RNS Number:0615M
Redstone PLC
09 June 2003
REDSTONE PLC
("Redstone" or "the Company")
Final Results
For the 12 Months ended 31 March 2003
Redstone, the national communications services provider, announces its financial
results for the year ended 31 March 2003.
FINANCIAL HIGHLIGHTS
Relating to continuing operations:
Improved profitability and margins
*EBITDA loss of #0.9m (2002 #7.0 million loss)
+ *Second half EBITDA profit of #0.1 million (#1.0 million EBITDA loss
in first half).
*Continued focus on enhancing margins
+ *Gross margin for the year rose to 27% (2002 20%), and 30% in the
second half of the year.
+ *Revenues were down 11% to #68.2 million (2002 #76.8 million), the
reduction generally being in low margin product lines. A much improved
revenue mix was achieved through concentrating on more strategic
products in telecoms and ISP services.
+ *The Group's percentage gross margin has increased from 13% to 27%
over the last two years.
*Net operating costs fell 28% from #30.3 million to #21.9 million,
excluding amortisation and impairments.
Strengthened balance sheet
* Cash balances up #1.8m over the last six months to #12.0m
at year end (2002 #12.9m).
* Balance sheet debt at #0.2 million, down from #5.3 million
at 31 March 2002 following completion of a strategic agreement with BT Wholesale
on 14 May 2002.
OPERATIONAL HIGHLIGHTS
* Redstone is now repositioned as a national end-to-end
communications services provider
+ *All subsidiaries and operations teams have been integrated into one
trading company
+ *The national sales and marketing organisation has been rebuilt and
new teams established in key geographic markets including Scotland and
Northern England
+ *One seamless customer interface for the whole Redstone portfolio
delivers increased potential for selling multiple services to individual
customers
+ *New business includes orders from Reed Executive and Foxtons.
Ian Brown, Chief Executive of Redstone, commented:
"We are making real progress in transforming Redstone into a national
communications services provider, with a sound financial base. We expect the
measures we have implemented so far to continue to produce a steadily improving
financial and operational performance going forward."
9 June 2003
FOR FURTHER INFORMATION:
ICIS
Roger Leboff/Archie Berens Tel. 020 7628 1114
REDSTONE PLC
Final Results
For the 12 Months ended 31 March 2003
Chief Executive's Review
Overview
During the last financial year Redstone has continued to make real progress in
both its financial performance and its evolution into a national communications
services provider. Notable financial highlights relating to continuing
operations are as follows:
* Gross margin increased by 24% to #18.7 million from #15.1 million in
the prior year. Gross margins now represent 27% of sales, up from 20% in the
prior period. In particular, telecoms gross margins improved from 6% to 18%
largely as a result of the BT Wholesale outsourcing contract. ISP gross margins
also improved significantly from 43% to 71% due both to a material increase in
business from selected customers in the education market and cost reductions.
* Net operating expenses before amortisation and impairments fell 28%
to #21.9 million from #30.3 million in the prior year, as the benefit of
restructurings and subsequent minor reorganisations filtered through.
* Pre tax losses before goodwill amortisation and impairments reduced
by 88% from #20.8 million to #2.6 million. EBITDA losses reduced by 87% from
#7.0 million to #0.9 million. EBITDA loss in the first half was #1.0 million
against positive #0.1 million in the second half - the first time that Redstone
has reported positive EBITDA for a complete reporting period.
* Revenue for the full year reduced by 11% from #76.8 million to #68.2
million. Revenue in the second half reduced to #31.4 million from #36.8 million
in the first half, primarily due to reductions in premium rate traffic and in
certain indirect and direct access customer segments. The latter is reflective
of both (i) the variability that exists in current telecoms market rates, and
(ii) the continued provision by several competitors of tariffs below cost or at
wafer thin margins. Redstone does not believe this is sustainable for the
industry nor that it is necessarily in its customers' best interests.
* Discontinued operations in the year produced revenues of #0.7
million, gross margin of negative #0.2 million and EBITDA losses of #0.3
million. All arose from our premium rate scratch card subsidiary, Isomatrix,
which was closed early in the year.
