REG - Redcentric PLC - Half Year Results
20/11/2024 07:00
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RNS Number : 8731M Redcentric PLC 20 November 2024
Redcentric plc
("Redcentric" or the "Company" or the "Group")
Half year results for the six months ended 30 September 2024 (unaudited)
Redcentric plc (AIM: RCN), a leading UK IT managed services provider, is
pleased to announce its unaudited results for the six months to 30 September
2024.
Six months to 30 Sept 2024 "(H1 FY25)" Unaudited Six months to 30 Sept 2023 "(H1 FY24)" Unaudited Change
Revenue £86.8m £82.0m 5.8%
Gross profit *restated £50.6m £45.2m 12.0%
Gross margin *restated 58.3% 55.1% 3.2bps
Adjusted EBITDA(1) £18.2m £14.5m 25.2%
Adjusted EBITDA margin(1) 21.0% 17.7% 3.3bps
Reported operating profit £6.4m £2.0m 225.5%
Adjusted basic earnings per share(1+) 2.86p 1.39p 105.5%
Adjusted net debt(1) (£39.9m) (£41.6m) 4.0%
Peter Brotherton, Chief Executive Officer, commented:
"H1 FY25 marks the first reporting period to fully reflect the benefits of the
investments made in FY22 and FY23. With the energy market returning to more
normalised conditions, combined with the positive impact of energy
conservation and integration measures implemented in FY24, the company has
delivered strong financial results for the six months.
The key performance indicators illustrate the solid progress achieved.
Additionally, ongoing cost efficiency initiatives, both recently completed and
currently in progress, are set to remove an additional £2.6m from the cost
base on an annualised basis.
Looking ahead, we anticipate valuation clarity and definable improved
profitability from the strategic decision to separate reporting and
implementation of growth initiatives to the core two businesses: Data Centres
(DC) and the Managed Service Provider (MSP) business."
( )
( )
(1) This report contains certain financial alternative performance measures
("APMs") that are not defined or recognised under International Financial
Reporting Standards ("IFRS") but are presented to provide readers with
additional financial information that is evaluated by management and investors
in assessing the performance of the Group.
This additional information presented is not uniformly defined by all
companies and may not be comparable with similarly titled measures and
disclosures from other companies. These measures are unaudited and should not
be viewed in isolation or as an alternative to those measures that are derived
in accordance with IFRS.
For an explanation of the APMs used in this announcement and reconciliations
to their most directly related Generally Accepted Accounting Principles
("GAAP") measure, please refer to the Chief Financial Officer's Review.
* Restated to reflect the reallocation of data centre electricity costs and
contract acquisition asset amortisation from operating costs into cost of
sales. See Note 15 for further details.
(+) H1 FY24 restated to correct notional tax charge. See Note 9 for further
details.
Percentage change calculated on absolute values.
Financial highlights
Six months to 30 Sept 2024 "(H1 FY25)" Unaudited Six months to 30 Sept 2023 "(H1 FY24)" Unaudited Change
Recurring revenue(1) £78.3m £74.8m 4.6%
Non-recurring revenue(1) £8.5m £7.2m 18.3%
Total revenue £86.8m £82.0m 5.8%
Gross profit *restated £50.6m £45.2m 12.0%
Gross margin *restated 58.3% 55.1% 3.2bps
Staff costs *restated £19.3m £18.7m (3.6%)
Other operating costs(1) £13.1m £11.9m (10.3%)
Adjusted operating costs(1) *restated £32.4m £30.6m (5.8%)
Adjusted EBITDA(1) £18.2m £14.5m 25.2%
Adjusted EBITDA margin(1) 21.0% 17.7% 3.3bps
Reported operating profit £6.4m £2.0m 225.5%
Reported profit/(loss) before tax £3.6m (£0.7m) 598.5%
Adjusted basic earnings per share(1+) 2.86p 1.39p 105.5%
Adjusted net debt(1) (£39.9m) (£41.6m) 4.0%
Reported net debt (£66.6m) (£74.7m) 10.8%
(1) This report contains certain financial alternative performance measures
("APMs") that are not defined or recognised under International Financial
Reporting Standards ("IFRS") but are presented to provide readers with
additional financial information that is evaluated by management and investors
in assessing the performance of the Group.
This additional information presented is not uniformly defined by all
companies and may not be comparable with similarly titled measures and
disclosures from other companies. These measures are unaudited and should not
be viewed in isolation or as an alternative to those measures that are derived
in accordance with IFRS.
For an explanation of the APMs used in this announcement and reconciliations
to their most directly related Generally Accepted Accounting Principles
("GAAP") measure, please refer to the Chief Financial Officer's Review.
* Restated to reflect the reallocation of data centre electricity costs and
contract acquisition asset amortisation from operating costs into cost of
sales. See Note 15 for further details.
(+) H1 FY24 restated to correct notional tax charge. See Note 9 for further
details.
Percentage change calculated on absolute values.
Financial comments
· Total revenue grew by 5.8% to £86.8m (H1 FY24: £82.0m) with
recurring revenue of £78.3m (H1 FY24: £74.8m), reflecting the impact of the
VMware market positioning following selection as a Pinnacle partner by
Broadcom, coupled with core business organic growth.
· Recurring revenue remains at solid at 90.2% (H1 FY24: 91.2%) of
total revenue, reflecting core stability and stronger growth in one-off sales
in H1 FY25.
· Restated gross profit increased by £5.4m (12.0%) to £50.6m (H1
FY24: £45.2m) benefitting from reduced electricity cost comparable.
· Adjusted EBITDA at £18.2m (H1 FY24: £14.5m) and adjusted EBITDA
margins were strong reflecting higher revenue and lower energy costs,
partially offset by increases in operating costs related to inflationary
pressures on core IT platforms and increased regulatory costs.
· Reported operating profit increased to £6.4m (H1 FY24: £2.0m)
as a result of the above factors, coupled with a reduction in exceptional
costs - H1 FY24 contained significant investment and integration activity,
benefitting the Group now and going forward.
· Reported profit/loss before tax increased by £4.3m to a profit
of £3.6m (H1 FY24: loss of £0.7m).
· Net debt has decreased by £5.7m since 31 March 2024 to £66.6m
(31 March 2024: £72.4m), reflecting the improved trading performance and its
impact on cash generation.
· Excluding leases previously classified as operating leases under
IAS17, net debt was £39.9m (31 March 2024: £42.0m).
· The Group is delighted to announce an Interim dividend of 1.2p
per share. (H1 FY24: 1.2p per share).
Operational highlights
· H1 FY25 is the first reporting period to illustrate the full
benefits of investments undertaken in FY22 and FY23.
· A return to a more normalised energy market, along with benefits
from the energy conservation and integration measures undertaken in FY24 have
all led to impressive financial results and growth.
· The Group is halfway through the consolidation of cloud platforms
with eventual annualised cost savings of £1m anticipated. Approximately
half of these savings will be seen in the second half of this financial year,
with the full benefit to be seen in FY26.
· The half year numbers reflect the benefit of the closure of the
Harrogate data centre and the downsizing of the Woking footprint.
· Extension and Space Optimisation: The Group are progressing the
London West facility and optimising the DC footprint in third-party data
centres. While the objective is to complete these initiatives within the
current financial year, the full savings will materialise in FY26.
· Meter Installation Initiative: The decision to install new
electricity meters across the former Sungard estate has been largely
completed. This allows for more precise management tracking on a rack-by-rack
and customer-by-customer basis, providing granular reporting and improved
client services.
· During the second half of this financial year, the Group will
have substantially completed the foundation works for a new high-density hall
within the London West facility. These works relate to capacity upgrades to
the cooling and electricity infrastructure.
· By the end of FY26, the Group will have fully modernised the
former Sungard data centres, with future capital investments focused on
meeting customer needs rather than on maintenance. The improvements made
throughout FY24, FY25, and FY26 will strategically position Redcentric to
effectively support the growing demands of enterprise and AI customers.
