If any such
indication exists, the recoverable
amount of the asset is estimated
in order to determine the extent of
the impairment loss (if any). Where
the asset does not generate cash
flows that are independent from
other assets, the Group estimates
the recoverable amount of the
cash-generating unit to which the
asset belongs. An intangible asset
with an indefinite useful life is
tested for impairment annually and
whenever there is an indication that
the asset may be impaired.
Recoverable amount is the higher
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 which the estimates
of future cash flows have not been
adjusted.
If the recoverable amount of an
asset (or cash-generating unit)
is estimated to be less than its
carrying amount, the carrying
amount of the asset (cash-
generating unit) is reduced
to its recoverable amount. An
impairment loss is recognised as
an expense immediately, unless
the relevant asset is carried at a
re-valued amount, in which case
the impairment loss is treated as a
revaluation decrease.
Where an impairment loss
subsequently reverses, the carrying
amount of the asset (cash-
generating unit) is increased to the
revised estimate of its recoverable
amount, but so that the increased
carrying amount does not exceed
the carrying amount that would
have been determined had no
impairment loss been recognised
for the asset/cash-generating
unit in prior years. A reversal of
an impairment loss is recognised
as income immediately, unless
the relevant asset is carried at a
revalued amount, in which case the
reversal of the impairment loss is
treated as a revaluation increase.
INVENTORIES
Inventories are stated at the lower
of cost and net realisable value.
Cost comprises materials and,
where applicable, direct labour
costs and those overheads that
have been incurred in bringing
the inventories to their present
44
NOTES TO THE FINANCIAL STATEMENTS continued
location and condition. Cost is
calculated using the weighted
average method. Net realisable
value represents the estimated
selling price less all estimated costs
of completion and costs to be
incurred in marketing, selling and
distribution.
SHARE BASED PAYMENTS
Where share options are awarded
to employees, the fair value of the
option is calculated at the date of
grant and is subsequently charged
to the income statement over the
vesting period. Non-market vesting
conditions are taken into account
by adjusting the number of equity
instruments expected to vest at
the balance sheet date so that,
ultimately, the cumulative amount
recognised over the vesting period
is based on the number of options
that eventually vest. Market vesting
conditions are factored into the fair
value of the options granted. As
long as all other vesting conditions
are satisfied, a charge is made
irrespective of whether the market
vesting conditions are satisfied. The
cumulative expense is not adjusted
for failure to achieve a market
vesting condition.
Fair value is measured using an
appropriate option pricing model. The
expected life used in the model has
been adjusted, based on management’s
best estimate, for the effects of non-
transferability, exercise restrictions and
behavioural considerations.
Where equity instruments are
granted to persons other than
employees, the consolidated
income statement is charged with
the fair value of goods and services
received.
FOREIGN CURRENCY
The individual financial statements
of each group entity are presented
in the currency of the primary
economic environment in which
the entity operates (its functional
currency). For the purpose of the
consolidated financial statements,
45
the results and financial position
of each entity are expressed in
pounds sterling which is also
the presentation currency for
the consolidated and Company
financial statements. The functional
currency of the Company is pounds
sterling.
In preparing the financial
statements of the individual
entities, transactions in currencies
other than the entity’s functional
currency (foreign currencies) are
recorded at the rates of exchange
prevailing on the dates of the
transactions. At each balance sheet
date, monetary items denominated
in foreign currencies are re-
translated at the rates prevailing at
the balance sheet date.
Exchange differences arising on the
settlement of monetary items and
on the re-translation of monetary
items are included in the income
statement.
INVESTMENTS IN SUBSIDIARIES
Investments in subsidiaries
are stated at cost less, where
appropriate, provisions for
impairment.
LEASES
Assets held under finance leases
are initially recognised as assets of
the Group at their fair value at the
inception of the lease or, if lower, at
the present value of the minimum
lease payments. The corresponding
liability to the lessor is included in
the statement of financial position
as a finance lease obligation.
Lease payments are treated as a
reduction of the lease obligation
on the remaining balance of the
liability. Finance expenses are
recognised immediately in the
income statement, unless they are
directly attributable to qualifying
assets, in which case they are
capitalised in accordance with
the Group’s general policy on
borrowing costs. Contingent rentals
are recognised as expenses in the
periods in which they are incurred.
Rental leases in which a significant
portion of the risks and rewards
of ownership are retained by the
lessor are classified as operating
leases. Payments made under
operating leases (net of any
incentives received from the
lessor) are charged to the income
statement.
3 CRITICAL ACCOUNTING
ESTIMATES AND
JUDGEMENTS
The Group makes estimates and
assumptions concerning the
future, which may differ from
the actual results. The estimates
and assumptions that have a
significant risk of causing a material
adjustment to the carrying amount
of assets and liabilities within the
next financial year are set out
below.
REVENUE RECOGNITION
Revenue and expenses on fixed price
contracts are recognised using the
percentage-of-completion method.
Revenue, expenses, and ultimately profit
are therefore recognised over the life
of the activity of the contract. When
the outcome of a contract cannot be
reliably estimated then revenue can
only be recognised to the extent that
it is recoverable. When total expected
costs exceed the total contract value the
expected loss is recognised immediately.
As revenue is therefore recognised on a
percentage-of-completion basis which
will be based on management’s best
estimate it is an area that requires critical
estimation and judgement. The amounts
recognised in the balance sheet at the
year-end in respect of the percentage-
of-completion approach are included
as follows; accrued revenue disclosed in
note 19 under ‘amounts recoverable on
contracts’; deferred cost of sales included
in ‘prepayments’ disclosed in note 19;
deferred income disclosed in note 21
under ‘deferred income’; and accrued
cost of sales disclosed in note 21 under
‘accruals’.
IMPAIRMENT OF GOODWILL
The Group is required to test goodwill for
potential impairment on an annual basis.
The recoverable amount of goodwill
relating to continuing activities is
determined based on the value in use
calculations which require the estimation
of future cash flows and the selection of
a discount rate. Actual outcomes of this
calculation may vary; further information
concerning issues affecting the carrying
values is given in note 9.
including future revenues and costs
derived from these assets and the
selection of an appropriate discount rate
in order to calculate the present values
of those cash flows. A detailed analysis of
the valuation of assets acquired during
the year is given in note 6. For material
acquisitions, the Group employs expert
valuers to assist in the calculation of the
intangible assets.
the Board have amended the segments
by which it reports the business activities
of the Group.