* Cash balances of #12.0 million were #0.9 million down from the
previous year. As evidenced by the reduction in trade debtors, our cash
collection performance in the current year has been excellent and this has
contributed substantially to a net cash inflow from operating activities of #0.7
million. The reduction in debt achieved via the BT Wholesale transaction meant
that net funds increased over the year by #4.2 million and that closing debt was
negligible.
Operational Performance
During the year Redstone invested significantly in rebuilding its sales and
marketing teams on a national basis. As at 31 March 2003, the sales and
marketing headcount was 106. This reflects (i) new teams that have been put into
place in Scotland and Northern England, (ii) increased headcount within the
Southern England teams, and (iii) revitalized vertical teams focused on
particular markets such as health, education and channel organisations. Redstone
has yet to enjoy the full benefit from these investments. However we are
optimistic about order growth prospects during the next financial year.
Market conditions remain very challenging, with often significant or extended
delays being experienced in the purchasing cycles for new capital expenditure.
Notwithstanding this, Redstone continues to win new orders including in the
second half several "SMART B" projects with the Birmingham Alliance, a property
development consortium led by Hammerson plc and focused on the redevelopment of
the Bullring shopping centre in Birmingham. "SMART B" is Redstone's innovative
platform for integrating traditional building management facilities into a
seamless communications infrastructure, including services such as access
control and CCTV monitoring.
Apart from rebuilding the sales and marketing teams, Redstone has invested in
training programmes to improve sales effectiveness. Developing a sales force
that can both build strong relationships with our customers and beat our
competitors is critical to our future success. Redstone therefore intends to
continue with these types of initiatives during the current financial year.
In the earlier part of the year Redstone completed its innovative outsourcing
contract with BT Wholesale, announced on 16 April 2002. The expected financial
benefits of the transaction have materialized with underlying gross margins in
our telecoms product line rising to 18% from 6% in the prior year. In addition
to the financial benefits, the contract has enabled Redstone's management team
to focus more on the challenging tasks of growing order intake and improving
customer service levels, which are both key to our future success.
Further, our partnership with BT Wholesale has enabled Redstone to win some
material new telecoms contracts with notable customers including Reed Executive,
the national recruitment business and most recently RHM Group, a leading food
company. Redstone's ability to grow telecoms revenues is however indirectly
dependent on continued improvements that BT Wholesale can pass to Redstone
through the outsourcing contract. Whilst both parties remain optimistic about
these being achieved, they are not guaranteed.
In the latter part of the year Redstone completed the partial outsourcing of its
telecoms billing operations to Dataflow, a specialist provider of such services.
Whilst in its early stages, it is anticipated that this arrangement will provide
further financial and management time savings, in addition to improving billing
information to our customers.
Considerable progress has been made within our operations teams to create a more
seamless interface with our customers. Examples include the creation of a
central project management and provisioning team, a company wide customer
service team, and a revamped national field service organisation. Redstone also
continues to invest in improving the technical competence of our engineering
teams, as illustrated by the Group achieving GOLD accreditation status with key
manufacturers Cisco Systems and Avaya. All such initiatives help Redstone win
sales and improve customer satisfaction levels.
Outlook
Since the substantial restructuring that was announced in the summer of 2001 the
management team has mainly focussed on cost control, gross margin improvement,
EBITDA improvement, cash management and the strategic repositioning of Redstone
as an end-to-end communications services provider. During the financial year
ended 31 March 2003 Redstone made the decision to invest in its sales and
marketing teams, with the aim of delivering growth for the business in the
medium term. Therefore, the financial performance in fiscal 2004 will be
substantially linked to the performance of the new sales teams. As order intake
improves, the Group expects further gradual improvements in both its EBITDA and
revenue performance. Given today's challenging and uncertain market conditions,
this will not be easy.
Apart from organic efforts, opportunities exist in the marketplace for Redstone
to achieve growth through partnering with third parties and through targeted
acquisitions. As the industry consolidates, such opportunities are expected to
increase. The Board intends that Redstone should take advantage of this trend.
