BLTG.L Regulatory News (BLTG)

14 March 2013

REGENERSIS PLC

INTERIM RESULTS

Regenersis plc (AIM: RGS.L) ("Regenersis" or the "Group"), a strategic outsourcing partner to many of the world's leading consumer technology companies, is pleased to announce its interim results for the six months to 31 December 2012, which show a strong financial performance and the continuing benefits of the Board's growth strategy.

Financial Highlights

Operational Highlights

Outlook

Matthew Peacock, Executive Chairman of Regenersis, said: "The strategy and financial plan are established and working well. Our focus is extending our geographic reach, filling out our operating matrix (*), deepening our strategic relationships with major clients and continuing to innovate and roll out margin enhancing services."

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

(*) Headline operating cash flow excludes exceptional deal costs.

(*) The operating matrix is shown on the Regenersis website www.regenersis.com.

Enquiries:

About Regenersis

www.regenersis.com

With its core business in repairing consumer electronics, Regenersis helps companies like HTC, Nokia, Samsung, Everything Everywhere, John Lewis, LG 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 offering, which provides extended warranty and insurance services to end customers; and Recommerce, which offers client led buy back, refurbishment and onward resale of devices.

Summary

In the six months to 31 December 2012 the Group made pleasing progress on all fronts both financially and operationally.

First half revenues grew by 29% to £90.2 million (2011: £69.9 million), headline operating profit increased by 21% to £4.6 million (2011: £3.8 million) and operating profit rose by 27% to £3.7 million (2011: £2.9 million). Headline operating margins were slightly lower at 5.1%, compared to 5.4% in the same period last year.

Progress in revenue and profit was delivered in all the divisions but was particularly strong in Advanced Solutions, in which revenues rose by 73% and operating profit increased 100% over the prior period.

Double digit growth in organic revenue and profit was achieved, which is particularly pleasing against a backdrop of a mixed market and client performances.

Headline operating cash flow improved to £3.8 million (2011: £2.7 million) although H2 is traditionally the stronger half for cash generation. Net debt at 31 December 2012 was £7.7 million (2011: £4.1 million), despite cash payments of £5.9 million in H1 in relation to acquisitions, compared with £2.9 million at the year end.

Operating cash flow increased by 44% to £2.3 million (H1 2012: £1.6 million).

Adjusted EPS is up 18% to 7.96p (2011: 6.76p) and basic EPS is up 16% to 5.88p (2011: 5.08p).

Results

Emerging Markets

Revenue rose by 17.4% to £25.0 million (2011: £21.3 million) during the period, while headline operating profit increased 3.7% to £2.8 million (2011: £2.7 million), generating a margin, prior to corporate costs, of 11.2% (2011: 12.7%). There has been some pressure transmitted from certain clients who have themselves been under pressure. We have secured higher market shares with these clients but at slightly lower margins.

Poland and Romania remain key markets in this segment. The new territories opened in 2010/11, comprising Turkey and South Africa, continue to grow. We continue to focus on both organic and acquisitive routes into new markets.

The acquisition of the HDM business gave the Group access to two new markets, Mexico and Argentina. Both of these operations gave their first profit contribution during the period and are performing in line with the Board's expectations.

As announced in our pre-close trading update on 17 January, the Group has won a very significant multi-geography, multi-year contract, that is in the late stages of negotiation. This contract will contribute mostly to the Emerging Market Depot Solutions division from next financial year.

Western Europe

Revenue increased by 26.2% to £51.0 million (2011: £40.4 million). Headline operating profit increased 7.7% to £1.4 million (2011: £1.3 million), generating a margin, before corporate costs, of 2.7% (2011: 3.2%).

While Western Europe mainly comprises activities in the UK and Germany, our acquisition of the HDM business gave the Group access to the Spanish market, which made its first profit contribution during the period and is also performing in line with the Board's expectations.

During the period, the Group extended its relationship with Samsung, having been selected as one of the manufacturer's strategic partners on a range of after-sales support services in the UK. The UK contract includes the repair, refurbishment and customer call centre support for the full range of Samsung's mobile devices.

