BLTG.L Regulatory News (BLTG)

25 September 2012

Final results for the year ended 30 June 2012

Regenersis plc (AIM: "RGS") ("Regenersis" or the "Group"), a strategic outsourcing partner to many of the world's leading consumer technology companies, is pleased to announce its final results for the year ended 30 June 2012, which show a strong financial performance and the growth strategy, implemented by the new Board, working well.

Financial Highlights

M&A Highlights

Operational Highlights

Outlook

Matthew Peacock, Executive Chairman of Regenersis, said: "Our plan, to deliver double digit sales growthon steadily improving operating profit margins, concentrating on Emerging Markets, Advanced Solutions and niche product areas, is firmly underway. In the past nine months, we have extended the Group's operations into Spain, Mexico, Argentina, Sweden and the USA. Regenersis now has 22 sites in 12 countries. The opportunity exists for us to build a sizeable, multinational provider of aftermarket services and technology to global technology clients and it is our aim to do so."

(*) Headline operating profit excludes exceptional restructuring costs, amortisation and impairment of acquired intangible assets and share-based payments.

Enquiries:

About Regenersis

With its core business in repairing consumer electronics, Regenersis helps companies like HTC, Nokia, Samsung, Orange, John Lewis, LG, Toshiba and others deliver the best possible after market service to its customers. Through the provision of technical call centres or managing returns and repairs, the company supports a wide range of products including mobile phones, laptops and tablets, set top boxes, televisions and other electronic equipment. Regenersis also operates in the business-to-business environment where it offers high quality and secure repair and refurbishment solutions for chip and pin devices, ATMs and even MRI scanners.

Building upon its success in repair, the company is already proving its pioneering range of services known as Advanced Solutions, which include in-field testing, where Regenersis is partnering with cable operators across the world to diagnose set-top box faults in the home, reducing unnecessary returns. The Company has also recently set up a Digital Care division, which provides extended warranty and insurance services to end customers; and Recommerce, which offers client led buy back, refurbishment and onward resale of devices.

Chairman's Statement

The opportunity exists for us to build a sizeable multinational provider of aftermarket services and technology to global technology clients. Our aim is to do so. This first full year of results during my tenure as Chairman has delivered not only a year of solid growth, under the new strategy introduced in June 2011, but also the first steps in delivering this vision. I would like to thank all of our employees and customers for their part in making this year a success. Our revenue increased by 13% to £139.9 million and headline operating profit improved by 24% to £7.8 million. We have continued to deliver on what we set out to do - double-digit revenue growth on steadily improving profit margins.

Cash flow management, during the course of the year, improved with operating cash flow of £4.9 million (2011: £2.4million). Net debt at the year-end was just £2.9 million (2011: £3.8 million).

This performance has been delivered against a challenging backdrop of change in our sector, with some of our largest clients suffering well-publicised and very material volume declines. In response we have rebalanced, organically and by acquisition, towards faster-growing clients, geographies and service lines. I am particularly pleased that we have entered Mexico and the USA and that we have organically grown new Advanced Solutions offerings in Digital Care and Recommerce.

A year into the new strategy and with the initial turnaround activities behind us, we have a stronger business; well placed in its market with an outstanding management team, of which I am proud. We have continued to invest to support future growth. We have absorbed the costs of organic market entry to Turkey and South Africa. We have made important personnel changes, additions and improvements, including: our new Non-executive director, Kevin Bradshaw; new CFO, Jog Dhody; as well as externally-hired teams dedicated to Recommerce and Digital Care; and new sales directors in the USA, Turkey, South Africa and Poland.

The acquisition of HDM is, I believe, an outstanding deal for the Group. HDM brings a talented team and an operation with an industry reputation for excellence. It takes us directly into new Emerging Markets in Mexico and Argentina and opens other Latin American avenues from a perspective of clients, language, and culture. Spain is a key European market, home to Telefonica, and also brings to Regenersis a large boost in its presence with Samsung. I would like to welcome, again, all of our new colleagues.

As a result of these actions, we now have a footprint of 22 sites, in 12 countries across three continents. Seven of these countries were opened or acquired since the new Board took over in March 2011. We have nine well-defined product and service offerings with clear teams and owners, of which four have been developed in this period. This matrix of geographies and products matters enormously because (1) it is how we leverage and build on our strengths, assets and relationships and (2) it is how we translate our strategy for growth in Emerging Markets and Advanced Solutions into action on the ground. We currently offer products and services to approximately 25 percent of the total universe of opportunities available to us, offering clear and present opportunities for growth.