In the opinion of the Directors the
Group’s activities comprise three material
business segments which reflect the
profiles of the risks, rewards and internal
reporting structures within the Group.
ACQUIRED INTANGIBLE ASSETS
4 SEGMENTAL REPORTING
On acquisition of a business, the Group
is required to value the assets acquired
and recognise intangible assets on the
balance sheet. The valuation of these
assets relies on various assumptions,
The Group has undergone a period
of transformation over the last two
financial periods, with the disposal of
the telecommunications business and
the acquisition of Connect IB Ltd and
Commensus Ltd. In order to support this,
These are as follows:
• Systems Integration
• Managed Services
• Software
All activities were conducted within the United Kingdom and it is the opinion of the Directors that this represents
one geographical segment.
YEAR ENDED 31 JANUARY 2018
Systems
Integration
Managed
Services
Software
Group
Overhead
Revenue
Cost of sales
Gross Profit
Administrative expenses
Adjusted EBITDA/(LBITDA)*
Integration and transactional
costs included within
administrative expenses
Depreciation
Amortisation
Share based payment charge
Operating profit/(loss)
Net finance costs
Profit/(loss) before taxation
Taxation
Profit/(loss) after taxation
£000
24,213
£000
18,023
(20,436)
(12,883)
3,777
(3,164)
613
5,140
(2,573)
2,567
(12)
(93)
(59)
(40)
409
(5)
404
1
405
(36)
(252)
(281)
(50)
1,948
4
1,952
34
1,986
£000
5,338
(897)
4,441
(2,557)
1,884
(171)
(47)
(285)
(10)
1,371
(23)
1,348
26
1,374
£000
-
-
-
(1,857)
(1,857)
(218)
(10)
-
(72)
(2,157)
(92)
(2,249)
-
(2,249)
Total
£000
47,574
(34,216)
13,358
(10,151)
3,207
(437)
(402)
(625)
(172)
1,571
(116)
1,455
61
1,516
46
NOTES TO THE FINANCIAL STATEMENTS continued
YEAR ENDED 31 JANUARY 2017
Systems
Integration
Managed
Services
Software
Group
Overhead
Revenue
Cost of sales
Gross Profit
Administrative expenses
Adjusted EBITDA/(LBITDA)*
Integration and transactional
costs included within
administrative expenses
Depreciation
Amortisation
Impairment of intangible assets
Share based payment charge
Operating profit/(loss)
Net finance costs
Profit/(loss) before taxation
Taxation
£000
24,586
£000
15,310
(20,502)
(11,596)
4,084
(3,002)
1,082
3,714
(1,755)
1,959
(9)
(122)
(70)
-
(7)
874
(2)
872
606
(50)
(281)
(183)
-
(13)
1,432
(6)
1,426
6
1,432
£000
1,625
(199)
1,426
(1,083)
343
(77)
(20)
(118)
(146)
(1)
(19)
3
(16)
23
7
£000
-
-
-
(1,374)
(1,374)
347
(1)
-
-
(68)
(1,096)
(32)
(1,128)
-
(1,128)
Total
£000
41,521
(32,297)
9,224
(7,214)
2,010
211
(424)
(371)
(146)
(89)
1,191
(37)
1,154
635
1,789
Profit/(loss) after taxation
1,478
* profit for the period from continuing operations before net finance costs, tax, depreciation, amortisation, integration costs and
transactional items, impairment charge and share based payments.
5 REVENUE
Sale of goods
Rendering of services
Construction contract revenue
Total revenue
2018
2017
£000
6,322
17,747
23,505
47,574
£000
1,108
16,071
24,342
41,521
6 ACQUISITIONS OF BUSINESSES
On 9 May 2017 (prior to the
Group’s share consolidation),
RedstoneConnect acquired 100%
of the share capital of Easter Road
Holding Limited (“ERH”), and its
100% owned subsidiary Anders +
Kern U.K. Limited (“A+K”), for a
total consideration of £1.4 million.
Deal costs of £0.1 million were
incurred and recorded under
integration and transactional
items in the Income Statement.
The transaction was satisfied fully
by cash which was financed out
of the placing of 433,333,334
new ordinary shares of 0.1 pence
each at a price of 1.5 pence per
share, raising £6.5 million, before
expenses.
The acquisition of ERH is in line with
The book value of A + K net assets acquired and their fair values are summarised below:
RedstoneConnect’s strategy of developing
its core Redstone business through
both organic and acquisitive growth.
In addition, this acquisition offers
significant synergies for the enlarged
group in terms of potential new clients for
RedstoneConnect and a channel to market
for the Group product and services.
Book
Value
Fair Value
Adjustments
Fair Value
To Group
£000 £000 £000
Intangible assets
- 207 207
Property, plant and equipment
715 - 715
Current assets
Current liabilities
307 - 307
(552) (66) (618)
Non-current liabilities
(266) - (266)
Deferred tax liability
(50) (40) (90)
Total net assets
154 101 255
Fair value of net assets acquired
255
Goodwill
1,145
Total consideration
1,400
Cash
Cash
1,400
1,400
Less: cash acquired
(151)
Total cash consideration net of cash acquired 1,249
47
48
The identifiable intangible assets and related deferred tax liability are as follows:
Integration and transactional costs included within
NOTES TO THE FINANCIAL STATEMENTS continued
The fair value of the financial assets
including trade receivables with
a fair value and gross contractual
value of £158,000. The best
estimate at acquisition date of
the contractual cash flows to be
collected was £110,000.
The goodwill arising from the
acquisitions is not deductible for
income tax purposes.
Since acquisition date Anders + Kern (U.K.)
Limited contributed £2,068,000 in revenue
and £25,000 to the Group’s profit before
taxation in the year. Had the acquisition
occurred at the beginning of the year,
the Group’s revenue would have been
£48,400,000 and the Group’s profit before
taxation would have been £1,487,000 for
the year.
The goodwill acquired represents the
value of the sales channel within the
acquired business as well as potential
future synergies within the Groups sales
function.
Brand and customer relationships
207
Deferred tax liability
(40)
Total
167
Fair Value
To Group
£000
The Group has applied the ‘Income
Approach’ valuation method
to identify the above acquired
intangible assets.
