Blancco Tech Grp PLC

Half-year Report

RNS Number : 2184I
Blancco Technology Group PLC
20 March 2018
 

       

 

20 March 2018

 

BLANCCO TECHNOLOGY GROUP PLC

("Blancco", the "Company" or the "Group")

 

HALF YEARLY RESULTS

                                                    

Blancco Technology Group plc, the leading global provider of secure data erasure solutions and mobile device diagnostics, is pleased to announce its half yearly results for the six months to 31 December 2017.  

Financial highlights

·     Revenue from our continuing operations of £12.6 million (H1 2017 restated: £12.8 million). On a constant currency basis (as defined in the glossary), revenue was £12.8 million, in line with the prior year.   

·     Group Adjusted Operating Profit (as defined in the glossary) of £0.8 million (H1 2017 restated: £2.5 million) reflected increased operating expenditure in the period from the annualisation of significant investment in personnel during FY17. Group Operating Loss from our continuing operations of £1.1 million (H1 2017 restated: loss of £1.5 million) was less than the prior year principally due to a credit from the Group's share-based payment accounting without which the loss would have been £1.6 million (H1 2017 restated: loss of £0.5 million before a share-based payment charge of £1.0 million).

·     Adjusted Operating Cash Flow (as defined in the glossary) was £0.9 million (H1 2017: £0.8 million) with a strong cash conversion of 110% (H1 2017 restated: 34%) signalling a return to healthy cash generation from the Group's core operations.

·     Continuing adjusted earnings per share (as defined in the glossary) of 0.72 pence (H1 2017 restated: 2.75 pence). Continuing basic loss per share was 1.76 pence (H1 2017 restated: 4.77 pence)

·     Net debt at period end of £3.4 million (30 June 2017: £1.7 million net cash), due to payments related to the restructuring of the group's management team and payments in relation to prior period M&A activity.

·     No dividend has been declared for the period (H1 2017: 0.70 pence per share).

Operational highlights

·     We reorganised and refocussed the sales and operations teams to concentrate on four key customer categories, comprising IT Asset Disposition (ITAD), Mobile Processors, Mobile Retail, and Enterprise Data Centres.   

 

·     We sold our Mexican subsidiary and agreed a distribution model for that region. We now hold no interest in the share capital of the business. We consider that the business is now well placed with local management and stewardship to generate value for the group in the medium term.

 

·     We saw continued strong growth from our mobile product with 25% growth in Invoiced Sales year on year.

 

·     End of life erasure Invoiced Sales declined year on year, principally as a result of a number of non-repeating volume deals recognised in H1 2017. These covered multiple future years and several replaced deals previously contracted on a monthly basis, impacting the year on year comparative.

·     New enterprise customer contracts won in the first half of the year across the globe, with high value customers, covering a range of industries, demonstrated the scope and application of the Blancco product range, albeit these were not sufficient to fully mitigate the impact of multi-year contracts signed in H1 2017.

·     Further strengthening of our certification portfolio included our file erasure offerings achieving Common Criteria status.

·     The CEO recruitment process is at an advanced stage and we will update the market shortly.

 

Simon Herrick, Interim CEO of Blancco, said:

 

"I am extremely proud of the Blancco team's dedication, resilience and hard work during what has been a challenging period for the business. Our focus has been on reorganising and improving the functioning of the business to put Blancco in the best position for the new CEO to execute a sustainable growth strategy. The consistency of the team's focus and addressing successfully some challenging organisational matters has created a stable platform and these results show the underlying strength of the team, the quality of our products, our customer loyalty and satisfaction and the market's continued demand for the solutions we offer."

 

Unless otherwise stated, defined terms used in this announcement have the meanings given to them in the glossary at the end of this announcement.

 

Enquiries:

 

Blancco Technology Group Plc                                                                                      +44 (0) 20 3657 7000

Simon Herrick, Interim Chief Executive Officer & Chief Financial Officer

 

Peel Hunt LLP (Nominated Adviser and Broker)                                                    +44 (0) 20 7418 8900

Edward Knight

Nick Prowting

 

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

Dominic Morley, Corporate Finance

Charles Leigh Pemberton, Corporate Broking

 

Tulchan Communications                                                                                                 +44 (0) 20 7353 4200

Tom Murray

Matt Low

 

www.blancco.com

CHAIRMAN'S STATEMENT

I am pleased to report Blancco's half yearly results for the six month period to 31 December 2017.

Overall performance was slightly impacted by the effects of currency in the period, but underlying constant currency revenue was in line with the prior year. Our traditional erasure product growth was below trend but management has now taken remedial action in growing sales capacity and we expect this to normalise in the second half and beyond.

Our mobile erasure and diagnostic products have continued to be our best performing products as we look to grow our presence in these markets.

The Group has completed its transition to a pure-play software business, and completed the buy-outs of several of the minority interests of various Group subsidiaries in prior periods. We now own 100% stakes in the majority of our subsidiaries, with the only minorities remaining in territories where it is strategically important to retain a local partner. This has put Blancco in the best position to drive growth in the coming years.

We also continue to push forward our indirect sales worldwide, taking on a number of partnerships in the year and seeing strong sales growth in this channel. Most notably we have converted our previous Mexican subsidiary to a channel distributor, which will continue to grow the LATAM market for Blancco products.

Additionally, the Board has reviewed the cost base of the business during the first half to ensure that the workforce is aligned to targeting the strongest growth opportunities. This review resulted in a number of people leaving the business and has better focused the team to advance towards a number of key targets. The Board feels that the business is now well balanced to welcome a new CEO who will direct the strategy of the business going forward.

The CEO recruitment process is at an advanced stage and we will update the market shortly.

The Board is confident that it has considerably improved the functioning of the business, which stands Blancco in much better stead for the new CEO to execute a sustainable growth strategy, allowing the Group to leverage its market leading position and take advantage of growing demand.

 

Rob Woodward

Chairman

CHIEF EXECUTIVE'S REPORT

I am pleased to report Blancco Technology Group's results for the six months ending 31 December 2017.

Revenues from continuing operations of £12.6 million (H1 2017 restated: £12.8 million) remained broadly consistent year on year. Removing the impact of currency movements, our constant currency revenue of £12.8 million was in line with the prior period. Adjusted Operating Profit was £0.8 million (H1 2017 restated: £2.5 million). Further details of these results are contained in the Group Financial Review.

The focus of the first half of our 2018 financial year has been on rebuilding the confidence and focus of the Blancco team. Following a difficult time for the Group we have worked as a team to focus on our core customers, products and markets and to improve communication and coordination across a geographically spread Group. Throughout this period, we continued to see high levels of customer retention and recurring revenue across our business.

In FY18 we have continued to focus on our mobile offering with strong growth in Invoiced Sales in this market. There have been significant contract wins within the smartphone remarketing ecosystem across the globe, where customers want to perform both erasure and diagnostics on used devices prior to resale. Efficient processes and an easy-to-use interface are paramount and there have been several product releases within the period to support this.

In the first half of the year we also saw new opportunities within the enterprise market, focused on the data centres operated by these organisations. Large enterprises can use our data erasure products on devices, servers, data centres and the cloud. Blancco is the only provider of such complete and broad data erasure products in what is currently a relatively thinly-penetrated market. We also see data centres, which have a need for erasing storage on site, as a key opportunity for our active erasure products.

Our diagnostic performance remained flat, in line with management's expectations for the first half, with the ramp up of some newly won contracts being offset by a few legacy (pre-acquisition) Xcaliber contracts coming to an end.

We have continued to drive market awareness for the need to erase legacy data for security and compliance purposes in the lead up to the implementation date for EU General Data Protection Regulation of 25 May 2018, with a 69% measured Share of Voice (SoV) (2017: 56%) and 1,636 press mentions (H1 2017: 3,287) The International Data Sanitisation Consortium (IDSC) continues to encourage policymakers and regulators to use appropriate terminology and requirements for secure data erasure and create future requirements for data sanitisation.  This, combined with additional activities such as the quarterly State of Mobile Device Health Report, raises awareness of Blancco and facilitates the initiation of a de-facto standard in data erasure.

During this period the sales team has been reshaped and reorganised with a net reduction in headcount. This has ensured that our sales structure is aligned with the growth opportunities in our various regions and product markets. We have also made some changes to the sales leadership, with Alan Bentley taking on the role of President of Global Sales. We continue to develop our new partner business, with 35 new partner channels established in H1 FY18. Blancco recently signed a distribution agreement with Ingram Micro Inc., the world's largest wholesale technology distributor. This new relationship allows Ingram Micro and its partners to provide customers with data sanitisation from a single platform.

