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RNS Number : 3120R

Regenersis PLC

08 March 2016

8 March 2016

REGENERSIS PLC

("Regenersis", the "Company" or the "Group")

HALF YEARLY RESULTS

Regenersis is pleased to announce its half yearly results for the six months to 31 December 2015. As announced on 5 February 2016, Regenersis has conditionally agreed a sale of its Repair Services Business, in order to focus on growing its software data erasure business Blancco, and intends to distribute surplus capital to shareholders.

Blancco is the global market leader in data erasure software, enabling the full range of private and public sector organisations to achieve their security and compliance goals. Blancco enables permanent, auditable data erasure across the widest available range of devices and occasions.

Financial and operational highlights relating to Blancco

-- Revenue of GBP9.9 million (H1 2015: GBP6.8 million), an increase of 46% in sterling terms and 51% on constant currency basis.

-- Headline Operating Profit of GBP3.5 million before Corporate Costs (H1 2015: GBP1.9 million), an increase of 84% in sterling terms and 100% on constant currency basis.

   --     Headline Operating Profit margin of 35.4% (H1 2015: 27.9%), an increase of 750 basis points. 

-- Strong growth in the strategically important North American region, with invoiced sales growing in constant currency by 95%.

-- Acquisition of Tabernus, which further enhances the Group's market footprint both geographically, through its strong position in the US market, and through the addition of new product lines to the Group's portfolio.

-- Successful launch of integrated data erasure and mobile diagnostics solutions, incorporating Xcaliber diagnostics technology.

Financial and operational highlights relating to the Group

-- Headline Operating Cash Flow of GBP3.2 million (H1 2015: GBP2.0 million), an increase of 60%.

   --     Cash conversion of 119% (H1 2015: 154%), reflecting the impact of IFRS conversion 
   --     Continuing adjusted earnings per share of 2.43 pence (H1 2015: 0.63 pence) 

-- Group net debt at period end of GBP8.9 million (FY15: net cash of GBP7.8 million) reflecting the acquisition of Tabernus, and costs relating to the disposal of the Repair Services business.

-- Interim dividend of 0.66 pence per ordinary share (H1 2015: 1.65 pence per share), rebased in the context of the disposal of the Repair Services business and associated capital distribution. The Board intends to adopt a progressive dividend policy moving forwards.

-- Expected distribution of up to GBP50 million by way of a tender offer following completion of the Repair Services disposal

-- Continued discussions with a number of parties in relation to a possible sale of Digital Care.

Matthew Peacock, Executive Chairman of Regenersis, said:

"Blancco has again demonstrated its ability to grow sales at a rapid pace while maintaining strong profit margins and cash flow, testament to the efforts of the Blancco team, and the value of holding a unique competitive position in an exciting growth sector. In the coming weeks, I look forward to completing the Group's transformation into a very exciting software opportunity, unique in the UK publicly quoted market."

Unless otherwise stated, defined terms used in this announcement have the meanings as given to them in the glossary at the end of this announcement

Enquiries:

Regenersis Plc +44 (0) 20 3657 7000

Matthew Peacock, Executive Chairman

Jog Dhody, Chief Financial Officer

Peel Hunt LLP (Nominated Adviser and Broker) +44 (0) 20 7418 8900

Richard Kauffer

Euan Brown

Panmure Gordon (UK) Limited (Joint Broker) +44 (0) 20 7886 2500

Dominic Morley, Corporate Finance

Charles Leigh Pemberton, Corporate Broking

Tulchan Communications +44 (0) 20 7353 4200

Tom Murray

www.regenersis.com

www.blancco.com

EXECUTIVE CHAIRMAN'S STATEMENT

I am pleased to report Regenersis' half yearly results for the six-month period to 31 December 2015.

Group focus over H1 2016 has been on establishing the Group as a pure-play software business focused on Blancco - the global market leader in data erasure software.

Blancco has identified a $2 billion market opportunity in end-of-life device erasure in the Enterprise and Public Sectors. Blancco is monetising this market for the first time, replacing a patchwork of approaches to data sanitisation characterised by incomplete coverage of devices, ineffective erasure methods, lack of measurement and auditability, standalone systems and workflows, and frequent physical destruction of valuable assets.

Additionally, we believe that Blancco has a large, as yet unquantified, Live Environment Erasure (LEE) market opportunity. Blancco's historic focus has been on the total erasure of devices at the end of their enterprise life, whereas LEE delivers selective erasure of data residing in virtualised storage environments and clouds. LEE supports recurring processes such as sanitisation of cloud storage space between different users or clients, or implementing the "destroy" step of an enterprise data lifecycle management policy.

In both areas, our growth is driven by a rising tide of security awareness and data protection legislation.

In the last year Blancco strengthened our leading position in the data erasure industry in three important ways. Firstly, we built our presence in the heartland of the IT industry, the US, with the relocation of our headquarters to Atlanta and with the acquisition and integration of the US market leader, Tabernus. Scale in this geography is critical for us in terms of access to customers and partners in the broader IT sector. Secondly, we enhanced our technology leadership with awards of industry-first patents for SSD (solid state drive) erasure, and with the successful launch of our integrated Mobile erasure-and-diagnostics solution incorporating Xcaliber technology. Finally, we saw very rapid growth in sales of our unique Live Environment Erasure products.

Results

As announced on 5 February 2016, Regenersis has agreed to sell its Repair Services Business to CTDI Repair Services Limited for a cash consideration of EUR103.5 million. In order to maximise shareholder value, the Group has also decided to market separately its Digital Care business to other interested purchasers. These businesses are both reported under discontinued operations.

The continuing businesses of the Group include Blancco (data erasure) plus the Group's 49% minority stake in Xcaliber Technologies (mobile diagnostics), which is not consolidated below.

Consolidated revenue for the continuing businesses of the Group in the period was GBP9.9 million (H1 2015: GBP6.8 million). Headline Operating Profit before Corporate Costs was GBP3.5 million (H1 2015: GBP1.9 million). After Corporate Costs, Headline Operating Profit was GBP2.7 million (H1 2015: GBP1.3 million). Adjusted earnings per share were 2.43p (H1 2015: 0.63p). Further details of these results are contained in the Group Financial Review.

In the half-year period just ended the Group had PLC corporate operating costs, excluding exceptional costs, of GBP2.6 million. These costs are incurred at PLC level and arise from the requirement to maintain an AIM listing and central management functions. Following the Repair Services and Digital Care disposals these functions will reduce and the ongoing central cost base is expected to be approximately GBP0.75 million per half year, or GBP1.5 million per annum.

Trading

Revenue

Blancco's revenue increased by 46% to GBP9.9 million (H1 2015: GBP6.8 million). On a constant currency basis revenue increased by 51%, with the majority of revenue generated in currencies depreciating versus Sterling in the period.

As noted at the time, both Revenue and Headline Operating Profit in H1 2015 were suppressed by the impact of transition to IFRS accounting for subscription sales. Underlying trends in business generation are shown below under Invoiced Sales.

Gross profit margin

Blancco's gross profit margin was 89% (H1 2015: 91%). The slight reduction was driven primarily by white-label sales of Xcaliber smartphone diagnostic technology as part of Blancco's integrated mobile erasure-and-diagnostics solution, with an associated cost of goods sold.

Headline Operating Profit ("HOP")

Blancco divisional HOP was GBP3.5 million (H1 2015: GBP1.9 million), an increase of 84%. Blancco's HOP margin expanded to 35.4% (H1 2015: 27.9%). These increases were largely driven by operating leverage, with a high fraction of incremental sales dropping through to the HOP line.

Blancco has continued to invest in its organisation and operations, in particular with several senior management appointments since H1 2015 to drive further sustainable growth. Blancco's overhead (sales, general and administration) costs were GBP5.3 million (H1 2015: GBP4.3 million), an increase of 23%. Continued expansion of the Blancco organisation is planned over the next 12 months across the full range of business functions.

Cash flow

Headline Operating Cash Flow for continuing operations was GBP3.2 million (H1 2015: GBP4.2 million), a decrease of 24%, due to the removal of discontinued cash flows in the current period. On a like for like basis, Headline Operating Cash Flow increased by 60% as a result of the growth in sales.

Cash conversion from Headline Operating Profit to Headline Operating Cash Flow was 119% (H1 2015: 154% on a like for like basis), which is above 100% due to cash generally being collected in advance of recognition of revenue. Cash conversion in H1 2015 was impacted by the mix of subscription sales in the period, which suppressed Headline Operating Profit relative to cash flow.

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In the period, GBP0.9 million of exceptional M&A costs were incurred principally on the acquisition of Tabernus (H1 2015: GBP1.3 million).

Capital expenditure by Blancco was GBP1.0 million (H1 2015: GBP0.7 million), an increase of 43%, relating mainly to the ongoing development of the Blancco product portfolio.

Operating KPIs: Invoiced Sales

In order to provide investors with a clear view of underlying business growth, Blancco will in future report a set of Invoiced Sales KPIs.

Blancco has two main pricing models, volume-based pricing, where clients purchase erasure licenses, and subscription pricing, where clients purchase a time-bound right of use of Blancco products. From a commercial and cash flow point of view there is little difference between these two models, but from a revenue perspective, absent of any other significant deliverables, volume-based sales are recognised at the point of invoice, whereas subscription sales are recognised monthly over the term of the subscription (even if the subscription is invoiced as an up-front payment). The Invoiced Sales measure recognises both volume-based and subscription business in the same way, at the point of invoice, and is the main internal management measure of sales performance.

As well as reporting Invoiced Sales KPIs in GBP and EUR, we have also reported them in constant currency, which we believe provides the most meaningful measure of underlying performance.

Invoiced Sales

 
                                H1   H1 2015   Growth   Growth 
                              2016 
                             GBP'm     GBP'm    GBP'm      CC* 
--------------------------  ------  --------  -------  ------- 
 Live Environment Erasure      0.9       0.2     350%     350% 
 Mobile                        1.8       1.2      50%      50% 
 IT and other                  7.9       6.4      23%      28% 
 Total                        10.6       7.8      36%      40% 
 
 North America                 3.9       2.0      95%      95% 
 Europe                        3.9       3.9       0%       8% 
 Asia and ROW                  2.8       1.9      47%      47% 
 Total                        10.6       7.8      36%      40% 
 

* At constant currency exchange rates, calculated by applying average exchange rates from H1 2015 to local currency sales in H1 2016, because exchange rate fluctuations can have a significant impact on growth rates measured in a single currency such as GBP or EUR.

The difference between the Invoiced Sales above and the reported sales represents the net deferral for the period. The Invoiced Sales can be reconciled to reported sales as follows:

 
                                         H1 2016   H1 2015 
                                           GBP'm     GBP'm 
--------------------------------------  --------  -------- 
 Invoiced Sales                             10.6       7.8 
 Net revenue deferral of subscription 
  sales                                    (0.7)     (1.0) 
 Reported revenue                            9.9       6.8 
 
 

In H1 2016, Blancco's Invoiced Sales in Constant Currency increased by 40% versus H1 2015.

We experienced exceptionally strong growth in Live Environment Erasure products (primarily Blancco LUN, Blancco Virtual Machine, Blancco File - sold by Blancco under licence prior to the acquisition of SafeIT in September 2014), which grew Invoiced Sales to GBP0.9 million (an increase in Constant Currency of 350%). LEE products are used by organisations on a regular basis in their networked storage environments, whereas Blancco's other products are used primarily at the point of exit of a device from an organisation. We see two main factors driving growth: firstly, a strong client interest in the technology; and secondly, full integration of the former SafeIT business into Blancco enabling a step up in marketing and sales performance.

