29th Nov 2005 07:01
Redstone PLC29 November 2005 Redstone plc ("Redstone" or "the Group") Interim Results for the Six Months ended 30 September 2005 29 November 2005 - Redstone plc, the Telecoms and IT Solutions provider, todayannounces its interim results for the 6 months ended 30 September 2005. Financial Highlights •Combined revenues £33.5 million (H1 2004: £27.5 million). This includes £10 million of revenues from Xpert Group, acquired in April 2005. •Gross profit margin increased from 31% to 36%. •EBITDA loss of £2.2 million before restructuring costs (H1 2004: loss of £1 million). •The loss for the period, after goodwill impairment charge of £16.1 million and restructuring costs of £4.1 million, was £23.2m (H1 2004: £1.2 million). •Cash balances are £7.4 million compared with £8.5 million at 31 March 2005 and £11.9 million at 30 September 2004. £2.2 million of restructuring costs paid following the period end. Operational highlights •Group successfully restructured into 4 focused autonomous business units, leading to a £7.0 million annualised reduction in its cost base. •Completion of £25.5m acquisition of Xpert Group, transforming the scale, critical mass and geographic coverage of the business. •Further strengthening of the Board and Senior Management team through the appointment, effective today, of two non-executive Directors and a new head of Converged Solutions Division who was appointed earlier this month. Martin Balaam, CEO of Redstone plc, commented, "The restructuring of the Group,the business' increased scale and critical mass following the successfulacquisition of Xpert Group, and the strengthening of the management team meansRedstone is now in a significantly stronger position than this time last year.The management focus is now firmly on growing the business both organically andacquisitively in the developing and consolidating Telecoms and IT Solutionsmarket place and we are optimistic about the Group's prospects." ENQUIRIES: Redstone plc Tel. +44 (0)845 200 2200Tim Perks, Chief Financial Officer ICIS Limited Tel. +44 (0)20 7651 8688Tom Moriarty Or +44 (0)7802 442486Archie Berens Chief Executive's Statement I am pleased to report that during the six month period to 30 September 2005,Redstone has made excellent progress towards implementing a strategy totransform itself into a significant player in the wider Telecom and IT Solutionsmarketplace. It has been a time of major change during which we havesignificantly reduced overheads, redeployed and refocused resources,strengthened financial controls, and completed the acquisition of Xpert GroupLimited ("Xpert") ("the acquisition") on 28 April 2005. Financial highlights The Xpert acquisition contributed, for the five months post acquisition,revenues in excess of £10 million, bringing about an increase in the Group'sgross profit margin. It has also enabled the Group to make significantsynergistic savings including a reduction of people related costs ofapproximately £1.1 million in the period, and £5.5 million on an annualisedbasis. •Combined revenues were £33.5 million, compared with £27.5 million for the corresponding period last year •Gross profit margin increased from 31% to 36% •EBITDA loss before restructuring costs of £2.2 million (£2.0 million prior to adjustments for IFRS) compared with an EBITDA loss of £1.0 million for the corresponding period last year •Goodwill impairment charge of £16.1 million resulting from the restructuring of the business, all relating to historical Redstone acquisitions •The loss for the period, after the goodwill impairment charge of £16.1 million and restructuring costs of £4.1 million, was £23.2m compared to £1.2m for the corresponding period last year •Cash balances are £7.4 million compared with £8.5 million at 31 March 2005 and £11.9 million at 30 September 2004. Debtor collections were high at the period end, and although the restructuring is now complete, of the £4.1 million of costs reported, £1.9 million were paid in the period, and £2.2 million were paid following the period end In order to give the Group a stable platform for growth, the Board identifiedfour core actions that needed to be completed during the first half year: •the integration of Xpert and Redstone; •the implementation of all available synergies; •the re-organisation of the business so as to deliver profitability and cash generation from normal trading activities; and •the creation of a group structure that allows effective management control of the enlarged business and its planned expansion. Operational highlights Restructure The Group has been restructured into four autonomous operating units supportedby a small head office team: •Redstone Telecom - specialising in selling value added inbound and outbound minutes along with other associated products; •Redstone Converged Solutions - the combination of Xpert Communications and Redstone's Solutions businesses as a converged IP solutions provider, with expertise in contact centres, voice and video, IP networks and security; •Redstone Managed Solutions - specialising in providing