The business has not engaged in any merger and acquisition activity in the period, although it continues to satisfy earn outs falling due from legacy acquisitions. We now own 100% of all Group companies except for those in Japan (51%), Singapore and Malaysia (both 70%) and China (56%). During the prior year we engaged in the acquisition of minority interests across several of our subsidiaries and we are now seeing the benefit of better control and an enhanced sales force, albeit these countries are growing off a low base revenue and therefore do not yet contribute significantly to the Group's total revenue.

The Group disposed of its 70% ownership of its Mexican subsidiary in January 2018, following a decision to move this business from an ownership to a distribution model. The LATAM market has seen mixed fortunes in recent years with a number of one off deals arising, which while contributing to revenues and cash in the periods, didn't represent reliable revenue streams. The sales cycle in Mexico is significantly different to the rest of the business, with the Mexican government requiring stringent data erasure rules, and this has meant that the sales approach needs to be much more tailored at the local level. With the business moving to a distribution model, the local team can better control selling into this more complex market and promote growth of the business, with Blancco ultimately receiving a reseller percentage of all sales made. Blancco will continues to focus its direct sales across the rest of the world and primarily across the territories in which we already have a footprint.

Financial Results

We have restated the first half prior year results by including a number of the full year adjustments in the correct period.  Additionally, we have included the restatement of the Blancco Mexico results as a discontinued operation. The prior year first half restatement does not change the previously reported full year 2017 results. The full impact of these adjustments is further disclosed in note 1.1.

Blancco's revenue from continuing operations for the period was £12.6 million (H1 2017 restated: £12.8 million), in line with prior year on a constant currency basis following the strengthening of Sterling.

Group Adjusted Operating Profit was £0.8 million (H1 2017 restated: £2.5 million) with Adjusted Operating Profit of £1.0 million on a constant currency basis. Adjusted earnings per share were 0.72p (H1 2017 restated: 2.75p). Further details of these results are contained in the Group Financial Review.

Gross margins have remained steady at 96% (H1 2017 restated: 96%). Costs of sales are largely incurred in the sale of hardware that forms a small part of our Invoiced Sales.

Blancco's sales, general and administrative overheads associated with its continuing operations, inclusive of corporate costs, were £11.3 million (H1 2017: £9.8 million), and £10.1 million (H1 2017: £9.1 million) before depreciation and amortisation. The increase in the latter of £1.0 million is predominantly associated with the annualisation of the investment in the sales team, and other areas of the business, made during the first half of the prior year. During the period there has been a restructuring of the business, in particular focussed on the management team, with an emphasis on scaling the team to support the current size of the business, which has resulted in a reduction in the cost base from a level that had risen significantly in the prior period.

 

The adjusted operating profit margin before corporate costs has reduced to 13.9% (H1 2017 restated: 25.8%), which is a product of the rise in cost base from the prior year. The benefits of the reorganisation will only be fully realised in the second half.

 

Cash flow

Adjusted operating cash flow from continuing operations was £0.9 million (H1 2017 restated: £0.8 million). Operating cash flow in the period was significantly better than the prior period, demonstrating a return to strong cash generation from our core operations and a closer alignment between revenue and cash. This represented adjusted operating cash flow conversion of 110% (H1 2017 restated: 34%).

However, we have seen in the period that our net cash position has moved from £1.7 million net cash at 30 June 2017 to £3.4 million net debt, driven by several factors.

In the period, there were payments in respect of prior year exceptional costs and earn out payments relating to previous acquisitions.

Additionally, the costs of restructuring were £0.6 million. This has resulted in a reduction in the cost base to a level that better represents that required to support current revenue expectations, and will allow the business to generate stronger levels of cash from its operating activities. Reducing this semi-fixed cost base also allows the Group to make short-term investment decisions to take advantage of opportunities, which may generate more immediate revenue growth and cash generation.

Capital expenditure in the period was £1.4 million (H1 2017: £1.5 million) which is in line with the prior period and continues to be focused on the development of our range of industry leading products, with the investment in R&D subject to capitalisation increasing by £0.2 million versus the prior period.



 

Key Performance Indicators


6 months ended 31 December 2017

6 months ended 31 December 2016

(restated)

Year ended 30 June 2017

(restated)





Invoiced Sales (£'m)

12.8

13.9

27.8

Invoiced Sales by Geography




North America

4.5

5.1

9.9

Europe

4.9

5.2

10.0

Asia and rest of world

3.4

 

3.6

7.9

 

Invoiced Sales by Product type




Active erasure

0.4

0.4

0.7

Mobile erasure

3.6

2.8

6.3

End of Life erasure

6.5

7.9

15.2

Professional services

0.6

0.9

1.5

Diagnostics

 

1.7

1.9

 

4.1

Average annual spend per customer* (£'000)

59.4

54.3

58.9

Headcount




R&D

88

101

106

Sales/support

Admin/other

 110

41

 128

33

 125

42

Total

239

262

273

 

* For customers spending over €10k per year



 

Technology and Development update

Blancco development update

In the first half of this financial year, Blancco focused on refining the product portfolio to align with four key customer categories comprising IT Asset Disposition (ITAD), Mobile Processors, Mobile Retail, and Enterprise Data Centres. This refinement allows Blancco to address more clearly the needs of customers in these key markets.

Two notable releases in this period include the Mobile Dynamic Workflow in Blancco Mobile Device Eraser and the introduction of Business Intelligence Dashboards in Blancco Management Console. The Mobile Dynamic Workflow allows Mobile Processor customers to tailor the different orders of actions quickly and easily and make decisions based on those actions or mobile device information. This is all done through the built-in workflow editor. Secondly, the Business Intelligence Dashboard in Management Console quickly surfaces operational and performance details on the devices processed by ITADs and Mobile Processors. This allows management and executives the ability to refine their processes quickly based on the real-time feedback provided in the dashboards.

Technology Patents and Certifications

Blancco continues to lead the industry with its technology certifications and patents. In the first half of this financial year, Blancco filed a new patent on its Mobile Dynamic Workflow technology and expanded the reach of three additional patents to worldwide protection. The Mobile Dynamic Workflow technology uniquely positions Blancco to be configurable to any customer's mobile processing facilities.

Blancco achieved new certifications and updated existing certifications in this period as well. Most notably, Blancco achieved Common Criteria certification for Blancco File Eraser. Common Criteria is an international standard for computer security and is recognised by more than 20 countries worldwide. Blancco File Eraser is the only technology of its kind that carries this certification. In addition, Blancco Drive Eraser achieved National Cyber Security Centre Commercial Product Assurance (NCSC-CPA). NCSC is the successor to the UK government's National Technical Authority for Information Assurance (CESG). As part of this certification, Blancco Drive Eraser successfully verified against the Security Characteristic Data Sanitisation for Solid State Drive (SSD) media, keeping Blancco at the forefront of storage technology sanitisation.

Conclusions and outlook

During the six months to the end of December 2017 significant management time and effort was focused on the immediate priorities required to place Blancco on the best operational and financial footing following the resignation of the previous CEO and the review of the accounting for contracts and financial controls. The outcome of this is a better organised and controlled business which is in the best possible state to welcome a new CEO and enable them to make more strategic decisions about the future development and growth of the business.

 

Simon Herrick

Interim Chief Executive Officer

& Chief Financial Officer

 



 

GROUP FINANCIAL REVIEW

Results

 

6 months ended

6 months ended

Year ended

 

31 December 2017

31 December 2016 (restated)

30 June 2017

 

£'million

£'million

£'million

 

 



Revenue

12.6

12.8

26.9

 

 



AOP before Corporate Costs

 

1.7

3.3

4.9

Corporate costs

(0.9)

(0.8)

(1.7)

Total adjusted operating profit (AOP)

0.8

2.5

3.2

 

Group Financial Review

 

The continuing business consists of the software business which includes our erasure and diagnostic product offerings, but excludes our Mexican business. The Group now consists of one segment plus corporate costs, as the previously reported erasure and diagnostics businesses have integrated across our operations and no longer run separately.

 

The discontinued business comprises our operations in Mexico, which were also engaged in the sale of erasure and diagnostic software, as the Group completed the disposal of this entity in January 2018. This is therefore presented separately in the financial statements. The discontinued operations for the prior year also include three months of trading in the Mobile Insurance business that was disposed of in September 2016. There have been no profits or losses generated in the current period from the previously disposed of Mobile Insurance or Repair Service businesses, although there has been a very small level of cash outflow for commitments which have now fallen due.

