Redcentric (LSE:RCN) — Interim Results Presentation

0:00 Good morning, and welcome to the REDCENTRIC PLC interim results investor presentation. Throughout the recorded presentation, investors will be in listen anyway. Questions are encouraged and can be submitted at any time by the q and a tab situated in the right corner of your screen. Simply type in your questions and press send. The company may not be in a position to answer every question received in the meeting itself. Have the company come with all the questions submitted today and publish responses where it's appropriate to do so. Before we begin, I'd like to submit the following poll. I'd now like to hand you up to CEO, Michelle Senegal to Fonseca. Good morning. Good morning. Thank you very much for joining us this morning. I know it's a really busy time leading up to the holidays, so thank you for spending this morning with us. I'm Michelle Senecal de Fonseca, and I'm the CEO of REDCENTRIC, having joined in this role as of May of this year. But last year, I had joined the company as an NED.

0:52 Part of the reason why I joined REDCENTRIC in the first place is it's a business that I know very well. Not necessarily REDCENTRIC, but I have managed companies like this only perhaps on a more global scale with Vodafone and cable and wireless and others. So I'm a a long term industry hand and was very excited to have the opportunity to join the business. I'm joined here today by our CFO, who's also a new member of the board. Tony, do like to yourself? Yeah. I'll introduce myself. So Tony, active CFO. I joined the business actually in the summer and, you know, delighted to be here. My background is I'm a UK chartered accountant, trained with KPMG, I have an MBA as well. I guess I've spent actually, says twenty five years. It's actually a little longer. But twenty plus years of experience all in technology, all in fast growth businesses, mixed with product and service businesses, certainly a mixture of sectors as well.

1:46 And I think I've hopefully got an interesting and relevant mix of experience, quite strategic, operational, and transactional based, mixture of work on on the private private companies and on public markets, you know, including the AI market. But two examples here on the screen, Source Bio was a service a laboratory services business grew that four times revenue in two years and and about eight times EBITDA. Brady was a buy and build on on AIM. So lots of public company experience. And I think ultimately, my focus really or theme throughout my career has really been about helping to build shareholder value, and realizing shareholder value ultimately. And as I say, delighted to be here. Great. Next slide. Well, REDCENTRIC has been a British brand for a number of decades, and I imagine some of you have, you know, been following us or maybe lost touch with where REDCENTRIC has been. But where we're at today is over the last four or five years, it's gone through a series of acquisitions that built up a rather substantial data center business and managed service business.

2:51 And, when I joined the company last year, the board, we asked management to take a look at what was the markets that they were involved in, how's the growth, the profitability, and the investment, criteria for each one. And through that process, we really decided that they're a bit more distinct and so we operate started to operate the businesses in two distinct towers. We separated that and then subsequently realized that the funding envelope that's required for the data centers, particularly to take advantage of where AI is going and the requirements that are going to be needed for the facilities, would be better suited by a different organization. So we were looking for a strategic buyer who could really take care of our customers, our employees going forward. And to that end, we announced in October of this year the exchange with Stellenor Data Center, which is backed by the d w or DWS group.

3:48 We'll talk a little bit more about this deal going forward, but we do expect to complete that in q one calendar twenty twenty six. So, really, the strategic priority of REDCENTRIC today is going back to its roots, and that's being a managed service business. It's a solid company, 90% reoccurring revenues, and we have very loyal customers who are very grateful for the types of personalized service that we provide. And part of my role as new CEO is coming in as understanding what are those competitive advantages, where we sit in the market, and where we need to take it going forward. And that's what we'd like to share with you in a in a few slides. But first, you know, we need to also talk about how we performed in the first half of this year. So if we could go to the next slide, let's just talk a little bit about sort of the corporate highlights of the first half. Yes. Thanks, Michelle. So look, so in terms of the MSP business unit, I mean, Michelle mentioned, obviously, we've had a transformational deal which we announced in October, which we hope to complete in the early part of next calendar year.

4:49 The focus is absolutely on MSP going forward. So I'm not going to steal Michel's thunder and talk to some of these points on the left. We'll hold that back for a few minutes where Michel is going to elaborate on the growth strategy behind that. But I'll maybe highlight the third bullet point. Do see this as a transformational deal, not just in the sense that obviously we're realizing a substantial amount of cash and returning hopefully material upon that to shareholders, but really in the sense of what we leave the MSP business with. So we essentially see it's transformational in that we have an MSP business going forward that will, by definition, be be supported by a stronger balance sheet. We'll talk to the use of proceeds, but in principle, it would have significantly less debt.

