BLTG.L Regulatory News (BLTG)

28 September 2021

Blancco Technology Group plc

Final results for the year ended 30 June 2021

Strong financial performance with H2 revenue up 19% year-on-year. Increased opportunities in a post Covid environment.

Blancco Technology Group plc (AIM: BLTG, "Blancco", the "Company" or the "Group"), the industry standard in data erasure and mobile device diagnostics, is pleased to announce its audited final results for the year ended 30 June 2021.

Matt Jones, Chief Executive said:

"The second half of the financial year saw a period of particularly pleasing growth with revenue growing 19% in the six month period, despite significant FX headwinds. Adjusted operating margins grew strongly to 15% (FY 2020: 12%), bolstered by the temporary reduction in operating expenses, primarily the noticeable reduction in expenditure on travel due to Covid."

"I joined Blancco three years ago as part of a new management team, with the objective of refocussing our strategy in order to take advantage of the strong fundamentals within our business. Over these past three years we have seen revenue grow by over a third from £26.9m to £36.5m, despite the challenges of a global pandemic during that period. Looking ahead, we continue to believe that increasing data privacy regulations, alongside pressures on companies and governments to conduct business in an environmentally friendly manner, will continue to drive revenue growth as we further build Blancco's scale and reputation."

"We are confident, looking forward, that we can continue to deliver value for our shareholders in the coming periods."

FINANCIAL HIGHLIGHTS

· Strong revenue growth, particularly in Enterprise, in the second half of the year saw overall revenue grow by 9% to £36.5m (constant exchange rates ('CER') +12%):

o Enterprise revenue increased by 21% (CER +24%) to £14.1 million (FY 2020: £11.7 million)

o Mobile revenue marginally higher than prior period (CER +4%) at £10.9 million (FY 2020: £10.8 million)

o IT Asset Disposition ("ITAD") revenue increased by 6% (CER +7%) to £11.5 million (FY 2020: £10.9 million)

· Good growth in each of the three geographies:

o North America revenue increased by 11% (CER +18%) to £11.2 million (FY 2020: £10.1 million), with a particularly strong bounce back of 49% in the second half

o APAC revenue increased by 10% (CER +14%) to £11.9 million (FY 2020: £10.8 million)

o EMEA revenue increased by 7% (CER +6%) to £13.4 million (FY 2020: £12.5 million)

· Net cash balance of £10.1m (30 June 2020: £6.7m)

· Adjusted Operating Cash Flow at 106% (FY 2020: 90%) of Adjusted EBITDA following strong cash generation in the period

· Operating profit margins boosted by short term cost savings on reduced travel

OPERATIONAL HIGHLIGHTS

· Continued expansion of our network of blue-chip channel partnerships in Enterprise;

o Channel revenue now represents 46% of overall Enterprise revenue (FY 2020: 43%)

o Integration of Blancco Secure Data Erasure with ServiceNow has begun generating revenue

o ISV Accelerate partner status obtained with Amazon Web Services

o New partnerships with Infosys, Lenovo and a global hardware manufacturer have begun generating revenue

· High customer retention levels of 98.4% of largest clients (£100k+) in the period

· Strong geographic reach benefitting performance, with particularly strong recovery in North American market

· Increased market share in mobile market with 35.6 million devices erased in FY21 (FY 2020: 20.1 million)

CURRENT TRADING AND OUTLOOK

· The new financial year has started positively, with Enterprise expected to continue to be the primary growth driver

· Increasing data privacy regulation and the imposition of significant financial penalties for breaches - including the landmark €746m fine issued to a global tech giant in July 2021 - are anticipated to continue to drive growth

· Pressure on companies to minimise environmental impact is leading to additional opportunities and has sharpened focus on holistic data management solutions

· A post pandemic return to offices is also expected to lead to growth opportunities as companies re-evaluate their technology requirements

*Adjusted profit measures are stated after excluding expenses relating to share option schemes, exceptional costs & incomes and the amortisation of acquired intangible assets

** Adjusted operating cash flow is operating cash flow excluding taxation, interest payments & receipts and exceptional payments

ENDS

For further information:

Presentation and webcast:

A virtual results briefing for analysts will be held today, 28 September 2021 at 9.30am, via a live webcast and conference call facility.

