25th May 2005 07:02
Redstone PLC25 May 2005 25 MAY 2005 REDSTONE PLC ("Redstone" or "the Group") Final Results for the 12 Months ended 31 March 2005 Redstone, the national communications services provider, today announces itsfinancial results for the year ended 31 March 2005. FINANCIAL HIGHLIGHTS •Growth in Order Intake of 35% •Revenues down 18.4% to £49.6m (2004: £60.7m), as a result of withdrawal from certain Premium Rate Services •Continued underlying improvement in gross margin before exceptional items to 35.3% (2004: 32.5%) •Core services EBITDA loss of £2.2m compared with the 2004 EBITDA profit of £0.7m primarily due to: - The prior year's gross margin receiving a one-off benefit following the conclusion of certain supplier negotiations - A gross margin reduction associated with the end of legacy business •Cash balances of £8.5m (2004: £13.2m) •Full year pre tax loss of £6.6m (2004: £3.4m) OPERATIONAL HIGHLIGHTS •Announcement of £25.5m acquisition of Xpert Group, transforming the scale, critical mass and geographic coverage of the business •Notable new project wins including contracts with JD Wetherspoon plc and Ottakar's plc •Withdrawal from lower margin Premium Rate Services business •Further extension of strategic outsourcing agreement with BT Wholesale to 2012 Ian Brown, Chief Executive, Redstone, commented, "We are continuing to win significant new orders, both from new and existingcustomers. The acquisition of Xpert has given us the opportunity to improve bothsales and earnings. We are also seeing a healthy uplift in order intake, whichshould lead to an improved level of profitability as those orders flow throughinto revenue. Prospects for the enlarged business are therefore encouraging." ENQUIRIES:Redstone Plc Tel. +44 (0)845 200 2200Ian Brown, Chief ExecutiveTim Perks, Chief Financial Officer ICIS Limited Tel. +44 (0)20 7651 8688Tom Moriarty / Archie Berens or +44 (0)7802 442486 CEO Statement Prelims 2005 The financial year to 31 March 2005 has seen Redstone achieve a number ofsignificant milestones: Order Intake Order Intake in comparison with the prior financial year has grown by 35%. OrderIntake underpins approximately 50% of Redstone's revenue, the balance of ourbusiness being existing telecoms and support services.As a result, the Group believes that its continued investment in sales andmarketing over the past few years is paying off. Redstone continues to winnotable projects from both private and public sector organisations. Examples ofkey wins during the period under review include contracts with organisationssuch as JD Wetherspoon plc, for whom Redstone has been awarded a two yearcontract to provide telecommunications services across their UK operations, anda combined Avaya IP Office and telecommunications contract with Ottakar's plc asa result of Redstone's bundled service proposition. Gross Margins Gross margins as a percentage of sales were 35.3% compared with 32.5% beforeexceptional items during the 12 month period ending 31 March 2004. This is theresult of the Group's continual focus on selling higher margin services tocorporate customers, in addition to initiatives to reduce operating costs acrossall product lines. Furthermore, and as announced previously, the Group made thestrategic decision during the financial year to withdraw from providing lowmargin premium rate services to certain markets. During the year gross marginson telecommunications services were 30%, up from 27% in the prior year(excluding exceptional items). BTW Wholesale & New Telecoms Services During the year Redstone extended its strategic outsourcing agreement with BTWholesale to 2012 and included the provision of a new intelligent networkingplatform based on technology from Huawei Limited. This new platform will providecustomers with a state of the art communications infrastructure to manageinbound services (e.g. 0845/0870), and will allow the Group to offer anattractive range of converged voice solutions, particularly for businessesrunning contact centres. Redstone expects to complete the launch of the newtelecoms services during the first half of the financial year ending 31 March2006. Xpert Group Acquisition During the year, Redstone announced a significant milestone with its acquisitionof Xpert Group Limited, which was completed on 28 April 2005. The combination ofRedstone and Xpert (the "Enlarged Group") will give the business critical massin its systems