Regenersis PLC

Preliminary Results

RNS Number : 6993O
Regenersis PLC
24 September 2013
 

24 September 2013

Regenersis Plc

 

(AIM: "RGS")

Preliminary results for the year ended 30 June 2013

 

Regenersis Plc ("Regenersis" the "Company" or the "Group"), a strategic outsourcing partner to many of the world's leading consumer technology companies, is pleased to announce its preliminary results for the year ended 30 June 2013, which show a strong financial performance and good growth, along with a number of positive corporate developments including acquisitions after the year end.

 

Highlights                                                                                                    

·     Good growth at increasing rates whilst doubling operating cash flow and reducing net debt.

·     Dividend increased substantially.

·     Two strategic acquisitions in Emerging Markets, an important partnership for Refurbishment and the expansion of remote diagnostics interests into mobile. 

·     Major step-up in new business wins in H2 which has continued after the year end.

·     81% of the Group's headline operating profit generated from the strategically important Emerging Markets and Advanced Solutions Divisions.

·     Three 'game changers' identified for the next 2-3 years, which underpin the growth strategy in Emerging Markets and Advanced Solutions - quality of our people, globalisation of our business on a matrix of countries and services and M&A.

 

Financial Highlights

·     Group revenue increased to £179.7 million (2012: £139.9 million) - up 28%.

·     Headline operating profit* increased to £9.5 million (2012: £7.8 million) - up 22%.

·     Operating profit more than doubled to £7.1 million (2012: £2.1 million).

·     Adjusted EPS increased by 21% to 16.80p (2012: 13.85p) and basic EPS increased by 216% to 10.53p (2012: 3.33p).

·     Headline operating cash flow** increased to £11.0 million (2012: £5.9 million) - up 86%.

·     Operating cash flow more than doubled to £9.9 million (2012: £4.9 million).

·     Capital expenditure and R&D increased to £4.2 million (2012: £3.3 million) - up 27%.

·     Successful placing to raise £6.9 million in March 2013 which has been used to support organic growth and acquisitions.

·     Net debt reduced to £1.9 million (FY 2012: £2.9 million and HY 2013: £7.7 million). 

·     Recommended final dividend of 1.83 pence per ordinary share (2012: 1.1 pence per share), giving a total dividend for the year of 2.5 pence per ordinary share (2012: 1.1 pence) - up 127%.

 

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

(**) Headline operating cash flow excludes tax and interest payments.



 

Operating Highlights

·     Management scaled for growth:  new senior team appointed.

·     Successful integration of the HDM Group of Companies ("HDM"), achieving contract wins by combining new local capabilities with the Regenersis brand and global sales force. 

·     Implementation of a new global sales force across APAC, EMEA and Americas.

·     Renew division established within Advanced Solutions, bringing together Recommerce, Refurbishment and Digital Care. 

·     Major new business wins in H2, with several landmark multiyear contracts including:

becoming the Europe-wide mobile repair provider for a major OEM;

device refurbishment and supply partner for Telefonica Insurance;

packaged insurance (Digital Care) and Recommerce solution for market-leading Polish mobile operator;

New contracts in South Africa, Sweden, Mexico and Romania.

·     Global presence extended to include India, serving our goal to grow in Emerging Markets.

·     Results delivered in spite of the significant reduction in volume from certain of our largest clients, who experienced volume shrinkage in their end markets.

·     81% of the Group's headline operating profit generated from the strategically important Emerging Markets and Advanced Solutions Divisions.

 

M&A Highlights

·     Landela Electronics (Proprietary) Ltd ("Landela") acquired on 25 April 2013 for 21.2m ZAR (£1.5 million) - largest set top box repair business in South Africa, bringing a significant new customer to the Group.

·     New partnership with EcoAsia Technologies Ltd ("EcoAsia") formed in July 2013 to fulfil refurbishment opportunities across Regenersis' client base in mainland Europe and manage global refurbishment programmes for OEMs.

·     Digicomp Complete Solutions Limited ("Digicomp") acquired on 10 September 2013 for INR 451 million (£4.4 million), giving Regenersis significant presence in Indian aftermarket services business.       

·     Investment of USD 1.2 million (£0.75 million) in Xcaliber Technologies LLC and Xcaliber Infotech PVT Ltd ("Xcaliber") on 17 September 2013, a developer of telecoms solutions primarily focused on remote diagnostics software for smartphones, adding to existing diagnostics offer both in the US and globally. 

 

Strategy Update

·     The strategy announced in June 2011 is working well.  As we enter the third year of this strategy, we will continue to focus on Emerging Markets and Advanced Solutions, on expanding and populating a matrix of services and territories to exploit cross-selling opportunities, maximising return on investments and shared overheads and cumulatively increasing the competitive advantage of the Group.

·     Overall the Group is focussing on three 'game changers' for the next 2-3 years, which underpin the growth strategy in Emerging Markets and Advanced Solutions.  These are: quality of our people, globalisation of our business on a matrix of countries and services and M&A.

·     Acquisitions and corporate developments are an important element of the strategy as the Group has now demonstrated the ability both to attract desirable targets and corporate partnerships, generate sales synergies, and provide good, earnings-accretive growth.  The Group has a healthy pipeline of these opportunities.

·     Organic growth in developed markets is also becoming a feature as the Group is competing successfully for much larger, multi-geography pieces of business than in prior periods, in large part due to the expanding geographical footprint and best-of-breed capabilities it is able to offer.

The strategy of organic and acquisitive growth is supported by the Group's ability to attract and retain top talent, which has become an area of significant strength and competitive advantage.

 

Outlook

 

·     Current trading is in line with market expectations.

·     New business wins have progressed very well and are significantly ahead of the run rate at this stage for last year.

·     Opportunities for global growth, both organically and by acquisition, remain strong. 

·     Continuing strong growth expected from Emerging Markets and Advanced Solutions. 

·     In June 2011, we set out a strategy to target double digit rates of growth in revenue and profits for the following 2-3 years.  We have achieved that.  Having invested well, we now believe the opportunity exists to continue to grow annually at double digit rates of growth for the foreseeable future.

·     Investment in capital expenditure and head office cost growth will continue throughout the business, in order to deliver efficiencies and further growth in 2015 and beyond.  

 

Matthew Peacock, Executive Chairman of Regenersis, said:  "Regenersis has delivered another strong performance: from the revenue line down to EPS growth, as well as excellent free cash flow.  Consistent with our strategy set out in 2011, the opportunity exists to maintain these levels of growth for the foreseeable future.  We have invested in our management team to continue the pace of progress and expect future success."

 

Enquiries:

 

Regenersis Plc                                                                                                  +44 (0) 20 3657 7000

Matthew Peacock, Executive Chairman

Jog Dhody, Chief Financial Officer

 

Panmure Gordon (UK) Limited (Nomad and Joint Broker)            +44 (0) 20 7886 2500

Dominic Morley / Nicola Marrin, Corporate Finance

Charles Leigh Pemberton, Corporate Broking

 

Cenkos Securities (Joint Broker)                                                               +44 (0) 20 7397 8900

Liz Bowman, Corporate Finance

Alex Aylen, Sales

 

Tavistock Communications                                                                         +44 (0) 20 7920 3150

Catriona Valentine / Matt Ridsdale / Keeley Clarke

 

About Regenersis

 

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

 

Building upon its success in repair, the company is already proving its pioneering range of services known as Advanced Solutions, which include in-field testing, where Regenersis is partnering with cable operators across the world to diagnose set-top box faults in the home, reducing unnecessary returns.  The newly formed Renew business unit comprises Digital Care, which provides extended warranty and insurance services to end customers; Refurbishment, which provides legitimate, quality refurbished components and devices to the end customer; and Recommerce, which offers client led refurbishment, repair and onward disposition of devices.

 

www.regenersis.com

 

 

Chairman's Statement

I would like to thank all my colleagues for their contributions throughout the year.  I am pleased to report the year has been a success, meeting our ambitious goals, both financially and also in terms of strategic developments.  I believe we will look back on 2013 as a year in which we laid the foundations of a very competitive and successful business.

 

Entering the third year of the strategy to deliver double digit sales and earnings growth through a focus on Emerging Markets and Advanced Solutions, our strategy remains firmly on track.  Not only have we met our initial goals but the progress we are making in the Group means the opportunity to maintain these levels of growth is now available to us for the foreseeable future.


