BSF supplier Redstone in the red

(By Tola Sargeant, 29th September 2009, 19:00) We haven’t traditionally tracked converged IP and network managed services supplier Redstone plc but its annual results caught our eye this week because it supplies ICT services to the UK’s £45bn Building Schools for the Future (BSF) programme.

In August, Redstone was awarded the ICT element of Birmingham’s BSF contract as part of a consortium led by Catalyst Lend Lease & Bovis Lend Lease. The 15-year deal, which involves the redevelopment of 89 schools, is the largest in the group’s history and is expected to be worth £150m to Redstone over the next 10-15 years.

The BSF deal was a rare bright spot for Redstone, which has had a pretty torrid year financially culminating in the refinancing of its debts and the sale of its Telecom and Mobile divisions. In the twelve months to 31 March 2009, Redstone’s revenues were fairly steady at £197.8m (FY08: £200.7m) but the company made an operating loss of £49.7m (including a £43.8m goodwill impairment) compared to a £3.2m operating profit in FY08. Also worryingly, the firm’s liquidity worsened – its current ratio (the ratio of current assets to current liabilities) was just 0.7 in FY09, down from 1.07 the previous year.

Having sold the Telecoms and Mobile divisions, Redstone’s business is now focused around ICT. A key part of the company’s strategy is to increase its presence in BSF and other areas of the public sector, including local government and the Academies programme. These are competitive, risk averse markets and taking market share will be an uphill challenge for a supplier with shaky financial footings.

Redstone has three remaining divisions: Converged Solutions (providing IP solutions); Managed Solutions (network management and internet services) and Ireland-based Radstone Technology, which has expertise in enterprise storage. If Redstone is to see its way beyond 2011, when its banking facilities come due, all three divisions will have to pull their weight. This is particularly true of Converged Solutions, Radstone’s largest division and the home of the BSF deal: it made an £18.3m loss last year on revenues of £92m (FY08: £93m).