communications business by becoming one of the top integrationpartners for both Cisco and Avaya within the UK, and presenting new strategicpartnerships with HP and Mitel. The Enlarged Group will also benefit from astronger geographic presence, including a significant operation in Ireland,which is anticipated to put the Enlarged Group in a stronger position to winmajor project implementations. Financials The main financial highlights for the year to 31 March 2005 are as follows: * Increase in Order Intake of 35% in comparison with the prior financial year as detailed above. * Gross Margins of 35.3% of sales in comparison with 32.5% of sales in the prior year (excluding the exceptional supplier credit that occurred during that year). As announced previously, the gross margin for the year ended 31 March 2004 benefited significantly from the conclusion of some one-off supplier negotiations. * Selling and distribution expenses have increased by £0.6 million or 9% in comparison with the prior year, reflecting the continued investment the Group has made in expanding its national sales teams. * Administration expenses (excluding goodwill and exceptional items) have reduced by £0.5 million or 3% in comparison with the prior year as the Group continues to impose strict cost controls and exploit operational synergies across the business. * Core services EBITDA loss of £2.2 million compared with the 2004 EBITDA profit of £0.7 million. This change is primarily due to the prior year's gross margin receiving a one-off benefit following the conclusion of certain supplier negotiations and a gross margin reduction associated with the end of legacy business. * Cash balances closed at £8.5 million at 31 March 2005. Capital expenditure for the year was £1.1 million, an increase of £0.3 million over the prior year as the Company made investments in two telecoms infrastructure projects, the BTW/Huawei intelligent networking platform mentioned previously,and new switching technology from Digitalk in support of the "Away from Office" product line. Both investments are expected to be self funding within 12 months. Operational Performance During the year, Redstone has continued to develop and enhance its core productsand services, especially in the areas of converged voice, SMART buildings andsecurity solutions. In addition the Group has received Silver Systemsaccreditation from the National Security Inspectorate (NSI) covering Redstone'sSmartB (Smart Buildings) solution, which allows security applications such as IPCCTV and access control to run over Local Area Networks. Redstone has providedsecurity solutions to a number of clients including a complete convergedsolution for Crossways Academy that incorporates IP access control, IP CCTV,library systems and online registration. Redstone has made progress in selling managed services to such customers as NordAnglia Education plc and Donaldsons. In addition, during the year, several largetelecommunications projects were secured including those with Tarmac Group andJD Wetherspoon plc, with Redstone providing a combination of inbound, outboundand line rental services. The relationship with Avaya has also been strengthened with a greater focus onthe larger enterprise product sets.A new Digitalk switch has been installed in Redstone's London premises tosupport our "Away from Office" product portfolio. The improved functionality isexpected to allow further penetration of the prepaid calling card market andimprove margins over the medium term. Outlook The outlook for the Enlarged Group remains encouraging. The combination ofRedstone and Xpert presents the Enlarged Group with a significant number ofopportunities both to improve sales and to increase margins through cost savingsynergies. These include cross selling opportunities, expanding further into theIrish market, and strengthening partnerships with key manufacturer partners. Inaddition: * The Enlarged Group continues to win significant new orders from both existing and new customers. * The Enlarged Group is well positioned to continue to win significant new telecoms business as a result of its enhanced portfolio of inbound services which will come on stream during the course of the next financial year. * During the next 12 months, Redstone expects to accelerate growth in its Smart Buildings (SmartB) portfolio of products and services. Growth is expected to be achieved through further focus