In the past 12 months, we have extended the Group's operations into Spain, Mexico, Argentina, Sweden, India and the USA.   Regenersis now has a footprint of 21 depot sites, runs 105 "retail units" in 13 countries and employs over 3,750 people.   Our clients have been important in helping us extend our services and geographies and I would particularly like to thank them for their part in making this year a success.

 

In the year under review, revenue increased by 28% to £179.7 million and headline operating profit improved by 22% to £9.5 million.  Cash flow management improved with headline operating cash flow of £11.0 million (2012: £5.9 million).  Net debt at the year-end was just £1.9 million (2012: £2.9 million), compared with £7.7 million at the end of the six months to 31 December 2012.

 

In June 2013 we reinstated the payment of interim dividends after 5 years, with the payment of 0.67 pence per ordinary share. I am pleased to announce that, in line with our stated dividend policy, the Board is recommending a final dividend of 1.83 pence per ordinary share to be paid on 4 December 2013 to shareholders on the register on 8 November 2013.  This gives a full year dividend of 2.5 pence per ordinary share, which represents a 127% increase on the prior year and is a sign of the Board's confidence (2012: 1.1 pence).

 

On 28 March 2013, the Group raised £6.9 million (before expenses) through a placing of 3,300,000 new ordinary shares at a price of 209 pence per share.  The proceeds of the placing were initially used to supplement organic growth by investing in the working capital requirements of the Group and also to fund acquisitions.  We were pleased with the high level of support shown for the placing.

 

Since the year end, the Group has acquired Digicomp Complete Solutions Ltd ("Digicomp").  This represents another significant and exciting step for Regenersis as it brings us into the high growth Indian market for the first time.  This emerging market exhibits the classic characteristics for us of rapid growth and few mature competitors.  We are delighted with the quality and client relationships of the Digicomp business and believe that this will be a significant territory for the Group over the next few years.

 

We have also formed new partnerships with Xcaliber Technologies LLC ("Xcaliber") and EcoAsia Technologies Ltd ("EcoAsia") in the rapidly developing and strategically important areas of mobile device diagnostics and parts refurbishment, which are becoming areas of real strength for us.  Our organic new ventures in Recommerce and Digital Care have also moved successfully through the cost investment phase this year.

 

The year just ended has, above all, in terms at least of my own time spent, been about hiring and integrating new people.  We are on a path to building the stand-out team in the sector.  Much of this investment in people was focused on product development and sales.  It was, therefore, extremely pleasing to see a big ramp in new contracts won in the second half of the year and for this to have continued since the year end.

 

 

Senior Appointments

 

The management team has been further strengthened with a number of senior appointments, reflecting our continued focus on operational excellence and future growth:

·     Bryce Boothby, appointed Group Sales & Marketing Director.  Bryce joined Regenersis from Celestica Inc, where he spent many years as the President of its aftermarket services division.

·     Pritpal Matharu, a senior industry MD, appointed to manage and direct the Renew business.  He joins the Executive Committee and Advanced Solutions board on 1 November 2013.  Pritpal is joining from Carphone Warehouse Plc, where he has spent the last four years building the B2B Services division, including leading the Business Development, Operations and Account Management functions.  

·     Simon Harper has just been appointed as COO of our Depot business and joined the Group, the Executive Committee and Depot Solutions board on 23 September 2013.  Simon joins Regenersis from HTC, where he led a significant transformation programme of customer services as the VP Global Customer Service.  Prior to this, he was a partner at Booz & Company where he specialised in operational transformation for consumer-led companies.

 

Recent growth in sales and acquisitive growth have allowed the Group to make these appointments and, from October 2013, we will simplify the Group's management structure into two divisional Boards:

·      The Advanced Solutions division - which will focus on new products and powerful propositions that need to be developed, sold, implemented and globalised;

·      The Depot Solutions business - which provides the Group's geographic infrastructure and core repair service and whose focus is on continuous improvement, common operating practices, IT platforms and efficiency.

 

In June 2013, Rob Woodward joined the main Board as a Non-executive Director, replacing Kevin Bradshaw who stepped down in April.  Rob has significant experience in the Technology, Media and Telecommunications industry, notably with STV, Channel 4, UBS and Deloitte, and has already made a valuable addition to the Board. Tom Russell also moved from the position of Non-executive Director to a full time Executive Director role with responsibility for Strategy Development and Deployment.

 

Acquisitions and Corporate Developments

 

Our clients want to reduce complexity whilst improving efficiency and consistency.  They can achieve this by dealing with a smaller number of more global suppliers, which are focused on a complete range of aftermarket services.  At the same time, they are seeking innovative services which will improve client satisfaction and retention, reduce the cost of device failure, improve diagnostics, extend the life of devices and reduce wastage of expensive components.  Fragmentation in their service suppliers is expensive to manage, produces inconsistent results and is inefficient.  A market leader in the sector with a truly global platform, homogenous service and IT proposition and new services to bundle around core repair, is very attractive to our clients.  This is what is being built at Regenersis.  Acquisitions, which fill in geographies, products or services, are an important part in the delivery of this growth.  Post acquisition it has been particularly pleasing to see how quickly we have added new clients and services to acquired platforms and integrated them into the Group.

 

In addition, where it proves to be the best way to accelerate the Group's portfolio of services, we are being flexible in how we "acquire" and deliver new technologies and services; for example using joint ventures or investing in unique technologies. For our partners in these ventures, Regenersis is able to provide access to its global client base and encourage their growth with a view to proving their business model or technology and integrating them into our enlarged Group in future years.  This approach uses our global platform as a distribution network for idea delivery and client access and accelerates our ability to offer a broad base of solutions in a rapidly changing market place.

 

With this backdrop and a much strengthened senior management team, we have had a busy period for acquisitions and corporate development: 

 

·     Acquired the HDM Group of Companies ("HDM") on 31 August 2012, for an initial consideration of €6.5 million (£5.2 million) - giving Regenersis significant presence and market leading facilities in Spain, Mexico and Argentina.

·     Acquired Landela Electronics (Proprietary) Ltd ("Landela") on 25 April 2013 for 21.2m ZAR (£1.5 million) - largest set top box repair business in South Africa, bringing a significant new customer to the Group.

·     Acquired the trade and specific assets of Bitronic European Service Centre GmbH and Bitronic Sommerda Hardware Service GmbH ("Bitronic") on 14 May 2013.

·     Formed a new partnership with EcoAsia to fulfil refurbishment opportunities across Regenersis' client base in mainland Europe and manage global refurbishment programmes for OEMs.

·     Acquired Digicomp on 10 September 2013 for INR 451 million (£4.4 million) - giving Regenersis significant presence in Indian aftermarket services business.       

·     Invested USD 1.2 million (£0.75 million) in Xcaliber on 17 September 2013, a developer of telecoms solutions primarily focussed on remote diagnostics software for smartphones, adding to our existing diagnostics offer both in the US and globally. 

 

Outlook

 

I believe that the aftermarket services sector offers outstanding opportunities to innovative businesses. The key to the Group's success in this rapidly evolving and consolidating sector is that the best in class should want to work with Regenersis - be they clients, partners or acquisition targets. To my mind, this is demonstrably beginning to happen at Regenersis, which makes me optimistic about the prospects for the Group in the next financial year and beyond.

 

We will use this opportunity to reinvest in the strength of the management team.  This reinvestment will give the Group the management to develop further its world class sales force, acquire and integrate multiple bolt-on transactions and extend our common operating practices and systems across what is now a growing and global platform.

 

·     Current trading is in line with market expectations.

·     New business wins have progressed very well and are significantly ahead of the run rate at this stage for last year.

·     Opportunities for global growth, both organically and by acquisition, remain strong. 

·     Continuing strong growth expected from Emerging Markets and Advanced Solutions. 

·     In June 2011 we set out a strategy to target double digit rates of growth in revenue and profits for the following 2-3 years.  We have achieved that.  Having invested well, we now believe the opportunity exists to continue to grow annually at double digit rates of growth for the foreseeable future.

·     Investment in capital expenditure and head office cost growth will continue throughout the business, in order to deliver efficiencies and further growth in 2015 and beyond.  

 

Matthew Peacock

Executive Chairman

 

 

Business and Financial Review

 

Results

The financial performance of the business has once again showed significant forward momentum with revenue of £179.7 million (2012: £139.9 million, growth 28%), headline operating profit of £9.5 million (2012: £7.8 million, growth 22%), operating profit of £7.1 million (2012: £2.1 million, growth 238%), a headline operating profit margin of 5.3% (2012: 5.5%), and significant improvement in both headline operating cash flow of £11.0 million (2012: £5.9 million) and operating cash flow of £9.9 million (2012: £4.9 million), leading to a reduction in net debt at June 2013 to £1.9 million (2012: £2.9 million).