 

The loss after tax for the period, including the impact of the required accounting for discontinued operations was £1.0 million (H1 2017 restated: loss of £4.5 million). The loss before accounting for discontinued operations was £1.1 million (H1 2017 restated: loss of £2.3 million).

 

The full results of the discontinued business are presented in note 8.

 

We have a wide range of products that enable customers to erase and repurpose IT devices with certified software and provide consistent, accurate and measurable diagnostics of smartphones and tablets. Both suites of products are marketed and sold by all of our trading subsidiaries, often as an integrated product offering. Revenue for the period covering both product sets was £12.6 million (H1 2017 restated: £12.8 million) with constant currency revenues of £12.8 million. The biggest currency impact on the results was observed in Japan which contributed 20% of revenue but saw Sterling strengthen 10% against the Yen resulting in an adverse impact on reported revenue.

 

Adjusted operating profit before corporate costs was £1.7 million (H1 2017 restated: £3.3 million) at a margin of 13.9% (H1 2017 restated: 25.8%). The margin has declined against the prior year due to annualisation of the cost base including investment made in the prior years to grow the sales force.

 

Impact of Revenue Recognition

 

Blancco has two main pricing models, volume-based pricing, where clients purchase a fixed number of erasure licences, and subscription pricing, where clients purchase a time-bound right of use of Blancco products. From a revenue perspective, absent of any other significant deliverables, volume-based sales are recognised at the point of invoice (being the point at which the software is delivered), whereas subscription sales are recognised monthly over the term of the subscription (even if the subscription is invoiced as an up-front payment).

 

Invoiced Sales recognises both volume-based and subscription business in the same way, at the point of invoice, and is the main internal management measure of sales performance. This differs from the reported revenue figures as IFRS revenue recognition requires the business to defer the revenue earned on software subscriptions - which have a defined term - over the duration of the contract.

 

This has an adverse impact on revenue in the period in which the sale was made, as the revenue is held on the balance sheet and released in future periods as the contract is fulfilled. The impact is shown below:

 


6 months ended 31 December 2017

6 months ended 31 December 2016 (restated)


£'m

£'m

Invoiced Sales (Continuing Operations)

12.8

13.9

Net revenue deferral of subscription sales

(0.2)

 (1.1)

Reported revenue (IFRS)

12.6

12.8

 

The decrease in Invoiced Sales observed during the first half of the year is partially due to the prior year Invoiced Sales figure consisting of a number of deals where software was delivered in full to the customer, but would serve the customer for multiple years, and therefore have not fallen due for renewal in this period. Those non-repeating deals, which were volume in nature have impacted directly on revenue, with new business wins being just sufficient to make up this shortfall in H1 FY18 (on a constant currency basis). Non-repeating subscription deals have adversely impacted the year on year progression at the Invoiced Sales level, but since these deals are deferred at the point of invoicing, there is a minimal impact at revenue level. For this reason, the year on year decline in revenue is less pronounced than Invoiced Sales, underpinning a more stable licence consumption model despite a more volatile sales line.

 

The total deferred revenue for the continuing Group at 31 December 2017 was £4.9 million (30 June 2017: £5.9 million) which represented revenue to be recognised in future periods. The deferred revenue on the balance sheet has reduced even though we deferred a net £0.2 million of Invoiced Sales, because the deferred revenue balance at 30 June 2017 included £1.0 million arising from an invoice raised in June 2017 for which the contract was subsequently renegotiated, which resulted in a change to the invoicing profile. This renegotiation has not resulted in any change to the profile of revenue to be recognised.

 

As a result of the above, we have restated the Invoiced Sales figure for the year ended 30 June 2017 to remove this invoice from the period.

 

Corporate Costs

 

Corporate costs of £0.9 million (H1 2017: £0.8 million) are associated with running the plc and central functions and are slightly higher than expected due to the costs associated with the replacement of the Chief Executive Officer and Chief Financial Officer.

 

Impact of Foreign Exchange Movements

 

One of the risks that the Group faces by doing business in overseas markets is currency fluctuations. In order to manage the Group's exposure to this, the CFO conducts a periodic review of the Group's currency hedging activities and makes a formal recommendation for any changes to the Board every half year by exception.  

The Group is well diversified across a number of currencies, with Sterling representing only around 10% of revenues. Over the course of the first half of FY18, Sterling has strengthened against most currencies in which the Group trades, most significantly against the US Dollar (comprising 30% of revenue) and Japanese Yen (comprising 20%).

In comparison to the prior period, the main currencies in which the Group trades have weakened by 2% on average and therefore the overseas earnings are now worth less in Sterling terms. The Group has historically matched its revenues and costs denominated in the same currencies and the underlying impact on Adjusted Operating Profit is minimised. However, this hasn't been observed in the current period, where there have been two distinct impacts:

1.    We have seen a growth in our indirect sales, which carry a lower fixed cost base. Indirect sales are invoiced at a price effectively net of the cost of sales with the costs in Blancco being the channel sales team. The lower cost base on these sales means that the business is marginally less hedged on sales denominated in foreign currencies.

2.    The foreign exchange movement specifically against the Yen has been significant in the period and has been passed down to the profit line, due to strong revenue generation in this territory versus a relatively low fixed cost base.

The exchange rates applied for our significant currencies at the period end are as follows:

 

 


31 December

2017

30 June

2017

31 December

2016

Euro

 

1.13

1.14

1.18

US Dollar

 

1.35

1.30

1.23

Japanese Yen

 

152.13

145.44

145.02





 

 

A comparison of actual results to results on a constant currency basis is presented below:

 

 

6 months ended 31 December 2017

6 months ended 31 December 2017

 

 

 

 

Actual

Constant

 

 

Results

 

Currency

 

 

£'million

£'million

Invoiced Sales

 

12.8

13.0

Revenue

 

12.6

12.8

Adjusted operating profit before corporate costs

 

1.7

1.9

 

Group adjusted operating profit (AOP)

 

0.8

1.0

Adjusted earnings per share (pence)

 

0.72p

1.04p

Basic earnings per share (pence)

 

(1.76p)

(1.44p)

 

The Group implements forward contracts for payments and receipts, where the amounts are large, where they are not denominated in the local country's functional currency, where the timing is known in advance, and where the amount can be predicted with certainty.  In addition, the Group undertakes natural hedges by structuring and paying future earn-outs on acquisitions in the acquired company's local currency.

 

The Group does not undertake any cash flow or profit hedging activities to insulate from currency movements in respect of overseas earnings, specifically the conversion of its largely non-Sterling generated income into the Group's reporting currency, Sterling.

 

No other hedging activities are undertaken in respect of tangible and intangible fixed assets, working capital (such as stock, debtors, or creditors), or other balance sheet items, as these are generally small in nature in any one country. 

 

Dividends paid to Non-Controlling Interests

On 29 September 2017, a dividend was declared and paid by Blancco Japan Inc. The total dividend of ¥59.0 million (£0.4 million) was paid, of which ¥28.9 million (£0.2 million) was paid to the minority shareholder, representing its 49% interest in the subsidiary. This resulted in a cash outflow for the Group of £0.2 million and a corresponding reduction in the non-controlling interest reserve held on the balance sheet. The reduction in the reserve represents the realisation of cash from the subsidiary and therefore a reduction in the minority shareholder's interest in the net assets of Blancco Japan Inc.

Exceptional Acquisition and Restructuring Costs

The Group has undertaken restructuring of the business and key management team in the first half of the year, which has resulted in exceptional costs of £0.6 million. Additionally, the Group has incurred legal costs associated with matters arising from the review of contracts for the years ended 30 June 2016 and 2017. Further details regarding these matters were disclosed in the announcement made on 4 September 2017.

 

The total exceptional costs incurred in the period were £1.2 million (H1 2017: £0.5 million) with the exceptional costs in the prior year period predominantly arising from legal fees associated with the defence of the Group's patents following claims from a competitor.

 

Acquisition costs incurred in the period were £nil (H1 2017: £1.2 million) due to the fact that there was no acquisition activity initiated or completed in the current period for the continuing business. In the prior year, the Group's strategy focused on several acquisitions of non-controlling interests including France, Australia, South East Asia and Canada, with the latter completed at the beginning of H2 2017.

 

In the discontinued business, the exceptional costs totalled £0.1 million (H1 2017: £0.6 million) and relate to the disposal of the Mexican entity that was completed in January 2018. The costs in the prior period relate to the restructuring and subsequent disposal of the Mobile Insurance Business and also the acquisition of 19% of the shares previously held by the minority interest of the Mexican entity.

