Redcentric has announced its trading results for its recently ended financial year were in line with its expectations, despite having a terrible year for accounting scandals.
IT group Redcentric has seen its shares plunge 66 percent after it discovered accounting irregularities and gave notice to its finance director.
The company said the “misstated accounting balances” related to previous year’s figures and would mean a write-down in some historic profits.
The discrepancy meant it would need to reduce its net assets by at least £10 million and its debt would now be around £30 million compared to the £17 million or so it suggested in September.
But now the IT managed services provider said it had experienced good sales momentum during the year ended in March, with a number of key contract wins and renewals in both the public and private sectors.
Net debt at the end of March was £39.5 million, down from £42 million at the end of November.
Redcentric said it had made good progress with the remedial programme it had outlined in December, with its finance team further strengthened and number of improvements made to its internal systems and controls.
Redcentric will report full year results on June 29.
Chief Executive Officer Fraser Fisher in a statement that he was pleased to report that trading is in line with expectations.
“Throughout the challenges at the end of last year, we have continued to enjoy the support of our stakeholders including customers, banks and loyal colleagues. A great deal of work has been carried out in the past few months to execute the remedial plan, strengthening our reporting and control systems,” he claimed.
Managed services outfit Redcentric appears to be in a total mess but thinks it has a plan to get itself out of trouble.
Last month the outfit fessed up to multi-year accounting errors which meant it overstated net assets by at least £10 million and its net debt was nearer to £30 million. CFO Tim Coleman was “placed” on “garden leave with immediate effect.”
Redcentric delayed interim results for the half year ended 30 September until Deloitte and law firm Navarro could do a “forensic review” of its numbers. The results show that things were much worse than expected and the cumulative overstatement of net assets and profits after tax up to the half-way stage of this fiscal year was £20.8 million. To make matters worse more than a quarter of this arose in the six months of this financial year. The remaining £14.9m related to the years up to 31 March 2016.
Normally you could not lose that much money unless it was being taken by a bloke with a gun aided by a bloke outside with the motor running. However, the report ruled out theft.
“The misstatements are attributable to profit overstatement over several years with revenues being overstated and costs understated in broadly equal proportions,” the firm told the London Stock Exchange.
Net debt turned out to be “materially higher than was originally reported” and was £37.8 million at the end of March and £34.4 million at the end of September.
Redcentric said the net debt in those periods was “not representative” because creditors had been “significantly stretched at those dates”. The average net debt position over the past eight months to the end of last month was £42 million.
Redcentric has recalculated historic banking covenants and has received waivers such that it remains compliant with the Ts&Cs. This will aid changes to billing and credit control management systems and processes, and the continued restructuring of the finance department.
The delayed half-year numbers to September will be reported before the end of the calendar year, and Redcentric forecast sales to be £53m and EBITDA £9.1m.
Redcentric’s share price almost halved last month when the news first broke of the financial errors; they recovered somewhat in the interim and were down nearly five per cent today.
Managed services outfit Redcentric is in the centre of a multi-year accounting scandal which has already claimed the scalp of its top numbers bloke.
In a statement Redcentric said that CFO Tim Coleman was placed on garden leave and resigned with immediate effect as a director of the company on 6 November.
“The board anticipates making an external interim appointment as a replacement CFO,” the firm said. But there is a small matter of the discovery of a £10 million hole in the company accounts to sort out.
Redcentric confirmed it had identified “misstated accounting balances” in the P&L accounts when reviewing results for the half-year ended 30 September and had embarked on a “forensic review” that will delay the 14 November publication date of those results.
“The work to date has identified that audited accounts for previous years are likely to need to be restated, resulting in some write down in historic profits. Current indications are that all issues related to prior periods,” it stated.
Apparently, the numbers for the first six months of fiscal ’17 do not indicate any mistakes or wrongdoing, with new business sales and recognition of those sales into revenue “in line” with management’s expectations.
“The board believes from the information available to date that the impact of correcting these cumulative historic accounting misstatement would result in a need to reduce net assets by at least £10m,” the company statement added.
Now it seems that the company is sitting on a net debt closer to £30million and the group’s banking covenants will need to be re-calculated, “which will take some time to complete”, Redcentric revealed.
Redcentric was created in 2013 by the merger of Redstone and Maxima’s managed services business, and was supplemented by the slurp of InTechnology and the takeover of Calyx Managed Services.
Redcentric has announced chief operating officer Fraser Fisher has been appointed as the companies CEO replacing Tony Weaver who will be a non-executive director.
Weaver has been the CEO of Redcentric since 2013 when it was created by combining parts of Redstone and Maxima. Fisher gets the keys to the executive drinks cabinet in November.
Coincidentally this is when the outfit is expected to announce its results. However it does not appear that these will be bad.
Chris Cole, chairman of Redcentric, said he was happy with the company’s position.
“Redcentric is trading strongly,” he said. “The high level of recurring revenue, increasing traction in the £1m-plus contract market, and the successful integration of Calyx all combine to give the board confidence in the company’s prospects.
Fisher previously worked with Weaver at Redstone, where he was managing director, before the Redcentric demerger.
In April Redcentric acquired Calyx MS from MXC Capital for £12m and the firm said the integration “has progressed to plan”.
“The financial benefits of the acquisition will be felt in full in the second half of the year,” a statement said.
“I will be delighted to welcome Fisher as our new CEO. Fraser has a wealth of operational experience and has already made a significant contribution to the business.