The Income Approach focuses on
the income-producing capability of
the subject asset. The underlying
premise of this approach is that the
value of an asset can be measured
by the present worth of the net
economic benefit (cash receipts
less cash outlays) to be received
over the life of the subject asset.
The steps followed in applying this
approach include estimating the
expected after-tax cash flows or
profits attributable to the asset
over its life and converting these
after-tax cash flows to present
value. This has been calculated
using the Discounted Cashflow
Methodology (“DCF”).
The discounting process uses a
rate of return, which accounts for
both the time value of money and
investment risk factors. Finally,
the present value of the after-tax
cashflows over the life of the asset
is totalled to arrive at an indication
of Fair Value of the asset.
For the Customer relationships we
have approached this by way of
ascertaining the post-tax annual
value of these contracts after
applying an attrition rate based on
historical trends.
7 DISCONTINUED OPERATIONS
NOTES 2018 2017
£000
£000
Revenue
Cost of sales
Gross profit
Administrative expenses
Adjusted LBITDA*
administrative expenses
Depreciation
Amortisation
Impairment charge
Operating (loss)/profit
(Loss)/profit before tax
Taxation
(Loss)/profit for the year after tax
(Loss)/profit for the year
Total comprehensive (loss)/profit for the year
attributable to equity holders
Basic (loss)/earnings per share
4,5
8
10
10
9
10
13c
-
-
-
-
-
(7)
-
-
-
(7)
(7)
-
(7)
(7)
(7)
14
(0.03p)
-
-
-
(1)
(1)
318
-
-
-
317
317
(1)
316
316
316
1.97p
* results for the period before net finance costs, depreciation, amortisation, integration costs and transactional
items, impairment charge and share based payments.
Net cash flow used in operating activities
Net cash from financing activities
Net cash flow for the period
2018 2017
£000
(3)
-
(3)
£000
(9)
(1)
(10)
During 2016 the Group disposed of the trade and assets of its Telephony and Media divisions. The subsidiaries that
operated within those divisions were classed as discontinued in 2016, and provisions were made against the costs
to settle supplier disputes within those entities as well as for intercompany balances owing to the Group.
The £7,000 loss from discontinued operations during the year represents the deconsolidation of balance sheets,
which includes provisions made in relation to supplier disputes. In 2017, all subsidiaries associated with those
divisions were entered into a voluntary liquidation process, see note 30 for a full list of subsidiaries. Due to
contractual obligations, one company is yet to be dissolved as at 31 January 2018.
49
50
NOTES TO THE FINANCIAL STATEMENTS continued
8 INTEGRATION, TRANSACTIONAL AND DECONSOLIDATION ITEMS
Integration costs/(credits)
Transactional costs
Deconsolidation costs/(credits)
2018 2017
£000
300
137
7
444
£000
(380)
171
(318)
(527)
The integration costs include both employee and other restructuring costs such as provisions in respect of onerous contracts. Employee
costs include salary, redundancy and other exit costs. In 2018, transactional items include the costs involved with the acquisition of
Anders + Kern (U.K.) Limited, fees in respect of the share placing, share consolidation and capital reduction, whilst the 2017 transactional
items related to the costs involved with the acquisition of Connect IB Limited and Commensus Ltd and fee’s in respect of the share
placing. The deconsolidation credits in 2017 represent the unwinding of supplier provisions made in 2016 after settlement was reached
and £70,000 was paid during the year in relation to those disputes.
The integration, transactional and deconsolidation charge of £444,000 (2017: £527,000 credit) comprises
£437,000 charge from continued operations (2017: £211,000 charge) and £7,000 from discontinued operations
(2017: £318,000 credit).
9 IMPAIRMENT CHARGE
The impairment charge in 2017 relates to research and development costs capitalised in prior periods.
10 OPERATING PROFIT
Operating profit from all operations is arrived at after charging:
NOTE 2018 2017
Cost of Inventory is recognised as an expense
10,377 13,572
£000
£000
Amortisation of intangibles
Depreciation of property, plant and equipment
Staff costs
Share based payment charge
(Gain)/loss on foreign exchange
Rentals under operating leases
Impairment charge
Integration and transactional charge/(credit)
Audit fees
-audit of the Company’s financial statements
-audit of the Company’s subsidiaries pursuant to legislation
16
17
11
11
9
8
625
402
19,445
172
(171)
650
-
444
47
50
371
424
16,359
89
51
437
146
(527)
44
35
NOTES 2018 2017
The analysis of administrative expenses in the consolidated income statement by nature of expense is as follows:
Other intangible assets
16
£000
-
-
£000
146
146
•
•
•
•
Administrative staff costs £2,952,000 (2017: £2,607,000)
Operating leases £650,000 (2017: £437,000)
Depreciation and amortisation £1,027,000 (2017: £795,000)
Other operating expenses £6,394,000 (2017: £4,169,000)
OTHER INTANGIBLE ASSETS
During 2017, the Board’s impairment review resulted in an impairment of £146,000 to development costs
capitalised on the original OneSpace product. Following the acquisition of Connect IB and re-engineering of
the product to be what it is today as a component of our cloud platform, the ‘end of life’ previous version of the
OneSpace product was impaired in full.
51
52
NOTES TO THE FINANCIAL STATEMENTS continued
11 STAFF COSTS
The average number of employees was:
13A TAXATION
The Group tax charge for the year can be reconciled to the profit as disclosed in the statement of comprehensive
income as follows:
GROUP
2018 2017
GROUP
2018 2017
Sales
Technical support
Administrative
Total employees
Their aggregate remuneration comprised:
Wages and salaries
Share based payments (see note 32)
Social security costs
Pension costs
Total remuneration
Number
Number
43
262
44
349
28
252
37
317
£000
£000
16,963
172
1,918
392
19,445
14,355
89
1,607
308
16,359
Of the above staff costs, £11,453,000 (2017: £11,180,000) were included in cost of sales in the consolidated income
statement.