 

Amortisation of Internally Generated Intangible Assets

 

The activity of the R&D team is split between research and administration activity which is not eligible for capitalisation, and development time which is required to be capitalised under IFRS. Amortisation of internally generated intangible assets which have been generated by the Group is presented within Adjusted Operating Profit.

 

The amortisation charge for the period is £1.1 million (H1 2017: £0.6 million) and is increasing over time due to the accumulation of capital expenditure since the acquisition of Blancco in April 2014. The Group is continuing to invest greater amounts each year in its development activities and amortises the expenditure over the period the version of the product is expected to be in use, generally four years. The amortisation continues to lag behind the capitalised development expenditure of £1.2 million in the period.

 

During the second half of this financial year, the Blancco business will have been owned for over four years, and therefore development expenditure capitalised immediately post acquisition will become fully amortised due to an average useful economic life assessment of 4 years. From this period onwards, there will be a complete 4 years' worth of aggregated capitalisation subject to depreciation, and the amortisation charge will no longer be catching up with the cost capitalised in the year. Amortisation will then rise if the levels of capitalisation exceed the average amount spent over the previous four years.

 

Amortisation of Acquired Intangibles

 

Amortisation of acquired intangible assets, acquired as part of the Group's previous M&A activity, was £1.2 million (H1 2017: £1.3 million). These intangibles relate to the acquisition of Blancco in 2014, SafeIT in 2014, Tabernus in 2015 and Xcaliber in 2016.

 

Share Based Payments

 

Share based payments credit was £0.4 million (H1 2017: £1.0 million charge) and represents the impact of the Group's Software LTIP for senior executives, full details of which are provided in the Annual Report and Accounts for the year ended 30 June 2017.

 

The Software LTIP rewards participants for growth in the total value of the company, in comparison to the valuation on inception. A credit of £0.4 million for the period represents the reduction in value of the scheme for the participants against the share price at 31 December 2017 with no schemes with any vesting value. Accordingly, there is no balance sheet liability for these schemes at 31 December 2017.

 

Net Financing Expense

 

Net financing income was £0.1 million (H1 2017: £0.6 million expense). Included within the financing costs are:

 

·     The unwind of the time value of money on the deferred contingent consideration payable in future periods for the Group's acquisitions, which represents a non-cash charge of £0.2 million (H1 2017: £0.3 million). The reduction is a result of the ceasing of the unwind of the discount factor on the contingent consideration recognised on the Blancco Sweden acquisition, which concluded in the prior year.

·     The revaluation of contingent consideration, which represented a credit of £0.2 million (H1 2017: £nil) due to foreign exchange movements, particularly the strengthening of Sterling against the US Dollar.

·     The revaluation of the fair value of the Tabernus contingent consideration, which has resulted in a non-cash credit of £0.2 million (H1 2017: £nil) to the consolidated income statement. 

·     The cost associated with the Group's banking facility of £0.2 million (H1 2017: £0.3 million), primarily interest.

 

The finance income represents the interest earned on cash holdings around the Group.

 

Taxation

The total tax credit was £nil (H1 2017 restated: £0.2 million charge), representing taxes payable in certain jurisdictions of £0.7 million offset against deferred tax credits, for which the cash benefit will be realised in future periods.

 



 

Earnings per share

                                                                

Adjusted EPS for the continuing operations were 0.72 pence (H1 2017 restated: 2.75 pence) which is due to a reduction in Adjusted Operating Profit. The basic loss per share of 1.76 pence (H1 2017 restated: 4.77 pence) has benefitted from the revaluation of the Software LTIP scheme and the revaluation of contingent consideration due to foreign exchange movements and change in fair value of the Tabernus earn-out. 

Cash and Working Capital








6 months

ended

6 months ended

Year

ended

31 December 2017

31 December 2016

30 June 2017



(unaudited)

(unaudited, restated)

(audited)



£'m

£'m

£'m

Adjusted Operating Cash Flow before movement in working capital and exceptionals


2.0

3.2

5.0

Movement in working capital and exceptionals


(1.0)

(2.4)

(1.1)

Movement in provisions


(0.1)

-

(0.7)

Adjusted Operating Cash Flow


0.9

0.8

3.2






Net interest payments


(0.2)

(0.3)

(0.3)

Tax paid


(1.5)

(0.4)

(0.7)

M&A payments


(0.4)

(1.3)

(1.5)

Exceptional payments


(1.0)

(0.4)

(0.9)

Net cash from operating activities - continuing operations


(2.2)

(1.6)

(0.2)






Capital expenditure


(1.4)

(1.5)

(3.4)

Acquisition of subsidiaries,


(0.7)

(0.6)

(1.0)

Net cash flow from share issues, option vesting and dividend payments


(0.2)

(1.0)

8.1

Other movements


(0.2)

(0.2)

(0.2)

Cash flow on discontinued operations


(0.4)

(2.0)

(2.6)

Total cash flow


(5.1)

(6.9)

0.7

Net (debt)/cash


(3.4)

(5.9)

1.7

 

 

 

Group Review - Cash Flows

 

The cash flows of the discontinued operations have been removed from the individual captions in the cash flow statement and are presented separately. The cash outflow in the period is derived from Blancco Mexico.



 

There has been a reduction in net cash since June 2017 with the operating cash inflow offset by the following items:

·     The payment of tax that related to prior periods of £1.5 million. 

·     Acquisition payments in the period of £1.0 million relating to the Xcaliber, Mexico and Sweden minority interest earn outs.

·     Restructuring of the management team, which incurred exceptional payments of £0.6 million, and settlement of unpaid exceptional costs from the prior year of £0.9 million.

Within trade creditors at 31 December 2017, there is a further £0.7 million of exceptional costs, which were settled in January 2018.

Adjusted Operating Cash Flow ("AOCF") was marginally higher than the prior period at £0.9 million (H1 2017 restated: £0.8 million), however, adjusted cash conversion (as defined in the glossary) of 110% (H1 2017 restated: 34%) is significantly higher than the previous year.

Capital expenditure and R&D qualifying for capitalisation was £1.4 million (H1 2017: £1.5 million). Of this capital expenditure, £1.2 million (H1 2017: £1.0 million) was incurred in the ongoing development of the Blancco product range. The remaining expenditure relates to purchase of property, plant and equipment and investment in the Group's operating systems.

Dividend paid of £0.2 million represents the dividend paid to minority shareholders of the Group's Japanese subsidiary. In the prior year the dividends paid of £1.0 million represented both the dividend paid to shareholders of the Group (£0.7 million) and dividends paid to minority shareholders of the Group's Japanese and Australian subsidiaries (£0.3 million).

Other movements outflow of £0.2 million (H1 2017: £0.2 million) includes changes in the value of overseas cash held on deposit when translated back into Sterling at the exchange rates prevailing at the end of the period and the removal of cash held in the discontinued operations.

Net debt of £3.4 million (FY17: net cash of £1.7 million; H1 2017: net debt of £5.9 million) comprised gross debt of £8.9 million (FY17: £9.9 million, H1 2017: £9.2 million), and cash and cash equivalents of £5.6 million (FY17: £11.6 million, H1 2017: £3.3 million).

Dividend

Given the position of the business and the requirement to invest for growth, the Board has decided not to pay an interim dividend.

Post Balance Sheet Events

On 18 January 2018, the Group completed the disposal of its holding of 70% of the issued share capital of Software Blancco S.A. de CV for a consideration of $0.5 million (£0.4 million). A payment plan has been agreed, with full settlement to be received during the second half of the financial year. The entity will become a distributor of Blancco products in the LATAM region going forward, with Blancco earning a licence fee on sales of product.