We also experienced very strong growth in Mobile products which grew Invoiced Sales to GBP1.8 million (an increase in Constant Currency of 50%). This growth has been driven by both the new in-house developed Mobile erasure product launched in December 2014, and by the new mobile diagnostics product launched in July 2015, incorporating Xcaliber technology. Blancco now provides a unique integrated diagnostics-and-erasure proposition for clients preparing high volumes of smartphones for resale.

We experienced strong growth in IT products and services, which grew Invoiced Sales to GBP7.9 million (an increase in Constant Currency of 28%). In this category Blancco supports erasure of a wide range of IT equipment including PCs, laptops, servers, and loose drives.

Geographically, sales growth was strongest in North America, which grew Invoiced Sales to GBP3.9 million (an increase in Constant Currency of 95%). North America benefited from significant investment in new management and sales personnel, from strong LEE sales, and from the acquisition of Tabernus.

Europe grew Invoiced Sales to GBP3.9 million (an increase in Constant Currency of 8%). Europe sales have been relatively weaker in new categories of Mobile and LEE than in the other geographies. Relative weakness in growth in Europe compared to other geographies also reflects significant changes in personnel, roles and focus associated with the transition from Finnish to American leadership and headquarters. Increasing growth in Europe, specifically the new product categories, is an important management focus going forward.

Asia and Rest of World grew Invoiced Sales to GBP2.8 million (an increase in Constant Currency of 47%). The majority of sales in this category are in Japan, where Mobile sales growth was particularly strong and Blancco made its first large scale deployment of the integrated mobile erasure-and-diagnostics solution.

Other operating KPIs

Blancco has implemented three new additional KPIs to monitor its success in retaining, expanding and monetising its client relationships.

Trailing 12 month Client Retention Rate at end December 2015 was 88% (December 2014: 77%). This metric measures the proportion of clients from the prior 12 month period (here: calendar year 2014) who purchased again from Blancco in the last 12 months (here: calendar year 2015). While the retention rate is high, we believe there is room for improvement here and initiatives to redesign and improve client support processes were undertaken in H1 2016, with encouraging initial feedback from clients.

Trailing 12 month Invoiced Sales Repeat Rate at end December 2015, on a constant currency basis, was 126% (December 2014: 94%). This metric takes our Invoiced Sales in the prior 12 month period (here: calendar year 2014) and compares Invoiced Sales from the same group of clients in the last 12 months (here: calendar year 2015), providing a measure of the observed rate of recurrence and expansion of Blancco sales from one period to the next. Blancco has continued to benefit from good growth in volumes within its installed base of clients, and significant large sales in December caused this metric to rise above its trend level.

Trailing 12 month Average Revenue Per Client at end December 2015 was GBP47,960 (December 2014: GBP43,154), an increase of 11.1%. However on a constant currency basis, this metric increased by 23.3%.

These metrics are all measured on a base of clients with Invoiced Sales over EUR10,000 per annum, which covers 88% of Blancco's trailing 12 month Invoiced Sales.

Technology and Development update

Blancco's unique proposition

The Blancco proposition is unique in a number of ways that broaden our scope in the market:

1) Permanent - Blancco provides fully-permanent data erasure, whereby data becomes irretrievable following the erasure process. We have one of the broadest sets of certifications and approvals for our solution, including those from the US and Swedish militaries.

2) Auditable - It is important that our clients have an audit trail to prove that erasure has taken place from an IT security perspective. Blancco provides digitally-signed, tamper proof erasure certificates which come from a central management console and tell clients exactly which hard drive was erased and when.

3) Centrally-managed - Many of our customers are global businesses and therefore need one centrally-managed system that works across all geographies. Our solution is run from a centrally-managed console and stretches from device to data centre - a critical hygiene requirement to sell to demanding enterprise customers.

4) Non-destructive - Blancco does not physically destroy any asset values in the data erasure process. Instead, our solution realises value as organisations are able to reuse or sell surplus equipment.

5) Live Environment & End of Life - There is an increasing shift from device lifecycle management to data lifecycle management. Our solution has the additional ability to track data throughout its lifecycle and destroy it throughout.

Legislative drivers

Legislation and regulatory change is driving the need for digital data destruction globally. The EU Global Data Protection Regulation (GDPR) and the "Right to be forgotten" is calling for data erasure in a number of ways and reaches beyond Europe to North America and APAC. The International Organisation for Standardisation (ISO) standards ISO 27001, 27018 and 27040 include specific call-outs for the erasure of digital data for the protection of customers. We are also seeing spot regulation within specific industries, including banking and finance, the Payment Card Industry (PCI), federal government and healthcare.

Blancco development update

Blancco focused in the first half of the year on a range of development projects across its product portfolio. Notable activities included the integration of Tabernus' product suite and development team, and the integration of Xcaliber diagnostic technology into Blancco's mobile erasure product.

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At December 2015, Blancco has a US patent pending for its SSD erasure technology, which follows on from the award of a European patent in July 2015. This patent addresses the problem of reliably erasing a very wide range of different OEM SSDs, which generally block hardware access and store redundant copies of data in unaddressable locations . This patent positions Blancco at the forefront of the rapidly-growing SSD erasure market and will oblige competitors entering this space to find a different method for reliable pan-OEM SSD erasure, which may prove difficult or even impossible.

While the growth trends in the business are strong, Blancco needs to continually evolve its product set and go-to-market approach to keep abreast of market and technology trends. Emerging priorities include partnership with a broader range of enterprise software and service providers, who control numerous erasure occasions or opportunities as part of the wider scope they deliver, and access to new categories of erasure, especially erasure in the live network environment, and erasure of the very broad spectrum of devices which comprise the 'Internet of Things'. I expect to update on strategy further with the year end results in September.

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 (GBP6.6 million) funded through the Group revolver facility and $2 million (GBP1.3 million) in deferred cash consideration payable after three years.

The acquisition of Tabernus has boosted Blancco in the key US market, where Tabernus had larger sales than Blancco and a strong local management team. The Tabernus business has been fully integrated into Blancco and several former Tabernus people have taken on key leadership roles in the combined organisation. Tabernus also brings a set of hardware-based erasure products deployed for high-volume erasure in large data centres, filling a gap in Blancco's previous product portfolio.

Repair Services Disposal

The repair services disposal is expected to complete during the second quarter of the calendar year conditional on competition clearance being provided in Germany, Poland and Russia, and will include deal costs and settlement of contingent liabilities of approximately GBP7.8 million. Some of these have been incurred already during H1 in preparing the business for sale.

Following completion, the Group expects to return a significant portion of the net sales proceeds to shareholders, expected to be around GBP50 million.

The financial results for this business and the comparative results for prior periods are presented as discontinued operations.

Digital Care Disposal

We continue to have encouraging discussions with a number of parties in relation to a possible sale of Digital Care. We will provide shareholders with a further update as and when appropriate.

This business is also presented as discontinued in our financial statements.

Xcaliber Technology

Xcaliber, in which the group holds a 49% stake, is not consolidated by the group. The results are included within loss from equity accounted investments.

In H1 2016, Xcaliber has built on its first contracts won in the previous years, and is now generating a revenue stream with a number of key strategic customers, based on trial or pilot schemes which are expected to grow over the coming months and help turn the business to profitability.

The new business with a major US carrier won in the previous financial year has increased in value over the current year. This business provides a key strategic footprint in the US market for the SmartChk product which was previously not known in the marketplace. It is anticipated that this initial business will lead to further significant wins over the next 18 months.

Dividend

The Board is pleased to announce an interim dividend of 0.66 pence per ordinary share. This will be paid on 17 June 2016 to shareholders on the register on 13 May 2016. The ex-dividend date will be 12 May 2016

The Board intends to adopt a progressive dividend policy which reflects the long term earnings and cash flow potential of the group. The full year dividend will be split approximately 1/3 interim dividend and 2/3 final dividend, subject to the retention of funds needed to fund the future growth of the Group's business and its strategic aims.

Conclusions and outlook

Blancco performed strongly in the first half across its financial and operating KPIs. It additionally saw growth in the right places - its new product areas, especially LEE, and in the strategically important North American market. Based on a strong first half performance and continued strong growth trends at the beginning of the second half, the board anticipates a full year result in line with market expectations.

Matthew Peacock

Executive Chairman

GROUP FINANCIAL REVIEW

KPIs

 
                          6 months    6 months        Year                Commentary 
                             ended       ended       ended 
 Key financials          31-Dec-15   31-Dec-14   30-Jun-15 
---------------------- 
 
                                                                      Invoiced Sales 
                                                                      is the measure 
                                                                         of business 
                                                                        generated in 
                                                                         the period, 
                                                                        prior to any 
 Invoiced Sales                                                        IFRS deferral 
  (GBP'm)                     10.6         7.8        15.5              of revenues. 
----------------------  ----------  ----------  ----------  ------------------------ 
 Geography 
----------------------  ----------  ----------  ----------  ------------------------ 
                                                                       North America 
                                                                  is a strategically 
                                                                  important location 
                                                                       for the Group 
                                                                        and focus is 
                                                                      on growing our 
                                                                         presence in 
 North America                 37%         26%         25%             this location 
                                                            ------------------------ 
 Europe                        37%         50%         49% 
                                                            ------------------------ 
 Asia and ROW                  26%         24%         26% 
----------------------  ----------  ----------  ----------  ------------------------ 
 Product type 
----------------------  ----------  ----------  ----------  ------------------------ 
                                                                        The Group is 
                                                                       expanding its 
                                                                       product range 
                                                                         through the 
                                                                         acquisition 
                                                                     and development 
                                                                    of new services, 
                                                                        most notably 
                                                                        LEE (through 
 LEE                            8%          3%          5%                  SafeIT). 
                                                            ------------------------ 
 Mobile                        17%         15%         16% 
                                                            ------------------------ 
 IT and Other                  75%         82%         79% 
----------------------  ----------  ----------  ----------  ------------------------ 
                                                                     While retention 
                                                                       rate is high, 
                                                                 further initiatives 
 Trailing 12 month                                                 to improve client 
  client retention                                                 support processes 
  rate*                        88%         77%         81%             are underway. 
----------------------  ----------  ----------  ----------  ------------------------ 
                                                                 The group continues 
                                                                     to benefit from 
                                                                         good growth 
 Trailing 12 month                                                 in volumes within 
  sales repeat                                                         its installed 
  rate*                       126%         94%        103%          base of clients. 
----------------------  ----------  ----------  ----------  ------------------------ 
                                                                         The average 
                                                                    spend per client 
                                                                       is increasing 

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                                                                        over time as 
                                                                    we add a greater 
                                                                   range of products 
 Average annual                                               and more sophisticated 
  spend per customer*                                                  technology to 
  (GBP'000)                   48.0        43.2        44.1             our portfolio 
----------------------  ----------  ----------  ----------  ------------------------ 
 Headcount 
----------------------  ----------  ----------  ----------  ------------------------ 
                                                                        The majority 
                                                                    of the workforce 
                                                                      work in sales, 
                                                                         to generate 
                                                                        new business 
                                                                         and revenue 
                                                                        growth. This 
                                                                      is underpinned 
                                                                         by a strong 
                                                                       technical R&D 
                                                                       team who work 
                                                                      on new product 
                                                                         development 
                                                                    and relationship 
 Admin                          19          21          24                management 
                                                            ------------------------ 
 R&D                            34          30          30 
                                                            ------------------------ 
 Sales                          92          80          81 
----------------------  ----------  ----------  ----------  ------------------------ 
 

