Redstone shuns low-hanging fruit following services spin-off

Firm posts £3.8m pre-tax loss in first results since demarger but underlying profitability improves

Redstone claims it is reducing its reliance on low-margin, high-volume business as its first set of annual numbers since it spun off its services business shows an increase in gross margins. But hefty demerger costs saw the integrator post pre-tax losses of £3.8m.

For the year to the end of March 2013, the company saw revenue from continuing operations decline 21.6 per cent year on year to £32.1m. Gross margins improved from 47.8 to 54.9 per cent, and EBITDA decreased by less than £100,000 at £2.4m.

But charges associated with the recent spin-off of its services business – which resulted in the creation of Redcentric, a new, publicly listed entity – totalled almost £3.9m. This was the principal cause of the firm swallowing a pre-tax loss of £3.8m, compared with a reverse of £1.4m in FY12.

In an update issued to the markets today, Redstone chief executive Ian Smith claimed "the business is now lean and fit for purpose... with a healthy pipeline of opportunities". The statement claims that annuity revenue comprised 45 per cent of the total top line in FY13, compared with 43 per cent in the prior year.

Non-executive chairman David Payne explained that the company has reduced its overheads and begun to take a more selective approach to sales as it bids to increase its profitability.

"The strategic focus of the business during the year ensured that Redstone focused on tendering only for projects that were likely to deliver sustainable gross margins allowing the company to reduce its cost base accordingly," he said.

"The business has continued to realign capacity and direct overhead to reflect the competitive market conditions. We have been more selective in bidding for new projects and have reduced our reliance on low-margin, high-volume project revenue."

Payne concludes that his firm is well placed to prosper in light of its structural overhaul.

"Despite competitive market conditions, we have established Redstone as a sound and stable business and confirmed the strength of the brand with our clients," he said. The demerger has reinforced the identity of Redstone, leaving it well positioned to benefit from sector consolidation, as a standalone specialist infrastructure solutions business."