Ian Brown
Chief Executive
9 June 2003
Financial Review
The operating loss from continuing operations before goodwill amortisation and
impairment of fixed assets reduced in the 12 months to 31 March 2003 to #3.2
million from #15.3 million in the previous year. This improvement was brought
about by the earning of an additional #3.6 million of gross margin, despite a
fall in turnover, and a reduction in operating costs, before amortisation and
impairments, of #8.8 million to #22.2 million. Operating losses from continuing
operations before goodwill amortisation amounted to #1.2 million in the second
half in comparison with #2.0 million in the first half.
EBITDA on continuing operations for the second half was positive #0.1 million
and overall for the year was a #0.9 million loss.
The fall in turnover of #8.6 million to #68.2 million on continuing operations
was generally in low margin product lines. This was a contributory factor
driving gross margins up from 20% in the prior year to 27% in the period under
review. More significant, however, was the sale of the telecoms network to BT
Wholesale, which was achieved in May 2002.
The reduction over the previous year in continuing operating costs before
goodwill amortisation and impairment of fixed assets has also been significant.
Much of this has been achieved through headcount savings, many of which had been
implemented prior to 31 March 2002 and the benefit of which has now been seen
fully in the year to March 2003. Average headcount during the year of 334
compares with a figure of some 544 in March 2001. However, the focus on cost has
continued throughout the year and indeed operating costs in the second half of
#10.6 million were some #1.0 million lower than the first half.
There were a number of weeks trading in the year ended March 2003 for Isomatrix,
one of the Group's subsidiaries whose trade was discontinued. Isomatrix
contributed #1.0 million of operating profit and #1.1 million EBITDA in the
previous year but a loss of #0.3 million in the current year. The Group
benefited from a corporation tax repayment in respect of taxes previously paid
by Isomatrix.
Including discontinued business, operating losses before goodwill amortisation
and impairment totalled #3.5 million as against #14.3 million in the prior year.
The Group continues to hold a number of vacant properties. In particular, the
premises in Borehamwood are now largely unoccupied. The market for rentals has
been and continues to be weak and accordingly the provision for surplus property
costs has been increased during the year.
There was net interest receivable in the period of #0.3 million, reflecting the
high average cash balances and low overall debt levels.
Balance sheet and cashflow
Cashflow and debt
The Group's net funds position improved during the year by #4.2 million and
closing debt at 31 March 2003 was #0.2 million. The sale of the telecoms network
in May 2002 involved BT Wholesale purchasing the Group's telecoms network assets
and assuming the associated debt of #4.5 million. This transaction has therefore
helped the Group to eliminate virtually all debt from its balance sheet.
Net funds movements other than the debt reduction referred to above were #0.3
million negative. The principal movements featured an EBITDA outflow from
continuing operations of #0.9 million, a net #1.6 million outflow on fixed
assets, a #5.2 million fall in creditors and provisions and a #7.0 million fall
in debtors. Cash at bank and in hand closed at #12.0 million compared with #10.2
million at 30 September 2002 and #12.9 million at 31 March 2002.
The net cash outflow related to fixed assets of #1.6 million included gross
outflows of #2.1 million and proceeds of sale, primarily in respect of a
freehold property, of #0.4 million. The outflow of #2.1 million compared with
fixed asset additions of #1.1 million, the difference being due to final
payments being made to 2 of the suppliers of the metropolitan area networks for
services delivered several years ago. Additions during the year were made
primarily to the Group's own internal network.
Whilst turnover has fallen, the reduction in debtors owes primarily to a
significant improvement in debt collection. This has been driven by stronger
internal controls and more focus but also reflects cleaner delivery of service
by the Group's operations teams. The fall in debtors helped finance the fall in
creditors, which owed to reduced turnover but also the clean-up and discharge of
old accounts. The payment profiles on certain trade creditor balances at 31
March 2003 were highly advantageous to the Group.
The Group has no need at present for any borrowing facility and indeed at the
year-end has no material mortgages or charges. Barclays Bank have recently been
appointed as new bankers to the Group.
Other balance sheet areas
Intangible assets of #29.5 million represent goodwill on previous acquisitions.
Amortisation of #4.1 million has been charged against goodwill in the period in
line with the Group's accounting policy.
Tangible fixed assets reduced over the period due primarily to the sale of
various network assets to BT Wholesale. Closing net book value includes #1.0
million in respect of the Cambridge metropolitan area network, the only
remaining operational MAN. All other MANs have either been disposed of or are
currently being marketed for sale.