Advanced Solutions

Revenue rose by 73.2% to £14.2 million (2011: £8.2 million). Headline operating profit increased 100% to £1.4 million (2011: £0.7 million), generating a margin, before central costs, of 9.9% (2011: 8.5%).

The Advanced Solutions division, which includes our innovative services in set top box repair and repair avoidance, as well as technically driven solutions in other markets, has delivered particularly strong growth. During the period, the In-Field Tester (IFT) units roll out to Virgin Media was completed and the first recurring royalty revenues were received during December 2012.

Sales activities for the IFT in the US continue to be very promising. It is expected that recurring royalty revenues from the US will commence during the second half of the current year.

The senior appointment of Bryce Boothby as Group Sales and Marketing Director and President of US in January enhances our presence, growth and selling capability on the ground in the US. Bryce has been given an acquisition based remit.

The newly formed operations established in the previous financial year continue to grow and have started making revenue and profit contributions:

Headline operating cash flow improved to £3.8 million (2012: £2.7 million). Operating cash flow improved to £2.3 million (2012: £1.6 million).

The working capital outflow in the period was £2.0 million. Whilst this represents a marginal improvement against the same period last year (2011: £2.2 million outflow), when set against a backdrop of 29% revenue growth, this represents a very significant improvement and is the result of continued close management of working capital.

Net debt of £7.7 million at 31 December 2012 comprised gross debt of £13.5 million (2011: £8.7 million) and cash and cash equivalents of £5.8 million (2011: £4.6 million).

Acquisitions

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:

The HDM business continues to perform well and in line with the Board's expectations.

Acquisition of DC Sweden

On 1 November 2012, the Group completed its acquisition of all of the issued share capital of Digital Care Sweden for £5,000. This new entity was created through a hive out of the Digital Care business that previously existed within the joint venture in Sweden.

Dividend

The Board is pleased to announce an interim dividend of 0.67 pence per ordinary share, which demonstrates its commitment to a progressive new dividend policy, as previously announced in the final results. This will be paid on 7 June 2013 to shareholders on the register on 10 May 2013.

Outlook

Notes to the Interim Report

for the six months ended 31 December 2012

This interim report has been prepared on the basis of the accounting policies expected to be adopted for the year ended 30 June 2013. 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 2012. 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.

The financial information in this interim report does not constitute statutory accounts for the six months ended 31 December 2012 and should be read in conjunction with the Group's annual financial statements for the year ended 30 June 2012. Financial information for the year ended 30 June 2012 has been derived from the consolidated audited accounts for that period which were unqualified.

The condensed consolidated interim financial statements for the six months to 31 December 2012 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 13 March 2012.

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 Depot Solutions operations in Poland, Romania, Turkey, South Africa, Argentina and Mexico. Western Europe includes the Depot Solutions UK (excluding Glenrothes), Spain and German businesses. Advanced Solutions aggregates the Group's businesses promoting its technology, Intellectual property and Intellectual capital in remote diagnostics, automation, mitigation, avoidance of repair, digital care and Recommerce.

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.

'Headline operating profit' is the key profit measure used by the Board to assess the underlying financial performance of the operating divisions and the Group as a whole. 'Headline operating profit' is stated before amortisation or impairment of acquired intangible assets, acquisition costs, exceptional costs, share-based payments and share of results of jointly controlled entities.

'Headline operating cash flow' is the key operating cash flow measure used by the board to assess the underlying cash flow of the Group. 'Headline operating cash flow' is the headline net cash flow from operating activities, and is stated before payments relating to exceptional costs, and acquisition costs.

'Adjusted earnings per share' is the key earnings per share measure used by the Board. 'Adjusted earnings per share' is stated before amortisation or impairment of acquired intangible assets, exceptional restructuring costs, acquisition costs, and share-based payments.

In the six month period ending 31 December 2012, the Group incurred acquisition costs of £0.7 million in relation to the acquisitions of HDM, these were paid in the same period in which they were incurred.