5:35 It would be less capital intensive with less financing costs. So we think we have a, you know, a stronger business going forward, that can provide, additional sort of cash generation and be essentially de risked, going forward. So I think that's fundamentally, key to the to the transformational nature of the deal. In terms of the senior management, point there on the top right hand side, I mean, obviously, you've you've you've met us now and and went new to the business. I think during during the last, year, it's also fair to say that the management team has been strengthened very much actually at the front end in terms of a head of a head of marketing, chief revenue officer security. So we've we've filled the the missing pieces on the management team, which I think tells us that, you know, we're in good shape, hopefully, going forward next year to to build, and we have the full complement of the team in place.

6:29 In relation to the the disposal of the D DC business, might sort of break this into three pieces if you if that's if that makes sense to give a little bit more color. First of all, on the deal value. Secondly, on the timing. Thirdly, on the use of proceeds. And I've seen a a little a couple of questions coming in, so I'm hopefully sort of gonna address those within within that. So first, in terms of the deal value, yes, I think we've been honest in the in our in our release, there is some variability on the on on the deal value. So the enterprise value is essentially capped at a 127,000,000. We know we can't go any higher than that, but we do recognize there is a range. And that range, we believe, is somewhere between 115 and 127,000,000.

7:18 And the reason for the range is essentially this is a spin out or carve out deal. We've got some some scraps, if you like, of the of the carve out still to finish, that's why we have a period between exchange and completion. But I think to cut to the chase, the the downside risk, for this 127,000,000 is really around a rent review, around actually our flagship, property, in West London. And so that has the potential to bring that deal deal value or the enterprise value down. But happily, we have baked into the sale and purchase agreement the ability that we can sign additional commercial contracts that can essentially claw that back. So I think it's fair to say in summary that the board is is pretty confident that in that range of one one five to one two seven, we hope to be at the at the top end of the range. So whilst we can't give you a definitive number, I think that is where our our belief is that we're that we'll end up in terms of the the ultimate consideration.

8:15 There will obviously be adjustments for for working capital and, you know, cash and debt, etcetera. But in principle, we believe we'll be pegged towards the higher end of that one one five to one two seven enterprise value range. So that's the quantum. In terms of the timing, as Michel said, we're we're looking to complete this by by March 2026. And, again, I think in terms of the condition precedents and the other factors that we or the other standings that we need to to get done before then, I I think the the the one that's driving the timetable is really very much the the ISO accreditation piece. So it's obviously critical to the buyer that the entity that they inherit has the ISO accreditations, in fact, that we already have.

9:05 It's not we can't just kind of lift them across. It has to be essentially reapplied for. So it's essential for the buyer that they have those, but it's also essential for us as a seller because a number of our customers will obviously ultimately be still reliant on those services and that's accreditation. So at the moment, that process is scheduled to be done by the February 28. And so I think with some confidence, we feel that March 31 is an honest timeline for getting this done. So so that's really where we are on the timing. And on the finally, on the use of proceeds, the first sort of variable, really. What I what I can tell you and what we've announced really in the RNS already is what we've definitively agreed. So we've already definitively agreed with our bankers to reduce the debt to a certain level.

9:54 So what we have is a revolving credit facility. It's a 60,000,000 sterling facility. As of now, we've drawn 41,000,000, and we have committed that on completion, we will bring the facility size down from 60 to 30, and we will have borrowings no more than 19,000,000. So if we've got 41 now, 19, that by definition, we're writing a check of 22,000,000 to bring that debt level down. But clearly, the proceeds will be significantly higher than that. So it's still up to the board to consider actually do we bring the debt down further or do we return more to shareholders? And to the extent that we return money to shareholders, current thinking is that it should be very much by way of a tender offer as opposed to a straight dividend. So I can say that's where the thinking is. Obviously, we can't be definitive about the quantum, the timing or the use of proceeds. But obviously, as soon as we have something more definitive, will present that to shareholders.

10:58 So hopefully, that's helpful and gives some color to the transaction. Okay. So I guess this is a results presentation, so we should talk about results. So first of all, just by way of clarity, to be clear that in our RNS where we've presented results, we've we've very definitely only presented in the p and l, the income statement. We presented the the MSP business. Obviously, it's an ongoing continuing operation, whilst the DC business is still generating revenue, EBITDA, and cash, we technically have shown it as a discontinued operation. So what we have done to present a like for like comparison is restate the September prior the prior September results to, again, just reflect MSPs. It's a like for like comparison.