Emerging Markets

Overall, revenue declined marginally to £41 million. Headline operating profit also reduced marginally to £4.6 million. These results reflect the negative impact of declines in sales of new devices by some of our large mobile clients in Poland and Romania, the Group's relatively lower exposure in the period to fast-growing brands such as Samsung and Apple and start up investment in South Africa. The Group has, however, made significant progress in rebalancing this mix during the year.

The new territories opened in 2010/11, Turkey and South Africa, have shown very good progress over their first year of operation. We continue to focus on both organic and acquisitive routes into new markets. The recent acquisition of the HDM business will also give access to Mexico and Argentina.

Western Europe

Western Europe comprised principally UK and Germany, although Sweden was brought into the segment during the year. Spain will be part of the segment in the next year. Overall revenue increased 26% to £80 million due mainly to growth from new contract wins in the UK and Germany. Headline operating profit grew by 38% to £2.1 million, reflecting restructuring and cost reductions in the UK operations.

Advanced Solutions

Advanced Solutions included our innovative services in set top box repair and repair avoidance, as well as technically driven solutions in other markets. Overall revenue increased 8% to £19 million. Headline operating profit grew by 20% to £2.9 million. Again, we are pursuing both organic and acquisitive routes to expand our business in this area.

During the year, a significant contract for the supply of the in field testing product was signed by Virgin Media. This will include a phased roll out of these units to their field engineers. Since the year end, our technology has been successfully piloted by a large US cable TV company and I am very pleased to report that a roll-out agreement has now been secured. We have also expanded our range of service offerings to include:

The Board continues to focus on realising the strategy and on achieving operational excellence consistently across the whole Group. The strategy requires us to build on our existing presence, especially in Emerging Markets and in Advanced Solutions, areas in which superior opportunities for shareholder value creation are achievable. The strategy also emphasises building strong niche positions, which tend to have superior margin characteristics. It is noteworthy that profits from this area now equate to 30% of the Group's profits, before corporate costs.

Acquisition of Anovo Nordic

On 23 January 2012, we purchased a 50% share in Anovo Nordic, which was renamed Regenersis Nordic AB. This business has a good market share in mobile repair in Sweden and gives us an entry point into the Nordic market.

Acquisition of HDM

On 31 August 2012, we completed the acquisition of HDM which has operations in Spain, Mexico and Argentina. Its results will be consolidated in the coming year from 1 September 2012.

Banking Facilities

During the year, we extended our banking facilities from £15 million to £23.25 million for the period to October 2015, providing significant funding to undertake further investment and M&A activity.

Dividend

In line with the Board's policy to recommence paying a dividend to shareholders, the Board is recommending a final dividend of 1.1 pence per ordinary share to be paid on 5 December 2012 to shareholders on the register on 9 November 2012. Based on the Board's anticipated dividend split of one third interim dividend and two thirds final dividend, this implies a full year dividend equivalent of 1.65 pence per ordinary share.

Current trading and outlook

In the period since the year end, current trading has been in line with the market's expectations and is trending well. We remain optimistic about the 'opportunity set' presented to us and are seeing unusually good global acquisition opportunities, as the market consolidates around clients' geographic needs, and substantial organic opportunities, as our service portfolio improves and we follow key clients into new geographies.

Our markets and specific client contracts continue to show growth and present regular opportunities to win significant new business. The Board continues to target double digit revenue growth on steadily improving operating profit margins and, given good return on capital employed, expects to continue its R&D and capital expenditure programme.

Matthew Peacock

25 September 2012

Business and Financial Review

Results

The financial performance of the business showed significant forward momentum with revenue of £139.9 million (2011: £123.8 million, growth 13%), headline operating profit of £7.8 million (2011: £6.3 million, growth 24%), a headline operating profit margin of 5.5% (2011: 5.1%), and significant improvement in operating cash flow of £4.9 million (2011: £2.4 million), leading to a reduction in net debt at June 2012 to £2.9 million (2011: £3.8 million). Group operating profit increased 270% to £2.1 million (2011: £0.6 million).