Net current assets of #4.0 million were virtually unchanged from the previous
year. Net assets at 31 March 2003 stood at #34.1 million.
Andrew Walsh
Finance Director
9 June 2003
Consolidated Profit and Loss Account
Year Ended 31 March 2003
Continuing Dis-continued 2003 Continuing Dis-continued 2002
Notes #000 #000 #000 #000 #000 #000
Turnover 2 68,197 668 68,865 76,792 9,171 85,963
Cost of (49,496) (825) (50,321) (61,725) (7,325) (69,050)
sales ------- ------- ------ ------- ------ ------
Gross profit/ 18,701 (157) 18,544 15,067 1,846 16,913
(loss)
Selling and
distribution
costs
(6,865) - (6,865) (10,307) - (10,307)
Administrative (19,445) (121) (19,566) (31,155) (5,459) (36,614)
expenses
Other 309 - 309 637 - 637
operating ------- ------- ------ ------- ------ ------
income
Operating (7,300) (278) (7,578) (25,758) (3,613) (29,371)
loss
- amortisation 4,105 - (4,105) 4,441 2,034 6,475
of goodwill
- impairment of 3a - - - 6,066 - 6,066
fixed assets
- impairment of 3b - - - - 2,542 2,542
goodwill
Operating
(loss)/profit
before goodwill
amortisation
and
impairment (3,195) (278) (3,473) (15,251) 963 (14,288)
Exceptional
restructuring
income/(costs)
3c 305 - 305 (5,404) - (5,404)
Profit on sale
of subsidiary
undertaking
- - - - 103 103
Interest
receivable and
similar
income
506 - 506 1,069 - 1,069
------- ------- ------ ------ ------ ------
Interest
payable and
similar
charges
(198) - (198) (1,247) - (1,247)
------- ------- ------ ------ ------ ------
Loss on
ordinary
activities
before
taxation
(6,687) (278) (6,965) (31,340) (3,510) (34,850)
Tax on loss on
ordinary
activities
765 -
------ ------
Loss for the (6,200) (34,850)
financial ====== ======
year
Basic and 4
diluted loss
per share
(0.2)p (1.8)p
====== ======
Gross profit 27.4 (23.5) 26.9 19.6 20.1 19.7
% ======= ======= ====== ====== ====== ======
EBITDA 4 (928) (278) (1,206) (7,037) 1,099 (5,938)
======= ======= ====== ====== ====== ======
EBITDA per 4 (0.04)p (0.3p)
share ====== ======
The Group has no recognised gains or losses other than the above reported loss.
Consolidated Balance Sheet
31 March 2003
Notes 2003 2002
#000 #000
Fixed assets
Intangible assets 5 29,470 33,575
Tangible assets 3,359 9,170
---------- ---------
32,829 42,745
Current assets
Stocks 791 951
Debtors 12,007 19,001
Cash at bank and in hand 12,035 12,880
Cash held on trust for guaranteed loan notes 87 10,687
---------- ---------
24,920 43,519
Creditors
Amounts falling due within one year 20,930 39,440
---------- ---------
Net current assets 3,990 4,079
---------- ---------
Total assets less current liabilities 36,819 46,824
Creditors
Amounts falling due after one year 33 2,811
Provisions for liabilities and charges 6 2,689 3,716
---------- ---------
Net assets 34,097 40,297
========== =========
Capital and reserves
Called up share capital 8,472 8,472
Share premium account 185,336 185,336
Warrants 21 21
Merger reserve 216 216
Profit and loss account (159,948) (153,748)
---------- ---------
Shareholders' funds 34,097 40,297
========== =========
Represented by:
Equity shareholders' funds 28,414 34,614
Non-equity shareholders' funds 5,683 5,683
---------- ---------
34,097 40,297
---------- ---------
Approved by the Board on 9 June 2003.
