Final Results

RED24 PLC

PRELIMINARY RESULTS FOR THE YEAR ENDED 31 MARCH 2013

red24 plc ("red 24" or the "Group") is pleased to announce its results for the year ended 31 March 2013 and gives notice of its Annual General Meeting ("AGM") to be held at 11.00 a.m. on Tuesday 6 August 2013 at the offices of red24, The London Underwriting Centre, 3 Mincing Lane, London, EC3R 7DD.

Highlights

• Total revenue increased by 12% to £6.5m (year to 31 March 2012: £5.8m)

- Growth particularly strong in Business Support Division -revenue up 82% to £2.1m (2012: £1.15m)

• Profit before tax up 9% to £0.94m (2012: £0.86m)

• Food and product safety assistance service has successful first year

• Gross cash stable at £2.05m (2012: £2.07m) even after the purchase of the Cape Town building

- Only indebtedness of the Group is £0.42m mortgage secured on this property

• Interim dividend payment increased by 25% to 0.40p per share (2012: 0.32p)

- Final dividend of 0.20p* per share recommended subject to shareholder approval at the AGM (2012: Nil)

• Basic EPS of 1.55p (2012: 1.53p)

* The proposed final dividend of 0.20p per share (2012: Nil) will be paid on 19 September 2013 to shareholders on the register on 23 August 2013 subject to approval by shareholders at the AGM.

Simon Richards, Chairman, commented: 

"We are pleased with a solid year for the Group and one that saw us building on the platform created in recent years. The Group performed strongly across the board, with revenues, profits and cash generation all showing improvements.

"We intend to move to a policy of making two dividend payments per annum. In this year of transition, having paid a dividend in January 2013 in respect of the full financial year to 31 March 2013, we today recommend (subject to shareholder approval at the AGM) a dividend of 0.20p to be payable in September 2013. Technically, this will be labelled a final dividend for the 2013 financial year but will effectively be a first dividend in respect of the 2014 financial year as we move toward a more conventional dividend timetable.

 "A number of our key customers have renewed their contracts with us during the last year, and the foundations that these contracts provide give us confidence. Our response to changes in the demand for additional special risk services has been well received and we have won a significant market share in this area.

With this in mind, we feel the outlook for the Group is strong and we remain excited about our prospects and opportunities."

CHAIRMAN'S STATEMENT

Introduction

I am pleased to present our annual report for the year ended 31 March 2013.

Financial Overview

The business continues to grow in line with our expectations. Revenue has increased by 11.8% to £6,503,265 from £5,819,328 achieved last year. All of this growth has been achieved organically. Profit before tax of £940,104 is an increase of 8.9% on the previous year's £863,093.

This profits growth has not flowed through to a corresponding increase in earnings per share as the tax charge has risen to 19.4% from 13.5% last year and just 2.4% the previous year. This reflects the steady utilisation of our tax losses. The tax charge is likely to increase only modestly in the coming year, so that growth in profits will flow through to earnings per share.

The net assets per share continue to increase and are now 6.4p per share up from 5.2p last year. In January 2013 we completed the purchase of the building housing our Crisis Response Management Centre in Cape Town. Slightly over half the purchase price was funded by a local bank loan and the rest provided from our available cash. Despite this, and payment of UK corporation tax for the first time, our available cash has scarcely declined.

The dividend paid to shareholders in January this year increased to 0.40p per share from 0.32p, which is almost four times covered by earnings. The Board remain committed to a progressive dividend policy and have decided to recommend to shareholders that a final dividend of 0.20p be paid.

The Board are pleased to note that the average share price in the year was 12.71p compared to 11.47p in the previous year and just 8.76p in the year before that, and believe this reflects the Board's commitment to the sustainable long term growth of the business.

Outlook

We have worked hard to build up a reputation with well established clients for high quality work and we see future growth both from our existing services and also from the addition of other services that are likely to be of assistance to those clients.

The work of the past few years is now showing through in the group's financial performance and this is in turn being reflected more closely in the share price. Although there are risks to any business, the Board feel encouraged by the progress of the last year and are confident of further progress to come.

Staff

Our staff are absolutely crucial to the quality of service provided and to creating an environment where we can attract good quality people who want to come to work for us. The Board are most grateful to all the staff for their hard work and are gratified that so many of them are choosing to build their careers with the group.

Simon Richards

Chairman

CHIEF EXECUTIVE'S STATEMENT

The group is organised into two segments, security assistance and business support, in which we use our business model to provide services to our clients.