 

Key financials




2013

2012





£'m

£'m

Revenue




179.7

139.9

Headline operating profit



9.5

7.8

Operating profit




7.1

2.1







Headline operating margin %




5.3%

5.5%

Operating margin %


4.0%

1.5%

 

The most significant factors were:

·      28% earnings growth in Emerging Markets;

·      24% earnings growth in Advanced Solutions, despite funding planned start-up costs of £0.6 million in Digital Care;

·      In constant currency terms, Operating Profit and Headline Operating Profit for the year would have been £0.4 million higher if they had been restated at 2012 effective exchange rates.

 

Reporting segments



Revenue

Headline operating profit



2013

2012

2013

2012



£'m

£'m

£'m

£'m







Emerging Markets

55.4

41.3

5.9

4.6

Western Europe

96.1

79.7

2.2

2.1

Depot Solutions

151.5

121.1

8.1

6.7

Advanced Solutions

28.2

18.8

3.6

2.9

Total divisional

179.7

139.9

11.7

9.6

Corporate costs

-

-

(2.2)

(1.8)

Group

179.7

139.9

9.5

7.8

 

 

Depot Solutions

The Depot Solutions business has shown a 25% growth in revenue to £151.5 million and a 21% growth in headline operating profit to £8.1 million.   It consists of the Emerging Markets division and the Western Europe division.

 

Emerging Markets

The Emerging Markets division includes Poland, Romania, Russia, South Africa, Turkey and from September 2012, Mexico and Argentina.  From September 2013, this segment will also include India.

 

Overall, revenue increased to £55.4 million.  Headline operating profit also increased by 28% to £5.9 million.  Financial and operational highlights included:

 

·      Turkey and South Africa have shown very good progress and Mexico and Argentina performed in line with expectations.    

·      Poland and Romania remain focused on providing a quick in-country solution, as well as a low cost solution for near-shoring work from Western European markets.   During the year we won significant new business with a major OEM covering several European countries, and also transferred repair volume from the UK to Poland, which delivers clients a more cost effective service.  

·      South Africa moved to a good profit position after the initial start up investment in financial year 2012.  We implemented new work with a range of clients in the Media & Entertainment sector and enhanced this progress with the acquisition of Landela, which brought a new service line, set-top box repair, to the country.   The growth opportunities into adjacent African countries remain strong. 

 

The Group continues to focus on both organic and acquisitive routes into new emerging markets.  The recent addition of the Digicomp business will also give access to India.

Western Europe

The Western Europe division includes the businesses: in the UK, (excluding Advanced Solutions) at Huntingdon and Normanton; in Germany, Schloss Holte and Sommerda; in Sweden; and following the acquisition of HDM in August 2012, Spain.

 

Overall, revenue increased to £96.1 million.  Headline operating profit also increased marginally to £2.2 million.  Financial and operational highlights included:

 

·      Spain contributed for 10 months of the year.  This business has been integrated well and has performed in line with our expectations.  The Spanish business has had good growth with a range of new clients including Telefonica along with new service offerings brought to it through other Regenersis operations. 

·      In the UK, the closure of our Glasgow operation was completed.  We also commenced a new contract with Samsung at our Normanton site.

·      Germany performed in line with expectations.  During the year we added a number of additional service lines in the country including laptop repair, mobile screening and logistics.  These new activities will contribute from financial year 2014.

·      In Sweden, we relocated from Vesteras to Gothenburg where we co-located with Ingram Mobility, a major mobile product distributor in the Nordics.  During the latter half of the year, we incurred planned losses setting up this new Nordic facility but have had some good early successes with a number of Recommerce clients, which are expected to contribute more substantially in financial year 2014.

 

We are pleased with the performance in Western Europe, and continue to retain a sensible foothold to support all our clients across all geographies.

 

Advanced Solutions

The Advanced Solutions division includes the newly formed Digital Care and Recommerce activities, together with the set top box and In Field Tester ("IFT") business which will become part of a new Diagnostics unit by including new activities with Xcaliber's SmartChk mobile diagnostics.

 

Overall revenue increased 50% to £28.2 million. Headline operating profit grew by 24% to £3.6 million. Financial and operational highlights included:

 

·     We implemented a significant contract for the supply of the IFT product to Virgin Media to all of its field engineers.   The technology has been deployed for nearly 9 months and is performing well.  This has contributed to the profit growth in this division. 

·     Following successfully completing the pilot of the "garage tester" variant of the IFT last year with a large US cable TV company, trials continue in the US, although the implementation of a full roll out is expected to be several months off.  We have now extended the discussions with this client and others in the US and in the rest of the world on broader diagnostics opportunities that have developed with SmartChk.

·     We also brought to market several new service offerings:

Recommerce: which offers client led refurbishment, repair and onward disposition of devices.  This has contributed to revenue and profit growth in the year under review and we expect this to continue in 2014.

Digital Care: which provides extended warranty and insurance services to end customers through intermediaries covering mobile, media and other portable consumer electronic equipment.   During the year, we have absorbed £0.6m start up costs for this new business unit which has temporarily depressed the operating margin in the year.  In 2014 this business is expected to make a positive contribution as a result of new business already secured. 

Refurbishment: which provides legitimate, quality refurbished components and devices to the end customer through our new partner EcoAsia.  This is allowing a broadening of our client base to retailers and insurance companies.  In 2014, this new service is expected to make a positive contribution. 

Together the above activities comprise a new business unit called Renew.  The formation of Renew follows the Group's strategy to identify and deliver innovative, higher margin products and services in the aftermarket service sector for mobile devices, including insurance companies, network operators and retailers.  

In the last few months, Renew has won several new contracts with significant new activities for Telefonica in Spain and other clients in Poland and Sweden.   These new contracts are expected to contribute from 2014.

 

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

 

Constant Currency

During the year, we experienced significant headwinds in the translation of the South African Rand, the Swedish Krona and the Romania Leu. 

 

In constant currency terms, Operating Profit and Headline Operating Profit for the year would have been £0.4 million higher if they had been restated at 2012 effective exchange rates.

 

A reconciliation of actual results for 2013 to results restated at 2012 effective exchange rates is set out below:

 


2013 £'m

Actual

Results

2013 £'m

Constant Currency

Revenue

179.7

184.7

Gross Profit

40.8

42.2

Operating Profit

                7.1

7.5

Headline Operating Profit

9.5

9.9

Basic EPS (pence)

10.53

11.39

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

 

Client and sales development

We have continued to grow and develop our global sales team responsible for providing an integrated approach to large multinational clients and prospects.  In addition, we have created three distinct sales regions covering APAC, EMEA and Americas.

 

We have had considerable success winning larger multi-country contracts.  Of particular note is a European wide, three year mobile repair contract with a major OEM, which we believe to be an industry "first".  This contract will contribute primarily to the Emerging Market Depot Solutions division from 2014.  

 

We have also continued to roll existing relationships and capabilities successfully into other territories, most notably:

·      With Samsung from Spain into Mexico and other countries globally,

·      With Vodafone from Romania into Spain,

·      With Telefonica from the UK into Spain,

·      With Recommerce from the UK into Sweden,

·      With laptop repairs from the UK into Germany, and

·      With TomTom from Romania into South Africa.

 

In the year to June 2013, the largest client accounted for 16% (2012: 14%) of the Group's revenue and the top 10 clients represent 73% (2012: 67%) of Group revenue.  Within most of the largest clients, the business is built up from multiple contracts for different geographies and/or types of work with different durations.

 

Mergers and Acquisition activity

The Group has been very busy pursuing M&A opportunities.  For the Depot Solutions business acquisitions have been completed in Spain, Mexico, Argentina, South Africa, Germany and, post year end, in India.  For the Advanced Solutions division, the Group has also formed new partnerships with Xcaliber and EcoAsia in the rapidly developing and strategically important areas of mobile device diagnostics and parts refurbishment, which are becoming areas of real strength. 

 

Acquisition of HDM

On 31 August 2012, the Group completed the acquisition of the trade and assets of the HDM Group of Companies ("HDM") for an initial consideration of €6.5 million (£5.2 million) on a cash and debt free basis.  Key features of HDM:

·      Market leader in reverse logistics and repair to network operators and mobile telephone manufacturers in Spain, Mexico and Argentina.