on its core retail property sector market, and through expanding into other key vertical sectors including health, education, finance and local government. * The EBITDA trading performance is expected to improve once the benefit of Order Intake growth flows through into revenue. As previously stated, Redstone continues to look for acquisitive growthopportunities in support of its aspiration to become one of the leadingcommunications services groups in the UK. Ian BrownChief Executive25 May 2005 Financial Review Trading The operating loss before goodwill amortisation and exceptional items increasedin the period to £3.0 million from £0.4 million in the previous year. Turnoverreduced to £49.6 million from £60.7 million in the year, primarily as a resultof the Group withdrawing from certain Premium Rate Services ("Ceased Services")as previously reported in the Group's interim results for the 6 month period to30 September 2004. Revenue from Core Services remained stable at £44.7 million.Gross profit before exceptional items reduced to £17.5 million from £19.7million in the previous year. This fall was due to several factors: thereduction associated with the Ceased Services of £0.7 million; the benefitderived last year from some one-off supplier negotiations as outlined in lastyear's annual Report and Accounts; and the loss of £0.8 million gross margin dueto the ending of legacy business. Whilst the Group continued to focus on controlof its Operating expenses, as a result of the above, overall EBITDA beforeexceptional items worsened to a £2.0 million loss from a £1.0 million profit inthe previous year. I am pleased to report gross margin of 35.3% before exceptional items comparedwith 32.5% last year. We are now seeing the benefits of last year's strategicinitiative to streamline our customer base with a focus on quality of revenues.This has enabled us to remain competitive in a market place which is subject tostrong price competition across all product ranges. Operating expenses before exceptional items and amortisation of goodwillremained constant at £20.9 million compared with £20.7 million last year. Duringthe year the Group continued with its stated strategy to invest in developingits sales operation, increasing Selling and Distribution costs by £0.6 millionor 9% in the year to £7.5 million. Costs have been, and will continue to be, akey area of focus for management. During the year we have predominantly fundedour investment in the sales operation through savings made across all otherareas of the business, and we will seek to further reduce costs during thecoming year. Order intake has increased by 35% in the year in Revenue terms as the Group isnow beginning to see the benefits of its strategic investment in its salesoperation. This is an encouraging performance and the Group will look to buildon this in the coming year. Order intake underpins approximately 50% of theGroup's revenue, the balance of its business being existing telecoms and supportservices. There was net interest receivable in the year of £0.5 million compared with £0.4million last year. Although cash balances were on average below that of lastyear, the Group has benefited from an increase in the average rate of interestpaid on cash deposits held. The Group has also maintained its policy of managinga business with minimal debt, with interest payable at negligible levels. Other operating income relates to rent receivable. This has fallen to £0.4million from £0.6 million last year, due to the fact that there was a one-offreceipt in 2004 for payment of back rent due. Every effort continues to be madeto sub-let vacant property, but market conditions remain difficult. Overall operating losses were £7.1 million compared with £3.9 million in theyear ended 31 March 2004. The operating result overall for the current yearexcluding goodwill and exceptional items was £3.0 million loss compared with aloss of £0.4 million in the previous year. The increase in the loss waspredominantly due to the fact that last year's gross margin before exceptionalitems benefited significantly from a one-off supplier credit as a result ofcontract negotiations as outlined in last year's annual report and accounts. Balance Sheet and Cash Flow Cashflow and Debt The Group's net funds position reduced during the year by £4.6 million to £8.5million. There was no debt at the year end. There was a cash outflow from operating