 

 

Simon Herrick

Interim Chief Executive Officer

& Chief Financial Officer

 



       

Condensed Consolidated Income Statement


 



for the six months ended 31 December 2017


 





 





6 months ended

6 months ended

Year

 ended

31 December 2017

31 December 2016

30 June

2017



(unaudited)

(unaudited,

restated*)

(audited)


Note

£'000

£'000

£'000

Continuing operations revenue


12,607

12,788

26,914






Adjusted operating profit before corporate costs


1,749

3,293

4,860

Corporate costs


(920)

(813)

(1,665)

Adjusted operating profit


829

2,480

3,195

Acquisition costs

6

(2)

(1,230)

 (1,558)

Exceptional costs

7

(1,178)

(487)

(1,024)

Amortisation of acquired intangible assets


(1,209)

(1,282)

(2,494)

Share-based payments


419

(983)

 (675)






Group Operating loss


(1,141)

(1,502)

(2,556)






Revaluation of contingent consideration


432

6

1,686

Other finance income


6

2

2

Finance income


438

8

 1,688






Unwinding of contingent consideration

12

(220)

(309)

(523)

Revaluation of contingent consideration


-

-

(84)

Other finance costs


(159)

(344)

(321)

Finance costs


(379)

(653)

 (928)

Loss before tax


(1,082)

(2,147)

(1,796)

Taxation

3

22

(177)

 (660)

Loss for the period


(1,060)

(2,324)

(2,456)

Discontinued operations





Post tax results from discontinued operations

8

14

(2,190)

(1,856)

Loss for the period


(1,046)

(4,514)

(4,312)

Attributable to:

Equity holders of the Company


            (1,081)

            (5,086)

(4,866)

Non-controlling interest


35

572

554

Loss for the period


(1,046)

(4,514)

(4,312)






 

*see note 1.1

 

 

 

 

 

 

 

Earnings per share





Continuing Operations:

Basic

 

4

(1.76p)

(4.77 p)

 

(5.12 p)

Diluted

4

(1.76p)

(4.77 p)

(5.12 p)

Discontinued Operations:





Basic

4

0.01p

(4.36 p)

(3.46 p)

Diluted

4

             0.01p

(4.36 p)

(3.46 p)

Total Group:





Basic

4

(1.75p)

(9.13 p)

(8.58 p)

Diluted

4

(1.75p)

(9.13 p)

(8.58 p)











 

 

 

 

 

Consolidated Statement of Comprehensive Income


 



 

for the six months ended 31 December 2017


 



 



6 months ended

6 months ended

Year

ended

 

31 December 2017

31 December 2016

30 June 2017

 



(unaudited)

(unaudited,

restated*)

(audited)

 



£'000

£'000

£'000

 

Loss for the period


(1,046)

(4,514)

(4,312)

 

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





 

Exchange differences arising on translation of foreign entities


(374)

(385)

 (347) 

 

Total comprehensive loss for the period


(1,420)

(4,899)

(4,659)

 

Attributable to:




 

Equity holders of the Company


(1,429)

(5,471)

(5,234)

 

Non-controlling interests


9

572

         575

 

Total comprehensive loss for the period


(1,420)

(4,899)

(4,659)

 

 

*see note 1.1

 





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Condensed Consolidated Balance Sheet


 



as at 31 December 2017


 





31 December 2017

31 December 2016

(unaudited,

30 June

2017



(unaudited)

restated*)

(audited)


Note

£'000

£'000

£'000

Assets





Non-current assets





Goodwill


42,821

42,821

42,821

Other intangible assets

11

22,402

23,628

23,330

Property, plant and equipment


394

461

446



65,617

66,910

66,597

Current assets





Inventory


136

146

142

Trade and other receivables


6,935

8,842

8,438

Cash

9

5,559

3,262

11,648

Assets held for sale


950

-

-



13,580

12,250

20,228

Total assets


79,197

79,160

86,825






Current liabilities





Trade and other payables


(10,937)

(13,866)

 (13,958)

Contingent consideration

12

(2,299)

(2,162)

(1,726)

Current tax liability


(534)

(1,778)

(1,450)

Provisions


(323)

(204)

(386)

Liabilities held for sale


(810)

-

-



(14,903)

(18,010)

 (17,520)

Non-current liabilities





Borrowings

9

(8,923)

(9,179)

 (9,916)

Other payables


(1,887)

(1,826)

(1,681)

Contingent consideration

12

(651)

(3,243)

(2,418)

Deferred tax


(1,855)

(1,407)

 (2,611)

Provisions


(1,994)

(3,662)

(2,035)



(15,310)

(19,317)

(18,661)

Total liabilities


(30,213)

(37,327)

 (36,181)






Net assets


48,984

41,833

50,644

 

*see note 1.1

Equity





Ordinary share capital


1,280

1,164

1,280

Share premium


9,152

-

9,152

Merger reserve


4,034

4,034

4,034

Capital redemption reserve


417

417

417

Translation reserve


(1,332)

(815)

(984)

Retained earnings


34,622

36,126

35,703

Total equity attributable to equity holders of the Company


48,173

40,926

49,602

Non-Controlling interest reserve


811

907

1,042

Total equity


48,984

41,833

50,644

 

Condensed Consolidated Statement of Changes in Equity

 



for the six months ended 31 December 2017


 





 





6 months ended

6 months ended

Year

ended

31 December 2017

31 December 2016

30 June 2017



(unaudited)

(unaudited,

restated*)

(audited)



£'000

£'000

£'000

Balance at the start of the period


50,644

47,597

47,597

Total comprehensive loss for the period


(1,420)

(4,899)

(4,659)

Equity settled share based payments


-

315

343

Acquisition of non-controlling interest without a change in control


-

(324)

(1,041)

Issue of shares to non-controlling interest


-

136

163

Reserves transfer on disposal of subsidiary


-

-

(182)

Share placing


-

-

9,268

Share options exercised


-

-

407

Vesting of options to sell shares in subsidiary


-

-

165

Dividends paid to shareholders


-

(747)

(1,139)

Dividends paid to non-controlling interests


(240)

(245)

(278)

Balance at the end of the period


48,984

41,833

50,644

 

*see note 1.1

Consolidated Cash Flow Statement





for the six months ended 31 December 2017







6 months

ended

6 months ended

Year

ended

31 December 2017

31 December 2016

30 June

2017



(unaudited)

(unaudited,

restated*)

(audited)


 Note

£'000

£'000

£'000

Loss for the period


(1,046)

(4,514)

(4,312)

Adjustments for:





Results of discontinued operations


(14)

2,190

1,856

Net finance (income)/charges


(59)

645

(760)

Tax (credit)/expense


(22)

177

660

Depreciation on property, plant and equipment


104

89

191

Amortisation of intangible assets


1,110

628

1,579

Amortisation of acquired intangible assets


1,209

1,282

2,494

Share-based payments (income)/expense


(419)

983

675

Operating cash flow before movement in working capital


863

1,480

2,383

Acquisition costs


2

1,230

1,558

Exceptional restructuring costs


1,178

487

1,024

Operating cash flow before movement in working capital and exceptional and acquisition costs


2,043

3,197

4,965

Decrease/(increase) in inventories


9

(34)

(26)

Decrease/(increase) in receivables


996

(2,392)

(941)

(Decrease)/increase in payables and accruals


(2,350)

129

131

Decrease in provisions


(103)

(33)

(732)

Cash (used in)/generated from continuing operations


(585)

(850)

815

Acquisition costs payments


445

1,300

1,477

Exceptional restructuring payments


1,049

387

890

Adjusted operating cash flow


909

837

3,182

Interest received


6

1

2

Interest paid


(159)

(344)

(321)

Tax paid


(1,493)

(430)

(731)

Net cash (outflow) from operating activities - continuing operations


(2,231)

(1,623)

                        (235)

Net cash (outflow) from operating activities - discontinued operations

8

(31)

(1,971)

(2,551)

Net cash (outflow) from operating activities - continuing and discontinued operations


(2,262)

(3,594)

(2,786)






Cash flows from investing activities





Purchase of property, plant and equipment


(53)

(124)

(243)

Purchase and development of intangible assets


(1,349)

(1,405)

(3,146)

Acquisition of subsidiaries, net of cash acquired


(652)

-

(657)

Proceeds from issue of shares to non-controlling interest


-

136

136

Payments made to acquire non-controlling interest


-

(730)

(462)

Net cash used in investing activities - continuing operations


(2,054)

(2,123)

(4,372)

Net cash used in investing activities - discontinued operations

8

(322)

(62)

(67)

Net cash used in investing activities - continuing and discontinued operations


(2,376)

(2,185)

(4,439)

Cash flows from financing activities





Dividends paid to shareholders


-

(747)

(1,139)

Dividends paid to non-controlling interests


(240)

(245)

(278)

(Repayment)/drawdown of borrowings


(1,000)

5,444

6,174

Share placing net of fees


-

-

9,479

Net cash (used in)/generated from financing activities


(1,240)

4,452

14,236

Net cash used in financing activities - continuing and discontinued operations


(1,240)

4,452

14,236

Net (decrease)/increase in cash and cash equivalents


(5,878)

(1,327)

7,011

Other non-cash movements - exchange rate changes


(134)

(180)

(132)

Reclassification of cash to assets held for sale


(77)

-

-

Cash and cash equivalents at the beginning of period


11,648

4,769

4,769

Cash and cash equivalents at end of period


5,559

3,262

11,648

Bank borrowings


(8,923)

(9,179)

(9,916)

Net (debt)/cash


(3,364)

(5,917)

1,732


 

*see note 1.1

Notes to the Half Year Report

For the six months ended 31 December 2017

 

1.   Basis of Preparation

These half yearly results have been prepared on the basis of the accounting policies expected to be adopted for the year ended 30 June 2018.  These are in accordance with the Group's accounting policies as set out in the latest audited annual financial statements for the year ended 30 June 2017. 