Consolidated Cash Flow Statement
Year Ended 31 March 2003
Notes 2003 2002
#000 #000
Net cash inflow/(outflow) from operating 7 693 (11,299)
activities --------- ---------
Returns on investments and servicing of finance
Interest received 513 1,110
Interest paid (175) (985)
Interest element paid on finance leases and hire
purchase agreements
(63) (245)
--------- ---------
--------- ---------
Net cash inflow/(outflow) from returns on
investments and servicing of finance
275 (120)
--------- ---------
Corporation tax refunded/(paid) 399 (490)
--------- ---------
Capital expenditure
Purchase of tangible fixed assets (2,077) (11,042)
Proceeds on disposal of tangible fixed assets 436 49
--------- ---------
Net cash outflow from capital expenditure (1,641) (10,993)
--------- ---------
Acquisitions
Purchase of subsidiary undertakings * - (4,174)
--------- ---------
Net cash outflow from acquisitions - (4,174)
--------- ---------
--------- ---------
Net cash outflow before management of liquid
resources and financing
(274) (27,076)
--------- ---------
Financing
Net proceeds from issue of shares - 24,396
Repayment of bank loan - (1,933)
--------- ---------
Capital element paid on finance leases and hire
purchase agreements
(571) (1,464)
--------- ---------
Net cash (outflow)/inflow from financing (571) 20,999
--------- ---------
Decrease in cash at bank and in hand (845) (6,077)
--------- ---------
Management of liquid resources
Cash withdrawn from deposit - 10,000
--------- ---------
(Decrease)/increase in cash 8/9 (845) 3,923
========= =========
* Included within the balances are amounts in respect of deferred consideration
arising on the acquisition of subsidiaries.
1. Basis of Preparation
The financial information set out above does not constitute statutory accounts
within the meaning of section 240(1) of the Companies Act 1985.
The preliminary announcement has been prepared on the basis of the accounting
policies set out in the most recently published financial statements of the
Group for the year ended 31 March 2002 which are consistent with those adopted
for the year ended 31 March 2003. The comparative financial information is based
on the statutory accounts for the year ended 31 March 2002. These accounts, upon
which the auditors issued an unqualified opinion, have been delivered to the
Registrar of Companies.
The statutory accounts for the year ended 31 March 2003 upon which the auditors
issued an unqualified opinion, will be sent to Shareholders and will be
available from the Company Secretary at Redstone plc, Premiere House, Elstree
Way, Borehamwood, Herts, WD6 1JH.
The summary information presented herein was approved by the Board on 9 June
2003.
2 Segmental analysis
The Group operates as an end to end communications services provider and as such
the Group operates in one principal area of activity.
All turnover during the current and previous years was derived from the United
Kingdom.
3 Items charged before operating loss:
(a) Impairment of fixed assets
Fixed assets were written down in the prior year by #6,066,000 as the
carrying amounts were adjusted to reflect the recoverable amount as required by
FRS 11.
(b) Impairment of goodwill
Goodwill remaining at 31 March 2002 in relation to Isomatrix was written
off due to the serious deterioration in trade in that business.
Items charged after operating loss:
(c) Exceptional restructuring costs
A restructuring credit of #305,000 arose in the year in relation to profit on
sale of surplus duct and trench capacity impaired in prior periods. Net
restructuring costs of #5,404,000 arose in the prior year in relation to the
withdrawal from the SDSL business. This charge was net of #1,691,000 profit on
sales of surplus duct and trench capacity.
4 Loss per share
Basic and diluted earnings per share are both calculated using a loss of
#6,200,000 (2002: #34,850,000) and a weighted average number of shares of 2
,789,070,648 (2002: 1,960,851,470). There were no dilutive share options or
warrants at 31 March 2003 and 2002.
In addition, EBITDA (earnings before interest, tax, depreciation and
amortisation) per share has been shown on the grounds that this is a common
metric used by the market in monitoring similar businesses. EBITDA is derived as
follows:
2003 2002
#000 #000
Loss for the financial year (6,200) (34,850)
Tax (765) -
Net interest (receivable)/payable (308) 178
Depreciation of fixed assets 1,931 6,429
Loss on disposal of fixed assets 31 146
Profit on sale of subsidiary undertaking - (103)
Amortisation of goodwill 4,105 6,475
Amortisation of customer equipment costs - 84
Impairment of goodwill - 2,542
Impairment of fixed assets - 6,066
Impairment of network infrastructure costs - 7,095
------- -------
EBITDA (1,206) (5,938)
======= =======
5 Intangible fixed assets
Goodwill
#000
Cost
At 1 April 2002 and 31 March 2003 108,418
--------
Amortisation
At 1 April 2002 74,843
Charge for the year 4,105
--------
At 31 March 2003 78,948
--------
Net book value
At 31 March 2003 29,470
========
At 31 March 2002 33,575
========
In accordance with FRS 11, the directors have reviewed the carrying value of
goodwill in the balance sheet.
