13th Nov 2007 07:00
Red24 PLC13 November 2007 RED24 PLC HALF YEARLY REPORT FOR THE SIX MONTHS TO 30 SEPTEMBER 2007 Red24 plc ("red 24" or the "Group"), is a provider of a range of security riskmanagement services, offering preventative and reactive advice to helpindividuals and organisations to avoid and manage security risks to themselves,their families and their organisations. The products are distributed throughleading international financial service companies. Highlights •Revenue increased by 12% to £1.43 million (H1 2006: £1.34 million). •Operating loss increased to £306k from £185k. •Cost cutting measures effected. Departure of 32 staff resulting in ongoing cost savings of £60k per month. •First noteworthy breakthrough for red24 in Far East market. •Significant growth in sales in Training division. •Share consolidation proposed. Simon Richards, Chairman, commented: "The significant increase in revenue achieved by the training division has notbeen matched by growth in red24 sales where a significant, and unacceptable,increase to the Group's cost base has developed. This was directly responsiblefor the disappointing increase in the operating loss for the first half. MalWorsley-Tonks has replaced Simon Wakeling as Chief Executive and implemented acost cutting exercise to establish profitability across the Group. "Awareness of the red24 brand continues to grow and the new revenue streams forred24 coming through in the Far East, coupled with the cost reduction measureswe have implemented, means that the achievement of profitability on a month bymonth basis is realistic." Enquiries: Red24 plcSimon Richards, Chairman Tel: 0208 834 2987Mal Worsley-Tonks, Director Threadneedle CommunicationsGraham Herring Tel: 0207 936 9605Josh Royston HB CorporateLuke Cairns Tel: 0207 510 8600Jon Levinson CHAIRMAN'S STATEMENT Introduction At the beginning of the year we were expecting to develop significantly ourrevenues for the red 24 product through our key distributors and to this end weadded substantial costs to our sales and support functions. These expectationshave failed to materialise and your Board therefore decided that a change inemphasis was essential. As a result, Simon Wakeling, the Chief Executive,resigned in August and has taken up an opportunity to sell red24 in theAmericas. Mal Worsley-Tonks has taken up the Chief Executive role and has beenspecifically tasked with ensuring that profit is achieved on existing revenuesrather than placing all the emphasis on top line growth. Once profitability isachieved, further revenues can, largely, be serviced at little additional costleading to improvements in both margins and bottom line performance.Financial Overview For the current year we are required to adopt International Accounting Standardsand so there are some presentational changes to the report. Shareholders mayfind the additional segmental reporting most useful, but there are alsosignificant changes in the treatment of goodwill, foreign currency translationand tax, amongst others, and the material changes are explained in the notes tothe half yearly report. Overall revenue has increased by 12% to £1,425,000 from £1,343,000 but theoperating loss has increased significantly to £306,000 from £185,000. This isclearly untenable and, as indicated in the introduction, was brought about by abuild up in costs in pursuit of revenues that have yet to materialise. Thechange of direction in August led to a reappraisal of all our operations andsignificant changes have been made, including the loss of 32 staff, resulting ina one-off cost of £70,000 but reducing the monthly overhead by £60,000. Theachievement of profitability on a month by month basis is now realistic, and anyadditional revenues will help to retrieve past losses. During the period we were able to secure agreement to extend the life of theloan notes to 31st March 2009, which has helped the balance sheet, as has theraising of an additional £200,000 of new equity. Nonetheless, in light of thedisappointing progress in this half year, the Board has also concluded thatfurther significant progress requires greater financial strength. This could beprovided by forming a partnership arrangement or by raising additional capitalor some combination of the two. To raise further capital the existing par valueof the shares in relation to the current share price, is likely to be anobstacle. Therefore you will find with this half yearly report a notice of anextraordinary general meeting of shareholders proposing a reduction in the parvalue of the shares