Enquiries:
Redcentric
plc
+44 (0)800 983
2522
Peter Brotherton, Chief Executive
Officer
David Senior, Chief Financial Officer
Cavendish Capital Markets Limited - Nominated Advisor and Broker
+44 (0)20 7220 0500
Marc Milmo, Callum Davidson and Rory Sale (Corporate Finance)
Andrew Burdis / Sunila de Silva (ECM)
Chief Executive Officer's review
Operational Review
H1 FY25 is the first reporting period to show the full benefits of the
acquisitions undertaken in FY22 and FY23. A return to a more normalised
energy market, along with benefits from the energy conservation and
integration measures undertaken in FY24 have all led to impressive financial
results for the 6 months ended 30 September 2024. Underlying revenues are up
9%, adjusted EBITDA is up 25% and adjusted EBITDA less lease payments
(including interest) is up 44%.
These results have been achieved against a backdrop of continued inflationary
cost pressures and significant license cost increases. Actions taken during
the course of H1 FY25 will alleviate some of these cost pressures and drive
further increases in profitability in H2 FY25 and beyond.
Following a successful six months for sales at the end of the last financial
year, the macro events associated with the global political elections and the
domestic UK budget led to a more cautious and challenging sales environment,
however the pipeline is returning to a more healthy state providing
cautious optimism for the remainder of the year.
During the first six months of the financial year, we have focused on four key
areas:
· Delivering continued organic revenue growth;
· Improving the operational efficiency of the Group;
· Further upgrades to our data centres; and
· Separation of the Data Centre business to create two autonomous
business units, a Managed Service Provider ("MSP") business and a Data Centre
("DC") business.
We are delighted with the progress we have made in the period against each of
these objectives.
Organic growth
The financial results for the six months ended 30 September 2024 demonstrate
strong organic growth, with revenues up by 6% on the equivalent period last
year. Adjusting H1 FY24 for the Sungard short-term contracts that terminated
in FY24 and also the customers that were not retained following the closure of
the Harrogate data centre, underlying organic revenue growth was even more
impressive at 9%. This growth comes following a very strong period for sales
during the last six months of the previous financial year but also against a
challenging environment.
During the period under review a more cost-conscious approach from customers
was noted, which has manifested in tougher renewal discussions and some
customers downgrading their renewal requirements. New business sales in the
period were also delivered against a backdrop of delays in decision making by
customers as a result of macro uncertainty specifically surrounding the UK and
USA elections and the caution around the UK's Autumn 2024 Budget. Offsetting
this tougher sales environment has been a strong performance in VMware license
sales, albeit at the lower margins associated with software sales.
Post the UK budget and UK and USA elections, the business is encouraged by
more positive client engagement and expects the second half of the year to
show a return to a more normalised sales environment.
Whilst the business is yet to secure a sizeable Artificial Intelligence (AI)
contract, the market for data centre space continues to present largescale
opportunities for hosting AI cloud platforms. The Group is positioning to host
this growth opportunity and during the first half of the year has made
significant investments in establishing a high-density hall in the London West
facility and this, along with c.10MW of reserved power, means that we are well
placed to deliver to the anticipated increased AI-driven demand.
Operational efficiency
Consolidation of cloud platforms
As a result of the Sungard and 4D Data Centre Limited ("4D") acquisitions, the
Group inherited a large number of cloud and network platforms. Many of these
platforms are either replicated elsewhere in the Group or can be consolidated
into fewer larger platforms. We are currently halfway through the
consolidation programme with eventual annualised cost savings of £1m
anticipated. Approximately half of these savings will be seen in the second
half of this financial year, with the full benefit to be seen in FY26.
Staff efficiencies
With the acquisition integration work largely complete, at the end of H1 FY25
we carried out a review of staffing levels to ensure that the cost base was
rightsized and that any mature acquired products were profit making. As a
result of this review headcount was reduced by thirty-two, with associated
annualised cost reductions of £1.6m.
Set against these savings are £0.40m of additional annualised costs in
respect of the new DC management team (as detailed below), £0.10m of
annualised costs in respect of two additional non-executive directors and
one-off costs related to the ongoing new Chief Executive Officer search.
The net effect of these changes will be that annualised run rate staff costs
have been reduced by £1.0m, with H2 FY25 costs expected to be £0.4m lower
than H1 FY25.
Leases
The half year numbers reflect the benefit of the closure of the Harrogate data
centre and the downsizing of the Woking footprint. The Harrogate data centre
was closed on 24 March 2024 and so H1 FY25 includes 50% of the annualised
saving of £1.5m (£1.1m leases and £0.4m operating costs).
Data centre upgrades
During the first half of the financial year, the Group procured new UPS units
at a cost of £1.5m. These are currently being installed and will replace
50% of the existing installed units. The remaining 50% will be replaced in
FY26. UPS units typically have a life of 15 years, delivering long term
improvements to client stability and service.
Also scheduled for FY26 is a refurbishment of the London West reception,
meeting rooms and customer refreshment areas, ensuring the client experience
reflects the premium technical quality of the facility. The higher levels of
maintenance capital expenditure in the former Sungard facilities over this
three-year period reflects years of underinvestment by the former owners and
was anticipated within the acquisition price.
By the end of FY26, the Group will have brought the former Sungard data
centres fully up to date, with future medium term capex investments driven by
customer needs rather than maintenance needs. All the improvements made
during the course of FY24, FY25 and FY26 will position the Group to meet the
high demands of enterprise and AI customers.
Creating a separate data centre business
As articulated at the time of our FY24 final results, the board took the
decision to create two autonomous business units by separating out the DC
business and managing the two distinct elements within the Group: the DC
business and an MSP business. The background to this strategy was that
following the Sungard and 4D acquisitions, data centre revenues had moved from
being a relatively small part of the business to circa a quarter of revenues
and this, along with a buoyant data centre market, merited the establishment
of a dedicated and focused management team.
In addition, the DC and MSP businesses have very different financial and
valuation metrics. By splitting out two businesses, the Board believes this
will provide greater transparency to the market on the performance and profile
of each core operating business.
This initiative is progressing well with a new management team (Wholesale
Sales Director, Retail Sales Director, Product Director, Operations Director
and Finance Director) now in place. A new subsidiary, Redcentric Data Centres
Limited, has been established with the separation of the trade and assets into
this new subsidiary on course to be completed before the end of the financial
year. At the time of publishing this report the Group continues to comprise
a single reporting segment and doesn't internally report on these two segments
separately. The Group's intention is to have segmental reporting in place at
the time the FY25 full year results are released.
Acquisition strategy
The Group adopts an opportunistic corporate transaction strategy, evaluating
opportunities that would enhance the long term prospects of the business,
while managing the potential for monetization events within an expanding and
attractive industry segment.
During this financial period, H1 FY25, there was exceptional costs related to
corporate activity of £0.3m.
UK Autumn Budget 2024
As a result of the UK Autumn Budget 2024, the increases in employer national
insurance we anticipate will increase annualised staff costs by circa £0.7m
effective from 1 April 2025.
The increase in minimum wage mandated in the budget will add a further £0.1m
to staff costs.
Dividend
The final dividend of 2.4p, that was declared in August 2024 when we released
the final results, will be paid on 24 January 2025 to shareholders on the
register at the close of business on 13 December 2024, with the shares going
ex-dividend on 12 December 2024.
With these results, we announce the intention to pay an interim dividend
payment of 1.2p per share. This will be paid on 25 April 2025 to
shareholders on the register at the close of business on 14 March 2025, with
the shares going ex-dividend on 13 March 2025. The last date for dividend
reinvestment plan (DRIP) elections is 28 March 2025.
During the period, the Board has become aware that the Company's final
dividend for FY23 and the interim dividend for FY24 did not meet the technical
requirements of the Companies Act 2006. While the Group as a whole had
sufficient distributable reserves at all times, the level of distributable
reserves in the Company has since been determined to be insufficient at the
time of the payment of the FY23 final dividend and the FY24 interim dividend,
as the calculation of the requisite distributable reserves had not reflected
the consideration paid for shares held in treasury by the Company. This also
resulted in a consequential breach of the net assets restriction in the
Companies Act 2006. In order to rectify the situation, the Company intends to
propose resolutions at the next shareholder general meeting to approve: (i)
deeds of release between the Company and each of its shareholders and
directors, and (ii) the appropriation of the shortfall in distributable
reserves, in line with the actions taken by many other listed companies. The
Company has taken steps to ensure that this issue does not arise again in the
future.