12 NET FINANCE COSTS
GROUP
2018 2017
Net finance costs
£000
116
£000
37
Profit before taxation
Taxation
Profit for the year after taxation
Tax at the UK corporation tax rate of 19.17% (2017: 20.00%)
Overseas tax payable
Non-deductible expenses
Unused tax losses not recognised as assets
Recognition of previously unrecognised tax losses
Research and development relief
Utilisation of previously unrecognised tax losses
Depreciation in excess of capital allowances
Utilisation of tax losses and group relief
Double taxation relief
Over provided in prior years
Taxation credit on continuing operations
£000
1,455
61
1,516
279
-
72
56
(61)
(224)
(83)
(39)
(61)
-
-
(61)
£000
1,154
635
1,789
231
(6)
17
129
(624)
(162)
(112)
48
(146)
(5)
(5)
(635)
At 31 January 2018 the Group had estimated tax losses of £10,439,000 (2017: £9,730,000) to carry forward
against future profits. These tax losses arose through historical trading in specific activities within the Group,
and as such, the losses are ring-fenced and can only be utilised against future profits from the same trade. The
directors have assessed the recoverability of these losses and anticipate utilisation of £3,600,000 of these tax
losses against future profits, and as such the deferred tax asset of £617,000 has been recorded in the balance
sheet at year end (2017: £617,000).
In the 8 July 2015 Budget, the government announced a reduction in the Corporation Tax rate from 20% to 19%
for the Financial Years beginning 1 April 2017, 1 April 2018 and 1 April 2019, with a further reduction from 19% to
18% for the Financial Year beginning 1 April 2020. In the 16 March 2016 Budget the Chancellor announced plans to
further reduce the Corporation Tax rate to 17% for the Financial Year beginning 1 April 2020.
This will reduce the Company’s future current tax charge accordingly. The deferred tax liability at 31 January 2018
has been calculated based on the rate of 17% substantively enacted at the balance sheet date.
53
54
NOTES TO THE FINANCIAL STATEMENTS continued
13B DEFERRED TAXATION
The analysis of deferred tax assets and deferred tax liabilities is as follows:
GROUP
2018 2017
Deferred tax assets
Deferred tax liabilities
Deferred tax asset
Deferred tax assets comprised of:
Tax losses
Deferred tax liabilities arose on:
Business combinations
£000
617
(583)
34
617
(583)
£000
617
(555)
62
617
(555)
13C TAXATION CHARGE
The taxation credit for the year of £61,000 (2017: £635,000 credit) related to continued operations only and is in
respect of the release of deferred tax liability in relation to amortisation of intangible assets recognised as a result
of business combinations.
14 EARNINGS PER SHARE
Earnings per share data is based on the Group profit/(loss) for the year and the weighted average number of
ordinary shares in issue.
On 5 June 2017, the Group held its AGM at which the Shareholders approved a share consolidation whereby
every 100 ‘Existing Ordinary Share’ with a nominal value of 0.1 pence would be consolidated into one ‘New Issued
Ordinary Share’ with a nominal value of 10 pence each. This resolution was approved by the shareholders at the
AGM and subsequently the consolidation took effect on 6 June 2017.
The ‘weighted average ordinary share in issue’ and ‘weighted average potential diluted shares in issue’ values used
in the earning per share calculations have been restated to reflect the position had the share consolidation been in
affect at those reporting dates.
Continuing Discontinued Total
2018
Profit/(loss) for the year
Adjustment to basic earnings/(loss):
Integration and transactional costs
Tax credit on integration and transactional costs
Intangible asset amortisation
Deferred tax credit on intangible asset amortisation
Share based payment charge
Deferred tax credit on share based payment charge
Adjusted earnings attributable to owners of the Company
£000
1,516
437
(84)
625
(120)
172
(33)
2,513
£000
(7)
7
(1)
-
-
-
-
(1)
Number of shares No. No.
£000
1,509
444
(85)
625
(120)
172
(33)
2,512
No.
Weighted average ordinary shares in issue
19,621,325 19,621,325 19,621,325
Weighted average potential diluted shares in issue
19,621,325 19,621,325 19,621,325
Earnings/(loss) per share
Basic earnings/(loss) per share
Diluted earnings/(loss) per share
Adjusted earnings/(loss) per share
Basic earnings/(loss) per share
Diluted earnings/(loss) per share
7.72 pence (0.03) pence 7.69 pence
7.72 pence (0.03) pence 7.69 pence
12.81 pence (0.01) pence 12.80 pence
12.81 pence (0.01) pence 12.80 pence
55
55
56
NOTES TO THE FINANCIAL STATEMENTS continued
Continuing Discontinued Total
£000
£000
£000
Profit for the year
1,789
316
2,105
2017
Adjustment to basic earnings:
Integration and transactional costs
Tax credit on integration and transactional costs
Intangible asset amortisation
Deferred tax credit on intangible asset amortisation
Impairment of intangible assets
Tax credit on impairment of intangible assets
Share based payment charge
Deferred tax credit on share based payment charge
(211)
40
371
(70)
146
(27)
89
(17)
(318)
60
-
-
-
-
-
-
Adjusted earnings attributable to owners of the Company
2,110
58
Number of shares No. No.
(529)
100
371
(70)
146
(27)
89
(17)
2,168
No.
Weighted average ordinary shares in issue 16,068,962 16,068,962 16,068,962
Weighted average potential diluted shares in issue 17,685,269 17,685,269 17,685,269
Earnings per share
Basic earnings per share
Diluted earnings per share
Adjusted earnings per share
Basic earnings per share
Diluted earnings per share
11.14 pence 1.97 pence 13.11 pence
10.12 pence 1.79 pence 11.91 pence
13.13 pence 0.36 pence 13.49 pence
11.93 pence 0.33 pence 12.26 pence
57
15 GOODWILL
Cost
At 31 January 2016
Additions
At 31 January 2017
Additions
At 31 January 2018
Accumulated impairment charge
At 31 January 2017
At 31 January 2018
Carrying value at 31 January 2018
Carrying value at 31 January 2017
Carrying value at 31 January 2016
The carrying value of goodwill is allocated as follows:
Redstone Converged Solutions Ltd
Connect IB Limited
Commensus Limited
Anders + Kern (U.K) Limited
Carrying value
The carrying value of goodwill aligns to the segments as follows:
GROUP
£000
16,558
2,363
18,921
1,145
20,066
7,834
7,834
12,232
11,087
8,724
2018 2017
£000
8,724
835
1,528
1,145
12,232
£000
8,724
835
1,528
-
11,087
8,724
2018 2017
11,087
Systems Integration
Managed Services
Software
Carrying value
FAIR VALUE
Goodwill on consolidation has been
allocated for impairment testing purposes
between the cash-generating units (“CGUs”)
and these CGU’s aligned to the Group’s three
business segments; Systems Integration,
Managed Services and Software.