* for customers spending over EUR10k per year

Segmental Results

 
                                       6 months      6 months          Year 
                                          ended         ended         ended 
                                      31-Dec-15     31-Dec-14     30-Jun-15 
                                    GBP'million   GBP'million   GBP'million 
---------------------------------  ------------  ------------  ------------ 
 Revenue - continuing operations 
 Software                                   9.9           6.8          15.0 
 
 Revenue - discontinued 
  operations 
 Aftermarket Services                      99.9          95.1         187.6 
 Total                                    109.8         101.9         202.6 
---------------------------------  ------------  ------------  ------------ 
 
 Headline Operating Profit 
  - continuing operations 
 Software                                   3.5           1.9           5.4 
 
 Headline Operating Profit 
  - discontinued operations 
 Aftermarket Services                       6.6           6.7          15.2 
 Headline Operating Profit 
  before Corporate Costs                   10.1           8.6          20.6 
 Corporate Costs (continuing 
  operations)                             (0.8)         (0.6)         (1.4) 
 Corporate Costs (discontinued 
  operations)                             (1.8)         (2.0)         (3.8) 
---------------------------------  ------------  ------------  ------------ 
 Total                                      7.5           6.0          15.4 
---------------------------------  ------------  ------------  ------------ 
 
 Group Headline Operating 
  Profit - continuing operations            2.7           1.3           4.0 
 Group Headline Operating 
  Profit - discontinued 
  operations                                4.8           4.7          11.4 
---------------------------------  ------------  ------------  ------------ 
 Total                                      7.5           6.0          15.4 
---------------------------------  ------------  ------------  ------------ 
 

Software (continuing operations)

The Software segment includes Blancco, the global market leader in data erasure software and Xcaliber Technologies, a smartphone diagnostics software business. The Group holds a 49% stake in Xcaliber Technologies and it is currently not consolidated. SafeIT, acquired in September 2014, and Tabernus, acquired in September 2015, have been fully integrated into Blancco.

Financial and operational highlights included:

-- Acquisition of Tabernus, which further enhances the Group's market footprint both geographically, through its strong position in the US market, and through the addition of new product lines to the Group's portfolio.

-- A new distribution agreement signed in the United Arab Emirates, opening new sales channels to the technology centre of the Middle East.

-- Strong growth in the Live Environment Erasure product sales, which represents a more sophisticated erasure method in customers' networked storage environments, allowing real time and "live" data erasure in addition to the end of life erasure offered by the business' existing product range.

-- For the first time in this period, sales of integrated data erasure and mobile diagnostics solutions, integrating Xcaliber diagnostics technology into the Blancco Mobile erasure product.

-- Growth in Invoiced Sales under constant currency of 40%, representing amounts billed to clients in the period.

-- Strong growth in the strategically important North American region, with Invoiced Sales growing in constant currency by 95%. This is expected to further benefit from the addition of the Tabernus US business.

-- European patent for our SSD erasure method was granted in July 2015, plus a US patent for the same technology is currently pending.

Impact of revenue recognition

Under the Group's accounting policy and in compliance with International Financial Reporting Standards (IFRS), we are required to convert Invoiced Sales of software subscriptions - which have a defined term even if fully paid up-front - into revenue by spreading them over the term of the contract.

This results in the reported revenue being less than the actual closed sales in the period, reflecting the fact that revenue billed on a subscription basis accrues evenly over the contract term. While this results in a reduction to the reported revenue in the current period, it gives a guaranteed revenue stream for future periods before any new business is contracted.

Deferred income is recognised on the balance sheet, where contracted revenue has been invoiced on a subscription basis, but the term of the contract not yet finished. At 31 December 2015, this balance was GBP3.1 million (FY15: GBP2.4 million), of which GBP1.6 million will be recognised as revenue during the second half of the financial year. The majority of this deferred revenue will already have been collected in cash at this date.

Blancco grew its Invoiced Sales by 42% in the period compared to the previous six months on a constant currency basis.

Aftermarket Services (discontinued operations)

This division has been treated as discontinued in the current period following the Group's announcement of its disposal of the Repair Services Business and its intention to dispose of the Digital Care business. Accordingly, the results of these operations have been separately presented in the financial statements.

Repair Services (discontinued operations)

This business operates the client oriented electronic repair and refurbishment and includes the Group's previous Depot Solutions and Advanced Solutions divisions. It includes the operations in UK, Germany, Poland, Romania, Turkey, South Africa, Spain, Argentina, Mexico, India, Portugal, Russia, USA, Czech Republic and the Netherlands (opened August 2015).

Notwithstanding the disposal of the Repair Services business, the business has continued to generate strong profitability for the Group. Financial and operational highlights include:

   --     Growth in LCD recovery and polishing work using our developed technology in Romania. 

-- Significant wins and implementations of new business which is already starting to generate profit, particularly new insurance business in Germany and Romania, securing a contract for Europe wide repair volumes with one of our largest customers, and new mobile repair volumes in Mexico following new OEM accreditations gained in the period.

-- Growth in our US business with additional mobile repair volumes as well as new contracts for payment terminal repairs which expands this business which was previously conducted primarily from Germany.

-- Reduction in business with OEMs with declining market share, which has been replaced by new business wins across a number of sites, particularly in South Africa where we have secured a contract for Samsung repairs for the whole country.

-- Opening of a new facility in the Netherlands to service European set top box volumes for Liberty Global, which has successfully progressed beyond the initial trial phase.

Digital Care (discontinued operations)

This business operates in the mobile phone insurance market and provides smartphone accidental damage insurance programmes in partnership with insurance underwriters and is based in Poland.

Digital Care has grown its portfolio base across its operating partners in Poland, increasing by 50% in the period to over one million policies, with this growth expected to continue over H2.

Corporate Costs

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Total Group corporate costs of GBP2.6 million (H1 2015: GBP2.6 million) remain stable compared to the prior period. The corporate costs have been allocated between continuing and discontinued operations, with costs of GBP0.8 million having been incurred in H1 2016 to support the continuing Software business. This amount principally reflects the costs associated with being an AIM listed public company.

The annualised central cost for continuing operations for FY16 is expected to be GBP1.5 million which will be the cost base following a disposal of Repair Services and Digital Care.

Impact of foreign exchange movements

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 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.

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 and are usually denominated in a country's own currency in order to create a natural hedge against currency movements.

For the continuing operations, overseas earnings are earned in Euros (representing approximately 22% of Invoiced Sales), US Dollars (28%) and Japanese Yen (20%). The movement on these exchange rates are summarised below:

 
                   Average    Average 
                   rate H1    rate H1 
                      2016       2015   Movement 
--------------   ---------  ---------  --------- 
 Euro                 1.38       1.27       8.8% 
 US Dollar            1.53       1.62     (5.6%) 
 Japanese Yen       184.95     178.28       3.7% 
---------------  ---------  ---------  --------- 
 

The actual revenue and HOP for continuing operations in the period would have been higher by GBP0.4 million and GBP0.3 million if the exchange rates ruling during H1 2015 had held constant for the current period.

Cash and Working Capital

 
 
                                           6 months      6 months          Year 
                                              ended         ended         ended 
                                        31 December   31 December       30 June 
                                               2015          2014          2015 
                                        (unaudited)   (unaudited,   (unaudited, 
                                                        restated)     restated) 
                                              GBP'm         GBP'm         GBP'm 
------------------------------------   ------------  ------------  ------------ 
 Headline Operating Cash 
  Flow before movement in 
  working capital and exceptionals              3.0           1.4           4.2 
 Movement in working capital 
  and exceptionals                              0.3           0.8           0.5 
 Movement in provisions                       (0.1)         (0.2)         (0.4) 
-------------------------------------  ------------  ------------  ------------ 
 Headline Operating Cash 
  Flow                                          3.2           2.0           4.1 
 
 Net interest payments                        (0.3)         (0.1)         (0.4) 
 Tax paid                                     (0.4)         (0.3)         (0.6) 
 M&A payments                                 (0.9)         (0.8)         (1.4) 
 Exceptional payments                             -         (0.1)         (0.1) 
 Net cash from operating 
  activities - continuing 
  operations                                    1.6           0.7           1.6 
 
 Net capital expenditure                      (1.0)         (0.8)         (1.8) 
 Acquisition of subsidiaries, 
  associates and other investments, 
  net of cash acquired                        (6.6)         (4.1)         (4.4) 
 Net cash flow from share 
  issues, option vesting 
  and dividend payments                       (2.6)         (2.1)         (6.9) 
 Other movements                              (0.8)         (1.0)         (2.0) 
 Cash flow on discontinued 
  operations                                  (7.3)         (1.4)           0.7 
-------------------------------------  ------------  ------------  ------------ 
 Total cash flow                             (16.7)         (8.7)        (12.8) 
-------------------------------------  ------------  ------------  ------------ 
 Net (debt)/cash                              (8.9)          12.1           7.8 
-------------------------------------  ------------  ------------  ------------ 
 

Group review

The cash flows of the discontinued operations have been removed from the cash flow statement and are presented separately.

Headline Operating Cash Flow ("HOCF") was GBP3.2 million (H1 2015: GBP2.0 million), with headline cash conversion of 119% (H1 2015: 154%). The conversion for the prior period was higher due to the mix of sales, with a number of subscription sales deferring revenue into H2 2015 and supressing the reported HOP in that period.

Tax paid was GBP0.4 million (H1 2015: GBP0.3 million), and is higher than the prior period driven by the continued year on year growth in Blancco profits.

Net interest paid was GBP0.3 million (H1 2015: GBP0.1 million) and is higher than the prior period due to the drawdown of borrowings during H1 2016.

Net debt for the total Group is GBP8.9 million (FY15: net cash of GBP7.8 million, H1 2015: net cash of GBP12.1 million). There has been a reduction in net cash from GBP7.8 million at 30 June 2015 despite operating cash inflow of GBP1.6 million due to cash outflows from investment in additional capital, M&A activity, including significant costs incurred in the Aftermarket Services disposal, and payment of the final dividend for the 2015 financial year.

Capital expenditure and R&D was GBP1.0 million (H1 2015: GBP0.8 million). Of this capital expenditure, GBP0.7 million (H1 2015: GBP0.5 million) was incurred in the ongoing development of the Blancco product range. During the period we developed an integrated data erasure and diagnostics tool as well as further developments on the LEE product.

Other movements of GBP0.8 million (H1 2015: GBP1.0 million) include changes in the value of overseas cash held on deposit when translated back into Sterling at the exchange rates prevailing at the end of the period.

Net debt of GBP8.9 million (FY15: net cash of GBP7.8 million, H1 2015: net cash of GBP12.1 million) comprised gross debt of GBP20.1 million (FY15: GBP4.4 million, H1 2015: GBPnil), and cash and cash equivalents of GBP11.2 million (FY15: GBP12.1 million, H1 2015: GBP12.1 million).

Merger and Acquisition activity

The Group has continued actively pursuing M&A opportunities.