If you would like to join the conference call, please contact Buchanan at blancco@buchanan.uk.com .

CHIEF EXECUTIVE'S REPORT

Business overview

We are pleased to report on a period of strong growth in revenue, profit and cash generation, particularly in the second half of the year, as sales cycles returned to pre-COVID levels, and we started to see the impact of the return of employees to offices accelerate corporate decision making. The key growth drivers in the business remain unchanged:

· Sustainability - The United Nation's Global E-Waste Statistics Partnership estimates that 53 million tonnes of electronics waste (e-waste) was produced in 2019. In the financial year ending 30 June 2021, we estimate that Blancco erased data from 54.5 million (FY20: 36.2 million) data storing devices. The total weight of these devices is estimated to be 68 million kilograms (FY20: 61 million kilograms) and the estimated carbon emissions consumed in manufacturing these devices is 5.6 billion kilograms (FY20: 4.6 billion kilograms). Whilst these numbers are significant, we still believe that the vast majority of data storing devices are destroyed at the end of life and placed in landfill where harmful chemicals can be released. Growing governmental and societal pressures on companies to conduct business in a much more environmentally friendly manner is expected to lead to greater numbers of IT assets entering the circular economy. We have aligned our business model to the United Nations Sustainable Development Goals (UN SDG's) to increase investor access to this data, the next report of which will be published alongside our Annual Report & Accounts for the year ended 30 June 2021.

· Governance - The most recent Gartner report on Data Privacy (13 July 2021) has been prepared with the expectation that 75% of the world's population will have its personal data protected by modern privacy regulations by the end of 2023, up from 25% today. The disposition of assets storing data can only be managed through the destruction of those assets through shredding and landfill or through the use of strictly regulatory compliant data sanitisation software. Whilst there was already a growing focus on data sanitisation to fulfil corporate compliance requirements, the majority of assets are still destroyed, but that will be impacted by the shift to a more remote workforce in the aftermath of the pandemic. Organising the mass destruction of assets is easier when the assets are all kept within an office environment but much more difficult when the assets are spread to various locations while employees work at home. It will be important that any data stored on these assets is completely erased before they are returned to IT departments.

With limited competition in the markets that it addresses and a strong list of competitive advantages, including a growing portfolio of 38 patents, we are confident that Blancco is well placed for near-term and sustainable growth.

Enterprise

Enterprise continues to be our strongest growth market with revenue in the year growing by 21% to £14.1m (FY 2020: £11.7m). Growth was 24% when adjusted for currency movements. Enterprise customers are typically very large companies with IT departments who will take direct responsibility for the IT assets in their organisation, particularly the disposal of those assets, rather than outsource that responsibility to a third party, typically an IT Asset Disposition ("ITAD") company. These companies will usually be the companies that are storing the most data and therefore see data security as a high priority risk item. These companies will also often be those who will be increasingly aware of their ESG responsibilities. Governance and Sustainability are the key drivers for growth of Blancco's revenue in this market.

The combination of a sector leading technology, and the quality of our services and team, has led to large customer (£100k+) retention rates of 98.4% across the Group, giving us high levels of revenue visibility.

With customers in this market being among the largest companies in the world, it is increasingly important that Blancco continues to develop strong channel partner relationships. During the period, revenue in Enterprise from channel partners grew by 27% to £6.5m (FY 2020: £5.1m). Over the course of the year, we have given considerable focus to expanding our network of channel partners that we work with.

In May 2021, we were pleased to announce our integration with ServiceNow to provide innovative and secure data sanitisation capabilities directly from the Now Platform. Despite the short period of time that the relationship has been established, we are pleased to report that it is already driving revenue. Many organisations rely heavily on ServiceNow when managing their IT assets and our integration with that platform makes a transition to using Blancco very smooth. We were also delighted to recently secure ISV Accelerate status for our partnership with AWS. There are currently approximately only 200 ISV Accelerate partners who receive co-sell support and benefits to gain access to the AWS customer base. In addition, we have also secured partnerships with Infosys, Lenovo and a global technology company who have all begun generating revenue in the period. We are starting to see good traction from these larger channel partners and look forward to them making a more meaningful contribution in the short term.