to be followed by a share consolidation. red24TM red24 is a global security service providing preventative and reactive advice tohelp individuals avoid and manage personal risks to themselves and theirfamilies. We have two key distribution channels, one through HSBC and the otherthrough AIG International Services. Awareness of red24 continues to grow significantly and our personnel appearregularly on Sky News, Fox and the BBC to comment on security related topics.The demand for our services, as shown from our distribution partners across fourcontinents, underlies the fact that our focus on personal security assistance isa message that resonates across cultures, languages and borders. Our experienceof working in challenging cultural environments around the world in the pastthree years has given us a better understanding of how quickly our services canreach the market in various regulatory environments. In the UK we continue to provide red24 services as part of HSBC's Premier andPlus banking offerings. New features have been added to the product during theyear to assist new arrivals to the UK and to assist with public concerns on thethreats posed by flooding. We are looking to add further enhancements to theservice in coming months which is something facilitated by our modular approach. Overseas revenue development has been much slower than we had hoped but we arepleased to say that in the last few weeks in Korea we have added over 90,000 newmembers. This is the first noteworthy gain in the Far East and we hope will beemulated in China, Japan and Singapore where agreements are also in place butawait implementation. Training Our training business is the recognised leader in security management trainingand is at the forefront in driving forward qualifications and standards in thesecurity business sector. Clients include all of the five largest UKmultinational companies and seven out of the top ten corporations in the world(Fortune 500). The additional trainer, recruited last year, has enabled us to increase thenumber of courses we can offer, particularly to meet demand for the SecurityManagement courses that are accredited by Middlesex University. This has led toa 32% increase in revenues and a 62% improvement in operating profits. All ofour courses are accredited by Skills for Security, the UK skills and standardsbody for the security business sector. Whilst the business is seasonally weighted towards the first half, Trainingrepresented 32% of Group sales in that period, and has proved a valuablecontributor to the Group. The most significant cost to Training is the venue andthe Board is considering whether a suitable venue could be brought in house inthe future and the facility used by training providers from other sectors. Outlook Although we have had to take a step back in order to move forward, the Board isconfident that the steps taken are the right ones and are focused on theestablishment of profitability and a sound balance sheet. The Board continues toconsider various options to achieve the necessary solid financial base for whatwe believe are outstanding services in the security field for both individualand organisations, which is essential if we are to win new customers,particularly for the red24 service. Simon RichardsChairman 12 November 2007 UNAUDITED CONSOLIDATED INCOME STATEMENT 6 months ended 6 months ended 30 September 30 September 12 months ended 2007 2006 31 March 2007 £'000 £'000 £'000 REVENUE 1,425 1,343 2,853 Cost of sales (383) (426) (870) GROSS PROFIT 1,042 917 1,983 Administration (1,348) (1,102) (2,218)expense OPERATING LOSS (306) (185) (235) Net finance expense (22) (23) (54) LOSS BEFORE (326) (208) (289)TAXATION Income tax expense 12 37 41 LOSS FOR THE PERIOD (316) (171) (248) Loss per share Basic (0.10p) (0.06p) (0.08p) Fully diluted (0.10p) (0.06p) (0.08p) UNAUDITED CONSOLIDATED BALANCE SHEET 30 September 2007 30 September 31 March 2007 £'000 2006 £'000 £'000 ASSETSNON-CURRENT ASSETSIntangible assets 258 258 258Property, plant and 100 87 96equipmentDeferred tax asset 188 167 173 546 512 527 CURRENT ASSETSTrade and other 560 536 602receivablesCash and cash equivalents 222 337 128 782 873 730 TOTAL ASSETS 1,328 1,385 1,257 CAPITAL AND RESERVESCalled up share capital 3,247 3,032 3,047Share premium account 558 558 558Fair value reserve 147 133 147Retained earnings (4,120) (3,737) (3,814)Translation reserve (7) 10 3 EQUITY SHAREHOLDER FUNDS (179) (4) (59) CURRENT LIABILITIESTrade and other payables 608 401 299Accruals and deferred 469 541 588incomeLoan notes - 373 