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 (GBP6.5 million) funded through the Group revolver facility and $2 million (GBP1.3 million) in deferred cash consideration payable after three years.

Exceptional acquisition costs

Acquisition costs amounted to GBP0.9 million (H1 2015: GBP1.3 million) with the most significant costs relating to the acquisition of Tabernus.

In addition, GBP1.9 million of fees have been incurred in the discontinued Aftermarket Services business, predominantly for disposal related costs. Further costs are expected during the second half of the year as the disposal process is completed.

Amortisation of intangible assets and R&D expenditure

Other costs excluded from HOP are the amortisation of intangible assets amounting to GBP1.3 million (H1 2015: GBP1.0 million), being the amortisation of intangibles in the Blancco business, and, since September 2015, the intangibles acquired in the Tabernus business.

Share based payments

Share based payments amounting to GBP0.4 million (H1 2015: GBP0.5 million) were also excluded from HOP. The current period includes the impact of the new Software LTIP, full details of which are provided in the Annual Report and Accounts for the year ended 30 June 2015.

Net financing income

Net financing cost was GBP0.5 million (H1 2015: GBP0.4 million). The costs in both periods include the unwind of deferred consideration on the Tabernus (H1 2016 only) and Blancco Sweden contingent consideration balances. In addition, finance costs are incurred for the use of the Group's revolving credit facility.

Taxation

The total tax charge was GBP0.4 million (H1 2015: GBP0.3 million charge). The increase in the period is a result of the higher profits generated by the Software group, which are generated in higher tax jurisdictions than the profits generated in the prior period.

Earnings per share

The continuing business has shown strong adjusted EPS growth to 2.43p (H1 2015: 0.63p) driven by the growth in Blancco revenues and margins. The negative basic earnings per share of (1.18p) (H1 2015: (2.83p)) is a result of the costs of investment in Tabernus, for which the Group will get the benefit of future profitability.

Subsequent events

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Sale of Regenersis (Depot Services) Limited

On 5 February 2016, Regenersis entered into a conditional sale and purchase agreement to dispose of its Aftermarket Services business (excluding Digital Care) to CTDI Repair Services Limited, a wholly owned subsidiary of Communications Test Design, Inc., for a cash consideration of EUR103.5 million.

The disposal is expected to complete during the second quarter of the calendar year.

Jog Dhody

Chief Financial Officer

 
 Condensed Consolidated 
  Income Statement 
 for the six months ended 
  31 December 2015 
 
                                               6 months      6 months          Year 
                                                  ended         ended         ended 
                                            31 December   31 December       30 June 
                                                   2015          2014          2015 
                                            (unaudited)   (unaudited,   (unaudited, 
                                                            restated)     restated) 
                                  Note          GBP'000       GBP'000       GBP'000 
-------------------------------  -----  ---------------  ------------  ------------ 
 Continuing operations 
  revenue                          2              9,918         6,801        15,013 
 
 Divisional operating 
  profit                           2              3,514         1,911         5,382 
 Corporate costs                                  (777)         (603)       (1,359) 
 Headline Operating Profit         2              2,737         1,308         4,023 
 Acquisition costs                 6              (852)       (1,300)       (2,414) 
 Exceptional restructuring 
  costs                            7                  -          (67)          (67) 
 Amortisation of intangible 
  assets                                        (1,296)       (1,009)       (2,026) 
 Share-based payments                             (372)         (457)         (371) 
-------------------------------  -----  ---------------  ------------  ------------ 
 
 Group operating profit/(loss)                      217       (1,525)         (855) 
 Share of results of 
  associates and jointly 
  controlled entities                              (46)         (289)         (746) 
 Operating profit/(loss)                            171       (1,814)       (1,601) 
-------------------------------  -----  ---------------  ------------  ------------ 
 Revaluation of contingent                            -             -             - 
  consideration 
 Other finance income                                44            22            48 
-------------------------------  -----  ---------------  ------------  ------------ 
 Finance income                                      44            22            48 
-------------------------------  -----  ---------------  ------------  ------------ 
 Unwinding of contingent 
  consideration                                   (148)          (44)         (171) 
 Other finance costs                              (369)         (397)         (672) 
-------------------------------  -----  ---------------  ------------  ------------ 
 Finance costs                                    (517)         (441)         (843) 
-------------------------------  -----  ---------------  ------------  ------------ 
 Loss before tax                                  (302)       (2,233)       (2,396) 
 Taxation                          3              (378)         (287)         (869) 
-------------------------------  -----  ---------------  ------------  ------------ 
 Loss for the period               5              (680)       (2,520)       (3,265) 
-------------------------------  -----  ---------------  ------------  ------------ 
 Discontinued operations 
 Post tax results from 
  discontinued operations          8              1,102         6,801         8,382 
 Profit for the period                              422         4,281         5,117 
 Attributable to: 
  Equity holders of the 
  Company                                           201         4,588         5,404 
 Non-controlling interest                           221         (307)         (287) 
-------------------------------  -----  ---------------  ------------  ------------ 
 Profit for the period                              422         4,281         5,117 
-------------------------------  -----  ---------------  ------------  ------------ 
 
 
 
 
 Earnings per share 
 
 Continuing Operations:                    (1.18         (2.83             (3.84 
  Basic                          4            p)            p)                p) 
                                           (1.18         (2.83             (3.84 
 Diluted                         4            p)            p)                p) 
 Discontinued Operations: 
                                                                           10.81 
 Basic                           4        1.44 p        8.70 p                 p 
                                                                           10.81 
 Diluted                         4        1.44 p        8.70 p                 p 
 Total Group: 
                                                                            6.97 
 Basic                           4        0.26 p        5.87 p                 p 
                                                                            6.97 
 Diluted                         4        0.26 p        5.87 p                 p 
 
 
 
 
   Consolidated Statement 
   of Comprehensive Income 
 for the six months ended 
  31 December 2015 
                                        6 months      6 months            Year 
                                           ended         ended           ended 
                                     31 December   31 December         30 June 
                                            2015          2014            2015 
                                     (unaudited)   (unaudited)       (audited) 
                                         GBP'000       GBP'000         GBP'000 
------------------------------      ------------  ------------  -------------- 
 Profit for the period                       422         4,281           5,117 
 Other comprehensive income 
  - amounts that may be 
  reclassified to profit 
  or loss in the future: 
 Exchange differences arising 
  on translation of foreign 
  entities                                 (138)       (1,857)         (3,786) 
------------------------------      ------------  ------------  -------------- 
 Total comprehensive income 
  for the period                             284         2,424           1,331 
------------------------------      ------------  ------------  -------------- 
 Attributable to: 
 Equity holders of the 
  Company                                     63         2,731           1,618 
 Non-controlling interests                   221         (307)           (287) 
------------------------------      ------------  ------------  -------------- 
 Total comprehensive income 
  for the period                             284         2,424           1,331 
------------------------------      ------------  ------------  -------------- 
 
 
 
 
 
 
 
 
 
 
 
   Condensed Consolidated 
   Balance Sheet 
 as at 31 December 2015 
                                       31 December   31 December 
                                              2015          2014     30 June 
                                                                        2015 
                                       (unaudited)   (unaudited)   (audited) 
                                Note       GBP'000       GBP'000     GBP'000 
-----------------------------  -----  ------------  ------------  ---------- 
 Assets 
 Non-current assets 
 Goodwill                                   40,885        83,147      83,157 
 Other intangible assets         12         22,761        28,734      27,041 
 Investments in jointly 
  controlled entities 
  and associates                 14          1,804         2,303       1,850 
 Other Investments               14             61            75          61 
 Property, plant and 
  equipment                      13            298         5,697       6,355 
 Deferred tax                                    -         2,215         622 
                                            65,809       122,171     119,086 
-----------------------------  -----  ------------  ------------  ---------- 
 Current assets 
 Inventory                                     228         9,951       9,480 
 Trade and other receivables                 4,407        38,643      34,556 
 Cash                            9          11,173        12,060      12,143 
 Assets held for sale            8         103,709             -           - 
-----------------------------  -----  ------------  ------------  ---------- 
                                           119,517        60,654      56,179 
-----------------------------  -----  ------------  ------------  ---------- 
 Total assets                              185,326       182,825     175,265 
-----------------------------  -----  ------------  ------------  ---------- 
 
 Current liabilities 
 Trade and other payables                  (9,298)      (42,779)    (40,471) 
 Contingent consideration        15          (786)             -     (1,734) 
 Current tax liability                       (598)       (2,159)       (642) 
 Provisions                                  (347)         (634)       (372) 
 Liabilities held for 
  sale                           8        (28,413)             -           - 
                                          (39,442)      (45,572)    (43,219) 
 Non-current liabilities 
 Borrowings                      9        (20,098)             -     (4,357) 
 Contingent consideration        15        (2,206)       (5,906)     (3,994) 
 Deferred tax                              (1,917)             -           - 
 Provisions                                  (906)       (2,323)     (1,029) 

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                                          (25,127)       (8,229)     (9,380) 
=============================  =====  ============  ============  ========== 
 Total liabilities                        (64,569)      (53,801)    (52,599) 
-----------------------------  -----  ------------  ------------  ---------- 
 
 Net assets                                120,757       129,024     122,666 
-----------------------------  -----  ------------  ------------  ---------- 
 
 Equity 
 Ordinary share capital                      1,581         1,581       1,581 
 Share premium                              51,737        51,737      51,737 
 Merger reserve                              4,034         4,034       4,034 
 Translation reserve                       (7,253)       (5,186)     (7,115) 
 Retained earnings                          70,199        76,554      72,191 
-----------------------------  -----  ------------  ------------  ---------- 
 Total equity attributable 
  to equity holders of 
  the Company                              120,298       128,720     122,428 
 Non-Controlling interest 
  reserve                                      459           304         238 
-----------------------------  -----  ------------  ------------  ---------- 
 Total equity                              120,757       129,024     122,666 
-----------------------------  -----  ------------  ------------  ---------- 
 
 
 Condensed Consolidated Statement 
  of Changes in Equity 
 for the six months ended 
  31 December 2015 
 
                                         6 months      6 months        Year 
                                            ended         ended       ended 
                                      31 December   31 December     30 June 
                                             2015          2014        2015 
                                      (unaudited)   (unaudited)   (audited) 
                                          GBP'000       GBP'000     GBP'000 
----------------------------------   ------------  ------------  ---------- 
 Balance at the start 
  of the period                           122,666       130,413     130,413 
 Total comprehensive income 
  for the period                              284         2,424       1,331 
 Equity settled share 
  based payments                              372           586         914 
 Acquisition of non-controlling 
  interest without a change 
  in control                                    -       (2,281)     (2,938) 
 Purchase of company's 
  own shares                                    -             -     (3,673) 
 Dividends paid                           (2,565)       (2,118)     (3,381) 
 Balance at the end of 
  the period                              120,757       129,024     122,666 
-----------------------------------  ------------  ------------  ---------- 
 
 
 