Board changes
On 26 September 2024, Nick Bate stood down from the Board as Chairman of the
Company and as Non-Executive Director. Our thanks and best wishes go to Nick
for his three years of service and for seeing the Company through a period of
rapid growth and change.
On 27 September 2024 Richard McGuire was appointed as Chairman and
Non-Executive Director. Richard brings a wealth of experience in corporate
finance matters and the technology sector.
On 1 November 2024 John Radziwill was appointed as a Non-Executive Director
(non-independent) of the Company. John is a representative of ND Capital
Investments Limited ("ND Capital"), one of the Company's largest investors.
With our FY24 final results, the Group announced that Peter Brotherton had
informed the Board of his intention to retire and stand down from his position
of Chief Executive Officer and Director of the Company. The search for his
replacement is currently underway. In order to achieve a smooth handover and
transitionary period, Peter has agreed with the Company to be available to the
business, as required, until 30 June 2025.
Summary and outlook
The significant improvement in all key profit measures in the first half of
this year is a demonstration of the success of the Company's acquisition
strategy. The Sungard and other businesses that were acquired in FY22 and FY23
have now been fully integrated with all the anticipated synergies and cost
savings delivered.
Adjusted organic growth for the Group in H1 has been good following a strong
end to the previous financial year. The political uncertainty and general
economic backdrop in the first half of this year has led to slower order
intake and whilst the sales pipeline is starting to return to more normal
levels, H2 bookings are unlikely to meaningfully convert into revenue growth
until next financial year. As a result, we are cautiously forecasting a
broadly flat H2 FY25 in terms of revenue and gross profit, but an improved
profit performance arising from c.£0.9m of cost savings.
Overall this would represent very considerable progress with full year
revenues up circa 7% and adjusted EBITDA in excess of 30% on the prior year
FY24 numbers.
The separation of the Data Centre and Managed Services businesses will provide
investors with greater clarity on the performance and operating metrics of two
very distinct businesses, both of which have exciting growth prospects, albeit
driven by different factors.
Chief Financial Officer's Review
Financial Review
Six months to 30 Sept 2024 "(H1 FY25)" Unaudited Six months to 30 Sept 2023 "(H1 FY24)" Unaudited Change
Recurring revenue(1) £78.3m £74.8m 4.6%
Non-recurring revenue(1) £8.5m £7.2m 18.3%
Total revenue £86.8m £82.0m 5.8%
Gross profit *restated £50.6m £45.2m 12.0%
Gross margin *restated 58.3% 55.1% 3.2bps
Staff costs *restated £19.3m £18.7m (3.6%)
Other operating costs(1) £13.1m £11.9m (10.3%)
Adjusted operating costs(1) *restated £32.4m £30.6m (5.8%)
Adjusted EBITDA(1) £18.2m £14.5m 25.2%
Adjusted EBITDA margin(1) 21.0% 17.7% 3.3bps
Reported operating profit £6.4m £2.0m 225.5%
Reported profit/(loss) before tax £3.6m (£0.7m) 598.5%
Adjusted earnings per share(1+) 2.86p 1.39p 105.5%
Adjusted net debt(1) (£39.9m) (£41.6m) 4.0%
Reported net debt (£66.6m) (£74.7m) 10.8%
(1) For an explanation of the APMs used in this report, please refer to the
Chief Financial Officer's Review.
* Restated to reflect the reallocation of data centre electricity costs and
contract acquisition asset amortisation from operating costs into cost of
sales. See Note 15 for further details.
(+) H1 FY24 restated to correct notional tax charge. See Note 9 for further
details.
Percentage change calculated on absolute values.
Overview
All of the financial metrics demonstrate excellent progress and the H1 FY25
numbers are the first to fully reflect the benefits of the acquisitions
undertaken in FY22 and FY23.
Revenue
Overall, recurring revenue increased by 4.6% from £74.8m in H1 FY24 to
£78.3m in H1 FY25. Excluding the revenue from cancelled Sungard short-term
contracts that concluded in FY24 and the one-off customer losses from our exit
from the Harrogate data centre, recurring revenue has grown 8.0%. This growth
reflects the impact of the VMware market positioning following selection as a
Pinnacle partner by Broadcom, coupled with core business organic growth.
Non-recurring revenues of £8.5m are up from £7.2m on H1 FY24 reflecting
strong one-off sales effort in H1 FY25.
Gross profit
Gross profit, restated to reflect the re-presentation of electricity costs and
contract acquisition asset amortisation as a cost of sale rather than an
operating cost, increased by £5.4m from £45.2m in H1 FY24 to £50.6m in H1
FY25 primarily reflecting the expected electricity savings from reduced prices
achieved from historic forward purchasing and volume reductions from FY24
efficiency measures and consolidation of the data centre estate.
Operating costs
Staff costs
Costs in relation to the amortisation of the contract acquisition asset have
been reallocated to cost of sales in the current year, and the prior period
restated accordingly (see Note 15). Staff costs from H1 FY24 to H1 FY25
increased by £0.7m reflecting inflationary pay increases and a degree of
staff investment to deliver specific objectives including the data centre
business separation.
Other costs
Other costs have increased by £1.2m, primarily impacted by Broadcom's VMware
platform pricing model changes, coupled with inflationary pressures in core IT
platforms and increasing regulatory costs within the IT services market.
Capital expenditure
Gross capital expenditure in the six months to 30 September 2024 was £5.0m,
comprising:
· Customer capex of £3.0m
· Maintenance capex of £2.0m
Of the £5.0m gross capex, £4.9m was paid in cash and £0.1m was covered by
lease arrangements.
Adjusted net debt
Adjusted net debt has decreased by £2.1m to £39.9m at 30 September 2024 (31
March 2024: £42.0m) primarily reflecting:
· Adjusted EBITDA of £18.2m, less:
· Lease repayments of £4.5m
· Negative working capital movements of £1.8m
· Exceptional costs of £0.9m
· Capital expenditure of £5.0m
· Interest costs of £2.0m
· Dividends of £1.9m
Alternative Performance Measures
This Interim report contains certain alternative performance measures that are
not defined or recognised under IFRS but are presented to provide readers with
additional financial information that is evaluated by management and investors
in assessing the performance of the Group.
This additional information presented is not uniformly defined by all
companies and may not be comparable with similarly titled measures and
disclosures by other companies. These measures are unaudited and should not be
viewed in isolation or as an alternative to those measures that are derived in
accordance with IFRS.
While reported IFRS measures for 31 March 2024 are audited, the alternative
performance measures detailed in this section and which are not defined or
recognised under IFRS are unaudited for 31 March 2024.
Recurring monthly revenue
Recurring revenue is the revenue that annually repeats either under
contractual arrangement or by predictable customer habit. It highlights how
much of the Group's total revenue is secured and anticipated to repeat in
future periods, providing a measure of the financial strength of the business.
It is a measure that is well understood by the Group's investor and analyst
community and is used for internal performance reporting.
( ) Six months to 30 Sept 2024 Six months Year ended
Unaudited to 30 Sept 2023 31 March
Unaudited 2024
Unaudited
( ) £'000 £'000 £'000
Reported revenue 86,785 81,998 163,150
Non-recurring revenue (8,505) (7,188) (14,059)
Recurring revenue 78,280 74,810 149,091
Adjusted EBITDA
Adjusted EBITDA is EBITDA excluding exceptional items (as set out in Note 6),
share-based payments and associated National Insurance. Items are only
classified as exceptional due to their nature or size.
( ) Six months to 30 Sept 2024 Six months to 30 Sept 2023 Year ended
Unaudited Unaudited 31 March
2024
Unaudited
( ) £'000 £'000 £'000
Reported operating profit 6,400 1,966 852
Amortisation of intangible assets arising on business combinations 1,083 3,225 5,229
Amortisation of other intangible assets 498 317 781
Depreciation of property, plant and equipment 3,787 2,776 6,089
Depreciation of right-of-use assets 5,076 5,854 11,777
EBITDA 16,844 14,138 24,728
Exceptional income - (2,100) (2,100)
Exceptional costs (comprised of): 824 2,000 4,550
Acquisition fees 319 - 350
Integration costs 113 2,000 3,467
Restructuring costs 392 - 733
Share-based payments and associated National Insurance 531 503 1,138
Adjusted EBITDA 18,199 14,541 28,316
Adjusted cash generated from operations
Adjusted cash generated from operations is reported cash generated from
operations plus the cash cost of exceptional items. As the Group has been
involved in acquisitions and has had other significant, non-repeatable cash
impacting items, this measure allows investors to see the cash generated from
operations excluding these items which are one-off by nature therefore will
not repeat in future years.