All International Financial Reporting Standards ('IFRS'), International Accounting Standards ('IAS') and interpretations currently endorsed by the International Accounting Standards Board ('IASB') and its committees, as adopted by the EU and as required to be adopted by AIM listed companies, have been applied.  AIM listed companies are not required to comply with IAS 34 'Interim Financial Reporting' and accordingly the Company has taken advantage of this exemption.

In preparing the prior year interim report, certain lines of business have been reclassified as discontinued and the primary statements adjusted accordingly, and in line with IFRS 5, Non-current Assets Held for Sale and Discontinued Operations.

The financial information in these half yearly results does not constitute statutory accounts for the six months ended 31 December 2017 and should be read in conjunction with the Group's annual financial statements for the year ended 30 June 2017. 

The condensed consolidated half yearly financial statements for the six months to 31 December 2017 have not been audited or reviewed by auditors pursuant to the Auditing Practices Board guidance on Review of Half yearly Financial Information.

These unaudited half yearly results were approved by the Board of Directors on 19 March 2018.

1.1 Prior Period Adjustment

A prior period adjustment has been made in relation to the recognition of £0.9 million of revenue that was previously booked in the six months ended 31 December 2016. This comprised:

·     Invoiced Sales totalling £1.0 million (£1.1 million inclusive of local value added taxes) and recognised revenue of £0.7 million relating to a contract within the now discontinued Mexican business that was recognised in the first half of the year, but subsequently reversed in the second half of the year, as subsequent review identified that, although certain licences had been delivered to the customer, no contractual agreement was in place with the customer which adequately supported the criteria for revenue recognition under the Group's accounting policies. Of the amount invoiced, £0.3 million had been originally deferred due to service elements not yet delivered.

·     The other £0.2 million relates to revenue recognition adjustments between H1 and H2 of FY17, reviewed and identified during the Group's year end processes.  There is no impact on the full year comparatives, which remain as reported, but include the appropriate reallocation to discontinued operations of the performance of the Mexican entity.

Additionally we restated the tax charge for the year in respect of the above adjustments, resulting in a £0.2 million adjustment to previously reported figures.

A summary of the impact of the prior period adjustment on the consolidated income statement and the consolidated statement of cash flows for the period ended 31 December 2016, as well as the consolidated balance sheet as at 31 December 2016 arising from the restatements is as follows:

Consolidated Income Statement

Period ended 31 December 2016

As Reported

 

Restatement and deferral of revenue

 

Reclassification of Mexico results to discontinued

 

 

 

 

Period ended 31 December 2016

As Restated

 


£'000

£'000

£'000

£'000

Group revenue

14,217

(889)

(540)

12,788

Adjusted operating profit

3,594

(889)

(225)

2,480

Group operating loss

(435)

(889)

(178)

(1,502)

Loss before tax

(1,080)

(889)

(178)

(2,147)

Tax

(337)

160

-

(177)

Loss for the period

(1,417)

(729)

(178)

(2,324)

Loss from discontinued operations

(2,368)

-

178

(2,190)

Loss for the period

(3,785)

(729)

-

(4,514)

 

There is no change to the previously reported Group cash flow from operating activities, cash used in investing activities and cash used in financing activities other than the reclassification to discontinued operations of cash flows associated with the Mexican legal entity. The cash conversion has been restated to 34%, previously 22%, following the reduction in Adjusted Operating Profit.



 

Consolidated Balance Sheet as at 31 December 2016


As reported

Adjustment to the accounts for the year ended 30 June 2017

Restatement and deferral of revenue

As restated


£'000


£'000

£'000

Assets





Non-current assets





Goodwill

42,821

-

-

42,821

Other intangible assets

23,628

-

-

23,628

Property, plant and equipment

461

-

-

461


66,910

-

-

66,910

Current assets





Inventory

146

-

-

146

Trade and other receivables

12,330

(2,350)

(1,138)

8,842

Cash

3,262

-

-

3,262


15,738

(2,350)

(1,138)

12,250

Total assets

82,648

(2,350)

(1,138)

79,160






Current liabilities





Trade and other payables

(14,974)

859

249

(13,866)

Contingent consideration

(2,162)

-

-

(2,162)

Current tax liability

(1,938)

-

160

(1,778)

Provisions

(204)

-

-

(204)


(19,278)

859

409

(18,010)

Non-current liabilities





Borrowings

(9,179)

-

-

(9,179)

Other payables

(1,826)

-

-

(1,826)

Contingent consideration

(3,243)

-

-

(3,243)

Deferred tax

(1,407)

-

-

(1,407)

Provisions

(3,662)

-

-

(3,662)


(19,317)

-

-

(19,317)

Total liabilities

(38,595)

859

409

(37,327)






Net assets

44,053

(1,491)

(729)

41,833

 

Further details of the adjustment to the accounts for the year ended 30 June 2017, have been disclosed in note 1.2 of the Annual Report and Accounts for the year ended 30 June 2017. Due to this being adjusted in the opening balance sheet at 1 July 2017, there is no impact on profit for the current period.

2.   Segmental reporting

As outlined in the Group Financial Review, the Group's continuing operations consist of one segment covering the previous erasure and diagnostic product offerings.

Discontinued revenues are comprised of the results of the Mexican legal entity that has been disposed of in January 2018, and additionally, in the prior year revenues associated with the Digital Care Mobile Insurance business disposed of in September 2016.


6 months ended        

31 December 2017

(unaudited)

6 months ended         31 December 2016

(unaudited, restated)

Year ended         30 June 2017

(audited)

Discontinued operations

£'000

£'000

£'000

Software Revenue

185

540

770

Mobile Insurance Revenue

-

1,740

1,740

Total Revenue

185

2,280

2,510

Software adjusted operating profit

45

225

245

Mobile Insurance adjusted operating profit

-

(346)

(346)

Divisional operating profit/(loss)

45

(121)

(101)

Corporate costs

-

(415)

(415)

Adjusted operating profit/(loss)

45

(536)

(516)

Exceptional costs

(39)

(635)

(938)

Other exceptional income

-

816

1,478

Operating profit/(loss)

6

(355)

24

Revaluation of contingent consideration

8

-

-

Profit/(loss) before tax

14

(355)

24

 

All of the exceptional costs incurred in the current period relate to the disposal of the Mexican entity (H1 2017: disposal of the Mobile Insurance Business and acquisition of the minority interest of the Mexican legal entity).

3.   Taxation

The tax credit for the six months to 31 December 2017 is based on the estimated tax rate for the full year in each jurisdiction.

There has been no material impact as a result of the US tax reform on these financial statements, although the business will benefit from lower tax charges on its future profits generated in this country.