  Consolidated Cash Flow Statement 
  for the six months ended 
   31 December 2015 
                                                6 months      6 months          Year 
                                                   ended         ended         ended 
                                             31 December   31 December       30 June 
                                                    2015          2014          2015 
                                             (unaudited)   (unaudited,   (unaudited, 
                                                             restated)     restated) 
                                      Note       GBP'000       GBP'000       GBP'000 
 ----------------------------------  -----  ------------  ------------  ------------ 
  Profit for the period                              422         4,281         5,117 
 ----------------------------------  -----  ------------  ------------  ------------ 
  Adjustments for: 
  Results of discontinued 
   operations                                    (1,102)       (6,801)       (8,382) 
  Net finance charges                                473           419           795 
  Tax expense                                        378           287           869 
  Depreciation on property, 
   plant and equipment                                67            59            29 
  Amortisation of intangible 
   assets                                            237            17           195 
  Amortisation of acquired 
   intangible assets                               1,296         1,009         2,026 
  Share of losses of joint 
   ventures and associates                            46           289           746 
  Share-based payments expense                       372           457           371 
 ----------------------------------  -----  ------------  ------------  ------------ 
  Operating cash flow before 
   movement in working capital                     2,189            17         1,766 
 ----------------------------------  -----  ------------  ------------  ------------ 
  Acquisition costs                                  852         1,300         2,414 
  Exceptional restructuring 
   costs                                               -            67            67 
 ----------------------------------  -----  ------------  ------------  ------------ 
  Operating cash flow before 
   movement in working capital 
   and exceptional and acquisition 
   costs                                           3,041         1,384         4,247 
 ----------------------------------  -----  ------------  ------------  ------------ 
  Increase in inventories                           (52)          (14)          (19) 
  Increase in receivables                          (975)         (493)         (250) 
  Increase in payables and 
   accruals                                        1,322         1,792         1,462 
  Decrease in provisions                           (148)         (186)         (373) 
 ----------------------------------  -----  ------------  ------------  ------------ 
  Cash generated from continuing 
   operations                                      2,336         1,116         2,586 
  Acquisition costs payments                         910           775         1,436 
  Exceptional restructuring 
   payments                                            -            67            67 
 ----------------------------------  -----  ------------  ------------  ------------ 
  Headline Operating Cash 
   Flow                                            3,246         1,958         4,089 
 ----------------------------------  -----  ------------  ------------  ------------ 
  Interest received                                   45            22            48 
  Interest paid                                    (368)         (124)         (424) 
  Tax paid                                         (437)         (266)         (569) 
 ----------------------------------  -----  ------------  ------------  ------------ 
  Net cash inflow from operating 
   activities - continuing 
   operations                                      1,576           748         1,641 
  Net cash (outflow)/inflow 
   from operating activities 
   - discontinued operations           8         (4,109)         1,787         5,279 
 ----------------------------------  -----  ------------  ------------  ------------ 
  Net cash (outflow)/inflow 
   from operating activities 
   - continuing and discontinued 
   operations                                    (3,528)         2,535         6,920 
 ----------------------------------  -----  ------------  ------------  ------------ 
 
  Cash flows from investing 
   activities 
  Purchase of property, plant 
   and equipment                                    (92)          (52)         (145) 
  Purchase and development 
   of intangible assets                            (951)         (703)       (1,651) 
  Acquisition of investment 
   in an associate                                     -       (1,912)       (1,912) 
  Acquisition of subsidiaries, 
   net of cash acquired                          (6,565)       (2,187)       (2,450) 
 ----------------------------------  -----  ------------  ------------  ------------ 
  Net cash used in investing 
   activities - continuing 
   operations                                    (7,608)       (4,854)       (6,158) 
  Net cash used in investing 
   activities - discontinued 
   operations                          8         (3,151)       (3,225)       (4,551) 
 ----------------------------------  -----  ------------  ------------  ------------ 
  Net cash used in investing 
   activities - continuing 
   and discontinued operations                  (10,759)       (8,079)      (10,709) 
 ----------------------------------  -----  ------------  ------------  ------------ 
  Cash flows from financing 
   activities 
  Dividends paid                                 (2,565)       (2,118)       (3,381) 
  Payment on vesting of share 
   options                                             -             -          (80) 
  Drawdown/(repayment) of 
   borrowings                                     15,534         (655)         4,066 
  Repurchase of shares                                 -             -       (3,550) 
 ----------------------------------  -----  ------------  ------------  ------------ 
  Net cash used in financing 
   activities                                     12,969       (2,773)       (2,945) 
  Net cash used in financing                           -             -             - 
   activities - discontinued 
   operations 
 ----------------------------------  -----  ------------  ------------  ------------ 
  Net cash used in financing 
   activities - continuing 
   and discontinued operations                    12,969       (2,773)       (2,945) 
 
 
  Net decrease in cash and 
   cash equivalents                                (323)       (8,317)       (6,734) 
  Other non-cash movements 
   - exchange rate changes                         (647)         (418)       (1,918) 
  Cash and cash equivalents 
   at the beginning of period                     12,143        20,795        20,795 

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 ----------------------------------  -----  ------------  ------------  ------------ 
  Cash and cash equivalents 
   at end of period                               11,173        12,060        12,143 
  Bank borrowings                               (20,098)             -       (4,357) 
 ----------------------------------  -----  ------------  ------------  ------------ 
  Net (debt)/cash                                (8,925)        12,060         7,786 
 ----------------------------------  -----  ------------  ------------  ------------ 
 
 
 

Notes to the Interim Report

for the six months ended 31 December 2015

   1.   Basis of preparation 

This interim report has been prepared on the basis of the accounting policies expected to be adopted for the year ended 30 June 2016. These are in accordance with the Group's accounting policies as set out in the latest audited annual financial statements for the year ended 30 June 2015. The Group's accounting policies can also be found on the Group's website.

All International Financial Reporting Standards ('IFRS'), International Accounting Standards ('IAS') and interpretations currently endorsed by the International Accounting Standards Board ('IASB') and its committees as adopted by the EU and as required to be adopted by AIM listed companies have been applied. AIM-listed companies are not required to comply with IAS 34 'Interim Financial Reporting' and accordingly the Company has taken advantage of this exemption.

In preparing the interim report, certain lines of business have been reclassified as discontinued and the primary statement adjusted accordingly, and in line with IFRS 5, Non-current Assets Held For Sale and Discontinued Operations. Where prior period information has been restated, this has been extracted from the full group results in the audited Annual Report and Accounts for the year ended 30 June 2015, and the full group results for the six month period to 31 December 2014 being unaudited.

The financial information in this interim report does not constitute statutory accounts for the six months ended 31 December 2015 and should be read in conjunction with the Group's annual financial statements for the year ended 30 June 2015.

The condensed consolidated interim financial statements for the six months to 31 December 2015 have not been audited or reviewed by auditors pursuant to the Auditing Practices Board guidance on Review of Interim Financial Information.

This unaudited interim report was approved by the Board of Directors on 8 March 2016.

   2.   Segmental reporting 

As outlined in the Group Financial Review, the Group's management structure is reported in two distinct Divisions:

-- The Software Division represents the continuing business and focuses on development and delivery of innovative solutions, and includes:

o Blancco, the global market leader data erasure software.

o SafeIT, acquired in September 2014, the leading specialist cloud and networked data erasure business.

o Tabernus, acquired in September 2015, the US market leader of software erasure products.

o Xcaliber Technologies, a smartphone diagnostics software business. The Group holds 49% a stake in this business.

Both SafeIT and Tabernus have been integrated into Blancco.

-- The Aftermarket Services Division represents the discontinued business and operates client oriented electronic repair and refurbishment and includes the Group's previous Depot Solutions and Advanced Solutions divisions. It includes the operations in UK, Germany, Poland, Romania, Turkey, South Africa, Spain, Argentina, Mexico, India, Portugal, Russia, USA, Czech Republic and the Netherlands (opened August 2015). This division has been treated as discontinued in the current period following the Group's announcement of its disposal of the Repair Services Business and its intention to dispose of the Digital Care business.

 
                                                            6 months           Year 
                                                               ended          ended 
                                                           31-Dec-14      30-Jun-15 
                                             6 months 
                                                ended 
                                            31-Dec-15    (unaudited)    (unaudited) 
                                          (unaudited)     (restated)     (restated) 
 Continuing operations                        GBP'000        GBP'000        GBP'000 
--------------------------------------  -------------  -------------  ------------- 
 Software revenue                              10,207          6,801         15,150 
 Less: share of jointly controlled 
  entity                                        (289)              -          (136) 
 Software revenue                               9,918          6,801         15,014 
--------------------------------------  -------------  -------------  ------------- 
 Software Divisional Operating 
  Profit                                        3,514          1,911          5,382 
 Corporate costs                                (777)          (603)        (1,359) 
 Headline Operating Profit                      2,737          1,308          4,023 
 M&A costs                                      (852)        (1,300)        (2,414) 
 Exceptional restructuring costs                    -           (67)           (67) 
 Amortisation of intangible assets            (1,296)        (1,009)        (2,026) 
 Share-based payments                           (372)          (457)          (371) 
======================================  =============  =============  ============= 
 Group Operating Profit/(loss)                    217        (1,525)          (855) 
 Share of results of equity accounted 
  investments                                    (46)          (289)          (746) 
 Operating profit/(loss)                          171        (1,814)        (1,601) 
 Finance income                                    44             22             48 
 Unwinding of discount factor 
  on contingent consideration                   (148)           (44)          (171) 
 Other finance costs                            (369)          (397)          (672) 
======================================  =============  =============  ============= 
 Net finance cost                               (473)          (419)          (795) 
======================================  =============  =============  ============= 
 Loss before tax                                (302)        (2,233)        (2,396) 
======================================  =============  =============  ============= 
 
 
                                                               6 months           Year 
                                                                  ended          ended 
                                                              31-Dec-14      30-Jun-15 
                                                6 months 
                                                   ended 
                                               31-Dec-15    (unaudited)    (unaudited) 
                                             (unaudited)     (restated)     (restated) 
 Discontinued operations                         GBP'000        GBP'000        GBP'000 
-----------------------------------------  -------------  -------------  ------------- 
 Aftermarket Services revenue                     99,915         95,140        187,550 
 Aftermarket Services Divisional 
  Operating Profit                                 6,550          6,674         15,201 
 Corporate costs                                 (1,800)        (1,970)        (3,798) 
 Headline Operating Profit                         4,750          4,704         11,403 
 M&A costs                                       (1,875)              -          (627) 
 Exceptional restructuring costs                   (246)          (348)          (611) 
 Amortisation of intangible 
  assets                                           (240)           (82)        (1,323) 
 Share-based payments                              (377)          (129)          (160) 
=========================================  =============  =============  ============= 
 Group Operating Profit before 
  disposal of subsidiaries                         2,012          4,145          8,682 
 Loss on disposal of subsidiaries                      -              -        (1,456) 
=========================================  =============  =============  ============= 
 Group Operating Profit                            2,012          4,145          7,226 
 Finance income                                       12             32             95 
 Revaluation of contingent consideration               -          2,244          3,302 
 Unwinding of discount factor 
  on contingent consideration                      (197)          (403)          (763) 
 Other finance costs                               (580)          (283)          (667) 
=========================================  =============  =============  ============= 
 Net finance income                                (765)          1,590          1,967 
=========================================  =============  =============  ============= 
 Profit before tax                                 1,247          5,735          9,193 
=========================================  =============  =============  ============= 
 
   3.   Taxation 

The tax charge for the six months to 31 December 2015 is based on the estimated tax rate for the full year in each jurisdiction.

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The effective tax rate on HOP is 20.7% (H1 2015: 21.9%), which reflects the mix of profits of the Blancco group generated in a broader range of jurisdictions around the world, many of which attract high tax rates.