·      Key customers included Telefonica, Samsung and Nokia.

·      HDM employs more than 600 staff across its three facilities.

 

In addition to the €6.5m initial consideration, a capped earn-out will be payable on 30 September 2015 based on the EBIT achieved in the year to June 2015 as follows:

 

Earn Out Formula


Indicative Acquisition Cost

FY15 HDM EBIT

Multiple


FY15 HDM EBIT

Initial

Consideration

Earn Out

Total

Consideration

Multiple

€0-2m

0.0x


€2.0m

€6.5m

€0.0m

€6.5m

3.3x

€2-3m

4.0x


€3.0m

€6.5m

€4.0m

€10.5m

3.5x

€3m and above

2.5x


€4.0m

€6.5m

€6.5m

€13.0m

3.3x

  

Of the initial consideration, €5.85 million (£4.6 million) was funded through the Group's existing revolving credit facility.  In addition, 587,571 ordinary shares were issued to the vendor in settlement of the remaining €0.65 million (£0.5 million) of initial consideration payable. 

 

This business has been integrated well and has performed in line with our expectations.  The Spanish business has had growth from a range of new clients and services brought to it through other Regenersis operations.  The Latin American market has attractive characteristics and we are beginning to see a number of interesting opportunities emerging.

 

Acquisition of Landela

On 25 April 2013, we completed the acquisition of all of the issued share capital of Landela Electronics (Proprietary) Ltd ("Landela") for a consideration of 21.2m ZAR (£1.5 million) on a cash and debt free basis.    Key features of Landela:

·      The largest set top box repair business in South Africa.

·      Key customers are dominant in the provision of satellite TV to the South African market and 11 other countries in Africa, with a market share in excess of 90%.

 

This enhanced the progress already made organically in the region and also brought a significant new client to Regenersis.  The growth opportunities into adjacent African countries remain strong and we are currently actively pursuing this new market for the Group's patented IFT technology. 

 

Partnership with EcoAsia

In July 2013 we formed a partnership with EcoAsia Technologies Ltd ("EcoAsia"), to fulfil refurbishment opportunities across Regenersis' client base in mainland Europe and manage global refurbishment programmes for OEMs.   EcoAsia is a market leading firm in Refurbishment capabilities with facilities in Philippines, Hong Kong, China and Mexico.

 

Acquisition of Digicomp

The Board is pleased to announce it has acquired on the 10 September 2013, 80% of the issued share capital of Digicomp Complete Solutions Limited ("Digicomp") for a consideration of INR 451 million (£4.4 million).  

 

Key features of Digicomp:

·     High-quality business in a new territory, India - 65% market share in formal laptop repair.

·     One main depot facility in Bangalore with 92 owned and franchised stores in the major Indian cities.

·     Key OEM customers, including Dell, HP, Lenovo and Acer and market leading accreditations with Foxconn and Pegatron.

·     Unique laptop recovery offering, which is growing rapidly, and is similar to the Group's existing mobile Recommerce business.

·     Market penetration for laptops in India is less than 10% of the total population and less than 5% for smart phones - both presenting very significant growth opportunities for Digicomp.

·     Strong, incentivised senior management team, which will remain in the business post acquisition.

The initial consideration of INR 451 million cash was funded through the Group's existing revolving credit facility.   In addition to the initial consideration, an earn-out will be payable in March 2015 based upon a fixed earnings multiple above a pre-defined level of profitability, using the average annualised EBIT achieved in the 17 month period 31 August 2013 to 31 December 2014.   In September 2016, Regenersis will acquire the remaining 20% of the issued share capital of Digicomp, based upon a fixed earning multiple applied to the average EBIT achieved in the 12 month period ending 31 March 2016.

 

Investment in Xcaliber

The Board is pleased to announce it acquired 15% (plus the option to acquire a further 10%) of the issued share capital of Xcaliber Technologies LLC and Xcaliber Infotech PVT Ltd (together "Xcaliber") for a consideration of USD 1.2 million (£0.75 million).  Xcaliber is a US based software business with a market leading mobile diagnostic technology which will add to our existing diagnostic offer both in the US and globally.   The effective date of exchange was 17 September 2013 and the date of completion is expected to be in October 2013.  Regenersis will also become Xcaliber's route to market around the world, with exclusivity in EMEA.  This will build Regenersis' share of the economics of Xcaliber significantly beyond our equity stake.   Key features of Xcaliber:

·      A developer of telecoms solutions primarily focussed on remote diagnostics software for smartphones.

·      Headquarters in Atlanta, USA along with a 60 person software development team based in Pune, India.

·      Xcaliber's most important application is the SmartChk diagnostics software for Windows, Android and iOS platforms, which is designed to drive down No Fault Found rates for operators and OEMs on smartphones by running comprehensive diagnostics either directly on the handset or through an in-store "kiosk"-style application.

·      Xcaliber's diagnostics technology will form part of the new suite of Advanced Solutions remote diagnostic offerings.

·      We believe Xcaliber is at the forefront of remote diagnostics technology which is of increasing importance, as OEM's and Operators look to continually reduce their costs and increase customer satisfaction, by reducing unnecessary returns.

·      This technology expands the Group's current diagnostic capability within set-top boxes, and expands the range of diagnostics solutions available to clients Regenersis is already working with, particularly in the US.

As well as providing Xcaliber with finance to fund growth, Regenersis will assist by providing access to our global sales resources in the marketing of the SmarkChk application by utilising our existing relationships with OEMs and operators.   Regenersis will also have the opportunity to use the application within its own facilities in order to automate and increase the efficiency of the screening and quality assurance phases of our repair process.

 

The initial consideration of USD 1.2 million cash will be funded through the Group's revolving credit facility.  

 

The Operating Matrix

The Group now has a footprint of 21 depot sites, runs 105 "retail units" in 13 countries and employs over 3,751 people.   9 of these countries were opened or acquired since the new Board took over in March 2011.  We also have 10 well-defined product and service offerings with clear teams and owners, of which 4 have been recently developed.  This matrix of geographies and products is important, firstly, because it is how we leverage and build on our strengths, assets and relationships and, secondly, it is how we translate our strategy for growth in Emerging Markets and Advanced Solutions into action on the ground. 

 

Acquisition costs                                                                          

Acquisitions costs amounted to £1.9 million (2012: £nil) with the largest costs relating to the acquisition of HDM.

 

Amortisation of intangible assets

Other costs excluded from headline operating profit included the ongoing amortisation of acquired intangible assets amounting to £0.1 million (2012: £0.2 million).

 

Share based payments

Share based payments amounting to £0.5 million (2012: £0.3 million) were also excluded from headline operating profit.

 

Net financing charges

Net financing charges were £1.4 million (2012: £0.4 million).  This has increased as a result of a £0.7 million charge in respect of the unwinding of the impact of discounting on deferred consideration primarily associated with the HDM acquisition.

 

Taxation

The total tax charge was £1.0 million (2012: £0.3 million).  The Group has a permanent benefit from being in territories where the local taxation rates are lower than the UK rate, for example in Poland and Romania.   The blended corporation tax rate for the entire year for Group in 2013 is 17%.  The blended corporation tax rate for H2 2013 was 15.5% and is expected to remain at or below this level going forward. 

 

Earnings per share                          

Adjusted earnings per share increased to 16.80 pence (2012: 13.85 pence). Basic earnings per share rose to 10.53 pence (2012: 3.33 pence).

 

Cash flow

2013

2012


£'m

£'m

Operating cash flow before movement in working capital

10.0

5.7

2.2

(1.6)

Movement in provisions

(1.2)

1.8

Headline operating cash flow

11.0

5.9

 

(0.3)

 

(0.2)

Tax paid

(0.8)

(0.8)

Operating cash flow

9.9

4.9

(4.3)

(3.3)

(7.5)

-

3.3

-

0.2

(1.2)




Net increase in cash and cash equivalents

1.6

0.4




Net debt

(1.9)

(2.9)

 

Headline cash inflow from operating activities improved dramatically to £11.0 million (2012: £5.9 million).    Cash inflow from operating activities also improved to £9.9 million (2012: £4.9 million). 

 

Working capital has decreased by £2.2 million, despite an increase in the size of the business.  This is due to a permanent benefit received from careful working capital management.   Debtor days are in line with the prior year at 42 days (2012: 42 days).

 

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

 

Net interest paid was £0.3 million (2012: £0.2 million) and is higher than the prior year due to increased use of the revolving credit facility throughout the majority of year primarily to fund the acquisitions of HDM in September 2012 and Landela in April 2013.

