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.