11:51 And in fact, the the full year to March results already were presented that way. So we've got a like for like comparison just to be buoyant to doubt. What I might just say, in terms of the highlights, obviously, we've got some key metrics here. I think we're really, seeing a focus on maintaining, well, securing and maintaining the, you know, high value, high margin business, and managing our cost base. And I I think that's sort of the underlying theme of the first half. So what I will say is, yes, revenue was modestly, down on the prior first half. We weren't concerned. I mean, we did say no for honest reasons to deals that were suboptimal commercial terms, etcetera.

12:37 And this reflects in the fact that the gross margin actually did kick up a little bit from 61 sorry, from 59.1% to 61.6%. So we're pleased with an uplift on gross margin. And we're also pleased with an uplift on EBITDA, which has obviously increased both in absolute terms and in margin terms. For margins, we've gone from 12.8% to 13.7%. So I think what you're seeing is hopefully better quality of earnings, and that's obviously going to be in our mind as we go forward as well. And the final point I should make is on recurring revenue. You can see here that recurring revenue, again, has notched up a little bit from 88% to 19.4%, which is in itself is a is a is a pretty amazing stat and obviously very helpful for, you know, visibility going forward.

13:25 We're often asked, well, could it could it trend up even more? Could it be a 100%? Well, the honest answer is no because we will always need an element of one time revenue in a professional service type revenue in terms of installations, upgrades, and and similar kind of projects. So we actually think 90% is probably, as good as it gets, but, you know, it's a fabulous stat in in in its own right. But hopefully, that gives you some clarity. On the right hand side of the slide, we've we've got a section on DC. I mean I mean, I'm not going to go through the DC results unless everybody has particular questions. But, obviously, you know, we fundamentally baked down the deal and and that that's key. But I think reflecting this prior to our time, prior management have built essentially a great asset without a doubt. And we think we've got a great price for that asset.

14:16 I think in terms of what the deal value was, it equates to about 15 times adjusted EBITDA of the DC business. So trading EBITDA is adjusted for rent costs, which is, as you probably realize, a bit lower the EBITDA line. And in a data center business, they're quite material. So if we take the the the EBITDA, take out the cash cost of the rent, multiply that by actually 15.1, we get to a deal value, which I think is a great a great metric. The point I'll probably cover on the on the combined section, really, is really just on on what we have as a business. So, you know, we have we've we've obviously got a business, which at the moment is generating substantial EBITDA both on the MSP and the DC side.

15:02 We do have a debt level, which I I talked to earlier. The the revolving credit piece is 41,000,000. But actually, I I think I think it's fair to say that the challenge in the past has been translating that EBITDA into either additional cash or paying down debt, and that and that has been a challenge. But coming back to the transformative nature of the deal, we absolutely think it changes the balance sheet because, certainly it's going to reduce the the debt level by at least the 22,000,000 I talked about, potentially more. We'll also have, by definition, reduced financing costs going forward, a less capital intensive business going forward. And therefore, you know you know, we essentially have a business that has a much greater potential to convert the the the the earnings into cash, and that is going to be our our focus going forward.

15:55 So I think, again, that leaves the board open to quite a nice challenge as to what to do with that use of proceeds. And clearly, it can continue to pay down further amounts of debt to the extent we haven't already paid it down. But perhaps more importantly, we can also think about reintroducing a dividend, which we would hope would be a progressive dividend policy. So, again, I can't give you definitive decisions as to what we plan to do, but gotta get the deal done, and then we have, as I say, some some quality questions to ask ourselves. I think it would probably be fair to say that Tony and I and others have sort of walked into a three ring circus this year. You know, we are in the process of splitting the businesses, carving out, and then selling it at the same time, trying to assess where the company is and making sure that we're delivering the revenue, and then repositioning it for the future.

16:54 So one of the key areas and when you look at the MSP businesses, I would say over the last three or four years with all of the acquisitions really focused on the data center, the MSP business has kind of been left to its own design and perhaps has been ticking along, has not really been focused on its go to market motions. And so that's really been the fundamentals that we have to put in place for this year for the business to be able to grow moving into f y twenty seven. So as Tony had mentioned, we brought in a new chief revenue officer, a new marketing head, and we're taking a look at a variety of ways to be able to scale the business. And one of the things that stands out is we really don't have any new business salespeople. So in q two, we have brought in a Cedar team.

