RNS Number:0123S
Redstone PLC
13 November 2003
Redstone plc
("Redstone" or "the Company")
INTERIM RESULTS
FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2003
Redstone, the national communications services provider, announces its financial
results for the six months ended 30 September 2003.
FINANCIAL HIGHLIGHTS
*Positive EBITDA of #0.25m for the six months ended 30 September 2003
versus a loss of #1.27m during the same period last year, and #0.06m
positive for the six month period to 31 March 2003.
*Significant improvement in gross margin to 30.9% compared with 25.5% for
same period last year.
*Operating loss for the period down by 72% to #0.57m from #2.00m last year
and down 52% in comparison with the six month period to 31 March 2003. Loss
on ordinary activities before taxation for the period was #2.43m versus
#4.21m for the same period last year.
*Revenue fell to #31.18m from #36.81m in the same period last year but was
virtually unchanged from the #31.39m achieved in the six months to March 2003.
The Group has pursued a strategy of focussing on establishing long term
profitable relationships with mid sized business customers, which has
resulted in overall customer numbers at 30 September 2003 reducing to circa
9,000 from circa 15,000 two years ago.
*Strong balance sheet further enhanced by a #0.32m increase in cash
balances to #12.36m from #12.04m at 31 March 2003 and up #2.20m from #10.16m
at 30 September 2002. Net funds up #0.40m to #12.22m from #11.82m at 31
March 2003 and compared with a net funds position of #9.72m at 30 September
2002.
OPERATIONAL HIGHLIGHTS
*Completed implementation of a SMART B (Smart Buildings) Infrastructure at
the new Bullring shopping centre in Birmingham. SMART B solutions are now
being actively marketed to other industry sectors including finance,
education, health and local authorities.
*New regional office opened in Manchester during July, the Group's eighth
regional office, supporting plans for developing business in Northern
England.
*Further investment in recruitment and training of the new sales team.
Organic revenue growth is now substantially dependent on its performance.
*Launch of a new range of telecoms services specifically for channel
organisations.
Ian Brown, CEO of Redstone, commented, "I'm pleased with the way things are
shaping up. We have made steady progress on our key operational objectives,
reflected in improved margins and customer profile. Market conditions remain
challenging and competition across all product lines remains intense. However,
following the structural changes we have made to the business and investment in
our sales team we look to the future with confidence."
FOR FURTHER INFORMATION:
ICIS
Roger Leboff/Archie Berens Tel. 020 7628 1114
Chief Executive's Statement
Financial highlights
During the six month period to 30 September 2003, Redstone continued to build
the teams and infrastructure that are expected to deliver growth over the medium
term. As announced previously Redstone has invested significantly in rebuilding
its national sales teams and this has continued during the period. Overall order
performance has been sporadic with the first quarter being more pleasing than
the summer months of July and August.
The overall financial results for the period were solid with the following
highlights:
* EBITDA performance of #0.25m versus #1.27m loss for the same period last
year and compared with #0.06m for the six month period to 31 March 2003.
* Gross margins as a percentage of sales have improved significantly to
30.9% during the period compared with 25.5% in the same period last year.
Reported gross margin for the period was #9.62m versus #9.39m (continuing
operations only) last year, and #9.31m for the six month period to 31 March
2003. Overall gross margin improvements have been driven substantially by a
combination of improved mix of revenue towards higher margin products and
stronger telecoms margins of 24.7% during the period compared with 19.1% in
the same period last year. The latter is due primarily to improvements
achieved under the BT Wholesale outsourcing agreement.
* Overheads of #12.43m fell by #1.31m from last year and by #0.26m in
comparison with the six month period to 31 March 2003.
* Operating losses on continuing operations before goodwill amortisation
were reduced by 72% to #0.57m from #2.00m last year and were down by 52% in
comparison with the six month period to 31 March 2003. Loss on ordinary
activities before taxation for the period was #2.43m versus #4.21m for the
same period last year.