The most significant factor was the growth in revenue and profits in Advanced Solutions and Western Europe, along with cost reductions in Western Europe and corporate costs.

Reporting segments

Emerging Markets

Emerging Markets includes Poland, Romania, Russia (a 50% joint venture), South Africa and Turkey. Following the acquisition of HDM in August 2012, this segment also includes Mexico and Argentina.

Overall revenue declined marginally to £41 million. Headline operating profit also reduced to £4.6 million, due to a decline in sales of new mobile devices by some of our large mobile clients and start up investment incurred in the new South African operation. Financial and operational highlights included:

Overall in the year, the Group consolidated its position and made considerable progress in its strategy to enter new emerging markets and develop existing ones, against a backdrop of reduced volumes (but not market shares) with certain large clients.

Western Europe

Western Europe comprises the businesses in the UK; (excluding Advanced Solutions) at Glasgow, Huntingdon and Normanton, in Germany; Schloss Holte and Sommerda and in Sweden (a 50% joint venture). Following the acquisition of HDM in August 2012, this will also include Spain.

Overall revenue increased 26% to £80 million. Headline operating profit grew by 40% to £2.1 million; this was mainly due to growth from new contract wins and cost reductions in the UK operations following the completion of restructuring activities. Financial and operational highlights included:

There was significant progress during the year in developing the strategy of focus on niche product areas, where Regenersis has or can build a high market share with specific clients, brands and device types. This is reflected in the strong performance in Germany and in securing our first contracts in other geographies.

Advanced Solutions

The Advanced Solutions segment has historically been centred on our business serving set top box and televisions, based in Glenrothes in Scotland. During the year we have expanded our services in this division to include a number of new product offerings and locations as well as growing the business in Glenrothes.

Overall revenue increased 7% to £18.8 million. Headline operating profit grew by 21% to £2.9 million. Financial and operational highlights included:

Overall, the year has shown growth in our existing Advanced Solutions propositions in terms of client wins and new geographies and development of new propositions to broaden and accelerate growth in the current year.

Client development

We continue to develop long term partnerships with our key customers and improve our internal commercial disciplines in contract life cycle management.

We have continued to grow and develop our global sales team responsible for providing an integrated approach to large multi-national clients and prospects, which often have activities cutting across the traditional device distinctions (mobile phones, notebook computers, televisions, etc).

We have had considerable success rolling existing relationships into other territories including, with HTC from the UK into South Africa and Russia, Wincor from Germany into Russia, Intermec from Germany into Glenrothes and Russia.

In the year to June 2012 the largest client accounted for 14% of the Group's revenue and the top 10 clients represent 67% of Group revenue. Within most of the largest clients the business is built up from multiple contracts for different geographies and/or types of work with different durations.

Acquisition of Anovo Nordic

In January 2012 we purchased a 50% share in Anovo Nordic for a consideration of €0.25 million, which was renamed Regenersis Nordic AB. The other 50%, which the Group has an option to acquire in the future, is owned by the local management. This business has a good market share in mobile repair in Sweden. The business required substantial restructuring, which commenced in June 2012.

Acquisition of HDM

On 25 July 2012 we agreed to acquire the trade and assets of the HDM Group of Companies ("HDM") for an initial consideration of €6.5 million on a cash- and debt-free basis. Completion took place on 31 August 2012.

The key highlights of the acquisition were:

Exceptional restructuring and deal costs

This year brings to an end the substantial restructuring of the UK business. This restructuring recognises the more efficient processes we now follow as a Group and the consolidation of our activities in key areas and markets. This restructuring has led to an exceptional provision for onerous leases and people costs at the 2012 year-end of £4.4 million.

There were also one off deal costs from an unsuccessful acquisition of £0.5 million.

Amortisation of intangible assets

Other costs excluded from headline operating profit were the ongoing amortisation of acquired intangible assets amounting to £0.2 million (2011: £0.5 million).

Share based payments

Other costs excluded from headline operating profit were share-based payments amounting to £0.3 million (2011: £0.1 million). This has increased principally due to the Incentive Share Scheme established in late 2011.

Net financing charges

During the year the Group increased its loan facility from £15 million to £23.25million with HSBC. The facility runs until October 2015. The one-off costs of arranging this facility totalled £0.2 million and are amortised over the expected loan facility period. Aside from this, net financing charges were £0.4 million (2011: £0.3 million).

