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BLTG.GB Blanco Technology Group Plc

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Blancco Technology Group PLC Preliminary Results (2638K)

20/09/2016 7:01am

UK Regulatory


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Blancco Technology Group PLC

20 September 2016

20 September 2016

BLANCCO TECHNOLOGY GROUP PLC

PRELIMINARY RESULTS FOR THE YEARED 30 JUNE 2016

Blancco Technology Group Plc (AIM:BLTG, "Blancco" or the "Group") is pleased to announce its results for the year ended 30 June 2016.

Financial Highlights

-- Revenue increased by 49% to GBP22.4 million (2015: GBP15.0 million), with organic growth being 35%. On a constant currency basis revenue increased by 46% to GBP21.9 million

-- Adjusted Operating Profit before corporate costs (as defined in note 16) increased by 41% to GBP7.6 million (2015: GBP5.4 million), and on a constant currency basis has increased by 37% to GBP7.4 million. Operating loss is GBP0.4 million (2015: GBP1.6 million)

-- Adjusted operating cash flow (as defined in note 16) of GBP6.0 million (2015: GBP4.1 million) with cash conversion of 98% (2015: 103%). Operating cash flow is GBP4.0 million (2015: GBP1.6 million)

-- Adjusted earnings per share (as defined in note 16) from continuing operations of 5.63p (2015: 2.84p). Basic loss per share from continuing operations is 3.69p (2015: 3.84p)

-- Net cash at the year-end of GBP1.0 million (2015: GBP7.8 million), reflecting investment in the Software Group to set the business on the best path for 2017, including the acquisition of Xcaliber and investment in new greenfield sites and buy out of minority interests in some of the sales offices

-- Recommended final dividend of 1.34p per share (2015: 3.35p) rebased for the go-forward Software business. Total dividend for the year is 2.0p (2015: 5.0p), with the Board intending to adopt a progressive dividend policy moving forwards

Operating Highlights

   --      Growth in Live Environment Erasure invoiced sales, increasing 188% to GBP2.3 million 

-- Growth in other Blancco product lines of Mobile (42% to GBP3.7 million) and IT and other (44% to GBP17.4 million) in 2016

-- Increase in average revenue per client by 17% to GBP51,600. The number of sales worth in excess of GBP100,000 won in the year was 32, an increase of 53%

-- Strengthening of the senior team including appointments of Richard Stiennon as Chief Strategy Officer, and Steve Holton as the President and Chief Revenue Officer

-- Appointment of a new CFO, Keith Butcher, bringing over five years of software experience to the Group

-- Acquisition of Tabernus in September 2015, contributing to North America revenue growth of 146%

-- Acquisition of Xcaliber Technologies (increase in the Group's stake from 49% to 100%) with the subsequent win of a large mobile diagnostics contract with AT&T, and roll-out to more than 5,500 stores

-- Disposal of the Repair Services Business for EUR103.5 million, with a return of funds to shareholders via tender offer of GBP50 million

Matthew Peacock, Non-Executive Chairman of Blancco, said

"Blancco has delivered another strong year of growth against a backdrop of transformation at the Group level, with the disposal of the Repair Services Business. We have continued to invest in our products and our team, both organically and by acquisition, and have developed a clear strategic plan to achieve a step change in our penetration of the very large market for data erasure."

Chairman's Statement

I am pleased to introduce Blancco Technology Group's first full year results, for the year ending 30 June 2016. These results show strong improvements in revenue, operating result and earnings per share, which gives the Board confidence in the Group's new focus. The signature event of 2016 has undoubtedly been the change in the primary business activity of the Group from electronic repair services to data erasure and mobile diagnostics software. The results are reported and explained in Pat Clawson's first Chief Executive Officer's review below.

Over 2011 to 2016 the Group built its electronic repair services business, Regenersis, into one of the leading operators in its sector, with a broad geographical footprint capable of attracting the largest brands as its clients. The Board determined towards the end of financial year 2015 that it was the right time to realise value for these operations and to refocus the Group entirely on its software business. The optimal route to achieve this was clearly a disposal of the repair services business to another repair sector consolidator which saw considerable strategic value in the transaction. In February, we announced a sale and purchase agreement with Communications Test Design, Inc., ("CTDI") for a cash consideration of EUR103.5 million (GBP79.9 million). This transaction was completed 4 April 2016, and the Regenersis Plc entity was renamed Blancco Technology Group Plc (LON: BLTG) on 6 April 2016.

The disposal led to a GBP50 million return of capital to investors in May 2016, and leaves Blancco well resourced to exploit the opportunities in its sector. Most importantly, shareholders now have an undiluted exposure to the Software business. Blancco has demonstrated exceptional margins and revenue growth, attributable to its outstanding market position and the fast growing markets which it serves. Year on year revenue growth for the data erasure business was 29% in 2015 and 44% in 2016. These growth rates reflect the growing demand for data erasure due to compliance and security drivers, continued investments in sales and marketing, as well as complementary "bolt on" type acquisitions.

With the new focus on software has come changes to the composition of the Board. In October 2015, we welcomed a new non-executive director, Thomas Skelton. Thomas has deep software experience - he is currently the CEO of Surescripts, a US healthcare software business, and was previously a non-executive director of Micro Focus Plc. Ian Powell has retired from the Board and from his role as CEO of the Repair Services Business, and I would like to thank him for his role in the growth and subsequent disposal of this business. I announced in May 2016 my intention to become non-executive, retaining my role as Chairman of the Board, while Pat Clawson becomes the group's CEO. Keith Butcher joined the Group as CFO on 19 September 2016, taking over from Jog Dhody, who will resign from the Group following an orderly handover.

The outlook for the Group is positive, with continued strong demand for our data erasure and mobile diagnostics software, and an even stronger management team following several senior hires in 2016.