* Revenue fell to #31.18m from #36.81m in the same period last year but was
virtually unchanged from the #31.39m achieved in the six months to March
2003. The Group has pursued a strategy of focussing on establishing long
term profitable relationships with mid sized business customers, which has
resulted in overall customer numbers at 30 September 2003 reducing to circa
9,000 from circa 15,000 two years ago.
* Cash balances improved in the period by #0.32m to #12.36m and compared
with #10.16m at 30 September 2002. The net funds position of the Company
improved over the period by #0.40m to #12.22m from #11.82m and compared
with a net funds position at 30 September 2002 of #9.72m. The improvement
in cash over the period featured an inflow from operating activities of
#0.63m, net capital expenditure of #0.41m, net interest receivable of
#0.18m and debt repayments of #0.08m. The inflow from operating activities
was boosted by an increase in creditors of #0.93m as the Company continued
to benefit from some favourable payment terms. Debtor days remained strong
at around 35.
Operational highlights
During the period Redstone completed the implementation of a SMART B (Smart
Buildings) infrastructure at the new Bullring shopping centre in Birmingham, on
behalf of the Birmingham Alliance - a property development partnership between
Hammerson plc, Henderson Global Investors Ltd and Land Securities plc. SMART B
is Redstone's architecture for delivering advanced data, voice, internet and
building services into a common IP platform. Notably it incorporates building
services such as CCTV and access control in addition to standard information
technology and communications requirements. The project involved installing the
UK's most advanced retail communications network in the single largest shopping
centre development built in Europe within the last decade. The network provides
for approximately 130 stores a 350km cable infrastructure connecting every part
of the development to converged voice, data and internet communications. The
infrastructure benefits shoppers through a network of plasma screens and
information kiosks providing details of local information including travel, job
vacancies, events and special promotions within the centre's stores. Redstone's
work at the Bullring was acknowledged recently with the award of "Most Innovative
Vertical Market Solution" at the 2003 Channel Awards hosted by Avaya.
Redstone is now actively marketing SMART B solutions to other industry sectors
including finance, education, health and local authorities.
In July 2003 Redstone opened its eighth UK regional office in Manchester as part
of its approach to building local sales and support organisations for each part
of the country, and to further support its plans for developing business in
Northern England.
Also during the period Redstone launched a new range of telecoms services
specifically for channel organisations. Ultimately the Company expects to expand
its channel portfolio to include aspects from the systems portfolio as well.
Dividend
The company does not intend to pay a dividend for the six months ended 30
September 2003.
Future outlook
Market conditions remain challenging albeit there appears to be an improvement
in the appetite of businesses for capital expenditure. It is unclear whether
this will continue. Competition across all product lines remains intense.
Elements of the Company's strategy for calendar year 2004 include the following:
*Redstone will continue its focus on being an expert provider of IP
telephony systems using both Cisco and Avaya technology for business
customers. The European IP telephony market is expected to grow at a
compound annual rate of some 27% between 2003 and 2006 to around
US$6 billion. Enterprise IP telephony alone is predicted to grow to
US$4.4 billion by 2006 from US$849 million in 2002 and as such represents a
significant opportunity for the Company.
*Further resource will be dedicated to the management of existing
customers to improve service levels and penetration of Redstone's range of
communication services.
*During 2004 Redstone will also launch enhancements to its non geographic
number services (which allow customers to generate revenue through use of an
08 or 09 inbound number) to allow increased functionality for call centre
customers, which the Company believes are an ideal match for its product and
service range.
*Redstone expects to launch during 2004 a new version of its CallSure
personal number service incorporating both a personal attendant facility and
unified messaging. CallSure was Redstone's original product when the company
was launched during 1995.
*As previously announced, Redstone is considering acquisitions as part of
the expected consolidation in the IT and telecommunications markets. Any
such arrangements are likely to enhance earnings and provide opportunities
for cross selling Redstone's range of services.
