BLTG.L Regulatory News (BLTG)

18 March 2011

Regenersis plc

Interim Results for the six months ended 31 December 2010

Regenersis plc (LSE AIM: RGS) ("Regenersis" or the "Group"), a strategic outsourcing partner to many of the world's leading consumer technology companies, is pleased to announce interim results for the six months ended 31 December 2010.

Financial Highlights

·; Group revenue increased 5.8% to £60.3 million (2009: £57.0 million):

o At constant currency, revenue increased 7.2%

·; Headline operating profit(*) increased to £3.2 million (2009: £2.7 million):

o Includes £0.3 million profit on sale of European mobile recycling business

·; Headline operating margin higher at 5.4% (2009: 4.7%):

o Increased profit contribution from Media & Entertainment segment

·; Group operating profit increased 94% to £2.9 million (2009: £1.5 million)

·; Profit before tax increased 168% to £2.8 million (2009: £1.0 million)

o Improved operating performance and no exceptional costs in this period.

·; Operating cash flow increased to £0.7 million (2009: £0.3 million)

o Includes impact of £1.0 million cash cost of exiting European mobile recycling business and a £1.7 million investment in working capital to support business growth

·; Net debt position remains stable at £4.4 million (December 2009: £4.7 million. June 2010: £4.0 million)

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

Regenersis' Executive Chairman, Matthew Peacock, commented:

"With new Board leadership in place we are now undertaking an operational and strategic review, the outcome of which will be reported before the financial year end in June. In my first interim statement as Chairman I would like to thank all our employees for their hard work in delivering an improved revenue and profit performance in this first half of the year."

For further information please contact:

Regenersis plc +44 (0)1865 471900

Matthew Peacock, Executive Chairman

Jeremy Wilson, Chief Financial Officer

Arden Partners plc +44 (0) 121 423 8900

Steve Douglas

Financial Dynamics +44 (0)20 7831 3113

Matt Dixon / Nicola Biles / Charles Palmer

Summary

First half revenues grew by 5.8% to £60.3 million (2009: £57.0 million) and headline operating profit grew to £3.2 million (2009: £2.7 million). At constant exchange rates revenues grew by 7.2%. Headline operating margins improved to 5.4% (2009: 4.7%).

With the integration of TRS completed in the prior year at an exceptional cost of £0.9 million, operating profits for the current period have doubled to £2.9 million (2009: £1.5 million). Consequently headline and basic earnings per share have increased appreciably to 5.85 pence (2009: 5.22 pence) and 5.18 pence (2009: 2.09 pence) respectively.

In October the Group completed the sale of the European mobile recycling activities, realising a profit of £0.3 million on the transaction. Subsequently the Group has confirmed the cessation of its recycling operations in Thurrock and the relocation of the profitable elements to Glasgow. With the completion of this programme the Group will have consolidated its focus on markets where it is able to differentiate its services, create competitive barriers and deliver sustainable growth in revenues and margins.

Compared to the prior year, net debt improved to £4.4 million (2009: £4.7 million) despite the £1.0 million cash cost of settling the net liabilities on the sale of the European mobile recycling business and a £1.7 million investment in working capital to support business growth. Adjusting for the impact of the sale, operating cash flows from the ongoing business rose to £1.7 million (2009: £0.3 million).

Results

Mobile Communications

First half revenues grew 5.6% to £40.4 million (2009: £38.2 million) whilst headline operating profits increased 8.8% to £2.7 million (2009: £2.5 million). Margins, before central costs, improved slightly to 6.7% (2009: 6.5%).

As previously reported, the mobile phone recycling activities have been reducing as the market has shifted towards a consumer trading model. The Group has concluded the sale of the Lille-based recycling operation and has recently confirmed the closure of the remaining UK-based recycling facility in Thurrock. Our Glasgow facility will continue to provide an end-of-life proposition for key corporate clients, but all loss-making activities will cease upon the closure of Thurrock. The exit from mobile phone recycling will be fully accounted for in the current financial year.

The sale of the European operations generated a profit of £0.3 million in the six months to December and the settlement of the remaining liabilities resulted in a net cash outflow of £1.0 million.

The costs associated with the closure of the Thurrock facility will be incurred in the second half of the year and are estimated to be £0.5 million. The combined trading losses of the recycling activities in the six months to December 2010 were £0.4 million (2009: loss of £0.1 million) on revenues of £4.0 million (2009: £7.0 million).

Adjusting for the year-on-year impact of the recycling activities and the full contribution of the Glasgow operation, acquired in September 2009, the Mobile Communications Division delivered comparable revenue growth of 3.3% and headline operating profit growth of 5.9%.

The resolution of the challenges presented by the recycling business will allow the Division to focus on the many growth opportunities being realised in the core business. The elimination of these loss-making activities will naturally support an improvement in margins across the division for the future.

In Warsaw the Group has been working with Nokia to consolidate their complex repair activities across Europe and has seen significant increases in activity as a consequence.