Matthew Peacock

Non-executive Chairman

CEO's Statement

I am pleased to report that Blancco Technology Group delivered strong results in 2016. Our revenue of GBP22.4 million (2015: GBP15.0 million), represented an increase of 49%. Adjusted Operating Profit before corporate costs was GBP7.6 million (2015: GBP5.4 million) a rise of 41%. Adjusted earnings per share from continuing operations were 5.63 pence, an increase of 92% on the 2015 earnings per share of 2.84 pence.

Data erasure products contributed GBP21.7 million (2015: GBP15.0 million) and comprised 97% of our revenue. Our mobile diagnostics business, arising from the acquisition of Xcaliber, generated GBP0.7 million in additional revenue in the period since it was consolidated in January. Several contracts were closed at the end of 2016 that will make mobile diagnostics a larger contributor to overall revenue in 2017 and beyond.

Further details of these results, including the effect of discontinued operations and currency movements, are contained in the Group Review.

In these first annual results as a standalone software business, we also set out our strategic goals and approach. Our stated goal is to be the de facto standard in data erasure and mobile diagnostics globally. Today, we are the clear market leader in data erasure. However it is equally clear that the vast majority of occasions in which a data erasure should be performed still pass without an erasure happening. So, our strategy is about increasing awareness of data erasure, and increasing the accessibility of data erasure. As our strategy report sets out, we believe that this requires a new appetite for partnership: with our large clients; with the information security consulting industry; and especially with large enterprise service providers who control workflows in which erasure is - or should be - a simple tick in a box.

Acquisitions update

In September 2015 we acquired a data erasure competitor, Tabernus, for $12 million (GBP7.7 million), bringing us market leadership in the important US market. While Blancco's historic roots were in Finland and Europe, the US is home to a large proportion of the global businesses which Blancco serves. Its software and cloud giants control a vast potential market of data erasure occasions which we want to access in the future.

In January and March 2016 the Group acquired the remaining 51% of mobile diagnostics provider Xcaliber Technologies, for $5.2 million (GBP3.6 million), of which $4.7 million (GBP3.3 million) is contingent on future revenue targets. This acquisition has enabled Blancco to improve its proposition to the smartphone remarketing sector, where data erasure and device diagnostics are adjacent process steps. It has also opened up a new market with the mobile network operators, who are seeking converged consumer-facing support and erasure solutions. In addition, Xcaliber maintains research and development facilities in Pune, India, adding innovative and low cost development capabilities to the Group, with a deep expertise in Android and iOS. The expansion of the Group's R&D function should allow greater product development for both erasure and diagnostics products in order to drive the business forward.

The Group continued to invest in its non-fully owned offices, acquiring a 100% stake in Blancco Australasia in August 2016, and planned further investments during quarter one and quarter two of 2017. The investments provide greater cross selling opportunities in these regions as we now have full access to these markets.

Operational update

During 2016, we saw positive momentum in the sales of our Live Environment Erasure product. The benefit of managing data erasure continuously in a live storage environment, as opposed to on a one-off basis at the device decommissioning stage, is very significant for our clients and therefore for Blancco. The technology has been in development for over 10 years and is now starting to gain traction in the market. In 2016, invoiced sales grew to GBP2.3 million compared to GBP0.8 million in the prior year. We are now targeting large data center operators, who are well positioned to promote live environment erasure to their enterprise clients. Market education over 2017 will be a key priority.

The Group has grown its mobile erasure invoiced sales by 42% in 2016 to GBP3.7 million (2015: GBP2.6 million), and the acquired Xcaliber business complemented the mobile erasure product with sales of an additional GBP0.7 million for the SmartChk diagnostic products. In May 2016, following a successful pilot, we won a contract to provide in-store SmartChk diagnostics across AT&T's retail network in the USA. The roll-out has been successfully delivered with tablet kiosks deployed to over 5,500 stores in under six weeks. This contract is a landmark win for the business, being the first large-scale deployment and reference case for the technology, and taking the business to positive run-rate profitability.

Our traditional end of life erasure products, which cover PCs, Servers and other IT equipment, also generated good growth in invoiced sales of 44% to GBP17.4 million (2015: GBP12.1 million).

Geographically, growth was strongest in North America, which expanded sales by 146% to GBP9.6 million (2015: GBP3.9 million). The organic growth rate was 121%, while additionally we acquired Tabernus sales in the region of GBP1.0 million. We made management changes following the buy-out of our minority partner in the US and the acquisition of Tabernus, which led to improvements in marketing, sales and service operations generally.

The Asia Pacific (APAC) region also delivered good growth in the year, up 45% to GBP5.8 million (GBP4.0 million). A large portion of this growth was generated by mobile erasure sales in Japan, as well as the first sales of integrated erasure and diagnostics technology. Further potential has been identified in China and the Group has opened new locations in this territory to capitalize on early opportunities.

The European business posed some challenges in 2016, growing at 8% in the year to GBP8.1 million (2015: GBP7.5 million). The region was weak in the take up of new technologies in the mobile and live environment spaces. The focus of efforts on the US, as well as the movement of head office and many senior management roles to the region, undoubtedly had a negative effect on momentum in this region in 2016. We are investing in strengthening these sales operations in 2017.

The Tabernus team has been fully integrated operationally into the Blancco organisation. Xcaliber's commercial team in the USA has also been operationally integrated, while the Xcaliber development operations based in India remain operationally distinct.

Strategy Update

In 2016 we completed an extensive strategic review. This identified important new initiatives for the business. The most important insight gained from this review was that we need to lead the market in driving erasure awareness and in making erasure more accessible for enterprises to adopt it in a systematic way. If we achieve this, the market should open up dramatically for us. This belief is captured in our new strategic mission statement of becoming the de facto standard in data erasure and mobile diagnostics.

