Redcentric plcFY14 results

June 2014Tony Weaver - CEO

Fraser Fisher - COOTim Coleman - CFO

Redcentric at a glance

Redcentric is a leading UK IT managed services provider

• Borne from the demerger of Redstone in April 2013 and the acquisition of InTechnology Managed Services in December 2013

• Trading history since 1997

• Listed on London Stock Exchange April 2013

• Annualised revenues approaching £100m of which c.80% are recurring

• Target EBITDA >20% with very strong cash generation

• Progressive dividend policy

• Over 450 staff

• 6 locations

• Over 2,000 customers

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Trading summary

• Strong results, with revenue, profit and cash all ahead of expectations

• Integration on track. Cost synergies of £3m identified at the time of the IMS acquisition will be delivered

• Exciting market opportunities– Organic growth in existing customer base– Up-sell delivering– New customer wins

• Scalable platform created for organic growth and M&A opportunities

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Operational highlights

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• Sales – Pipeline Increasing– Key wins

• New - HSCIC• Returning – Berkeley Homes• More – The Salvation Army

– Partnerships– Bid Team

• Operations– Service Level Improvement– Key customer satisfaction

• Product Council and Innovation

• Marketplace

SLA April 13

September 13

March 14

Response 91% 95% 98%

Resolution 71% 91% 95%

Integration summary

• Integration on-track– Single management, sales & operating

structure– Back office integrated H1 FY15– Birmingham and Chelmsford offices closing– Supplier rationalisation & volume advantage– Networks, Infrastructure & data-centres

being rationalised– Opportunity to leverage Hyderabad office

• No significant problems found

• £3m cost synergies will be delivered

• Accounting charges booked relating to demerger from Redstone

Transaction & integration costs £'m

Transaction costs 1.6 Demerger accounting charges 1.3 Transaction costs 2.9

Redundancy & staff exit costs 1.0 Property exit costs 0.7 Integration activity costs 0.9 Integration costs 2.6

5.5

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Integration Standards

1. Service - Maintain service with minimal client impact.2. Scale - Reduce ongoing costs & headcount requirement,

allowing growth without additional linear cost.3. Skills - Leverage existing expertise & capability in the

business. 4. Simplify - Minimise duplication in the business & remove

complexity of service delivery.5. Strategy – Investment in the strategic direction of the

business and its core assets.6. Service Delivery - Reduce 3rd party reliance.7. Standards - Adopt best practices - if it makes operational

& commercial sense.

Financial highlights

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Reported Pro-forma*£'m £'m

Revenue 58.3 87.4 Recurring % 71% 78%

EBITDA 10.5 16.2 EBITDA margin 18.0% 18.6%

Synergies 3.0 **

Operating cash-flow 9.1 Cash convers ion 86.3%

Net debt 12.3 0.76x

* Including resul ts of InTechnology for 12 months , unaudited** Annual i sed synergies £3.0m identi fied at the time of acquis i tion

Income statement

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£'m £'m

Revenue 58.3 87.4

Gross margin 21.6 37.1% 40.0 45.8%

EBITDA 10.5 18.0% 16.2 18.6%

Depreciation (2.9)Amortisation (2.8)Transaction & integration (5.5)Share option charge (1.4)

Operating loss (2.2)Finance costs (0.4)

Loss before tax (2.6)Tax 4.4

Retained profit 1.8

* Including resul ts of InTechnology for 12 months , unaudited Excludes synergies of £3.0m identi fied at the time of acquis i tion

Reported Pro-forma*

High level of profitable, recurring revenue

ReportedRecurring Services Product Central Total

£'m £'m £'m £'m £'m

Revenue 41.3 7.0 10.0 58.3 Proportion 71% 12% 17% 100%

EBITDA 9.4 1.6 0.5 (1.0) 10.5 EBITDA% 22.8% 22.6% 5.1% 18.0%

41.3

7.0 10.0

22.8%

22.6%5.1%

£0m

£5m

£10m

£15m

£20m

£25m

£30m

£35m

£40m

£45m

Recurring Services Product

ReportedRevenue

EBITDA68.1

9.3 10.0

22.1%

17.7%5.1%

£0m

£10m

£20m

£30m

£40m

£50m

£60m

£70m

Recurring Services Product

Pro-forma*Revenue

EBITDA

Pro-forma*Recurring Services Product Central Total

£'m £'m £'m £'m £'m

Revenue 68.1 9.3 10.0 87.4 Proportion 78% 11% 11% 100%

EBITDA 15.1 1.6 0.5 (1.0) 16.2 EBITDA% 22.1% 17.7% 5.1% 18.6%

* Including resul ts of InTechnology for 12 months , unaudited Excludes synergies of £3.0m identi fied at the time of acquis i tion