Taxation

The total tax charge was £0.3 million (2011: £1.0 million). The Group has a permanent benefit from being in territories where the local taxation rates are lower than the UK rate, for example Poland (19%) and Romania (16%). The blended corporation tax rate for the Group is 15%.

Earnings per share

Adjusted earnings per share increased to 13.85 pence (2011: 12.26 pence). The basic earnings per share is 3.33 pence (2011: loss of 1.85 pence).

Exchange rates

During the year, although currencies in the overseas economies where we have a presence (notably Germany, Poland and Romania) have weakened relative to Sterling, this did not materially alter the Group's reported profit result.

The cumulative effect of exchange rate movements on the Group's net assets is reflected in the Consolidated Statement of Comprehensive Income.

Cash flow

Cash flow from operating activities was improved with a net inflow of £4.9 million (2011: £2.4 million).

Our conversion of profits into cash has improved, with continued focus on working capital management. Working capital has increased by £1.7 million, which is in line with revenue growth. Debtor days are broadly in line with the prior year at 42 days (2011: 41 days).

Tax paid was £0.8 million as the Group again benefited from losses brought forward and research and development expenditure tax credits.

Interest paid was £0.1 million (2011: £0.3 million) and is lower than the prior year due to improved cash management.

Capital expenditure and investment in R&D was increased to £3.3 million (2011: £2.2 million) overall. Expenditure on tangible assets, primarily comprising new buildings and equipment for our new South African and Polish operations, was £2.2 million (2011: £1.2 million). Following further investment in automation and in field testing technology, expenditure on intangible assets was broadly unchanged at £1.1 million (2011: £1.0 million).

Financial position

The Group has strong financial metrics with interest cover of 22 times (2011: 26 times) and a net debt to EBITDA ratio of 0.3 (2011: 0.5).

Financing

At 30 June 2012 net debt was £2.9 million, a significant improvement on the prior year (2011: £3.8 million).

Year end net debt comprised gross borrowings of £6.0 million, all in Sterling (2011: £7.0 million), cash and cash equivalents of £2.7 million (2011: £2.9 million) and the deferred loan facility arrangement costs of £0.4 million (2011: £0.3 million)

The Group increased its banking facilities to £23.25 million during the year and has ample headroom to fund investment and M&A activity in 2012/13 and beyond.

All banking covenants have been passed and show significant headroom for the foreseeable future.

Key performance indicators

The Group has a range of performance indicators, both financial and non-financial, to monitor and manage the business. These are set at the individual customer level and for business units as well as for the Group as a whole. The Group's key performance indicators ("KPIs") are headline operating profit, headline operating margin and net debt. These measures are used continually to manage the business, improve performance and compare results against targets.

Risks and uncertainties

Throughout its international operations, Regenersis faces various risks, both internal and external, which could have a material impact on the Group's long-term performance. Regenersis manages the risks inherent in its operations in order to mitigate exposure to all forms of risk, where practical. The Board has identified several specific risks and uncertainties that potentially impact the ongoing business including:

Cautionary statement

This review has been prepared solely to provide additional information to shareholders to assess the Group's strategy and the potential of that strategy to succeed and should not be relied upon by any other party or for any other purpose. It contains certain forward-looking statements with respect to 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 upon the circumstances that may occur in the future.

There are a number of factors that could cause actual results or developments to differ materially from those expressed or implied by these forward-looking statements and forecasts. Nothing in this review should be construed as a profit forecast.

Matthew Peacock

Executive Chairman

Jog Dhody

Chief Financial Officer

25 September 2012

Consolidated Income Statement

for the year ended 30 June 2012

Consolidated Statement of Comprehensive Income

for the year ended 30 June 2012

Consolidated Balance Sheet

as at 30 June 2012

The financial statements were approved by the Board of Directors and authorised for issue on 25 September 2012.

They were signed on its behalf by:

Company number: 05113820

Consolidated Statement of Changes to Equity

for the year ended 30 June 2012

Consolidated Cash Flow Statement

for the year ended 30 June 2012

Notes to the Accounts

The audited consolidated financial statements of Regenersis plc for the year ended 30 June 2012 have been prepared in accordance with International Financial Reporting Standards ('IFRS') as adopted by the European Union and as applied in accordance with the provisions of the Companies Act 2006.