( ) Six months to 30 Sept 2024 Six months to 30 Sept 2023 Unaudited Year ended
Unaudited 31 March
2024
Unaudited
( ) £'000 £'000 £'000
Reported cash from operations 15,483 8,357 23,159
Cash costs of exceptional items 871 2,000 4,240
Adjusted cash from operations 16,354 10,357 27,399
Adjusted cash from operations has increased by £6.0m to £16.4m (HY-24
£10.4m), primarily due to the increase in adjusted EBITDA.
Maintenance capital expenditure
Maintenance capital expenditure is the capital expenditure that is incurred in
support of the Group's underlying infrastructure rather than in support of
specific customer contracts. This metric shows the level of internal
investment the Group is making through capital expenditure. As the measure
explains and analyses routine capital expenditure, land and buildings
(including any associated assets relating to dilapidation provisions) and
asset financing additions are excluded due to the infrequency of this
expenditure occurring. Customer capital expenditure relates to assets
utilised by the Group in delivering Managed Services to our customers.
( ) Six months to 30 Sept 2024 Six months to 30 Sept 2023 Unaudited Year ended
Unaudited 31 March
2024
Unaudited
( ) £'000 £'000 £'000
Reported capital expenditure 4,967 6,565 11,830
Customer capital expenditure (2,933) (2,105) (4,099)
Maintenance capital expenditure 2,034 4,460 7,731
The increase in customer capex reflects the mix of revenue seen in recent
months to those that are more capex oriented, coupled with investments in the
data centres to facilitate specific customer requirements.
Adjusted operating profit and adjusted earnings per share
Adjusted operating profit is operating profit excluding amortisation on
acquired intangibles, exceptional items and share-based payments. The same
adjustments are also made in determining the adjusted operating profit margin
and in determining adjusted earnings per share ("EPS").
( ) Six months to 30 Sept 2024 Six months to 30 Sept 2023 Unaudited Year ended
Unaudited 31 March
2024
Unaudited
( ) £'000 £'000 £'000
Reported operating profit 6,400 1,966 852
Amortisation of intangible assets arising on business combinations 1,083 3,225 5,229
Exceptional costs 824 2,000 4,550
Exceptional income - (2,100) (2,100)
Share-based payments and associated National Insurance 531 503 1,138
Adjusted operating profit 8,838 5,594 9,669
The EPS calculation further adjusts for the tax impact of the operating profit
adjustments, as presented in Note 9.
Adjusted operating costs
Adjusted operating costs are operating costs less depreciation, amortisation,
exceptional items, share-based payments and foreign exchange. This metric
shows the day-to-day trading operating costs of the Group, excluding
non-trading and non-recurring items (items of a nature that the Group does not
expect to incur every financial year) which impact financial performance.
These are controllable operating costs which provide investors with useful
information about how the Group is managing its expenditure.
Other operating costs are adjusted operating costs less staff costs.
( ) Six months to 30 Sept 2024 Six months to 30 Sept 2023 Unaudited Year ended
Unaudited 31 March
2024
Unaudited
( ) £'000 £'000 £'000
Reported operating costs 44,216 45,323 91,718
Depreciation of right-of-use assets (5,076) (5,854) (11,777)
Depreciation of property, plant and equipment (3,787) (2,776) (6,089)
Amortisation of intangibles arising on business combinations (1,083) (3,225) (5,229)
Amortisation of other intangible assets (498) (317) (781)
Exceptional costs (824) (2,000) (4,550)
Share-based payments and associated National Insurance (531) (503) (1,138)
Adjusted operating costs 32,417 30,648 62,154
Adjusted operating expenditure has increased by 5.8% to £32.4m (H1 FY24:
£30.6m) primarily due to increased staff costs, Broadcom's VMware platform
pricing model changes, price increases in core technology and increasing
regulatory costs within the IT services market.
Adjusted net debt
Adjusted net debt is reported net debt (borrowings net of cash) less supplier
loans and less lease liabilities that would have been classified as operating
leases under IAS17 and is a measure reviewed by the Group's banking syndicate
as part of covenant compliance.
( ) Six months to 30 Sept 2024 Six months to 30 Sept 2023 Unaudited Year ended
Unaudited 31 March
2024
Unaudited
( ) £'000 £'000 £'000
Reported net debt (66,628) (74,679) (72,365)
Term loans 13 34 21
Lease liabilities that would have been classified as operating leases under 26,671 33,056 30,346
IAS 17
Adjusted net debt (39,944) (41,589) (41,998)
Profitability and dividend policy
Adjusted EBITDA (£18.2m) and adjusted operating profit (£8.8m) were up 25.2%
and 58.0% respectively, with an adjusted EBITDA margin of 21.0% (H1 FY24:
17.7%) and adjusted operating margin of 10.2% (H1 FY24: 6.8%).
After accounting for exceptional costs of £0.9m (H1 FY24: £0.1m gain) and
share-based payment costs of £0.5m (H1 FY24: £0.5m), the reported operating
profit was £6.4m (H1 FY24: £2.0m).
Net finance costs for the period were £2.8m (H1 FY24: £2.7m) including
£0.6m (H1 FY24: £0.8m) of IFRS 16 finance charges.
The reported basic and diluted EPS both increased to 2.43p and 2.36p
respectively (H1 FY24: (0.14p) and (0.14p) respectively). Adjusted basic and
diluted EPS both increased to 2.86p and 2.78p respectively (H1 FY24: 1.39p and
1.36p respectively).
The Board has reviewed the financial performance of the business and has
decided to maintain an Interim dividend payment of 1.2p per share.
Cash flow and net debt
The principal movements in net debt are set out in the table below:
Six months to 30 Sept 2024 Six months to 30 Sept 2023 Unaudited Year ended
Unaudited 31 March
2024
Unaudited
£'000 £'000 £'000
Operating profit 6,400 1,966 852
Depreciation and amortisation 10,444 12,172 23,876
Exceptional costs 824 2,000 4,550
Exceptional income - (2,100) (2,100)
Share-based payments 531 503 1,138
Adjusted EBITDA 18,199 14,541 28,316
Profit on disposal of property, plant and equipment - - (53)
Working capital movements (1,811) (4,184) 114
Cash movement on provisions (34) - (978)
Adjusted cash generated from operations 16,354 10,357 27,399
Cash conversion 89.9% 71.2% 96.8%
Capital expenditure - cash purchases (4,894) (6,565) (9,259)
Capital expenditure - finance lease purchases (73) - (1,485)
Asset financing proceeds 890 2,419 2,419
Net capital expenditure (4,077) (4,146) (8,325)
Corporation tax paid (12) (142) (174)
Interest paid (1,872) (1,611) (3,615)
Loan arrangement fee amortisation (148) (109) (209)
Interest paid on leases (618) (791) (1,328)
Effect of exchange rates (27) (35) (109)
Other movements in normalised net debt (2,677) (2,688) (5,435)
Normalised net debt movement 9,600 3,523 13,639
Cash costs of exceptional items (871) (2,000) (4,240)
Acquisition of subsidiaries net of cash acquired - (890) (890)
IFRS16 lease additions (396) - (4,237)
Drawdown of asset financing facility (890) (2,419) (2,419)
Remeasurement relating to lease modifications 187 - -
Disposal of treasury shares on exercise of share options 6 72 116
Dividends paid in cash (1,899) - (1,369)
Other movements in net debt (3,863) (5,237) (13,039)
Decrease/(increase) in net debt 5,737 (1,714) (600)
Net debt at the beginning of the period (72,365) (72,965) (72,965)
Net debt at the end of the period (66,628) (74,679) (72,365)
Net debt decreased by £5.7m from 31 March 2024 (7.9%) to £66.6m and consists
of total borrowings of £43.9m (FY24: £47.4m) and leases previously
classified as operating leases under IAS17 of £26.7m (FY24: £30.4m), less
cash balances of £4.0m (FY24: £3.1m).
