REG - Redcentric PLC - Preliminary results announcement FY24
15/08/2024 07:00
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RNS Number : 5118A Redcentric PLC 15 August 2024
Redcentric plc
Preliminary results announcement for the year ended 31 March 2024
Redcentric plc (AIM: RCN) ("Redcentric" or the "Company"), a leading UK IT
Managed Services provider, today announces its preliminary full year results
for the year ended 31 March 2024 ("FY24").
Financial performance measures
Year ended 31 March 2024 ("FY24") Year ended 31 March 2023 ("FY23") Change
Total revenue £163.2m £141.7m 15.2%
Recurring revenue (1) £149.1m £128.5m 16.1%
Recurring revenue percentage(1) 91.4% 90.7% 0.7%
Adjusted EBITDA(1) £28.3m £24.5m 15.6%
Adjusted operating profit(1) £9.7m £8.6m 11.8%
Reported operating profit/(loss) £0.9m (£8.9m) 109.5%
Reported loss before tax (£4.7m) (£12.5m) 62.7%
Adjusted cash generated from operations(1) £27.4m £23.1m 18.7%
Reported cash generated from operations £23.2m £14.8m 56.2%
Net debt(1) (£72.4m) (£73.0m) 0.9%
Adjusted net debt (1) (£42.0m) (£35.6m) (18.0%)
Adjusted basic earnings per share(1) 1.99p 2.66p (25.1%)
Reported basic loss per share (2.20p) (5.94p) 63.1%
Percentage change calculated on absolute values
( )
(1) This announcement contains certain financial 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 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 alternative performance measures used in this
announcement and reconciliations to their most directly related GAAP measure,
please refer to Appendix 1.
Key Operational highlights
· Acquisition integration programmes materially completed, with the
Harrogate data centre exit completed in line with plan.
· The business is generating strong organic growth driven by
structural events and effective cross selling.
· Q1 trading is in line with the board's expectations.
· With these results Peter Brotherton has announced that he will
retire and step down from his position as CEO as soon as a suitable successor
is appointed.
Key financial highlights:
· Total revenue growth of 15.2% to £163.2m (FY23: £141.7m).
· Recurring revenue grew by 16.1% to £149.1m, with recurring
revenue representing 91.4% of the total revenue (FY23: £128.5m/90.7%).
· Gross profit has increased by 17.0% to £118.0m.
· Adjusted EBITDA of £28.3m is 15.6% ahead of FY23.
· Adjusted operating profit increased by £1.1m to £9.7m (11.8%
increase).
· Adjusted net debt as at 31 March 2024 was £42.0m, excluding
£30.3m of IFRS16 lease liabilities that were previously classified as
operating leases under IAS17.
· Reported operating profit increased by £9.8m to £0.9m.
· Reported loss before tax has reduced by £7.8m to £4.7m (FY23:
£12.5m).
Peter Brotherton CEO commented:
"FY24 was a very productive year with all the original integration programmes
completed, generating cost savings either in line or slightly ahead of our
expectations.
The electricity conservation measures are now yielding very significant volume
savings, which combined with secured lower electricity prices from 1 April
2024, are expected to reduce electricity costs by £8.1m in FY25.
The focus for FY25 will be to drive organic revenue, profit and cash flow
growth by cross selling the broadened product and solution portfolio into the
enlarged customer base, whilst also capitalising on the structural
opportunities presented by AI related demand and the recently awarded VMware
Pinnacle partnership agreement
The business is now in a very different place to when I joined in November
2016. All of the historical issues have been overcome and the acquisitions
undertaken in FY22 and FY23 have significantly increased the scale and
capability of the business. Revenues and profits for FY25 are on course to
be double what they were pre the acquisitions and solid foundations are now in
place for sustainable and profitable growth. I would like to thank my
colleagues on the Operating Board and all Redcentric's employees for their
dedication, help and support during my tenure."
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 Sole Broker +44 (0)20 7220 0500
Marc Milmo (Corporate Finance)
Andrew Burdis / Sunila de Silva (ECM)
Chairman's Statement
Overview and financial results
With all the original integration programmes materially completed in FY24, the
business has a solid foundation on which to flourish. Following the
acquisitions made in FY22 and FY23 we are now seeing strong organic growth
across all our core service towers of Cloud, Connectivity and Communication.
The agile culture within the business has enabled us to move swiftly and take
advantage of the Broadcom acquisition of VMware, gaining several new customers
along with considerable market share gains. It is also pleasing to note that
several cross-sell opportunities are already being discussed providing further
penetration into our broad range of products and services.
I am delighted to see that the data centre assets acquired with Sungard are
starting to be recognised by a new larger customer base as a secure home for
their mission critical infrastructure. Our West Yorkshire facility (previously
referred to as Elland) and London West facility (previously referred to as
London Technology Centre) offer the space, power and security that is in short
supply, particularly in London. We are very optimistic about the future of
these data centres particularly given demand is being driven by Artificial
Intelligence ("AI") processing needs that require high-density, power-hungry
equipment, both of which our primary data centres can cater for.
Electricity costs have featured regularly in the company updates since the
acquisitions completed in FY23. The management team have worked tirelessly to
implement efficiency measures that help to reduce our electricity consumption,
with the dual purpose of reducing cost and carbon emissions. These measures
have delivered impressive volume savings of c.40% in the London West and
Woking data centres. This combined with reduced electricity prices locked in
from 1 April 2024 means that electricity costs are expected to reduce by
c.£8m in FY25.
The focus for FY25 will be to continue to drive organic growth whilst
leveraging the fixed cost base, driving further productivity and efficiency
gains. Whilst organic growth is the priority, the company continually assesses
M&A opportunities in the market, and with £40m of its £80m committed
bank facility drawn at the date of this announcement the company has
significant firepower should an exceptional opportunity present itself.
Final dividend
During the year, the board of Directors of the Company (the "Board") declared
an interim dividend of 1.2 pence per share (FY23: 1.2 pence per share), with
£1.9m paid on 18 April 2024 (FY23: £1.9m).
A final dividend of 2.4p per share is recommended by the Board and will result
in a total dividend for FY24 of 3.6p per share (financial year ended 31 March
2023 "FY23": 3.6p per share). Subject to approval by shareholders at the
Company's annual general meeting ("AGM"), this is expected to be paid on 24
January 2025 to shareholders on the register at the close of business on 13
December 2024 with shares going ex-dividend on 12 December 2024. The last day
for Dividend Reinvestment Plan elections is 2 January 2025.
Board changes and people
On 24 July 2023, Helena Feltham, Non-Executive Director, stepped down from the
Board. On behalf of the Board and all at Redcentric I would like to thank
Helena for her significant contribution over the last two years and wish her
all the very best for the future.
On 1 December 2023, Oliver Scott was appointed as a Non-Executive Director
(non-independent). Oliver is a partner of Kestrel Partners LLP ("Kestrel"),
the independent investment manager, which Oliver co-founded in 2009. Kestrel
is Redcentric's largest shareholder. Oliver brings with him considerable
market knowledge alongside a breadth and depth of skills and experience.
On 13 February 2024, Michelle Senecal De Fonseca was appointed as a
Non-Executive Director and Chair of the Remuneration Committee. Michelle is
an experienced executive and Non-Executive Director in the technology
industry.
On 15 August 2024, Peter Brotherton, Chief Executive Officer, notified the
Board of his intention to retire and step down from the Board. Peter will
remain in post until a suitable replacement is recruited. Peter joined the
group in November 2016 as Chief Financial Officer before taking on the role of
Chief Executive Officer in November 2018. Peter initially navigated the
business through a challenging period and more latterly has played a key part
in Redcentric's growth strategy. On behalf of the Board and all at Redcentric
I would like to thank Peter for his very significant contribution over the
last eight years and wish him all the very best in his retirement.
Outlook
The business has entered FY25 with a significantly enhanced scale, strong
organic revenue growth, significantly reduced electricity costs and some very
exciting sales prospects. Management are now focussed on delivering profitable
growth to drive improved margins and cash generation, whilst ensuring service
levels are maintained to limit customer cancellation and price erosion
risks.
The factors above all lead to the Board remaining optimistic for the future of
the business.
Nick Bate
Chairman
15 August 2024
Chief Executive's Review
Strategic execution
FY24 has been marked by significant progress and growth as we continued to
focus on the three operational themes outlined in the interim results: organic
revenue growth, integration of the acquired businesses and electricity
conservation measures
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.
The financial results reflect the benefits of the first full year of trading
contribution from the 4D Data Centres and two Sungard trade and asset
acquisitions made in FY23. They also reflect the slightly delayed
implementation of the new cooling infrastructure at the London West data
centre and the closure costs of the Harrogate data centre.
Organic Growth
The sales team continue to exploit the opportunities arising from the
acquisitions made over the previous two financial years, with the enlarged
customer base presenting new cross-sell opportunities and the new product
offerings providing a wider range of services to the existing customer base.