managed IT solutions such as bespoke secure internet access, remote monitoring, back-up and hosting services along with application development and support; and •Redstone Technology - previously Xpert Technology, an HP Preferred Partner, Red Hat Advanced Partner and recently appointed StorageTek Premier Plus Partner specialising in providing business-critical server solutions, storage area networks and complex server clusters. The impact of this restructuring has allowed the Group to significantly reduceits overhead base in both headcount and occupancy costs. Redstone has nowreduced headcount from approximately 460 to 360 through non-replacement andredundancy. In addition, of the 14 sites previously operated within the UK, sixhave closed leaving eight occupied. The total annualised savings achieved from the above restructuring will amountto £7.0 million, being £5.5m per annum from headcount related savings and £1.5mper annum from property related savings. The restructuring commenced in mid Julyand consultation with staff was completed at the end of August. The cost savingshighlighted above have now been fully implemented. Strengthening the Board and Senior Management team Since the period end, Redstone has further strengthened both the Board and itsSenior Management team. It has today appointed Ashvin Pathak and Gerard Spenceras non-executive Directors of the Redstone plc Board, both of whom bringvaluable industry experience to the Group. It has also appointed Peter Deacon ashead of its Converged Solutions Division. Outlook The Directors are optimistic about the Group's prospects, and the performance ofthe business is in line with their expectations. The Group is now much strongerfollowing the restructuring, with the creation of focused autonomous businessunits and the £7.0 million annualised reduction in its cost base. It willcontinue to reduce costs where appropriate. The Group has a strong platform fromwhich to generate future growth in both revenue and profit, is debt free andexpects to be cash generative by the fourth quarter of this financial year. Themanagement focus is now firmly on growing the business both organically andacquisitively in the developing and consolidating Telecoms and IT Solutionsmarket place. Martin BalaamChief Executive28 November 2005 Redstone plcConsolidated Income Statement Six Six months months Year ended 30 ended 30 ended 31 September September March 2005 2004 2005 Note £000 £000 £000----------------------------------- ------ -------- --------- --------Continuing operations Revenue 33,493 27,464 49,577 Cost of sales (21,286) (18,941) (32,063)----------------------------------- ------ -------- --------- -------- Gross profit 12,207 8,523 17,514 Other operating income 210 145 389Selling and distribution costs (8,026) (3,710) (7,479)Administrative expenses (23,767) (6,414) (17,721)Restructuring costs (4,062) - ------------------------------------ ------ -------- --------- --------Operating loss before goodwillimpairment,intangibles amortisationand restructuring costs (2,802) (1,395) (2,943) Goodwill impairment charge 4 (16,078) - (4,236)Amortisation of intangible assets (496) (61) (118)Restructuring costs 4 (4,062) - ----------------------------------- ------ -------- --------- -------- Operating loss (23,438) (1,456) (7,297) Finance income 138 258 469Finance cost (43) (12) (17)--------------------------------- ------ -------- --------- -------- Loss on ordinary activitiesbefore taxation (23,343) (1,210) (6,845) Tax on loss on ordinary 137 - -activities --------------------------------- ------ -------- --------- -------- Loss for the period (23,206) (1,210) (6,845)--------------------------------- ------ -------- --------- -------- Basic and diluted earnings per 5 (3.49) p (0.43) p (2.45) pshare Gross profit % 36.4 31.0 35.3 EBITDA before restructuring costs (2,189) (975) (2,084) EBITDA per share beforerestructuring (0.33) p (0.35) p (0.75) pcosts -------------------------------- ------ -------- --------- -------- Redstone plcConsolidated Balance Sheet 30 September 30 September 31 March 2005 2004 2005 £000 £000 £000------------------------------- ----------- ---------- --------- AssetsNon-current assetsGoodwill 26,157 25,370 21,134Intangible assets 9,050 149 125Property, plant and 2,826 2,580 2,621equipmentOther non-current assets 581 429 429------------------------------ ---------- ---------- --------- 38,614 28,528 24,309------------------------------ ---------- --------- --------- Current assets Inventories 938 905 683Trade and other 13,848 9,430 7,994receivablesCash at bank and in hand 7,382 11,942 8,513----------------------------- ---------- --------- --------- 22,168 22,277 17,190----------------------------- ---------- -------- ---------Total assets 60,782 50,805 41,499----------------------------- --------- ------- --------- Equity and liabilitiesEquityCalled up share capital 13,022 8,472 8,472Share premium account 208,099 185,336 185,336Other reserves 256 216 216Retained earnings (193,327) (164,727) (170,313)---------------------------- --------- ---------- ---------- 