374 1,077 1,315 1,252NON-CURRENT LIABILITIESBank loan 36 46 41Obligations under finance 15 28 23leasesLoan notes 375 - - 426 74 64 SHAREHOLDER'S EQUITY ANDLIABILITIES 1,328 1,385 1,257 UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY £'000 Share Share Fair Retained Translation Total capital premium Value earnings reserve ReserveBalance at 1 April 3,047 558 147 (3,814) 3 (59)2007Loss for the period - - - (316) - (316)Exchange translationdifferences onforeign operations - - - - (10) (10)Total recognizedincome and expense - - - (316) (2) (326)Proceeds of issue ofshares and warrants 200 - - - - 200 Balance at 30September 2007 3,247 558 147 (4,120) (7) (175) £'000 Share Share Fair Retained Translation Total capital premium Value earnings reserve ReserveBalance at 1 April 3,032 558 115 (3,566) - 1392006Loss for the period - - - (171) - (171)Exchange translationdifferences onforeign operations - - - - 10 10Total recognizedincome and expense - - - (171) 10 (161)Proceeds of issue ofshares and warrants - - 3 - - 3Share based payments - - 15 - - 15Balance at 30September 2006 3,032 558 133 (3,737) 10 (4) £'000 Share Share Fair Retained Translation Total capital premium Value earnings reserve ReserveBalance at 1 April 3,032 558 115 (3,566) - 1392006Loss for the period - - - (248) - (248)Exchange translationdifferences onforeign operations - - - - 3 3Total recognizedincome and expense - - - (248) 3 (245)Proceeds of issue ofshares and warrants 15 - 3 - - 18Share based payments - - 29 - - 29Balance at 31 March2007 3,047 558 147 (3,814) 3 (59) UNAUDITED CONSOLIDATED CASH FLOW 6 months ended 6 months ended 30 September 30 September 12 months ended 2007 2006 31 March 2007 £'000 £'000 £'000 Operating activitiesOperating loss (306) (185) (235)Depreciation charges 10 19 27Fair value charges on - 15 29optionsLoan note issue costs - 3Decrease/(Increase) in 42 (178) (266)debtorsIncrease in creditors 198 301 256Net cash outflow fromoperating activities (56) (28) (186) Investing activitiesInterest received 3 2 5Purchase of property, plant& equipment (15) (6) (46)Proceeds on disposal ofproperty, plant & equipment - - 1 Net cash outflow frominvesting activities (12) (4) (40) Financing activitiesInterest paid (25) (22) (24)Capital element of finance (8) (10) (17)leasesIssue of ordinary share 200 - 15capitalRepayment of bank loans (5) (6) (10)Other loans - 100 100Net cash inflow fromfinancing activities 162 62 64 Net change in cash and cashequivalents 94 30 (162) Cash and cash equivalents atbeginning of period/year 128 307 307 Effect of foreign exchangerate changes - - (17) Cash and cash equivalents atend of period/year 222 337 128 Notes to the unaudited financial information: 1. Accounting policies Basis of preparation This report was approved by the directors on 12 November 2007. From 1 April 2007, the Group has adopted International Financial ReportingStandards ("IFRS") and the International Financial Report InterpretationsCommittee ("IFRIC") interpretations in the preparation of its consolidatedfinancial statements. The financial statements have been prepared under thehistorical cost basis. Information on the impact on accounting policies and thefinancial results resulting from the conversion from United Kingdom GenerallyAccepted Accounting Practice ("UK GAAP") to IFRS is given later in this report. Prior to 31 March 2007, the Group prepared its audited financial statements andunaudited interim financial information under UK GAAP. From 1 April 2007, theGroup is required to prepare annual consolidated financial statements inaccordance with IFRS as adopted by the European Union ("EU"). As the 31 March2008 financial statements will include comparatives for the previous year, theGroup's transition date to IFRS is 1 April 2006 with the comparatives restatedto IFRS. Accordingly the financial information for the six months to 30September 2006 has been restated to present the comparative information inaccordance with IFRS based on the transition date of 1 April 2006. The accounting policies applied in this unaudited interim financial informationare those that the Group expects to apply in the annual financial statements forthe year ended 31 March 2008, which will be prepared in accordance with IFRS,and those parts of the Companies Act 1985 that remain applicable to companiesreporting under IFRS. The financial information for the six months ended 30 September 2007 isunaudited and does not constitute statutory accounts within the meaning ofSection 240 of the Companies Act 1985. Statutory accounts for the year