On a consistent basis recurring revenues, excluding revenue from Sungard short
term contract cancellations and Harrogate customer cancellations, which we
deem unrelated to normal trading and are discussed further below, grew by 9.0%
over the prior ten-month period (Aug-22 to May-23 vs Jun-23 to Mar-24 with
Aug-22 being the first comparable month following the acquisitions) with net
new business gains seen across all service towers.
Revenues from cancelled Sungard short term contracts amounted to £1.0m in the
12 months ended 31 March 2024 (12 months to 31 March 2023: £6.2m). Whilst it
is disappointing that we did not retain these customers following our
acquisition, cancelled short term customer contracts were excluded from the
calculation of the final consideration payable, and any remaining Sungard
short term contracts have now been converted into longer term contracts.
The closure and decommissioning of the Harrogate data centre was completed at
the end of March 2024 in line with our project plan and expectations. Whilst
most of the customers were successfully migrated to our West Yorkshire data
centre, four of the larger customers unexpectedly decided to cancel their
contracts. The annualised revenue and EBITDA from these customers totalled
£2.6m and £1.3m respectively. Final annual savings from the closure of the
Harrogate data centre were £1.4m, in line with previous expectations and
comprise lease cash cost savings of £1.0m and operating costs savings of
£0.4m, with these savings effective from FY25. Although most of the cost
savings have been offset by cancelled customer contracts, the closure of the
data centre will reduce future maintenance capital expenditure and technical
debt.
VMware / Market trends
As the marketplace continually evolves Redcentric is eager to be at the
forefront of any significant changes. The recent acquisition of VMware by
Broadcom continues to present a substantial opportunity. Redcentric was
selected as one of seven UK Pinnacle partners of VMware, following which we
actively mobilised to acquire a wide base of new end user clients and
historical VM partners. These activities have proven very successful with a
gain of 30 new customers (of which 29 are service providers) from Q1 FY25.
This represents a material market share gain and importantly represents
significant future cross-sell opportunities.
The successful onboarding of the service providers has provided a well-formed
new route to market for our wide-ranging portfolio. Proactive engagement with
these new partners is in its initial stages but is already showing positive
outcomes with an initial 10 active opportunities under discussion across our
portfolio including MS licencing, Storage as a Service, Infrastructure as a
Service (IaaS), Co-Location and Contact Centre solutions.
The continued emergence of AI is generating considerable demand for high
density data centre space and available electricity. Our London West and West
Yorkshire facilities have the required infrastructure, space, and available
electricity to make us ideally positioned to meet these requirements.
Our London West data centre is an Enterprise grade facility that is built to a
capacity of 18MW and has 14MW reserved on the national grid. Given the
scarcity of available power in London in "Tier 3" equivalent data centres,
London West has become an attractive alternative to the larger scale data
centre providers, and we have recently seen a significant increase in interest
from Enterprise customers requiring high density infrastructure.
Our West Yorkshire data centre is situated between Leeds and Manchester and is
ideally placed to serve the "Northern Powerhouse", with 11MW of power
available. There is ample power capacity and physical space to provide high
density infrastructure.
Our organic growth strategy can be summarised into five key focus areas:
1. Cross-sell multiple products into the recently acquired customer
bases:
· The majority of the recently acquired customers take one product
only.
2. Cross-sell of new products into the historic Redcentric customer
base:
· Hyper-cloud, cyber security and business recovery products have
all been added by the recent acquisitions.
3. Cross-sell into the new VMware customer wins:
· A significant cross-sell opportunity has been created by the new
customer wins.
4. Attracting new logos:
· Maximise the exposure opportunities generated by the new VMware
strategic partnership; and
· Leverage the increased scale and improved perception to attract
new customers.
5. Leveraging the newly acquired Sungard DCs to attract largescale AI
and Enterprise customer deployments:
· Our London West and West Yorkshire facilities are ideally placed
to meet demand for AI.
Integration of the acquired businesses
The integration work undertaken in FY24 has concentrated on three main areas:
closure of the Harrogate data centre, supplier rationalisation and
consolidation of cloud platforms.
Closure of the Harrogate data centre
The closure of the Harrogate data centre was completed at the end of March
2024, with the fully decommissioned building being handed back to the landlord
on the lease end date of 24 March 2024.
Supplier rationalisation
During the year, the supplier base was rationalised with two large Managed
Services contracts insourced and more favourable terms on a third contract
achieved by moving supplier. This has resulted in combined net annual savings
of £1.1m, being supplier savings of £1.7m offset by additional staff costs
of £0.6m.
Consolidation of cloud platforms
As a result of the acquisitions, we have acquired numerous cloud and backup
platforms which replicate existing Redcentric platforms. During the year a
number of these platforms were either consolidated or decommissioned resulting
in annualised savings of c.£0.5m. Now that resource has been freed up from
the Harrogate relocation project, which has seen significant resource and cost
drain in FY24, we expect to launch further and more extensive consolidation
programmes which will result in further annualised savings of at least £0.6m.
As mentioned above, the acquisition of VMware by Broadcom has created
significant sales opportunities, however, a material increase in the cost of
licenses has also presented a short-term cost challenge to the business.
The increase in the VMware cost base came at a time for Redcentric when a
programme of platform rationalisation was in full swing. With this programme
progressing well our VMware license requirements have been dramatically
reduced. This, combined with a large portion of the increased costs being
passed on to customers, has positioned Redcentric well to effectively manage
the impact of Broadcom licensing changes.
Electricity sourcing & consumption
London West data centre
An investment of £2.2m has been made for new cooling infrastructure,
significantly upgrading the plant at the recently acquired site.
Whilst all the planned electricity conservation measures were completed by the
year end, the installation of the cooling infrastructure at the London West
site was delayed by four-and-a-half-months due to the requirement of the
cooling system water to be decontaminated prior to the installation of the new
plant. The plant was eventually installed in November 2023 and was fully
commissioned by the end of January 2024.
The new system is performing well with non-productive power savings of c.40%
to date, slightly higher than our original expectations.
Based on the current volume savings and the forward electricity prices
secured, we expect to achieve annualised volume savings of c.£1.5m, resulting
in an impressive payback of eighteen months and considerable savings over the
course of the assets expected fifteen-year life.
Woking data centre
This is a third-party data centre where we rent a large data hall rather than
actively managing the site ourselves. Our partners at this site have also
recently completed a major chiller replacement programme with their new plant
being live from 1 September 2023.
This is currently yielding non-productive power savings of c.40%, in line with
our expectations. Based on the current savings being realised and the
anticipated electricity prices, we expect to achieve annualised savings of
c.£1.1m from this site.
The electricity conservation measures are expected to generate year on year
volume savings of £2.8m. This, combined with significantly reduced
electricity commodity prices from 1 April 2024, is expected to reduce
electricity charges by £8.1m and will result in FY25 fully reflecting the
benefit of the acquisitions made during FY22 and FY23.
Our electricity contracts have recently been renegotiated which now expire at
the end of September 2028. This enables us to forward buy power to September
2028 reducing our exposure to commodity price volatility and providing our
customers with a more certain cost base.
Financial results
We are pleased to announce the following results for FY24:
· Revenues of £163.2m (FY23: £141.7m);
· Adjusted EBITDA* of £28.3m (FY23: £24.5m);
· Adjusted operating profit^ of £9.7m (FY23: £8.6m);
· Reported operating profit of £0.9m (FY23: loss of £8.9m);
· Reported loss before tax of £4.7m (FY23: £12.5m);
· Net debt as at 31 March 2024 of £72.4m (31 March 2023: net debt
of £73.0m); and
· Adjusted net debt as at 31 March 2024 of £42.0m (31 March 2023:
adjusted net debt of £35.6m);
*Adjusted EBITDA is EBITDA excluding exceptional items, share-based payments
and associated National Insurance. Exceptional items are outlined in Note 2.
^Adjusted operating profit is reported operating profit excluding amortisation
of intangible assets arising on business combinations, exceptional items and
share-based payments.
The net debt position is after dividend payments of £1.4m, the payments of
contingent consideration of £0.9m for the acquisitions of Sungard DC's
(£0.4m) and 7 Elements (£0.5m), exceptional items largely relating to
integration and restructuring costs of £4.0m, working capital inflow of
£0.1m and capital expenditure of £10.7m.
Outlook
FY24 was a very productive year with all the original integration programmes
materially completed, generating cost savings either in line or slightly ahead
of our expectations, albeit with the energy conservation measures implemented
later than anticipated. The business is seeing strong organic revenue growth
and is seizing the potential opportunities provided by both the Broadcom
acquisition of VMware and the emergence of high-density AI demand.
The Enterprise grade data centre facilities that were part of the Sungard DC
acquisition are proving to be a key differentiator and are attracting
significant interest from Enterprise clients.
The electricity conservation measures, combined with a significant proportion
of secured lower electricity prices from 1 April 2024, means that electricity
costs (elevated over the past two financial years as a result of geopolitical
events) are expected to reduce by £8.1m in FY25.
With both the synergy and energy efficiency programmes completing during FY24,
FY25 will be the first full year that reflects the full benefit of the
acquisitions.