Business model

The red24 business model has been developed in the security industry to provide assistance to individuals and organisations in managing their security risks. Assistance is provided on an escalating basis as threats develop:

Advice -> Support -> Response

This model enables the group to add value to clients enabling them to select the level of assistance they wish to embed in their own product and the level they wish to buy in on an ad hoc basis. Within the security industry this approach has enabled us to sustain margins as the business has expanded and has led to opportunities to utilise the model to develop other business support services to clients. Security management training for the extractive industries and product safety assistance to the food industry have been particular fields of success.

Security assistance

This segment comprises our global security service which provides preventative and reactive advice to help individuals and businesses avoid and manage personal risks to themselves, their staff and their families.

In addition to the advisory and support services which we provide on a volume mandatory basis to clients of HSBC and AIG, we also act as the designated adviser to a number of insurance companies who insure against special security risks. In this segment it is usual to find that 80% of the revenues are fixed and approximately 20% derive from incidents for which a response is required. This adds greatly to the forward visibility of the business, particularly as most of these revenues are contracted for a period of three years at a time. We are particularly pleased that our contract with HSBC has been renewed for a further three years and now runs until 2017.

The day to day operation of the service is based in our Crisis Response Management Centre in Cape Town, which houses some 60 staff who provide security analysis and advice, customer service, response co-ordination and IT. This cost is largely fixed and supported by the contracted revenues. Response work is inherently less predictable and generally involves the use of independent consultants, most of whom are trusted freelancers, but in some categories of business retained consultants are engaged. Although there were no major "headline" incidents this year we continued to be active, particularly in Africa and the Middle East.

In January we published our Threat Forecast 2013, which is available on our website www.red24.com , and which itself has been significantly enhanced.

With the launch of our red24Assist service in late 2011 as a much enhanced offering in the product contamination insurance markets, we decided to include this product in the business support segment rather than security. Our old product contamination service was included in this segment and the migration of clients to the new service has been responsible for the fall in segment revenues, without which there would have been 2% growth in the year. Net margins have been maintained despite the fixed nature of the revenues and the impact of South African inflation on the cost base; this is largely due to the Rand declining over the course of the year to offset that impact. Acquisition of the premises helps to fix the cost of our second largest overhead.

Looking forwards we are pleased that almost all clients are renewing when the time comes; albeit sometimes at lower income levels if their own revenues have not reached their expectations. We continue to attract new clients and are pleased to have attracted insurers from continental Europe and also our first credit card issuer. We anticipate that these developments will restore actual top line growth to this segment.

Business Support

This segment comprises the Arc Training International Academy for Security Management, our product safety advisory service, red24Assist, our environmental advisory service, green24, and a new cyber crime product.

Arc Training is one of the UK's leading providers of security management training courses and one of the best-known international security management training companies in the world. The courses offer a range of qualifications and education for full-time security professionals and for managers for whom security is one of their key responsibilities. Each year a published program of courses, open to all, is run in the UK and, increasingly overseas where they may be branded as Arc courses or be run in conjunction with local training partners. Revenues from this business grew by 9.5% in the year and again exceeded £1m.

 As we anticipated, the passing of the Food Safety Modernization Act in the United States has introduced significant legislative requirements across the food industry in that country. This is a significant opportunity to use our business model to grow a business, almost from scratch, which is supported by teams of food specialists in the United States and in Europe, and by our website. Revenues fell just short of £1m, a significant increase on the £360k of revenue produced by the earlier product contamination service.

Whilst our environmental service has failed to produce stand alone revenues, the web based advice has been well received and is becoming a desired part of our overall offering, particularly red24Assist.

We see an opportunity to use our business model to develop a cyber-crime service to support insurers in the UK and this went live with our first insurer in April 2013. In the US roughly 50% of businesses insure against cyber-crime, in the UK this percentage is 5% or less and we believe this will increase in the next few years as awareness of the issue grows.

Overall revenues in this segment grew by 82%, of which 10% came from the training business and the rest from red24Assist. Increasing the breadth of the business support offering has led to improved margins, but they are still lower than those in security where there is a higher fixed cost base.

To date the group has been able to expand organically by recruiting appropriate specialists in the desired fields without the need for acquisitions. However the Board is mindful that acquisition remains an additional avenue to growth and, particularly in overseas markets, may be a more effective means of achieving growth.