activities of £4.0 million. Within thisfigure £2.6 million was generated from debtors, driven largely by furtherexceptional debt collection performances, resulting in Days Sales Outstanding(DSO) of below 30 days. Stock increased by £0.1 million and operating creditorsfell £3.8 million. Provisions decreased overall by £0.8 million. The cash outflow from capital expenditure increased to £1.1 million during theyear, an increase of £0.3 million compared with the previous year. The primaryreason for the increase was due to the fact that the Group spent additionalfunds on the new Intelligent Networking platform and on the Digitalk switch.During the coming year this is likely to increase marginally as the Group seeksto upgrade its internal systems. The Group continues to have no need of any borrowing facility, other than theoccasional performance bond requirement. After making due enquiries, the Board has a reasonable expectation that theGroup has adequate resources to continue in operational existence for theforeseeable future. For this reason the going concern basis continues to beadopted in preparing the accounts. Treasury Activities and Policies The Group's treasury objectives and policies were agreed by the Board and aredesigned to optimise returns. The Board has sanctioned a number of institutionswith whom surplus funds may be invested with a view to maximising returns whilstminimising credit risks. The Group's policy is not to undertake transactions inderivatives, such as interest rate swaps, on the ground that the cost outweighsthe potential benefit given the Group's funding position. Other Balance Sheet Areas Intangible assets of £21.3 million represent goodwill on previous acquisitions.As required by FRS11 the Board has conducted a review of the carrying value ofgoodwill on the balance sheet. The result of this review is that an amortisationcharge of £4.1 million has been applied in line with the Group's amortisationpolicy, but no goodwill impairment has been made this year. The increase in the value of tangible fixed assets of £0.1 million reflected thelow level of additions noted above and the annual depreciation charge of £1.0million. The closing book value of tangible fixed assets includes some £1.0million in respect of the Cambridge Metropolitan Area Network. Net current assets reduced over the year by £3.4 million to £2.9 million.Shareholders funds fell to £24.1 million from £30.7 million. International Financial Reporting Standards Redstone plc will be required to adopt International Financial ReportingStandards ("IFRS") when preparing its Group accounts for the year ending 31March 2006. In preparation for this, all existing IFRS's have been reviewed soas to assess their likely impact on the reported figures to date and what needsto be done internally in order to collect the necessary data. Detailed calculations of the impact of these for the new enlarged group arecurrently being prepared and will be reviewed by the Group's auditors. In thelast report and accounts, it was indicated that the intention was to agree theopening adjustments for IFRS reporting before 31 March 2005. In light of therecent acquisition of Xpert Group Limited, the timescale for this project hasnow been extended, but the Group will be presenting the first IFRS figures forthe enlarged group at the 2005/6 interims. Tim PerksChief Financial Officer 25 May 2005 Consolidated Profit and Loss Account for year ended 31 March 2005 Continuing Continuing operations operations 2005 2004 Note £000 £000 Turnover - Core Services 44,721 45,402 - Ceased Services 4,856 15,325 -------- -------- 2 49,577 60,727 Cost of sales (32,063) (41,021) Cost of sales - exceptional item - 2,481 -------- -------- (32,063) (38,540) -------- -------- Gross profit - Core Services 17,288 21,254 - Ceased Services 226 933 -------- -------- 17,514 22,187 Other operating income 389 598 Selling and distribution costs (7,458) (6,844) Administrative expenses (17,529) (19,792) -------- -------- Operating loss - Core Services (7,310) (4,784) - Ceased Services 226 933 -------- -------- 3 (7,084) (3,851) -goodwill amortisation 4,100 4,100 -exceptional items - cost of sales 3 - (2,481) 3 -exceptional items - administrative expenses 3 - 1,808 -------- -------- Operating (loss)/profit before goodwill amortisation and exceptional items - Core Services (3,210) (1,357) - Ceased Services 226 933 -------- -------- (2,984) (424) Interest