At 30 September 2024, the Group had a committed revolving credit facility
("RCF") of £80.0m (£39.0m utilised at 30 September 2024) and a £10.0m asset
financing facility ("AFF") (£3.9m utilised at 30 September 2024). In
addition, the Group has access to an uncommitted £20.0m accordion facility
which remains undrawn. These facilities are due to expire on 25 April 2026.
Related party transactions
There have been no material changes in the related party transactions
described in the last Annual Report and Accounts of the Company.
Principal risks and uncertainties
The principal risks and uncertainties, which could have a material impact upon
the Group's performance over the remaining six months of the financial year
ending 31 March 2025, have not changed from those set out on pages 32 and 33
of the Group's 2024 Annual Report and Accounts, which are available
at www.redcentricplc.com (http://www.redcentricplc.com) . These risks and
uncertainties include, but are not limited to, the following:
· Environmental impact
· Technology and cyber-security
· Business continuity
· Workforce
· Market and economic conditions
· Loss of major contract
· Competition and market pressures
Going concern
As stated in Note 2 to the Financial Statements, the Board is satisfied that
the Group has sufficient resources to continue in operation for the
foreseeable future, a period of not less than 12 months from the date of this
report. Accordingly, they continue to adopt the going concern basis in
preparing the condensed Financial Statements.
By order of the Board,
Chief Executive
Officer
Chief Financial Officer
Peter Brotherton
David Senior
20 November 2024
20 November 2024
Redcentric plc
Condensed Consolidated Statement of Comprehensive Income for the six months
ended 30 September 2024
Six months to 30 September 2023
Six months to 30 September 2024 Unaudited *Restated Year ended
Unaudited 31 March
2024
*Restated
Unaudited
Note £'000 £'000 £'000
Revenue 5 86,785 81,998 163,150
Cost of sales (36,169) (36,809) (72,680)
Gross Profit 50,616 45,189 90,470
Operating costs (44,216) (45,323) (91,718)
Gain on settlement of contingent consideration - 2,100 2,100
Adjusted EBITDA(1) 18,199 14,541 28,316
Depreciation of property, plant, and equipment (3,787) (2,776) (6,089)
Amortisation of intangible assets (1,581) (3,542) (6,010)
Depreciation and amortisation of right-of-use assets (5,076) (5,854) (11,777)
Other exceptional costs 6 (824) (2,000) (4,550)
Other exceptional income 6 - 2,100 2,100
Share-based payments (531) (503) (1,138)
Operating profit 6,400 1,966 852
Finance costs 7 (2,806) (2,687) (5,502)
Profit/(loss) before taxation 3,594 (721) (4,650)
Income tax credit 8 241 507 1,209
Profit/(loss) for the period attributable to owners of the parent 3,835 (214) (3,441)
Other comprehensive income
Items that may be classified to profit or loss:
Currency translation differences (134) (40) (117)
Total comprehensive profit/(loss) for the period 3,701 (254) (3,558)
Earnings/(loss) per share
Basic earnings/(loss) per share 9 2.43p (0.14p) (2.20p)
Diluted earnings/(loss) per share 9 2.36p (0.14p) (2.20p)
(1) For an explanation of the APMs used in this report, please refer to the
Chief Financial Officer's Review.
* For detail on the prior period restatements, please see Note 15. As detailed
in Note 15, amounts previously reported for the year ended 31 March 2024 are
audited, but the restated amounts are unaudited.
Redcentric plc
Condensed Consolidated Statement of Financial Position as at 30 September 2024
30 September 2024 30 September 31 March 2024
Unaudited 2023 Audited
Unaudited
Note £'000 £'000 £'000
Non-Current Assets
Intangible assets 78,121 80,621 78,883
Property, plant, and equipment 21,925 19,971 21,422
Right-of-use assets 32,583 40,428 37,478
Trade and other receivables 10 2,783 - 3,307
Deferred tax asset 2,770 1,607 2,503
138,182 142,627 143,593
Current Assets
Inventories 3,232 4,173 4,187
Trade and other receivables 10 35,508 38,572 33,543
Corporation tax receivable 40 165 53
Cash and cash equivalents 4,001 2,099 3,130
42,781 45,009 40,913
Total Assets 180,963 187,636 184,506
Current Liabilities
Trade and other payables 11 40,933 39,250 42,154
Bank loans and asset financing 12 1,318 22 1,149
Lease liabilities 12 8,626 10,887 8,903
Provisions 13 1,469 1,857 892
52,346 52,016 53,098
Non-Current Liabilities
Trade and other payables 11 128 - -
Bank loans and asset financing 12 41,420 38,696 42,366
Lease liabilities 12 19,265 27,173 23,077
Provisions 13 11,036 11,322 11,482
71,849 77,191 76,925
Total Liabilities 124,195 129,207 130,023
Net Assets 56,768 58,429 54,483
Equity
Called up share capital 14 159 157 159
Share premium account 14 75,649 73,267 75,649
Common control reserve (9,454) (9,454) (9,454)
Own shares held in treasury (761) (898) (779)
Retained earnings (8,825) (4,643) (11,092)
Total Equity 56,768 58,429 54,483
( )
Redcentric plc
Condensed Consolidated Statement of Changes in Equity as at 30 September 2024
Share capital Share premium Common control reserve Own shares held in treasury Retained earnings Total
equity
£'000 £'000 £'000 £'000 £'000 £'000
At 1 April 2023 Audited 157 73,267 (9,454) (898) (4,881) 58,191
Loss for the period - - - - (214) (214)
Transactions with owners
Share-based payments - - - - 492 492
Other comprehensive income
Currency translation differences - - - - (40) (40)
At 30 September 2023 Unaudited 157 73,267 (9,454) (898) (4,643) 58,429
Loss for the period - - - - (3,227) (3,227)
Transactions with owners
Share-based payments - - - - 561 561
Issue of new shares 2 2,382 - - - 2,384
Dividends paid - - - - (3,752) (3,752)
Share options exercises - - - 119 (3) 116
Deferred tax movement on share options - - - - 78 78
Deferred tax relating to prior periods - - - - (29) (29)
Other comprehensive income
Currency translation differences - - - - (77) (77)
At 31 March 2024 Audited 159 75,649 (9,454) (779) (11,092) 54,483
Profit for the period - - - - 3,835 3,835
Transactions with owners
Share-based payments - - - - 477 477
Dividends paid - - - - (1,899) (1,899)
Share options exercises - - - 18 (12) 6
Other comprehensive income
Currency translation differences - - - - (134) (134)
At 30 September 2024 Unaudited 159 75,649 (9,454) (761) (8,825) 56,768
Redcentric plc
Condensed Consolidated Cash Flow Statement for the six months ended 30
September 2024
Six months Six months Year ended
to 30 September to 30 September 2023 31 March
2024 Unaudited 2024
Unaudited Audited
£'000 £'000 £'000
Profit/(loss) before tax 3,594 (721) (4,650)
Finance costs 2,806 2,687 5,502
Operating profit 6,400 1,966 852
Adjustment for non-cash items
Depreciation and amortisation 10,444 12,172 23,876
Profit on disposal of property, plant and equipment - - (53)
Exceptional income - (2,100) (2,100)
Exceptional items 824 2,000 4,550
Share-based payments 531 503 1,138
Operating cash flow before exceptional items and movements in working capital 18,199 14,541 28,263
Cash cost of exceptional items (871) (2,000) (4,240)
Cash cost of provisions (34) - (978)
Operating cash flow before changes in working capital 17,294 12,541 23,045
Changes in working capital
Decrease/(increase) in inventories 955 (456) (471)
(Increase)/Decrease in trade and other receivables (1,633) 596 2,411
Decrease in trade and other payables (1,133) (4,323) (1,826)
Cash generated from operations 15,483 8,358 23,159
Tax paid (12) (142) (174)
Net cash generated from operating activities 15,471 8,216 22,985
Cash flows from investing activities
Acquisition of subsidiaries net of cash acquired - (890) (890)
Purchase of property, plant, and equipment (4,093) (5,619) (9,265)
Purchase of intangible assets (801) (946) (1,479)
Net cash used in investing activities (4,894) (7,455) (11,634)
Cash flows from financing activities
Dividends paid (1,899) - (1,369)
Disposal of treasury shares on exercise of options 6 72 116
Financing of property, plant and equipment 890 2,419 2,419
Interest paid (1,897) (1,674) (3,569)
Interest paid on leases (618) (784) (1,328)
Repayment of leases (4,371) (4,555) (10,638)
Repayment of asset financing liabilities (582) - (635)
Repayment of term loans (8) (462) (474)
Drawdown of borrowings 2,500 10,500 16,500
Repayment of borrowings (3,500) (5,500) (10,500)
Repayment of loan arrangement fees (200) - -
Net cash used in financing activities (9,679) 16 (9,478)
Net increase in cash and cash equivalents 898 777 1,873
Cash and cash equivalents at beginning of period 3,130 1,366 1,366
Effect of exchange rates (27) (44) (109)
Cash and cash equivalents at end of the period 4,001 2,099 3,130
Redcentric plc
Notes to the unaudited condensed set of Financial Statements for the six
months ended 30 September 2024
1. General information
The unaudited Financial Statements for the six months ended 30 September 2024
and the six months ended 30 September 2023 do not constitute statutory
accounts within the meaning of Section 434 of the Companies Act 2006.