Revenue has increased in Enterprise from £8.6m in FY18 to £14.1m in FY21, a compound annual growth rate of 18%. With the pent-up demand of many assets which have been sat redundant in offices for 18 months during the pandemic helping the growth drivers of Governance and Sustainability that we have already discussed, we are confident that Enterprise will remain the strongest growth area in the Group.

Data sanitisation for a remote or hybrid workforce

Data Security concerns have become more elevated in recent periods, with companies trying to secure data stored on devices held by employees outside the office environment as the world has transitioned to an increasingly remote workforce, a trend that is widely expected to be here to stay. Gartner's recently published report on Data Privacy stated that "Growing concerns about data privacy and security, leakage, regulatory compliance, and the ever-expanding capacity of storage media and volume of edge computing and IoT devices make robust, consistent and pervasive data sanitisation a core C-level requirement for all IT organisations…to minimize chain-of-custody security risks (such as loss in transit to the ITAD vendor's facility), many ITAD managers (especially in the financial and healthcare sectors) require that some form of data sanitisation be performed on-site."

The capability for Blancco's software to erase data remotely becomes increasingly important when employees are spending increasing amounts of time outside of the office environment. Whereas before an employee could leave the IT team to take a device from their desk if they were having a device upgraded, or perhaps leaving the company, employees will now often have a device collected by a courier and will want to ensure that no sensitive data is stored on the device before it is handed to a third party.

Higher financial penalties for data breaches

Along with growing levels of data privacy regulations, we are also seeing a steep increase in the size of penalties for companies which fail to comply with these regulations. In July 2021, a global technology behemoth was fined a record €746m for breaching GDPR regulations.

A sustainable solution for data management

The biggest competition to Blancco's software is the physical destruction of assets and this remains by far the most common way that IT assets are dealt with at the end of life. It is clear that the destruction of these assets is an unsustainable practice that releases many harmful chemicals into the earth. However, this is also an almost impossible process to manage when employees are working increasingly from home, because previously companies organising the destruction would do so by collection from company offices.

Mobile 

Blancco's mobile solutions offer consumers and businesses the ability to sanitise or run diagnostics on handsets. Over the course of the year, we have seen a significant increase in the number of mobile phones that have been erased using Blancco software, from 20.1m devices in FY20 to 35.6m in FY21. This is a reflection of the continuing growth in global sales for used mobile phones. In January 2021, IDC released a report projecting that sales of used smartphones would increase from 225.4m in 2020 to 351.6m in 2024, a compound growth rate of 11.7%. Blancco has invested heavily in developing a high-quality solution for customers that allows those customers to process large numbers of handsets in the most efficient manner. Whilst there is some direct competition in this market, it tends to be from smaller companies which cannot make similar technology investments. During the pandemic period, large mobile phone suppliers have been reluctant to review their technology partners, but we believe there will be opportunities to increase market share as trading conditions return to normal.

Over the year, we have seen consumers become more willing to trade in used handsets to offset the cost of the latest generation of smartphones. Previously, the value of a used handset was modest, which along with security concerns about the data stored on the device, prompted consumers to retain the handset in the event they needed an emergency handset. However, the higher values now attributable to such handsets together with sophisticated insurance programmes that enable consumers to obtain refurbished replacement phones swiftly, has encouraged consumers to exploit the value to be obtained from their old device.

Whilst the number of handsets being erased by Blancco software has increased significantly, revenue grew only marginally to £10.9m (FY 2020: £10.8m), 4% growth when adjusted for movements in foreign currency. As reported in results statements previously, underlying growth has been distorted by a contract with a mobile handset and airtime retailer that made the decision to run mobile handset diagnostics at a logistics centre from 1 January 2020 rather than in its own store network. This customer represented £1.4m of revenue in the first half of the FY20 financial year and whilst the customer continues to work with Blancco, it generates a significantly reduced amount of revenue from the new contractual terms. Excluding the impact of this one customer, revenue growth in mobile would have been 15%. This contract was only for diagnostic solutions and therefore hasn't impacted on the number of handsets erased in each year. This contract will no longer be reported in future comparative periods. No remaining customer represents more than 6% of Group revenue. Mobile revenue has grown from £9.7m in FY18 to £10.9m in FY21, representing compound annual growth of 4%.