While continuing to grow our business in the IT Asset Disposition (ITAD) sector we see the greatest opportunities in the enterprise, data centre, and mobile network operator verticals. We already have several large customers that have deployed our enterprise erasure products throughout their desktop and datacenter environments. These deployments have led to substantial recurring revenue. The Group is the only provider of certified data erasure products supported by services and the market is thinly penetrated to date.

Building a Partner Business Development Function

Most potential enterprise erasure happens within the workflows of other enterprise service providers. These include IT Value Added Resellers (VARs), who provision and manage IT solutions for enterprises, and Managed Service Providers (MSPs), who deliver services such as applications, networking, data storage and security solutions over networks or the Cloud. In a congested IT security environment, Chief Information Officers prefer to work with a small number of large, trusted VARs and MSPs. They also prefer erasure solutions which are integrated into these platforms. Data centres provide a target market for us, where our live environment erasure products are particularly relevant.

To date, Blancco has predominantly adopted a direct sales model, led by local teams, and based on the sale of standalone Blancco erasure products for license (per erasure) or subscription payments. This model continues to be a successful one and will remain a key pillar of our route to market. Partner channel development will act as a complementary sales route into markets in which we have not historically secured a strong foothold.

We will also build a robust global partner business development function which seeks to provide integrated data erasure to enterprises within the ecosystems of VAR and MSP partners. Steve Holton, our new President and Chief Revenue Officer, brings extensive experience of building successful software partnerships and channel sales.

Thought Leadership, Regulation, and Market Education

In addition to sales training in each region we are executing on a strategy of market education. As the industry leader it is in Blancco's interest to establish thought leadership by participating in industry events, publishing guides and best practices, and continuing our PR and lobbying efforts with systematic campaigns. Data erasure is not prioritised by most of the large software and security analyst firms, often only mentioned as a function of ITADs. Major regions, including the UK, EU, and US, are active in legislating new data protection laws but require assistance in their efforts to understand data erasure requirements. Richard Stiennon, our new Chief Strategy Officer and a respected thought leader in the information security space, brings to the Group a new level of expertise in this area.

Mobile Diagnostics

The market for consumer data erasure is expanding rapidly through the mobile network operators. They increasingly seek to provide erasure solutions to their customer base, especially around the smartphone upgrade occasion. Our recent acquisition of Xcaliber Technologies and its SmartChk smartphone diagnostics product gives us a stronger platform in mobile erasure. It is also opening up a large opportunity in smartphone diagnostics. The synergy with our data erasure business occurs in at least three areas:

(1) Mobile network operators want self-help consoles in their stores. These perform smartphone diagnostics and smartphone erasure in one package (as well as equivalent solutions delivered through call centre and online support channels);

(2) Smartphone remarketing companies want to perform both erasure and diagnostics on used devices prior to resale;

(3) Maintaining a deep expertise in the Android and iOS operating systems in important to both erasure and diagnostics.

Strategically, we have identified the mobile network operators as a key partnership for us, alongside the enterprise market and the data center market. Our pipeline of new business in this vertical is strong.

M&A

The primary source of our growth is organic. However, we will continue to engage in M&A activity for prospective growth via acquisition, should the right opportunity arise. Such opportunities will help enhance the Group's market position and footprint in new geographies or complementary product offerings.

Technology Update

In March 2016, we were awarded US Patent No. 9286231 for our Solid State Drive (SSD) erasure method, in addition to the European patent awarded in July 2015. In our view, this is the only universal method to reliably erase the broad range of different brands and models of SSD drive available in the market. SSD drives, typically used in premium-priced laptops and other IT equipment, including servers, are rapidly growing their share of the storage market.

Legislation and regulatory change is driving the need for digital data destruction globally. The EU Global Data Protection Regulation (GDPR) and the "Right to be forgotten" is calling for data erasure in a number of ways and reaches beyond Europe to North America and APAC. The International Organisation for Standardisation (ISO) standards ISO 27001, 27018 and 27040 include specific call-outs for the erasure of digital data for the protection of customers. We are also seeing spot regulation within specific industries, including banking and finance, the Payment Card Industry (PCI), federal government and healthcare.

Building on our recent success with patenting our SSD erasure technology we have established a programme to cultivate our technology innovation and increase the number of patents filed. This strategy protects our market and provides a defensive portfolio to ward off future challenges to our technology position.

We are also standardising our product development processes across regions so that we can stay agile and bring product enhancements to market quickly.

Blancco Management Console is a product we have developed to centrally manage licences and reports for secure erasure. A central management console is critical to growing an enterprise business strategy. Each data erasure product can integrate with the management console and Application Programming Interfaces (APIs) are being developed to enhance integration with third party products. The product is available as a stand alone software solution or as a service through Blancco Cloud.

Our product development roadmap also includes new projects related to integration and API improvements, and to the management features required to deliver a successful partnering strategy.

In 2016 we have created and are tracking a programme to enhance our product and process certifications. We already have a wide set of global certifications including CESG in the UK, ISO 15408 and NATO. Certifications serve as a barrier to entry for new entrants in the field, thus they enhance our defensive position. They are also required by many enterprise prospects so are a required investment.

Leadership Update

In 2016 we continued to focus on building out our top team, to bring in the skills and experience required to execute our strategy.

I am excited by the addition of Steve Holton to our team. As our President and Chief Revenue Officer (from July 2016) he is responsible for building and scaling the Group's global sales team to drive continued revenue growth. Steve is an experienced software industry veteran and has 20 years of experience selling B2B software solutions. Most recently, he was SVP of Worldwide Sales and Customer Success for mobile enterprise security company, Good Technologies. He grew this from a $200 million organisation into a highly valued company that was acquired by BlackBerry (NASDAQ: BBRY) for $425 million in September 2015.