 

Capital expenditure increased to £4.3 million (2012: £3.3 million).  Expenditure on intangible assets amounted to £2.5 million (2012: £1.1 million) and comprised further R&D investment in automation, diagnostic and IFT technology as well as other new technologies.  Expenditure on tangible assets amounted to £1.8 million (2012: £2.2 million) and comprised leasehold improvements and technical equipment.

 

Banking facilities

The Group continues to benefit from its revolving credit facility of £23.25 million with HSBC.  The facility runs until October 2015.  Given our low level of net debt, the facility continues to provide significant funding to undertake further investment and M&A activity.

 

The Group has strong financial metrics with interest cover of 10 times (2012: 22 times) and a net debt to EBITDA ratio of 0.2 at 30 June 2013 (2012: 0.3).

 

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

 

Net debt

At 30 June 2013 net debt was £1.9 million, which is an improvement on the prior year (2012: £2.9 million). 

 

Year end net debt comprised gross borrowings of £6.6 million, in Sterling, ZAR and Euro's (2012: £6.0 million), cash and cash equivalents of £4.5 million (2012: £2.7 million) and the deferred arrangement fees of £0.2 million (2012: £0.4 million).

 

Key performance indicators

The Group has a range of performance indicators, both financial and non-financial, to monitor and manage the business.  These are set at the individual customer level and for business units as well as for the Group as a whole.  The Group's key performance indicators ("KPIs") are headline operating profit, headline operating cash flow, net debt, Adjusted EPS and Health & Safety RIDDOR reportable (or local country equivalent) incidents.  These measures are used continually to manage the business, improve performance and compare results against targets.

 

KPI

2013

2012

2011

Headline Operating Profit (£'m)

9.5

7.8

6.3

Headline Operating Cash Flo (£'m)

11.0

5.9

3.3

Net debt (£'m)

1.9

2.9

3.8

Adjusted EPS (pence)

16.80

13.85

12.26

Health & Safety RIDDOR* reportable incidents (number)

 

4

 

3

 

4

*or local country equivalent.

 

Risks and uncertainties

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

 

·      Commercial contract risks - Given the potential for onerous terms in customer contracts it is essential that Regenersis continues to contract for business at acceptable rates and with appropriate commercial balance.  This also includes consideration of the cash flow impact of each customer contract.  The Group has a contract approval process in which the key customer contracts will be approved by the Group Board and others approved by different levels of senior management as appropriate.

 

·      Systems risks - As data management is an essential platform of our service offering, the flexibility and reliability of the systems is critical to the ongoing development of the Group.  The integrity of our systems is maintained through backup testing and a disaster recovery planning.

 

·      Market and economic risks - The Group's activities support a broad range of customer orientated and technology rich products.  There is a strong correlation between the volume of consumer sales and the number of service events arising as a result of those sales.  The Group has been developing a diversified service capability and expanding capacity in low cost service locations to ensure a balanced portfolio of customers, services and locations.

 

·      Financing risks - In the continuing difficult financial markets the Group has maintained a prudent approach to the management of cash flow.  The Group has good access to revolving credit facilities providing finance until October 2015.

 

·      Customer concentration risks - A number of customers are significant in the context of the Group as a whole.  Decreasing customer concentration remains an issue the Board is conscious of and seeks to reduce further through the development of new customers and the creation of more dependent relationships with its existing customers.

 

·      Operational risks - Operational efficiency is vital to the profitability of the Group and to customer service.  The Group is currently giving this area great focus and has strengthened the operational management where needed.

 

·      Compliance risks - Some of the Group's business relies on the compliance with and enforcement of legislation consistent with the WEEE Directive.  The Group maintains Government approved licenses to manage the collection, treatment and export of electrical waste.  In addition, Regenersis handles equipment holding personal data and is mindful of the implications of the Data Protection Act.  The Group maintains internal processes to ensure appropriate guidelines are followed.

 

·      Foreign exchange rate volatility - The widening geographic spread of the Group means that financial results can, increasingly, be affected by movements in foreign exchange rates.  The risk presented by currency fluctuations may affect business planning and product procurement costs.  The Group monitors foreign exchange exposure closely and, when a transactional exposure is not covered through a natural hedge, will consider entering into a hedge arrangement.

 

·      Employee engagement - Staff engagement is essential to the successful delivery of service to customers and longer term the overall business strategy.  Considerable effort has been devoted to communicating the business strategy so employees are clear on our business objectives and their role in the strategy. The employee appraisals process and setting of personal objectives, operate within the framework of our corporate objectives.  This is then reinforced by the employee incentivisation process.

 

·      Corporate social responsibility - The Board continues to identify business ethics, health and safety, sustainability, the environment, employees and the local community as the main building blocks in this area.  To mitigate risks associated with these issues, Regenersis has implemented Group-wide policies and training of all staff.  The Board is committed to managing all risks associated with these activities, on an ongoing basis.

 

Cautionary statement

This review has been prepared solely to provide additional information to shareholders to assess the Group's strategy and the potential of that strategy to succeed and should not be relied upon by any other party or for any other purpose.  It contains certain forward-looking statements with respect to the financial condition, results, operations and businesses of Regenersis Plc.

 

These statements and forecasts involve risk and uncertainty because they relate to events and depend upon the circumstances that may occur in the future.

 

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

 

Matthew Peacock

Executive Chairman

 

Jog Dhody

Chief Financial Officer

 


Consolidated Income Statement

for the year ended 30 June 2013

 


 

 

2013

2012


Note


£'000

£'000






Group revenue

2


179,714

139,857






Headline operating profit



9,507

7,754

Exceptional restructuring costs

5


-

(4,945)

Acquisition costs

4


(1,874)

-

Amortisation of acquired intangible assets



(90)

(239)

Share-based payments



(471)

(281)






Group operating profit



7,072

2,289

Share of results of jointly controlled entity



6

(163)

Operating profit from continuing operations



7,078

2,126

Finance income

8


30

110

Finance costs

8


(1,437)

(552)

Profit before tax



5,671

1,684

Taxation

9


(978)

(261)

Profit for the year (attributable to the equity holders of the company)



4,693

1,423











Earnings per share





Basic

10


10.53p

3.33p

Diluted

10


10.46p

3.31p

 

Consolidated Statement of Comprehensive Income

for the year ended 30 June 2013

 


 

 

2013

2012




£'000

£'000






Profit for the year



4,693

1,423

Other comprehensive income - Amounts that may be reclassified to profit or loss in the future:





Exchange differences arising on translation of foreign entities



(94)

(1,454)

Total comprehensive income/(expense) for the year attributable to equity holders of the company



4,599

(31)







Consolidated Balance Sheet

as at 30 June 2013

 

 

 

Note


2013

£'000

2012

£'000

Assets





Non-current assets





Goodwill



40,441

26,936

Other intangible assets



4,588

1,631

Investments in jointly controlled entities



100

98

Property, plant and equipment



4,381

3,405

Deferred tax

22


3,447

1,543




52,957

33,613

Current assets





Inventory

13


7,924

6,556

Trade and other receivables

14


26,054

18,608

Cash

15


4,519

2,727




38,497

27,891






Total assets



91,454

61,504






Current liabilities





Trade and other payables

16


(32,949)

(20,825)

Provisions

21


(871)

(816)

Income tax payable



(496)

(60)




(34,316)

(21,701)

Non-current liabilities





Borrowings

18


(6,423)

(5,604)

Deferred Consideration

11


(7,777)

-

Provisions

21


(3,540)

(3,270)

Total liabilities



(52,056)

(30,575)






Net assets



39,398

30,929






Equity





Ordinary share capital

23


994

896

Share premium



26,592

19,702

Merger reserve



3,088

3,088

Translation reserve



74

168

Retained earnings



8,650

7,075

Total equity



39,398

30,929

 


Consolidated Statement of Changes to Equity

for the year ended 30 June 2013


 


Share capital

Share premium

Merger reserve

Translation reserve

Retained earnings

Total


£'000

£'000

£'000

£'000

£'000

£'000








Balance as at 30 June 2011

896

19,702

3,088

1,622

5,502

30,810








Comprehensive income:







Profit for the year

-

-

-

-

1,423

1,423

Other comprehensive income:







Exchange differences arising on translation of foreign entities

 

 

-

-

-

(1,454)

 

 

-

(1,454)

Transactions with owners recorded directly in equity:







Recognition of share based payments

 

-

-

-

-

150

150








Balance as at 30 June 2012

896

19,702

3,088

168

7,075

30,929








Comprehensive income:







Profit for the year

-

-

-

-

4,693

4,693

Other comprehensive income:







Exchange differences arising on translation of foreign entities

-

-

-

(94)

-

(94)

Transactions with owners recorded directly in equity:







Issue of Share Capital

98

6,890

-

-

-

6,988

Recognition of share based payments

-

-

-

-

289

289

Vesting of share options

-

-

-

-

(2,608)

(2,608)

Dividends Paid

-

-

-

-

(799)

(799)








Balance as at 30 June 2013

994

26,592

3,088

74

8,650

39,398



 

Consolidated Cash Flow Statement

for the year ended 30 June 2013

 

 

 

 

 


 

 

2013

2012


Note


£'000

£'000

Profit for the year

 

 

4,693

1,423

Adjustments for:

 

 



Net finance charges

8

 

1,407

442

Tax expense

9

 

978

261

Depreciation on property, plant and equipment

 

 

1,536

1,507

Impairment of property, plant and equipment

 

 

-

242

Amortisation of intangible assets

 

 

798

570

Impairment of intangible assets

 

 

-

549

Amortisation of acquired intangible assets

 

 

90

239

Share of JV profit

 

 

(6)

163

(Gain)/loss on disposal of property, plant and equipment

 

 

(2)

29

Share-based payments expense

 

 

471

281

Operating cash flows before movement in working capital

 

 

9,965

5,706

Increase in inventories

 


(706)

(291)

Decrease /(Increase) in receivables

 


294

(2,798)

Increase in payables and accruals

 

 

2,648

1,431

(Decrease)/Increase in provisions

 

 

(1,186)

1,816






Headline cash flows from operating activities



11,015

5,864

Interest received



30

111

Interest paid



(398)

(259)

Tax paid



(795)

(775)






Net cash inflow from operating activities



9,852

4,941






Cash flows from investing activities





Purchase of property, plant and equipment



(1,764)

(2,220)

Purchase and development of intangible assets



(2,479)

(1,103)

Proceeds from sale of property, plant and equipment



62

-

Acquisition of subsidiary, net of cash acquired

11,12


(7,488)

-

Net cash used in investing activities



(11,669)

(3,323)






Cash flows from financing activities





Proceeds from issue of share capital (net)

23


6,470

-

Drawdown /(Repayment) of borrowings

20


186

(1,236)

Payment on vesting of share options



(2,405)

-

Dividends paid



(799)

-

Net cash inflow / (outflow) from financing activities



3,452

(1,236)






Net increase in cash and cash equivalents



1,635

382

Other non- cash movements - exchange rate changes



157

(531)

Cash and cash equivalents at the beginning of year



2,727

2,876

Cash and cash equivalents at end of year

15


4,519

2,727

Cash and cash equivalents at end of year



4,519

2,727

Bank borrowings

18


(6,423)

(5,604)

Net debt

19


(1,904)

(2,877)


 

Notes to the Accounts

for the year ended 30 June 2013

 

1.       Basis of preparation

 

The consolidated financial statements contained in this preliminary announcement do not constitute statutory accounts as defined in Section 434 of the Companies Act 2006.  The financial statements are extracted from the 2013 Group financial statements which have yet to be signed and have not yet been delivered to the Registrar of Companies.  The audit of the statutory accounts for the year ended 30 June 2013 is not yet complete.  These accounts will be finalised on the basis of the financial information presented by the Directors in this preliminary announcement and will be delivered to the Registrar of Companies following the Company's annual general meeting.  The financial information included in this preliminary announcement has been based on the Company's financial statements which are prepared in accordance with International Financial Reporting Standards (IFRS) as adopted for use in the EU.  The principal accounting policies will be set out in the Group's 2013 statutory accounts.

 

The comparative figures for the financial year ended 30 June 2012 are based on the statutory accounts for that year, as delivered to the Registrar of Companies.  The report of the auditors on the financial statements for the year ended 30 June 2012, which were prepared in accordance with IFRS, was unqualified, did not draw attention to any matters by way of emphasis without qualifying their report and did not contain a statement under section 498 (2) or 498 (3) of the Companies Act 2006.

 

2.       Segmental reporting

 

The current 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 operations in Poland, Romania, Turkey, South Africa, Mexico and Argentina; Western Europe incorporates UK (excluding Glenrothes), Spain, Sweden and German businesses; whilst Advanced Solutions aggregates the Group's set top box repair, Diagnostics, Recommerce, Refurbishment and Digital Care businesses.

 

 

 


Revenue

2013

£'000

Share of JV 2013

£'000

Revenue

2013

£'000

Revenue

2012

£'000

Share of JV 2012

£'000

Revenue

2012

£'000

Revenue from external customers







Emerging Markets

56,568

(1,143)

55,425

42,318

(1,002)

41,316

Western Europe

100,471

(4,412)

96,059

83,938

(4,204)

79,734

Depot Solutions

157,039

(5,555)

151,484

126,256

(5,206)

121,050

Advanced Solutions

28,230

-

28,230

18,807

-

18,807


185,269

(5,555)

179,714

145,063

(5,206)

139,857

 

Within Emerging Markets and Western Europe, there are three customers which individually account for more than 10% of Group's revenue and had total revenues of: £28,874,000; £26,176,000; and £18,005,000 (2012: £18,533,000; £19,417,000 and £19,949,000 respectively). These are significant in the context of the Group although we contract under several service agreements in several different countries.

 

 

 

 

 

2013

2012




£'000

£'000

Headline segment profit





Emerging Markets



5,859

4,580

Western Europe



2,227

2,091

Depot Solutions



8,086

6,671

Advanced Solutions



3,617

2,905




11,703

9,576

Corporate costs



(2,196)

(1,822)

Headline operating profit



9,507

7,754

Exceptional restructuring costs



-

(4,945)

Acquisition costs



(1,874)

-

Amortisation of acquired intangible assets



(90)

(239)

Share-based payments



(471)

(281)

Group operating profit



7,072

2,289

Share of results of jointly controlled entity



6

(163)

Operating profit from continuing operations



7,078

2,126

Net finance expense



(1,407)

(442)

Profit before tax



5,671

1,684

 

 



Segment

assets

Segment

assets

Segment

Liabilities

Segment liabilities


 

2013

2012

2013

2012



£'000

£'000

£'000

£'000

Emerging Markets


29,670

19,145

6,791

4,063

Western Europe


33,928

19,752

15,563

11,186

Depot Solutions


63,598

38,897

22.354

15,249

Advanced Solutions


20,139

18,393

7,186

4,803



83,737

57,290

29,540

20,052

Corporate


7,717

4,214

22,516

10,523



91,454

61,504

52,056

30,575

 



 

Capital expenditure

Capital expenditure

Depreciation & amortisation

Depreciation & amortisation


 

2013

2012

2013

2012



£'000

£'000

£'000

£'000

Emerging Markets


935

1,182

736

769

Western Europe


957

772

824

952

Depot Solutions


1,892

1,954

1,560

1,721

Advanced Solutions


1,320

948

730

565



3,212

2,902

2,290

2,286

Corporate costs


1,031

421

134

30



4,243

3,323

2,424

2,316

 

 

 

Geographical information

 

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

 

 

 

2013

2012




£'000

£'000

Revenue from external customers





UK



87,854

75,503

Germany



21,819

22,995

Poland



29,235

28,881

Spain



13,489

-

South Africa



9,347

2,154

Rest of World



23,525

15,530




185,269

145,063

Less: share of jointly controlled entity



(5,555)

(5,206)




179,714

139,857

 


 

 

2013

2012




£'000

£'000

Inter-location revenue





UK



7

98

Poland



325

2

Rest of World



20

71




352

171

 

 

 

 

2013

2012




£'000

£'000

Non-current assets





UK



44,861

30,674

Non-UK



7,983

2,939




52,844

33,613

 

 

3.       Operating profit


 

 

2013

2012




£'000

£'000

Revenue



185,269

145,063

Less: share of jointly controlled entity



(5,555)

(5,206)

Group revenue



179,714

139,857

Cost of sales



(138,946)

(106,206)

Gross profit



40,768

33,651

Headline administrative expenses



(31,261)

(25,897)

Headline operating profit



9,507

7,754

Other administrative expenses



(2,435)

(5,465)

Share of results of jointly controlled entity



6

(163)

Operating profit



7,078

2,126






Administrative expenses



33,696

31,362

 

4.       Acquisition costs


 

 

2013

2012




£'000

£'000

Acquisition costs



1,874

-

 

Acquisition costs during the year relate to the M&A activity within the year, with the largest costs relating to the acquisition of HDM.