17:40 They're doing a great job of putting together pipeline, and we're starting to see actually some potential wins for this year. But really, given the sales cycle, I would expect their input to be coming in at f y twenty seven and I'm hoping by f y twenty eight they'd be representing up to 15% of the top line going forward. Another area is not only not having new salespeople, but the company has never really utilized what we call channel or partner ecosystems. We have suppliers, and tech vendors who we call partners, but we haven't utilized them in the way that it's a little bit more forward thinking within the industry. And one of the key vendors that we've been working with, of course, is VMware. If you're not familiar enough with VMware, who has also then been bought out by Broadcom a while ago, they've been changing their channel program.

18:31 And in The UK, they have now consolidated where any business can no longer come directly and buy their services from VMware. They have to go through one of eight partners in The UK, and REDCENTRIC is one of those eight partners. If there has been a company like a CSP who's built up a business on, VMware, they can no longer go directly to VMware for that either. So there is a whole change in the market in terms of distribution and how to be able to change business models. And so we're working very hard to be able to have that as one of our key drivers. At least that's what we've been focusing on for the first half of this year. Okay. And just to take the second half of the slide, I'm not sure service is the best title actually. It's really intended to cover operations in generally. But clearly, in the past, we've had quite a significant distraction in terms of splitting the business into two.

19:28 I think it's fair to say that hasn't been the most straightforward process. But having done that, obviously, we've got the deal as well, which is certainly past exchange and hopefully close to completion. The focus is very much on running the MSP business, running that organic business. And I think I think that as the as the highlights show, you know, our focus has to be on operational efficiencies, streamlining, you know, the the the platforms, the network. So so things like rationalizing, simplifying where we can, and just operationally operationally just, you know, get more horsepower out of the the business is is really key. I mean, one example is the facilities. We've got 10 sites in The UK right now.

20:14 Eight of them actually will will go off with the DC business, which clearly simplifies things. We're left with two sites. Our head office and very much our center of gravity is in in Harrogate in Yorkshire, and that's a sort of busy, busy office. 10 miles down the road, we have another site in in York, which is actually even larger, even more expensive, and has been little used recently. So in fact, we have closed that down and obviously centralized things in Haurogate. So that's an obvious low hanging fruit. I think what we're saying is we you know, there are more of those to come, and we will, you know, do our best, and and that's gonna be a key focus just to streamline the business and keep it as simple and straightforward as possible. I mean, I think to achieve some of these things, Michelle will will talk to the strategy, but it will be a modest investment out of optic out of OpEx, I should say, just to help us achieve some of those future future efficiencies going forward.

21:14 Good. So what is the MSP business today? I mean, currently, we have three core towers of providing cloud services and cybersecurity, our network connectivity, and our voice and ICT communications group. We serve about 1,500 customers nationally with a good balance between the mid market commercial and public sector. So, you know, coming in as a new CEO, I really wanted to get under the skin and understand where does REDCENTRIC play within The UK market and what are the things that differentiate us. So I hired a group called Canalys. They are recognized globally as one of the best research houses that only focus on managed service providers. And we provided them our product and customer profitability.

22:00 They looked at our product portfolio. They interviewed some of our customers as well as our management. And together, we sort of go went through what we thought was unique. And my gut reaction when I first came in was not only is it you have a national network and, you know, we have an end to end services, but it was the workforce itself which was really unique. More than a third of our workforce is in the highly secured clearance. They maintain certifications that are highly secure and the level and the depth of the different certifications that we have across many different regulated industries. These things take a long time to invest in and it isn't just a matter of what is the IT wrap around perhaps a server in the data center.

22:49 It's are your people UK citizens? How do they handle data? How do you separate it physically? What is the whole process? Do we understand what it is in financial services and health care that a public company needs to be able or excuse me, a private company needs to be able to integrate and work with a public entity? And to that end, that was a real eye opener in terms of our depth and experience. And so that's one of the areas that we're gonna expand on in just a minute. The other area is that the fact that we are an aim listed business. It does make us transparent. It shows that, you know, our continuity and our stability for the customers who wish to contract because they're contracting, you know, for five years worth of services. They wanna make sure that we're gonna be here in the long haul. And I think with what Tony's talking about with this transformational deal, that's going to land us with probably one of the least leveraged balance sheets going forward out of our peer group in the marketplace.