Since joining, Steve has further enhanced his team by bringing in Matt Sturges, VP of Global Business Development and Channel Sales who will be responsible for our partner oriented route to market. Matt brings 11 years of experience in channel and direct sales roles at Apple, generating substantial revenue growth through partner channels.

As we focus the Group on growth in the Americas and in enterprise erasure globally, we look to Richard Stiennon to lead the company's overall corporate strategy. This includes long-term strategic planning, product positioning, public affairs, industry analyst relations, joint ventures and industry partnerships. Richard is a former VP Research for industry analyst firm Gartner, Inc. and has held executive positions at Fortinet, and Webroot Software.

In 2016 Khalid Elibiary, the former president of Tabernus, took on the role of VP of R&D and Customer Experience. Khalid brings to the role his considerable expertise in growing a successful data erasure business and will lead our product teams in technology innovation as we extend our critical IP assets.

Outlook

The outlook for 2017 is positive. New market regulations surrounding data management and a very thinly penetrated market for secure data erasure means that increased marketing and thought leadership, should lead to continued healthy increases in revenue while maintaining the favourable gross margins and profits associated with the pure play software business of the Group.

We have seen no impact of the UK's intended exit from the European Union on our business. We are confident that the fundamental drivers of growth in our business are strong.

We remain confident in market expectations for 2017 as we continue to penetrate the still nascent markets for both data erasure and mobile device diagnostics.

Pat Clawson

Chief Executive Officer

Enquiries:

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

Pat Clawson, Chief Executive Officer

Jog Dhody, Chief Financial Officer

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

Richard Kauffer

Euan Brown

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

Dominic Morley, Corporate Finance

Charles Leigh Pemberton, Corporate Broking

   Tulchan Communications                                                       +44 (0) 20 7353 4200 

Tom Murray

Results

The financial performance of the business is summarised as follows:

   --     Revenue of GBP22.4 million (2015: GBP15.0 million, growth 49%); 

-- Adjusted Operating Profit before corporate costs of GBP7.6 million (2015: GBP5.4 million, growth 41%);

-- Adjusted Operating Profit after corporate costs of GBP6.1 million (2015: GBP4.0 million, growth 53%);

   --     Adjusted Operating Profit margin of 27% after corporate costs (2015: 27%). 

Operating loss was GBP0.4 million (2015: operating loss GBP1.6 million). Reduction in operating loss was due to increased revenues and the reduction of exceptional M&A costs relative to the prior year.

Adjusted operating cash flow was GBP6.0 million (2015: GBP4.1 million), with a cash conversion of 98% (2015: 103% conversion) relative to Adjusted Operating Profit. Net cash at the end of the period was GBP1.0 million (2015: GBP7.8 million).

 
 Key financials                           2016     2015 
                                         GBP'm    GBP'm 
==================================     =======  ======= 
 Invoiced Revenue                         24.4     15.5 
 Revenue                                  22.4     15.0 
 Adjusted Operating Profit 
  before corporate costs                   7.6      5.4 
 Adjusted Operating Profit 
  after corporate costs                    6.1      4.0 
 Operating loss                          (0.4)    (1.6) 
=====================================  =======  ======= 
 
 Adjusted Operating 
  Profit margin % before 
  corporate costs                        33.9%    36.0% 
 Adjusted Operating Profit margin 
  % after corporate costs                27.2%    26.7% 
 Operating margin %                     (1.8)%   (7.1)% 
====================================   =======  ======= 
 

Segmental Results

 
                                                        Year 
                                    Year ended         ended 
                                       30 June       30 June 
                                          2016          2015 
                                   GBP'million   GBP'million 
===============================   ============  ============ 
 Revenue 
 Erasure                                  21.7          15.0 
 Diagnostics                               0.7             - 
 Total                                    22.4          15.0 
================================  ============  ============ 
 
 Divisional Adjusted Operating 
  Profit 
 Erasure                                   7.6           5.4 
 Diagnostics                                 -             - 
 Total                                     7.6           5.4 
 
 Corporate costs (continuing 
  operations)                            (1.5)         (1.4) 
================================  ============  ============ 
 Total Adjusted Operating 
  Profit                                   6.1           4.0 
================================  ============  ============ 
 
 Discontinued Revenue                    151.9         187.6 
================================  ============  ============ 
 Discontinued divisional 
  Adjusted Operating Profit                9.7          15.2 
 Corporate costs (discontinued 
  operations)                            (3.4)         (3.8) 
================================  ============  ============ 
 Total discontinued Adjusted 
  Operating Profit                         6.3          11.4 
================================  ============  ============ 
 
 

Group Review

The continuing business consists of the Erasure and Diagnostics divisions. The Erasure division includes the Blancco business which enables customers to test, diagnose, repair and repurpose IT devices with certified software. The Diagnostics division holds our SmartChk product, obtained and developed as part of the Xcaliber acquisition, which provides consistent, accurate and measurable diagnostics of smartphones and tablets.

The revenues and Adjusted Operating Profit of these divisions comprise the Group's continuing operations as presented in the financial statements

The discontinued business comprises the Group's depot repair facilities and its mobile phone insurance activities. The Repair Services Business was sold in April 2016, and therefore the above figures include only 9 months of trading.

An agreement to sell the Digital Care insurance business to Mazovia Capital was reached on 19 September and therefore the above figures include the full year results for that business.

The total result for the year, including the impact of the required accounting for discontinued operations was a loss of GBP24.2 million (2015: GBP5.1 million profit).

The full results of the discontinued business are presented in note 7.

Erasure division

The Erasure division includes Blancco, acquired in April 2014, the global market leader data erasure software, and the bolt-on acquisitions of SafeIT (acquired September 2014) and Tabernus (acquired September 2015). Both acquisitions have been fully integrated onto the Blancco platform.

