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Regenersis PLC
22 September 2015
22 September 2015
REGENERSIS PLC
FINAL RESULTS FOR THE YEAR ENDED 30 JUNE 2015
ANNOUNCEMENT OF BOARD CHANGES TO REFLECT INCREASING FOCUS ON
DIGITAL SECURITY SOFTWARE
EXPLORING STRATEGIC ALTERNATIVES FOR THE AFTERMARKET SERVICES
BUSINESS
ACQUISITION OF US ERASURE BUSINESS TABERNUS
Regenersis Plc (AIM:RGS.L, "Regenersis" or the "Group") is
pleased to announce its final results for the year ended 30 June
2015.
Financial Highlights
-- Revenue increased by 2.6% to GBP202.6 million (2014: GBP197.5
million). Revenue in underlying currencies at constant exchange
rates increased by 13.6%.
-- Headline Operating Profit ("HOP", as defined in note 16)
increased by 40% to GBP15.4 million (2014: GBP11.0 million). HOP in
underlying currencies at constant exchange rates increased by
52.7%.
-- Headline Operating Cash Flow (as defined in note 16) of
GBP11.6 million (2014: GBP4.5 million) with headline cash
conversion of 75.3% (2014: 40.9%).
-- Adjusted EPS (as defined in note 16) flat at 16.19p (2014:
16.16p), at constant currency increased by 11.9%. Basic EPS
increased by 27.9% to 6.97p (2014: 5.45p).
-- Net cash at the year-end of GBP7.8 million (2014: GBP20.6
million), reflecting an aggregate spend of GBP20.3 million on
M&A activity, capital expenditure, dividends and EBT share
buybacks during the year.
-- Recommended final dividend of 3.35p per share (2014: 2.68p),
raising the total dividend for the year by 25% to 5.0p (2014:
4.0p).
Operating Highlights
-- Blancco contributed revenue of GBP15.0 million (full year
2014 equivalent: GBP11.5 million) and HOP of GBP5.4 million (full
year 2014 equivalent: GBP3.2 million), achieving pro forma revenue
growth in underlying currencies at constant exchange rates of
40.9%.
-- Depot Solutions delivered revenue of GBP154.3 million (2014:
GBP151.2 million), an increase of 2.1% (increase of 14.6% at
constant exchange rates), with HOP of GBP8.6 million (2014: GBP8.1
million) up 6.2% (up 18.5% at constant exchange rates) and HOP
margin increasing from 5.4% to 5.6%.
-- Digital Care increased its policy base from 0.2 million to 0.7 million during the year.
Post Year End Highlights
-- Trading in line with market expectations.
-- Acquisition of Tabernus for $12 million (GBP7.6 million), the
market leading US erasure business, and second largest global
provider behind Blancco, thus boosting Blancco's US presence and
further strengthening its leading market position.
-- Announcement today of Board changes and exploration of
various strategic options to maximise shareholder value including a
potential sale of the Aftermarket Services business of the
Group.
Matthew Peacock, Chairman of Regenersis, said
"As stated in the July 2015 trading update, the Board is focused
on actions to maximise shareholder value. We are now exploring
various strategic alternatives that may include the potential sale
of our successful Aftermarket Services business. Any such sale
would reposition the Group as a pure-play software business and
enable a significant distribution of cash to shareholders. In this
context we have appointed a CEO for each of the two distinct
businesses we now hold in the Group (Aftermarket Services, and
Digital Security Software, collectively representing 100% of the
Group's business) and invited these individuals to join the Board
as divisional CEOs. As Chairman this will allow me to focus on the
delivery of value from this strategic initiative, after which I
will complete the transition to being fully non-executive.
I am pleased to announce that Tom Skelton will join the Board as
a Non-Executive Director from 1 October 2015. Tom is a highly
experienced US-based software CEO, and until recently also a
Non-Executive Director of the leading UK software group Micro Focus
International Plc. Upon this appointment Tom Russell, my partner in
Hanover Investors, will resign from the Board.
90% of the Group's business is in a basket of non-Sterling
currencies. In these currencies the Group delivered a strong
performance this year across its businesses, which has been largely
offset by the 11% increase in the revenue-weighted value of
Sterling against this basket.
The highlight has been the performance of Blancco in its first
full year as part of the Group.
I would like to thank our employees, clients and shareholders
for their efforts and support over the past year."
Executive Chairman's Statement
I am pleased to report Regenersis' final results for the year to
30 June 2015.
Results
Revenue for the Group in the year was GBP202.6 million (2014:
GBP197.5 million), an increase of 2.6%, while measured at constant
exchange rates the growth was 13.6%. Headline Operating Profit
("HOP") was GBP15.4 million (2014: GBP11.0 million), a rise of 40%,
or 52.7% at constant exchange rates.
Adjusted earnings per share were 16.19p (2014: 16.16p). Under
constant currency, adjusted EPS grew by 11.9%.
Further details of these results, including the effect of
currency movements, are contained in the Group Financial
Review.
Software and Advanced Solutions
Divisional revenue of GBP48.3 million (2014: GBP46.3 million)
showed a year on year increase of 4.3% (10.2% at constant exchange
rates). Divisional HOP of GBP12.0 million (2014: GBP7.5 million)
showed a year on year increase of 60% (69.3% at constant exchange
rates).
The activities of the Software and Advanced Solutions segment
are presented below split between Digital Security Software, and
Advanced Solutions: Other.
Digital Security Software
Digital Security Software includes the data erasure software
business Blancco, and a 49% minority stake in Xcaliber Technologies
("Xcaliber"), a provider of smartphone diagnostic and issue
resolution software. Blancco has fully integrated SafeIT, acquired
in September 2014.
Blancco addresses the increasing Enterprise focus on information
security, driven by many factors including high-profile data
breaches and tough new regulation. Blancco delivers a unique data
erasure proposition across the widest range of devices and network
storage environments. For its clients, Blancco typically replaces
existing data destruction approaches which are not permanent,
certified, auditable, or centrally-managed, or which result in the
physical destruction of valuable assets. The approach is relevant
to materially all enterprises in the world, resulting in a
multi-billion dollar target addressable market for the business.
Blancco's data erasure revenues are more than seven times larger
than those of its nearest competitor.
Since acquiring Blancco in April 2014, Regenersis has focused on
building the new management team and strategy, strengthening the
business through M&A, and on profitable revenue growth.
Blancco contributed revenue of GBP15.0 million (since
acquisition in April 2014: GBP2.4 million; 2014 full year
equivalent: GBP11.5 million) and HOP of GBP5.4 million (since
acquisition in April 2014: GBP0.5 million; 2014 full year
equivalent: GBP3.2 million) during the period. Annual revenue
growth on a pro forma basis at constant exchange rates was 40.9%.
Growth accelerated in the second half as expected, with revenue
growth in the second half (versus the equivalent period in 2014) up
59%. Growth was driven by an increase in the number of clients and
in erasure volumes especially on newer product sets including
Blancco Mobile and Blancco Live Environment Erasure, and some
targeted price increases.
Blancco engaged a new CEO in January 2015. Patrick J Clawson
brings more than 20 years of experience in the security software
sector. Previous roles include Chairman and CEO of enterprise
firewall provider Cyberguard Corp, and Chairman and CEO of
enterprise endpoint security provider Lumension. Since his
appointment, Pat has made several other senior hires and relocated
Software's headquarters from Finland to Atlanta, Georgia, where it
is better positioned to address the US market and major IT sector
partners, and where it is now co-located with Xcaliber. A video
introducing Pat Clawson and the vision for the Blancco business is
available here:
http://www.regenersis.com/investors/reports-presentations.
Blancco acquired SafeIT for GBP1.4 million in September 2014,
expanding its product portfolio into data centre and cloud erasure
over networks, and has fully integrated this business.
In April 2015, Blancco was awarded a Europe-wide patent for its
solid state drive (SSD) erasure method. In the company's view, this
is the only universal method to reliably erase the broad range of
different brands and models of SSD drive available in the market.
SSD drives, typically used in premium-priced laptops and other IT
equipment, are rapidly growing their share of the storage
market.
In 2016, Blancco's aim is to maintain its rate of progress in
growing sales and is investing in scaling its team and
operations.
Xcaliber focused in the second half of the financial year on
successfully deploying its new contract with a major US carrier to
deliver in-store diagnostics. This operation has performed well,
providing a large-scale proven use-case and business case for the
software, and resulting in opportunities for significant expansion
in 2016. In 2015, Xcaliber also installed its software into the
depot production facilities of the top mobile phone manufacturer in
India. In 2016 Xcaliber is focused on winning clients and reaching
profitability.
Xcaliber and Blancco together address two fundamental hygiene
factors associated with using smartphones, maintaining device
functionality and data security. In May 2015 Blancco launched an
integrated smartphone diagnostic solution incorporating Xcaliber
technology, targeted at clients who perform both data erasure and
functionality tests on devices in a single high-volume process.
This product is operating at large scale with a lead client in the
APAC region and demand elsewhere is encouraging.