On 29 May 2018 the Group announced
the disposal of the Systems Integration
and Managed Services divisions. The
recoverable amount of the CGU’s aligned to
those divisions are therefore based on ‘fair
value less cost to sell’ calculations using the
projected sales proceeds, which are payable
in cash on completion, less associated costs.
The recoverable amount of the CGU aligned
to the Software division are based on
‘value in use’ calculations using cash flow
projections approved by the Directors
covering a three-year period and a
terminal growth rate of 2% thereafter.
The projections for the CGU aligned
to the Software division are based
on the assumption that the Group
can realise projected sales. If the
projected sales do not materialise
there is a risk that the total value of
the intangible assets shown above
would be impaired. The Company,
in its approach has based its
projections on key assumptions
of annualised incremental growth
in revenue and cost of sales of
2% (2017: 2%) with 2% (2017: 2%)
attributed to administrative costs.
The calculation of residual value has
utilised 2% growth rates (2017: 2%).
Sensitivity analysis indicates that
£000
1,549
9,218
1,465
12,232
£000
1,068
9,184
835
11,087
if revenues declined by 10% (2017:
10% decline) or administrative
expenses increased by 10% (2017:
10% increase), this would not give
rise to an impairment charge.
A pre-tax discount rate of 13.6%
(2017: 14.5%) has been used for
the CGU aligned to the Software
division. This rate takes into
consideration the Group’s cost
of capital, the expected rate of
return and various risks relating to
the CGU. At the year end, based
on these assumptions there is no
indication of impairment in the
remaining goodwill. Sensitivity
analysis indicates that if the pre-tax
discount rate increased by 1% (2017:
1%) this would not give rise to an
impairment charge.
58
NOTES TO THE FINANCIAL STATEMENTS continued
16 OTHER INTANGIBLE ASSETS
17 PROPERTY, PLANT AND EQUIPMENT
GROUP COMPANY
GROUP
Development
costs
Other Intangible
assets
Total
Other Intangible
assets
Plant &
machinery
Freehold
land
Leasehold
improvements
Fixtures &
fittings
Computer
equipment
Total
£000
£000
£000
£000
£000
£000
£000
£000
£000
£000
Cost or valuation
At 31 January 2016
Additions at acquisition
Additions
Impairment
At 31 January 2017
Additions at acquisition
Additions
At 31 January 2018
Accumulated amortisation and impairment
At 31 January 2016
Charge for the year
Impairment
At 31 January 2017
Charge for the year
At 31 January 2018
Carrying value
At 31 January 2018
At 31 January 2017
At 31 January 2016
132
-
367
(211)
288
-
1,232
1,520
-
67
(65)
2
152
154
1,366
286
132
305
2,925
138
-
3,368
207
176
3,751
128
304
-
432
473
905
2,846
2,936
177
437
2,925
505
(211)
3,656
207
1,408
5,271
128
371
(65)
434
625
1,059
4,212
3,222
309
During the year, the Board conducted a review of the carrying value of the Group’s intangible assets. As a result,
the Group recorded a £nil (2017: £146,000 charge) impairment charge for the period, as detailed in note 9.
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Cost
At 31 January 2016 -
Additions at acquisition -
Additions -
Disposals -
At 31 January 2017 -
Additions at acquisition 38
Additions 8
Disposals -
At 31 January 2018 46
Accumulated depreciation
and impairment
At 31 January 2016 -
Charge for the year -
Disposals -
At 31 January 2017 -
Charge for the year 17
Disposals -
At 31 January 2017 17
Carrying value
At 31 January 2018 29
At 31 January 2017 -
At 31 January 2016 -
-
-
-
-
-
649
-
-
649
-
-
-
-
9
-
9
640
-
-
456
-
138
(5)
589
-
37
-
626
151
97
(5)
243
124
-
367
259
346
305
79
-
57
-
136
11
5
(76)
76
25
18
-
43
36
(76)
3
73
93
54
1,055
342
156
(178)
1,375
17
345
-
1,737
777
309
(178)
908
216
-
1,124
613
467
278
1,590
342
351
(183)
2,100
715
395
(76)
3,134
953
424
(183)
1,194
402
(76)
1,520
1,614
906
637
During the year, the Directors concluded a review of the Group’s property, plant and equipment carrying values,
specifically in light of the Board’s decision to vacate certain Group office locations. No impairment charge was
deemed necessary to the remaining assets following the disposals during the year (2017: £nil).
Subsequent to the acquisition of Anders + Kern (U.K.) Ltd in May 2017, as part of the integration within the Group
the business moved its banking facilities from Clydesdale Bank to Barclays. At the time of acquisition, A+K had
bank loans with Clydesdale amounting to £0.3 million. As part of the bank transition a £0.5 million mortgage,
secured against the property owned by A+K, was put in place through Barclays and the funds used in part to
repay the Clydesdale loans. The Barclays mortgage loan represents 69% of the freehold land value of £0.7 million,
carries a coupon of 2.5% and is repayable over three years. Repayments are £0.01 million quarterly, and represent
repayment of principal and interest.
59
60
NOTES TO THE FINANCIAL STATEMENTS continued
18 INVENTORIES
20 CASH AND CASH EQUIVALENTS
GROUP COMPANY
2018 2017 2018 2017
GROUP
2018 2017
£000
224
£000
143
Bank current account
Bank overdraft
Total
£000
£000
4,423
(980)
3,443
4,468
(1,273)
3,195
£000
29
-
29
£000
-
(639)
(639)
The carrying amount of these assets approximates their fair value. Interest is variable and overdrafts are payable
on demand.