IT Asset Disposition ("ITAD")

As reported in our half year results, the ITAD market has been the most impacted by the pandemic, with our ITAD clients often unable to access their customers' premises to manage their IT assets. However, we have seen a strong rebound in the second half of the year as trading conditions gradually return to normal. Revenue for the full year grew by 6% to £11.5m (FY 2020: £10.9m). However, the growth in the second half of the financial year was 19% compared to the same period of the previous year.

As global economies continue to reopen, our ITAD clients are starting to see the release of pent-up demand from their customers who have been unable to effectively manage their IT inventories over the past 18 months. Our ITAD customers tend to service companies which do not have the IT resources to manage their own inventory but which are under the same obligations to protect sensitive data that we see among our Enterprise customers. Whilst these smaller companies may not currently be under the same pressure from their stakeholders to protect the environment that we see for large companies, these pressures are rapidly filtering down to companies of all sizes.

Blancco has a large market share among ITAD customers which may mean that growth will be slower than that seen in Enterprise. However, revenue has grown from £8.6m in FY18 to £11.5m in FY21, representing compound annual growth of 10%.

Summary and Outlook

We are delighted with the progress reported in these results. Our interim results reported in February 2021 showed that the pandemic had slowed revenue growth and therefore revenue in the first half of the year was very similar to the prior year. However, the second half of the year has seen a return to strong growth with revenue increasing by 19% in that six month period.

We enter the new financial year with confidence and with a strong pipeline of new business opportunities. The growth will primarily continue to be driven by Enterprise with the structural tailwinds of Governance and Sustainability pushing the business forward. The new channel relationships announced over the past couple of years are expected to gain traction over the course of the next 12 months and contribute significantly to revenue.

Blancco is ideally placed to increase sales momentum in the coming years given our high quality service offering, sector leading reputation and broad geographic reach. As some costs return to our business as travel restrictions ease, operating margins are likely to revert closer to pre-COVID levels in the short term, before continuing an upward trajectory.

Since I joined the Company in March 2018, appointed a first-class management team and implemented a strategic focus, we have consistently delivered strong annual growth in revenue, profit, and cash generation despite some challenging macro-economic conditions. As we look ahead, we believe that a combination of sector leading technology and service delivery, a growing global reputation and network of blue-chip channel partners, combined with the sustainability and governance pressures on organisations will continue to drive Blancco's growth.

Matt Jones

Chief Executive Officer

CHIEF FINANCIAL OFFICER'S REPORT

Revenue

As anticipated, the Company experienced very strong growth in the second half of the year despite the challenging ongoing conditions of the pandemic and a strengthening in sterling. Revenue grew in the full year by 9% to £36.5m (FY 2020: £33.4m), or by 12% at CER. Revenue growth in the second half of the year was 19%.

Growth in North America was particularly strong in the second half of the year, with normal trading conditions returning gradually over the period. In the second half of the year alone, revenue grew by 49%, taking revenue growth in the region for the full year to 11%. Sterling strengthened significantly against the dollar, with constant currency revenue growth in North America of 18%.

Revenue growth in Asia continued to be strong, with revenue increasing by 10% to £11.9m (FY 2020: £10.8m) and growing by 14% at CER. The European region continues to be the area which has been most impacted by the pandemic over the whole year, but we did still see growth of 7%, with revenue increasing to £13.4m (FY 2020: £12.5m). The currency movements in Europe weren't as impactful, with revenue growing by 6% at CER.

Profitability Measures

The financial year began in July 2020 as the world came to grips with the early stages of the pandemic, which led to some caution regarding cost decisions. While we did not need to take any cost reduction actions, we did freeze recruitment and pay increases over the first half of the financial year. In addition, our cost base naturally reduced due to the inability for travel to take place. We had good visibility through the first half of the year that revenue was continuing to grow, which enabled us to return to increasing headcount and implementing pay increases. However, travel and entertainment costs remained depressed throughout the entire year. All of this meant that profit margins increased through the course of the year with operating profit increasing from a small loss in 2020 to a £1.8 million profit, with both periods benefitting from some non-cash exceptional income. Adjusted operating margins increased to 15% (FY 2020: 12%). The Adjusted Operating Profit increased in line with operating profit, and by 33% to £5.3m (FY 2020: £4.0m).

As we enter the new financial year, we are continuing to recruit for high quality employees to join our Research & Development and Sales & Marketing teams which will naturally lead to an increase in cost base as will a full twelve-month impact of team members who joined during FY 2021. Whilst phasing is difficult to predict, we do expect travel and entertainment costs to increase as pandemic restrictions ease.