Advanced Solutions: Other
(MORE TO FOLLOW) Dow Jones Newswires
September 22, 2015 02:01 ET (06:01 GMT)
Advanced Solutions: Other includes Regenersis's Set Top Box
diagnostics business which provides objective automated equipment
test solutions including the In-Field Tester; and Digital Care,
which provides smartphone accidental damage insurance programmes in
partnership with insurance underwriters. We consider this business
to be Aftermarket Services activity.
This business (Advanced Solutions: Other) in aggregate
contributed revenue of GBP33.3 million (2014: GBP43.9 million), a
decrease of 24.1%, reflecting the wind down and subsequent disposal
of the Group's Recommerce business from the end of 2014. Recommerce
delivered GBP16.0 million of revenue in 2014 and no significant
revenue in 2015. Excluding Recommerce, the business achieved
revenue growth of 22.2% in 2015.
Advanced Solutions: Other, in aggregate contributed HOP of
GBP6.6 million (2014: GBP7.0 million), a decrease of 5.7%.
Excluding the contribution of Recommerce in 2014 (revenue of GBP16
million and HOP of GBP1.6 million) HOP grew by 19.4%.
The Set Top Box Diagnostics businesses successfully scaled up a
new site operation in Belgium in 2015, and grew its sales in the
USA, but tested smaller overall volumes of boxes in the UK as a
result of changes in the equipment base of its largest client.
During the year the business also extended its contract with
Liberty Global and, in a significant competitive win for the
business, a new facility is under construction in Holland to take
on the Western European volumes (principally from Holland and
Germany) of this client. In 2016, the business will continue to
focus on expanding business with its key clients in Europe and the
USA.
In Digital Care, as expected, the focus was on successfully
managing the ramp up of clients in Poland. The policy base grew
from c.0.2 million at the start of the year to c.0.4 million at the
end of H1 and c.0.7 million at the end of the year. The majority of
growth in 2015 was driven by a single client, with other clients in
preparation and pilot phases during the period. However new
large-scale programmes went live for two major clients in June
2015, which will increase growth in 2016. In 2016 Digital Care will
focus on scaling up successfully with existing clients in Poland
and on winning new business in other countries.
Depot Solutions
Our Depot Solutions Division operates electronic repair and
refurbishment around the world, and is one of the leading global
operators in this field. We also consider this business to be
Aftermarket Services activity.
Depot Solutions revenues were GBP154.3 million (2014: GBP151.2
million), an increase of 2.1% (increase of 14.6% at constant
exchange rates). Headline Operating Profit of GBP8.6 million (2014:
GBP8.1 million) increased by 6.2% (increase of 18.5% at constant
exchange rates) and increased by 15.4% in the second half of the
year compared to the equivalent prior period (30.8% at constant
exchange rates).
Two significant negatives affected financial growth in 2015:
firstly the need to offset the impact of a strong pound sterling
against our mostly non-sterling income, as shown above, and
secondly the need to replace revenue lost when we closed our UK
mobile business in 2014. Notwithstanding these headwinds, new
business wins drove overall growth in revenue and HOP.
In the first half of the year business representing an estimated
annual GBP32 million of revenue when implemented and fully
operational was won. In the second half of the financial year, a
further GBP16 million of revenue was won on the same basis.
Business wins in the second half of the financial year included a
large contract with a German insurer, a contract to deliver repairs
for corporate clients of one of the largest global smartphone OEM,
and several contracts with fast-growing Chinese OEMs.
Set against this progress as announced in July 2015, one of
Regenersis's large clients intends to consolidate its European
business with another supplier, which is anticipated to adversely
impact Depot Solutions performance in the 2016 financial year. This
reflects an ongoing consolidation trend in the sector, of which
Depot Solutions has frequently been a beneficiary in recent
years.
Our new facilities in Lisbon, Memphis, Czech Republic and Moscow
have scaled up as expected, creating a strong foundation for growth
through 2016.
There was also continued investment in our advanced technical
capabilities and global IT integration to differentiate and protect
our future business, including an advanced LCD screen
delamination/re-lamination and refurbishment facility in Romania,
Europe's first facility of this type; introduction of B2B
operations to the United States (Memphis); and installation of
Xcaliber smartphone diagnostic systems in the Group's largest
mobile phone repair facilities.
Since the beginning of calendar year 2015 the Depot Solutions
Division has been focused on consolidating its new business and
facilities, and reducing costs to improve underlying profitability.
This remains the focus going into 2016.
Corporate actions and M&A update
In September 2014, Regenersis acquired 100% of the share capital
of SafeIT Security Sweden AB ("SafeIT") for SEK 16.0 million
(GBP1.4 million). SafeIT is a leading specialist cloud data erasure
business in the emerging field of virtual, server, and data center
remote erasure management. Its services and solutions help clients
to pin-point and permanently erase data in complex virtual cloud
environments. SafeIT and its product set have been fully integrated
into Blancco, and this is expected to drive an exciting part of the
growth of Blancco in 2016.
During the year, the Group has undertaken several separate small
transactions to consolidate its ownership of the Blancco network,
purchasing the remaining equity stakes in Blancco Sweden SFO,
Blancco US LLC and Blancco Central Europe GmbH for a combined
consideration of GBP1.2 million.
In July 2014, Regenersis increased its equity stake in Xcaliber
to 49% by injecting US$3.25 million of cash funding into the
business. Xcaliber and Blancco have several significant areas of
synergy including the opportunity to launch bundled smartphone
diagnostics and erasure propositions, and to share sales and
operational resources. Together they represent a unique proposition
to clients.
In September 2015, Regenersis acquired 100% of the share capital
of Tabernus LLC and Tabernus Europe Limited (together "Tabernus"),
a privately owned provider of software erasure. With the majority
of its revenue in the USA, Tabernus is the USA market leader. The
consideration was $12 million (GBP7.6 million) comprising cash
payment of $10 million (GBP6.3 million) funded through the Group
revolver facility and a maximum of $2 million (GBP1.3 million) in
deferred cash consideration payable after 2 years. On a trailing
twelve month basis Tabernus had revenues of $3.0 million (GBP1.9
million), growing at strong double-digit rates, and an operating
profit of $0.4 million (GBP0.3 million). Tabernus is the global
number two competitor in software data erasure, further
strengthening Blancco's global market position and expanding its
product portfolio in certain attractive niches.
Strategy update
The Group has evolved significantly in recent years and now
comprises two main businesses (Digital Security Software, and
Aftermarket Services) with distinct characteristics. To reflect
this and with our strategic initiatives in mind, we have
restructured executive leadership, with a CEO for each of these
businesses, and the Board is now exploring various strategic
alternatives that include the potential sale of the Aftermarket
Services business.
1. Digital Security Software
The Group's software assets (including Blancco, SafeIT, Xcaliber
and Tabernus) address the huge challenge for enterprises of
maintaining usability and data security across a wide range of
networked devices. These businesses are based on an intangible
asset base and they have the benefit of scaling without a direct
requirement for additional operational investment or
complexity.
Blancco is the clear global market leader in a rapidly growing
sector with an addressable market potentially comprising the entire
global Enterprise market, as companies seek to improve security,
reduce risk of data breaches, and ensure compliance with demanding
regulations.
For this business the Blancco brand has significant value. For
this reason a new Blancco Technology Group identity has been
created, bringing Blancco to the fore but enabling Xcaliber and
other future brands to exist alongside.
Patrick J Clawson has taken on the role of CEO of Blancco
Technology Group. Patrick brings deep software and security sector
experience and will focus on building a software business which
grows rapidly and profitably. Should the Group transform into a
pure software business it is likely that strategy would shift to
invest more in growth and sector leadership, in line with common
practice in the high-growth software sector.
2. Aftermarket Services (Depot Solutions and Advanced Solutions:
Other)
The Aftermarket Services businesses (including the Depot
Solutions Division and the Digital Care and Set Top Box diagnostics
activities currently reported within Advanced Solutions) broadly
address the problem of faulty and damaged hardware, requiring
excellence in complex operational execution and building
relationships with global clients. These businesses are based on a
physical asset base.
Ian Powell has taken on the role of CEO of the Aftermarket
Services business. Ian was previously Group Managing Director of
Regenersis in the period 2011-2013. Ian brings an outstanding
commercial focus to business leadership. He will focus on
profitability and cash flow in the Depot Solutions business
following a period of rapid change and expansion. He will also
focus on maximising the value of the Digital Care and Set Top Box
Diagnostic businesses, which provide the exciting growth ingredient
to this business grouping.
(MORE TO FOLLOW) Dow Jones Newswires
September 22, 2015 02:01 ET (06:01 GMT)
Regenersis is one of the global market leaders in the
aftermarket services sector. It is of strategic interest because of
its unrivalled geographic footprint, high-quality client list, and
innovative higher-margin service propositions (including Set Top
Box Diagnostics and Digital Care). Investment bank William Blair
have been appointed to advise on strategic options.