28,050 29,297 23,711---------------------------- --------- ---------- ---------- Current liabilitiesTrade and other payables 24,636 18,255 14,843Provisions 2,188 1,016 816---------------------------- --------- ---------- --------- 26,824 19,271 15,659---------------------------- --------- ---------- --------- Non-current liabilitiesProvisions 2,680 2,237 2,129Loan notes 643 - -Deferred tax liability 2,585 - --------------------------- --------- --------- --------- 5,908 2,237 2,129-------------------------- --------- --------- ---------Total liabilities 32,732 21,508 17,788-------------------------- --------- --------- -------- Total equity and 60,782 50,805 41,499liabilities -------------------------- --------- --------- -------- Redstone plcConsolidated Cash Flow Statement Six months Six months Year ended 30 ended 30 ended 31 September September March 2005 2004 2005 Note £000 £000 £000---------------------------------- ------- ------- ------- Cash outflow fromoperationsCash generated from 6 (4,089) (939) (4,034)operationsBorrowing costs - (3) (6)Interest element of financelease payments - (9) (11)Corporation taxes (6) - - ---------------------------- ------ -------- -------- -------Net cash flows from operatingactivities (4,095) (951) (4,051)---------------------------- ------ -------- -------- ------- Cash flows from investingactivitiesProceeds from sale ofproperty, - 7 7plant and equipmentInterest received 155 265 484Purchase of property, plantand (418) (541) (1,056)equipmentAcquisition of a subsidiary,net of cash acquired (21,268) - - ---------------------------- ------ -------- -------- -------Net cash flows used ininvesting activities (21,531) (269) (565)---------------------------- ------ -------- -------- ------- Cash flows from financingactivitiesProceeds from issue of shares 26,045 - -Transaction costs of issuingshares (1,507) - -Payment of finance leaseliabilities (2) (29) (62)Interest paid (41) - ----------------------------- ------ -------- -------- -------Net cash flows from / (usedin) financing activities 24,495 (29) (62)---------------------------- ------ -------- -------- -------Net decrease in cash and cashequivalents (1,131) (1,249) (4,678)Cash and cash equivalents at1 April 8,513 13,191 13,191 ---------------------------- ------ -------- -------- -------Cash and cash equivalents at30 September/31 March 7,382 11,942 8,513----------------------------- ------ -------- -------- ------- Redstone plcNotes to the resultsFor the six months ended 30 September 2005 1 Basis of preparationThe interim report is unaudited but has been reviewed by the auditors, Ernst &Young LLP, and their report to Redstone plc is set out on page 13. The consolidated interim financial statements have been prepared in accordancewith the principal accounting policies set out in the document entitled'Restated Financial Information under International Financial ReportingStandards', which was issued by Redstone plc on 24 November 2005. These interimfinancial statements should be read in conjunction with that document. Thedocument can be found on the Company's website, www.redstone.co.uk, or can beobtained by writing to the Company Secretary at Redstone plc, 80 Great EasternStreet, London, EC2A 3RS.This interim financial information has been prepared on the assumption that allIFRS statements, including International Accounting Standards (IAS), StandingInterpretations Committee (SIC) interpretations and International FinancialReporting Interpretations Committee (IFRIC) interpretations issued by theInternational Accounting Standards Board (IASB) as effective for 2005 reportingwill be endorsed by the European Commission. These are subject to ongoing reviewand possible amendment by the IASB and subsequent endorsement by the EuropeanCommission and therefore may change. Further standards and interpretations mayalso be issued that will become applicable for the Group's financial year ending31 March 2006. In 2005 the Group has adopted IFRS for the first time. The dateof transition is 1 April 2004. IAS 34 'Interim Financial Reporting' has not beenapplied to this interim financial information.The financial information does not constitute statutory accounts as defined inSection 240 of the Companies Act 1985. Statutory accounts for the year ended 31March 2005, which were prepared under accounting policies generally accepted inthe UK, have been filed with the Registrar of Companies. The auditors' report onthose accounts was unqualified and did not contain a statement made underSection 237(2) or Section 237(3) of the Companies Act 1985. The interim report was approved by the Board on 28 November 2005. 