receivable and similar income 469 463 Interest payable and similar charges (17) (26) -------- -------- Loss on ordinary activities before taxation (6,632) (3,414) Tax on loss on ordinary activities - - -------- -------- Loss for the financial year (6,632) (3,414) -------- -------- Basic and diluted loss per share 4 (2.38)p (1.22)p -------- -------- Gross profit % - Core Services 38.7 46.8 - Ceased Services 4.7 6.1 -------- -------- 35.3 36.5 -------- -------- EBITDA - Core Services 4 (2,233) 736 - Ceased Services 226 933 -------- -------- (2,007) 1,669 EBITDA per share 4 (0.72)p 0.60p -------- -------- Statement of Total Recognised Gains and Losses year ended 31 March 2005 2005 2004 £000 £000 Loss for the financial year (6,632) (3,414) Lapse of warrants not subscribed - 21 -------- -------Total recognised losses for the financial year (6,632) (3,393) -------- ------- Consolidated Balance Sheet as at 31 March 2005 2005 2004 Notes £000 £000Fixed assetsIntangible assets 5 21,270 25,370Tangible assets 2,746 2,674 ------- ------- 24,016 28,044Current assetsStocks 683 619Debtors 8,423 11,072Short term deposits - 7,000Cash at bank and in hand 8,513 6,191 ------- ------- 17,619 24,882CreditorsAmounts falling due within one year 14,675 18,565 ------- -------Net current assets 2,944 6,317 Total assets less current liabilities 26,960 34,361 Provisions for liabilities and charges 6 2,909 3,678 ------- -------Net assets 24,051 30,683 ------- -------Capital and reservesCalled up share capital 8,472 8,472Share premium account 185,336 185,336Merger reserve 216 216Profit and loss account (169,973) (163,341) ------- -------Shareholders' funds 24,051 30,683 ------- -------Equity shareholders' funds 18,368 25,000Non-equity shareholders' funds 5,683 5,683 ------- ------- 24,051 30,683 ------- -------Approved by the Board on 25 May 2005 I BrownDirector T PerksDirector Consolidated Cash Flow Statement Year ended 31 March 2005 Notes 2005 2004 £000 £000 Net cash (outflow)/inflow from operating activities 7 (4,034) 1,628 ------- -------Returns on investments and servicing of financeInterest received 484 440Interest paid (6) (3)Interest element paid on finance leases (11) (23) ------- -------Net cash inflow from returns on investmentsand servicing of finance 467 414 ------- -------Capital expenditurePurchase of tangible fixed assets (1,056) (741)Proceeds on disposal of tangible fixed assets 7 6 ------- -------Net cash outflow from capital expenditure (1,049) (735) ------- -------Net cash (outflow)/inflow before management of liquidresources and financing (4,616) 1,307 ------- -------Management of liquid resourcesDecrease/(Increase) in short term deposits 7,000 (7,000) FinancingCapital element paid on finance leases (62) (151) ------- -------Increase/(Decrease) in cash 2,322 (5,844) ======= ======= NOTES 1. Basis of PreparationThe financial information set out above does not constitute statutory accountswithin the meaning of section 240(1) of the Companies Act 1985.The preliminary announcement has been prepared on the basis of the accountingpolicies set out in the most recently published financial statements of theGroup for the year ended 31 March 2004 which are consistent with those adoptedfor the year ended 31 March 2005. The comparative financial information is basedon the statutory accounts for the year ended 31 March 2004. These accounts, uponwhich the auditors issued an unqualified opinion, have been delivered to theRegistrar of Companies. The statutory accounts for the year ended 31 March 2005 upon which the auditorsissued an unqualified opinion, will be sent to Shareholders and will beavailable from the company Secretary at Redstone plc, Premiere House, ElstreeWay, Borehamwood, Herts, WD6 1JH. The summary information presented herein was approved by the Board on 25 May2005. 2. Segmental analysisThe Group operates as an end to end communications services provider and as suchthe Group operates in one principal area of activity.All turnover during the current and previous year was derived from the UnitedKingdom. All results for the current period relate to continuing activities. Ceased services represent certain Premium Rate Services which the group haswithdrawn from. 3. Exceptional itemsIn the prior year the Group concluded some supplier negotiations, which resultedin a benefit of £2.481 million in respect of liabilities that were reported at31 March 2003. Due to the worsening of market conditions in those areas where the Group holdsexcess property, an additional provision for surplus property costs of £1.808million has been made at 31 March 2004.The above exceptional items did not give rise to any cash flow movements. 