Leadership update
The Group has appointed a CEO for each of the two businesses,
Digital Security Software and Aftermarket Services. As Chairman
this will allow me to focus on delivery of shareholder value from
our strategic initiatives and the potential transformation of the
group to a pure software business. We expect to conclude this
initiative by March 2016, after which I will complete the
transition to being fully Non-Executive.
I am pleased to welcome the two divisional CEOs, Ian Powell (CEO
Aftermarket Services) and Patrick J. Clawson (CEO Digital Security
Software) to the Group Board.
I am delighted to welcome Tom Skelton to the group Board as a
Non-executive director from 1 October 2015. Tom is a highly
experienced software CEO and currently leads Surescripts, a market
leading US software business which enables over six billion annual
e-prescriptions and other healthcare transactions in the USA. Since
2006 he has been a Non-executive director of leading UK software
business Micro Focus International Plc. Tom will bring deep
software sector experience and insight to the board. I would like
to thank Tom Russell, my partner at Hanover Investors, who steps
down from the board at this time, for his contributions.
Outlook
Trading in the current financial year to date, and outlook for
the remainder of the year, are in line with expectations.
Following 18 months of intensive organic and M&A activity
since acquisition, Blancco is a much larger and stronger business,
with a high quality US-based management team, exciting new
products, an even stronger market position, and a substantially
increased revenue base. Blancco is expected to continue to grow
revenue and profits rapidly in FY16.
The Aftermarket Services business (including Depot Solutions,
Digital Care and Set Top Box diagnostics) is solidly placed and the
Group is strongly positioned financially to pursue the potential
strategic process identified.
The Board aims to successfully conclude its exploration of
strategic alternatives by March 2016, at which point the Board
would transition from the current interim arrangement to having a
single Group CEO.
In this process the Board is focused on both the delivery of
shareholder value and a significant return of cash to
shareholders.
Enquiries:
Regenersis Plc +44 (0) 20 3657 7000
Matthew Peacock, Executive Chairman
Jog Dhody, Chief Financial Officer
Peel Hunt LLP (Nomad and Joint Broker) +44 (0) 20 7418 8900
Richard Kauffer
Edward Fox
Panmure Gordon (UK) Limited (Joint Broker) +44 (0) 20 7886
2500
Dominic Morley
Charles Leigh Pemberton
William Blair International Limited (Financial Advisor) +44 (0)
20 7868 4440
Matt Gooch
Oliver Parker
Tulchan Communications (PR Advisor) +44 (0) 20 7353 4200
Tom Murray
Victoria Huxster
Results
Summary:
-- Revenue of GBP202.6 million (2014: GBP197.5 million, growth 2.6%);
-- Headline Operating Profit before corporate costs of GBP20.6
million (2014: GBP15.6 million, growth 32.1%);
-- Headline Operating Profit after corporate costs of GBP15.4
million (2014: GBP11.0 million, growth 40.0%);
-- Headline Operating Profit on constant currency basis of
GBP16.8 million (2014: reported HOP GBP11.0 million, growth
52.7%);
-- Headline Operating Profit margin of 7.6% (2014: 5.6%).
Operating profit was GBP5.6 million (2014: GBP0.5 million).
Increased Headline Operating Profit and reduction of exceptional
acquisition and restructuring costs relative to prior year
contributed to this increase.
Headline Operating Cash Flow was GBP11.6 million (2014: GBP4.5
million) with a cash conversion of 75.3% (2015: 40.9% conversion)
relative to Headline Operating Profit. Net cash at the end of the
period was GBP7.8 million (June 2014: GBP20.6 million).
Key financials 2015 2014
GBP'm GBP'm
---------------------------------- ------ ------
Revenue 202.6 197.5
Headline Operating Profit before
corporate costs 20.6 15.6
Headline Operating Profit after
corporate costs 15.4 11.0
Operating profit 5.6 0.5
------------------------------------- ------ ------
Headline Operating Profit
margin % before corporate
costs 10.2% 7.9%
Headline Operating Profit
margin % 7.6% 5.6%
Corporate costs % 2.6% 2.3%
Operating profit % 2.8% 0.3%
------------------------------------ ------ ------
Segmental Results
Headline Operating HOP Margin
Revenue Profit %
2015 2014 2015 2014 2015 2014
GBP'm GBP'm GBP'm GBP'm
--------------------------------- ------ ------ ---------- --------- ------ ------
Depot Solutions 154.3 151.2 8.6 8.1 5.6% 5.4%
Software 15.0 2.4 5.4 0.5 36.0% 20.8%
Advanced Solutions 33.3 43.9 6.6 7.0 19.8% 15.9%
---------------------------------- ------ ------ ---------- --------- ------ ------
Software and Advanced Solutions 48.3 46.3 12.0 7.5 24.8% 16.2%
Total Group 202.6 197.5 20.6 15.6 10.2% 7.9%
Corporate costs - - (5.2) (4.6)
---------------------------------- ------ ------ ---------- --------- ------ ------
Group 202.6 197.5 15.4 11.0 7.6% 5.6%
---------------------------------- ------ ------ ---------- --------- ------ ------
Depot Solutions Division
The Depot Solutions Division provides the Group's geographic
infrastructure and core repair service, focusing on continuous
improvement, common operating practices and IT platforms, and
efficiency. It includes the operations in UK (excluding
Glenrothes), Germany, Poland, Romania, Turkey, South Africa, Spain,
Argentina, Mexico, India, Portugal, Russia, USA, and the Czech
Republic.
Revenue increased from GBP151.2 million to GBP154.3 million as a
result of volume growth across most of the existing sites as well
as the expansion of new sites in the USA and the Czech
Republic.
Headline operating profit increased by 6.2% to GBP8.6 million,
with an increase in margin from 5.4% to 5.6%.
Financial and operational highlights included:
-- Poland continued to win and implement new work with a number
of operators and OEMs, including HTC, Samsung and Vodafone, and was
able to service more complex repair services on a range of
products. Volumes from a major OEM already decreased significantly
in 2015 compared to 2014, and the recent loss of this client
contract will again adversely impact volumes in 2016 compared to
2015, although this is expected to be mitigated by growth from
other clients.
-- Spain strengthened its position as a preferred partner of
OEMs and insurance accounts. The loss of Nokia in the site will
impact performance in 2016, although a number of smaller new
contracts have been identified and won, which will commence in
2016.
-- Portugal increased its volumes from Vodafone. Further
accreditations obtained during the year have begun to broaden the
customer base, a trend which is expected to develop further in
2016.
-- Germany expanded and diversified its business in the year,
winning several new B2B contracts and being accredited to process
IPhone repairs. Expansion of European B2B has been partly served by
new operations opened in the Czech Republic in April 2014.
-- Russia (where the joint venture partner was bought out in
2014) has moved from an initial break-even position to make a
positive contribution in 2015, with growth in B2B volumes as well
as the addition of other OEM clients. The opportunities for
expansion are strong.
-- India has shown growth since acquisition in the prior year,
diversifying into higher margin tablet repairs.
-- The US operation, opened during the year and focused on B2B
work, has made good initial progress.
Software and Advanced Solutions Division
The Software businesses include:
-- Blancco, acquired in April 2014, is the global market leader data erasure software.
-- Xcaliber Technologies, a smartphone diagnostics software
business. The Group increased its stake in this business from 15%
to 49% in July 2014.
The Advanced Solutions: Other businesses include:
-- Set Top Box activities in Glenrothes.
-- Set Top Box Diagnostics globally, including the In Field
Tester business and other remote diagnostics capabilities covering
other countries including the USA, South Africa and Belgium.
-- The Digital Care Insurance program business which launched in
2013, with activities principally in Poland.
(MORE TO FOLLOW) Dow Jones Newswires
September 22, 2015 02:01 ET (06:01 GMT)
The Software and Advanced Solutions segment increased revenue to
GBP48.3 million (2014: GBP46.3 million), driven by the acquisition
of Blancco. Exit from Recommerce, which ceased trading in June
2014, negatively affected revenues and headline operating profit in
2015 compared to the prior year.
Headline Operating Profit was GBP12.0 million, at a margin of
24.8%, compared to a margin of 16.2% in 2014. The Headline
Operating Profit margin has improved reflecting the relatively
faster growth of the higher margin Digital Care and Software
businesses.
Financial and operational highlights included:
-- The launch of a site in Belgium servicing the country's main
cable operator, delivering Set Top Box test and refurbishment
solutions.
-- Liberty Global is seeking to consolidate its aftermarket
supplier base and Regenersis was selected as one of two primary
partners to service Europe, and is participating in technology
design for future flagship Set Top Box and model/gateway products.
We have begun construction of a new client-colocated operation in
the Netherlands to support this client.
-- In North America the rate of growth of expansion with
AT&T slowed in 2015, which we believe was driven by this
client's focus on its very large acquisition of DirectTV, completed
in July 2015. The pipeline of other set-top box diagnostics
opportunities in the US improved in 2015.