Expansion in areas outside our reporting currency is affected by exchange rate movements. Almost half our revenue is now denominated in US dollars, even where our clients are the UK arm of US insurers, whereas 47% of our costs are incurred in rand. The Board are seeking to increase the proportion of costs that are incurred in US dollars and endeavouring to find sources of rand revenues. However exchange rate movements are influenced by many complex factors and the Board continues to believe that, although we do work to minimise the adverse impact, it is neither practical nor desirable to hedge these risks fully.

Maldwyn Worsley-Tonks

Chief Executive

10 June 2013

CONSOLIDATED INCOME STATEMENT

For the year ended 31 March 2013

The results above arose from continuing operations.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the year ended 31 March 2013

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the year ended 31 March 2013

CONSOLIDATED BALANCE SHEET

As at 31 March 2013

CASH FLOW STATEMENTS

For the year ended 31 March 2013

NOTES TO THE FINANCIAL STATEMENTS

For the year ended 31 March 2013

1 Accounting policies

(a) Basis of preparation

From 1 April 2007, the group and company have adopted International Financial Reporting Standards ("IFRS") and the International Financial Report Interpretations Committee ("IFRIC") interpretations as adopted by the European Union ("EU") in the preparation of its financial statements and those parts of the Companies Act 2006 applicable to companies reporting under IFRS. The financial statements have been prepared under the historical cost basis.

The accounts are prepared on a going concern basis. In assessing whether the going concern assumption is appropriate, the directors have taken into account relevant available information about the future including profit and cash forecasts for the next two financial years and the assumptions on which they are based. After reviewing this information, the directors consider that it is appropriate to prepare the financial statements on a going concern basis.

(b) Basis of consolidation

The consolidated financial statements include the financial statements of the company and all of the entities controlled by the company (its subsidiaries) made up to 31 March each year. Control is achieved where the company has the power to govern the financial and operating policies of an investee entity so as to obtain benefit from its activities. The acquisition of subsidiaries is accounted for using the acquisition method. The cost of an acquisition is measured as the cash paid and the fair value of other assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange of contracts. Costs directly attributable to the acquisition are expensed as incurred.

The results of subsidiaries sold or acquired are included in the consolidated income statement up to, or from, the date control passes. 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. All intra-group transactions, balances, income and expenses are eliminated on consolidation.

The company has not presented its own income statement as permitted by Section 408 of the Companies Act 2006. The profit for the year was £302,798 (2012: £423,520).

(c) Revenue recognition

Revenue represents the fair value of the consideration received or receivable in respect of services provided in the normal course of business, net of discounts, value added tax and other sales related taxes. Sales of services are recognised when the services have been provided, services invoiced in advance are treated as deferred income and income is accrued where services have been provided but not yet invoiced.

Interest income is accrued on a time-apportioned basis. Dividend income is accounted for when received.

(d) Cost of sales, gross profit and operating profit

Cost of sales represent the fair value of costs directly incurred in the supply of goods sold and services provided. Costs are recognised at the time when the goods have been supplied or the services have been provided. Costs relating to still to be provided services are carried forward in other receivables to the extent it is considered probable they will be recovered. Gross profit is defined as revenue recognised less cost of sales.

Operating profit is arrived at after deducting all administrative expenses from gross profit, including restructuring and impairment costs, but before investment income and finance costs.

(e) Borrowing costs

All borrowing costs are recognised in the income statement in the period in which they are incurred. Interest costs are accrued on a time basis by reference to the principal outstanding at the effective interest rate applicable.

(f) Taxation

The tax credit or expense represents the sum of the current tax expense and deferred tax.

The tax currently payable is based on the taxable profit for the year. Taxable profit differs from net profit as reported in the income statements because it excludes items of income and 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 the applicable rate for the period the taxable profits are earned in.

Deferred tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements.

Deferred tax assets are recognised to the extent that it is probable that future taxable profits will be available against which the temporary differences can be utilised.

Deferred tax is measured at the average tax rates that are expected to apply in the periods in which timing differences are expected to reverse, based on tax rates and laws that have been enacted or substantively enacted by the balance sheet date. Deferred tax is measured on a non-discounted basis. Deferred tax is charged or credited in the income statement, except where it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.

Deferred tax is provided on temporary timing differences arising on investments in subsidiary companies, except where the timing of the reversal of the temporary difference is controlled by the group and it is probable that the temporary difference will not reverse in the foreseeable future.