The new service hub established in partnership with DHL in Normanton is now operational and start-up costs have reduced profits by £0.1 million in the period. The facility will be fully operational before the year-end, at which point the Group will be integrated into the O2 and DHL return and repair processes. There are many opportunities to extend the collaboration with DHL, into new markets, when the full turn-key concept is proven to be successful at Normanton.

In late 2010, the service centre in Huntingdon secured the call centre contract with LG to support their after-sales service for the full range of LG products. In the six months since this contract was agreed, the call centre has received industry recognition by being voted number one for customer support, in a recent independent UK survey amongst major technology brands.

The mobile phone insurance business has developed well and recently the contract with market leader CPP was renewed for a further two years, building on the long term partnership between the two companies.

Momentum is now well established in the Mobile Division with the project pipeline running close to capacity. Additional resources are being added in project management, operations and IT to support the roll-out of the programme. In the short term it is anticipated that the UK cost base and working capital will rise to facilitate this, with the benefits starting to become evident in the next financial year.

Media & Entertainment

Overall revenues for the six months increased marginally to £9.7 million (2009: £9.4 million). Headline operating profits increased to £1.6 million (2009: £0.8 million) generating a margin, before central costs, of 16.9% (2009: 8.7%).

The Division is now well established in both the set top box and TV markets where rapid technical developments are driving demand for increasingly sophisticated products. The advent of IP and 3D enabled TV sets is expanding the market rapidly, and cable and satellite operators are collaborating with major manufacturers to deliver more sophisticated interactive services via the set top box.

Over the last three years the Group has been developing automated test protocols for set top boxes, which have been deployed in the service centres in Glenrothes and Bucharest. The roll-out of these factory-based systems has improved the quality, consistency and cost of service delivery and has been one of the key drivers of margin growth. In the field, service support has not evolved to match either the product or the testing innovation. With upwards of 50% of call outs failing to identify a fault, the service is time-consuming, expensive and often inconclusive.

In response to this a portable, home test unit has been developed by Regenersis and field trials have been completed. The first production models are due for delivery before the year end. The deployment of the portable test system will drive the next stage of growth as the technology is licensed to clients, potentially across a much wider geographical remit than can currently be serviced from our factory-based operations.

In addition a new generation of factory-based systems are in development with the first prototypes due to be deployed for trials into new markets during 2011. This programme of test development offers the prospect of a full turn-key solution for set top box manufacturers and operators alike and is core to the expansion plans of the Division over the coming months.

The intellectual property being developed in set top boxes is protected and will be transferable into allied markets such as TVs and is a further area of focus being developed by the Group. Within the last six months service agreements have been agreed with a number of leading manufacturers and the opportunity exists to establish a meaningful and differentiated presence in this market.

These developments are progressing positively and are capturing attention in our OEM, Network and Retail sales channels where we are increasingly able to manage service delivery direct to the consumer as well as managing the traditional 'return and repair' channels.

In addition to these developments the Group has consolidated its position with TomTom, European market leader for personal navigation devices. A three year contract renewal builds on the long term relationships built in our facilities in Glenrothes and Bucharest. Our team in Bucharest were also successful in securing business with the Romanian market leading cable operator RCS/RDS, establishing a strong culture of operational excellence across Europe in the set top box market.

Reflecting the growth opportunities in Europe, additional capacity has been added to the facilities in Glenrothes and Bucharest. The Romanian operation has been built up over the last two years. It now services leading operators in both the local and international markets and is well placed to grow further as the new services are rolled out over the coming year. The strong performance from the Romanian operation is a significant contributor to the increase in divisional profits and margins over the last six months.

Information Technology

The Information Technology Division generated revenue growth of 9.3% to £10.2 million (2009: £9.4 million). However, headline operating profits fell to £0.2 million after incurring additional costs of £0.3 million to facilitate a head count reduction in Germany. Adjusting for this one-off cost the underlying profits of £0.5 million were flat, indicating a slight margin decline to 4.5% (2009: 4.8%), before corporate costs.

The continued growth of operations based in Sommerda, located in Eastern Germany, has delivered revenue and profits growth, which has been offset partially by the higher cost, legacy operations based in Schloss Holte.

Solid progress continues to be made in developing the service proposition in the core markets of electronic transaction services and mobile computing; for example, the Group has developed a strong position with manufacturers and operators of hand-held payment terminals. The investment made in secure, high tech, 'clean-room' facilities at Sommerda has seen the business continue to expand with further capacity being added during the period.

A new facility has also been established with the co-location of a service centre for Siemens Healthcare at Neu Isenberg near Frankfurt. Now that the first client is established, the considerable opportunity presented by the high technology healthcare market will be developed as part of the core service proposition.

The one-off charge of £0.3 million incurred in the period relates to the termination costs of a number of highly remunerated employees who benefited from an enhanced status under German employment law. The resulting reduction in headcount will benefit profitability by £0.2 million, on an annualised basis, for the next five years.

Cash and Working Capital

The Group's cash flow in the period was reduced by the sale of the European recycling business. The business was loss-making and had net liabilities of £1.3 million at completion. The sale resulted in a net cash outflow of £1.0 million to settle these liabilities, realising a profit on the sale of £0.3 million. Excluding the sale, the movement in working capital was an outflow of £1.7 million, with cash inflow from operating activities improving to £1.7 million.