-- Digital Care moved from its pilot phase to full-scale
operations in 2015, experiencing rapid growth. At year end the
policy base was over 700,000 policies with key customers being
Orange, Polkomtel and T-Mobile. Volume growth was driven by Orange
in 2015, with the latter two clients moving from pilot to
full-scale programs in July 2015.
-- New business opportunities for Digital Care have been identified in several countries.
-- Blancco has enhanced its portfolio of products, both through
internal development including the release of a new mobile erasure
product and a new version of its core IT erasure suite, and through
the acquisition of the SafeIT business in September 2014. This
product replaces and significantly improves upon a third party
product previously resold by Blancco.
-- Acquisition of SafeIT, the leading specialist cloud and
networked data erasure business. SafeIT and its product set have
been fully integrated into Blancco, and this is expected to drive
an exciting part of the growth of Blancco in 2016. Blancco
previously resold SafeIT technology.
-- Blancco continues to grow internationally. During the year
there was investment in Sweden, Germany and the USA which are now
owned 100% by the Group.
-- Xcaliber Technologies ran trials of its smartphone diagnostic
solutions with several clients and secured as a result its first
significant contracts in 2015, including a contract for its
SmartChk in-store kiosk diagnostic solution for over 200 stores of
a large mobile operator in the USA, and a contract for its SmartChk
device-pre-installed diagnostic solution for a major mobile phone
OEM in India.
Blancco Key Figures
30 June 30 June 30 June
2015 2014 2013
---------------------------------------------------- ------- -------
GBP'm GBP GBP GBP
---------------------------------------------------- ------- ------- -------
Revenue 15.0 11.5 8.6
Headline Operating Profit 5.4 3.2 2.9
---------------------------------------------------- ------- ------- -------
IFRS revenue recognition required an accounting policy change
for Blancco upon acquisition, to defer the revenue earned on
software subscriptions - which have a defined term - over the term
of the contract. This one-off negative impact on revenue has been
absorbed in 2015. From 2016 onwards, outflow from new revenue
deferrals will be largely offset by inflow from previous-year
revenue deferrals.
Corporate Costs
Corporate costs of GBP5.2 million (2014: GBP4.6 million)
increased slightly, growing from 2.3% to 2.6% of group revenue,
driven significantly by the strength of Sterling, which comprises a
large fraction of the corporate cost base.
Currency Hedging Activities and Constant Currency
One of the risks that the Group faces by doing business in
overseas markets is currency fluctuations. In order to manage the
Group's currency fluctuations, the CFO conducts a quarterly review
of the Group's currency hedging activities and a formal
recommendation for any changes is made to the Board every half
year.
The strength of the Sterling relative to the functional
currencies of the Group increased during the current period. The
Euro and the Polish Zloty (which together make up 55% of the
Group's HOP before corporate costs) weakened versus Sterling over
the current period, depreciating by 12.8% and 14.1% respectively
over the previous 12 months. The other Emerging Market currencies
in which the Group transacts have depreciated by 11.1% on
average.
30 June 31 December 30 June
2015 2014 2014
--------------------- --------- ------------- -------
Euro (EUR) 1.41 1.33 1.25
Polish Zloty (PLN) 5.92 5.44 5.19
--------------------- --------- ------------- -------
A reconciliation of actual results to results restated at
expected exchange rates is presented below:
Year ended Year ended
30 June 2015 30 June 2015
Actual Constant
Results Currency
GBP'million GBP'million
----------------------------------------- -------------- --------------
Revenue 202.6 224.2
Gross profit 53.6 59.0
Group HOP before corporate costs 20.6 22.3
Group HOP after corporate costs 15.4 16.8
------------------------------------------ -------------- --------------
Software and Advanced Solutions Revenue 48.3 51.0
Depot Solutions Revenue 154.3 173.2
Software and Advanced Solutions HOP 12.0 12.7
Depot Solutions HOP 8.6 9.6
------------------------------------------ -------------- --------------
Adjusted EPS (pence) 16.19 18.09
Basic EPS (pence) 6.97 8.72
------------------------------------------ -------------- --------------
The Group implements forward contracts for payments and
receipts, where the amounts are large, are not denominated in the
local country's functional currency, where the timing is known in
advance, and where the amount can be predicted with certainty. In
addition the Group undertakes natural hedges by structuring and
paying future earn-outs on acquisitions in the target company's
local currency.
The Group has a mix of business across 22 different territories
and this provides some degree of smoothing of currency movements in
any one country through a portfolio effect. The cash and loan
balances held in different currencies provide a natural hedge.
However the Group does not undertake any cash flow or profit
hedging activities to insulate from currency movements in respect
of overseas earnings, specifically the conversion of its largely
non-Sterling generated income into the Group's reporting currency,
Sterling.
No other hedging activities are undertaken in respect of
tangible and intangible fixed assets, working capital (such as
stock, debtors, or creditors), or other balance sheet items, as
these are generally small in nature in any one individual
country.
Mergers and Acquisition activity
M&A focus in FY15 has been on enhancing the Software and
Advanced Solutions portfolio.
Acquisition of SafeIT
On 2 September 2014 the Group completed the acquisition of 100%
of the issued share capital of SafeIT Security Sweden AB ("SafeIT")
for a consideration of EUR1.8 million (GBP1.4 million).
SafeIT, a company headquartered in Stockholm, Sweden, is the
world's leading provider of data erasure in networked and cloud
storage environments. SafeIT is a technology and development
partner of VMware, Microsoft, IBM and HP.
Acquisition of Tabernus
In September 2015, Regenersis acquired 100% of the share capital
of Tabernus LLC and Tabernus Europe Limited, a privately owned
provider of software erasure. With the majority of its revenue in
the USA, Tabernus is the USA market leader. The consideration was
$12 million (GBP7.6 million) comprising cash payment of $10 million
(GBP6.3 million) funded through the Group revolver facility and a
maximum of $2 million (GBP1.3 million) in deferred cash
consideration payable after 2 years. On a trailing twelve month
basis Tabernus had revenues of $3.0 million (GBP1.9 million),
growing at strong double-digit rates, and an operating profit of
$0.4 million (GBP0.3 million). Tabernus is the global number two
competitor in software data erasure, further strengthening
Blancco's global market position and expanding its product
portfolio in certain attractive niches.
Acquisition of Non-controlling Interest in Blancco Sales
Offices
Blancco has historically adopted a local minority-partner
approach to entering new territories. In 2015, Blancco bought out
its partners in three territories, the USA, Germany, and
Sweden:
-- USA - On 30 September 2014, the Group acquired the remaining
40% of the share capital of Blancco US LLC for a cost of $1.2
million (GBP0.7 million). There is no earn-out.
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-- Germany - On 30 June 2015, the Group acquired the remaining
20% of the share capital of Blancco Central Europe GmbH for a cost
of EUR0.4 million (GBP0.3 million). There is no earn-out.
-- Sweden - On 2 September 2014, the Group acquired the
remaining 25% of the share capital of Blancco Sweden SFO own for an
initial cost of SEK 2.8 million (GBP0.2 million). The acquisition
also includes an earn-out for the period to March 2016 and March
2017 based upon growth metrics above pre-agreed target revenue. The
estimated cash outflow at the time of this report is estimated at
GBP0.8 million on 31 March 2016 and GBP1.4 million on 31 March
2017.
Investment in Xcaliber
On 25 July 2014 the Group acquired 34% of the issued share
capital of Xcaliber Technologies LLC ("Xcaliber") for a
consideration of $3.3 million (GBP1.9 million) bringing the Group's
share to 49%. Xcaliber is a US based smartphone diagnostics
software business.
Disposal of Regenersis Recommerce Limited and Regenersis Sweden
AB
Regenersis entered the business of remarketing smartphones in
Europe in 2013, and expanded rapidly and profitably in 2014.
However the sector did not evolve as originally expected, notably
in terms of increased competitive intensity and a drop in
insurance-sector demand for refurbished devices, and the Board
decided to exit this activity from the end of 2014. On 8 June 2015
the Group disposed of its 100% interest in Regenersis Recommerce
Ltd and Regenersis Sweden AB. This resulted in a non-cash loss on
disposal of these legal entities of GBP1.5 million.
EBT Share Buy Back
The Employee Benefit Trust purchased a total of 1,650,000
Shares, by way of the purchase of:
-- 800,000 shares, at an average price of 230.8 pence per share
and at a total price of GBP1.8 million, on 14 January 2015;
-- 200,000 shares, at an average price of 241.5 pence per share
and at a total price of GBP0.5 million, on 16 January 2015;
-- 150,000 shares, at an average price of 200.0 pence per share
and at a total price of GBP0.3 million, on 19 March 2015; and
-- 500,000 shares, at an average price of 205.0 pence per share
and at a total price of GBP1.0 million, on 26 March 2015.
The total cash outflow associated with the share buy backs
throughout the period was GBP3.6 million and the EBT now holds
2,467,394 shares.