ended 31March 2007, which were prepared under UK GAAP have been filed with the Registrarof Companies and contain a report from the auditors that is unqualified save asto matters of emphasis. The results for the year ended 31 March 2007 disclosedin this report are an abridged version of the company's audited financialstatements adjusted for the transition to IFRS. It does not constitute theFinancial Statements for that period. Copies of the statutory accounts may beobtained from the Company or Hoodless Brennan. Principal accounting policies of the Group This financial information has been prepared on the basis of the recognition andmeasurement requirements of IFRSs in issue that either are endorsed by the EUand effective (or available for early adoption) at 30 September 2007 or areexpected to be effective (or available for early adoption) at 31 March 2008, theGroup's first annual reporting under IFRS. Based on these adopted and unadoptedIFRS, the directors have made assumptions about the accounting policies expectedto be applied when the first annual IFRS financial statements are prepared forthe year ending 31 March 2008. The adopted IFRS that will be effective (or available for early adoption) in theannual financial statements for the year ending 31 March 2008 are still subjectto change and to additional interpretations and therefore cannot be determinedwith certainty. Accordingly, the accounting policies for the annual period willbe determined finally only when the annual financial statements are prepared forthe year ending 31 March 2008. Notes to the unaudited financial information: Transitional arrangements The Group has taken the following optional exemptions contained in IFRS 1"First-time Adoption of IFRS" in preparing the Group's balance sheet ontransition to IFRS at 1 April 2006: - cumulative translation differences - the cumulative translation difference for the foreign subsidiary has been set at zero at 1 April 2006 and exchange differences arising prior to this date will not be recycled to the income statement; - business combinations - the Group has elected not to apply IFRS 3 "Business Combinations" to those business combinations that occurred prior to the date of transition to IFRS. A UK GAAP to IFRS reconciliation for the comparative periods is included in thisinterim statement in note 4. 2. Loss per share The loss per share for the six months ended 30 September 2007 has beencalculated based on the loss on ordinary activities after taxation divided bythe weighted average number of shares in issue during the period. 3. Segmental Information For management purposes the group is currently organized in to two divisions -red24 and Training. These divisions are the basis on which the group reports itsprimary segment information. 6 months ended 6 months ended 30 September 30 September 12 months endedBusiness type 2007 2006 31 March 2007 £'000 £'000 £'000 (unaudited) (restated) (restated)RevenueRed24 974 1,001 2,298Training 451 342 555 1,425 1,343 2,853Operating profit/(loss)Red24 (395) (240) (262)Training 89 55 27 (306) (185) (235)Net assets/(deficit)Red24 (360) (158) (192)Training 185 154 133 (175) (4) (59) Notes to the unaudited financial information: 4. Explanation of Transition to IFRS As required by IFRS 1, the impact of the transition from UK GAAP to IFRS isexplained below. The accounting policies adopted have been applied consistently to all periodspresented in this interim financial information and in preparing an opening IFRSbalance sheet at 1 April 2006 for the purposes of transition to IFRS. IAS 1 - Presentation of Financial Statements. The form and presentation of theUK GAAP financial statements has been changed to be in compliance with IAS 1. IAS 7 - Cash flow statements. The IFRS Cash Flow Statement, prepared under IAS7, presents cash flows in three categories: cash flow from operating activities;cash flow from investing activities and cash flow from financing activities.Other than the reclassification of cash flows into the new disclosurecategories, there are no significant differences between the Group's cash flowstatements under UK GAAP and IFRS. Consequently, no cash flow reconciliationsare provided. Six months ended 30 under underSeptember 2006 UK GAAP IFRS adjustment IFRSIncome statement £'000 £'000 £'000 REVENUE 1,270 73 1,343 Cost of sales (412) (14) (426) GROSS PROFIT 858 59 917 Administration (1,070) (32) (1,102)expense OPERATING LOSS (212) 27 (185) Net finance expense (23) - (23) LOSS BEFORE (235) 27 (208)TAXATION Income tax expense 37 - 37 LOSS FOR THE