23:47 So that's, just only enhances our attractiveness. And in talking with a lot of customers, one of the key things that they really talk about is the fact that being a mid sized business, we may be 80% standard, but it's that 20% customization. We really try to understand what the customer requirement is, and we can change our service delivery model to a certain extent to be able to provide something that's a bit more bespoke for them. And this is something that, our larger peers cannot do because of the the structure. And last but not least, when things go wrong, and they always go wrong in IT, that they have the ability to call directly to the top of the organization, and it's how we respond in those moments that makes them feel secure and trusted with a partner and why they stay with us for so many years.

24:38 So what is the market that we actually are operating in? Because trying to fit, you know, where is REDCENTRIC's position. And if I don't know how much of you follow it, but this is one of the most competitive and fragmented markets in all of Europe, where there are over 12,000 MSPs that operate in The UK, but about 80% of them make maybe a little more than 10,000,000 in managed service revenue. And most of them are highly unprofitable, so they tend to be somewhat niche or regionally oriented. Obviously, REDCENTRIC is in probably one of the smaller of the larger entities. But if we just took a look at what we provide today and did nothing else, the market opportunity for REDCENTRIC is about $2,000,000,000.

25:25 But with some investments slightly in just a couple of areas, we can open up to 14. So there's a lot to go for. We're clearly within, you know, the handful of the leaders. We're profitable and we're stable. So I think that's a really good position within this very fragmented market. Next one. The five main areas that MSPs today are focusing in where they see the highest growth paths are these five buckets. But when you take a look at what is the capability that REDCENTRIC already has today, we already have depth in cybersecurity. We already have depth in providing public cloud services. But taking our current product portfolio and overlaying it and understanding what's missing, if we would make just a few more investments in that, in widening and deepening it, we can maintain growth paths with the highest areas. And so that's where we're going to be focusing on over the next couple of years.

26:27 Next page. So I tried to be able to put together strategy on a page, and there's some really interesting themes that all MSPs are having to, you know, face into. And first, of course, is the cybersecurity threats. Today, CIOs, still, the number one concern that they have is the ability to be able to ward off threats. And in particularly The UK, the rise of national threat actors, particularly for MSPs, is quite a concern. You may or may not be aware that there is a new bill that would become active next year where m f MSPs of REDCENTRIC size are going to be regulated, a lot like GDPR where, you know, if we don't respond in the appropriate way within a certain time frame, up to 4% of our revenue could be a fine going forward. So making sure that not only are we internally, where we need to be in terms of security, but also helping our customers be able to to manage that.

27:26 I think it would be an understatement to say geopolitical instability has been a probably a new and increasing risk around us. But in particularly in Europe where it's leading to is those who are utilizing public cloud services, there's sort of a backlash, which we're calling cloud repatriation, where people are concerned that maybe they shouldn't be on foreign hyperscales infrastructure. Now to be clear, in The UK, we don't really see that in a massive way because we're much more aligned as a nation with The United States where the majority of the hyperscalers come from. But what we are seeing is that our customers are having to think twice about where they want their work set sitting. It doesn't all have to be sitting on a public cloud, and they may want to ring fence and put more on a a private cloud. And this is where REDCENTRIC can, you know, help you with, do you need sovereign elements of it? Do you need it, you know, for cost reasons being on the public cloud?

28:24 And so this is a trend that we are leaning into. And it's been happening for quite some time that, you know, moving from single point solutions to an integrated platform is so important down this modernization trail because you can't take advantage of the last box being AI driven experiences if you don't have a more consolidated tech stack. And to be frank, The UK mid market business is still highly fragmented and it isn't being able to take advantage of the newer technologies coming down because they don't have the right infrastructure. So that gives us an opportunity with those types of, you know, market dynamics. We really feel that by investing more into our cyber capabilities and into, we bought a company in 2022.

29:14 In all fairness, it's doing quite well, but it's been segmented from the rest of the business. So the first thing we're doing is integrating it and bringing it more into the our core and taking their capability and integrating it into our overall managed service solutions. And then we also have some considerations that we need to invest in terms of expanding our SOC capabilities and taking a look at a few other things down the road. As I mentioned, you know, the compliance paths, one of the things that we have done is we've gotten all of these certifications and sovereign capabilities usually for a particular customer, whether it be the home office or a defense entity or public sector in the health care. But what we haven't thought about is how do you take that knowledge and base and apply it a bit more into the commercial world where we're very deep into life sciences and pharmaceuticals and some of the defense entities who feed into the public sector. And so being able to help them through those regulatory hurdles and making sure that they have a sovereign service is something that we're now sort of productizing and taking to market.