The Erasure division revenue increased to GBP21.7 million (2015: GBP15.0 million), of which GBP1.5 million was generated by the acquisition of Tabernus. The organic growth of 35% was predominantly driven by the growth in the strategically important North American region and the LEE product group.

Adjusted Operating Profit before corporate costs was GBP7.6 million, at a margin of 33.9%, compared to a margin of 36.0% in 2015. The Adjusted Operating Profit margin has reduced slightly in the current period. The decline in margin is a result of investment in new strategic headcount in order to drive future revenue growth.

Financial and operational highlights included:

-- Acquisition and integration of Tabernus, which further enhances the Group's market footprint both geographically, through its strong position in the US market, and through the addition of new product lines to the Group's portfolio.

-- Strong growth in the strategically important North American region, with invoiced sales growing by 146%.

-- A new distribution agreement signed in the United Arab Emirates, opening new sales channels to the technology centre of the Middle East.

-- Acquisition of the remaining share capital of Blancco Australasia which was not already owned, bringing the Group's share to 100%

-- Expansion into new geographies in India and China, allowing us to generate new revenue streams from these high growth economies.

-- Strong growth in the Live Environment Erasure product sales, which represents a more sophisticated erasure method in customers' networked storage environments, allowing real time and "live" data erasure in addition to the end of life erasure offered by the business' existing product range.

   --     Grant of European and US patents for our SSD erasure method 

Diagnostics division

The Diagnostics division is made up of Xcaliber Technologies, a smartphone diagnostics software business. The Group increased its stake in this business from 49% to 100% during the financial year.

The Diagnostics division generated revenue for the Group for the first time this year, having previously been a non-consolidated associate at 49% ownership. Revenues for the six month period since acquisition were GBP0.7 million. On a pro-forma basis, Xcaliber generated revenues of GBP1.3 million in the full year period, which represents growth from prior year revenues of GBP0.3 million. This growth has been achieved through the transition of the business from a start up development proposition to a self-sufficient sales generative organisation.

The division recorded adjusted operating profit of GBPnil for the period, compared to a pro-forma loss of GBP1.5 million for the prior year. The improvement in profitability to break even is led by the ramp up of new customer contracts in this period.

Financial and operational highlights included:

-- Integration and cross selling of the diagnostics product with the traditional erasure product giving customers a more sophisticated all in one data erasure and diagnostics management tool

-- Commencement of large contract with AT&T which has resulted in a roll out of the diagnostics tool into over 5,500 stores in the US

Revenue Recognition

The Group monitors its sales performance by tracking Invoiced Revenue, which is a measure of the level of business won in the year. 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 term of the contract.

This had 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:

 
                                           2016     2015 
                                          GBP'm    GBP'm 
======================================  =======  ======= 
 Invoiced Revenue                          24.4     15.5 
 Net revenue deferral of subscription 
  sales                                   (2.0)    (0.5) 
 Reported revenue                          22.4     15.0 
======================================  =======  ======= 
 
 

The increase in revenue deferral in 2016 is a result of both the increase in absolute sales generated in comparison to the prior year, and an increase in the number of corporate deals signed up, which are typically high value subscription deals over a number of years.

The total deferred revenue for the continuing Group at 30 June 2016 was GBP4.8 million (2015: GBP2.4 million) which represents revenue to be recognised in future periods.

Corporate costs

Corporate costs of GBP1.5 million (2015: GBP1.4 million) increased slightly. The cost base represents the costs associated with running the central function, and the run rate of these costs has decreased significantly compared to the previous year as the disposal of the Repair Services Business has resulted in a reduction in required resource.

Currency hedging activities and constant currency

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 quarterly 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 2016, sterling has weakened against the main overseas currencies in which the Group trades, predominantly the Euro (comprising 20% of revenues), US Dollar (comprising 30%) and Japanese Yen (comprising 20%). This was compounded in June 2016 following the UK's decision to leave the European Union, at which point the Euro and US Dollar rates fell by 11% and 8% respectively. This has generated a foreign exchange benefit as the overseas earnings are now worth more in sterling terms.

The exchange rates applied at the year end are as follows:

 
                   30 June  30 June 
                      2016     2015 
================   =======  ======= 
  Euro                1.20     1.41 
  US Dollar           1.33     1.57 
  Japanese Yen      136.50   191.97 
================   =======  ======= 
 
 
 

A comparison of actual results to results restated at expected exchange rates is presented below:

 
                                       Year ended    Year ended 
                                          30 June       30 June 
                                             2016          2016 
                                           Actual      Constant 
                                          Results      Currency 
                                      GBP'million   GBP'million 
==================================   ============  ============ 
 Invoiced Revenue                            24.4          23.8 
 Revenue                                     22.4          21.9 
 Divisional Adjusted Operating 
  Profit                                      7.6           7.4 
 Group Adjusted Operating Profit              6.1           5.9 
-----------------------------------  ------------  ------------ 
 Adjusted earnings per share 
  (pence)                                    5.63          5.34 
 Basic earnings per share (pence)          (3.69)        (3.98) 
===================================  ============  ============ 
 

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

The Group has a mix of business across 10 main currencies which provides smoothing of currency movements in any one country through a portfolio effect. The cash and loan balances held in different currencies provide a natural hedge.

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

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

Disposal of Repair Services Business

On 4 April 2016, the Group completed the disposal of 100% of the issued share capital of Regenersis (Depot) Services Limited and its subsidiaries to CTDI Repair Services Limited for cash consideration of EUR103.5 million (GBP79.9 million).

The disposal represents the Group's Repair Services Business and signifies the point at which the Company transitioned to a pure play software business. The result of this business for the period was a loss of GBP8.3 million (2015: GBP8.4 million profit) as detailed in note 7.