GROUP COMPANY
2018 2017 2018 2017
21 TRADE AND OTHER PAYABLES
£000
£000
£000
£000
GROUP COMPANY
2018 2017 2018 2017
5,741
6,605
202
-
4
5,177
2,174
230
-
-
12,552
7,581
-
-
201
1,938
43
2,182
1,053
1,198
92
-
-
201
1,059
-
1,260
259
1,519
£000
£000
£000
£000
Financial liabilities
Trade payables
Social security and other taxes
Deferred income
Accruals
Deferred consideration
Amounts owed to subsidiary company
5,847
1,492
731
2,475
50
-
4,765
1,601
987
2,915
50
-
Total
10,595
10,318
185
36
-
149
50
1,863
2,283
259
379
-
429
50
2,087
3,204
The amounts owed to subsidiary companies are non-interest bearing and repayable on demand. The Directors
consider that the carrying amount of trade and other payables equals their fair value.
Finished goods
19 TRADE AND OTHER RECEIVABLES
Current
Financial assets
Trade receivables
Amounts recoverable on contracts
Other receivables
Amounts due from subsidiaries less
impairment provisions
Taxes and social security costs
Non-financial assets
Prepayments
Total
13,605
8,779
2,274
The Directors consider that the carrying amount of trade and other receivables equals their fair value.
Amounts recoverable on contracts includes contract costs plus recognised profits of £15,194,000 (2017:
£7,227,000) less progress billings of £10,742,000 (2017: £6,104,000) and retention monies.
61
62
NOTES TO THE FINANCIAL STATEMENTS continued
25 SHARE CAPITAL AND RESERVES
22 FINANCIAL BORROWINGS
During 2017 the Group secured a bank loan to fund the acquisition of Commensus Ltd.
The Group’s banking arrangements are secured by a debenture over the assets of the principal operating
businesses and cross guarantees.
Details of the repayments are set out below:
GROUP COMPANY
2018 2017 2018 2017
£000
638
1,588
2,226
£000
653
1,762
2,415
£000
588
1,175
1,763
£000
588
1,762
2,350
Amounts due within one year
Amounts due after one year
Total
23 PROVISIONS
The Group had provisions as follows:
GROUP
£000
Dilapidations
Balance at 1 February 2017
169
Provisions made during the year
9
Provisions reversed during the year
(37)
On 5 June 2017 the Group held its AGM, at which a share consolidation was approved whereby every 100 ‘Existing
Ordinary Shares’ with a nominal value of 0.1 pence be consolidated into one ‘New Issued Ordinary Share’ with a
nominal value of 10 pence.
The share consolidation involved 2,078,479,485 shares of 0.1 pence in the issued share capital of the Company
being consolidated into 20,784,795 ordinary shares of 10 pence each, effective 6 June 2017.
At the same time, shareholders approved a Reduction of Capital which resulted in the following transactions:
(a) the Company’s share premium account was transferred to the Company’s accumulated deficit in distributable
funds;
(b) the Company’s deferred shares were cancelled and the capital redemption reserve arising was transferred to
the Company’s accumulated deficit; and
(c) the Company’s merger reserve was transferred to the Company’s accumulated deficit.
This resulted in the Company having an accumulated surplus in distributable funds of £12,410,292.
The Directors believe that, subject to the future performance of the Group, this should give the Company the
ability to make distributions to Shareholders and/or buy back its own ordinary shares if, the Directors consider
that it is appropriate to do so. The Reduction of Capital was approved by the Courts and became effective on 28
June 2017.
The movement in issued and fully paid ordinary share capital detailed below reflects these changes.
2018 2017 2018 2017
Number
Number
£000
£000
Allotted, called up and fully paid:
Ordinary shares of 10p each
20,784,795
16,451,461
2,078
Deferred shares of 100p each
Deferred shares of 10p each
-
-
1,271,440
7,707,140
-
-
2,078
Balance at 31 January 2018
141
MOVEMENTS IN ISSUED AND FULLY PAID ORDINARY SHARES CAPITAL
Current
Non-current
141
-
Balance at 31 January 2018
141
At 31 January 2018 the Parent Company carried provisions relates to property dilapidations of £55,000 (2017: £55,000).
24 DEFERRED TAX ASSET
GROUP
2018 2017
Number
Issue Price
£000
4,333,334
£000
1.5p
4,333,334
16,451,461
20,784,795
Share
Capital
£000
433
-
-
433
1,645
2,078
Share
Premium
£000
6,067
(260)
(38,396)
(32,589)
32,589
-
Placing and open offer
Placing fee
Capital reduction
Total movement In the year
At 31 January 2017
At 31 January 2018
The share premium account comprises the amount subscribed for share capital in excess of nominal value.
Deferred tax asset
An analysis of the above asset is set out in note 13B ‘Deferred taxation’
63
£000
34
£000
62
The merger reserve arose where equity shares were allotted on the acquisition of subsidiaries and represents the difference between the fair
value attributed to the share allotment in excess of the nominal value of the shares allotted.
The reverse acquisition reserve arose on the acquisition of Coms.com Limited which was accounted for as a reverse acquisition. Under IFRS the
consolidated accounts of RedstoneConnect plc are treated as though they are a continuation of the consolidated accounts of Coms.com Limited.
The reverse acquisition reserve represents the difference between the initial equity share capital of RedstoneConnect plc and the share capital
and share premium of Coms.com Limited at the date of acquisition.
The accumulated deficit represents the cumulative loss of the Group attributable to equity shareholders of RedstoneConnect plc.
64
1,645
1,271
771
3,687
Total
£000
6,500
(260)
Merger
Reserve
£000
-
-
(1,911)
(40,307)
(1,911)
(34,067)
1,911
-
36,145
2,078
NOTES TO THE FINANCIAL STATEMENTS continued
26 RETIREMENT BENEFIT
SCHEMES
The Group operates a defined
contribution company pension
scheme for the Executive Directors
and employees. The assets of the
scheme are held separately from
those of the Company. The annual
contributions payable are charged
to the income statement. For the
period, pension costs incurred were
£392,000 (2017: £308,000) with
£188,000 (2017: £188,000) being
included in cost of sales.
27 RELATED PARTY
TRANSACTIONS
Transactions between the Company
and its subsidiaries, which
are related parties, have been
eliminated on consolidation and are
not disclosed in this note.
At 31 January 2018 the Parent Company had the following balances with subsidiaries:
The transactions between the Parent
and the subsidiaries during the year
represent transfers of cash between
the Companies.
28 COMMITMENTS
Capital commitments
There were no capital commitments at 31 January 2018 (2017: £nil).
Operating lease commitments
The Group leases office buildings and warehousing under licences/leases to occupy.