2 Segment reporting(i) For the six months ended 30 September 2005 Telecoms Converged Managed Technology Other Total Solutions Solutions £000 £000 £000 £000 £000 £000 Revenue 14,065 14,814 2,033 2,581 - 33,493 ======== ========= ======== ========= ====== ======= ResultSegment result 1,161 (3,303) 115 162 - (1,865) -------- --------- -------- --------- ------- -------- Central costs* (21,436)Net interest 95 --------Loss for theperiod (23,206) ======== Assets andliabilitiesSegment assets 7,779 37,416 4,785 1,104 - 51,084Unallocatedassets ** - 9,698 -------- --------- -------- --------- ------- --------Total assets 60,782 ======== Segmentliabilities 6,804 13,016 1,800 1,127 - 22,747Unallocatedliabilities 9,985 -------- --------- -------- --------- ------- --------Total liabilities 32,732 ======== Other segment informationCapital expenditureProperty,plant - 63 144 7 204 418and equipment ======== ========= ======== ========= ======= ======== Depreciation 48 109 187 16 253 613Amortisation - 447 - - 49 496 * Central costs include the goodwill impairment charge of £16,078k andamortisation of intangible assets of £496k.** Unallocated assets include cash of £7,382k. The secondary segment reporting under IFRS requires a geographical split. Allrevenues are generated outside the Group. The Group derives approximately 89% ofits revenues in the UK, with the remainder from the Ireland technology division(8%) and the consumption of telephony calling cards in various other countries(3%). Assets and capital expenditure are split between those held and consumed in theUK and those held and consumed in Ireland. The UK asset base makes up 98% of thegroup. Capital expenditure is 98% consumed in the UK with the remainder inIreland. 2 Segment reporting(ii) For the six months ended 30 September 2004 Telecoms Converged Managed Other Total Solutions Solutions £000 £000 £000 £000 £000 Revenue 17,432 8,090 1,568 374 27,464 ========= ========== ========= ======= ======= ResultSegment result 1,003 (1,985) (596) 122 (1,456) --------- ---------- --------- -------- -------- Net interest 246 --------Loss for the period (1,210) ======== Assets and liabilitiesSegment assets 5,356 3,769 2,169 - 11,294Unallocated assets * 39,511 --------- ---------- --------- -------- --------Total assets 50,805 ======== Segment liabilities 7,824 4,099 1,731 - 13,654Unallocated liabilities 7,854 --------- ---------- --------- -------- --------Total liabilities 21,508 ======== Other segment informationCapital expenditureProperty, plant and 21 177 95 248 541equipment ========= ========== ========= ======== ======== Depreciation 11 7 129 277 424Amortisation - - - 61 61 * Unallocated assets include goodwill of £25,370k and cash of £11,942k The secondary segment reporting under IFRS requires disclosing a geographicalsplit. Redstone derives approximately 95% of its revenue in the UK. Revenues aregenerated outside of the UK through the consumption of telephony calling cards.All assets and capital expenditure are held and consumed in the UK. 2 Segment reporting(iii) For the year ended 31 March 2005 Telecoms Converged Managed Other Total Solutions Solutions £000 £000 £000 £000 £000 Revenue 30,802 14,554 3,677 544 49,577 ========= ========== ========= ======= ======= ResultSegment result 2,050 (4,414) (801) 104 (3,061) --------- ---------- --------- -------- -------- Central costs * (4,236)Net interest 452 --------Loss for the year (6,845) ======== Assets and liabilitiesSegment assets 4,498 3,325 1,689 - 9,512Unallocated assets ** 31,987 --------- ---------- --------- -------- --------Total assets 41,499 ======== Segment liabilities 6,267 2,923 1,478 - 10,668Unallocated liabilities 7,120 --------- ---------- --------- -------- --------Total liabilities 17,788 ======== Other segment informationCapital expenditureProperty, plant and 35 405 286 330 1,056equipment ========= ========== ========= ======== ======== Depreciation 21 17 282 543 863Amortisation - - - 118 118 * Central costs relates to goodwill impairment of £4,236k** Unallocated assets include goodwill of £21,134k and cash of £8,513k The secondary segment reporting under IFRS requires disclosing a geographicalsplit. Redstone derives approximately 95% of its revenue in the UK. Revenues aregenerated outside of the UK through the consumption of telephony calling cards.All assets and capital expenditure are held and consumed in the UK. 3 Business combinationsOn 28 April 2005 Redstone plc acquired Xpert Group Limited for a totalconsideration including costs of £27 million, such consideration being satisfiedas to £2,775,000 by the issue of Redstone plc ordinary shares, €940,952 by theissue of Loan Notes and with the balance satisfied in cash. The Company issued416,726,337 ordinary shares for the Placing and Open Offer as at 28 April 2005and a further 38,275,862 ordinary shares as part consideration for theacquisition as noted above. The ordinary issued share capital as at 30 September2005 is £7,339,093 comprising 733,909,263 ordinary shares. The fair value of the assets acquired was £5.8 million resulting in goodwill of£21.2 million. 4 Restructuring costs and goodwill impairment chargeDuring the period the Group restructured its operations resulting in total costsof £4,062,000, being one-off employee related costs of £2,022,000 and propertycosts of £2,040,000. Following the restructuring, the Group re-assessed the carrying value ofhistorical goodwill and concluded that it was impaired. Accordingly animpairment charge of £16,078,000 has been recorded to bring down the carryingvalue of the goodwill to its recoverable amount. 