BLTG.L Regulatory News (BLTG)

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 £9.9 million (H1 2015: £6.8 million), an increase of 46% in sterling terms and 51% on constant currency basis.

· Headline Operating Profit of £3.5 million before Corporate Costs (H1 2015: £1.9 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 £3.2 million (H1 2015: £2.0 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 £8.9 million (FY15: net cash of £7.8 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 £50 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 €103.5 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 £9.9 million (H1 2015: £6.8 million). Headline Operating Profit before Corporate Costs was £3.5 million (H1 2015: £1.9 million). After Corporate Costs, Headline Operating Profit was £2.7 million (H1 2015: £1.3 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 £2.6 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 £0.75 million per half year, or £1.5 million per annum.

Trading

Revenue

Blancco's revenue increased by 46% to £9.9 million (H1 2015: £6.8 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 £3.5 million (H1 2015: £1.9 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 £5.3 million (H1 2015: £4.3 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 £3.2 million (H1 2015: £4.2 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.

In the period, £0.9 million of exceptional M&A costs were incurred principally on the acquisition of Tabernus (H1 2015: £1.3 million).

Capital expenditure by Blancco was £1.0 million (H1 2015: £0.7 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

* 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:

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 £0.9 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 £1.8 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 £7.9 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 £3.9 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 £3.9 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 £2.8 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 £47,960 (December 2014: £43,154), 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 €10,000 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.

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 (£7.6 million) comprising cash payment of $10 million (£6.6 million) funded through the Group revolver facility and $2 million (£1.3 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 £7.8 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 £50 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

* for customers spending over €10k per year

Segmental Results

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 £3.1 million (FY15: £2.4 million), of which £1.6 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

Total Group corporate costs of £2.6 million (H1 2015: £2.6 million) remain stable compared to the prior period. The corporate costs have been allocated between continuing and discontinued operations, with costs of £0.8 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 £1.5 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:

The actual revenue and HOP for continuing operations in the period would have been higher by £0.4 million and £0.3 million if the exchange rates ruling during H1 2015 had held constant for the current period.

Cash and Working Capital

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 £3.2 million (H1 2015: £2.0 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 £0.4 million (H1 2015: £0.3 million), and is higher than the prior period driven by the continued year on year growth in Blancco profits.

Net interest paid was £0.3 million (H1 2015: £0.1 million) and is higher than the prior period due to the drawdown of borrowings during H1 2016.

Net debt for the total Group is £8.9 million (FY15: net cash of £7.8 million, H1 2015: net cash of £12.1 million). There has been a reduction in net cash from £7.8 million at 30 June 2015 despite operating cash inflow of £1.6 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 £1.0 million (H1 2015: £0.8 million). Of this capital expenditure, £0.7 million (H1 2015: £0.5 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 £0.8 million (H1 2015: £1.0 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 £8.9 million (FY15: net cash of £7.8 million, H1 2015: net cash of £12.1 million) comprised gross debt of £20.1 million (FY15: £4.4 million, H1 2015: £nil), and cash and cash equivalents of £11.2 million (FY15: £12.1 million, H1 2015: £12.1 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 (£7.6 million) comprising cash payment of $10 million (£6.5 million) funded through the Group revolver facility and $2 million (£1.3 million) in deferred cash consideration payable after three years.

Exceptional acquisition costs

Acquisition costs amounted to £0.9 million (H1 2015: £1.3 million) with the most significant costs relating to the acquisition of Tabernus. 

In addition, £1.9 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 £1.3 million (H1 2015: £1.0 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 £0.4 million (H1 2015: £0.5 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 £0.5 million (H1 2015: £0.4 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 £0.4 million (H1 2015: £0.3 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

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 €103.5 million.

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

Jog Dhody

Chief Financial Officer

Notes to the Interim Report

for the six months ended 31 December 2015

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.

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.

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.

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.

5. Profit for the year

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

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

6. Acquisition costs

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 £1.9 million for the period (£nil for the same period last year) as they are presented within discontinued operations. 

7. Exceptional restructuring costs

No exceptional restructuring costs have been recorded in the current period (H1 2015: £0.1 million relating to integration activities).

Exceptional redundancy and restructuring costs not included above relate to the restructuring activities for the disposal of Aftermarket Services totalling £0.2 million for the period (£0.3 million for the same period last year), as they are presented within discontinued operations.

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

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