 

5.       Exceptional restructuring costs


 

 

2013

2012




£'000

£'000

Redundancies and restructuring



-

2,466

Onerous lease and dilapidation provision



-

1,961

Unsuccessful acquisitions



-

518




-

4,945

 

 

The 2012 cost includes substantial restructuring costs including provisions for onerous property leases and redundancy costs incurred in the UK.  This completed the review undertaken by the Directors to consolidate key sites and activities within the UK.

 

6.       Profit for the year

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


2013

2012


£'000

£'000

Depreciation of property, plant and equipment - owned

1,536

1,507

Loss on disposal of property, plant and equipment

2

29

Amortisation of intangible assets

888

809

Cost of inventories recognised as an expense

90,217

67,591

Staff costs (note 7)

49,625

45,019

Net foreign exchange (gains)/losses

(248)

263

 

7.       Staff costs


 

 

2013

2012




Number

Number

Average numbers employed





Production



2,214

2,067

Sales and business development



83

15

Administration



384

319




2,681

2,401

 

 


 

 

2013

2012




£'000

£'000

Aggregate employment costs





Wages and salaries



42,490

39,269

Social security costs



5,187

4,423

Share based payments



471

281

Pension and other staff costs



1,477

1,046




49,625

45,019

 

 

Key management personnel have been identified as the main Board, the Depot Solutions board, the Advanced Solutions Board and the Executive Committee.  Remuneration of key management personnel is as follows:

 


 

 

2013

2012




£'000

£'000

Key management personnel costs





Short term employee benefits



2,571

2,036

Post employment benefits



102

68

Share-based payments



258

150




2,931

2,254

 

 

8.       Finance costs and finance income


 

 

2013

2012




£'000

£'000

Bank interest receivable and similar income



30

110

Total finance income



30

110






Interest payable on borrowings:





Bank loans and overdrafts



725

473

Other finance costs



11

79

Unwind of discount factor



701

-

Total finance costs



1,437

552






Net finance charge



1,407

442

 

9.       Tax


 

 

2013

2012




£'000

£'000

Current tax





UK corporation tax



71

-

Overseas tax



705

883

Adjustments in respect of prior years



255

(17)

Total current tax charge



1,031

866

 

 

 





Deferred tax





UK



(326)

(524)

Overseas



338

43

Adjustments in respect of prior years



(65)

(124)

Total deferred tax (credit)  (note 22)



(53)

(605)









978

261

 

UK Corporation tax is calculated at 23.75% (2012: 25.5%) of the estimated assessable profit for the year.  Taxation for other jurisdictions is calculated at the rates prevailing in the respective jurisdictions.

 

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


 

 

2013

2012




£'000

£'000

Profit before tax



5,671

1,684

Tax at standard UK corporation tax rate of 23.75% (2012: 25.5%)



1,347

429






Effects of:





Permanent differences



52

416

Rate differences



(248)

(219)

Adjustment in respect of previous periods



202

(143)

Brought forward losses no longer recognised



106

-

Current year losses not recognised



62

640

Relief on research & development costs




(166)

Other timing differences



(543)

(696)




978

261

 

Factors that may affect future current and total tax charges

The 2013 budget on March 2013 announced that the UK corporation tax rate will reduce to 20% by 2015.   A reduction in the rate from 26% to 25% (effective from 1 April 2012) was substantively enacted on 5 July 2011, and further reductions to 24% (effective from 1 April 2012, 23% (effective from April 2013), 21% (effective from April 2014) and 20% (effective from April 2015) were substantively enacted on 26 March 2012, 3 July 2012 and 2 July 2013 respectively.

 

This will reduce the Group's future current tax charge accordingly and further reduce the deferred tax assets and liabilities recognised, which have been based on a tax rate of 23% (2012: 24%), as this was substantively enacted at the balance sheet date.

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

 

10.     Earnings per share (EPS)


 



 

2013

2012

EPS Summary





Pence

Pence

Basic earnings per share





10.53

3.33

Diluted earnings per share





10.46

3.31

Adjusted earnings per share





16.80

13.85

Adjusted diluted earnings per share





16.69

13.75

 

 

 


 


2013

2012

2013

2012




Pence per share

Pence per share

£'000

£'000

Basic EPS/profit for the year



10.53p

3.33p

4,693

1,423

Reconciliation to adjusted profit:







Amortisation of acquired intangible assets



0.15p

0.41p

69

177

Impairment of acquired intangible assets



-

-

-

-

Acquisition costs



3.85p

0.93p

1,718

394

Share based payments



1.06p

0.66p

471

281

Unwinding of discount on deferred consideration



1.21p

-

539

-

Exceptional restructuring costs



-

8.52p

-

3,637











16.80p

13.85p

7,491

5,912

 

 

Number of shares

 



 

2013

2012






'000

'000

Weighted average number of ordinary shares



46,009

44,820

Treasury shares excluded





(1,419)

(2,150)

Weighted average number of ordinary shares (basic)



44,590

42,670

Effect of share options in issue





284

335

Weighted average number of ordinary shares (diluted)



44,874

43,005

 

The outstanding awards granted under ISP1 and ISP2 are not dilutive as at 30 June 2013 and therefore are excluded from the diluted EPS calculation.

 

11.       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 10 months to June 2013, this acquisition has contributed total revenue of £21,519,000 and headline operating profit of £954,000.  If the acquisition had been completed on the first day of the financial year, management estimates that total revenue for the year would have been £25,823,000 and the total operating profit for the year would have been £1,145,000.  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 book value and fair value of the assets acquired and liabilities assumed were as follows:

 


Book Value

£'000

Fair Value

£'000

Intangible assets

438

438

Intangible assets - customer contracts

-

608

Property, plant and equipment

1,528

626

Inventory

608

410

Trade and other receivables

5,609

5,763

Deferred tax asset

-

1,218

Trade and other payables

(3,420)

(3,906)

Provisions

(1,563)

(1,351)

Net assets acquired

3,200

3,806

Goodwill


9,630

Total Consideration


13,436




Satisfied by:



Cash


6,282

Equity Instruments Issued


529

Deferred Cash


6,625

Total Consideration


13,436

 

The fair value adjustments relate to intangibles arising from customer contracts (£608,000), obsolete or unutilised Property, Plant and Equipment (£902,000), obsolete inventory (£198,000), old credit balances in debtors (£139,000), other contingent liabilities (£486,000), and a reduction in an onerous lease provision (£212,000), together with the consequential deferred tax impact on the above.

 

In addition to the adjustments noted above, during the course of the due diligence period, the Directors, working with the Directors of HDM, identified a number of further adjustments that were required to the book values, including accounting policy alignments, following a review of all balance sheet categories. These adjustments include £1,563,000 in relation to onerous leases, £312,000 in relation to software licenses, £624,000 in relation to other liabilities and £145,000 for unrecoverable accrued income, all of which were not previously identified by HDM in the course of preparing its management accounts.

 

Trade receivables acquired totalled £3,303,000 gross, which consisted of £3,186,000 net and bad debt provision of £117,000.

 

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.  The Group included a deferred liability of £6,625,000 which represents the fair value at the acquisition date, using a discount rate of 12%.  At 30 June 2013 the contingent consideration had increased to £7,777,000 million, due to the unwinding of the impact of discounting and also foreign exchange movements.

 

Under IFRS 3, "Business Combinations" the only separately identifiable intangible asset arising from the acquisition relates to customer contracts and relationships valued at £608,000.    The remaining goodwill of £9,630,000 can be attributed to the anticipated profitability through the growth of the enlarged Group and synergistic benefits.

 

 

12.     Other acquisitions within the year

 

On 25 April 2013 Regenersis acquired all of the issued share capital of Landela Electronics (Proprietary) Ltd ("Landela"); on 1 November 2012 Regenersis acquired the remaining 50% share holding in Digital Care Sweden; and on 14 May 2013 Regenersis acquired the trade and specific assets of Bitronic European Service Centre GmbH and Bitronic Sommerda Hardware Service GmbH ("Bitronic").

 

In the periods following their acquisitions, they contributed total revenue of £1,495,000 and operating loss of £194,000.  If the acquisitions had been completed on the first day of the financial year, management estimates that total revenue for the year would have been £7,550,000 and total operating loss for the year would have been £208,000.  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 2013.