Ian Brown
Chief Executive Officer
12 November 2003
Consolidated Profit and Loss Account
Six months Six months Six months Year
ended 30 ended 30 ended 31 ended 31
September September March March
2003 2002 2003 2003
Note #000 #000 #000 #000
-------- -------- -------- -------
Turnover - Continuing 31,181 36,805 31,392 68,197
- Discontinued - 668 - 668
-------- -------- -------- -------
31,181 37,473 31,392 68,865
Cost of sales (21,561) (28,241) (22,080) (50,321)
--------------------------------------------------------------------------------------
-------- -------- -------- -------
Gross profit/(loss) - Continuing 9,620 9,389 9,312 18,701
- Discontinued - (157) - (157)
-------- -------- -------- -------
9,620 9,232 9,312 18,544
Selling and distribution costs (3,428) (3,400) (3,465) (6,865)
Administrative expenses (8,999) (10,340) (9,226) (19,566)
Other operating income 188 180 129 309
--------------------------------------------------------------------------------------
-------- -------- -------- -------
Operating loss - Continuing (2,619) (4,050) (3,250) (7,300)
- Discontinued - (278) - (278)
-------- -------- -------- -------
(2,619) (4,328) (3,250) (7,578)
--------------------------------------------------------------------------------------
- amortisation of - Continuing 2,050 2,052 2,053 4,105
goodwill
------------------- ---------- ---- -------- -------- -------- -------
Operating loss before goodwill
amortisation
-------- -------- -------- -------
- Continuing (569) (1,998) (1,197) (3,195)
- Discontinued - (278) - (278)
-------- -------- -------- -------
(569) (2,276) (1,197) (3,473)
--------------------------------------------------------------------------------------
Exceptional 3 - - 305 305
restructuring
income
Net interest 189 122 186 308
receivable
-------------------------------------------------------------------------------------
Loss on ordinary activities before (2,430) (4,206) (2,759) (6,965)
taxation
Tax on loss on - - 765 765
ordinary
activities
-------------------------------------------------------------------------------------
Loss for the (2,430) (4,206) (1,994) (6,200)
period
-------------------------------------------------------------------------------------
Basic and diluted 4 (0.87)p (1.51)p (0.71)p (2.22)p
loss per share -------- -------- -------- -------
Gross profit % - Continuing 30.9 25.5 29.7 27.4
- Discontinued - (23.5) - (23.5)
-------- -------- -------- -------
30.9 24.6 29.7 26.9
-------- -------- -------- -------
EBITDA - Continuing 246 (990) 62 (928)
- Discontinued - (278) - (278)
-------- -------- -------- -------
246 (1,268) 62 (1,206)
EBITDA per share 0.09 p (0.45)p 0.02 p (0.43)p
--------------------------------------------------------------------------------------
Statement of Total Recognised Gains and Losses
Six Six Six
months months months Year
ended 30 ended 30 ended 31 ended 31
September September March March
2003 2002 2003 2003
#000 #000 #000 #000
Loss on ordinary activities after (2,430) (4,206) (1,994) (6,200)
taxation
Lapse of warrants not subscribed 21 - - -
---------------------------------------------------------------------------------------------
Total recognised losses (2,409) (4,206) (1,994) (6,200)
---------------------------------------------------------------------------------------------
Consolidated Balance Sheet
30 30 31
September September March
2003 2002 2003
Note #000 #000 #000
Fixed assets
Intangible assets 27,420 31,522 29,470
Tangible assets 2,941 3,941 3,359
--------------------------------------------------------------------------
30,361 35,463 32,829
Current assets
Stocks 494 924 791
Debtors 12,346 16,035 12,007
Cash at bank and in hand 7 12,355 10,155 12,035
Cash held on trust for guaranteed loan - 87 87
notes
--------------------------------------------------------------------------
25,195 27,201 24,920
Creditors
Amounts falling due within one year 21,719 23,666 20,930
--------------------------------------------------------------------------
Net current assets 3,476 3,535 3,990
--------------------------------------------------------------------------
Total assets less current liabilities 33,837 38,998 36,819
Creditors
Amounts falling due after one year 5 98 33
Provisions for liabilities and charges 2,165 2,809 2,689