   4.   Earnings per share (EPS) 
 
                                       6 months      6 months 
                                          ended         ended     Year ended 
                                      31-Dec-15     31-Dec-14   30-June-2015 
                                    (unaudited)   (unaudited)    (unaudited) 
                                          Pence         Pence          Pence 
                                   ------------  ------------  ------------- 
 Continuing operations 
                                          (1.18         (2.83          (3.84 
 Basic earnings per share                    p)            p)             p) 
                                          (1.18         (2.83          (3.84 
 Diluted earnings per share                  p)            p)             p) 
 Adjusted earnings per 
  share                                  2.43 p        0.63 p         2.84 p 
 Diluted adjusted earnings 
  per share                              2.43 p        0.63 p         2.84 p 
---------------------------------  ------------  ------------  ------------- 
 Discontinued operations 
                                                                       10.81 
 Basic earnings per share                1.44 p        8.70 p              p 
                                                                       10.81 
 Diluted earnings per share              1.44 p        8.70 p              p 
 Adjusted earnings per                                                 13.34 
  share                                  5.09 p        6.93 p              p 
 Diluted adjusted earnings                 5.09        6.93 p          13.34 
  per share                                   p                            p 
---------------------------------  ------------  ------------  ------------- 
 Total Group 
 Basic earnings per share                0.26 p        5.87 p         6.97 p 
 Diluted earnings per share              0.26 p        5.87 p         6.97 p 
 Adjusted earnings per                                                 16.18 
  share                                  7.52 p        7.56 p              p 
 Diluted adjusted earnings                 7.52        7.56 p          16.18 
  per share                                   p                            p 
---------------------------------  ------------  ------------  ------------- 
 
                                       6 months      6 months 
                                          ended         ended     Year ended 
                                      31-Dec-15     31-Dec-14   30-June-2015 
                                    (unaudited)   (unaudited)    (unaudited) 
 Continuing operations                  GBP'000       GBP'000        GBP'000 
---------------------------------  ------------  ------------  ------------- 
 Loss for the period                      (680)       (2,520)        (3,265) 
 (Profit)/loss attributable 
  to non-controlling interests            (221)           307            287 
--------------------------------- 
 Loss attributable to equity 
  holders of the Company                  (901)       (2,213)        (2,978) 
--------------------------------- 
 
 
 Reconciliation to adjusted 
  profit: 
 Unwinding of discount 
  on contingent consideration               148            44            171 
 Acquisition costs                          852         1,300          2,414 
 Amortisation of intangible 
  assets                                  1,296         1,009          2,026 
 Exceptional restructuring 
  costs                                       -            67             67 
 Exceptional bank charges                   134           124            248 
 Share based payments                       372           457            371 
 Tax impact of above adjustments           (39)         (293)          (114) 
---------------------------------  ------------  ------------  ------------- 
 Adjusted profit for the 
  period                                  1,862           495          2,205 
---------------------------------  ------------  ------------  ------------- 
 
 
 Number of shares                '000s    '000s    '000s 
 Weighted average number of shares 
  used to calculate earnings per 
  share 
 
        *    Basic              76,580   78,171   77,550 
 
        *    Diluted            76,593   78,171   77,563 
----------------------------  --------  -------  ------- 
 
   5.   Profit for the year 

Profit for the year for the entire group has been arrived at after charging/(crediting):

 
                                         6 months       6 months        Year 
                                            ended          ended       ended 
                                      31 December    31 December     30 June 
                                             2015           2014        2015 
                                      (unaudited)    (unaudited)   (audited) 
                                          GBP'000        GBP'000     GBP'000 
--------------------------------    -------------  -------------  ---------- 
 Depreciation of property, 
  plant and equipment - owned                 446          1,206       1,702 
 Loss/(profit) on disposal 
  of property, plant and 
  equipment                                    25            (1)         114 
 Amortisation of intangible 
  assets                                    2,052          2,127       4,452 
 Cost of inventories recognised 
  as an expense                            51,584         49,741      91,372 
 Staff costs                               31,021         32,379      60,368 
 Net foreign exchange 
  loss/(profit)                               179            131       (233) 
----------------------------------  -------------  -------------  ---------- 
 

The figures for the Group's continuing operations are as follows:

 
                                         6 months       6 months          Year 
                                            ended          ended         ended 
                                      31 December    31 December       30 June 
                                             2015           2014          2015 
                                      (unaudited)    (unaudited)   (unaudited) 
                                          GBP'000        GBP'000       GBP'000 
--------------------------------    -------------  -------------  ------------ 
 Depreciation of property, 
  plant and equipment - owned                  67             59            29 
 Loss on disposal of property,                  -              -             - 
  plant and equipment 
 Amortisation of intangible 
  assets                                    1,533          1,026         2,221 
 Cost of inventories recognised 
  as an expense                               143             42           112 
 Staff costs                                3,817          3,210         6,219 
 Net foreign exchange 
  loss/(profit)                               293           (59)         (273) 
----------------------------------  -------------  -------------  ------------ 
 
   6.   Acquisition costs 
 
                                   6 months       6 months          Year 
                                      ended          ended         ended 
                                31 December    31 December       30 June 
                                       2015           2014          2015 
                                               (unaudited,   (unaudited, 
                                (unaudited)      restated)     restated) 
                                    GBP'000        GBP'000       GBP'000 
--------------------------    -------------  -------------  ------------ 
 Acquisition costs and 
  other M&A related costs               852          1,300         2,414 
----------------------------  -------------  -------------  ------------ 
 
 

Acquisition costs relate to the M&A activity within the year, with the most significant costs relating to the acquisition of Tabernus.

Deal costs not included above relate to the disposal of the Aftermarket Services Division totalling GBP1.9 million for the period (GBPnil for the same period last year) as they are presented within discontinued operations.

   7.   Exceptional restructuring costs 
 
                                          6 months       6 months          Year 
                                             ended          ended         ended 
                                       31 December    31 December       30 June 
                                              2015           2014          2015 
                                                      (unaudited,   (unaudited, 
                                       (unaudited)      restated)     restated) 
                                           GBP'000        GBP'000       GBP'000 
--------------------------------    --------------  -------------  ------------ 
 Redundancies and restructuring                  -             67            67 
 
 

No exceptional restructuring costs have been recorded in the current period (H1 2015: GBP0.1 million relating to integration activities).

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Exceptional redundancy and restructuring costs not included above relate to the restructuring activities for the disposal of Aftermarket Services totalling GBP0.2 million for the period (GBP0.3 million for the same period last year), as they are presented within discontinued operations.

   8.   Discontinued Operations 
 
                                       6 months      6 months          Year 
                                          ended         ended         ended 
                                    31 December   31 December       30 June 
                                           2015          2014          2015 
                                    (unaudited)   (unaudited)   (unaudited) 
                                        GBP'000       GBP'000       GBP'000 
----------------------------  ---  ------------  ------------  ------------ 
 Discontinued operations 
  revenue                                99,915        95,140       187,550 
 
 Divisional operating 
  profit                                  6,550         6,674        15,160 
 Head office costs                      (1,800)       (1,970)       (3,757) 
 Headline Operating Profit                4,750         4,704        11,403 
 Acquisition and disposal 
  costs                                 (1,875)             -         (611) 
 Exceptional restructuring 
  costs                                   (246)         (348)         (627) 
 Amortisation of intangible 
  assets                                  (240)          (82)       (1,323) 
 Share-based payments                     (377)         (129)         (160) 
---------------------------------  ------------  ------------  ------------ 
 
 Group operating profit                   2,012         4,145         8,682 
 Loss on disposal of 
  subsidiaries                                -             -       (1,456) 
---------------------------------  ------------  ------------  ------------ 
 Operating Profit                         2,012         4,145         7,226 
---------------------------------  ------------  ------------  ------------ 
 Revaluation of contingent 
  consideration                               -         2,244         3,302 
 Other finance income                        12            32            95 
---------------------------------  ------------  ------------  ------------ 
 Finance income                              12         2,276         3,397 
---------------------------------  ------------  ------------  ------------ 
 Unwinding of contingent 
  consideration                           (197)         (403)         (763) 
 Other finance costs                      (580)         (283)         (667) 
---------------------------------  ------------  ------------  ------------ 
 Finance costs                            (777)         (686)       (1,430) 
---------------------------------  ------------  ------------  ------------ 
 Profit before tax                        1,247         5,735         9,193 
 Taxation                                 (145)         1,066         (811) 
---------------------------------  ------------  ------------  ------------ 
 Profit for the period                    1,102         6,801         8,382 
---------------------------------  ------------  ------------  ------------ 
 
 
 

The assets and liabilities included in the condensed consolidated balance sheet as held for sale are as follows:

 
                                   31 December 2015 
                                        (unaudited) 
                                            GBP'000 
-------------------------------   ----------------- 
 Assets 
 Goodwill                                    49,815 
 Other intangible assets                      5,798 
 Property, plant and equipment                6,937 
 Deferred tax                                 3,364 
 Inventory                                    9,965 
 Trade and other receivables                 27,830 
 Total assets held for 
  sale                                      103,709 
--------------------------------  ----------------- 
 
 Current liabilities 
 Trade and other payables                  (25,393) 
 Contingent consideration                   (3,020) 
 Total liabilities held 
  for sale                                 (28,413) 
--------------------------------  ----------------- 
 

The cash flows associated with the discontinued operations are as follows:

 
 
                                          6 months     6 months         Year 
                                             ended        ended        ended 
                                       31 December  31 December      30 June 
                                              2015         2014         2015 
                                       (unaudited)  (unaudited)  (unaudited) 
                                           GBP'000      GBP'000      GBP'000 
 ----------------------------------   ------------  -----------  ----------- 
  Profit for the period                      1,102        6,801        8,382 
 -----------------------------------  ------------  -----------  ----------- 
  Adjustments for: 
  Net finance charges/(income)                 765      (1,590)      (1,967) 
  Tax expense/(credit)                         145      (1,066)          811 
  Depreciation on property, 
   plant and equipment                         379        1,147        1,673 
  Amortisation of intangible 
   assets                                      279        1,019          908 
  Amortisation of acquired 
   intangible assets                           240           82        1,323 
  Loss on disposal of subsidiary                 -            -        1,456 
  (Gain)/loss on disposal 
   of property, plant and 
   equipment                                     -          (1)          114 
  Share-based payments expense                 377          129          160 
 -----------------------------------  ------------  -----------  ----------- 
  Operating cash flow before 
   movement in working capital               3,287        6,521       12,860 
 -----------------------------------  ------------  -----------  ----------- 
  (Increase)/decrease in 
   inventories                               (745)          218        (358) 
  Decrease/(increase) in 
   receivables                               1,834        (523)        1,333 
  Decrease in payables and 
   accruals                                (7,693)      (4,232)      (6,329) 
  Decrease in provisions                         -        (108)      (1,451) 
 -----------------------------------  ------------  -----------  ----------- 
  Cash generated from discontinued 
   operations                              (3,317)        1,876        6,055 
  Net interest                               (568)           73        (382) 
  Tax paid                                   (224)        (162)        (394) 
 -----------------------------------  ------------  -----------  ----------- 
  Net cash outflow from operating 
   activities - discontinued 
   operations                              (4,109)        1,787        5,279 
 -----------------------------------  ------------  -----------  ----------- 
 
 
  Cash flows from investing 
   activities 
  Purchase of property, plant 
   and equipment                           (1,226)      (1,596)      (2,443) 
  Purchase and development 
   of intangible assets                      (930)      (1,637)      (3,098) 
  Proceeds from sale of property, 
   plant and equipment                           -            8          990 
  Acquisition of subsidiaries 
   and payment of contingent 
   consideration                             (995)            -            - 
 -----------------------------------  ------------  -----------  ----------- 
  Net cash used in investing 
   activities - discontinued 
   operations                              (3,151)      (3,225)      (4,551) 
 -----------------------------------  ------------  -----------  ----------- 
 
 
 
   9.   Net Cash 
 
                         6 months       6 months 
                            ended          ended   Year ended 
                      31 December    31 December      30 June 
                             2015           2014         2015 
                      (unaudited)    (unaudited)    (audited) 
                          GBP'000        GBP'000      GBP'000 
-----------------   -------------  -------------  ----------- 
 Cash                      11,173         12,060       12,143 
 Bank borrowings         (20,098)              -      (4,357) 
------------------  -------------  -------------  ----------- 
 Net (debt)/cash          (8,925)         12,060        7,786 
------------------  -------------  -------------  ----------- 
 

The total facility available to the Group is GBP39 million (30 June 2014: GBP39 million; 31 December 2014: GBP39 million). The facility expires on 31 October 2019, and all banking covenants were met during the period.