On 19 September 2016 the Group reached an agreement to sell the Digital Care business to Mazovia Capital for initial contingent consideration of EUR1.2 million (GBP1.0 million) with a further contingent earn out of EUR3.3 million (GBP2.8 million) payable over 2 to 3 years. These proceeds will be reinvested into the Software business.

Acquisition of Tabernus

In September 2015, Blancco acquired 100% of the share capital of Tabernus LLC and Tabernus Europe Limited, a privately owned provider of software erasure. With the majority of its revenue in the US, Tabernus is the USA market leader for this business. The consideration was $12 million (GBP7.7 million) comprising cash payment of $10 million (GBP6.4 million) funded through the Group revolving credit facility and $2 million (GBP1.3 million) in contingent cash consideration payable after three years.

Acquisition of Xcaliber

On 4 January 2016, the Group acquired 27% of the issued share capital of Xcaliber Technologies LLC for a consideration of $0.5 million (GBP0.3 million), funded through the Group revolving credit facility, bringing the Group's share of this business to 76%.

At the point of acquisition, the Group was required to present a disposal of its investment interest in Xcaliber and has consolidated the results of Xcaliber from this date. At the point of acquisition, a non-cash loss on disposal of the equity investment of GBP1.3 million was realised.

On 17 March 2016, the group acquired the remaining share capital of Xcaliber Technologies LLC which it did not already own for an initial cash consideration of $0.5 million (GBP0.3 million) and a further estimated earn out payment of $4.7 million (GBP3.3 million), payable over 3 years depending on the business achieving certain revenue targets. On completion, an additional $0.4 million (GBP0.3 million) was used to settle outstanding debts to the seller.

Acquisition of Non-controlling Interest in Blancco Australasia

On 17 August 2016, the Group acquired the remaining 49% it did not already own of the issued share capital of Blancco Australasia Pty. The consideration of AU$0.1 million (GBP0.1 million) was funded through the Group's cash reserves.

Exceptional Acquisition and Restructuring Costs

The Group has undertaken acquisitions in the period which have incurred exceptional acquisition expenses. In addition, the Group has pursued the buy out of some of the remaining Blancco sales offices which it does not currently 100% own.

Acquisition costs amounted to GBP1.3 million (2015: GBP2.4 million), predominantly relating to the acquisitions of Tabernus and Xcaliber.

Exceptional restructuring costs in the continuing business amounted to GBPnil (2015: GBP0.1 million).

In the discontinued business, the M&A costs totalled GBP9.6 million (2015: GBP0.6 million) and relate to the disposal of the Repair Services and Digital Care businesses and subsequent tender process leading to the return of GBP50 million of capital to shareholders.

The restructuring costs in the discontinued business were GBP1.5 million (2015: GBP0.6 million) and relate to the costs of restructuring the Group in preparation for sale, as well as subsequent downsizing of central functions.

Amortisation of internally generated R&D Expenditure

Amortisation of internally generated intangible assets which have been generated by the Group is presented within Adjusted Operating Profit. This represents the charge for internal development costs of the Group's R&D team. 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.

The charge for the year is GBP0.5 million (2015: GBP0.1 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 product is expected to last, generally four years. The amortisation is therefore currently lagging behind the development expenditure capitalised.

Amortisation of Acquired Intangibles

Amortisation of acquired intangible assets acquired as part of the Group's previous M&A activity was GBP2.5 million (2015: GBP2.0 million). The cost has increased in the year primarily due to the acquisition of intangible assets on the Tabernus and Xcaliber acquisitions.

Share Based Payments

Share based payments charge was GBP1.2 million (2015: GBP0.4 million) and includes both the straight line accounting charge for the Group's remaining share incentive plans as well as the charge for the options granted under the Software long term incentive scheme.

The charge is based on the expected growth in value of the business at the end of the award vesting period, in comparison to the valuation on inception. A charge of GBP0.5 million (2015: GBPnil) is recorded in respect of the scheme representing the accumulated growth in value for the participants.

Details of these schemes can be found in the Annual Report and Accounts.

Net Financing Expense

Net financing expense was GBP0.9 million (2015: GBP0.8 million). Included within the financing costs are:

-- The unwind of the time value of money on the deferred consideration payable in future periods for the Group's acquisitions, which represents a non-cash charge of GBP0.3 million (2015: GBP0.2 million).

-- The impact of revaluation of deferred consideration payable in non-sterling currencies. The impact of Brexit and subsequent weakening of sterling resulted in a non-cash charge of GBP0.3 million in the current period.

-- The cost associated with the Group's banking facility of GBP0.3 million (2015: GBP0.4 million), reduced slightly due to the lower facility available for the continuing Group.

   --     Other interest cash costs of GBPnil (GBP0.2 million). 

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

Taxation

The total tax charge was GBP0.7 million (2015: GBP0.9 million).

Earnings per share

Adjusted earnings per share for the continuing business were 5.63 pence (2015: 2.84 pence). The growth has been driven by the growth in profits for the continuing business in the year.

Basic loss per share for the continuing business was 3.69 pence (2015: 3.84 pence). The increased sales and improved profitability representing cash inflow for the group was offset by the one off non-cash loss on disposal booked on the Xcaliber acquisition.