30:25 In the public sector, being able to give, you know, a broader and deeper support, particularly overlaying AI into that, making sure that they'll have an AI sovereign sandbox that they'll be able to play with before, and making very selective innovations within verticals. We had thought about maybe turning the whole company into a verticalization, but that requires a certain level of mechanization and automization that we're not quite there yet. So getting deeper within our health care center sector is probably the the best way to start. Now how are we gonna do this? Well, first of all, you need to protect and grow our customers. So as we said, you know, providing better security and integrating it into our portfolio, working with our frameworks, and also advancing our managed services, particularly around our private cloud developments.

31:20 Working with VMware, our infrastructure is already AI enabled, but in being able to now find the right kind of user cases that would move forward. And that's gonna help us win new logos. What we are seeing generally in the market is you almost need 20,000,000 of hardware, investment and a consolidated tech stack to really take advantage of AI. And those don't kind of, criteria isn't that prevalent here in The UK market, but that doesn't mean that the mid sized market isn't ready for utilizing the benefits that AI has. So being able to find the right users cases, with our customers who have we have the most amount of data with and being able to provide those AI private clouds is an area that we're focusing on.

32:09 I talked earlier about different route to markets. This is key working with our five major vendors starting to build ecosystems, which means it isn't just the vendor and us, but there'll be three or four other companies who also provide adjunct services, whereas an integrated solution you can take to your customers. And this allows us to scale and have others also helping kind of pass on and sale the business so we just don't have to keep adding more direct salespeople. So that's all working on your top line. But, again, we need to be able to drive greater levels of efficiencies. I think one of the biggest projects that we have going on at the moment is, on F and O automation. Company invested in Microsoft Dynamics, four years ago, which was probably the right choice at the time, but our company was very complex. And so there was some a lot of customization that was put into that installation.

33:03 Of course, Microsoft has improved over the years. And so now we've had to keep putting, code on top of the customization to keep up with the changes. Four years on, we're now having a difficulty where every seven or eight weeks, you know, the business almost comes to a slow halt until we get the customization. It's too expensive. We don't get the value, and it's really slowing down the business. So what we're doing at the moment is, preinvesting for discovery, and then the implementation will start at the end of q four. And we're hoping then by the second half of next year, we'll be able to start stripping out costs from the business. When you take a look at connectivity, the way that managed services businesses moving forward is they have to be as automated as possible. And with all the attention on the data centers, we've sort of missed some of those key elements. So we're focusing on circuit provisioning that's automated and some other elements moving forward. And then, of course, you know, being able to optimize margins.

34:03 Tony already talked about facilities that we, and reducing those, but we also have efficiency programs, everything from hardware and license optimization to our BT circuits being able to move those to the digital ones. There's a variety of things that are already in play that's going to help and will really start to show its way in the second half of f y twenty seven. One thing we should note is, with the sale of the data center, we have a transitional service agreement. We will be providing to the new buyer because Stellanor is, at the moment, they have been buying assets, carve out assets from a variety of companies. So they haven't built the infrastructure of their business yet within The UK. And so we're gonna be providing billing, their IT, their HR services, their compliance work for the next twelve months, which means we will have people who will con continue being able to service the data center, although it will only be over, with managed service revenue to cover it. So we're hoping to be able to accelerate that as much as possible, and then we can simplify our business model a little bit going forward.

35:13 And last but not least, we're one of the few managed service providers of our size that actually have operations in India. We have about a 100 people there. This year, we had to bring our second line support back to The UK to maintain force many of our customers to the sovereign compliance, but then we've moved up testing. And I think there's more that we could do to take advantage of our Indian operations. I've been talking with them every single month, but I'll be going out there in February to do an assessment and see are we getting the most out of the group and what more we could perhaps have them support us. I recognize that is a lot, but we want you to understand that for the next three years, we have a plan in place. We know where we need to go. The investments that are required, we believe, don't really require anything more than the cash flow that's going forward. It's transformational what we're doing with the data center, not just for the shareholders, but it's transformational for the MSP business. And it's really gotten the organization excited because we have a path forward.