Adjusted EBITDA for the period grew by 26% to £10.2m (FY 2020: £8.1m), giving an adjusted EBITDA margin of 28% (FY 2020: 24%).

Balance Sheet

Cash generation in the year was very positive with the Group ending the year with net cash of £10.1m (30 June 2020: £6.7m), largely a result of strong cash generated from operations of £10.4 million (2020: £6.5 million). Adjusted Operating Cash Flow for the year was £10.8m (FY 2020: £7.3m) representing 106% (FY 2020: 90%) of Adjusted EBITDA. Although revenue has increased in the period by 9%, the trade and other receivables balance at the end of the year was £6.2m (30 June 2020: £7.3m). Similarly, the current liabilities balance has reduced from £9.6m to £8.1m over the year.

Accruals and provisions relating to prior acquisitions have reduced significantly through the year from £1.1m to £0.1m, with the credit of that release primarily coming through in the exceptional income and discontinued operations lines of the income statement.

Currency movements on assets held outside of the UK have led to a significant reduction in the value of Intangible Fixed Assets which have reduced from £74.7m to £67.6m.

Earnings per share have increased to 2.29p (FY 2020: 1.6p).

Adam Moloney

Chief Financial Officer

Consolidated Income Statement for the year ended 30 June 2021

Consolidated Statement of Comprehensive Income for the year ended 30 June 2021

Notes to the Accounts

For the year ended 30 June 2021

The financial information does not constitute statutory accounts within the meaning of Sections 434 to 436 of the Companies Act 2006, but is derived from those accounts. Statutory accounts for the financial year ended 30 June 2020 have been filed with the Registrar of Companies and those for the financial year ended 30 June 2021 were approved by the Board of directors on 27 September 2021 and will be delivered in due course. The auditor has reported on those accounts, their report was unqualified and did not contain statements under Section 498 (2) or (3) of the Companies Act 2006. Whilst the financial information included in this announcement has been prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006 ('IFRS'), this announcement does not itself contain sufficient information to comply with IFRS.

Going concern

The Group meets its day-to-day working capital through its cash reserves and access to a Revolving Credit Facility, that was entered into in January 2021, which expires in January 2024 and which at the year-end was not drawn upon.

After making enquiries, the Board has a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for a period of at least 12 months from the date of these financial statements. Accordingly, they continue to adopt the going concern basis in preparing the Annual Report and Accounts.

The weighted average number of shares and reconciliation between basic and diluted measures is presented below:

The bonus element increasing the basic number of shares used in the earnings per share calculation arises from the placing of 8,000,000 shares in July 2019 and represents the number of shares effectively issued without consideration, due to the issue price of 125 pence being at a discount on the market price of 127.5 pence prior to the placing.

The dilutive share options are in respect of the shares awarded under the Blancco Performance Share Plan and Sharesave plan.

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

Included within operating profit are profits totalling £0.1 million (2020: £0.3 million) arising from the release of provisions recognised on acquisition on contingent liabilities for which the business has made steps to eliminate the risk and deem to no longer be required. These liabilities cover provisions relating to the underlying operating expenses of the acquired business and accordingly the releases are recorded within adjusted operating profit.

Exceptional income arises from the release of provisions recognised on historic acquisitions that the business deemed to no longer to be required. These cover items that are exceptional in nature and do not relate to the underlying operating expenses of the acquired business and accordingly the releases are recorded through exceptional income.

A gain of £0.4m arose from the forgiveness of US Payment Protection Program loans granted at the start of the COVID-19 pandemic.

Acquisition costs in the prior year relate to the acquisition of YouGetItBack Limited (now Blancco Technology Group Ireland) that was completed in July 2019, and the buyouts of minority interest stakes in Japan and Singapore in December 2019.

The post-tax result from discontinued operations in the year was a profit of £0.3 million (2020: £1.1 million). This arose from the final release of provisions that were created upon the disposal of the Repair Services business in the year ended 30 June 2016 (2020: £0.8 million). In the prior year the release also included provisions of £0.4 million no longer required in respect of a number of VAT liabilities arising from a VAT investigation.

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

There were no cash flows from investing or financing activities.