10. Acquisition of Tabernus

On 11 September 2015 the Group completed the acquisition of 100% of the issued share capital of Tabernus LLC and Tabernus Europe Limited for a headline price of $12 million, consisting of consideration of $9.7 million (GBP6.4 million) and debt acquired of $0.3 million (GBP0.2 million), which was funded though the Group's cash reserves. The debt was immediately settled on completion. Deferred consideration of $2 million (GBP1.3 million) is payable three years from acquisition.

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The provisional book value and fair value of the assets acquired and liabilities assumed were as follows:

 
                                      Book     Fair Value       Fair 
                                     Value    adjustments      Value 
                                                 and IFRS 
                                                alignment 
                                   GBP'000        GBP'000    GBP'000 
-------------------------------  ---------  -------------  --------- 
 Intangible assets arising 
  on consolidation                       -          1,548      1,548 
 Property, plant and equipment          30           (30)          - 
 Deferred tax                            -             32         32 
 Overdraft and other short 
  term borrowings                    (175)              -      (175) 
 Trade and other receivables           257           (42)        215 
 Trade and other payables            (163)        (1,677)    (1,840) 
 Net assets acquired                  (51)          (169)      (220) 
 Goodwill                                                      7,544 
-------------------------------  ---------  -------------  --------- 
 Total consideration                                           7,324 
-------------------------------  ---------  -------------  --------- 
 
 Satisfied by: 
 Cash paid                                                     6,390 
 Deferred consideration                                          934 
 Total consideration                                           7,324 
-------------------------------  ---------  -------------  --------- 
 

Cash flow - acquisition of subsidiaries net of cash acquired

Within the consolidated cash flow statement, the cash flow relating to the Tabernus acquisition, net of cash acquired is reconciled per the table below:

 
                                                   GBP'000 
----------------------------------------------    -------- 
 Cash consideration                                  6,390 
 Overdraft acquired                                      4 
 Debt acquired                                         171 
 Net cash flow - acquisition of subsidiaries, 
  net of cash acquired                               6,565 
-----------------------------------------------   -------- 
 

Contingent cash consideration

The acquisition includes an earn-out based to be paid in September 2018. The estimated cash outflow at the time of settlement will be $2 million (GBP1.3 million). A deferred liability of $1.4 million (GBP0.9 million) has been established which represents the fair value at the acquisition date, using a discount rate of 12%. At 31 December 2015, the deferred liability was $1.5 million (GBP1.0 million).

11. Acquisition of SafeIT

During the previous financial year, 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.

The book value and fair value of the assets acquired and liabilities assumed were as follows:

 
                                      Book     Fair Value       Fair 
                                     Value    adjustments      Value 
                                                 and IFRS 
                                                alignment 
                                   GBP'000        GBP'000    GBP'000 
-------------------------------  ---------  -------------  --------- 
 Intangible assets- arising 
  on consolidation                       -            197        197 
 Property, plant and equipment           3            (3)          - 
 Deferred tax                         (11)             18          7 
 Cash                                  153              -        153 
 Trade and other receivables            29           (27)          2 
 Trade and other payables             (55)          (310)      (365) 
 Net assets acquired                   119          (125)        (6) 
 Goodwill                                                      1,410 
-------------------------------  ---------  -------------  --------- 
 Total consideration                                           1,404 
-------------------------------  ---------  -------------  --------- 
 
 Satisfied by: 
 Cash paid in H1 2015                                          1,404 
 Total consideration                                           1,404 
-------------------------------  ---------  -------------  --------- 
 

12. Intangible assets

 
                        Brand   Intellectual       Customer    Development    Software 
                         Name       Property      contracts    expenditure    licences      Total 
                      GBP'000        GBP'000        GBP'000        GBP'000     GBP'000    GBP'000 
===================  ========  =============  =============  =============  ==========  ========= 
 Cost 
 At 1 July 
  2014 (audited)        2,888         11,872         10,960          5,277       4,846     35,843 
 Additions                  -              -              -          3,959         790      4,749 
 On acquisitions            -              -            197              -           -        197 
 Disposals                  -              -              -          (219)     (1,357)    (1,576) 
 Reclassification           -              -              -        (1,141)           -    (1,141) 
 Exchange movement          -              -              -           (66)       (485)      (551) 
===================  ========  =============  =============  =============  ==========  ========= 
 At 30 June 
  2015 (audited)        2,888         11,872         11,157          7,810       3,794     37,521 
 Additions                  -              -              -            946         935      1,881 
 On acquisitions          271            582            695              -           -      1,548 
 Disposals                  -              -              -              -        (20)       (20) 
 Reclassification           -              -              -              -           -          - 
 Exchange movement          -              -              -            167          69        236 
 Reclassification 
  of assets 
  held for sale             -              -        (3,600)        (6,822)     (3,361)   (13,783) 
===================  ========  =============  =============  =============  ==========  ========= 
 At 31 December 
  2015 (unaudited)      3,159         12,454          8,252          2,101       1,417     27,383 
===================  ========  =============  =============  =============  ==========  ========= 
 
 Accumulated 
  amortisation 
 At 1 July 
  2014 (audited)           43            247          2,994          1,453       2,627      7,364 
 Charge for 
  the year                206          1,187            787          1,169       1,103      4,452 
 Disposals                  -              -              -          (407)       (724)    (1,131) 
 Exchange Movement          -              -              -              8       (213)      (205) 
===================  ========  =============  =============  =============  ==========  ========= 
 At 30 June 
  2015 (audited)          249          1,434          3,781          2,223       2,793     10,480 
 Charge for 
  the year                158            616            390            372         516      2,052 
 On acquisitions            -              -              -              -           -          - 
 Disposals                  -              -              -              -           -          - 
 Exchange movement          -              -              -             28          47         75 
 Reclassification 
  of assets 
  held for sale             -              -        (3,092)        (2,293)     (2,600)    (7,985) 
===================  ========  =============  =============  =============  ==========  ========= 
 At 31 December 
  2015 (unaudited)        407          2,050          1,079            330         756      4,622 
===================  ========  =============  =============  =============  ==========  ========= 
 
 Net book value 
  at 31 December 
  2015 (unaudited)      2,752         10,404          7,173          1,771         661     22,761 
===================  ========  =============  =============  =============  ==========  ========= 
 
 Net Book value 
  at 30 June 
  2015 (audited)        2,639         10,438          7,376          5,587       1,001     27,041 
 Net book value 
  at 30 June 
  2014 (audited)        2,845         11,625          7,966          3,824       2,219     28,479 
===================  ========  =============  =============  =============  ==========  ========= 
 

13. Property, plant and equipment

 
                                                                                 Fixtures 
                          Leasehold            Plant     Computer       Motor         and 
                       improvements    and machinery    equipment    vehicles    fittings      Total 
                            GBP'000          GBP'000      GBP'000     GBP'000     GBP'000    GBP'000 
===================  ==============  ===============  ===========  ==========  ==========  ========= 
 Cost 
 At 1 July 2014 
  (audited)                   4,862            9,341        6,529         107       3,295     24,134 
 Additions                      588              364          752           -         884      2,588 
 Disposals                    (621)          (1,864)      (1,741)        (15)       (210)    (4,451) 
 Reclassification                 -            1,141            -           -           -      1,141 
 Exchange movement            (425)            (509)        (310)         (5)       (255)    (1,504) 
===================  ==============  ===============  ===========  ==========  ==========  ========= 
 At 30 June 2015 
  (audited)                   4,404            8,473        5,230          87       3,714     21,908 

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 Additions                      267              337          337           1         376      1,318 
 Disposals                     (21)            (139)         (89)           -        (28)      (277) 
 Exchange movement               34               12           41         (3)          60        144 
 Reclassification 
  of assets held 
  for sale                  (4,449)          (8,683)      (5,392)        (85)     (3,824)   (22,433) 
===================  ==============  ===============  ===========  ==========  ==========  ========= 
 At 31 December 
  2015 (unaudited)              235                -          127           -         298        660 
===================  ==============  ===============  ===========  ==========  ==========  ========= 
 
 Accumulated 
  depreciation 
 At 1 July 2014 
  (audited)                   2,936            7,772        5,476          45       2,564     18,793 
 Charge for the 
  year                          461              146          663          17         415      1,702 
 Disposals                    (584)          (1,413)      (1,718)         (9)       (153)    (3,877) 
 Exchange movement            (250)            (400)        (238)         (5)       (172)    (1,065) 
===================  ==============  ===============  ===========  ==========  ==========  ========= 
 At 30 June 2015 
  (audited)                   2,563            6,105        4,183          48       2,654     15,553 
 Charge for the 
  year                          131               48          145           -         122        446 
 Disposals                        -            (128)         (81)           -        (13)      (222) 
 Exchange movement                8               21           27         (3)          28         81 
 Reclassification 
  of assets held 
  for sale                  (2,534)          (6,046)      (4,162)        (45)     (2,709)   (15,496) 
===================  ==============  ===============  ===========  ==========  ==========  ========= 
 At 31 December 
  2015 (unaudited)              168                -          112           -          82        362 
===================  ==============  ===============  ===========  ==========  ==========  ========= 
 
 
 Net book value 
  at 31 December 
  2015 (unaudited)               67                -           15           -         216        298 
===================  ==============  ===============  ===========  ==========  ==========  ========= 
 
 Net book value 
  at 30 June 2015 
  (audited)                   1,841            2,368        1,047          39       1,060      6,355 
 Net book value 
  at 30 June 2014 
  (audited)                   1,926            1,569        1,053          62         731      5,341 
===================  ==============  ===============  ===========  ==========  ==========  ========= 
 

14. Investments

The Group's subsidiary undertakings and investments for continuing operations are as follows:

 
                                                      Ownership 
                                                     percentage 
                                                         by the 
                                                          Group 
                                                          as at 
                            Principal activity      31 December       Country of 
 Company name                of the company                2015    incorporation 
=========================  =====================  =============  =============== 
 Held directly by the Company 
 