The figure of 79,022,599 Ordinary Shares should therefore
continue to be used by Shareholders as the denominator for the
calculations by which they will determine if they are required to
notify their interest in, or a change to their interest in, the
share capital of Regenersis under the FSA's Disclosure and
Transparency Regime.
The figure of 76,555,205 Ordinary Shares may therefore be used
by Shareholders in the basic EPS calculation.
The Operating Matrix
The Group has a footprint of 21 depot sites, operates in 22
territories and employs over 4,200 people. We have continued to
fill the operating matrix with 8 new product/service line
combinations in the last 12 months, achieving a total of 48
combinations.
This matrix of geographies and products is important, firstly,
because it is how we leverage and build on our strengths, assets
and relationships and, secondly, it is how we translate our
strategy for growth in Depot Solutions and Software and Advanced
Solutions into action on the ground.
Exceptional Acquisition and Restructuring Costs
The Group undertook a large number of relatively small but
complex acquisitions in 2015. Acquisition costs amounted to GBP3.0
million (2014: GBP5.0 million) with the largest costs relating to
the acquisition of Blancco in 2014, the acquisition of SafeIT,
investment in Xcaliber, buy-out of minority partners in Blancco
sales offices, and the due diligence stage of the Tabernus
acquisition.
Exceptional restructuring costs amounted to GBP0.7 million
(2014: GBP4.4 million) and related primarily to finalisation of the
restructuring activities carried out in the second half of the
previous financial year.
Amortisation of Acquired Intangibles and R&D Expenditure
Amortisation of intangible assets was GBP3.3 million (2014:
GBP0.6 million). This included both the amortisation of acquired
intangibles arising from business combinations and the amortisation
of R&D expenditure. The cost has increased in the year
primarily due to a full year of amortisation of the Blancco
intangible assets, including the brand name and intellectual
property.
Share Based Payments
Share based payments charge was GBP0.5 million (2014: GBP0.7
million) and reflects the straight line accounting charge required
for the incentive share plans established in prior periods. The
charge has reduced this year due to a reduction in fair value of
payout for options which have vested but remain outstanding.
On 30 June 2015, new Long Term Incentive Plans were approved by
the Remuneration Committee for Senior Management (not Executive
Directors on the PLC Board). Details of these schemes can be found
in note 33 in the Notes to the Accounts.
Net Financing Income
Net financing income was GBP1.2 million (2014: GBP2.4 million).
Income arose from the revaluation and resulting reduction in value
of the Group's contingent consideration payable on two acquisitions
made in prior periods: Digicomp and HDM. This revaluation resulted
in a non-cash profit of GBP3.3 million (2014: GBP4.7 million).
Total finance costs in the year were GBP2.3 million (2014:
GBP2.4 million). This includes the unwinding of the discount factor
on outstanding contingent consideration of GBP0.9 million (2014:
GBP1.1 million). Invoice financing facility charges were GBP0.2
million (2014: GBP0.2 million). Interest costs for the Revolving
Credit Facility and other costs were GBP1.2 million (2014: GBP1.1
million).
Taxation
The total tax charge was GBP1.7 million (2014: GBP0.4 million
credit). The increase in tax charge is driven by the higher profits
generated by the Software segment, which are taxed in higher tax
jurisdictions than the rest of the Group.
Earnings Per Share
Adjusted earnings per share were constant at 16.19 pence (2014:
16.16 pence).
Basic EPS increased by 27.9% to 6.97 pence (2014: 5.45
pence).
Cash Flow
2015 2014
GBP'm GBP'm
------------------------------------------------------ -------- --------
Operating cash flow before movement in working
capital and exceptionals 18.3 14.1
Movement in working capital and exceptionals (4.9) (8.6)
Movement in provisions (1.8) (1.0)
------------------------------------------------------ -------- --------
Headline Operating Cash Flow 11.6 4.5
Net interest payments (0.8) (0.7)
Tax paid (1.0) (0.8)
Acquisition, exceptional payments and other
movements (2.9) (8.7)
------------------------------------------------------ -------- --------
Operating cash flow 6.9 (5.7)
Capital expenditure (7.3) (6.7)
Acquisition of subsidiaries, associates and
other investments, net of cash acquired (4.4) (51.1)
Net cash flow from share issues, option vesting
and dividend payments (6.9) 89.3
Other movements (1.1) (3.3)
Net (decrease)/increase in cash and cash equivalents (12.8) 22.5
------------------------------------------------------ -------- --------
Net cash 7.8 20.6
------------------------------------------------------ -------- --------
Headline operating cash flow of GBP11.6 million (2014: GBP4.5
million) and operating cash inflow of GBP6.9 million (2014: outflow
of GBP5.7 million), were both higher than in previous periods
primarily due to the increased cash flow contribution from Software
and Advanced Solutions.
Net cash at the end of the period was GBP7.8 million (2014:
GBP20.6 million). Significant cash was deployed in EBT buy backs
(GBP3.6 million), dividend payments (GBP3.4 million), and M&A
activity (GBP6.1 million).
Working capital increased by GBP4.9 million. Drivers of working
capital expansion included revenue growth, the investment in
growing new sites, the continuing shift in the Group's mix of
business towards Emerging Markets, which typically have longer
receivables cycles, pressure from some larger clients to secure
longer credit terms from Regenersis, and pressure from certain
suppliers (who are often also clients of Regenersis) tightening
their invoicing and collection processes. In managing these
effects, the Group improved working capital management on stock and
debtors in most locations and continued limited use of invoice
financing facilities.
The key working capital metrics that are monitored are:
-- Debtor days which decreased to 55 days (2014: 64 days);
-- Stock days which decreased to 36 days (2014: 37 days);
-- Creditor days which increased to 49 days (2014: 47 days).
Tax paid was GBP1.0 million (2014: GBP0.8 million).
Net interest paid was GBP0.8 million (2014: GBP0.7 million).
The Group has continued to invest in differentiating its
services and strengthening its platform for long term profitable
growth. Capital expenditure and R&D increased to GBP7.3 million
(2014: GBP6.7 million). Expenditure on tangible assets, including
leasehold improvements and technical equipment, and software
licences amounted to GBP3.3 million (2014: GBP3.8 million).
Capital development expenditure on R&D activities amounted
to GBP4.0 million (2014: GBP2.9 million) and comprised further
investment in:
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-- Software - Predominantly in the Blancco business, including
the new mobile erasure product launched in 2015, and also a major
new version of the core Blancco erasure software, Blancco 5.0.
-- Set Top Box - Predominantly in the continued development and
localisation of diagnostic tools; as well as development for new
video transmission technology such as the move towards 4K
transmission. These activities are carried out in Glenrothes.
-- Mobile - Predominantly in the continued development of screen
re-lamination/lamination technology of mobile phone screens for use
with larger displays and other OEM device types. These activities
are carried out in Romania.
Net Cash
Year end net cash comprised gross borrowings of GBP4.6 million
denominated in Sterling and Euros (2014: GBP0.7 million), cash and
cash equivalents of GBP12.1 million (2014: GBP20.8 million) and
deferred arrangement fees of GBP0.3 million (2014: GBP0.5
million).
Dividend
In line with our stated dividend policy, the Board is
recommending a final dividend of 3.35 pence per ordinary share to
be paid on 3 December 2015 to shareholders on the register on 6
November 2015. This gives a full year dividend of 5.0 pence per
ordinary share, which is a 25% increase on the prior year.
Post Year-end Events
Banking facility
In September 2015, the Group extended the term of its banking
facility with HSBC from October 2016 to October 2019. The covenants
were unchanged.
All banking covenants have been passed and show significant
headroom for the foreseeable future.
Acquisition of Tabernus
On 2 September 2015, the Group completed the acquisition of 100%
of the share capital of Tabernus LLC and Tabernus Europe Limited
(together "Tabernus") for an initial consideration of $10.0 million
(GBP6.3 million).