The focus for FY25 will be to continue driving organic recurring revenue and
EBITDA growth of at least 5% and 7.5% respectively, whilst leveraging
operational gearing to deliver improved margins and cashflow performance.
Peter Brotherton
Chief Executive Officer
15 August 2024
Financial Review
Year ended 31 March 2024 ("FY24") Year ended 31 March 2023 ("FY23") Change
Total revenue £163.2m £141.7m 15.2%
Recurring revenue(1) £149.1m £128.5m 16.1%
Recurring revenue percentage(1) 91.4% 90.7% 0.7%
Adjusted EBITDA(1) £28.3m £24.5m 15.6%
Adjusted operating profit(1) £9.7m £8.6m 11.8%
Reported operating profit/(loss) £0.9m (£8.9m) 109.5%
Reported loss before tax (£4.7m) (£12.5m) 62.7%
Adjusted cash generated from operations(1) £27.4m £23.1m 18.7%
Reported cash generated from operations £23.2m £14.8m 56.2%
Net debt(1) (£72.4m) (£73.0m) 0.9%
Adjusted net debt (1) (£42.0m) (£35.6m) (18.0%)
Adjusted basic earnings per share(1) 1.99p 2.66p (25.1%)
Reported basic loss per share (2.20p) (5.94p) 63.1%
Percentage changes calculated on absolute values.
(1) For an explanation of the alternative performance measures used in this
report, please refer to Appendix 1.
Overview
The results for FY24 represent the first full year of trading of the 4D Data
Centres and the two Sungard acquisitions, with FY23 containing approximately 9
months trading from both acquisitions. The impact of this, coupled with
organic growth, resulted in improvements in total revenue, recurring revenue,
adjusted EBITDA and adjusted operating profit. Reported operating profit has
been significantly impacted by the costs of exiting the Harrogate data centre
and migrating customers to other sites, primarily our West Yorkshire data
centre. Despite this, reported operating profit has improved by £10.0m
reflecting significant exceptional costs in the prior year related to the
acquisition and integration activity, coupled with the release of £2.1m of
contingent consideration in FY24 in relation to the Sungard acquisition
following final settlement with the administrators.
Whilst still recording a reported loss after tax for the year of £3.5m in
FY24, this has significantly reduced on FY23 by £5.8m representing the
improved trading performance of the Group at adjusted EBITDA coupled with the
materially reduced exceptional costs following the increased
acquisition-related spending in FY23. Net debt has remained broadly stable at
£72.4m (FY23: £73.0m), with adjusted net debt at £42.0m (FY23: £35.6m),
reflecting the capex investment in FY24 to deliver future energy efficiency
gains, coupled with the exceptional costs associated with exiting the
Harrogate data centre.
Key considerations in the Financial information, but relating principally to
the prior year, include:
1. On 26 April 2022, the Group completed a refinance of its debt
facilities that were due to mature on 30 June 2022. The new debt facilities
consist of an £80m Revolving Credit Facility ("RCF"), £7m Asset Financing
Facility and a £20m uncommitted accordion facility and are provided by a new
four bank group consisting of NatWest, Barclays, Bank of Ireland, and Silicon
Valley Bank (now under the HSBC group) (the "New Facility"), with the Asset
Financing Facility provided by Lombard. The New Facility had an initial
maturity date of 26 April 2025 with options to extend by a further one or two
years. The borrowing cost of the RCF is determined by the level of the Company
leverage. An arrangement fee of 75 basis points was payable upfront, in
addition to a commitment fee on the undrawn portion of the new RCF, on
equivalent terms to the previous facility. The New Facility provides the Group
with additional liquidity to be used for working capital purposes and to fund
acquisitions. On 26 March 2024 these debt facilities were extended at the
Group's request, with a new maturity date of 26 April 2026. As part of this
extension of the RCF and Asset Financing Facility term, there were no material
changes to the financial debt covenants or to other terms and conditions of
the agreements.
2. The acquisition on 7 June 2022 by the Group's trading subsidiary
Redcentric Solutions Limited of the consulting business from Sungard
Availability Services (UK) Limited (in administration) for £4.2m
consideration paid in cash. The business provides services in respect of
business continuity, cloud and infrastructure, cyber resilience, disaster
recovery and hybrid cloud transformation services alongside the provision and
operation of cloud related services. This acquisition is considered to be a
linked transaction with the DC acquisition as mentioned in note 4 below.
3. The acquisition on 27 June 2022 by Redcentric Solutions Limited for
100% of the share capital of 4D Data Centres Limited ("4D") for £10.1m
consideration paid in cash. The business provides colocation, cloud and
connectivity services to mid-market customers. The primary purpose of the
business combination is to scale the Group's existing revenues in this area
with significant synergies expected as the acquisition is integrated into the
Group. On 28 February 2023, the trade, assets and liabilities of 4D were
hived into Redcentric Solutions Limited.
4. The acquisition on 6 July 2022 by Redcentric Solutions Limited of
certain business and assets relating to three data centres "DCs" from Sungard
Availability Services (UK) Limited (in administration) for initial
consideration of £10.1m paid in cash and a cash prepayment of £3.4m, with
contingent consideration at a maximum potential value of £19.0m depending on
customer retention and certain performance criteria in the 12-month period
post-acquisition. During FY24 the contingent consideration was finalised and
£0.4m was paid.
The key financial highlights are as follows:
· Total revenue growth of 15.2% to £163.2m (FY23: £141.7m).
· Recurring revenue grew by 16.1% to £149.1m, with recurring
revenue representing 91.4% of the total revenue (FY23: £128.5m/90.7%).
· Gross profit has increased by 17.0% to £118.0m.
· Adjusted EBITDA of £28.3m is 15.6% ahead of FY23.
· Adjusted operating profit increased by £1.1m to £9.7m (11.8%
increase).
· Adjusted net debt as at 31 March 2024 was £42.0m, excluding
£30.3m of IFRS16 lease liabilities that were previously classified as
operating leases under IAS17.
· Reported operating profit increased by £9.8m to £0.9m.
· Reported loss before tax has reduced by £7.8m to £4.7m (FY23:
£12.5m).
Revenue
Revenue for FY24 was generated wholly from the UK and is analysed as follows:
Year ended Year ended ( ) Change Change
31 March 31 March
2024 2023
£'000 £'000 £'000 %
Recurring revenue(1) 149,091 128,461 20,630 16.1
Product revenue 5,507 7,144 (1,637) (22.9)
Services revenue 8,552 6,069 2,483 40.9
Total revenue 163,150 141,674 21,476 15.2
(1) For an explanation of the alternative performance measures used in this
report, please refer to Appendix 1.
Total revenue increased by £21.5m compared to FY23, impacted by the first
full year of revenue generated from FY23 acquisitions of 4D Data Centres and
Sungard (FY23 had approximately 9 months of trading of both acquisitions).
Revenue is analysed into the following categories:
· Recurring revenue has increased 16.1% to £149.1m (FY23:
£128.5m) reflecting a full year of revenue generated from FY23 acquisitions
of Sungard and 4D Data Centres (FY23 had approximately 9 months of trading of
both acquisitions), coupled with organic revenue growth.
· Non-recurring product revenue has decreased £1.6m to £5.5m
(FY23: £7.1m), with sales activity focused on higher margin services revenue
(see below).
· Non-recurring services revenue increased to £8.6m (FY23:
£6.1m), reflecting a shift in focus from lower margin product revenue.
Gross profit
Year ended Change Change
£'000
%
31 March Year ended
2024 31 March
£'000 2023
£'000
Gross Profit 118,035 100,911 17,124 17.0
Gross Margin 72.3% 71.2% N/A N/A
Gross profit increased by 17.0% (£17.1m) reflecting the Group's increased
revenue and contribution from the full year of trading from 4D Data Centres
and Sungard Consulting acquisitions. Gross Margin % has increased partly due
to higher gross margin recurring revenue from colocation contracts within the
4D Data Centres and Sungard acquisitions, coupled with the impact of a shift
in non-recurring revenues away from product sales to higher margin services
revenue.
Adjusted operating costs(1)
The Group's adjusted operating costs (operating expenditure excluding
depreciation, amortisation, exceptional items, other operating income and
share-based payments) are set out in the table below:
Year ended Year ended Change Change
31 March 31 March
2024 2023
£'000 £'000 £'000 %
UK employee costs 39,202 34,482 4,720 13.7
Office and data centre costs 30,702 25,335 5,367 21.2
Network and equipment costs 14,319 11,824 2,495 21.1
Other sales, general and administration costs 4,273 3,364 909 27.0
Offshore costs 1,223 1,414 (191) (13.5)
Total adjusted operating costs 89,719 76,419 13,300 17.4
(1)For an explanation of the alternative performance measures used in this
report, please refer to Appendix 1.