4. Loss per shareBasic and diluted earnings per share are both calculated using a loss of£6,632,000 (2004: £3,414,000) and a weighted average number of shares of278,907,064 (2004: 278,907,064). Options have no dilutive effect in loss-makingyears, and hence the diluted loss per share is the same as the basic loss pershare for the year ended 31 March 2005 and 31 March 2004. In addition, EBITDA (earnings before interest, tax, depreciation andamortisation) per share has been shown on the grounds that this is a commonmetric used by the market in monitoring similar businesses. EBITDA is derived asfollows: 2005 2004 £000 £000 Loss for the financial year (6,632) (3,414)Net interest receivable (452) (437)Depreciation of fixed assets 981 1,424Profit on disposal of fixed assets (4) (4)Amortisation of goodwill 4,100 4,100 ------- -------EBITDA (2,007) 1,669 ------- ------- 5. Intangible fixed assets Goodwill £000CostAt 1 April 2004 and 31 March 2005 108,418 --------- AmortisationAt 1 April 2004 83,048Charge for the year 4,100 ---------At 31 March 2005 87,148 --------- Net book valueAt 31 March 2005 21,270 --------- At 31 March 2004 25,370 --------- In accordance with FRS 11, the directors have reviewed the carrying value ofgoodwill in the balance sheet. Recoverable amounts were calculated as the greater of the net realisable valueand value in use of the respective assets, assuming a pre tax discount rate of15%. 6. Provisions for liabilities and charges Group Vacant property Provision £000At 1 April 2004 3,678Charge for the year 219Utilised during the year (988) ---------At 31 March 2005 2,909 ---------(i) Vacant property provisionThe Group currently has a number of vacant properties. Provisions have been madeto cover the rents, rates and service charges for each vacant property for theperiod that each property is expected to be vacant. The above provision has beendiscounted in accordance with the requirements of FRS12 at a rate of 5% (ii) Deferred taxThe Group and Company has no unprovided deferred tax liability (2004: £nil).As at 31 March 2005 there is an unprovided deferred tax asset of £25 million(2004: £24.4 million) relating principally to past trading losses. This assethas not been recognised as there is insufficient evidence that the asset will berecoverable. The asset will be recoverable once the Group generates taxableprofits. The deferred tax asset not provided arises as follows: Group Company 2005 2004 2005 2004 £000 £000 £000 £000 Accelerated capital allowances 6,165 5,993 - -Short term timing differences 580 515 - -Trading losses 18,285 17,866 298 298 -------- -------- --------- ------- 25,030 24,374 298 298 -------- -------- --------- ------- 7. Net cash (outflow)/inflow from operating activities 2005 2004 £000 £000 Operating loss (7,084) (3,851)Amortisation 4,100 4,100Depreciation 981 1,424Profit on disposal of fixed assets (4) (4)(Increase)/decrease in stock (64) 172Decrease in debtors 2,634 958(Decrease) in creditors (3,828) (2,160)(Decrease)/increase in provisions (769) 989 ------------ --------- (4,034) 1,628 ------------ --------- 8. Reconciliation of net cash flow to movement in net funds 2005 2004 £000 £000 Increase/(decrease) in cash in the year 2,322 (5,844)Cash outflow from finance leases 62 151Cash inflow from amounts held as collateral loan notes - (87)Cash (inflow)/outflow to liquid resources (7,000) 7,000 ------------ --------- Change in net funds resulting from cash flows (4,616) 1,220Repayment of loan notes relating to prior acquisitions - 87 ------------ --------- Movement in net funds in the year (4,616) 1,307Net funds at 1 April 2004 13,129 11,822 ------------ --------- Net funds at 31 March 2005 8,513 13,129 ------------ --------- 9. Analysis of net funds At At 1 April 31 March 2004 Cash flow 2005 £000 £000 £000 Cash at bank and in hand 6,191 2,322 8,513Liquid resources - short term deposits 7,000 (7,000) - ------- --------- ------- 13,191 (4,678) 8,513Debt due within one year:Finance lease obligations (62) 62 - ------- --------- ------- 13,129 (4,616) 8,513 ------- --------- ------- This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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