FUTURE MINIMUM LEASE PAYMENTS 2018 2018 2017 2017
UNDER NON-CANCELLABLE OPERATING Property Vehicles Property Vehicles
LEASES ARE AS FOLLOWS:
2018 2017
Within one year
After one year but not more than 5 years
£000
1,863
(1,938)
£000
2,087
(1,059)
29 FINANCIAL INSTRUMENTS
FINANCIAL INSTRUMENTS
£000
593
394
987
£000
108
57
165
£000
597
771
1,368
£000
67
78
145
Directors’ fees
at the year end.
DIRECTORS’ TRANSACTIONS
PRODUCTS AND SERVICES
During the year the Company
did not enter into trading
activities with companies or
partnerships connected with
the Directors.
Directors fees of £40,000 (2017:
£38,000) were charged by Warspite
Limited, a company connected to Diana
Dyer Bartlett, in respect of services
provided by Diana Dyer Bartlett; £nil
(2017: £nil) was outstanding at the year
end.
Directors fees of £40,000 (2017:
£38,000) were charged by VZ Limited,
a company connected to Guy van
Zwanenberg, in respect of services
provided by Guy van Zwanenberg;
£4,299 (2017: £4,211) was outstanding
In common with other businesses, the Group is exposed to risks that arise from its use of financial instruments.
This note describes the Group’s objectives, policies and processes for managing those risks and the methods used
to measure them. Further quantitative information in respect of these risks is presented throughout these financial
statements.
The significant accounting policies regarding financial instruments are disclosed in the section ‘Financial assets and liabilities’ in note 2.
There have been no substantive changes in the Group’s exposure to financial instrument risks, its objectives,
policies and processes for managing those risks or the methods used to measure them from previous periods
unless otherwise stated in this note.
PRINCIPAL FINANCIAL INSTRUMENTS
The principal financial instruments used by the Group, from which financial instrument risk arises, are as follows:
GROUP COMPANY
NOTES 2018 2017 2018 2017
Financial assets
Financial liabilities
19
21
£000
12,552
10,595
£000
7,581
10,318
£000
2,182
2,283
£000
1,260
3,204
There were no material differences between the fair value and the carrying amounts of the Group’s financial
instruments.
Amounts owed to subsidiaries
Amounts due from subsidiaries
REMUNERATION OF
COMPANY DIRECTORS
During the year there were a
number of transactions between
the Company and Directors’
related parties. The fees below
relate to the Directors of the
company and are included in
the ‘Directors and their interests’
section of the Director’s report.
65
66
NOTES TO THE FINANCIAL STATEMENTS continued
FINANCIAL RISK MANAGEMENT
The Board has overall responsibility
for the determination of the
Group’s risk management
objectives and policies and, while
retaining ultimate responsibility for
them, it has delegated the authority
for designing and operating
processes that ensure the effective
implementation of the objectives
and policies to the Group’s finance
function.
The overall objective of the Board
is to set polices that seek to reduce
risk as far as possible without
unduly affecting the Group’s
competitiveness and flexibility.
Further details regarding these
policies are set out below.
CREDIT RISK
Credit risk is the risk that a
counterparty to a transaction
with the Group fails to discharge
its obligations in respect of the
instrument. The Group’s credit
risk arises on (i) transactions with
customers in connection with
delivery of products or services
(ii) cash and cash equivalents
placed with banks and financial
institutions.
Management focuses strongly
on working capital management
and the collection of due invoices.
Regular reports of overdue
invoices are circulated amongst
senior management and the Board
reviews debtor days each month as
part of the monthly reporting cycle.
The risk with any one customer
is limited by constant review of
debtor balances and amounts
receivable on contracts and action
to resolve any issues preventing
discharge of obligations.
The ageing analysis of trade receivables of the Group is as follows:
TOTAL NOT YET DUE 0-60 DAYS 60-90 DAYS
>90 DAY
2018
2017
£000
5,712
5,218
£000
3,948
2,754
£000
1,136
1,093
£000
431
527
£000
197
844
30 FIXED ASSET INVESTMENTS
Details of the Company’s subsidiaries at 31 January 2018 are as follows:
Subsidiary
Comunica Holdings Limited
Redstone Converged
Solutions Limited
Connect IB Limited
Commensus Limited
Coms Media Limited
Easter Road Holdings Limited
Anders + Kern (U.K.) Limited
Reference
Place of
incorporation
Proportion
of ownership
interest
%
Proportion
of voting
power held
%
Nature Of
Business
1
2
England
England
England
England
England
England
England
100
100
100
100
100
100
100
100
Holding company
100
100
100
100
100
100
100
100
Infrastructure
Software
Managed Services
Media
Dormant
Infrastructure
Dormant
Dormant
Connect Labs USA Incorporated
USA
100
Coms Limited
England
100
Reference
1 Redstone Converged Solutions Limited is a wholly-owned subsidiary of Comunica Holdings Limited
Credit risk on cash and cash equivalents is reduced by placing funds with banks with high credit ratings.
2 Coms Media Limited is wholly owned by Coms Limited
LIQUIDITY RISK
Liquidity risk is the risk that the
Group cannot meet financial
liabilities when they fall due. The
Group’s policy for managing
liquidity risk is to ensure that the
business has enough financial
resources to carry out its day-to-
day activities at any point in time.
Management believes that the cash
resources on hand, together with
the profits of the business, more
than cover the resources needed to
meet the financial liabilities of the
Group.
INTEREST RATE RISK
Interest-bearing bank loans and overdrafts
are recorded at fair value, net of direct
issue costs. Finance charges, including
premiums payable on settlement or
redemption and direct issue costs, are
accounted for on an effective interest
method and are added to the carrying
67
amount of the instrument to the extent that
they are not settled in the period in which
they relate.
share issues or the issue of debt, the Group
considers not only its short-term position
but also its long-term operational and
strategic objectives.
CAPITAL
The Group considers its capital to comprise
its ordinary share capital, share premium
account, reverse acquisition reserve and
accumulated retained surplus as its capital
reserves. A summary of the amounts of
capital in each of these categories is shown
in the consolidated statement of changes in
equity on page 36.