Total adjusted operating costs for FY24 were 17.4% (£13.3m) higher than prior
year, reflecting:
· Employee costs increased £4.7m (13.7%) primarily due to a first
full year of headcount acquired through the 4D Data Centres and Sungard
acquisitions;
· Office and data centre costs increased by £5.4m (21.2%),
primarily due to the impact of increased electricity costs as several
electricity supply contract renewals fell due during the UK energy crisis, and
the increase in the number of data centres through the 4D Data Centres and
Sungard acquisitions; and
· Network and equipment costs increased by £2.5m (21.1%), and
other sales, general and administration costs are up £0.9m (27.0%), both
primarily due to the first full year of trading from the 4D Data Centres and
Sungard acquisitions.
Employees
( ) Year ended Year ended Variance (Number)
31 March 2024 31 March 2023 (Number)
(Number)
Year-end headcount
UK 562 540 22
India 97 98 (1)
Total employees 659 638 21
Average headcount
UK 561 491 70
India 98 97 1
Total employees 659 588 71
Adjusted EBITDA(1)
Adjusted EBITDA is EBITDA excluding exceptional items (as set out in Note 2),
share-based payments and associated National Insurance costs. The same
adjustments are also made in determining the adjusted EBITDA margin.
( ) Year ended 31 March 2024 Year ended
31 March
2023
( ) £'000 £'000
Reported operating profit/(loss) 852 (8,939)
Amortisation of intangible assets arising on business combinations 5,229 8,183
Amortisation of other intangible assets 781 590
Depreciation of property, plant and equipment 6,089 4,636
Depreciation of right-of-use assets 11,777 10,617
EBITDA 24,728 15,087
Exceptional income (2,100) -
Exceptional costs (comprised of): 4,550 8,149
all items:
Acquisition fees 350 695
Integration costs 3,467 5,965
Restructuring costs 733 -
Costs relating to the settlement of an historical supplier dispute - 809
Cloud computing costs - 680
Share-based payments and associated National Insurance 1,138 1,256
Adjusted EBITDA(1) 28,316 24,492
(1) For an explanation of the alternative performance measures used in this
report, please refer to Appendix 1.
Adjusted EBITDA increased by 15.6% to £28.3m, £3.8m higher than the prior
year. FY24 includes a full year of contribution from the Sungard and 4D Data
Centres acquisitions (FY23: approximately 9 months of contribution).
Taxation, interest and dividends
The tax charge for the year was a credit of £1.2m (FY23: a credit of £3.2m),
comprising an income tax charge of £0.2m (FY23: a charge of £0.1m), and a
deferred tax credit of £1.4m (FY23: a credit of £3.3m).
Net finance costs for the year were £5.5m (FY23: £3.5m), including £1.3m
(FY23: £1.2m) of interest payable on leases of which £1.3m (FY23: £1.2m)
related to leases previously recognised as operating leases under IAS17.
The Group paid a final dividend in respect of the year to 31 March 2023 of
2.4p per ordinary share, with a total payment value of £3.8m. This was made
up of £1.4m cash with the remainder in dividend shares.
During the year, the Group paid an interim dividend for FY24 of 1.2p per
share, totalling £1.9m (FY23: 1.2p per share).
A final dividend payment of 2.4p per share will be paid on 24 January 2025,
subject to approval at the Company's AGM, to shareholders on the register at
the close of business on 13 December 2024 with shares going ex-dividend on 12
December 2024. The last day for Dividend Reinvestment Plan elections is 2
January 2025.
Net debt
During the year, net debt decreased from £73.0m to £72.4m as at 31 March
2024, with the movements shown in the tables below:
Year ended 31 Year ended 31
March 2024 March 2023
£'000 £'000
Operating profit/(loss) 852 (8,939)
Depreciation and amortisation 23,876 24,026
Exceptional costs 4,550 8,149
Exceptional income (2,100) -
Share based payments 1,138 1,256
Adjusted EBITDA(1) 28,316 24,492
Profit on disposal of fixed assets (53) -
Working capital movements 114 (1,410)
Movement on provisions (978) -
Adjusted cash generated from operations 27,399 23,082
Cash conversion 96.8% 94.2%
Capital expenditure - cash purchases (9,259) (6,374)
Capital expenditure - finance lease purchases (1,485) -
Asset financing proceeds 2,419 966
Net capital expenditure (8,325) (5,408)
Corporation tax paid (174) (670)
Interest paid (3,615) (1,795)
Loan arrangement fees/fee amortisation (209) (291)
Finance lease interest (1,328) (1,248)
Effect of exchange rates (109) (101)
Other movements in net debt (5,435) (4,105)
Normalised net debt movement(1) 13,639 13,569
Cash cost of exceptional items (4,240) (8,258)
Acquisition of subsidiaries (net of cash acquired) (890) (26,606)
IFRS 16 lease additions (4,237) (28,314)
IFRS 16 lease additions on acquisition - (1,976)
Drawdown on Asset Financing Facility (2,419) -
Remeasurement relating to lease modification - 629
Dividends paid in cash (1,369) (5,593)
Disposal of treasury shares on exercise of share options 116 229
(13,039) (69,889)
Decrease/(increase) in net debt 600 (56,320)
Net debt at the beginning of the period (72,965) (16,645)
Net debt at the end of the period (72,365) (72,965)
(1)For an explanation of the alternative performance measures used in this
report, please refer to Appendix 1. Exceptional items are outlined in Note
2.
( ) As at 31 March 2023 Net cash flow Net non- cash flow As at 31 March 2024
( ) As at 31 March 2022 Net cash Net non-
flow cash flow
( ) £'000 £'000 £'000 £'000 £'000 £'000 £'000
Cash 1,804 (335) (103) 1,366 1,873 (109) 3,130
RCF - (31,537) (2,094) (33,631) (2,712) (3,542) (39,885)
Term Loan (1,004) 533 (24) (495) 474 - (21)
Asset Financing Facility - - - - (1,517) (2,092) (3,609)
Lease Liabilities (17,445) (21,543) (1,217) (40,205) 7,728 497 (31,980)
(16,645) (52,882) (3,438) (72,965) 5,846 (5,246) (72,365)
Included in lease liabilities at 31 March 2024 are £30.3m (FY23: £36.9m) of
IFRS 16 lease liabilities that were previously classified as operating leases
under IAS17.
Trade receivables and trade payables
In the year, focus remained on maintaining a strong ageing profile with a low
level of aged debt. At the year end, 87% of gross trade debt was current or
less than 30 days overdue (FY23: 96%).
( ) Year ended Year ended
31 March 31 March
2024 2023
( ) £'000 £'000
Current 14,008 18,450
1 to 30 days overdue 2,928 2,212
31 to 60 days overdue 1,794 557
61 to 90 days overdue 383 283
91 to 180 days overdue 320 194
> 180 days overdue (43) (240)
Gross trade debtors 19,390 21,456
Provisions (1,200) (1,251)
Net trade debtors 18,190 20,205
Trade debtor days were 36 at 31 March 2024 compared to 46 at 31 March 2023.
Trade debtor days are calculated as gross trade debtors divided by revenue
(incl. VAT) multiplied by 365.
Trade payable days were 36 at 31 March 2024 compared to 42 as at 31 March
2023. Trade payable days are calculated as trade payables divided by total
purchases (cost of sales and operating expenditure) multiplied by 365.
Financing
31 March 2024 31 March 2023
Available Drawn Undrawn Available Drawn Undrawn
£'000s £'000s £'000s £'000s £'000s £'000s
Committed
- Revolving Credit Facility 80,000 40,000 40,000 80,000 34,000 46,000
- Term Loans 21 21 - 496 496 -
- Leases 35,588 35,588 - 40,204 40,204 -
- Asset Financing Facility 7,000 3,625 3,375 7,000 2,309 4,691
122,609 79,234 43,375 127,700 77,009 50,691
Uncommitted
- Accordion Facility 20,000 - 20,000 20,000 - 20,000
20,000 - 20,000 20,000 - 20,000
Total borrowing facilities 142,609 79,234 63,375 147,700 77,009 70,691
Uncommitted facilities represent facilities available to the Group, but which
can be withdrawn by the lender and hence are not within the Group's control.
As at 31 March 2024, the Group was party to £87.0m of committed banking
facilities, comprising a Revolving Credit Facility of £80.0m (net £40.0m
utilised at 31 March 2024) and a £7.0m Asset Financing Facility (£3.6m
utilised at 31 March 2024). As at 31 March 2024, these facilities are due to
expire on 25 April 2026.
The borrowing cost of the RCF is determined by the Group's leverage and has a
borrowing cost of 235 basis points over SONIA at the Group's current leverage
levels. A commitment fee is payable on the undrawn portion of the RCF at 94
basis points, being 40% of the borrowing cost.