 

 

4.   Earnings per share (EPS)

 


6 months ended

6 months ended

Year ended


31 December 2017

31 December 2016

30 June

2017


(unaudited)

(unaudited, restated)

(audited)


Pence

Pence

Pence

Continuing operations




Basic earnings per share

(1.76 p)

(4.77 p)

(5.12 p)

Diluted earnings per share

(1.76p)

(4.77 p)

(5.12 p)

Adjusted earnings per share

0.72 p

2.75 p

2.78 p

Diluted adjusted earnings per share

0.72 p

2.75 p

2.78 p

Discontinued operations




Basic earnings per share

0.01 p

(4.36 p)

(3.46 p)

Diluted earnings per share

0.01 p

(4.36 p)

(3.46 p)

Adjusted earnings per share

0.06 p

(1.41 p)

(1.67 p)

Diluted adjusted earnings per share

0.06 p

(1.41 p)

(1.67 p)

Total Group




Basic earnings per share

(1.75 p)

(9.13 p)

(8.58 p)

Diluted earnings per share

(1.75 p)

(9.13 p)

(8.58 p)

Adjusted earnings per share

0.78 p

1.34 p

1.11 p

Diluted adjusted earnings per share

 0.78 p

1.34 p

1.11 p






6 months ended

6 months ended

Year ended


31 December 2017

31 December 2016

30 June

2017


(unaudited)

(unaudited, restated)

(audited)

Continuing operations

£'000

£'000

£'000

Loss for the period

(1,060)

(2,324)

(2,456)

Profit attributable to non-controlling interests

(27)

(334)

(448)

Loss attributable to equity holders of the Company

(1,087)

 (2,658)

 (2,904)





Reconciliation to adjusted profit:




Unwinding of discount on contingent consideration

220

309

523

Revaluation of contingent consideration

(432)

(6)

(1,602)

Acquisition costs

2

1,230

1,558

Amortisation of intangible assets

1,209

1,282

2,494

Exceptional restructuring costs

1,178

487

1,024

Exceptional bank charges

7

7

14

Share based payments

(419)

983

 675

Tax impact of above adjustments

(236)

(99)

(205)

Adjusted profit for the period

442

1,535

1,577

 

Number of shares

 

'000s

'000s

'000s

Weighted average number of shares used to calculate earnings per share



-       Basic


61,714

 

55,761

 

56,668

-       Diluted


61,714

55,761

55,761

 

56,668

 

 

Profit for the period

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

 

 

 

6 months ended

31 December 2017

6 months ended

31 December 2016

Year ended

30 June 2017


 

 

(unaudited)

(unaudited)

(audited)




£'000

£'000

£'000

Depreciation of property, plant and equipment - owned


110

103

211

Loss/(profit) on disposal of property, plant and equipment



-

-

12

Amortisation of intangible assets



2,319

1,966

4,129

Cost of inventories recognised as an expense



77

104

167

Staff costs



6,306

6,077

12,904

Net foreign exchange (profit)/loss



(224)

40

(1,226)

 

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

 

 

 

6 months ended

31 December 2017

6 months ended

31 December 2016

Year ended

30 June 2017


 

 

(unaudited)

(unaudited)

(audited)




£'000

£'000

£'000

Depreciation of property, plant and equipment - owned


104

89

191

Loss/(profit) on disposal of property, plant and equipment


-

-

12

Amortisation of intangible assets



2,319

1,910

4,073

Cost of inventories recognised as an expense



77

104

167

Staff costs



6,278

5,695

12,490

Net foreign exchange (profit)/loss



(195)

(33)

(1,195)

 

Acquisition costs

 




6 months ended

31 December 2017

6 months ended

31 December 2016

Year ended

30 June 2017




(unaudited)

(unaudited)

(audited)




£'000

£'000

£'000

Acquisition costs and other M&A related costs   



2

1,230

1,558

 

 

 

 

 

 

The acquisition costs are significantly lower than the prior period, as the prior year included acquisition costs incurred in the minority interest buy-outs of Group companies in France, South East Asia and Australia that took place in this period.

Deal costs not included above relate to the disposal of the Mexican entity totalling £0.1 million for the period (H1 2017: £0.6 million) as they are presented within discontinued operations. The deal costs incurred in the prior year relate to the disposal of the Mobile Insurance business.

 



 

 

Exceptional restructuring costs

 




6 months ended

31 December 2017

6 months ended

31 December 2016

Year ended

30 June 2017




(unaudited)

(unaudited)

(audited)




£'000

£'000

£'000

Restructuring   



593

292

846

Legal costs



585

195

178




1,178

487

1,024

 

 

 

 

 

 

Exceptional restructuring costs relate to costs associated with the restructure of the business during the first half of the year and legal costs associated with matters arising from the review of contracts for the years ended 30 June 2016 and 2017, which were detailed in a previous announcement released on 4 September 2017. The costs in the previous year relate to integration of acquired businesses and the defence of a claim against one of the Group's patents.

Exceptional redundancy and restructuring costs related to discontinued operations were £nil in the period (H1 2017: £0.1 million), with the exceptional restructuring costs in the prior period relating to the Mobile Insurance business, and they are presented within discontinued operations.


 

 
8.   Discontinued Operations



6 months ended

6 months ended

Year

 ended

31 December 2017

31 December 2016

30 June

2017



(unaudited)

(unaudited, restated)

(audited)



£'000

£'000

£'000

Discontinued operations revenue


185

2,280

2,510






Divisional operating profit/(loss)


45

(121)

(101)

Corporate costs


-

(415)

(415)

Adjusted operating profit/(loss)


45

(536)

(516)

Exceptional costs


(39)

(635)

(938)

Other exceptional income


-

816

1,478






Operating profit/(loss)


6

(355)

24

Revaluation of contingent consideration


8

-

-

Profit/(loss) before tax


14

(355)

24

Taxation


-

-

(324)

Profit/(loss) for the period


14

(355)

(300)

Post tax loss on disposal of discontinued business


-

(1,835)

(1,556)

Post tax results from discontinued operations


14

(2,190)

(1,856)

 

 





The discontinued income statement includes both the Mexican operations and the Mobile Insurance businesses, which are presented separately in note 2. The loss on disposal relates solely to the Mobile Insurance business as the Mexican entity was not disposed of before 31 December 2017. Assets and liabilities included in the Consolidated Balance Sheet as held for sale relate to the Mexican entity and are as follows:


 

2017

£'000

Assets


Cash

77

Trade and other receivables

873

Total assets held for sale

950



Liabilities


Trade and other payables

(810)

Total liabilities held for sale

(810)

 

 

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








6 months

ended

6 months ended

Year

ended

31 December 2017

31 December 2016

30 June

2017



(unaudited)

(unaudited)

(unaudited)



£'000

£'000

£'000

Profit/(loss) for the period


14

(355)

(300)

Adjustments for:





Tax expense


-

-

324

Finance income


(8)

-

-

Depreciation on property, plant and equipment


6

14

20

Amortisation of intangible assets



56

56

Operating cash flow before movement in working capital


12

(285)

100

Increase in inventories


-

(11)

(11)

(Increase)/decrease in receivables


(211)

177

(263)

Increase/(decrease) in payables and accruals


168

(1,852)

(899)

Decrease in provisions


-

-

(1,478)

Cash used in discontinued operations


(31)

(1,971)

(2,551)

Net interest


-

-

-

Tax paid


-

-

-

Net cash outflow from operating activities - discontinued operations


(31)

(1,971)

(2,551)











Cash flows from investing activities





Purchase of property, plant and equipment


-

(13)

(18)

Purchase and development of intangible assets


-

(49)

(49)

Acquisition of subsidiaries and payment of contingent consideration


(322)

-

-

Net cash used in investing activities - discontinued operations


(322)

(62)

(67)



 






 

 

During the current period, the cash flows relate to the Mexican business.

9.   Net Cash

 


 

6 months ended

31 December 2017

6 months ended

31 December 2016

Year ended

30 June

2017


 

(unaudited)

(unaudited)

(audited)


 

£'000

£'000

£'000

Cash


5,559

3,262

11,648

Bank borrowings (non-current)


(8,923)

(9,179)

(9,916)

Net (debt)/cash


(3,364)

(5,917)

1,732

 

The total facility available to the Group is £12.4 million (30 June 2017: £12.4 million; 31 December 2016: £11.5 million). The facility expires on 31 October 2019, and all banking covenants were met during the period.

Acquisitions

Contingent Cash Consideration on Acquisitions in the Prior Year

The Tabernus acquisition includes an earn-out based on earnings, not to be paid before September 2018. The estimated cash outflow at the time of settlement is $1.5 million (£1.1 million). A deferred liability of $1.4 million (£0.9 million) had been established which represented the fair value at the acquisition date, using a discount rate of 12%. At 31 December 2017, the deferred liability was $1.5 million (£1.1 million).

The Xcaliber investment on 17 March 2016 included an earn-out to be paid over various stages of the next 3 years. The initial total estimated cash outflow was $4.7 million (£3.3 million) with a deferred liability of £3.8 million (£2.7 million) having been established using a discount rate of 14%. The current total estimated cash outflow is $4.1 million (£3.0 million). Since acquisition, payments totalling $1.5 million (£1.1 million) have been made and the remaining deferred liability is $2.6 million (£1.9 million), or $2.4 million (£1.7 million) when discounted at a rate of 14%.