Consolidated Income Statement
2015 2015 2014 2014
Note GBP'000 GBP'000 GBP'000 GBP'000
========================================== ===== ======== ======== ======== ========
Group revenue 2 202,564 197,482
Headline Operating Profit 15,426 10,965
Acquisition costs 3 (3,041) (5,044)
Exceptional restructuring costs 4 (678) (4,351)
Amortisation of intangible assets (3,349) (589)
Share-based payments (531) (658)
------------------------------------------ ----- -------- -------- -------- --------
Group Operating Profit before
disposal of subsidiaries 7,827 323
Loss on disposal of subsidiaries 11 (1,456) -
Group Operating Profit 6,371 323
Share of results of equity accounted
investment (746) (100)
Profit on disposal of equity
accounted investment - 240
Operating profit from continuing
operations 5,625 463
Revaluation of contingent consideration 3,302 4,695
Other finance income 143 86
------------------------------------------ ----- -------- -------- -------- --------
Finance income 6 3,445 4,781
------------------------------------------ ----- -------- -------- -------- --------
Unwinding of discount factor
on contingent consideration (934) (1,063)
Other finance costs (1,339) (1,311)
------------------------------------------ ----- -------- -------- -------- --------
Finance costs 6 (2,273) (2,374)
------------------------------------------ ----- -------- -------- -------- --------
Profit before tax 6,797 2,870
Taxation (1,680) 381
========================================== ===== ======== ======== ======== ========
Profit for the year 5 5,117 3,251
========================================== ===== ======== ======== ======== ========
Attributable to:
Equity holders of the Company 5,404 2,975
Non-controlling interest (287) 276
========================================== ===== ======== ======== ======== ========
Profit for the year 5,117 3,251
========================================== ===== ======== ======== ======== ========
Earnings per share
Basic 7 6.97p 5.45p
Diluted 7 6.97p 5.41p
========================================== ===== ======== ======== ======== ========
Consolidated Statement of Comprehensive Income
2015 2014
GBP'000 GBP'000
============================================= ======== ========
Profit for the year 5,117 3,251
Other comprehensive income - Amounts
that may be reclassified to profit
or loss in the future:
Exchange differences arising on translation
of foreign entities (3,786) (3,403)
Total comprehensive income/(expense)
for the year 1,331 (152)
=============================================== ======== ========
Attributable to:
Equity holders of the Company 1,618 (428)
Non-controlling interests (287) 276
----------------------------------------------- -------- --------
Total comprehensive income/(expense)
for the year 1,331 (152)
----------------------------------------------- -------- --------
2015
Consolidated Balance Sheet Note GBP'000 2014 GBP'000
------------------------------------ ----- ---------------------------- ---------------------------
Assets
Non-current assets
Goodwill 83,157 81,791
Other intangible assets 27,041 28,479
Equity accounted investments 1,850 10
Other investments 61 745
Property, plant and equipment 6,355 5,341
Deferred tax 622 1,182
==================================== ===== ============================ ===========================
119,086 117,548
Current assets
Inventory 9,480 10,137
Trade and other receivables 34,556 37,742
Cash 12,143 20,795
==================================== ===== ============================ ===========================
56,179 68,674
Total assets 175,265 186,222
==================================== ===== ============================ ===========================
Current liabilities
Trade and other payables (40,471) (44,330)
Contingent Consideration (1,734) -
Provisions (373) (792)
Income tax payable (642) (1,476)
(43,220) (46,598)
Non-current liabilities
Borrowings 14 (4,357) (194)
Contingent consideration (3,994) (6,358)
Provisions (1,028) (2,659)
==================================== ===== ============================ ===========================
Total liabilities (52,599) (55,809)
Net assets 122,666 130,413
==================================== ===== ============================ ===========================
Equity
Ordinary share capital 1,581 1,581
Share premium 51,737 121,737
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September 22, 2015 02:01 ET (06:01 GMT)
Merger reserve 4,034 4,034
Translation reserve (7,115) (3,329)
Retained earnings 72,191 5,820
==================================== ===== ============================ ===========================
Total equity attributable
to equity holders of the Company 122,428 129,843
==================================== ===== ============================ ===========================
Non-controlling interests 238 570
==================================== ===== ============================ ===========================
Total equity 122,666 130,413
==================================== ===== ============================ ===========================
The financial statements were approved by the Board of Directors
and authorised for issue on 21 September 2015.
They were signed on its behalf by:
Matthew Peacock Jog Dhody
Executive Chairman Chief Financial Officer
Company number: 05113820
Consolidated Statement of Changes in Equity
Non-controlling
Share Share Merger Translation Retained interest
capital premium reserve reserve earnings reserve Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
=============================== ========= ========= ========= ============ ========== ================ ========
Balance as at 30 June
2013 994 26,592 3,088 74 8,650 - 39,398
Comprehensive income:
Profit for the year - - - - 2,975 276 3,251
Other comprehensive
income:
Exchange differences
arising on translation
of foreign entities - - - (3,403) - - (3,403)
Transactions with owners
recorded directly in
equity:
Issue of share capital 587 95,145 946 - - - 96,678
Recognition of share
based payments - - - - 867 - 867
Vesting of share options - - - - (5,142) - (5,142)
Dividends paid - - - - (1,530) - (1,530)
Other transactions:
On acquisition of subsidiary - - - - - 294 294
Balance as at 30 June
2014 1,581 121,737 4,034 (3,329) 5,820 570 130,413
=============================== ========= ========= ========= ============ ========== ================ ========
Comprehensive income:
Profit for the year - - - - 5,404 (287) 5,117
Other comprehensive
income:
Exchange differences
arising on translation
of foreign entities - - - (3,786) - - (3,786)
Transactions with owners
recorded directly in
equity:
Recognition of share
based payments - - - - 914 - 914
Dividends paid - - - - (3,381) - (3,381)
Other transactions:
Acquisition of non-controlling
interest without a
change in control - - - - (2,938) - (2,938)
Reserves transfer on
acquisition of
non-controlling
interest - - - - 45 (45) -
Purchase of Company's
own shares - - - - (3,673) - (3,673)
Conversion of share
premium account - (70,000) - - 70,000 - -
Balance as at 30 June
2015 1,581 51,737 4,034 (7,115) 72,191 238 122,666
=============================== ========= ========= ========= ============ ========== ================ ========
Consolidated Cash Flow Statement 2015 2014
Note GBP'000 GBP'000
============================================== ===== ========= =========
Profit for the year 5,117 3,251
Adjustments for:
Net finance (income)/charges 6 (1,172) (2,407)
Tax expense/(credit) 1,680 (381)
Depreciation on property, plant and
equipment 1,702 1,619
Amortisation of intangible assets 4,452 2,152
Impairment of intangible assets - 5
Share of results of equity accounted
investment 746 100
Loss/(gain) on disposal of subsidiary/equity
accounted investment 11 1,456 (240)
Loss/(gain) on disposal of property,
plant and equipment 114 (5)
Share-based payments expense 531 658
============================================== ===== ========= =========
Operating cash flow before movement
in working capital 14,626 4,752
---------------------------------------------- ----- --------- ---------
Acquisition costs 3,041 5,044
Exceptional restructuring costs 678 4,351
---------------------------------------------- ----- --------- ---------
Operating cash flow before movement
in working capital and exceptionals 18,345 14,147
---------------------------------------------- ----- --------- ---------
Increase in inventories (377) (2,725)
Decrease/(increase) in receivables 1,083 (9,227)
(Decrease)/increase in payables and
accruals (4,867) 4,025
Decrease in provisions (1,824) (1,049)
Cash generated from/(used in) operations 8,641 (4,224)
---------------------------------------------- ----- --------- ---------
Acquisition costs payments 1,708 4,679
Exceptional restructuring payments 1,223 4,024
Headline Operating Cash Flow 11,572 4,479
----- ---------
Interest received 100 86
Interest paid (858) (792)
Tax paid (963) (816)
---------------------------------------------- ----- --------- ---------
Net cash inflow/(outflow) from operating
activities 6,920 (5,746)
============================================== ===== ========= =========
Cash flow from investing activities
Purchase of property, plant and equipment (2,588) (2,814)
Purchase and development of intangible
assets (4,749) (3,874)
Proceeds from sale of property, plant
and equipment 990 231
Acquisition of investment in an associate (1,912) (745)
Acquisition of subsidiary, net of cash
acquired 9 (2,450) (50,484)
============================================== ===== ========= =========
Net cash used in investing activities (10,709) (57,686)
============================================== ===== ========= =========
Cash flow from financing activities
Proceeds from issue of share capital
(net) - 95,732
Payment on vesting of share options (80) (4,924)
Repurchase of shares (3,550) -
Drawdown/(repayment) of borrowings 4,066 (6,724)
Dividends paid (3,381) (1,530)
============================================== ===== ========= =========
Net cash (outflow)/inflow from financing
activities (2,945) 82,554
============================================== ===== ========= =========
Net (decrease)/increase in cash and
cash equivalents (6,734) 19,122
Other non-cash movements - exchange
rate changes (1,918) (2,846)
Cash and cash equivalents at the beginning
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of year 20,795 4,519
============================================== ===== ========= =========
Cash and cash equivalents at end of
year 12,143 20,795
============================================== ===== ========= =========
Cash and cash equivalents at end of
year 12,143 20,795
Bank borrowings (4,357) (194)
============================================== ===== ========= =========
Net cash 7,786 20,601
============================================== ===== ========= =========
1. Basis of preparation
The audited consolidated financial statements of Regenersis plc
for the year ended 30 June 2015 have been prepared in accordance
with International Financial Reporting Standards ('IFRS') as
adopted by the European Union and as applied in accordance with the
provisions of the Companies Act 2006.
The preliminary statement of results was approved by the Board
on 21 September 2015. The preliminary statement is derived from but
does not represent the full Group statutory financial statements of
Regenersis plc and its subsidiaries which will be delivered to the
Registrar of Companies in due course. The financial information for
the year ended 30 June 2014 has been extracted from the Annual
Report and Financial Statements, as filed with the Registrar of
Companies. The Annual Report and Financial Statements for the year
ended 30 June 2015 will be delivered to the Registrar of Companies
following the Company's Annual General Meeting. The current
auditor, KPMG LLP, has reported on the year ended 30 June 2015 and
the year ended 30 June 2014. Their reports were (i) unqualified,
(ii) did not include reference to any matters to which the auditor
drew attention by way of emphasis without qualifying their reports
and (iii) did not contain certain statements under section 498(2)
and (3) of the Companies Act 2006.