 


Book Value

£'000

Fair Value

£'000

Intangible assets

14

14

Intangible assets - customer contracts

-

220

Cash

253

253

Property, plant and equipment

211

168

Inventory

321

256

Trade and other receivables

387

387

Deferred tax asset

-

736

Trade and other payables

(3,053)

(3,407)

Net assets acquired

(1,867)

(1,373)

Goodwill


3,379

Total Consideration


2,006

 

 



 

 

Satisfied by:



Cash


1,459

Deferred Cash


547

Total Consideration


2,006

 

The fair value adjustments relate to intangibles arising from customer contracts (£220,000), obsolete or unutilised property, plant and equipment (£36,000), obsolete inventory (£65,000), onerous contracts (£191,000), other liabilities (£164,000) and the reclassification of goodwill (£212,000) on Bitronic's balance sheet at the date of acquisition to Regenersis' balance sheet under the requirements of IFRS, together with the consequential deferred tax impact of the above.

 

In addition to the adjustments noted above the Directors, working with the administrators of Bitronic, identified a number of further adjustments that were required to the book values, including accounting policy alignments, following a review of all balance sheet categories.  These adjustments relate to liabilities identified during the due diligence so as to properly reflect the position of the business in its insolvency process (£2,054,000).

 

Trade receivables acquired totalled £201,000 gross, which consisted of £201,000 net and bad debt provision of £nil.

 

Deferred cash consideration

Both Landela and Bitronic acquisitions include an element of deferred cash consideration.  In Landela these are fixed amounts to be paid in three instalments over the next financial year.  In Bitronic this relates to an agreed payment which is currently held back until liabilities identified at the point of acquisition are settled by the previous owner, as dictated in the sale and purchase agreement.

 

Under IFRS 3, "Business Combinations" the only separately identifiable intangible assets arising from these acquisitions relates to customer contracts and relationships valued at £220,000.   The remaining goodwill of can be attributed to the anticipated profitability through the growth of the enlarged Group and synergistic benefits.

 

13.     Inventories


 

 

2013

2012




£'000

£'000

Raw materials



6,038

3,947

Work in progress



1,091

907

Finished goods



795

1,702




7,924

6,556

 

14.     Trade and other receivables


 

 

2013

2012




£'000

£'000

Trade receivables



19,534

14,881

Less: provision for doubtful trade receivables



(159)

(217)

Trade receivables net of provision



19,375

14,664

Prepayments and accrued income



6,679

3,944




26,054

18,608

 

A reconciliation of the movement in the provision for doubtful trade receivables is as follows:




2013

2012




£'000

£'000

At 1 July



217

232

Provision created



126

107

Amounts written off as uncollectable



(131)

(73)

Amounts recovered during the year



(53)

(49)

At 30 June



159

217

 
15.     Cash and cash equivalents


 

 

2013

2012




£'000

£'000

Cash at bank and in hand



4,519

2,727

 

 

16.     Trade and other payables


 

 

2013

2012




£'000

£'000

Trade payables



11,549

7,563

Other taxes and social security



1,773

625

Other payables



4,138

3,437

Accruals and deferred income



15,489

9,200




32,949

20,825

 

 

17.     Dividends


2013

2013

2012

2012


£'000

Pence per share

£'000

Pence per share

Previous year final dividend

489

1.10

-

-

Current year interim dividend

310

0.67

-

-


799

1.77

-

-

 

18.     Bank borrowings


 

 

2013

2012




£'000

£'000

Due after more than one year:





Secured bank loan



6,423

5,604

Repayable:

In the third to the fifth years inclusive



 

6,423

5,604

 

The bank borrowing is secured on the majority of the Group's assets for the duration of the revolving credit facility. The revolving credit facility available to the Group as at 30 June 2013 totalled £23.25 million (2012: £23.25 million), of which £6.6 million (2012: £6.0 million) had been drawn down in cash, resulting in an unutilised revolving credit facility of £16.65 million (2012: £17.25 million).  In the previous year the revolving credit facility was increased to £23.25 million to support the future acquisition activity of the Group. The facility expires on 31 October 2015, and borrowing costs of £203,000 (2012: £396,000) are set-off against the amount owing at year end.

 

 

19.     Net (debt)/cash


 

2013

2012



£'000

£'000

Cash


4,519

2,727

Bank borrowings (non-current)


(6,423)

(5,604)



(1,904)

(2,877)

 

 

 

20.     Reconciliation of movement in net debt

 


Net debt at 1 July 2012

Cash flow

Drawdown of borrowings

Other non-cash items

Net debt at

30 June 2013


£'000

£'000

£'000

£'000

£'000

Cash at bank and in hand

2,727

1,635

-

157

4,519

Borrowings

(5,604)

7

(193)

(633)

(6,423)


(2,877)

1,642

(193)

(476)

(1,904)

 

 

 

21.     Provisions


 

 

 


Onerous

Leases

£'000

Dilapidations

£'000

Total

£'000

At 1 July 2012

3,672

414

4,086

Created during the year

-

-

-

Acquired during the year

1,351

-

1,351

Paid during the year

(1,145)

(41)

(1,186)

Unwinding of discount factor

58

1

59

Foreign exchange movement

101

-

101

At 30 June 2013

4,037

374

4,411

 

Provisions relate to a period of between one and eight years and are analysed between current and non-current as follows:



2013

£'000

Current


871

Non-current


3,540



4,411

 

Opening provisions relate to onerous lease and dilapidation provisions relating to the restructuring in Glasgow, covering residual lease commitments which expire between 2017 and 2019. 

 

The balances acquired within the year relate to onerous leases within Spain and Mexico, covering lease commitments which expire between 2017 and 2020.

 

 

 

22.     Deferred tax assets


At 1 July 2012

Recognised in the income statement

 

Recognised upon acquisition

Exchange

At 30 June 2013


£'000

£'000

£'000

£'000

£'000

Property plant and equipment

1,054

39

-

-

1,093

Intangible assets

(17)

17

-

-

-

Short term timing differences

182

(93)

1,953

4

2,046

Tax losses

324

(16)

-

-

308


1,543

(53)

1,953

4

3,447

 


At 1 July 2011

Recognised in the income statement

Exchange

At 30 June 2012


£'000

£'000

£'000

£'000

Property plant and equipment

584

470

-

1,054

Intangible assets

(90)

73

-

(17)

Short term timing differences

331

(133)

(16)

182

Tax losses

147

195

(18)

324


972

605

(34)

1,543

 

Deferred tax assets are recognised to the extent that they are considered recoverable against the future profits of the Group. No deferred tax asset has been recognised in relation to taxation on UK losses amounting to £1.0 million (2012: £2.9 million).

 

Certain deferred tax assets and liabilities have been offset to the extent permitted by IAS 12. The deferred tax asset balance as at 30 June 2013 is made up of a UK deferred tax asset balance of £0.6 million (2012: £1.1 million) and an overseas balance of £0.7 million (2012: £0.5 million).

 

 

23.     Called up share capital


2013

2013

2012

2012


Number of shares

£'000

Number of shares

£'000

Authorised:





Ordinary shares of 2p

59,760,350

1,195

59,760,350

1,195






Allotted, called up and fully paid:





Ordinary shares of 2p

49,715,386

994

44,820,252

896

 

The Company has one class of ordinary shares, which carry no rights to fixed income.  The holders of ordinary shares are entitled to receive dividends as declared and are entitled to one vote per share at meetings of the Company.

 

On 28 March 2013, the Group raised £6.9 million (before expenses) through a placing of 3,300,000 new ordinary shares at a price of 209 pence per share.  The proceeds of the placing were initially used to supplement organic growth by investing in the working capital requirements of the Group and also to fund acquisitions.  We were pleased with the high level of support shown for the placing.

 

24.     Subsequent events

 

Since the 30 June 2013 the Group has acquired 80% of the issued share capital Digicomp Complete Solutions Limited and 15% of the issued share capital of Xcaliber Technologies LLC and Xcaliber Infotech PVT Limited. Further details of these events are given in the Business and Financial review section.

 

25.     Annual Report

 

Copies of the Annual Report and Accounts will be available from the Company's website - www.regenersis.com  from 30 September 2013.  Copies will be sent to shareholders in due course and will be available from the registered office of Regenersis plc, 4th Floor, 32 Wigmore Street, London, W1U 2RP.

                                                                               


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