In managing its capital, the Group’s primary
objective is to provide a return for its equity
shareholders through capital growth. Going
forward the Group will seek to maintain
a gearing ratio that balances risks and
returns at an acceptable level and also to
maintain a sufficient funding base to enable
the Group to meet its working capital and
strategic investment needs. In making
decisions to adjust its capital structure to
achieve these aims, either through new
There have been no other
significant changes to the Group’s
management objectives, policies
and processes in the year nor has
there been any change in what the
Group considers to be capital.
CURRENCY RISK
The Group occasionally provides
services in markets outside the
UK. In most examples the material
equity and financial liabilities are
contracted in Sterling and hence
there is no significant currency
risk. In the event there is a material
exposure to foreign currencies
other than Sterling the Group will
hedge its exposure, these events
are continuously reviewed on an
on-going basis.
The registered office of the subsidiaries incorporated
in England is:
40 Holborn Viaduct,
London,
EC1N 2PB.
The registered office of the subsidiary incorporated in USA is:
874 Walker Road, Suite C
Dover
Kent
19904
USA
68
NOTES TO THE FINANCIAL STATEMENTS continued
31 OPTIONS AND WARRANTS
The Company had the following share options and warrants outstanding at 31 January 2018:
INVESTMENT IN SUBSIDIARIES
Cost
At 1 February 2016
Additions
At 31 January 2017
Additions
Investments written off
At 31 January 2018
Accumulated amortisation and impairment
At 1 February 2017
Investments written off
At 31 January 2018
Carrying value
At 31 January 2018
At 31 January 2017
At 31 January 2016
TOTAL
£000
15,236
3,728
18,964
1,400
(5,989)
14,375
5,989
(5,989)
-
14,375
12,975
9,247
The carrying value of the investment at the year-end represents investment in Redstone Converged Solutions Ltd, Connect IB Ltd,
Commensus Ltd, and Anders + Kern (U.K.) Ltd all of which are wholly owned subsidiaries.
During the year Exchangext Limited and Coms.com Limited were dissolved. The investments totalling £5,989,000
were fully impaired at the point of write off.
Warrants
Options
Options
Options
Options
32 SHARE BASED
PAYMENTS
The Group operates three equity
settled share based payments
plans: an EMI scheme, an
Unapproved share scheme and an
all employee SAYE scheme. During
the year the Group issued options
over 159,367 ordinary shares under
the Group’s SAYE scheme (2017:
236,775 under the Group’s SAYE
scheme). Options granted in 2016
under the EMI and Unapproved
share option scheme over a total of
731,271 and 578,260 ordinary shares
respectively were outstanding at
Date
Granted
Price Per
Share
Vesting Period
Number
40,000
30,000
12 Jun 13
1 Nov 13
1,309,532
11 Dec 15
199,510
125,205
1 Dec 16
1 Feb 17
the year end.
The EMI and Unapproved share
option scheme incorporate the
same general terms and conditions,
with the EMI scheme benefiting
from certain tax advantages.
At 31 January 2018 there were
warrants and employee share
options outstanding over a total of
1,699,446 (2017: 1,616,306) ordinary
shares.
There were no options exercised
during the year (2017: none).
500p
350p
92p
127p
127p
12 Jun 13 - 11 Jun 23
1 Feb 14 - 31 Jan 17
31 Dec 18 - 10 Dec 25
1 Dec 19 – 1 Jul 19
1 Feb 20 – 1 Sept 20
The outstanding options at the
year-end have an exercise price
in the range of 92 pence to 500
pence (2017: 92 pence to 500
pence).
The weighted average remaining
contractual life of the share options
outstanding at the year-end is 6
years 7 months (2017: 7 years 10
months).
The expense recognised for equity-
settled share-based payments
during the year to 31 January 2018
was £172,000 (2017: £89,000).
2018 2017
Outstanding at start of year
Granted during the year
Forfeited during the year
Outstanding at end of year
Exercisable at end of year
Number
1,616,306
125,205
(42,065)
1,699,446
70,000
Weighted
average
exercise price
110p
127p
127p
110p
440p
Number
1,385,532
236,774
(6,000)
1,616,306
70,000
Weighted
average
exercise price
110p
127p
350p
110p
440p
69
70
NOTES TO THE FINANCIAL STATEMENTS continued
The fair value of the equity-settled share options granted is estimated as at the date of the grant using a Black
Scholes model taking into consideration the terms upon which the options were granted. During the year ended
31 January 2018 there were options over 159,367 over ordinary shares granted (2017: 236,775).
The following table lists the inputs into the model used to calculate the fair value.
Grant date
Option price
Dividend yield
Vesting period (years)
Assumed volatility at date of grant
Risk-free discount rate
Expected life of option
Fair value per option
Share price at grant
1 February 2017
126.5p
nil
3 years
79%
0.22%
3 years
88.9p
155.0p
The expected volatility is based on historic volatility, adjusted for any expected changes to future volatility.
The 1 February 2017 grant of share options were offered to eligible employees under the Save as You Earn Scheme (‘SAYE’). The SAYE
scheme is a savings related share scheme whereby the employees can buy 10 pence ordinary shares in the Company for a fixed
discounted price of 126.5 pence (a 20% discount to the average share price at the date of grant). The employee agrees to save a fixed
monthly amount (capped at £500) over the three year term of the scheme, which at the end of the term can be used to buy shares at the
fixed price.
33 SUBSEQUENT EVENTS
On 29 May 2018 the Group announced the proposed disposal of the Systems Integration and Managed Services divisions to Excel
I.T. Services Limited for a total consideration of £21.6 million in cash, of which £19.6 million is payable on completion, and a further
£2.0 million payable on or before 30 November 2018, subject to completion of an already contracted project by Redstone Converged
Solutions Ltd (“Additional Consideration”). In addition, intercompany loans to the divisions amounting to a further £1.4 million will be
waived.
The Additional Consideration will be retained by the Purchaser for working capital purposes relating to a project,
which is due to complete in November 2018. In the event that the Additional Consideration is not sufficient to
cover the ongoing working capital relating to the project, the Company may be required to provide additional
working capital equal to any such deficit, subject to the terms of the Share Purchase Agreement.
IF YOU WOULD LIKE TO FIND OUT MORE, CONTACT US:
REDSTONECONNECT PLC
t: 0207 148 1200
e: enquiries@redcplc.com
w: redstoneconnectplc.com
71
72