David Senior
Chief Financial Officer
15 August 2024
Consolidated Statement of Comprehensive Income for the year ended 31 March
2024
Year ended 31 March 2024 Year ended
31 March
2023
£'000 £'000
Revenue 163,150 141,674
Cost of sales (45,115) (40,763)
Gross profit 118,035 100,911
Operating costs (119,283) (109,938)
Other operating income - 88
Gain on settlement of contingent consideration 2,100 -
Adjusted EBITDA(1) 28,316 24,492
Depreciation of property, plant and equipment (6,089) (4,636)
Amortisation of intangibles (6,010) (8,773)
Depreciation of right-of-use assets (11,777) (10,617)
Exceptional costs (4,550) (8,149)
Exceptional income 2,100 -
Share-based payments (1,138) (1,256)
Operating profit/(loss) 852 (8,939)
Finance costs (5,502) (3,530)
Loss before taxation (4,650) (12,469)
Income tax credit 1,209 3,219
Loss for the period attributable to owners of the parent (3,441) (9,250)
Other comprehensive income
Items that may be reclassified subsequently to profit or loss:
Currency translation differences (117) (97)
Deferred tax movement on share options - 47
Total comprehensive loss for the period (3,558) (9,300)
Earnings per share
Basic loss per share (2.20p) (5.94p)
Diluted loss per share (2.20p) (5.94p)
(1) For an explanation and reconciliation of the alternative performance
measures used in this report, please refer to Appendix 1.
The accompanying Notes form an integral part of this financial information.
Consolidated Statement of Financial Position as at 31 March 2024
31 March 2024 31 March 2023
£'000 £'000
Non-Current Assets
Intangible assets 78,883 83,217
Property, plant and equipment 21,422 17,131
Right-of-use assets 37,478 46,282
Trade and other receivables 3,307 -
Deferred tax asset 2,503 1,076
143,593 147,706
Current Assets
Inventories 4,187 3,716
Trade and other receivables 33,543 39,254
Corporation tax receivable 53 48
Cash and cash equivalents 3,130 1,366
40,913 44,384
Total Assets 184,506 192,090
Current Liabilities
Trade and other payables 42,154 43,578
Bank loans and asset financing 1,149 475
Lease liabilities 8,903 10,804
Provisions 892 1,841
Contingent consideration - 2,990
53,098 59,688
Non-Current Liabilities
Bank loans and asset financing 42,366 33,651
Lease liabilities 23,077 29,400
Provisions 11,482 11,160
76,925 74,211
Total Liabilities 130,023 133,899
Net Assets 54,483 58,191
Equity
Called up share capital 159 157
Share premium account 75,649 73,267
Common control reserve (9,454) (9,454)
Own shares held in treasury (779) (898)
Retained earnings (11,092) (4,881)
Total Equity 54,483 58,191
The accompanying Notes form an integral part of this financial information.
Consolidated Cash Flow Statement for the year ended 31 March 2024
Year ended 31 March 2024
Year ended
31 March 2023
£'000 £'000
Loss before taxation (4,650) (12,469)
Finance costs 5,502 3,530
Operating profit/(loss) 852 (8,939)
Adjustment for non-cash items
Depreciation and amortisation 23,876 24,026
Profit on disposal of property, plant and equipment (53) -
Exceptional income (2,100) -
Exceptional costs 4,550 8,149
Share-based payments 1,138 1,256
Operating cash flow before exceptional items and movements in working capital 28,263 24,492
Cash costs of exceptional items (4,240) (8,258)
Cash costs of provisions (978) -
Operating cash flow before changes in working capital 23,045 16,234
Changes in working capital
Increase in inventories (471) (2,324)
Decrease/(increase) in trade and other receivables 2,411 (15,463)
(Decrease)/increase in trade and other payables (1,826) 16,377
Cash generated from operations 23,159 14,824
Tax paid (174) (670)
Net cash generated from operating activities 22,985 14,154
Cash flows from investing activities
Purchase of property, plant and equipment (9,265) (5,505)
Acquisition of subsidiaries (net of cash acquired) (890) (26,606)
Purchase of intangible assets (1,479) (869)
Net cash used in investing activities (11,634) (32,980)
Cash flows from financing activities
Dividends paid (1,369) (5,593)
Disposal of treasury shares on exercise of share options 116 229
Financing of property, plant and equipment 2,419 966
Interest paid on bank loans, term loans and asset financing (3,569) (1,771)
Interest paid on leases (1,328) (1,218)
Repayment of leases (10,638) (6,901)
Repayment of asset financing liabilities (635) -
Repayment of term loans (474) (508)
Drawdown of bank loans 16,500 55,500
Repayment of bank loans (10,500) (21,500)
Payment of loan arrangement fees - (713)
Net cash used in financing activities (9,478) 18,491
Net increase/(decrease) in cash and cash equivalents 1,873 (335)
Cash and cash equivalents at beginning of period 1,366 1,804
Effect of exchange rates (109) (103)
Cash and cash equivalents at end of the period 3,130 1,366
The accompanying Notes form an integral part of this financial information.
Consolidated Statement of Changes in Equity for the year ended 31 March 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 2022 157 73,267 (9,454) (2,673) 10,551 71,848
Loss for the period - - - - (9,250) (9,250)
Transactions with owners
Share-based payments - - - - 1,044 1,044
Dividends paid - - - - (5,593) (5,593)
Share option exercises - - - 1,775 (1,546) 229
Deferred tax relating to prior periods - - - - (37) (37)
Other comprehensive income
Deferred tax movement on share options - - - - 47 47
Currency translation differences - - - - (97) (97)
At 31 March 2023 157 73,267 (9,454) (898) (4,881) 58,191
Loss for the period - - - - (3,441) (3,441)
Transactions with owners
Share-based payments - - - - 1,053 1,053
Issue of new shares 2 2,382 - - - 2,384
Dividends paid (3,752) (3,752)
Share option 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 - - - - (117) (117)
At 31 March 2024 159 75,649 (9,454) (779) (11,092) 54,483
The accompanying Notes form an integral part of this financial information.
Notes to the Financial information for the year ended 31 March 2024
1 Summary of significant accounting policies
Redcentric plc is a public limited company incorporated and domiciled in
England and Wales, whose shares are publicly traded on the AIM division of the
London Stock Exchange. Redcentric plc was incorporated on 11 February 2013 and
admitted to AIM on 24 April 2013.
The Group Financial Statements have been prepared and approved by the
Directors in accordance UK-adopted international accounting standards
("UK-adopted IFRS").
The principal accounting policies applied in the preparation of those
Financial Statements are set out below. These policies have been applied
consistently in the current and prior period.
This Financial Information is presented in pound sterling, being the currency
of the primary economic environment in which the Group operates. All amounts
have been rounded to the nearest thousand (£'000), unless otherwise
indicated.
The Financial information is prepared on the historical cost basis except that
contingent consideration is measured at fair value.
Basis of preparation
While the financial information included in this preliminary announcement has
been prepared in accordance with the recognition and measurement criteria of
International Financial Reporting Standards (IFRSs), this announcement does
not itself contain sufficient information to comply with IFRSs.
The financial information set out above does not constitute the Company's
statutory accounts for the years ended 31 March 2024 or 2023 but is derived
from those accounts. Statutory accounts for 2023 have been delivered to the
registrar of companies, and those for 2024 will be delivered in due course.
The auditor has reported on those accounts; their reports were (i)
unqualified, (ii) did not include a reference to any matters to which the
auditor drew attention by way of emphasis without qualifying their report and
(iii) did not contain a statement under section 498 (2) or (3) of the
Companies Act 2006.
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 meets their day to day working capital requirements from
the Group's operational cash flows, a Revolving Credit Facility, Asset
Financing Facility and leasing arrangements. The Revolving Credit Facility
is an £80.0m facility (net £40.0m utilised at 31 March 2024), while the
Asset Financing Facility is a £7.0m facility (increased to £10.0m in August
2024). £3.6m of the Asset Financing Facility was utilised at 31 March 2024.
In March 2024 the Revolving Credit Facility and Asset Financing Facility were
extended at the Group's request, with a new 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 has continued to invest heavily in integration and
efficiency programmes which are expected to deliver significant benefits to
the business from FY25 onward. In addition, a significant proportion of the
Group's focus has been on the Harrogate data centre relocation 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, 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 budget for the year ending 31
March 2025, and a forecast for the year ending 31 March 2026, and the going
concern assessment takes account of the debt covenant requirements.
The forecasts include several 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 at forward rates favourable to
those achieved in FY24). Revenue assumptions reflect levels achieved in FY24
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 largely 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. 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.
In addition to the base case and severe but plausible downside forecasts, the
Directors have modelled an overlay scenario in anticipation of an EBITDA
enhancing, significant new customer contract. This contract would necessitate
certain upfront capital expenditure, with revenues following later in the
forecast period when services commence. As a result, in August 2024 agreement
was reached with the Group's lenders to increase the Asset Financing Facility
limit to £10.0m. The overlay scenario models the impacts of this potential
new contract into the base case and severe but plausible downside forecasts,
including the timing and financing of related capital expenditure, and the
resulting impacts on debt covenant compliance.
Under the downside scenario modelled, and including the new customer contract
overlay, 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.
Changes in accounting policy and disclosure
The amendment to IAS 12 Income Taxes for assets and liabilities arising from a
single transaction has been recognised in the current year with the prior year
comparative restated. There is no requirement for a full retrospective
application.