(g) Intangible assets

Goodwill, being the excess of the cost of acquisition over the fair value of net assets, including any intangible assets identified, acquired, is capitalised. Goodwill is not amortised but is tested at least annually for impairment and carried at cost less accumulated impairment provisions.

Goodwill is allocated to cash generating units for the purpose of impairment testing. If the recoverable amount of the cash generating unit is less than the carrying amount of the unit, then any goodwill is considered to be impaired. Impairment losses recognised for goodwill are not reversed in subsequent periods.

The recoverable amounts of the cash generating units are determined from value in use calculations. The group prepares cash flow forecasts from the most recent financial budgets approved by management. The cash flows are then discounted at an appropriate interest rate to determine value in use.

Intellectual properties, including computer software licences, websites and training courses are capitalised at cost and are amortised on a straight-line basis over their estimated useful economic lives of between one and three years.

(h) Property, plant & equipment and depreciation

Property, plant and equipment is valued at cost less accumulated depreciation and less provisions for impairment. Depreciation is provided at the following annual rates in order to write off each asset, on a straight-line basis, over its estimated useful life:

Buildings 3% per annum

Fixtures, fittings and equipment 16.67% to 50% per annum

Motor vehicles 20% per annum

The depreciation charge is time apportioned in the year of acquisition and disposal of assets.

(i) Product development

Product development is written off to the income statement as incurred unless the directors are satisfied as to the technical, commercial and financial viability of individual projects. In this situation, the expenditure is deferred and amortised over the period during which the company is expected to benefit.

(j) Foreign currency translation

The individual financial statements of each group company are presented in the currency of the primary economic environment in which it operates (its functional currency). For the purposes of the consolidated financial statements, the results and financial position of each group company are expressed in sterling, which is the functional currency of the company, and the presentation currency for the consolidated financial statements.

In preparing the financial statements of the individual companies, transactions expressed in currencies other than the entity's functional currency (foreign currencies) are at rates of exchange approximating to those ruling at the date of the transaction. At each balance sheet date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at rates ruling at the balance sheet date. Non monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.

Exchange differences arising on the settlement of monetary items, and on the retranslation of monetary items, are included in the profit or loss before tax for the period.

In presenting the consolidated financial statements the assets and liabilities of the overseas subsidiary are translated at the rate ruling at the balance sheet date. The results of the overseas subsidiary have been translated at the average exchange rate ruling during the year. Differences arising on retranslation are added to or deducted from the group's translation reserve.

 (k) Financial assets

Trade receivables, loans and other receivables that have fixed or determinable payments that are not quoted in an active market are classified as "Loans and receivables". These receivables are initially recognised at fair value and subsequently measured at their amortised cost using the effective interest rate method less any provision for impairment.

Financial assets are assessed for indications of impairment at each balance sheet date. Financial assets are impaired where there is objective evidence that as a result of one or more events that occurred after the initial recognition of the financial asset the estimated future cash flows of the asset have been impacted. For trade and other receivables the carrying amount is reduced by an allowance reflecting the impairment. When a trade receivable is uncollectible it is written off against the allowance, subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance are reflected in the income statement.

Cash and cash equivalents comprise cash in hand and on demand deposits, and other short-term highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value.

(l) Financial liabilities and equity

Financial liabilities and equity are classified according to the substance of the contracted arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the group after deducting all its liabilities. Equity instruments are recorded at the proceeds received, net of direct issue costs.

The component parts of compound instruments are classified separately as financial liabilities and equity in accordance with the substance of the transaction. At the date of issue the fair value of the liability is estimated using the prevailing market interest rate for a similar non-convertible instrument. This amount is recorded as a liability on an amortised cost basis until extinguished on conversion or upon the instrument reaching maturity. The equity component is determined by deducting the amount of the liability component from the fair value of the compound instrument as a whole. This is recognised in equity through other reserves and is not subsequently re-measured.

Other financial liabilities are initially measured at fair value, net of transaction costs, and subsequently at amortised cost using the effective interest method. Interest bearing bank loans and overdrafts together with obligations under finance leases are classified as "Borrowings".

(m) Net cash

Net cash is defined as the excess of cash and cash equivalents over borrowings. 

(n) Investments

Non-current investments representing investments in subsidiary undertakings are valued at cost less any provision for impairment in the value of the investment.

(o) Dividends

Dividend payments are recognised as liabilities once they are appropriately authorised and no longer at the discretion of the company.