Statutory accounts for the year ended 31 March 2024 were approved by the Board
on 15 August 2024. The auditor's report on those accounts was unqualified, did
not contain an emphasis of matter paragraph and did not contain any statement
under Section 498 (2) or (3) of the Companies Act 2006.
These condensed Interim Financial Statements were approved for issue by the
Board on 20 November 2024 and were not independently reviewed by the Group's
auditor
Redcentric plc is a company domiciled in England and Wales. These unaudited
condensed Interim Financial Statements comprise the Company and its
subsidiaries (together referred to as the "Company" or the "Group"). The
principal activity of the Group is the supply of IT Managed Services.
2. Accounting policies
Basis of preparation
These condensed Interim Financial Statements for the six months ended 30
September 2024 have been prepared in accordance with the AIM Rules for
Companies, comply with IAS 34 Interim Financial Reporting as adopted by the
UK-adopted international accounting standards, and should be read in
conjunction with the Annual Financial Statements for the year ended 31 March
2024. They do not include all of the information required for a complete set
of Financial Statements prepared in accordance with IFRS Accounting
Standards. However, selected explanatory Notes are included to explain
events and transactions that are significant to an understanding of the
changes in the Group's financial position and performance since the last
Annual Financial Statements.
The financial information is presented in sterling, which is the functional
currency of the Group. All financial information presented has been rounded to
the nearest thousand (£'000), unless otherwise indicated.
Going concern
The Financial Statements are prepared on a going concern basis which the
Directors believe to be appropriate for the following reasons.
The Group and Company meet their day to day working capital requirements from
the Group's operational cash flows, a Revolving Credit Facility, Asset
Financing Facility and leasing arrangements (see Note 12). The Revolving
Credit Facility is an £80.0m facility (net £39.0m utilised at 30 September
2024), while the Asset Financing Facility is a £10.0m facility with £3.9m
utilised at 30 September 2024. The Revolving Credit Facility and Asset
Financing Facility have a maturity date of 26 April 2026.
The Directors have prepared cash flow forecasts for a period of at least 12
months from the date of approval of these Financial Statements (the "going
concern assessment period") which indicate that, taking account of reasonably
possible downsides on the operations and its financial resources, the Group
and the Company will have sufficient funds to meet their liabilities as they
fall due for that period, and will comply with debt covenants over that
period.
The Group is required to comply with financial debt covenants for adjusted
leverage (net debt to adjusted EBITDA), cashflow cover (adjusted cashflow to
debt service, where adjusted cashflow is defined as adjusted EBITDA less tax
paid, dividend payments, IFRS16 lease repayments and cash capital expenditure)
and provisions relating to guarantor coverage such that guarantors must exceed
a prescribed threshold of the Group's gross assets, revenue and adjusted
EBITDA. The guarantors are Redcentric plc and Redcentric Solutions Limited.
Covenants are tested quarterly each year.
During FY24 the Group invested heavily in integration and efficiency
programmes which are now delivering significant benefits to the business in
FY25 and beyond. In addition, the Group completed the closure of the Harrogate
data centre, which was in favour of delivering other projects including the
further consolidation of cloud platforms. In anticipation of the effect of
these factors on continued covenant compliance, particularly as the covenant
tests are on a rolling 12-month basis, in June 2024 the Directors reached
agreement with the banking syndicate to apply less stringent debt covenant
requirements for the quarters ended June and September 2024, despite not
anticipating a breach at these quarters. The purpose of this amendment was to
provide additional headroom on covenants in the event of a severe but
plausible downside scenario, and to provide additional flexibility around the
timing and financing of capital expenditure for new customer projects. There
were no other material changes to the terms and conditions of the borrowings
because of this amendment. All requirements within the borrowings facility
agreement and subsequent amendments have been adhered to in the respective
quarters including up to September 2024, with the banking syndicate further
agreeing not to apply a clause relating to the retrospective inclusion of the
January 2024 dividend into the December 2023 covenant calculation. This clause
is no longer applicable from April 2024 onwards.
The Directors' forecasts in respect of the going concern assessment period
have been built from the detailed Board approved forecast for the year ending
31 March 2025, and a forecast plan for the year ending 31 March 2026, and the
going concern assessment takes account of the debt covenant requirements.
The forecasts include a number of assumptions in relation to order intake,
renewal and churn rates, EBITDA margin improvements, the full year impact of
energy efficiency investment and improved electricity pricing (a significant
proportion of which is locked in through FY25 and FY26 at forward rates
favourable to those achieved in FY24). Revenue assumptions reflect levels
achieved in FY24 and H1 FY25 plus organic growth, and have been adjusted for
the enlarged customer base and additional products following the acquisitions
made in FY23.
Whilst the Group's trading and cash flow forecasts have been prepared using
current trading assumptions, the operating environment continues to present
several challenges which could negatively impact the actual performance
achieved. These risks include, but are not limited to, achieving forecast
levels of new order intake, the impact on customer confidence as a result of
general economic conditions, inflationary cost pressures including unexpected
one-off cost impacts, and the efficacy of energy efficiency measures under a
prolonged period of hot weather. In making their going concern assessment in
light of these risks, the Directors have also modelled a combined severe but
plausible downside scenario when preparing the forecasts.
The downside scenario assumes significant economic downturn over FY25 and into
FY26, primarily impacting recurring new order intake and non-recurring product
and services revenues as the Directors note the uncertainties surrounding the
timing and extent of non-recurring revenue from quarter to quarter. In this
scenario, recurring monthly order intake is forecast to reduce by 30% compared
to base case budget and product and services non-recurring revenues reduce by
20% compared to base case budget incorporating potential supply chain issues,
reduced investment from our existing customer base and failure to expand
market share as planned. In addition, the downside scenario also assumes the
new business obtained does not achieve the gross margin planned, with a 10%
reduction to the planned gross margin achievement across all new recurring
revenue modelled.
An additional factor that can impact the revenue and gross margin assumptions
in the going concern assessment period is the level of customer cancellations
(of an individual service or product). Whilst known, near-term customer
cancellations have been modelled, coupled with an underlying level of customer
cancellations based on historic trends, there remains a risk that unexpected,
medium to large customer cancellations could occur in the near-term. The Group
is protected contractually to a large extent with notice periods and
cancellation clauses, however a residual risk remains. An additional level of
customer cancellations has therefore been modelled each quarter in the
downside scenario to reflect this risk.
Following the energy efficiency measures delivered in FY24, electricity
volumes are significantly more predictable than they have been historically.
In addition, power prices are 90% fixed (at current volumes) through to
September 2025. However, there remains a risk that periods of sustained higher
summer temperatures, considering the impacts of wider climate-related factors,
could increase energy usage at sites where new efficiency measures have been
introduced, but not tested, at these prolonged higher temperatures. A 5%
increase in forecasted usage has been modelled across a period of three months
over the summer to reflect this risk.