PERIOD (198) 27 (171) Loss per share Basic (0.06p) 0.01p (0.05p) Fully diluted (0.06p) 0.01p (0.05p) Six months ended 30 Under UnderSeptember 2006 UK GAAP IFRS adjustment IFRSBalance sheet £'000 £'000 £'000 ASSETSNON-CURRENT ASSETSIntangible assets 220 38 258Property, plant and 90 (3) 87equipmentDeferred tax asset 167 - 167 477 35 512 CURRENT ASSETSTrade and other 536 - 536receivablesCash and cash equivalents 337 - 337 873 - 873 TOTAL ASSETS 1,350 35 1,385 CAPITAL AND RESERVESCalled up share capital 3,032 - 3,032Share premium account 558 - 558Fair value reserve 133 - 133Retained earnings (3,762) 25 (3,737)Translation reserve - 10 10 EQUITY SHAREHOLDER FUNDS (39) 35 (4) CURRENT LIABILITIESTrade and other payables 401 - 401Accruals and deferred 541 - 541incomeLoan notes 373 - 373 1,315 - 1,315NON-CURRENT LIABILITIESBank loan 46 - 46Obligations under finance 28 - 28leasesLoan notes - - - 74 - 74 SHAREHOLDER'S EQUITY ANDLIABILITIES 1,350 35 1,385 Year ended 31 March under under2007 UK GAAP IFRS adjustment IFRSIncome statement £'000 £'000 £'000 REVENUE 2,786 67 2,853 Cost of sales (864) (6) (870) GROSS PROFIT 1,922 61 1,983 Administration (2,221) 3 (2,218)expense OPERATING LOSS (299) 64 (235) Net finance expense (54) - (54) LOSS BEFORE (353) 64 (289)TAXATION Income tax expense 41 - 41 LOSS FOR THE PERIOD (312) 64 (248) Loss per share Basic (0.10p) 0.02p (0.08p) Fully diluted (0.10p) 0.02p (0.08p) Currency translation and translation reserve The income statements have been adjusted to reflect the results of the overseassubsidiary using the average exchange rate ruling during the period rather thanthat at the end of the period. In the balance sheet the translation reservearising from the translation of the Groups' net investment in the overseassubsidiary has been shown as a separate translation reserve under IFRS ratherthan taken to profit and loss account as it was previously. Intangible assets Computer software has been reclassified from property, plant and equipment tointangible assets. Under IFRS no amortisation of goodwill is permitted, instead the value ofintangible fixed assets is subject to an annual impairment review. Accordinglythe value of intangible fixed assets has been restated to its carrying value atthe transition date and the directors have considered the question of impairmentand have concluded that no charge for impairment is necessary. Year ended 31 March 2007 Under UnderBalance sheet UK GAAP IFRS adjustment IFRS £'000 £'000 £'000ASSETSNON-CURRENT ASSETSIntangible assets 183 75 258Property, plant and 98 (2) 96equipmentDeferred tax asset 173 - 173 454 73 527 CURRENT ASSETSTrade and other 602 - 602receivablesCash and cash equivalents 128 - 128 730 - 730 TOTAL ASSETS 1,184 73 1,257 CAPITAL AND RESERVESCalled up share capital 3,047 - 3,047Share premium account 558 - 558Fair value reserve 147 - 147Retained earnings (3,884) 70 (3,814)Translation reserve - 3 3 EQUITY SHAREHOLDER FUNDS (132) 73 (59) CURRENT LIABILITIESTrade and other payables 299 - 299Accruals and deferred 588 - 588incomeLoan notes 374 - 374 1,252 - 1,252NON-CURRENT LIABILITIESBank loan 41 - 41Obligations under finance 23 - 23leasesLoan notes - - - 64 - 64 SHAREHOLDER'S EQUITY ANDLIABILITIES 1,184 73 1,257 Year ended 31 March 2006 under UnderBalance sheet at UK GAAP IFRS adjustment IFRStransition £'000 £'000 £'0001 April 2006 ASSETSNON-CURRENT ASSETSIntangible assets 256 2 258Property, plant and 103 (2) 101equipmentDeferred tax asset 157 - 157 516 0 516 CURRENT ASSETSTrade and other 358 - 358receivablesCash and cash equivalents 307 - 307 665 - 665 TOTAL ASSETS 1,181 0 1,181 CAPITAL AND RESERVESCalled up share capital 3,032 - 3,032Share premium account 558 - 558Fair value reserve 115 - 115Retained earnings (3,566) 0 (3,566)Translation reserve - - - EQUITY SHAREHOLDER FUNDS 139 0 139 CURRENT LIABILITIESTrade and other payables 207 - 207Accruals and deferred 473 - 473incomeLoan notes 271 - 271 951 - 951NON-CURRENT LIABILITIESBank loan 51 - 51Obligations under finance 40 - 40leasesLoan notes - - - 91 - 91 SHAREHOLDER'S EQUITY ANDLIABILITIES 1,181 0 1,181 5. Copies of this half yearly financial report will be available for atleast one month from HB Corporate Limited, 40 Marsh Wall, London E14 9TP. Enquiries:Red24 plcSimon Richards, Chairman Tel: 0208 834 2987Mal Worsley-Tonks, Director Threadneedle CommunicationsGraham Herring, Josh Royston Tel: 0207 936 9605 HB CorporateLuke Cairns, Jon Levinson Tel: 0207 510 8600 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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