Adopted IFRS not yet applied
There are no new standards, amendments to existing standards or
interpretations that are not yet effective that are expected to have a
material impact on the Group. Such developments are routinely reviewed by the
Group and its financial reporting systems are adapted as appropriate.
Basis of consolidation
The Group Financial Statements consolidate those of the Company and of its
subsidiary undertakings drawn up to 31 March 2024.
Subsidiaries are all entities over which the Group has control. The Group
controls an entity when the Group is exposed to, or has rights to, variable
returns from its involvement with the entity and has the ability to affect
those returns through its power over the entity. Subsidiaries are fully
Consolidated from the date on which control is transferred to the Group. They
are deconsolidated from the date that control ceases.
Intra-group transactions, balances and unrealised gains and losses on
transactions between group companies are eliminated on consolidation.
Critical accounting judgements, key sources of estimation uncertainty and
other areas of estimation
In the application of the Group's accounting policies, which are described in
Note 1, 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 year ended 31 March 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 2.
Going concern
Management have prepared reports and financial models on the going concern
assumptions when considering the FY24 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 the basis of preparation section.
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
financial year.
2 Exceptional items
( ) Year ended Year ended
( ) 31 March 31 March
( ) 2024 2023
( ) £'000 £'000
Included within operating costs:
Acquisition related professional and legal fees 350 695
Integration costs 3,467 5,965
Restructuring costs 733 -
Costs relating to the settlement of a historical supplier dispute - 809
Cloud computing costs - 680
Total exceptional costs 4,550 8,149
Presented separately in the Consolidated Statement of Comprehensive Income:
Gain on settlement of contingent consideration (2,100) -
Total exceptional income (2,100) -
Current year
Exceptional costs
Acquisition related professional and legal fees of £0.4m (FY23: £0.7m) are
for professional services linked to the significant acquisitions of certain
business and assets relating to three data centres from Sungard Availability
Services (UK) Limited ("Sungard"), the consulting business from Sungard and
100% of the issued share capital of 4D Data Centres Limited during the
previous year. These costs, though incurred in FY24, relate to the acquisition
projects and include valuation services in respect of establishing the fair
value of acquired assets and other associated professional fees. Cash costs
were £0.4m (FY23: £0.7m)
Integration costs of £3.5m (FY23: £6.0m) principally relate to the exit of
the Harrogate data centre and relocation of both customer and internal
platforms to our West Yorkshire data centre in Elland, which accounted for
£2.6m of the integration costs. This activity was intrinsically linked to the
integration of the Sungard and 4D Data Centre acquisitions, which left the
Group with significant data centre capacity that required consolidation.
Following a period of assessment of which data centres would best serve the
Group going forward, it was determined the Harrogate data centre and adjoining
office space would be exited at the end of the current lease on the 24 March
2024.
The relocation of the Harrogate data centre was a significant undertaking for
the Group, involving dedicated resource for up to 12 months, including staff
that were seconded to the project, and diverted away from other value-adding
activities, for most or all of their time before returning to their existing
roles following the project's completion. It is expected that £0.7m of cost
allocated to integration costs in FY24 in respect of this move relates to
staff costs which would have been included within adjusted operating profit in
the prior year. In total, £1.4m of third-party expenditure across contract
resource and other directly associated spend and £1.2m of staff salaries,
bonuses and associated taxes were spent on the move to migrate activities to
the West Yorkshire data centre. In addition, £1.0m of cost was incurred to
restore the Harrogate site to its original condition following the customer
migration. These costs, where they relate to restoration and dilapidations
activity, are shown as a utilisation of the existing dilapidations provision
for this site (Note 3).
The remaining £0.9m of integration costs presented within exceptional costs
include £0.7m incurred to decommission presences in two third-party data
centres inherited from acquisitions as part of the ongoing strategy to
consolidate the estate and £0.2m related to staff costs performing other
integration work to migrate legacy platforms.
Cash costs relating to exceptional integration costs in the year were £3.1m
(FY23: £6.0m).
Restructuring costs include £0.5m of staff costs associated with a management
restructure for staff who have subsequently left the business, and £0.2m of
related legal fees. Cash costs were also £0.7m.
Exceptional income
During FY24, the consideration for the Sungard acquisition was finalised.
£2.5m of contingent consideration was recognised as a liability in the prior
year based on the expectations at prior year balance sheet date. The final
position has now been crystallised on the anniversary of date of the
acquisition, in line with the purchase agreement. During FY24, the final
settlement totalled £0.4m, and therefore an exceptional £2.1m credit has
been recognised as a gain on settlement of contingent consideration in line
with the prior year subsequent events disclosure. This is presented
separately on the face of the Consolidated Statement of Comprehensive Income.
Prior year
Exceptional costs
Acquisition related professional and legal fees of £0.7m in FY23 were for
professional services linked to the three acquisitions in the prior year, as
explained above. Cash costs were £0.7m.
The integration costs in FY23 relate to costs incurred in integrating the
three businesses (Sungard data centres, Sungard Consulting and 4D Data
Centres) into the Group during FY23 and include costs relating to the TSA
(Transition Service Agreement) (£1.4m), migrating customers (£1.2m) and
employee restructuring relating to employees who had subsequently left the
business (£3.3m). There was also £0.1m of professional fees directly
relating to the incremental financial statement audit procedures completed on
the acquisition accounting.
In the prior year, costs relating to the settlement of a historical supplier
dispute totalled £0.6m for the crystallisation of the settlement and £0.2m
charged by the Group's legal advisors in respect of this matter. Cash costs
were £0.8m.
Cloud computing costs of £0.7m in the prior year related to expenditure to
achieve the original implementation scope of the Group's major ERP
implementation programme, and the continued remediation of the Group's ERP
system (Microsoft Dynamics 365) to resolve a number of implementation related
process and system deficiencies that required correcting post initial
implementation. Cash costs were £0.7m.
3 Provisions
Dilapidation
provision
£'000
At 1 April 2022 3,883
Additional provisions created during the period 8,426
Provisions acquired from business combination 692
At 31 March 2023 13,001
Additional provisions created during the period 351
Utilised during the period (978)
At 31 March 2024 12,374
FY24 Analysed as:
Current 892
Non-current 11,482
12,374
FY23 Analysed as:
Current 1,841
Non-current 11,160
13,001
The dilapidations provision represents the estimated costs associated with
returning certain leasehold properties to the original condition upon exiting
the lease. Given there is estimation in determining the quantum of provisions
to be recognised a third-party expert was engaged to determine appropriate
estimates. This is not considered to be a critical estimate as it is not
expected to be subject to material reversal in future periods given the
specialist input used to inform the estimate, and the nature of the
estimate.
Dilapidation provisions have maturity dates from 2024 to 2040 and are
therefore discounted to present value using a risk-free interest rate (UK
Government Bond rates) at the year end, depending on the length of the related
lease. The discount rates used to calculate the initial provision ranges
from 1.85% to 2.63%. After initial measurement, any subsequent adjustments to
the dilapidations provision will be recorded against the original amount
included in right-of-use assets with a corresponding adjustment to future
depreciation charges. The utilisation of the dilapidations provision will be
in line with the end of the leasehold properties lease terms to which the
provisions relate. The increase of £0.4m through additional provisions
created has resulted from the net financing movement in the year.
4 Intangible assets
Customer contracts and related relationships Trademarks and brands Software and licences Total
Goodwill
£'000 £'000 £'000 £'000 £'000
Cost
At 1 April 2022 52,416 65,030 449 5,570 123,465
Additions - - - 869 869
Additions on acquisition 8,224 15,100 200 - 23,524
Disposals - - - (135) (135)
Exchange differences - - - (1) (1)
At 31 March 2023 60,640 80,130 649 6,303 147,722
Additions - - - 1,479 1,479
Disposals - - - (393) (393)
Transfers from property, plant and equipment - - - 261 261
At 31 March 2024 60,640 80,130 649 7,650 149,069
Accumulated amortisation and impairment
At 1 April 2022 - 50,893 449 4,397 55,739
Charged in year - 7,983 200 590 8,773
Disposals - - - (7) (7)
At 31 March 2023 - 58,876 649 4,980 64,505
Charged in year - 5,229 - 781 6,010
Disposals - - - (393) (393)
Transfers from property, plant and equipment - - - 64 64
At 31 March 2024 - 64,105 649 5,432 70,186
At 31 March 2024 60,640 16,025 - 2,218 78,883
At 31 March 2023 60,640 21,254 - 1,323 83,217
Amortisation of customer contracts has decreased by £2.8m to £5.2m in
FY24. This is because one large customer contract was fully amortised at the
end of FY23, while a second was fully amortised during FY24.
Customer contracts have a weighted average remaining amortisation period of 8
years and 9 months (FY23: 8 years and 6 months). There are no indicators of
impairment at 31 March 2024.
Software and licences include £1.3m (FY23: £0.6m) of additions in relation
to customer capital expenditure.
Included within software and licences is £0.5m (FY23: £nil) of assets
financed under the Group's Asset Financing Facility. The Directors have
exercised judgement in determining that there has been no sale of these assets
under IFRS15 and therefore the assets are financed rather than representing a
sale and leaseback arrangement.