 Blancco Technology         Holding Company                100%      England and 
  Group Ltd                                                                Wales 
 Regenersis Central         Holding Company                100%      England and 
  Services Ltd                                                             Wales 
 Regenersis (IG)            Holding Company                100%      England and 
  Ltd                                                                      Wales 
 Regenersis Mobile          Dormant                        100%      England and 
  Diagnostics Ltd                                                          Wales 
 Regenersis Refurbishment   Dormant                        100%      England and 
  LLP                                                                      Wales 
 Regenersis (Sweden)        Holding Company                 50%      England and 
  Ltd                                                                      Wales 
 Regenersis TrustSub        Trustee for the                100%      England and 
  Ltd                        Regenersis Employee                           Wales 
                             Benefit Trust 
 Regenersis Trustees        Trustee for the                100%      England and 
  Ltd                        Regenersis Employee                           Wales 
                             Benefit Trust 
 
 Held indirectly 
  by the company 
 Regenersis Distribution    Non-trading entity             100%      England and 
  Ltd                                                                      Wales 
 Regenersis Finance         Holding Company                100%      England and 
  Ltd                                                                      Wales 
 Regenersis Finland         Holding Company                100%          Finland 
  Acquisitions Oy 
 Regenersis Finland         Holding Company                100%          Finland 
  Oy 
 Xcaliber Infotech          Mobile diagnostics              15%            India 
  Private Ltd 
 Regenersis Cooperatife     Holding Company                100%      Netherlands 
  WA 
 Regenersis Finance         Holding Company                100%      Netherlands 
  BV 
 Regenersis Finance         Holding Company                100%      Netherlands 
  US BV 
 Regenersis (Software)      Holding Company                100%      Netherlands 
  Netherlands BV 
 Regenersis Mobile          Holding Company                100%    United States 
  Diagnostics Inc                                                     of America 
 Regenersis (Software)      Holding Company                100%    United States 
  Services US Inc                                                     of America 
 Regenersis (Software)      Holding Company                100%    United States 
  Services US LLC                                                     of America 
 Xcaliber Technologies      Mobile diagnostics              49%    United States 
  LLC                                                                 of America 
 Xcaliber IP LLC            Mobile diagnostics              49%    United States 
                                                                      of America 
 Blancco Oy Ltd*            Data erasure                   100%          Finland 
 Blancco UK Ltd             Data erasure                   100%      England and 
                                                                           Wales 
 Blancco Italy SRL          Data erasure                   100%            Italy 
 Blancco France             Data erasure                    51%           France 
  SAS* 
 Software Blancco           Data erasure                    51%           Mexico 
  S.A. de C.V. Mx* 
 Blancco US LLC             Data erasure                   100%    United States 
                                                                      of America 
 Blancco Central            Data erasure                   100%          Germany 
  Europe GmbH* 
 Blancco Canada             Data erasure                    50%           Canada 
  Inc 
 Blancco SEA Sdn            Data erasure                   100%         Malaysia 
  Bhd 
 Blancco Australasia        Data erasure                   100%        Australia 
  Pty Ltd 
 Blancco Japan Inc*         Data erasure                    51%            Japan 
 Blancco Sweden             Data erasure                   100%           Sweden 
  SFO* 
 SafeIT Security            Data erasure                   100%           Sweden 
  Sweden AB* 
 Tabernus LLC               Data erasure                   100%    United States 
                                                                      of America 
 Tabernus Europe            Data erasure                   100%      England and 
  Limited                                                                  Wales 
 

*Year end date is 31 December

All investments are in the ordinary share capital of the subsidiaries. Xcaliber Infotech Private Ltd, Xcaliber Technologies LLC and Xcaliber IP LLC are associates and are not consolidated.

All other subsidiaries are included in the consolidated results of the Group.

A reconciliation of total investments is as follows:

 
                                                        Total        Total 
======================================== 
                                                     6 months   Year ended 
                                                        to 31      30 June 
                                                     December         2015 
                                                         2015 
                                                  (unaudited)    (audited) 
======================================== 
                                                      GBP'000      GBP'000 
========================================  ====  =============  =========== 
 At beginning of period                                 1,850           10 
 Transfer of carrying value on recognition 
  of significant influence                                  -          684 
 Acquisition of investment                                  -        1,912 
 Disposal of investment                                     -         (10) 
 Retained loss                                           (46)        (746) 
 At end of period                                       1,804        1,850 
----------------------------------------------  -------------  ----------- 
 

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The investment at 31 December 2015 relates to Xcaliber Technologies LLC in which the Group owns a 49% stake.

The Group's investments are presented in the following captions on the balance sheet.

 
                                                6 months 
                                                   to 31   Year Ended 
                                                December      30 June 
                                                    2015         2015 
                                             (unaudited)    (audited) 
                                                 GBP'000      GBP'000 
===================  =======  ======  ===  =============  =========== 
 Equity accounted investments                      1,804        1,850 
 Other investments                                    61           61 
 Total                                             1,865        1,911 
=========================================  =============  =========== 
 

15. Contingent consideration

 
                                             HDM   Blancco    Tabernus 
                              Digicomp              Sweden                 Total 
                               GBP'000   GBP'000   GBP'000     GBP'000   GBP'000 
--------------------------   ---------  --------  --------  ----------  -------- 
 At 1 July 2015 (audited)        2,823       995     1,910           -     5,728 
 Created on acquisition              -         -         -         934       934 
 Unwinding of discount 
  factor on contingent 
  consideration                    197         -       120          28       345 
 Payment of contingent 
  consideration                      -     (995)         -           -     (995) 
---------------------------  ---------  --------  --------  ----------  -------- 
 At 31 December 2015 
  (unaudited)                    3,020         -     2,030         962     6,012 
---------------------------  ---------  --------  --------  ----------  -------- 
 

Of the contingent consideration payable, the amounts relating to Blancco Sweden and Tabernus are classed as continuing.

Of the amount relating to Blancco Sweden, GBP0.8 million of this is payable within one year and is therefore categorised as current.

16. Subsequent events

Sale of Regenersis (Depot Services) Limited

On 5 February 2016, Regenersis entered into a conditional sale and purchase agreement to dispose of its Aftermarket Services business (excluding Digital Care) to CTDI Repair Services Limited, a wholly owned subsidiary of Communications Test Design, Inc., for a cash consideration of EUR103.5 million.

The disposal is expected to complete during the second quarter of the calendar year

17. Cautionary statement

This document contains certain forward-looking statements with respect of the financial condition, results, operations and businesses of Regenersis plc. These statements and forecasts involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future. There are a number of factors that could cause the actual result or developments to differ materially from those expressed or implied by these forward looking statements and forecasts. Nothing in this document should be construed as a profit forecast.

18. Copies of the interim report

Further copies of the interim report are available from the registered office, 190 High Street, Tonbridge, Kent, TN9 1BE, or on the Company's website - www.regenersis.com.

19. Adoption of Financial Reporting Standard 101 (FRS 101)

A new UK GAAP accounting framework introduced by the Financial Reporting Council (FRC) became mandatorily effective for the financial statements of UK companies with accounting periods commencing on or after 1 January 2015. Under this new framework, the Company is required to elect to prepare its parent company financial statements on one of the bases permitted by the FRC.

The Board considers that it is in the best interests of the Group for the Company to adopt FRS 101 Reduced Disclosure Framework for its parent company financial statements for the year ended 30 June 2016, which will be included in the Group's Annual Report and Accounts. As a result of taking the possible disclosure exemptions permitted under FRS 101, disclosures are expected to be the same as, or follow closely, those reported under current UK GAAP.

Although the decision does not require formal shareholder approval, the Company is required to notify all shareholders and any shareholder or shareholders holding in aggregate 5% or more of the total allotted shares in the Company may object. Objections must be served on the Company in writing and delivered to the Company Secretary at the Company's registered office (190 High Street, Tonbridge, Kent, TN9 1BE) not later than 22 April 2016.

The consolidated financial statements of the Group will continue to be prepared in accordance with EU-adopted International Financial Accounting Standards (IFRS) and are unaffected by this new accounting framework.

Glossary

Adjusted Earnings Per Share: Adjusted earnings are stated before amortisation or impairment of acquired intangible assets and development costs capitalised, amortisation of bank fees, exceptional restructuring costs, acquisition costs, share-based payments, losses on disposals of investments and jointly controlled entities, unwinding of the discounted contingent consideration, adjustments to estimates of contingent consideration, and tax impacts of the above. 'Adjusted earnings per share' is the key earnings per share measure used by the Board.

Aftermarket Services (segment): Contains the Group's previous Depot Solutions and Advanced Solutions segments. This segment is available for sale (with an agreement to sell the Repair Services business having been reached on 5 February 2016 and continued marketing of the Digital Care business), and has been presented as a discontinued operation in these accounts.

APAC: The Asia Pacific region.

Basic Earnings Per Share: Profit after tax attributable to the equity holders of the Company, stated per share.

Capital Expenditure: Expenditure on property, plant and equipment, intangible assets, and capitalised R&D.

Contingent Consideration: A future cash payment for vendors of acquired companies, contingent on that company's performance in a pre-determined period after acquisition. This is recorded within the balance sheet and reassessed at each reporting period.

Corporate Costs: Costs incurred centrally for the benefit of the Group as a whole and which cannot be allocated to specific Divisions or subsidiaries.

Digital Care: Part of the Aftermarket Services segment (but not the Repair Services Business) which operates in the mobile phone insurance market.

Diluted Adjusted Earnings Per Share: Adjusted earnings per share stated after adjustments to the number of shares for convertible share options.

Diluted Earnings Per Share: Basic earnings per share stated after adjustments to the number of shares for convertible share options.

Earn-out: See 'Contingent Consideration'.

Forward Contracts (currency hedging): A mechanism for fixing the future exchange rates for known and committed cash flows in order to mitigate the exposure of the Group to movements on exchange rates for these cash flows.

Gross Debt: The total external borrowings of the Group, net of capitalised bank fees.

Headline Cash Conversion: Headline Operating Cash Flow stated as a percentage of Headline Operating Profit.

Headline Operating Cash Flow or HOCF: Operating cash flow excluding taxation, interest payments and receipts, acquisition costs, and exceptional restructuring costs. This measure excludes capital expenditure. This is the key operating cash flow measure used by the Board to assess the underlying cash flow of the Group.

Headline Operating Margin: Headline Operating Profit stated as a percentage of revenue.

Headline Operating Profit or HOP: Operating Profit 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 business), 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)

Live Environment (data erasure): Data erasure within active computer applications, including servers and networks of computers. The main application is for data that has expired on systems or where unnecessary duplication of data exists, and to provide selective erasure of that data.

M&A: Mergers and acquisitions. This is the Group's activity in acquisitions of other companies, both to full and part ownership.

Net Cash/Debt: Cash stated after offsetting gross debt against cash reserves.

Non-controlling interest: Regenersis does not fully own some of its subsidiaries, and for those in which the ownership is shared, the other party is the 'non-controlling interest'. This is relevant for all subsidiaries in which Regenersis owns (directly or indirectly) between 50% and 99% of the share capital; in the current and prior period these are only some Blancco sales offices. At the end of each reporting period, the Group must allocate the non-controlling interest its share of profits and net assets in the subsidiary in which ownership is shared, which are recorded through the Consolidated Income Statement and Consolidated Balance Sheet respectively.

OEM: An 'Original Equipment Manufacturer'.

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