36:16 People know what they need to do, and now it's a matter of execution at this point. So Okay. So financials. Well, I'm not going to repeat the the numbers. Obviously, we presented them earlier in the summary. But, obviously, it's helpful. We've seen gross margin tick up in the first half. It's helpful that the EBITDA has grown as well in the first half. In the second half, absolutely, we have a lot to do. We have certainly an execution challenge. Summarize that as in terms of, clearly, have to sign new business to deliver new business, manage costs. I think to some of Michelle's points, there is a modest investment, so we have to kind of get those done. I mean, they're not significant. 1,000,000 to $2,000,000 of OpEx. They're not reliant on the DC deal. We plan to get those done in the second half. So we end up really with a strong platform from which we can or strong foundation from which we can deliver more substantial growth going forward.

37:13 So I think we're pleased with the first half, but we know we've got a lot to do in the second half, absolutely. So in conclusion, it is a transformational year, and it's a really busy year, you know, being able to, maintain a DAU, find our future, and also make sure that we're doing the best for the data center business and and, shareholder. So I think where we really need to focus on, though, is execution going forward, and I believe that we've tried to explain where we're spending our time. We still will be dominated by some of the requirements from the data center, but I think it's all for the best in terms of where we want to lead, the MSP going forward. I am very excited. I'm not gonna go through all of these. These are the points that we've already met, but I think when we come out of this, you will find a company that is focused.

38:08 It'll have one of the least leveraged balance sheets going forward. So we have, economic stability. We have a direction and a lot of enthusiasm to be able to deliver on it. And so I hope that you'll give us a chance to keep keep watching us as we start to execute going forward. Alright. Now we have a few questions here, on the side. So, I believe we already answered the one about the disposable of the proceeds. So I don't think We will hand back to Alexandra. Oh, Alexandra, I need to go to you. It's not a problem at all, but I just thank you very much for your presentation. Ladies and gentlemen, please do continue to submit your questions just by using the q and a tab that's situated on the top right hand corner of your screen. But just while the company take a few moments to read the questions that have been submitted today, I'd like to remind you that recording of this presentation along with a copy of the slides and the published Q and A can be accessed via your investor dashboards.

38:59 As you can see, we have received questions throughout today's presentation. Michelle, I'll hand back to you to run through the Q and A. Thanks, Alessandro. I believe the first one on the use of proceeds on the disposal, we've already answered. Yeah. Do want me to just repeat it for the Yeah. See. And and also the net cash position. Yeah. Okay. So I'll take it just in the order that it appeared. So James, thank you for your question. You asked about the disposal proceeds of $127,000,000 How are they going to be split between debt, shareholder return and MSP investment and also when. Hopefully, we answer most of that anyway. So to be clear, the $12.07 is the ceiling of enterprise value. There's some variability on the number, but I think we've told you our position. We've mentioned, I think, that a minimum of 22,000,000 gets paid back to the bank. It could be more.

39:48 And, obviously, that affects the shareholder piece. But I think just to be more into that, the third part was what we need to invest in the MSP. I think we sort of cover that later. There's a modest investment in the second half. It doesn't come out of the DC proceeds or sale proceeds. So it's essentially it's a question of shareholders versus versus debt repayment is is what's left. I think the next question I think I've been asked to take as well. So thank you, Matt, for that question. Your question was about leverage. What leverage or net cash position is the board targeting? And how does this influence future capital returns? So so I think just to say just to just to kinda go back to the you you you know, our sort of what's our worst position, if you like, which is if we pay the minimum amount back to the to the bank, we have 19,000,000 of revolving credit.

40:43 We have, about 1,500,000 or so of finance leases. So we've sorted 20,000,000 or so of of of debt, and and that's the ceiling, which which actually, to be honest, represents, you you know, one and a bit times EBITDA, going forward EBITDA for MSP, which Michelle made this point, and and we're, you know, very mindful that, you you know, know, we we think we're already actually relatively modestly leveraged, but that will be substantially less than some of our peers. So that's that's a great position to be, and that would be our worst case. But clearly, we could pay back more. So the board hasn't mandated a specific target, but we think we're in a, you know, in a good range. And even at that maximum, it it kind of makes sense. Since we're still on financials, do wanna answer, Rob? So I'll take the next question, which is from Rob. Thank you for your question.

41:32 Your your question was, gross gross margin, the EBITDA margin has been improved in the first half despite low revenue. That's right. What do you see as sustainable EBITDA margin going forward for the MSP business? Well, again, if we if we look to to our peers, some of who are substantially leveraged and can't really make a margin, you know, we think, to be honest, 13%, you know, EBITDA margin is actually pretty good. You know? So going forward, you know, we've obviously talked about the growth strategy. We've talked about managing costs. So if we can see that, you know, ticking up to 15%, we'd be absolutely delighted. Will that be easy? Well, no. But that's, you know, that's that's kind of where we see things going. Could they be twenty, twenty five, 30? Well, that's that's, you know, kind of unlikely.