Recoverable amounts were calculated as the greater of the market value and value
in use of the respective assets, assuming a pre tax discount rate of 15%.
6 Provisions for liabilities and charges
Group
Vacant property
provision Reorganisation
costs Total
#000 #000 #000
At 1 April 2002 2,308 1,408 3,716
Charge for the year 1,357 - 1,357
Utilised during the year (976) (1,408) (2,384)
-------- ---------- -------
At 31 March 2003 2,689 - 2,689
======== ========== =======
(i) Vacant property provision
During the previous year a number of the Group's properties became vacant,
primarily due to the headcount reductions which took place. Provisions have been
made to cover the rents, rates and service charges for each vacant property for
the period that each property is expected to be vacant.
(ii) Reorganisation costs
This represented committed reorganisation expenditure and a provision for
committed costs from which no future benefits were expected to arise as a result
of previous reorganisations.
(iii) Deferred tax
The Group has no unprovided deferred tax liability (2002: #nil).
As at 31 March 2003 there is an unprovided deferred tax asset of #23.6 million
(2002: #21.2 million) relating principally to past trading losses. This asset
has not been recognised as there is insufficient evidence that the asset will be
recoverable. The asset will be recoverable once the Group generates taxable
profits.
7 Net cash inflow/(outflow) from operating activities
2003 2002
#000 #000
Operating loss (7,578) (29,371)
Exceptional restructuring income/(costs) 305 (5,404)
Amortisation 4,105 6,475
Goodwill impairment - 2,542
Depreciation 1,931 6,429
Impairment of fixed assets - 6,066
Impairment of network infrastructure costs - 7,095
Loss on disposal of fixed assets 31 146
Amortisation of customer equipment costs - 84
Decrease/(increase) in stock 160 (287)
Decrease in debtors 6,987 2,138
Decrease in creditors (4,221) (5,361)
Decrease in provisions (1,027) (1,911)
UITF 17 charge on share options - 60
------- -------
693 (11,299)
======= =======
8 Reconciliation of net cash flow to movement in net funds
2003 2002
#000 #000
(Decrease)/increase in cash in the year (845) 3,923
Cash outflow from loans - 1,933
Cash outflow from finance leases and hire purchase 571 1,464
agreements
Cash inflow from liquid resources (10,600) (14,850)
------- -------
Change in net funds resulting from cash flows (10,874) (7,530)
Repayment of loan notes for acquisitions 10,600 4,850
Non cash movements - assignment of debt 4,469 -
------- -------
Movement in net funds in the year 4,195 (2,680)
Net funds at 1 April 2002 7,627 10,307
------- -------
Net funds at 31 March 2003 11,822 7,627
======= =======
9 Analysis of net funds
Other At
At 1 April Cash non-cash 31 March
movements
2002 flow 2003
#000 #000 #000 #000
Cash at bank and in hand 12,880 (845) - 12,035
-------- ------- -------- --------
Liquid resources - cash held
on trust for guaranteed loan
notes
10,687 (10,600) - 87
-------- ------- -------- --------
23,567 (11,445) - 12,122
Debt due within one year
Bank loan (1,167) - 1,167 -
Loan notes (10,687) 10,600 - (87)
Finance lease obligations (1,275) 369 726 (180)
Debt due after one year
Bank loan (2,333) - 2,333 -
Finance lease obligations (478) 202 243 (33)
-------- ------- -------- --------
7,627 (274) 4,469 11,822
======== ======= ======== ========
Major non-cash transactions
During the year the Group entered into a transaction with BT Wholesale which
involved liabilities of #4,469,000 transferring to BT Wholesale in consideration
for the transfer of certain assets.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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