--------------------------------------------------------------------------
Net assets 31,667 36,091 34,097
--------------------------------------------------------------------------
Capital and reserves
Called up share capital 8,472 8,472 8,472
Share premium account 185,336 185,336 185,336
Warrants - 21 21
Merger reserve 216 216 216
Profit and loss account (162,357) (157,954) (159,948)
---------------------------------------------------------------------------
Shareholders' funds 31,667 36,091 34,097
---------------------------------------------------------------------------
Consolidated Cash Flow Statement
Six months Six months Year
ended 30 ended 30 ended
September September 31 March
2003 2002 2003
Note #000 #000 #000
Net cash inflow/(outflow) from operating 5 630 (2,203) 693
activities
------------------------------------------------------------------------------------
Returns on investments and servicing of
finance
Interest received 192 288 513
Interest paid - (170) (175)
Interest element paid on
finance leases and hire purchase agreements (13) (43) (63)
Net cash inflow from returns on
investments and servicing of finance 179 75 275
------------------------------------------------------------------------------------
Corporation tax refunded - - 399
------------------------------------------------------------------------------------
Capital expenditure
Purchase of tangible fixed assets (415) (270) (2,077)
Proceeds on disposal of tangible
fixed assets 6 21 436
------------------------------------------------------------------------------------
Net cash outflow from capital expenditure (409) (249) (1,641)
Net cash inflow/(outflow) before management
of liquid resources and financing 400 (2,377) (274)
------------------------------------------------------------------------------------
Financing
Capital element paid on finance leases
and hire purchase agreements (80) (348) (571)
------------------------------------------------------------------------------------
Net cash outflow from financing (80) (348) (571)
------------------------------------------------------------------------------------
Increase/(decrease) in cash at bank
and in hand 6/7 320 (2,725) (845)
------------------------------------------------------------------------------------
Notes to the results for the six months ended 30 September 2003
1 Basis of Preparation
The interim report is unaudited but has been reviewed by the auditors, Ernst &
Young LLP, and their report to Redstone plc is set out below.
The financial information contained in this interim report does not constitute
statutory accounts as defined in section 240 of the Companies Act 1985. The
financial information has been prepared using the same accounting policies as
the audited accounts for the year ended 31 March 2003. The comparative financial
information is based on the statutory accounts for the financial year ended 31
March 2003 and those accounts, upon which an unqualified auditors opinion has
been issued, have been delivered to the Registrar of Companies.
The profit and loss account for the six months ended 31 March 2003 has been
prepared to show a more meaningful comparison of the Group's results for the
period.
The interim report for the six months ended 30 September 2003 was approved by
the directors on 12 November 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 periods was derived from the United Kingdom.
3 Items Charged after Operating Loss
For the six months ended 31 March 2003 and the year ended 31 March 2003 a
restructuring credit of #305,000 arose in relation to surplus duct and trench
capacity impaired in prior periods.
4 Loss per share
On 6 June 2003 at an Extraordinary General Meeting of Redstone plc a share
consolidation on the basis of 10 existing ordinary shares of 0.1p each for 1 new
ordinary share of 1p was approved.
Basic and diluted earnings per share have been adjusted to reflect the share
consolidation. For the six months ended 30 September 2003 the calculations have
been based on a weighted average number of ordinary shares of 278,907,064 (30
September 2002, year ended 31 March 2003 and six months ended 31 March 2003:
278,907,064).
At 30 September 2003 the number of ordinary shares in issue was 278,907,064 (30
September 2002 and 31 March 2003: 2,789,070,648).