The preliminary statement of results was approved by the Board on 25 September 2012. The preliminary statement is derived from but does not represent the full Group statutory financial statements of Regenersis plc and its subsidiaries which will be delivered to the Registrar of Companies in due course. The financial information for the year ended 30 June 2011 has been extracted from the Annual Report and Financial Statements, as filed with the Registrar of Companies. The current auditor, KPMG Audit Plc, has reported on the year ended 30 June 2012 and the year ended 30 June 2011. Their reports were (i) unqualified, (ii) did not include reference to any matters to which the auditor drew attention by way of emphasis without qualifying their reports and (iii) did not contain certain statements under section 498(2) and (3) of the Companies Act 2006.

Internal reporting uses three reporting segments - Emerging Markets, Western Europe and Advanced Solutions which reflect the way the business is managed and reviewed. Emerging Markets include the existing operations in Poland, Romania, Turkey and South Africa; Western Europe incorporate UK (excluding Glenrothes), and German businesses whilst Advanced Solutions aggregate the Group's businesses promoting techniques in remote diagnostics, automation, mitigation and avoidance.

The Group continues to deliver world class services to its customers in the fields of service and repair of smart phones and other consumer electronic devices, coupled with associated services including customer call centres, warranty management and insurance replacement programmes.

Within Emerging Markets and Western Europe, there are three customers who individually account for more than 10% of Group's revenue and had total revenues of: £18,533,000; £19,949,000 and £19,417,000 (2011: £19,984,000; £6,687,000 and £10,335,000 respectively). These are significant in the context of the Group although we contract under several service agreements.

Geographical information

The following geographical information is based on the location of the business units of the Group:

During the year substantial restructuring costs including provisions for onerous property leases and redundancy costs have been incurred in UK. This completes the review undertaken by the Directors to consolidate key activities and markets, and recognises the more efficient processes now followed.

The Group had an unsuccessful acquisition within the year, and has expensed all the related costs.

In the prior year, the Group disposed of its 75% interest in Regenersis Environmental Services Europe Limited (which had net liabilities) for nominal consideration, thus realising a profit of £335,000.

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

Key management personnel have been identified as the Board and the Group Operations Board. Remuneration of key management personnel is as follows:

UK Corporation tax is calculated at 25.5% (2011: 27.5%) of the estimated assessable profit for the year. Taxation for other jurisdictions is calculated at the rates prevailing in the respective jurisdictions.

The Group's total income tax charge for the year can be reconciled to the profit per the Consolidated Income Statement as follows:

Factors that may affect future current and total tax charges

The 2012 budget on 21 March 2012 announced that the UK corporation tax rate will reduce to 22% by 2014. A reduction in the rate from 26% to 25% (effective from 1 April 2012) was substantively enacted on 5 July 2011, and further reductions to 24% (effective from 1 April 2012 and 23% (effective from April 2013) were substantively enacted on 26 March 2012 and 3 July 2012 respectively.

This will reduce the Group's future current tax charge accordingly and further reduce the deferred tax assets and liabilities recognised, which have been based on a tax rate of 24%, as this was substantively enacted at the balance sheet date.

The Group's future tax charge is dependent on several factors which does not make it possible to quantify the full anticipated effect. Factors expected to effect the tax charge going forward include: the extent to which the UK carries out development work which qualifies for R&D tax credits; income assigned to the 10% patent box regime (effective from 1 April 2013); the proportion of profits earned in higher or lower tax jurisdictions; and the ability to use tax losses.

The options granted under the Incentive Share Plan are not dilutive as at 30 June 2012 therefore are excluded from the diluted EPS calculation.

The bank borrowing is secured on the majority of the Group's assets for the duration of the facility. The facility available to the Group as at 30 June 2012 totalled £23.25 million (2011: £15 million), of which £6.0 million (2011: £7.0 million) had been drawn down in cash, resulting in an unutilised facility of £17.25 million (2011: £8.0 million). The Group negotiated a borrowing facility of £15 million in the previous year as part of the operational and strategic review. On 31 January 2012, the facility was increased to £23.25 million to support the future acquisition activity of the Group. The facility expires on 31 October 2015, and borrowing costs of £396,000 (2011: £300,000) are set-off against the amount owing at year end. The amendment to the facility is not considered a substantial modification of terms and as such the incremental arrangement costs have been capitalised against the borrowing balance.