(p) Share based payments

The group issues equity-settled share based payments to certain employees. Equity settled share based payments are measured at fair value at the date of grant. The fair value determined at the grant date is expensed on a straight line basis over the vesting period, based on the group's estimate of options that will eventually vest. Fair value is measured by use of the Black Scholes model. The assumptions underlying the number of awards expected to vest are subsequently adjusted to reflect conditions prevailing at the balance sheet date. At the vesting date of an award, the cumulative expense is adjusted to take account of the awards that actually vest.

The group has issued warrants to subscribers of certain equity issues and to a distributor and these are measured at fair value at the date of grant in the same way as employee related share based payments.

(q) Leased assets and obligations

An asset is acquired when substantially all the risks and rewards are transferred and is capitalised as an asset under a finance lease with the corresponding liability to the finance company included in trade and other payables. Depreciation on assets held under finance leases is provided in accordance with the policy noted in (h) above. Finance lease payments are treated as consisting of capital and interest elements and the interest is charged to the income statement on a constant rate basis over the period of the agreement. Finance charges are charged directly to income. All other leases are operating leases.

Rentals receivable or payable under operating leases are credited or charged to the income statement on a straight line basis over the lease term.

(r) Adoption of new and revised standards

 In the current financial year the group has adopted the following improvements to IFRSs which were effective for this financial period. These have had no material impact on the financial statements of the Group:

• Annual improvements to IFRSs 2011;

At the date of authorisation of these financial statements, the following Standards and Interpretations, which have not yet been applied in these financial statements, were in issue but not yet effective:

• IAS 1 'Amendments to accounting standards';

• IAS 19 'Employee benefits';

• IAS 27 'Separate financial statements';

• IAS 28 'Investments in associates and joint ventures';

• IAS 32 'Offsetting financial assets and financial liabilities';

• IFRS 9 'Financial Instruments';

• IFRS 10 'Consolidated financial statements';

• IFRS 11 'Joint arrangements';

• IFRS 12 'Disclosure of interests in other entities';

• IFRS 13 'Fair value measurement'.

The directors do not anticipate that they will have a material impact on the financial statements.

2 Directors' emoluments

The total emoluments of the directors, who are considered to be the key management personnel, were as follows:

Bonus payments were made to the executive directors during the year, and for the previous year, based on a percentage of annual salary. The directors received no benefits in kind during the year or during the previous year, nor were any pension contributions made on behalf of any director in either year.

The interim dividend for 2013 was paid on 17 January 2013 at a total cost of £195,933 (2012: paid on 19 January 2012 a total cost of £155,931).

The payment of the final dividend remains discretionary until paid. The final proposed dividend of 0.20p per share (2012: Nil) was not recognised at the year end and will be paid on 19 September 2013 subject to authorisation by shareholders at the forthcoming Annual General Meeting.

5 Related party transactions

Since 1 January 2005, the company has paid Sidebell Limited amounts for the use of Sidebell's offices and the use of accountancy services. S A Richards, a director of the company, has a minority interest in the share capital of Sidebell Limited. In the year to 31 March 2013, these amounts were £2,000 per month, totalling £24,000 (2012: £24,000). The balance due to Sidebell Limited at 31 March 2013 was £Nil (2012: £Nil).

All the directors hold share options under the group's share option scheme. Key management remuneration is as follows:

During the year the company entered into the following transactions with its subsidiaries:

The management charges reflect a charge to partly recover the time of the group directors and the cost of central services such as administrative offices, the conduct of the audit and the maintenance of professional insurances.

Impairment provisions totalling £70,000 (2012: £168,754) have been made against the amounts shown as due from subsidiaries in the table above.

7 Financial information

The above financial information does not constitute statutory accounts as defined in section 434 of the Companies Act 2006. The above figures for the year ended 31 March 2013 are an abridged version of the Company's accounts which will be reported on by the Company's auditors before dispatch to the shareholders and filing with the Registrar of Companies. The preliminary announcement was approved by the Board on 14 June 2012.

The statutory accounts for the year ended 31 March 2012 have been lodged with the Registrar of Companies. These accounts received an audit report which was unqualified and did not include any reference to matters to which the auditors drew attention by way of emphasis without qualifying their report or a statement under section 237(2) or section 237(3) of the Companies Act 1985.

8 Posting of report and accounts

The report and accounts for the year ended 31 March 2013 will be sent to shareholders in the week commencing 24 June 2013 and will be available on the Company's website www.red24plc.com.