The underlying increase in working capital is driven by an increase in stock and debtors. Stock increased by £0.8 million over the period to £5.3 million, primarily caused by the higher average cost of components required to service high-end handsets such as smartphones. The higher cost of component inventories also contributed to higher debtors (increased by £0.6 million to £16.0 million). There are general pressures from clients within the industry to extend payment terms and the Group continues to focus on ways to meet those challenges whilst improving its own performance.

The net debt of £4.4 million as at 31 December 2010, comprised gross debt of £8.0 million (2009: £7.5 million) and cash and cash equivalents of £3.6 million (2009: £2.8 million). As at 31 December 2010, the Group's main bank facility was £10.75 million (2009: £12.5 million).

Board

Jeff Hewitt, David Holland and David Gilbert stepped down from their respective Non-Executive positions on the Board on 8 February 2011. Gary Stokes resigned as a Board director and as Chief Executive Officer of the company on 8 March 2011.

In turn, the Board has appointed Matthew Peacock as Executive Chairman and Michael Peacock (no relation), Andrew Lee and Tom Russell as Non-Executive Directors. Matthew Peacock is the founder of Hanover Investors, which is a significant shareholder of Regenersis. Tom Russell is a partner of Hanover Investors.

The Board would like to thank the outgoing Directors for their contribution to the Group and wish them all well for the future.

Dividend

The Board does not recommend the payment of a dividend at this time.

Outlook

Each of the three Divisions has seen a rise in activity levels through 2010 and overall the market remains positive. The priority over the coming months is to ensure that key projects are delivered efficiently and that both existing and new customers are supported well. The Board is now carrying out an operational and strategic review of the Group and will be making a detailed announcement of the findings and the resulting plans before the end of the financial year in June 2011.

Condensed Consolidated Income Statement

for the six months ended 31 December 2010

*Restated - see note 6

Consolidated Statement of Comprehensive Income

for the six months ended 31 December 2010

Condensed Consolidated Balance Sheet

as at 31 December 2010

Condensed Consolidated Statement of Changes in Equity

for the six months ended 31 December 2010

Consolidated Cash Flow Statement

for the six months ended 31 December 2010

Notes to the Interim Report

for the six months ended 31 December 2010

This interim report has been prepared on the basis of the accounting policies expected to be adopted for the year ended 30 June 2011. These are in accordance with the Group's accounting policies as set out in the latest annual financial statements for the year ended 30 June 2010. 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 2010 and should be read in conjunction with the Group's annual financial statements for the year ended 30 June 2010. Financial information for the year ended 30 June 2010 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 2010 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 17 March 2011.

The Mobile Communications segment services mobile phones, PDA's, smart phones and related technology. Our vertically integrated service offering incorporates all areas of reverse logistics including return and repair activities, professional services such as call centres, warranty management, insurance and fulfilment services as well as end-of-life and refurbishment services.

The Media and Entertainment segment includes technologies such as digital television and monitors, set top boxes, gaming systems, MP3 and MP4 players, PND's and e-books.

Information Technology focuses on the notebook and netbook markets, including peripheral equipment, as well as supporting compatible technologies such as those employed in the banking, retail and healthcare markets. 

'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 of acquired intangible assets, exceptional restructuring costs and share-based payments.

There were no exceptional costs in the current period. Exceptional costs in the prior year, six months to December 2009 were £917,000 and full year to 30 June 2010 were £929,000. These related to closing the Nottingham facility, redundancies and restructuring.

The finance charge in the prior period includes £296,000 of costs to renegotiate the banking facility terms and the banking due diligence to approve the acquisition of TRS.

5. Taxation

The tax charge for the six months to 31 December 2010 is based on the estimated tax rate for the full year in each jurisdiction.

2,150,000 shares were issued to the Employee Benefit Trust on 26 June 2007 and are not included in the basic earnings per share calculation as they are classified as treasury shares. The prior year comparative for the 6 months to 31 December 2009 has been restated from 1.98p to 2.09p since it previously included these treasury shares.

Share awards totalling 1,000,000 options were made on 15 September 2010 to the Executive Directors and other senior managers of the Group. Vesting criteria attaching to these shares is disclosed in the Remuneration Report of the Group's Annual Report as at 30 June 2010. To the extent that these vest in the future, the awards will be satisfied from the shares held by the Employee Benefit Trust.

7. Dividends

No interim dividend is proposed in respect of the six months to 31 December 2010.

As at 31 December 2010 the Group's main bank facility totalled £10.75 million (30 June 2010 and at 31 December 2009: £12.5 million). The facility will reduce to £9.0 million on 31 March 2011 and to £7.25 million on 30 September 2011. The facility expires on 31 March 2013.

9. Copies of the interim report

Further copies of the interim report are available from the registered office, 4 Elm Place, Old Witney Road, Eynsham, Oxford, OX29 4BD or on the Company's website - www.regenersis.com.

10. 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 constructed as a profit forecast.