Goodwill has been allocated to one cash-generating unit (CGU) at 31 March 2024
whereas in the prior year goodwill was allocated to two CGUs being IT Managed
Services and Security Services. During FY24 the Security Services business,
being the 7 Elements acquisition, was further integrated into Redcentric
infrastructure and operations. At the year-end management no longer believe
it capable of generating independent cash flows from the Group.
Goodwill is tested annually for impairment and, to confirm whether an
impairment of the goodwill is necessary, management compares the carrying
value to the value in use. Other intangible assets are tested for impairment
whenever events or a change in circumstances indicate carrying values may no
longer be recoverable. Consideration for any impacts of climate-related
risks to impairment is not deemed to affect the overall conclusions in the
medium to long-term.
The value in use has been calculated using a Board approved five-year forecast
cash flow projections to the period of 31 March 2029 comprising the detailed
Group budget for FY25 and latest detailed forecast for FY26, with higher level
assumptions applied for the outer years. A terminal value based on a
perpetuity calculation using a 2.0% real growth rate was then added (FY23:
2.0% growth).
The key assumptions used in the impairment testing were as follows:
· New order intake consistent with that achieved in H2-FY24;
· Price increases in line with CPI;
· Overall gross margin percentage of c. 70% in line with historic
trends;
· Electricity costs driven by near-term contracted prices and
medium-term 3(rd) party price forecasts for energy;
· Operating costs (depending on nature) to increase in line with
either revenue growth or CPI, factoring in any near-term licence inflation;
· Pre-tax discount rate of 10.87% (FY23: 11.2%) (post tax rate of
10.51% (FY23: 10.84%)) estimated using a weighted average cost of capital,
adjusted to reflect current market assessments of the time value of money and
the risks specific to the Group; and
· Terminal growth rate percentage is consistent with the market the
entity operates in for real growth.
The Group has also considered that any cost implications of achieving net zero
would not have a material impact on the assessment period.
A reasonably possible adverse movement to any of the above key assumptions
made would not give rise to impairment.
5 Property, plant and equipment
Leasehold improvements Office fixtures Vehicles and computer equipment Assets under construction Total
and fittings
£'000 £'000 £'000 £'000 £'000
Cost
At 1 April 2022 8,341 1,182 23,264 - 32,787
Additions 700 1,787 2,838 180 5,505
Additions on acquisition 3,330 6,725 1,665 - 11,720
Disposals - - (909) - (909)
Exchange differences - 4 4 - 8
At 31 March 2023 12,371 9,698 26,862 180 49,111
Additions 4,952 95 4,271 - 9,318
Disposals (1,201) (447) (8,367) - (10,015)
Transfer to intangible assets - (261) - - (261)
Transfer from right-of-use assets - - 1,618 - 1,618
Reclassification 180 - - (180) -
Exchange differences (8) - - - (8)
At 31 March 2024 16,294 9,085 24,384 - 49,763
Accumulated depreciation
At 1 April 2022 5,449 622 21,344 - 27,415
Charged in year 1,107 1,450 2,079 - 4,636
On disposals - - (71) - (71)
At 31 March 2023 6,556 2,072 23,352 - 31,980
Charged in year 1,715 2,051 2,323 - 6,089
On disposals (1,201) (447) (8,365) - (10,013)
Transfer to intangible assets - (64) - - (64)
Transfer from right-of-use assets - - 351 - 351
Exchange differences - (2) - - (2)
At 31 March 2024 7,070 3,610 17,661 - 28,341
Net book value
At 31 March 2024 9,224 5,475 6,723 - 21,422
At 31 March 2023 5,815 7,626 3,510 180 17,131
Vehicles and computer equipment includes additions of £2.8m (FY23: £2.6m)
relating to customer capital expenditure.
Included within property, plant and equipment additions is £3.1m (FY23:
£nil) of assets financed under the Group's Asset Financing Facility. The
Directors have exercised judgement in determining that there has been no sale
of these assets under IFRS15 and therefore the assets are financed rather than
representing a sale and leaseback arrangement.
Similar arrangements previously accounted for as a sale and leaseback
arrangement in the prior periods have been adjusted accordingly in the current
year. Included within vehicles and computer equipment is a reclassification of
£1.6m relating to financed assets that were incorrectly included in Note 6 as
a right-of-use asset on the prior period Statement of Financial Position. A
corresponding asset financing liability has also been recognised following a
reclassification from a lease liability in the current period. As the
Directors do not consider the effect on the prior period Financial information
to be material, this has been corrected in the current period.
6 Right-of-use assets
Most of the Group's right-of-use assets are associated with our leased
property portfolio.
Land and buildings Vehicles & computer equipment Total
£'000 £'000 £'000
Cost
At 1 April 2022 26,974 11,936 38,910
Additions 36,189 391 36,580
Additions on acquisition 3,911 - 3,911
Disposals (629) - (629)
Exchange differences (1) - (1)
At 31 March 2023 66,444 12,327 78,771
Additions 699 3,541 4,240
Transfer to property, plant and equipment - (1,618) (1,618)
At 31 March 2024 67,143 14,250 81,393
Accumulated depreciation
At 1 April 2022 13,620 8,252 21,872
Charged in year 8,676 1,941 10,617
At 31 March 2023 22,296 10,193 32,489
Charged in year 10,231 1,546 11,777
Transfer to property, plant and equipment - (351) (351)
At 31 March 2024 32,527 11,388 43,915
Net book value
At 31 March 2024 34,616 2,862 37,478
At 31 March 2023 44,148 2,134 46,282
Of the £4.2m right-of-use assets acquired in the year, £nil was funded using
leases that would have previously been classified as finance leases under
IAS17 (FY23: £nil).
Included in the net book value of land and buildings at 31 March 2024 is
£8.2m right-of-use assets for dilapidations (FY23: £9.8m).
7 Business combinations in prior period
4D Data Centres
On 27 June 2022, the Group's trading subsidiary Redcentric Solutions Limited
acquired 100% of the share capital of 4D Data Centres Limited ("4D") for
£10.1m consideration paid in cash. The business provides colocation, cloud
and connectivity services to mid-market customers. The primary purpose of
the business combination was to scale the Group's existing revenues in this
area with significant synergies expected as the acquisition was integrated
into the Group. Management considered signing of the share purchase
agreement (SPA) on the 27 June 2022 as the change of control and therefore,
acquisition date for the transaction.
The following table summarises the acquisition date fair value of each major
class of consideration transferred:
£'000
Cash 9,842
Deferred consideration(1) 162
True up payment (deferred)(2) 119
( ) 10,123
(1) The deferred consideration was a delayed R&D claim refund due from
HMRC which was to be paid to the Shareholders on receipt.
(2) The true up payment was the additional amount due following the update to
fair values at the time of completion, when the original cash transfer was
based on estimates.
The Group incurred acquisition related costs of £0.2m on legal fees, due
diligence costs and direct integration costs in FY23. These costs have been
included in exceptional items within the prior year column in Note 2.
The following table summarises the recognised amounts of assets and
liabilities assumed as at the date of acquisition:
Fair value
£'000
Property, plant and equipment 2,089
Customer relationships 6,300
Brand 200
Right-of-use assets 1,287
Trade and other receivables 920
Cash and cash equivalents 1,053
Deferred tax (1,787)
Trade and other payables (1,647)
Deferred income (764)
IFRS 16 leases (1,976)
Provisions (692)
Corporation tax receivable 186
Total identifiable net assets acquired 5,169
Goodwill 4,954
Total consideration 10,123
The goodwill arising on acquisition represented the future income from new
customers, the potential to cross-sell existing Group products to the existing
4D customer base, as well as the assembled workforce which was expected to
increase the Group's competence in key growth areas of the Security Services
sector.
The fair value of the acquired customer relationships was £6.3m. To
estimate the fair value of the customer relationships intangible asset, a
multi-period excess earnings "MEEM" approach was adopted. This approach
considered the present value of cash flows expected to be generated by the
customer relationships, excluding any cash flows related to contributory
assets.
On 28 February 2023, the trade, assets and liabilities of 4D were hived into
the Group's trading subsidiary Redcentric Solutions Limited. For the 8
months ended 28 February 2023, 4D contributed revenue of £5.3m and profits,
before allocation of group overheads, share based payments and tax, of £1.1m
to the Group's results in FY23.
Sungard
Consulting
On 7 June 2022, the Group's trading subsidiary Redcentric Solutions Limited
acquired the consulting business from Sungard Availability Services (UK)
Limited (in administration) for £4.2m consideration paid in cash. The
business provides services in respect of business continuity, cloud and
infrastructure, cyber resilience, disaster recovery and hybrid cloud
transformation services alongside the provision and operation of cloud related
services. Management considered signing of the Agreement for the sale of
assets as the change of control and therefore, acquisition date for the
transaction. No assets were acquired, or liabilities assumed from the
Consulting business transaction.