Cash and Working Capital

 
 
                                            Year      Year 
                                           ended     ended 
                                         30 June   30 June 
                                            2016      2015 
                                           GBP'm     GBP'm 
====================================    ========  ======== 
 Adjusted operating cash 
  flow before movement in 
  working capital and exceptionals           6.9       4.2 
 Movement in working capital 
  and exceptionals                         (0.9)       0.5 
 Movement in provisions                        -     (0.4) 
======================================  ========  ======== 
 Adjusted operating cash 
  flow                                       6.0       4.1 
 
 Net interest payments                     (0.2)     (0.4) 
 Tax paid                                  (0.6)     (0.6) 
 M&A payments                              (1.1)     (1.4) 
 Exceptional payments                          -     (0.1) 
======================================  ========  ======== 
 Net cash from operating 
  activities - continuing 
  operations                                 4.1       1.6 
 
 Net capital expenditure                   (2.5)     (1.8) 
 Acquisition of subsidiaries, 
  associates and other investments, 
  net of cash acquired                     (7.8)     (4.4) 
 Net cash flow from sale                    18.8         - 
  of subsidiaries and share 
  buy backs 
 Net cash flow from share 
  issues, option vesting 
  and dividend payments                    (3.1)     (6.9) 
 Other movements                           (1.3)     (2.0) 
 Cash flow on discontinued 
  operations                              (15.0)       0.7 
======================================  ========  ======== 
 Total cash flow                           (6.8)    (12.8) 
 Net cash                                    1.0       7.8 
======================================  ========  ======== 
 

We closed the year with net cash of GBP1.0 million (2015: GBP7.8 million). This reduction is primarily as a result further investment in new locations in Asia, Europe and the Middle East as well as the acquisition of the new Xcaliber Diagnostics business, all of which should drive growth in 2017.

Discontinued cash flow

The disposal of the repair business generated proceeds of GBP79.9 million, the majority of which was used to fund the return of cash to shareholders via the buy back and subsequent cancellation of shares in May 2016.

The business incurred exceptional costs totalling GBP11.1 million in connection with this disposal and the restructuring of the Repair Services Business which took place prior to its disposal. The net cash flow for the discontinued business for the year, including the sale of the Repair Services business, the return of funds to shareholders and the trading cash flow was a GBP3.8 million inflow.

Continuing cash flow

Adjusted operating cash flow of GBP6.0 million (2015: GBP4.1 million) and operating cash inflow of GBP4.1 million (2015: GBP1.6 million) were both higher than in previous periods, primarily driven by the increase in profit. The cash conversion for the year was 98% (2015: 103%), which saw an increase in working capital in the second half of the year. This is driven by four factors:

-- The move in the mix of business towards volume customers and away from subscription customers; where subscription customers pay up front for the contract. The mix reduction in these customers paying cash up front has resulted in lower cash generation relative to profits.

-- Increasing levels of sales with large corporate customers, who generally carry larger credit terms.

-- The business recording a significant amount of sales towards the end of the reporting period, which was 73% higher than the prior year, therefore the cash flows associated with these sales were deferred to FY17.

-- For the first time, diagnostics sales, which are generally with larger corporations over longer credit terms.

Tax paid was GBP0.6 million (2015: GBP0.6 million).

Net interest paid was GBP0.2 million (2015: GBP0.4 million). The majority of the interest expense recorded in the Income Statement is non-cash, as it relates to the impact of changes in current value of future payables.

The Group has continued to invest in the development and enhancement of its erasure and diagnostics tools. Capital expenditure and R&D increased to GBP2.5 million (2015: GBP1.8 million).

Expenditure on tangible assets, including leasehold improvements and technical equipment, and software licences amounted to GBP0.2 million (2015: GBP0.1 million).

Capital development expenditure on R&D activities amounted to GBP2.3 million (2015: GBP1.7 million). During the year, the spend comprised software development across the erasure portfolio of products, customer specific product development, and investment in new diagnostics.

The spend has included work to bring the product up to the specification to obtain patents in the UK and US alongside its worldwide certifications, with further investment in patent protection remaining a management focus.

Investment was specifically directed towards integrating the Blancco product onto the new hardware platform acquired with Tabernus. In addition, we have continued to develop the mobile product, developing and releasing a new version in 2016 following the initial product launch in 2015.

We have developed the SmartChk diagnostics product, acquired with Xcaliber, to integrate this into a Depot repair network for our existing customers, as well as developing a combined erasure-diagnostics solution for the market from our existing portfolio.

These investments have allowed the business to better target products towards larger customers where the business has already seen benefit in 2016, and going forward for cloud customers and data centres who require more complex erasure solutions.

Net Cash

Year end net cash comprised gross borrowings of GBP3.7 million denominated in sterling (2015: GBP4.6 million in sterling and euros), cash and cash equivalents of GBP4.8 million (2015: GBP12.1 million) and deferred arrangement fees of GBPnil (2015: GBP0.3 million).

Dividend

In line with our stated dividend policy, the Board is recommending a final dividend of 1.34 pence per ordinary share to be paid on 7 December 2016 to shareholders on the register on 4 November 2016. This gives a full year dividend of 2.0 pence per ordinary share, which has been rebased following the sale of the repair services business. The Board intends to adopt a progressive dividend policy which reflects the long term earnings and cash flow potential of the Group.

Post Year-end Events

On 17 August 2016, the group acquired the remaining 49% of the share capital of Blancco Australasia Pty Ltd that it did not already own for a cost of AU$ 0.1 million (GBP0.1 million). The consideration was funded through the Group's cash reserves.

On 19 September 2016 we reached an agreement to sell the Digital Care business to Mazovia Capital for initial contingent consideration of EUR1.2 million (GBP1.0 million) with a further contingent earn out of EUR3.3 million (GBP2.8 million) payable over 2 to 3 years. These proceeds will be reinvested into the Software business.