5 Net cash flow from operating activities Six months Six months Year
ended 30 ended 30 ended
September September 31 March
2003 2002 2003
#000 #000 #000
------------------------------------------------------------------------------------
Operating loss (2,619) (4,328) (7,578)
Exceptional restructuring income - - 305
Goodwill amortisation 2,050 2,052 4,105
Depreciation 831 955 1,931
(Profit)/loss on disposal of fixed assets (4) 53 31
Decrease in stock 297 27 160
(Increase)/decrease in debtors (328) 2,973 6,987
Increase/(decrease) in creditors 927 (3,028) (4,221)
Decrease in provisions (524) (907) (1,027)
------------------------------------------------------------------------------------
Net cash inflow/(outflow) from
operating activities 630 (2,203) 693
------------------------------------------------------------------------------------
6 Reconciliation of net cash flow Six months Six months Year
to movement in net funds ended 30 ended 30 ended
September September 31 March
2003 2002 2003
#000 #000 #000
------------------------------------------------------------------------------------
Increase/(decrease) in cash in the period 320 (2,725) (845)
Cash outflow from finance leases and
hire purchase agreements 80 348 571
Cash inflow from liquid resources (87) (10,600) (10,600)
------------------------------------------------------------------------------------
Change in net funds resulting from cash flows 313 (12,977) (10,874)
Repayment of loan notes for acquisitions 87 10,600 10,600
Non cash movements - assignment of debt - 4,469 4,469
------------------------------------------------------------------------------------
Movement in net funds in the period 400 2,092 4,195
Net funds at 1 April 2003 11,822 7,627 7,627
------------------------------------------------------------------------------------
Net funds at 30 September 2003 12,222 9,719 11,822
------------------------------------------------------------------------------------
7 Analysis of Net Funds At Cash flow At
1 April 30 September
2003 2003
#000 #000 #000
------------------------------------------------------------------------------------
Cash at bank and in hand 12,035 320 12,355
Liquid resources - cash held on trust
for guaranteed loan notes 87 (87) -
------------------------------------------------------------------------------------
12,122 233 12,355
Debt due within one year
Guaranteed loan notes (87) 87 -
Finance lease obligations (180) 52 (128)
Debt due after one year
Finance lease obligations (33) 28 (5)
------------------------------------------------------------------------------------
Total 11,822 400 12,222
------------------------------------------------------------------------------------
Independent Review Report to Redstone plc
Introduction
We have been instructed by the Company to review the financial information for
the six months ended 30 September 2003 which comprises Consolidated Profit and
Loss Account, Consolidated Balance Sheet, Consolidated Cash Flow Statement, and
the related notes 1 to 7. We have read the other information contained in the
interim report and considered whether it contains any apparent misstatements or
material inconsistencies with the financial information.
This report is made solely to the Company in accordance with guidance contained
in Bulletin 1999/4 'Review of interim financial information' issued by the
Auditing Practices Board. To the fullest extent permitted by law, we do not
accept or assume responsibility to anyone other than the Company, for our work,
for this report, or for the conclusions we have formed.
Directors' responsibilities
The interim report, including the financial information contained therein, is
the responsibility of, and has been approved by, the directors. The directors
are responsible for preparing the interim report in accordance with the Listing
Rules of the Financial Services Authority which require that the accounting
policies and presentation applied to the interim figures should be consistent
with those applied in preparing the preceding annual accounts except where any
changes, and the reasons for them, are disclosed.
Review work performed
We conducted our review in accordance with guidance contained in Bulletin 1999/4
'Review of interim financial information' issued by the Auditing Practices Board
for use in the United Kingdom. A review consists principally of making
enquiries of group management and applying analytical procedures to the
financial information and underlying financial data, and based thereon,
assessing whether the accounting policies and presentation have been
consistently applied, unless otherwise disclosed. A review excludes audit
procedures such as tests of controls and verification of assets, liabilities and
transactions. It is substantially less in scope than an audit performed in
accordance with United Kingdom Auditing Standards and therefore provides a lower
level of assurance than an audit. Accordingly we do not express an audit opinion
on the financial information.
Review conclusion
On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the six months
ended 30 September 2003.
Ernst & Young LLP
London
12 November 2003
This information is provided by RNS
The company news service from the London Stock Exchange
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