Data Centres
On 6 July 2022, the Group's trading subsidiary Redcentric Solutions Limited
acquired certain business and assets relating to three data centres "DCs" from
Sungard Availability Services (UK) Limited (in administration) for initial
consideration of £10.1m paid in cash and a cash prepayment of £3.4m for a
payment made to the administrators in advance for a license to occupy on the
three DCs, and contingent consideration with a maximum potential value of
£19.0m depending on customer retention and certain performance criteria.
The DCs and Consulting acquisitions were treated as a single transaction.
The resulting change due to this treatment as a single transaction was that
the goodwill from the acquisitions was considered in aggregate rather than
separately.
The following table summarises the acquisition date fair value of each major
class of consideration transferred for the combined transaction:
£'000
Cash 14,320
Prepayment (paid in cash) 3,369
Contingent consideration(3) 2,540
( ) 20,229
(3) The contingent consideration was an additional amount based on an agreed
sliding scale threshold of customers committing to long-term contracts with
the business post-acquisition, determined by the recurring monthly revenue
value by customer and by each of the three data centres. This amount was the
Board's best estimate as at the acquisition date of the amount due as
contingent consideration, discounted to present value.
The Group incurred acquisition related costs of £0.3m on legal fees, due
diligence costs and direct integration costs in FY23. These costs have been
included in exceptional items within the prior year column in Note 2.
During FY24, the contingent consideration was finalised, and the final
settlement totalling £0.4m was paid. Consequently, a £2.1m credit has been
recognised as a fair value adjustment to contingent consideration in
exceptional items (Note 2).
The following table summarises the recognised amounts of assets and
liabilities assumed as at the date of acquisition:
Fair value
£'000
Property, plant and equipment 9,630
Customer relationships 8,800
Right-of-use assets 2,624
Prepayments 745
Deferred tax (4,362)
Accruals (185)
Other creditors (293)
Total identifiable net assets acquired 16,959
Goodwill 3,270
Total consideration 20,229
The goodwill arising on acquisition represented the future income from new
customers and the potential to cross-sell existing Group products to the
existing Sungard customer base, which was expected to increase the Group's
competence in key growth areas of the Security Services sector.
The fair value of the acquired customer relationships was £8.8m. To
estimate fair value of the customer relationships intangible asset, a
multi-period excess earnings "MEEM" approach was adopted, and this approach
considered the present value of cash flows expected to be generated by the
customer relationships, excluding any cash flows related to contributory
assets.
The DCs earned revenue of £36.3m and profits, before allocation of group
overheads, share based payments and tax, of £2.5m in the period since
acquisition in FY23.
The consulting business earned revenue of £0.6m and profits, before
allocation of group overheads, share-based payments and tax, of £0.2m in the
period since acquisition in FY23.
The net cash flow for the acquisitions were as follows:
£'000
Cash paid for 4D 10,123
Cash paid for Sungard, including prepayment 17,689
Less: cash acquired (1,053)
Less: Piksel deferred consideration (153)
26,606
8 Earnings per share
Year ended Year ended
31 March 31 March
2024 2023
Earnings £'000 £'000
Statutory loss (3,441) (9,250)
Tax credit (1,209) (3,219)
Amortisation of acquired intangibles 5,229 8,183
Share-based payments 1,138 1,256
Exceptional costs 4,550 8,149
Exceptional income (2,100) -
Adjusted earnings before tax 4,167 5,119
Notional tax charge (1,042) (973)
Adjusted earnings 3,125 4,146
Number Number
Weighted average number of ordinary shares '000 '000
In issue 157,371 156,992
Held in treasury (693) (1,391)
For basic EPS calculations 156,678 155,601
Effect of potentially dilutive share options 5,129 3,678
For diluted EPS calculations 161,807 159,279
EPS Pence Pence
Basic (2.20p) (5.94p)
Adjusted 1.99p 2.66p
Basic diluted (2.20p) (5.94p)
Adjusted diluted 1.93p 2.60p
In line with the Group's policy, the notional tax charge above is calculated
at a standard rate of 25% (FY23: 19%).
9 Subsequent events
On the 14 August 2024 a modification to the bank facilities was agreed to
increase the Asset Financing Facility to £10.0m to ensure adequate credit
availability for future investment relating to new customer contracts. All
other elements of the facility remained the same.
Appendix 1 - Alternative Performance Measures
This announcement contains certain financial 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.
Recurring 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.
( ) Year ended 31 March 2024 Year ended 31 March 2023
( ) £'000 £'000
Reported revenue 163,150 141,674
Non-recurring revenue (14,059) (13,213)
Recurring revenue 149,091 128,461
Recurring revenue percentage is the percentage of recurring revenue as a
proportion of total revenue.
Recurring revenue makes up 91.4% of total revenue in FY24, an increase of
0.7ppts from prior year (FY23: 90.7%).
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.
( ) Year ended 31 March 2024 Year ended
31 March
2023
( ) £'000 £'000
Property plant and equipment additions - excluding additions on acquisition 9,318 5,505
Intangible additions - excluding additions on acquisition 1,479 869
Right-of-use asset additions - lease liabilities that would have been 1,033 391
classified as finance leases under IAS 17, excluding asset financing
Reported capital expenditure incurred 11,830 6,765
Customer capital expenditure incurred (4,099) (3,234)
Maintenance capital expenditure incurred 7,731 3,531
Maintenance capital expenditure of £7.7m has increased by £4.2m (FY23:
£3.5m) driven by additions to PPE for efficiency measures in the data
centres, primarily at London West. Customer capital expenditure has increased
to £4.1m (FY23: £3.2m) to support revenue growth. We will continue to
monitor the Group's capital requirements and invest in the business when
appropriate.
EBITDA and Adjusted EBITDA
Adjusted EBITDA is EBITDA excluding exceptional items (as set out in Note 2),
share-based payments and associated National Insurance. The same adjustments
are also made in determining the adjusted EBITDA margin. Items are only
classified as exceptional due to their nature or size.
The Board considers that this metric provides a useful measure of assessing
trading performance of the Group as it excludes items which impact financial
performance such as exceptional costs and the amortisation of acquired
intangibles arising from business combinations, which varies year on year
dependent on the timing and size of any acquisitions.
( ) Year ended 31 March 2024 Year ended
31 March
2023
( ) £'000 £'000
Reported operating profit/(loss) 852 (8,939)
Amortisation of intangible assets arising on business combinations 5,229 8,183
Amortisation of other intangible assets 781 590
Depreciation of property, plant and equipment 6,089 4,636
Depreciation of right-of-use assets 11,777 10,617
EBITDA 24,728 15,087
Exceptional income (2,100) -
Exceptional costs (comprised of): 4,550 8,149
Acquisition fees 350 695
Integration costs 3,467 5,965
Restructuring costs 733 -
Costs relating to the settlement of an historical supplier dispute - 809
Cloud computing costs - 680
Share-based payments and associated National Insurance 1,138 1,256
Adjusted EBITDA 28,316 24,492
Adjusted EBITDA increased to £28.3m, £3.8m higher than prior year, with
adjusted EBITDA margin of 17.4% (up from 17.3%).
Adjusted operating profit
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").
( ) Year ended 31 March 2024 Year ended
31 March
2023
( ) £'000 £'000
Reported operating profit/(loss) 852 (8,939)
Amortisation of intangible assets arising on business combinations 5,229 8,183
Exceptional costs 4,550 8,149
Exceptional income (2,100) -
Share-based payments and associated National Insurance 1,138 1,256
Adjusted operating profit 9,669 8,649
The EPS calculation further adjusts for the tax impact of the operating profit
adjustments. This metric is used within the Group's dividend policy and is
therefore relevant for our shareholders. Share-based payments are removed
for adjusted operating profit as they are not reflective of trading.
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 expenditure 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.
( ) Year ended 31 March 2024 Year ended
31 March
2023
( ) £'000 £'000
Reported operating expenditure 119,283 109,938
Depreciation of right-of-use assets (11,777) (10,617)
Depreciation of property, plant and equipment (6,089) (4,636)
Amortisation of intangibles arising on business combinations (5,229) (8,183)
Amortisation of other intangible assets (781) (590)
Exceptional costs (4,550) (8,149)
Other operating income - (88)
Share-based payments and associated national insurance (1,138) (1,256)
Adjusted operating expenditure 89,719 76,419
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.
( ) Year ended 31 March 2024 Year ended
31 March
2023
( ) £'000 £'000
Reported cash generated from operations 23,159 14,824
Cash costs of exceptional items 4,240 8,258
Adjusted cash generated from operations 27,399 23,082
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.
( ) Year ended 31 March 2024 Year ended
31 March
2023
( ) £'000 £'000
Reported net debt (72,365) (72,965)
Term loans 21 495
Lease liabilities that would have been classified as operating leases under 30,346 36,891
IAS 17
Adjusted net debt (41,998) (35,579)
Normalised net debt movement
The normalised net debt movement, as summarised in the net debt table, details
the movement in net debt before one-off (exceptional) amounts and is therefore
a useful indicator to the potential movement in net debt in FY25.
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