2. Segmental reporting
Depot Solutions
The Depot Solutions Division provides the Group's geographic
infrastructure and core repair service, focusing on continuous
improvement, common operating practices, IT platforms and
efficiency. It includes the operations in UK (excluding
Glenrothes), Germany, Poland, Romania, Turkey, South Africa, Spain,
Argentina, Mexico, India, Portugal, Russia, USA, and the Czech
Republic.
Software and Advanced Solutions
The Software businesses include:
-- The Blancco business which was acquired in the previous
financial year. The business specialises in the provision of data
erasure software and is the leading global provider in this
field.
-- The Xcaliber smartphone diagnostic business which has moved
from a start-up focussed on product development, to a business with
revenues and a market-ready product and a promising sales pipeline.
The Group increased its ownership of this business from 15% to 49%
in July 2014.
The Advanced Solutions: Other businesses include:
-- The Set Top Box activities in Glenrothes.
-- The Set Top Box Diagnostics business which started in 2011 -
including the In Field Tester business and other remote diagnostics
capabilities covering other countries including the USA, South
Africa and Belgium.
-- The Digital Care Insurance business which launched in 2013,
with activities principally in Poland.
Revenue Share Revenue Revenue Share Revenue
2015 of associate 2015 2014 of JCE 2014
GBP'000 2015 GBP'000 GBP'000 2014 GBP'000
GBP'000 GBP'000
======================= ========= ============== ========= ========= ========= =========
Revenue from external
customers
Depot Solutions 154,262 154,262 151,641 (446) 151,195
Software 15,150 (136) 15,014 2,382 2,382
Advanced Solutions 33,288 33,288 43,905 - 43,905
======================= ========= ============== ========= ========= ========= =========
Software and Advanced
Solutions 48,438 (136) 48,302 46,287 - 46,287
Total Group 202,700 (136) 202,564 197,928 (446) 197,482
======================= ========= ============== ========= ========= ========= =========
There are two customers who account for more than 10% of Group's
revenue and had total revenues of: GBP27,878,429 and GBP24,909,276;
(2014: three customers GBP28,264,525, GBP23,920,662 and
GBP20,112,833).
The revenues from the two largest customers were split across
the segments as follows: Depot Solutions GBP51,407,198 (2014 from
the three largest customers: GBP70,963,608), Advanced Solutions
GBP1,380,507 (2014: GBP1,334,412) and Software GBPnil (2014:
GBPnil). These are significant in the context of the Group although
we contract with them under several service agreements in several
different countries.
2015 2014
GBP'000 GBP'000
================================================== ======== ========
Headline segment profit
Depot Solutions 8,623 8,112
Software 5,382 512
Advanced Solutions 6,578 6,941
==================================================== ======== ========
Software and Advanced Solutions 11,960 7,453
==================================================== ======== ========
Total Group 20,583 15,565
==================================================== ======== ========
Corporate costs (5,157) (4,600)
Headline Operating Profit 15,426 10,965
Exceptional restructuring costs (678) (4,351)
Acquisition costs (3,041) (5,044)
Amortisation of intangible assets (3,349) (589)
Share-based payments (531) (658)
==================================================== ======== ========
Group Operating Profit before disposal
of subsidiaries 7,827 323
Loss on disposal of subsidiaries (1,456) -
================================================== ======== ========
Group Operating Profit 6,371 323
Share of results of equity accounted investments (746) (100)
Profit on disposal of jointly controlled
entity - 240
Operating profit from continuing operations 5,625 463
Finance income 143 86
Revaluation of contingent consideration 3,302 4,695
Unwinding of discount factor on contingent
consideration (934) (1,063)
Other finance costs (1,339) (1,311)
==================================================== ======== ========
Net finance income 1,172 2,407
==================================================== ======== ========
Profit before tax 6,797 2,870
==================================================== ======== ========
3. Acquisition costs
2015 2014
GBP'000 GBP'000
=============================== ======== ========
Acquisition costs, deal costs
and other M&A related costs 3,041 5,044
================================= ======== ========
Acquisition costs relate to the M&A activity within the
year, with the most significant relating to the acquisition of
SafeIT and additional investments in Xcaliber and Blancco sales
offices.
4. Exceptional restructuring costs
2015 2014
GBP'000 GBP'000
================================ ============== ========
Redundancies and restructuring 678 3,610
Onerous lease and dilapidation
provision - 741
678 4,351
================================ ============== ========
Exceptional redundancy and restructuring costs relate primarily
to finalisation of the restructuring activities carried out in the
second half of the previous financial year.
5. Profit for the year
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Profit for the year has been arrived at after
charging/(crediting):
2015 2014
GBP'000 GBP'000
=============================================== ======== ========
Depreciation of property, plant and equipment
- owned 1,702 1,619
Loss/(profit) on disposal of property, plant
and equipment 29 (5)
Amortisation of intangible assets including
software licences 4,452 2,152
Cost of inventories recognised as an expense 91,372 100,406
Staff costs 60,368 59,235
Net foreign exchange (gains)/losses (233) 241
=============================================== ======== ========
Within the P&L, the Group has realised a profit arising due
to the translation of sales and purchases in foreign currencies
into the reporting currency of the Group's subsidiaries.
6. Finance costs and finance income
2015 2014
GBP'000 GBP'000
========================================= ==================== ========
Bank interest receivable and similar
income 143 86
Revaluation of contingent consideration 3,302 4,695
Total finance income 3,445 4,781
Interest payable on borrowings:
Bank loans and overdrafts 583 647
Other finance costs 756 664
Unwind of discount factor on contingent
consideration 934 1,063
Total finance costs 2,273 2,374
Net finance income 1,172 2,407
=========================================== ==================== ========
Invoice financing facility charges were GBP0.2 million (2014:
GBP0.2 million). Interest costs for the Revolving Credit Facility
and other costs were GBP1.2 million (2014: GBP1.1 million).
The HDM contingent consideration is payable in September 2015
with a final payment agreed with the vendor of EUR1.4 million
(GBP1.0 million). As a result, a revaluation of the contingent
consideration in the year has resulted in a non-cash profit
recorded of GBP3.3 million.
7. Earnings per share (EPS)
2015 2014
EPS Summary Pence Pence
============================ ====== ======
Basic earnings per share 6.97 5.45
Diluted earnings per share 6.97 5.41
Adjusted earnings per
share 16.19 16.16
Adjusted diluted earnings
per share 16.19 16.06
================================ ====== ======
2015 2014 2015 2014
Pence Pence
per share per share GBP'000 GBP'000
======================================== =========== =========== ======== ========
Profit for the year 6.60p 5.96p 5,117 3,251
Loss attributable to non-controlling
interests 0.37p (0.51p) 287 (276)
========================================== =========== =========== ======== ========
Basic EPS/profit attributable
to equity holders of the Company 6.97p 5.45p 5,404 2,975
========================================== =========== =========== ======== ========
Reconciliation to adjusted profit:
Amortisation of intangible assets 4.32p 1.08p 3,349 589
Exceptional bank charges 0.94p 0.91p 730 495
Acquisition costs 3.92p 9.24p 3,041 5,044
Share based payments 0.69p 1.21p 531 658
Unwinding of discount on contingent
consideration 1.20p 1.95p 934 1,063
Adjustment to fair value of contingent
consideration (4.26p) (8.60p) (3,302) (4,695)
Exceptional restructuring costs 0.88p 7.97p 678 4,351
Net asset write off on legal entity
rationalisation 1.88p (0.44p) 1,456 (240)
Tax impact of above adjustments (0.35p) (2.61p) (269) (1,418)
Adjusted EPS/profit for the year 16.19p 16.16p 12,552 8,822
========================================== =========== =========== ======== ========
Number of shares 2015 2014
'000 '000
===================================== ======== =======
Weighted average number of ordinary
shares 80,017 55,438
Treasury shares excluded (2,467) (854)
========================================= ======== =======
Weighted average number of ordinary
shares (basic) 77,550 54,584
Effect of share options
in issue 13 359
========================================= ======== =======
Weighted average number of ordinary
shares (diluted) 77,563 54,943
======================================= ======== =======
8. Acquisitions during the year
Acquisition of Safe IT
On 2 September 2014 the Group completed the acquisition of 100%
of the issued share capital of SafeIT Security Sweden AB for a
consideration of EUR1.8 million (GBP1.4 million), which was funded
through the Group's cash reserves.
In the nine months to 30 June 2015, this acquisition has
contributed total revenue of GBP260,000, Headline Operating Profit
of GBP149,000 and operating profit of GBP149,000.
