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UK managed IT services provider Redcentric has discovered substantial accounting misstatements in its balance sheet, resulting in Tim Coleman, the company’s chief financial officer, leaving with immediate effect.
The Board said that it has commenced a forensic review of current and historic balance sheets, but said that initial investigations suggest that the cumulative historic accounting misstatements would result in a need to reduce net assets by at least £10m. The net debt guidance previously announced is also thought to be unreliable.
“The Board now believes net debt at the half year was approximately £30m,” the firm said in a statement. “The Board also believes that the underlying net debt position at 31 March 2016 was materially higher than as reported and thus the business has reduced its underlying net debt in the six months to 30 September 2016.”
Redcentric’s shares fell off a cliff this morning, down by as much as 72% to 42.50 pence.
"The Board is absolutely focused on completing the internal review to resolve the situation in a timely manner and release the Company's interim financial statements at the earliest time,” said Chris Cole, chairman of Redcentric. “Management's focus remains on working with our motivated staff to provide critical IT services to our customers. The indications are that these accounting issues relate to prior periods and that the current levels of new business sales by the Company are as expected."
Martin Courtney, analyst at TechMarketView, said that the incident has clearly rattled investors. “But we think a greater risk could be presented by any subsequent loss of confidence amongst Redcentric customers which adversely affects future sales,” Courtney said. “Around 85% of Redcentric’s turnover is recurring revenue from managed network, security, cloud and collaboration infrastructure services, and any impact will take time to filter through as customers come to renew those contracts.”
Tim Coleman was fired from his role as CFO and placed on garden leave with immediate effect. He also resigned his directorship, again, with immediate effect. Redcentric said that it plans to make an external interim appointment for the now vacant CFO role.