Trading Update

RNS Number : 6178J

Redcentric PLC

28 April 2022

 

Redcentric plc

("Redcentric" or the "Company")

Provisional results for the financial year ending 31 March 2022 and trading update

Redcentric plc (AIM: RCN), the leading UK IT managed services provider offering cloud and data connectivity solutions to mid-market and enterprise customers, is pleased to announce the following update for the financial year ended 31 March 2022 ("FY22").

FINANCIAL HIGHLIGHTS

We are pleased to announce that trading for FY22 was in line with the expectations of the board of directors of the Company (the "Board"):

· Revenues of £93.1m (FY21: £91.4m);

· Adjusted EBITDA* of £24.0m (FY21: £24.6m); 

· Adjusted earnings* of £11.5m (FY21: £11.1m); and

· Adjusted net debt of £1.5m (31 March 2021: net cash of £1.0m).

The strong net debt position is after dividend payments of £5.6m; the disposal of assets relating to the non-core EDF contract for £5.8m; share and warrant buybacks of £3.0m; the acquisitions of Piksel Industry Solutions Ltd ("Piksel") and 7 Elements Ltd ("7 Elements") for a combined (net of cash and including acquisition costs) cash cost of £10.6m; and a c. £2m working capital catch up in respect of Piksel to align supplier payment practices.

* The EBITDA and adjusted earning numbers for both the financial year ended 31 March 2021 and FY22 are pre any adjustments that may be required in respect of the change of accounting policy relating to cloud computing development costs, which are currently under discussion with the Company's auditors.

OPERATIONAL HIGHLIGHTS

FY22 has been a very significant and productive year for Redcentric, with the following key operational highlights:

· The business completed two capability acquisitions, both of which are trading well and have been quickly and materially integrated into the business with higher than anticipated synergy savings;

· A new divisional operating structure has recently been introduced to drive focus and growth across all business segments;

· New sales orders during the second half of the year improved significantly on the first half and we are now nearing the historical levels seen pre the outbreak of the Covid-19 pandemic, including the resumption of large-scale projects;

· Retention rates have been broadly consistent with prior years;

· Electricity price increases have added £0.5m to costs and equipment supply chain issues have delayed both recurring and non-recurring revenues;

· The Board is cognisant of the continued volatility in electricity prices and of the sector-wide employment, retention and salary inflation challenges.

Integration of acquisitions

Piksel is now fully integrated in to the Redcentric business.  Excellent progress has been made in realising synergies, with c. £1.5m of annualised costs already eliminated and surpassing the £1.1m of synergies identified at the time of the acquisition.  A further £0.5m of synergies anticipated to be realised in the financial year ended 31 March 2023.  

For operational independence reasons, will maintain 7 Elements as a standalone business but most of the back-office functions (e.g. finance and human resources) have already been integrated.

New banking facility

The new banking facility announced yesterday gives us significant additional firepower at very competitive rates of interest to support and accelerate our acquisition strategy.  Under the new four-bank syndicate facility, we now have £80m of committed funds available with a further £20m accordion facility accessible should we need it.  Whilst we will continue to look for bolt on acquisitions to add capability, we will also look for scale acquisitions where we can leverage the fixed cost base associated with our own managed networks, platforms and data centres.

STRUCTURING THE BUSINESS FOR GROWTH

During the last three months we have restructured the business to create a new divisional structure.  The aim of this new structure is to provide focus and to encourage growth in all areas of the business.  The recent acquisitions of Piksel and 7 Elements have significantly increased our capabilities in cloud and security services, and we are now able to offer a full range of IT and telecommunication solutions. 

These solutions are delivered across our own operated networks, platforms and data centres.  We believe that this is an important feature of the business as it differentiates us from many of our competitors and enables us to deliver a better service with full accountability to our customers.

Cloud Services

Following the acquisition of Piksel, our Cloud Services Division has further expanded its range of cloud hosting solutions, ranging from colocation through to hybrid and public cloud services.  We have also added IT modernisation, digital transformation and Dev-Ops skills which complete our portfolio of cloud offerings.

The acquisition of Piksel also gave us increased security capability and this was further strengthened by the acquisition of 7 Elements which adds security and penetration testing to our portfolio of security services.

Network Services

Network integration and data connectivity solutions are another of Redcentric's core strengths, accounting for just over half of our recurring revenues. Most of our customers take some sort of connectivity service, increasing their stickiness and reducing potential churn.

After the pause of several large potential network projects in the pipeline during the Covid-19 pandemic period, we are now starting to see a return of such opportunities.  In the second half of the year, notable successes were a large network cross sell into the Piksel customer base and two large public sector network wins.

Collaboration Services

Despite a strong range of collaboration product offerings and the high number of customers already taking connectivity from us, collaboration services remain a relatively small proportion of the Company's recurring revenue (c. 14%).  Over the last twelve months we have actively looked to strengthen both the product offering and scale of this area of the business but, to date, we have not managed to find any suitable acquisitions.  Whilst we will continue to look for such acquisitions, we have decided to form a new Collaboration Services Division to better exploit the opportunities in this area.  A new and experienced management team is in the process of being set up with a new managing director and sales director due to join the business in June 2022. 

Support Services

To support the divisional teams two new positions of Chief Technical Officer and Customer Services Director have been created. 

The Chief Technical Officer's role will be to drive product innovation and increase the automation and efficiency of operational systems and processes.

The Customer Service Division has been created to bring our customers to the forefront of everything we do.  By combining the Service Operations, Service Delivery and Assurance teams from across Redcentric and Piksel into one division that supports our newly formed business units, we can ensure our customers remain our key focal point and that they receive a consistently high level of service across all our group services. 

OUTLOOK

We have now positioned Redcentric for growth and we believe that we have an excellent platform on which to build both capability and scale through acquisitions. 

Over the last three years we have made significant investment in our networks, platforms, data centres and operational systems and this positions us well for future growth.  We believe that the new divisional structure will drive organic growth across the non-network services areas of the business and the acquisition of new customer bases will also present good cross-sell opportunities.

In addition, our experience of successfully integrating historical acquisitions, with associated cost savings, gives us a good template for future acquisitions and further confidence that we can successfully execute on our stated acquisition strategy. We continue to make progress with our M&A strategy, with  a good pipeline of potential targets, a strong balance sheet and access to £100m of bank facilities.

NOTICE OF FINAL RESULTS

The Company intends to announce its results for the financial year ended 31 March 2022 on Thursday 21 July 2022.

Peter Brotherton, Chief Executive Officer commented:

"These results reflect the resilient nature of the business and are more impressive given the challenges associated with high electricity prices, equipment shortages, a tight labour market and difficult trading conditions during the Covid-19 pandemic. 

After several years of repositioning the business, we are now totally focused on both organic and inorganic growth.  We have demonstrated that we can make highly accretive acquisitions both in terms of profitability and capability and our new £100m bank facility, supported by our strong cash generation, will enable us to continue to invest in our business."

Enquiries:

Redcentric plc [phone]

Peter Brotherton, Chief Executive Officer

David Senior, Chief Financial Officer

finnCap Ltd - Nomad and Broker [phone]

Marc Milmo / Simon Hicks / Charlie Beeson (Corporate Finance)

Andrew Burdis / Sunila de Silva (ECM)

 

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