If the acquisition had been completed on the first day of the
financial year, management estimates that the benefit to
consolidated revenue for the year would have been GBP315,000, the
benefit to consolidated Headline Operating Profit would have been
GBP180,000, and the benefit to consolidated operating profit would
have been GBP180,000.
In determining these amounts, management has assumed that the
fair value adjustments, determined provisionally, that arose on the
date of acquisition would have been the same if the acquisition had
occurred on the 1 July 2014.
The provisional book value and fair value of the assets acquired
and liabilities assumed were as follows:
Book Value IFRS Fair Value Fair Value
Alignment adjustments
GBP'000 GBP'000 GBP'000 GBP'000
------------------------------- ----------- ----------- ------------- -----------
Intangible assets - customer
contracts - - 197 197
Property, plant and equipment 3 - (3) -
Deferred tax (11) - 18 7
Cash 153 - - 153
External borrowings - - - -
Trade and other receivables 29 - (27) 2
Trade and other payables (55) (100) (210) (365)
Net assets acquired 119 (100) (25) (6)
Goodwill 1,410
------------------------------- ----------- ----------- ------------- -----------
Total consideration 1,404
------------------------------- ----------- ----------- ------------- -----------
Satisfied by:
Cash paid in H1 2015 1,404
Total consideration 1,404
------------------------------- ----------- ----------- ------------- -----------
There were a number of fair value adjustments identified to get
to the fair value following a review of all balance sheet
categories. These adjustments include GBP197,000 relating to
customer contracts intangibles, a provision against doubtful
debtors (GBP27,000), write off of previously disposed property,
plant and equipment (GBP3,000), and the recognition of accruals in
respect to litigation, claims and other unrecorded liabilities
(GBP310,000).
Trade receivables acquired totalled GBP29,000 gross and there
was no bad debt provision. The goodwill of GBP1,410,000 can be
attributed to the anticipated growth of the Software group,
strategic benefits and workforce in place.
Acquisition of non-controlling interests in Blancco
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On 2 September 2014, the Group acquired the remaining 25% of the
share capital of Blancco Sweden SFO which it did not already own
for an initial cost of SEK 2.8 million (GBP0.2 million). The
acquisition also includes an earn-out for the period to March 2016
and March 2017 based upon some growth metrics above a pre-agreed
target revenue. The estimated cash outflow at the time of
settlement is difficult to predict but has been estimated as GBP1.9
million. A deferred liability of GBP1.3 million has been
established which represents the fair value at the acquisition
date, using a discount rate of 13.1%. At 30 June 2015, the deferred
liability had increased to GBP1.9 million. The earn-out is payable
partly in Euros and partly in Swedish Krone.
On 30 September, the Group acquired the remaining 40% of the
share capital of Blancco US LLC which it did not already own for a
cost of $1.2 million (GBP0.7 million). There is no earn-out.
On 30 June, the Group acquired the remaining 20% of the share
capital of Blancco Central Europe GmbH which it did not already own
for a cost of EUR0.4 million (GBP0.3 million) There is no
earn-out.
9. Cash flow - acquisition of subsidiaries net of cash acquired
Within the consolidated cash flow statement, the cash flow
relating to acquisitions, net of cash acquired is reconciled as per
the table below:
GBP'000
------------------------------------------------------ --------
SafeIT acquisition - initial cash consideration 1,404
SafeIT acquisition - cash acquired (153)
Blancco Sweden minority buy out - cash consideration 238
Blancco US minority buy out - cash consideration 698
Blancco Central Europe minority buy out - cash
consideration 263
Net cash flow - acquisition of subsidiaries,
net of cash acquired 2,450
------------------------------------------------------- --------
10. Other acquisition
Investment in Xcaliber
On 21 November 2013, the Group completed the acquisition of 15%
of the issued share capital of Xcaliber Technologies LLC and
Xcaliber Infotech PVT Limited for a consideration of US$1.2 million
(GBP0.75 million).
On 25 July 2014 the Group completed the acquisition of an
additional 34% of the issued share capital of Xcaliber Technologies
LLC for a consideration of US$3.3 million (GBP1.9 million) bringing
the Group's share to 49%.
Xcaliber is a US based software business with a market leading
mobile diagnostics technology which adds to our existing
diagnostics offering in Europe, the US and globally.
The initial consideration of US$1.2 million cash was funded
through the Group's Revolving Credit Facility and the subsequent
consideration of US$3.3 million (GBP1.9 million) cash was funded
through the Group's cash reserves.
11. Disposal of subsidiaries
On 8 June 2014 the Group disposed of its entire shareholding in
Regenersis Recommerce Limited and Regenersis Sweden AB for a
consideration of GBP1. The directors' do not consider this to be a
separate major line of business and so, in accordance with IFRS 5,
its results have not been classified as a discontinued operation.
This transaction resulted on a non-cash loss on disposal of
GBP1,456,000.
12. Investments in Blancco sales offices
The Group's interest in the legal entities within the Blancco
Group is as follows:
Ownership Ownership
percentage percentage
of the Group of the Group
as at 30 as at 30
Company name June 2015 June 2014 Country of incorporation
=========================== ============== ================ =========================
Blancco Oy Limited 100% 100% Finland
England and
Blancco UK Limited 100% 100% Wales
Blancco Italy SRL 100% 100% Italy
Blancco France SAS 51% 51% France
Software Blancco S.A.
de C.V. Mx 51% 51% Mexico
Blancco US LLC 100% 60% USA
Blancco Central Europe
GmbH 100% 80% Germany
Blancco Canada Inc 50% 50% Canada
Blancco SEA Sdn Bhd 100% 100% Malaysia
Blancco Australasia
Pty Limited 100% 100% Australia
Blancco Japan Inc 51% 51% Japan
Blancco Sweden SFO 100% 75% Sweden
SafeIT Security Sweden 100% - Sweden
AB
13. Dividends
2015 2015 2014 2014
GBP'000 Pence per share GBP'000 Pence per share
====================== ======== ================ ======== ================
Previous year final 2,118 2.68 885 1.83
Current year interim
dividend 1,263 1.65 645 1.32
====================== ======== ================ ======== ================
3,381 4.33 1,530 3.15
====================== ======== ================ ======== ================
14. Bank borrowings
2015 2014
GBP'000 GBP'000
=============================== ======== ========
Due after more than one year:
Secured bank loan 4,357 194
================================= ======== ========
Repayable:
In the first to second years
inclusive 4,357 -
In the third to fifth years
inclusive - 194
================================= ======== ========
The bank borrowing is secured on the majority of the Group's
assets for the duration of the Revolving Credit Facility. The total
facility available to the Group as at 30 June 2015 totalled GBP39.0
million (2014: GBP39.0 million), of which GBP4.6 million (2014:
GBP0.5 million) had been drawn down in cash, resulting in an
unutilised facility of GBP34.4 million (2014: GBP38.5 million).
Borrowing costs of GBP0.3 million (2014: GBP0.5 million) are
set-off against the amount owing at year end.
All banking covenants have been satisfied in the year and show
significant headroom for the foreseeable future.
15. Subsequent Events
Banking facility
In September 2015, the Group extended the term of its banking
facility with HSBC from October 2016 to October 2019, which gives
Regenersis clear certainty of funding over the next four years. The
costs of borrowing have fallen and the covenants remain
unchanged.
All banking covenants have been passed and show significant
headroom for the foreseeable future.
Acquisition of Tabernus
In September 2015, Regenersis acquired 100% of the share capital
of Tabernus LLC and Tabernus Europe Limited, a privately owned
provider of software erasure with the majority of its revenue in
the USA. The consideration was $12 million comprising cash payment
of $10 million funded through the Group revolver facility and a
maximum of $2 million in deferred cash consideration payable after
2 years.
Fair value calculations for this acquisition have not been
completed due to the proximity of the acquisition to the published
date of the accounts and as such has not been disclosed..
16. Definitions
Headline Operating Profit
'Headline Operating Profit' is the key profit measure used by
the Board to assess the underlying financial performance of the
operating divisions and the Group as a whole. 'Headline Operating
Profit' is stated before acquisition costs (because these are one
off in nature), exceptional restructuring costs (because these are
not considered to reflect the underlying performance of the Group's
operating businesses), share-based payment charges (because these
represent a non-cash accounting charge for long term incentives to
senior management rather than the underlying operations of the
Group's business), Amortisation or impairment of acquired
intangible assets (because these are non-cash charges arising as a
result of the application of acquisition accounting, rather than
core operations), the non-cash amortisation charge of development
expenditure capitalised (because this does not reflect an ongoing
cash outflow of the Group), and disposal of subsidiaries (because
these represent a one off non-cash charge to the Consolidated
Income Statement)
Headline Operating Cash Flow
'Headline Operating Cash Flow' is a key internal measure used by
the Board to evaluate the cash flow of the Group. It is defined as
operating cash flow excluding taxation, interest payments and
receipts, acquisition costs, and exceptional restructuring costs.
This is the key operating cash flow measure used by the board to
assess the underlying cash flow of the Group.
Adjusted earnings per share
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