Redcentric profits overstated by £21m

London-listed firm issues update on accounts saga

Redcentric has issued an update on its ongoing accounts saga, admitting that the cumulative overstatement of net assets and profits after tax reached £20.8m.

Redcentric announced the beginning of a forensic review in November after realising some of its accounts had been misstated. Full interim results are due to be published before the end of the year, but the company has been posting periodic updates in the meantime.

In one this morning, Redcentric said the cumulative overstatement of net assets and profits after tax up until 30 September 2016 is around £20.8m. Of that, £5.9m of the misstatement arose in the six months ending 30 September. The remaining amount relates to periods prior to and including the year ending 31 March 2016.

"To date there has been no evidence of theft and the misstatements are attributable to profit overstatement over a number of years with revenues being overstated and costs understated in broadly equal proportions," the announcement said.

Net debt at Redcentric is also "materially higher" than originally reported, it said. As of 31 March 2016, net debt was £37.8m and at 30 September, net debt was £34.4m.

"However, the net debt position as at the period ends mentioned above are not representative because creditors had been significantly stretched at those dates," added the announcement. "The average month end net debt position over the past eight months to 30 November 2016 was £42.0m. This is expected to reduce as billing and debtor collection processes are improved."

The banks "remain supportive" of Redcentric, the firm said, adding that "a number of initial improvements have already been made", including changes to billing and credit control management systems and processes.

"The company currently expects to report for the six months ended 30 September 2016 revenue of approximately £53m and EBITDA of approximately £9.1m," the announcement continued. "Given the recurrent nature of a majority of the group's revenue, being in excess of 80 per cent of total group revenue, the board believes that this performance is indicative of the performance for the second half of the year. The sales pipeline remains strong at approximately £93m and the H1 sales targets were exceeded, incorporating 38 new client wins."

Redcentric shares slumped on this morning's announcement. Last night they were priced at 88.75p per share, but this morning that has fallen to 77.93p per share (at 10:30am). Prior to the announcement of the accounts misstatement, shares had been trading at £1.50 per share.