Cash-flow

• Cash conversion recovered in H2 after difficult H1

• High capex in H2 driven by customer contract wins

• Underlying cash generation strong– High level of recurring revenue– Predominantly monthly billing

Cash-flow £'m

EBITDA 10.5 Working capital (1.4)

Operating Cash-Flow 9.1 Cash convers ion % 86%

Capital expenditure (4.5)Transaction & integration (2.3)Interest (0.4)Tax (0.1)

Free Cash-Flow 1.7

Equity issue net proceeds 61.6 Acquisitions (64.3)

Change in net debt (0.9)

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Net debt & bank facilities

• New facilities Dec ’13

• £23.2m, with stepped reduction to Dec ’16

• c.£11m headroom at year-end

• Very low gearing level

• Plenty of covenant headroom

• Expect to be in a net cash position in H1 FY16

12.3

£0m

£5m

£10m

£15m

£20m

£25m

Mar'14

Jun'14

Sep'14

Dec'14

Mar'15

Jun'15

Sep'15

Dec'15

Mar'16

Jun'16

Sep'16

Dec'16

Available facilities

Net bank debt

Net debt £'m

Cash 3.9 Drawn debt (16.2)Net debt (12.3)

Proforma EBITDA* 16.2 Net debt/EBITDA 0.76x

* Unaudited

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Balance sheet

• Significant owned, managed & controlled infrastructure assets

• Low debt level

• Distributable reserves to support dividend

Balance sheet £'m

Fixed assets 22.4 Intangible assets 88.1

110.5

Current assets 21.0 Cash 3.9

24.9

Current liabilities (24.7)

Net current assets 0.2

Bank debt (16.2)Finance leases (1.7)Provisions (1.2)Deferred tax (4.0)

Net assets 87.6

Capital 62.2 Reserves 25.4

Equity 87.6

Net bank debt (12.3)

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Earnings Per Share

• Adjusted EPS excludes certain non-cash or non-recurring items

Earnings per share Statutory Adjusted£'m £'m

EBITDA 10.5 10.5 Depreciation (2.9) (2.9)Amortisation (2.8)Transaction & integration (5.5)Share option charge (1.4)Finance costs (0.4) (0.4)Deferred tax movement 4.4

Profit from operations 1.8 7.2 m

Shares issued on demerger 62.4 New shares for IMS acquisition 80.0 Options exercised 1.5 Total shares in issue at year-end 143.9 Weighted shares in issue 89.1 Basic EPS 2.04p 8.07p

Options & warrants at year-end 14.1 Weighted diluted shares in issue 91.2 Diluted EPS 1.99p 7.88p

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Summary

• The creation of Redcentric and the IMS acquisition has created a leading, focused UK managed services business

• Strong FY14 results have demonstrated the stability and scale of the underlying operation

• The integration is on track to complete this FY, and will deliver the savings identified

• The market is fragmented, and significant opportunity exists for ;

– Organic growth and cross-selling– M&A to add further scale and capability to accelerate profits and

cash-flow

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Appendices

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Vision

SUPPLIER(OPEX)

ASSETOWNERSHIP

CUSTOMER(CAPEX)

CUSTOMER SUPPLIERMANAGEMENT

DATA CENTRE

XaaS

UTILITY

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Redcentric’s differentiator

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Services

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Data Centre1,255 Racks across c50,000 Sq Ft, 867 used, 388 available for growth

Reading£3.2m of investment in 2012 Reading refresh

- 10,000 Sq Ft, PUE of 1.25, 420 rack capacity, Embedded in 10Gb network- High capacity supported; 3-8kw per rack, UPS & 3x back up generators- Latest cold aisle containment / free air design- PCI-DSS & ISO compliant – Tier 3 certification

Harrogate18,500 Sq Ft DC, 390 rack capacity16,637 Sq Ft office suite

London, Hoddesdon & Cambridge445 Racks

Data centre and network assets

Network10 Gb MPLS Backbone Network with 2.4 Gb National Fibre RingMetropolitan fibre networks in Cambridge and PortsmouthLeased fibre in London

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Coverage

POP

DATA CENTRE

NETWORK COVERAGE

Redcentric’s Hyderabad Office• NOT a call centre and NOT an outsource• Single team structure between UK and

India– Huge skilled resource pool (9m)– Strong work ethic– 1st, 2nd and 3rd line technical resource

• Development Opportunity– Back office functions – finance, HR,

sales support– Natural attrition migration from UK to

India – Application support (Oracle DBA)– All managed services can be

supported from India (leave all font line sales and consulting in UK)

– Opportunity to grow ring fenced client teams

• c£1m per annum cost for c100 staff

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Competitive landscape

One of the largest independent managed services businesses in the UK

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