42:22 But we do think there's upside in in the EBITDA. And if we end up with a growth business, strong recurring revenue, you know, hardly leveraged, generating cash, and we've got, you know, an EBITDA of of twelve, thirteen, and then trending slightly north, then then I think that, you know, we'd be delighted with that. Great. David has asked if I would give an honest appraisal of the current market demand in the MSP business as other participants have commented on low growth and low demand and deferred decision making. Well, I don't think it's any great surprise that to be honest, the thing that's driving the MSP market at the moment is the lack or the general economic environment and particularly in the public sector area.

43:09 Yeah. Obviously, for mid market, you know, the budget probably wasn't the best that came out for hospitality and some of our services businesses. But in terms of the IT, companies know they need to be investing in a in their modernization. The only way that they're gonna be able to stay in business is by, you know, automating more, making sure they're more secure. But it's a balance of, you know, what they can deliver versus, you know, whether the needs of keeping payroll going. I think megabytes is the one that had mentioned that for the most part, they're looking at 4% is probably the best in the MSP in terms of growth. And I think it's really in the pockets and and where you choose to play. The UK government at the moment has probably been its own worst enemy for the demand because, you know, the constant reorganization, they don't really especially if you take a look at the health care center, which is one of the things that we've had to face into. There are 49 integrated care boards. They're now being consolidated to 26 over a period of time.

44:13 As they you know, three or four come together, who's in charge? Everybody's fighting for their job. Do they have the ability to know who's in charge of the budget? How do you sign something off? It's taken a while and will continue into next year. We're now starting to see for the ones that have consolidated, the RFPs are coming through, and it's a matter of can they get it through to be able to spend their budget for this year by the end of March. So, you're you're gonna see peaks and troughs, but I think for the most part, we need to have a better general economic environment to go back to the demand is there. People just aren't willing to to part with their cash at the moment. Alright. James, how will the strategy to broaden partner ecosystems translate into new customer wins and revenue, and what is the expected timeline?

45:04 We did a mapping of all of our strategic partners, and we kind of came up with five that we would say are the ones that we are probably closest to and and, most embedded in our solutions. And we're starting to work with those to build out ecosystems. I think I'll go back to the VMware because that's the most furthest along, having spent the time on it this first half of the year. One of the things that we see is, as I mentioned, there are, there are a number of CSPs who can no longer go directly to VMware, but they have three years to be able to decide. They were able to buy as many licenses they wanted. They already have, you know, a business model. They've got customers on their infrastructure. And so they've got three years to kind of run that.

45:51 And I would say about a third of them are going to move off of VMware and go to Nutanix or an alternative. Another third have their head in the sand, and the last third are actually realizing they've got to change their business model and more in active discussions. So building off of the VM ecosystem isn't gonna see some major spike for REDCENTRIC in f y twenty six, and it'll start to build in f y twenty seven. So it is a motion that's going to change within the market. But for us at REDCENTRIC, that is a whole new area of customer base that we haven't dealt with in in the past. And so we're going to start to see ramping over the next eighteen months. And, hopefully, I will get to be able to announce next quarter our first major win of the CSP. So keeping our fingers crossed for that one.

46:39 And I think, Alessandra, I don't think this is blocked. I don't think we have any other questions. Perfect. Well, thank you very much for answering those questions from investors. Of course, the company can review all the questions for today and will publish the responses out on the Investor Meet company platform. But just before redirecting investors to provide you with their feedback, which is particularly important to the company, Michelle could I just ask you for a few closing comments? Yes. Again, thank you so much for taking the time and listening to our story and getting to meet Tony and I. And, of course, we're always open for discussion for anybody who'd like to come forward. But we're very excited about where the future is, and I hope that you'll keep watching this space. And if, going forward, I just wish you all of the best for a Merry Christmas and the rest of your year. Thank you.

47:30 That's great. Well, thank you once again for updating investors today. Could I please ask investors not to close the session as you now be automatically redirected to provide your feedback, and all the management team can better understand your views and expectations. On behalf of the management team of REDCENTRIC PLC, we'd like to thank you for attending today's presentation, and good morning to you all.