With respect to the remaining operating cost base, whilst the Board approved
forecast contains detailed, itemised cost forecasts (including inflation),
there remains a risk inherent within the industry related to the complex cost
base and significant volumes of services procured that unexpected costs and/or
unexpected cost increases can at times occur. In the severe but plausible
downside scenario, an additional quarterly cost shock has been modelled to
reflect this risk. In preparing the cash flow forecasts and analysis relating
to debt covenant compliance through the going concern assessment period, the
Directors have considered the nature of exceptional items and are satisfied
that such items meet the Group's accounting policy and borrowings facility
agreement definition of exceptional items.
Given external market analysis indicates an expectation that interest rates
have stabilised, no sensitivity on interest rates has been included in the
plausible downside scenario. Both the base case and severe but plausible
downside forecast scenarios continue to model the payment of dividends,
including a final FY24 dividend payment in January 2025 and an interim FY25
dividend payment in April 2025. The Directors will continue to monitor the
impact and timing of dividend payments in the normal course of their quarterly
liquidity and debt covenant compliance monitoring.
Under the downside scenario modelled the forecasts demonstrate that the Group
is expected to maintain sufficient liquidity and will continue to comply with
the relevant debt covenants without management taking mitigating actions.
While not modelled, mitigating actions which are within the Group's control
would also be available in the event of a severe downside. Such actions
include, but are not limited to, the rephasing of discretionary capital
expenditure, and further management of discretionary cost areas such as
marketing, training and travel.
The Directors therefore remain confident that the Group and Company have
adequate resources to continue to meet their liabilities as and when they fall
due within the period of at least 12 months from the date of this Report.
3. Critical accounting judgements and key sources of estimation
uncertainty
In the application of the Group's accounting policies, which are described in
the Group's 2024 Annual Report and Accounts, the Board are required to make
judgements, estimates and assumptions about the carrying amounts of assets and
liabilities, without clear direction from other sources. The estimates and
associated assumptions are based on historical experience and other factors
that are considered to be relevant. Actual results may differ from these
estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis and
are consistent with the Group's risk management and climate-related
commitments where appropriate. Revisions to accounting estimates are
recognised in the period in which the estimate is revised if the revision only
affects that period, or in the period of the revision and future periods if
the revision affects both current and future periods.
Judgements
The Group has identified the following items as a critical accounting
judgement which would have a significant impact to the amounts recognised in
the Financial Statements for the period ended 30 September 2024.
Exceptionals items
The Group presents separately, on the face of the Consolidated Statement of
Comprehensive Income, material items of income and expenses, which, because of
their nature and expected infrequency of events giving rise to them, merit
separate presentation to allow shareholders to understand better the elements
of the Company's underlying financial performance. An element of management
judgment is required in identifying these exceptional items. Additional
information is included in Note 6.
Going concern
Management have prepared reports and financial models on the going concern
assumptions when considering the HY-25 results and the Group's financial
performance and compliance with banking covenants for a period of at least 12
months from the date of approval of the Financial Statements. In addition,
internal financial projections including stress testing have been prepared,
with management applying severe but plausible downside scenarios. An element
of judgement is involved in determining that there is no material uncertainty
over the Group continuing as a going concern. Additional information is
included in Note 2.
Estimates
There are no major sources of estimation uncertainty at the end of the
reporting period, that have a significant risk of resulting in a material
adjustment to the carrying amounts of assets and liabilities within the next
reporting period.
4. Segmental reporting
IFRS 8 requires operating segments to be identified based on internal
financial information reported to the Chief Operating Decision-Maker ("CODM")
for decision-making purposes. The Group considers that this role is performed
by the Board. Whilst the intention is to have segmental reporting in place at
the time we release the FY25 full year results as outlined in the CEO's
review, the Board believes that, at the timing of the half year results, the
Group continues to comprise a single reporting segment, being the provision of
Managed Services to customers as at the reporting date. The Board do not
review the results of the two proposed business units separately as the
Company is still in the process of pulling out discrete financial information
to be able to do this.
5. Revenue analysis
The Group's operations and revenue streams are those described in the last
Annual Financial Statements. Revenue for the six months ended 30 September
2024 was generated wholly from the UK and is analysed as follows:
( ) Six months Six months Year ended
to 30 Sept 2024 Unaudited to 30 Sept 2023 Unaudited 31 March
2024
Audited
( ) £'000 £'000 £'000
Recurring revenue 78,280 74,810 149,091
Product revenue 2,803 2,770 5,507
Services revenue 5,702 4,418 8,552
86,785 81,998 163,150
The following table provides information about receivables, contract assets
and contract liabilities from contracts with customers:
( ) Six months Six months Year ended
to 30 Sept 2024 Unaudited to 30 Sept 2023 Unaudited 31 March
2024
Audited
( ) £'000 £'000 £'000
Receivables, included in trade and other receivables, net of provisions 18,187 16,988 18,190
Accrued income, included in trade and other receivables 5,935 7,106 5,194
Deferred income, included in trade and other payables (10,664) (9,064) (9,983)
6. Exceptional items
Six months Six months Year ended
to 30 Sept 2024 Unaudited to 30 Sept 2023 Unaudited 31 March
2024
Audited
£'000 £'000 £'000
Included within operating costs:
Acquisition related professional and legal fees 319 - 350
Integration costs 113 2,000 3,467
Restructuring costs 392 - 733
Total exceptional costs 824 2,000 4,550
Presented separately in the Consolidated Statement of Comprehensive Income:
Gain on settlement of contingent consideration - (2,100) (2,100)
Total exceptional income - (2,100) (2,100)
7. Finance costs
Six months Six months Year ended
to 30 Sept 2024 Unaudited to 30 Sept 2023 Unaudited 31 March
2024
Audited
£'000 £'000 £'000
Interest payable on bank loans and term loans 1,748 1,553 3,337
Interest payable on asset financing liabilities 124 56 267
Interest payable on leases 618 791 1,328
Amortisation of loan arrangement fees 148 109 209
Other interest payable 168 178 361
2,806 2,687 5,502
8. Income tax credit
The tax credit recognised reflects management estimates of the tax credit for
the period and has been calculated using the estimated average tax rate of UK
corporation tax for the financial year of 25.0% (H1 FY24: 19.0%).
9. Earnings per share (EPS)
The calculation of basic and diluted EPS is based on the following earnings
and number of shares.
Six months Six months Year ended
to 30 Sept 2024 Unaudited to 30 Sept 2023 Unaudited (+)Restated 31 March
2024
Audited
Earnings £'000 £'000 £'000
Statutory profit/(loss) 3,835 (214) (3,441)
Tax credit (241) (507) (1,209)
Amortisation of acquired intangibles 1,083 3,224 5,229
Share-based payments 531 503 1,138
Exceptional costs 824 2,000 4,550
Exceptional income - (2,100) (2,100)
Adjusted earnings before tax 6,032 2,906 4,167
Notional tax charge at standard rate (1,508) (727) (1,042)
Adjusted earnings 4,524 2,179 3,125
Number Number Number
Weighted average number of ordinary shares '000 '000 '000
Total shares in issue 158,525 156,992 157,371
Shares held in treasury (618) (729) (693)
For basic EPS calculations 157,907 156,263 156,678
Effect of potentially dilutive share options 4,857 4,387 5,129
For diluted EPS calculations 162,764 160,650 161,807
EPS Pence Pence (+)Restated Pence
Basic 2.43p (0.14p) (2.20p)
Adjusted 2.86p 1.39p 1.99p
Basic diluted 2.36p (0.14p) (2.20p)
Adjusted diluted 2.78p 1.36p 1.93p
( )
(+) Six months to 30 Sept 2023 restated to correct notional tax charge as
incorrectly calculated at 19% rather than 25%.
