Redstoneconnect PLC (LON:REDS) Chief Executive Officer Mark Braund caught up with DirectorsTalk for an exclusive interview to discuss their £5.5 million contract win, their latest trading update & what investors should expect in the coming months
Q1: An exciting announcement to the market this morning, what can you tell me about it?
A1: Well, obviously it’s the largest deal we’ve contracted in the last 8-12 months, the last bit one in the city was the headquarters at UBS which is a very iconic building now & obviously, one of the smartest buildings, we think, in Europe. This announcement is very similar, a similar building, I think, that will be an iconic building when it’s completed, similar stature of customer, a very large global institution & a headquarter building that I think is going to be very smart, in terms of its technology & one that we are delighted to be a part of helping to put together.
I would add that this is a client that we’ve worked with for many years in a number of different ways, we provide them with a range of managed services as well as doing infrastructure work for them. Actually, this is one of several components that we are involved in in this particular building & we expect to see some other elements downstream of this but this, by far, is the largest single contract of that group of works.
This is an exciting one to announce & I think the second thing to be aware of is that the client is in a hurry, they want to be up & running in the building in early 2019 & we’ve got set to work really quickly. So, we’re engaging really quickly which means you’ve got revenue driving through our books this year & obviously into next year as well.
Q2: You also provided a trading update last week, what were the key highlights that we should take from that update?
A2: I think that update was Redstoneconnect being extremely transparent, saying the first half which end 31st July went to plan & met management expectations. We talked about the fact that one of our key focusses was software, our software business which is now a fast-growing part of our overall portfolio, & we were pleased how that had grown in the year, likewise with services.
We also highlighted the fact that when we announce our interim results on 10th October, that people will see that the first half was very positive but we’re expecting, because of the way the deals flow & the contracts are signed, the revenues to flow in the second half, to be second half weighted, especially in the infrastructure business.
Put that in context with this particular announcement today, what we’re showing is we said we had a pipeline that gave us confidence of the second half, & therefore the full year, & this is just an example of the quality of that pipeline. The fact that we’ve now signed that should give more reassurance of our full year number.
Q3: I was just going to ask, with regards to the new contract, how it fits in with last week’s update?
A3: It’s exactly that. We have 3 divisions; smart building software division, managed services which is where all of our current revenue comes from & we have an infrastructure business, & it was our infrastructure business that we signalled would be second half weighted. This £5.5 million contract is part of that second half weighting.
Q4: You seem to have a strong pipeline, with new business momentum increasing. How are you positioned to absorb new contracts?
A4: One of the things we’ve been doing here for the last couple of years is restructuring the organisation, we focussed on margins, we focussed on quality of business & people have been able to see, over the last 1.5 years, our results have demonstrated that the team here has been quite successful at doing that.
We’ve had increases in margins in a market sector, the infrastructure sector, that is quite compressed in terms of margins & seeing margin accretion, we’ve actually been going the other way. We’ve focussing on value, focussing on the things that our competitors cannot do & we’ve been asking for a fair price to do that & this latest win is another example of us doing just that so we’ve become much more agile.
In terms of revenue, what you’ve seen is revenue has been relatively flat, we’ve grown a little bit in infrastructure, high growth in services & software but relatively flat in infrastructure & we’ve focussed on the quality roles that require a high expertise which generate that much more margin. It’s margin that’s really important, gross profit, so the quality of the business is different & we’re not running so fast that we’re running out of people.
We’ve got a fantastically experienced quality team here, some of the key components of our team have been here for more than 20 years & we’ve been hiring in some really talented people to help them. As a result, we’ve now got this agile structure where we have a mix between permanently employed expertise that really is differentiating the business going forward & the ability to hire in, not just experience but well-known to us, resources that are more freelance or contract in nature. So, we can flex up & flex down according to how the business flows & that’s allowed us to go through H1 with good to modest levels of revenue & will allow us to go through peaks as we reach them with the pipeline starting to close & therefore, go into a period of delivering.
Q5: What should investors be looking out for in terms of news flow for Redstoneconnect PLC over the coming months?
A5: I’m hoping we can excite them. At the end of the day, no contracts are done until the ink is dry on the paper but we’ve signalled to the market over the last year & a half that we are very much focussed on a market that’s growing, a market that’s going through a structural change, that is the market of the smart building. I think we’ve got a unique proposition that is rare in the market. We are very talented at delivering, & we have a great track record of demonstrating, highly complex projects to customers that are looking to create the ultimate working environment, a smart building.
So, I’m hopeful that we’re going to be able to continue to show meaningful wins, obviously we only announce those that are truly material value like this one & we do put out the odd trade press items on things that are smaller. We also do submit a couple of RNS’s, things that are maybe smaller, not so material, but demonstrate that we’re winning in a market that’s getting quite excited about the kind of proposition that we’ve got.
So, I can’t say what we’re going to announce, I can just say we’re working on plenty & what we’re working on is not only in infrastructure, like the business you saw today, but in services & of course, the very margin-rich opportunity that we see in software. I’m hopeful that we’ll be able to share more news of more wins as we progress through the coming months & year.