In the year ended 30 June 2012, exceptional costs of £4.9 million related to redundancy and restructuring costs incurred following the strategic and operations review carried out by the Directors, plus an onerous lease and dilapidations provision. Payments in relation to these costs have been made within the six month period ending 31 December 2012.

4. Taxation

The tax charge for the six months to 31 December 2012 is based on the estimated tax rate for the full year in each jurisdiction.

On 22 February 2013, all the share options under the ISP long term incentive arrangement vested. The details of the ISP scheme have been previously outlined in the financial statements for the year end 30 June 2012. If the vesting had occurred on 31 December 2012, the basic number of shares in issue at that date would have been approximately 45.2 million.

6. Dividends

The Group will pay an interim dividend of 0.67 pence per Ordinary Share in respect of the six months to 31 December 2012 (H1 2011: nil) on 7 June 2013 to shareholders on the register on 10 May 2013.

The facility available to the Group is £23.25 million (30 June 2012: £23.25 million; 31 December 2011: £16.25 million). The facility expires on 31 October 2015.

8. Acquisition of HDM Group of Companies

On 31 August 2012, the Group completed its acquisition of all of the issued share capital of Plataforma HDM Técnologica S.A. and Plataforma HDM Tecnologica S.A. de C.V and the trade and assets of HDM Plataforma Logística S.L., HDM Soluciones Integrales de Reparacion S.L. and HDM Moviltech Servicio Técnico S.L. together comprising the entire operations of the HDM Group of Companies ("HDM").

HDM is a leading provider of aftermarket services, including reverse logistics and repair, to network operators and mobile telephone manufacturers in Spain, Mexico and Argentina. HDM's key customers include Telefonica, Samsung and Nokia.

The addition of high-quality business in Spain, where HDM has a 20% market share in mobile repair, significantly enhances Regenersis' European customer proposition. The acquisition also provides a strong exposure to new Emerging Markets and a platform for further future expansion into Latin America.

In the four months to 31 December 2012, this acquisition has contributed total revenue of £8.7 million, headline operating profit of £0.4 million, and operating profit of £0.2 million. If the acquisition had been completed on the first day of the financial year, management estimates that consolidated revenue for the six month period to 31 December 2012 would have been £13.1 million, consolidated headline operating profit would have been £0.6 million, and consolidated operating profit would have been £0.3 million. 

The HDM business continues to perform well and in line with the Board's expectations

In determining these amounts, management has assumed that the fair value adjustments, determined provisionally, that arose on the date of acquisition would have been the same if the acquisition had occurred on the 1 July 2012.

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

Equity Instruments issued

The fair value of the Ordinary Shares issued was based on the listed share price on the 31 August 2012 which was 90p.

Deferred cash consideration

The acquisition includes an earn-out based on the EBIT as at 30 June 2015, and to be paid on 30 September 2015. A deferred liability of £6.6 million has been established which represents the fair value at the acquisition date, using a discount rate of 12%. At 31 December 2012 the deferred liability had increased to £6.8 million.

Under IFRS 3, "Business Combinations" the only separately identifiable intangible asset arising from the acquisition relates to customer contracts and relationships valued at £0.6 million. The remaining goodwill of £10.8 million can be attributed to the anticipated profitability through the growth of the enlarged group and synergistic benefits and workforce in place.

9. Acquisition of Digital Care Sweden

On 1 November 2012, the Group acquired the effective 50% shareholding in Digital Care Sweden which it did not already own. Prior to this acquisition it was a wholly owned subsidiary of an equity accounted JV (Regenersis Sweden Ltd) with an investment value of £NIL.

In the two months to December 2012, this acquisition has contributed total revenue of £0.1 million.

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

There is not considered to be a material difference between book value and fair value of the assets and liabilities acquired. No gain or loss was recognised on the disposal of the non controlling equity interest in DC Sweden.

10. Cash flow - Acquisition of subsidiaries, net of cash acquired

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

11. Cautionary statement

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

12. Copies of the interim report

Further copies of the interim report are available from the registered office, Regenersis Plc, 4th Floor, 32 Wigmore Street, London, W1U 2RP or on the Company's website - www.regenersis.com.