 

 

11.  Other Intangible assets

 

Brand Name

Intellectual Property

Customer contracts

Development expenditure

Software licences

Total

 

£'000

£'000

£'000

£'000

£'000

£'000

Cost







At 1 July 2016 (audited)

3,269

14,142

8,290

3,456

1,044

30,201

Additions

-

-

-

2,564

582

3,146

Exchange movement

-

-

-

184

37

221

At 30 June 2017 (audited)

 

3,269

14,142

8,290

6,204

1,663

33,568

Additions

-

-

-

1,161

188

1,349

Exchange movement

-

-

-

53

12

65

At 31 December 2017 (unaudited)

3,269

14,142

8,290

7,418

1,863

34,982

 

 

 

 

 

 

 

Accumulated amortisation

 

 

 

 

 

 

At 1 July 2016 (audited)

680

2,751

1,869

693

137

6,130

Charge for the year

276

1,452

766

1,183

396

4,073

Exchange movement

-

-

-

24

11

35

At 30 June 2017 (audited)

 

956

4,203

2,635

1,900

544

10,238

Charge for the year

136

706

367

870

240

2,319

Exchange movement

-

-

-

18

5

23

At 31 December 2017 (unaudited)

1,092

4,909

3,002

2,788

789

12,580

 

 

 

 

 

 

 

Net book value at 31 December 2017 (unaudited)

 

 

2,177

9,233

5,288

4,630

1,074

22,402

 

 

 

 

 

 

 

Net Book value at 30 June 2017 (audited)

 

2,313

9,939

5,655

4,304

1,119

23,330

Net book value at 30 June 2016 (audited)

 

2,589

11,391

6,421

2,763

907

24,071

 







 

12.  Contingent consideration


 

Blancco Sweden

Xcaliber

Tabernus

Blancco France

Blancco Mexico

Total



£'000

£'000

£'000

£'000

£'000

£'000

At 1 July 2016 (audited)


177

2,180

1,347

110

330

4,144

Unwinding of discount factor on contingent consideration

-

138

82

-

-

220

Revaluation of contingent consideration


-

(133)

(300)

1

(8)

(440)

Payment of contingent consideration


(177)

(475)

-

-

(322)

(974)

At 31 December 2017 (unaudited)


-

1,710

1,129

111

-

2,950

 

In August 2017, £0.2 million (€0.2 million) was paid in respect of Blancco Sweden as part of the renegotiation of the terms of the earn-out completed in August 2017. The remaining contingent consideration will be settled following collection of cash from contracts which comprised part of the earn-out value. At 31 December 2017, the fair value of the deferred contingent consideration was £nil. Also in August 2017, £0.3 million ($0.4 million) was paid in respect of the acquisition of 19% of the issued share capital in Software Blancco S.A de C.V. Following the disposal of this business in January 2018, all obligations from the acquisition of the previous 19% were extinguished. The fair value of the payment obligations at the balance sheet date was £nil.

All contingent consideration is current except for £0.7 million in respect of Xcaliber. The contingent consideration with respect to Tabernus is payable in cash or shares at the Group's discretion.

Deferred consideration for Tabernus, Xcaliber and Blancco France have been revalued as the consideration is payable in non-Sterling currencies, resulting in a non-cash credit to the Group Income Statement of £0.2 million. The deferred consideration for Tabernus was also revalued to fair value resulting in a non-cash credit of £0.2 million.

13.  Subsequent events

On 18 January 2018, the Group completed the disposal of its holding of 70% of the issued share capital of Software Blancco S.A. de CV for a consideration of $0.5 million (£0.4 million). The entity will become a distributor of Blancco products in the LATAM region going forward.

Cautionary statement

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

 



 

Glossary

Active Erasure (data erasure): Data erasure within active computer applications, including servers and networks of computers.  The main application is for data that has expired on systems or where unnecessary duplication of data exists, and to provide selective erasure of that data.

Adjusted Cash Conversion: Adjusted Operating Cash Flow stated as a percentage of Adjusted Operating Profit.

Adjusted Earnings Per Share: Adjusted earnings are stated before amortisation or impairment of acquired intangible assets and development costs capitalised, amortisation of bank fees, exceptional restructuring costs, acquisition costs, share-based payments, losses on disposals of investments and jointly controlled entities, unwinding of the discounted contingent consideration, adjustments to estimates of contingent consideration, and tax impacts of the above. 'Adjusted earnings per share' is the key earnings per share measure used by the Board.

Adjusted Operating Cash Flow or AOCF: Operating cash flow excluding taxation, interest payments and receipts, acquisition costs, and exceptional restructuring costs. This measure excludes capital expenditure. This is the key operating cash flow measure used by the Board to assess the underlying cash flow of the Group.

Adjusted Operating Profit or AOP: Operating Profit stated before acquisition costs (because these are one off in nature), exceptional restructuring costs (because these are not considered to reflect the underlying performance of the Group's operating business), share-based payment charges (because these represent a non-cash accounting charge for long term incentives to senior management rather than the underlying operations of the Group's business), Amortisation or impairment of acquired intangible assets (because these are non-cash charges arising as a result of the application of acquisition accounting, rather than core operations), the non-cash amortisation charge of development expenditure capitalised (because this does not reflect an ongoing cash outflow of the Group), and disposal of subsidiaries (because these represent a one off non-cash charge to the Consolidated Income Statement).

APAC: The Asia Pacific region.

Basic Earnings Per Share: Profit after tax attributable to the equity holders of the Company, stated per share.

Capital Expenditure: Expenditure on property, plant and equipment, intangible assets, and capitalised R&D.

Contingent Consideration: A future cash payment for vendors of acquired companies, contingent on that company's performance in a pre-determined period after acquisition.  This is recorded within the balance sheet and reassessed at each reporting period.

Constant Currency Basis: The results of the Group when translating the performance of foreign operations into Sterling at the foreign exchange rates observed in the prior period. This allows comparison of like-for-like results with the elimination of foreign exchange rate fluctuations.

Corporate Costs: Costs incurred centrally for the benefit of the Group as a whole and which cannot be allocated to specific divisions or subsidiaries.

Digital Care: Part of the Aftermarket Services segment (but not the Repair Services Business) which operated in the mobile phone insurance market. Also referred to as the mobile insurance business.

Diluted Adjusted Earnings Per Share: Adjusted earnings per share stated after adjustments to the number of shares for share options.

Diluted Earnings Per Share: Basic earnings per share stated after adjustments to the number of shares for share options.

Earn-out: See 'Contingent Consideration'.

File Eraser: File erasure to permanently remove files on PC computers, laptops and servers

Forward Contracts (currency hedging): A mechanism for fixing the future exchange rates for known and committed cash flows in order to mitigate the exposure of the Group to movements on exchange rates for these cash flows.

Gross Debt: The total external borrowings of the Group, net of capitalised bank fees.

LATAM: The Latin America region.

M&A: Mergers and acquisitions. This is the Group's activity in relation to acquisitions of other companies, both to full and part ownership.

Management Console: A customer tool to manage data erasure licences and give complete visibility of erasure activities.

Net Cash: Cash stated after offsetting gross debt against cash reserves.

Non-controlling interest: The Group does not fully own some of its subsidiaries, and for those in which the ownership is shared, the other party is the 'non-controlling interest'. This is relevant for all subsidiaries in which the Group owns (directly or indirectly) between 50% and 99% of the share capital; in the current and prior period these are only entities covering some of the Blancco sales offices.  At the end of each reporting period, the Group must allocate to the non-controlling interest, its share of profits and net assets in the subsidiary in which ownership is shared, which are recorded through the Consolidated Income Statement and Consolidated Balance Sheet respectively.

OEM: An 'Original Equipment Manufacturer'.

Operating Cash Flow: Cash flows originating from transactions in the core operational activities of the Group, for example cash flows resulting from revenues earned and expenditure paid. This excludes cash flows relating to investing or financing activities.

Operating Margin: Operating profit stated as a percentage of revenue.

R&D: Research and development into new technologies to improve client service, reduce costs or enhance revenue.

Repair Services Business: Part of the Aftermarket Services segment which was disposed of on 4 April 2016 to Communications Test Design Inc. for a consideration of €103.5 million (£79.9 million). This represents the Group's previous Depot Solutions and Advanced Solutions divisions, excluding the mobile insurance business, Digital Care.

Solid State Drive (SSD): A location for storing data on a platform comprised of microchips, typically in a PC or a laptop.

Subscription (revenue stream): Contracts with customers which are for a fixed term, typically one to three years.

Volume (revenue stream): Contracts with customers which involve an upfront delivery of licences, and typically no additional obligations to the customer.

Working Capital: A measure of the Group's current liquidity by showing how much cash has been invested in day to day trading.  Working capital is the sum of stock, current debtors, accrued income, current creditors and accrued payments.

 


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