10. Trade and other receivables
Six months Six months Year ended
to 30 Sept 2024 Unaudited to 30 Sept 2023 Unaudited 31 March
2024
Audited
£'000 £'000 £'000
Trade receivables 19,308 17,981 19,390
Less: credit note provision (1,121) (993) (1,200)
Trade receivables - net 18,187 16,988 18,190
Other receivables 578 1,408 1,084
Prepayments 9,635 9,706 8,245
Contract acquisition asset 3,956 3,364 4,137
Accrued income 5,935 7,106 5,194
38,291 38,572 36,850
Current 35,508 38,572 33,543
Non-current 2,783 - 3,307
38,291 38,572 36,850
Trade receivable days were 34 at 30 September 2024 (30 September 2023: 33).
The ageing of trade receivables is shown below:
Six months Six months Year ended
to 30 Sept 2024 Unaudited to 30 Sept 2023 Unaudited 31 March
2024
Audited
£'000 £'000 £'000
Current 15,345 13,596 14,008
1 to 30 days overdue 2,286 2,711 2,928
31 to 60 days overdue 523 1,005 1,794
61 to 90 days overdue 472 354 383
91 to 180 days overdue 378 315 320
> 180 days overdue 304 - (43)
Gross trade receivables 19,308 17,981 19,390
Credit note provision (1,121) (993) (1,200)
Net trade receivables 18,187 16,988 18,190
11. Trade and other payables
Six months Six months Year ended
to 30 Sept 2024 Unaudited to 30 Sept 2023 Unaudited 31 March
2024
Audited
£'000 £'000 £'000
Trade payables 15,150 12,455 16,287
Other payables 362 988 612
Taxation and social security 3,544 2,642 3,085
Accruals 11,341 14,101 12,187
Deferred income 10,664 9,064 9,983
41,061 39,250 42,154
Current 40,933 39,250 42,154
Non-current 128 - -
41,061 39,250 42,154
Trade creditor days were 34 at 30 September 2024 (30 September 2023: 28).
12. Borrowings
Six months Six months Year ended
to 30 Sept 2024 Unaudited to 30 Sept 2023 Unaudited 31 March
2024
Audited
£'000 £'000 £'000
Current
Lease liabilities 8,626 10,887 8,903
Term loans 13 22 21
Asset financing liabilities 1,305 - 1,128
Total 9,944 10,909 10,052
Non-current
Lease liabilities 19,265 27,173 23,077
Term loans - 11 -
Asset financing liabilities 2,612 - 2,481
Bank loans 38,808 38,685 39,885
Total 60,685 65,869 65,443
13. Provisions
Dilapidation provision
£'000
At 1 April 2023 Audited 13,001
Additional provisions in the period 178
At 30 September 2023 Unaudited 13,179
Additional provisions in the period 173
Utilised during the period (978)
At 31 March 2024 Audited 12,374
Additional provisions in the period 165
Utilised during the period (34)
At 30 September 2024 Unaudited 12,505
Current 1,469
Non-current 11,036
At 30 September 2024 Unaudited 12,505
14. Share capital and share premium
Ordinary shares of 0.1p each Share premium
Number £'000 £'000
At 1 April 2023 Audited 156,991,982 157 73,267
New shares issued 1,892,937 2 2,382
At 31 March 2024 Audited 158,884,919 159 75,649
New shares issued 122,069 - -
At 30 September 2024 Unaudited 159,006,988 159 75,649
At 30 September 2024, the Company's issued share capital consisted of
159,006,988 ordinary shares of which 618,188 remain in treasury.
15. Prior period restatement
During the period management have reviewed the rationale for inclusion of data
centre related electricity costs within operating costs, as opposed to cost of
sales. Following the acquisitions of Sungard and 4D Data Centres Limited,
electricity costs now form a significant part of the Groups cost base.
Electricity volumes are in material part driven by the usage of the customer,
along with external factors such as outside temperature. Electricity prices
are market driven, and where contractually permitted, passed on to customers.
In addition, during the period the Group has been exploring its business model
to provide further clarity to stakeholders, resulting in a proposed
operational separation of the data centre business. This separation would
further isolate electricity costs as the key variable cost to the data centre
business, and a more directly attributable customer cost.
Furthermore, following recent significant investments on power metering in our
data centres, we can also now much more accurately track the electricity usage
by customer and manage the cost and onward charge accordingly. As a result of
these increased capabilities and the better information which is now
available, electricity costs can be more accurately and directly allocated by
customer for FY25.
Consequently, for the period ended 30 September 2024 management have decided
that cost of sales better reflects the nature of the expense, as a cost which
is directly attributable to revenue generation from customers. The prior
period and prior year comparisons have been restated accordingly, which also
ensures comparability.
In addition, when assessing the nature of direct costs, management also
reviewed the rationale for the amortisation of the contract acquisition asset
being included within operating costs. The contract acquisition asset is
recognised under IFRS 15 as a cost to obtain a contract and is amortised over
the life of the customer contract. While the amortisation of the contract
acquisition asset was previously included within operating costs, as disclosed
in the relevant accounting policies previously, the Group considers the
related amortisation is better reflected as a cost of sale. The prior period
and prior year comparisons have been restated accordingly.
The prior period/year restatements are presentational within operating profit,
and have no impact on adjusted EBITDA, overall operating profit or net income,
and have no impact on the Statement of Financial Position, cashflows or
equity.
The restated condensed Consolidated Statement of Comprehensive Income for the
six months ended 30 September 2023 is as follows:
Six months to 30 September 2023 (previously reported) Unaudited
Six months to 30 September 2023
(restated) Unaudited
Restatement
£'000 £'000 £'000
Revenue 81,998 - 81,998
Cost of sales (22,708) (14,101) (36,809)
Gross Profit 59,290 (14,101) 45,189
Operating costs (57,324) 12,001 (45,323)
Gain on settlement of contingent consideration - 2,100 2,100
Adjusted EBITDA(1) 14,541 - 14,541
Depreciation of property, plant, and equipment (2,776) - (2,776)
Amortisation of intangibles (3,542) - (3,542)
Depreciation and amortisation of right-of-use assets (5,854) - (5,854)
Other exceptional costs 100 (2,100) (2,000)
Other exceptional income - 2,100 2,100
Share-based payments (503) - (503)
Operating profit 1,966 - 1,966
Finance costs (2,687) - (2,687)
Loss before taxation (721) - (721)
Income tax credit 507 - 507
Loss for the period attributable to owners of the parent (214) - (214)
Other comprehensive income
Items that may be classified to profit or loss:
Currency translation differences (40) - (40)
Total comprehensive loss for the period (254) - (254)
Of the £14.1m of costs reallocated to cost of sales from operating costs,
£13.2m related to electricity costs and £0.9m to contract acquisition asset
amortisation.
With regards to the separate recognition of the "gain on settlement of
contingent consideration" being disclosed as a line item on the Consolidated
Statement of Comprehensive Income this restatement for the six month period
ended 30 September 2023 is to align the Interim reporting for H1 FY24 to the
year end reporting of FY24.
The restated condensed Consolidated Statement of Comprehensive Income for the
year ended 31 March 2024 is as follows:
Year ended 31 March 2024 (previously reported) Audited
Year ended 31 March 2024
(restated) Unaudited
Restatement
£'000 £'000 £'000
Revenue 163,150 - 163,150
Cost of sales (45,115) (27,565) (72,680)
Gross Profit 118,035 (27,565) 90,470
Operating costs (119,283) 27,565 (91,718)
Gain on settlement of contingent consideration 2,100 - 2,100
Adjusted EBITDA(1) 28,316 - 28,316
Depreciation of property, plant, and equipment (6,089) - (6,089)
Amortisation of intangibles (6,010) - (6,010)
Depreciation and amortisation of right-of-use assets (11,777) - (11,777)
Other exceptional costs (4,550) - (4,550)
Other exceptional income 2,100 - 2,100
Share-based payments (1,138) - (1,138)
Operating profit 852 - 852
Finance costs (5,502) - (5,502)
Loss before taxation (4,650) - (4,650)
Income tax credit 1,209 - 1,209
Loss for the period attributable to owners of the parent (3,441) - (3,441)
Other comprehensive income
Items that may be classified to profit or loss:
Currency translation differences (117) - (117)
Total comprehensive loss for the period (3,558) - (3,558)
Of the £27.6m of costs reallocated to cost of sales from operating costs,
£25.7m related to electricity costs and £1.9m to contract acquisition asset
amortisation.
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