5 Loss per shareBasic and diluted loss per share are both calculated using a loss of £23,206,000(30 September 2004: £1,210,000, 31 March 2005: £6,845,000) and a weightedaverage number of shares of 664,291,440 (31 March 2005 and 30 September 2004:278,907,064). There was no dilutive effect of share options at 30 September 2005, 31 March2005 or 30 September 2004. 6 Net cash flows from operating activities Six Six months months Year ended 30 ended 30 ended 31 September September March 2005 2004 2005 £000 £000 £000 ------------------------- --------- --------- -------- Operating loss (23,438) (1,456) (7,297) Adjustments for:Depreciation of property, plant and equipment 613 424 863Amortisation of intangible assets 496 61 118Goodwill impairment charge 16,078 - 4,236Share based payments 192 24 73Profit on disposal of property, plant andequipment - (4) (4) Movements in working capitalDecrease/(increase) in inventories 128 (286) (64)(Increase)/decrease in trade and otherreceivables (496) 1,205 2,634Increase/(decrease) in trade and other 566 (446) (3,824)payables(Increase) in non-current assets (151) - -Increase/(decrease) in provisions 1,923 (461) (769) -------------------------- --------- --------- --------Cash outflow from operations (4,089) (939) (4,034)-------------------------- --------- --------- -------- 7 Consolidated statement of changes in equity Other Reserves Share Share Merger Translation Retained Total Capital Premium Reserve Reserve Earnings Equity £000 £000 £000 £000 £000 £000 Equity as at 31March 2005 8,472 185,336 216 - (170,313) 23,711Loss for theperiod - - - - (23,206) (23,206)Share basedpayments - - - - 192 192Currencytranslationdifferences - - - 40 - 40Issue of shares 4,550 24,270 - - - 28,820Costs associatedwith share issue - (1,507) - - - (1,507)------------------ ------- -------- -------- --------- -------- -------Equity as at 30September 2005 13,022 208,099 216 40 (193,327) 28,050------------------ ------- -------- -------- --------- -------- ------- Independent Review Report to Redstone plc Introduction We have been instructed by the Company to review the financial information forthe six months ended 30 September 2005 which comprises the Consolidated IncomeStatement, Consolidated Balance Sheet, Consolidated Cash Flow Statement and therelated notes 1 to 7. We have read the other information contained in theinterim report and considered whether it contains any apparent misstatements ormaterial inconsistencies with the financial information. This report is made solely to the Company in accordance with guidance containedin Bulletin 1999/4 'Review of interim financial information' issued by theAuditing Practices Board. To the fullest extent permitted by law, we do notaccept or assume responsibility to anyone other than the Company, for our work,for this report, or for the conclusions we have formed. Directors' responsibilities The interim report, including the financial information contained therein, isthe responsibility of, and has been approved by, the directors. The directorsare responsible for preparing the interim report in accordance with the ListingRules of the Financial Services Authority. As disclosed in note 1, the next annual financial statements of the Group willbe prepared in accordance with those IFRSs adopted for use by the EuropeanUnion. This interim report has been prepared in accordance with IFRS 1 'FirstTime Adoption of International Financial Reporting Standards'. The accounting policies are consistent with those that the directors intend touse in the next financial statements. There is, however, a possibility that thedirectors may determine that some changes to these policies are necessary whenpreparing the full annual financial statements for the first time in accordancewith those IFRSs adopted for use by the European Union. Any changes will be as aresult of new or revised IFRSs. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999/4'Review of interim financial information' issued by the Auditing Practices Boardfor use in the United Kingdom. A review consists principally of making enquiriesof Group management and applying analytical procedures to the financialinformation and underlying financial data, and based thereon, assessing whetherthe accounting policies have been applied. A review excludes audit proceduressuch as tests of controls and verification of assets, liabilities andtransactions. It is substantially less in scope than an audit performed inaccordance with International Standards on Auditing (UK and Ireland) andtherefore provides a lower level of assurance than an audit. Accordingly we donot express an audit opinion on the financial information. Review conclusion On the basis of our review we are not aware of any material modifications thatshould be made to the financial information as presented for the six monthsended 30 September 2005. Ernst & Young LLPLondon 28 November 2005 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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