Key Performance Indicators

The Group has a range of performance indicators, both financial and non-financial, to monitor and manage the business and ultimately to improve performance. The Group's key performance indicators ("KPIs") are outlined below:

 
                              Year      Year                   Commentary 
                             ended     ended 
 Key financials            30 June   30 June 
                              2016      2015 
======================= 
 
                                                        Invoiced Sales is 
                                                     an important KPI for 
                                                 the Group as it measures 
                                                  the actual sales closed 
                                                      and invoiced in the 
                                                       period, before any 
                                                IFRS deferral of revenue. 
                                                       It is a key metric 
                                                   for how the salesforce 
 Invoiced Sales                                  has grown the underlying 
  (GBP'm)                     24.4      15.5        business of the Group 
========================  ========  ========  =========================== 
 Geography (Regional 
  proportion of 
  invoiced sales) 
=======================   ========  ========  =========================== 
                                                       North America is a 
                                                  strategically important 
                                                   location for the Group 
                                                  and focus is on growing 
                                                     our presence in this 
                                                location. The significant 
                                                      growth has resulted 
                                                        from an increased 
                                                   presence in the market 
                                                        and investment in 
 North America                 40%       25%              sales resources 
                                              =========================== 
 Europe                        35%       49% 
                                              =========================== 
 Asia and ROW                  25%       26% 
========================  ========  ========  =========================== 
                              100%      100% 
 =======================  ========  ========  =========================== 
 Product type 
  (Proportion of 
  invoiced sales) 
=======================   ========  ========  =========================== 
                                                   The Group is expanding 
                                                        its product range 
                                                  through the acquisition 
                                                       and development of 
                                                       new services, most 
                                                     notably LEE (through 
                                                       SafeIT). The Group 
                                                       has seen growth in 
                                                    this area in the year 
                                                        as the product is 
                                                        further developed 
                                                       for our customer's 
 LEE                           10%        5%                       needs. 
                                              =========================== 
 Mobile                        16%       16% 
                                              =========================== 
 IT and Other                  74%       79% 
========================  ========  ========  =========================== 
                              100%      100% 
 =======================  ========  ========  =========================== 
                                                        The rate at which 
                                                  customers are repeating 
                                                     business is high and 
                                                  improving demonstrating 
                                                   the value our products 
                                                                 provide. 
                                                      Our customers spend 
                                                       increasing amounts 
                                                    with us year on year, 
                                                   showing the additional 
 Trailing 12 month                                 value our wide product 
  client retention                                            range holds 
  rate*                        91%       81%                            . 
========================  ========  ========  =========================== 
 Trailing 12 month 
  sales repeat 
  rate*                       113%      103% 
========================  ========  ========  =========================== 
 Average annual 
  spend per customer* 
  (GBP'000)                   51.6      44.1 
========================  ========  ========  =========================== 
 End of year headcount 
=======================   ========  ========  =========================== 
                                                    We continue to invest 
                                                    in headcount, through 
                                                       R&D development of 
                                                     our products and our 
                                                   salesforce to generate 
                                                        new business. Our 
                                                        R&D team expanded 
                                                   following the Xcaliber 
                                                       acquisition in the 
 Admin                          21        24                        year. 
                                              =========================== 
 R&D                           107        30 
                                              =========================== 
 Sales                          87        81 
========================  ========  ========  =========================== 
                               215       135 
 =======================  ========  ========  =========================== 
 

* for customers spending over EUR10k per year

Consolidated Income Statement

 
                                               Year ended   Year ended 
                                                  30 June      30 June 
                                                     2016         2015 
                                        Note      GBP'000      GBP'000 
====================================   =====  ===========  =========== 
 Continuing operations revenue             2       22,387       15,014 
 
 Divisional operating profit               2        7,605        5,382 
 Corporate costs                                  (1,516)      (1,359) 
 Adjusted Operating Profit                 2        6,089        4,023 
 Acquisition costs                         3      (1,343)      (2,414) 
 Exceptional restructuring 
  costs                                    4            -         (67) 
 Amortisation of intangible 
  assets                                          (2,494)      (2,026) 
 Share-based payments                             (1,167)        (371) 
-------------------------------------  -----  -----------  ----------- 
 
 Group operating profit/(loss)                      1,085        (855) 
 Loss on disposal of Xcaliber 
  investment following acquisition         8      (1,314)            - 
 Share of results of associates 
  and jointly controlled 
  entities                                          (155)        (746) 
=====================================  =====  ===========  =========== 
 Operating loss                                     (384)      (1,601) 
 Finance income                            6           68           48 
-------------------------------------  -----  -----------  ----------- 
 Unwinding of contingent 
  consideration                                     (292)        (171) 
 Revaluation of contingent                          (293)            - 
  consideration 
 Other finance costs                                (416)        (672) 
=====================================  =====  ===========  =========== 
 Finance costs                             6      (1,001)        (843) 
-------------------------------------  -----  -----------  ----------- 
 Loss before tax                                  (1,317)      (2,396) 
 Taxation                                           (649)        (869) 
=====================================  =====  ===========  =========== 
 Loss for the period                       5      (1,966)      (3,265) 
=====================================  =====  ===========  =========== 
 Discontinued operations 
 Post tax results from discontinued 
  operations                               7     (22,198)        8,382 
=====================================  =====  ===========  =========== 
 (Loss)/profit for the period                    (24,164)        5,117 
=====================================  =====  ===========  =========== 
 Attributable to: 
  Equity holders of the Company                  (24,838)        5,404 
 Non-controlling interest                             674        (287) 
=====================================  =====  ===========  =========== 
 (Loss)/profit for the period                    (24,164)        5,117 
=====================================  =====  ===========  =========== 
 
 
 
 
 Earnings per share 
 
 Continuing Operations:           (3.69     (3.84 
  Basic                      8       p)        p) 
                                  (3.69     (3.84 
 Diluted                     8       p)        p) 
 Discontinued Operations: 
                                 (31.03     10.81 
 Basic                       8       p)         p 
                                 (31.03     10.81 
 Diluted                     8       p)         p 
 Total Group: 
                                 (34.72 
 Basic                       8       p)    6.97 p 
                                 (34.72 
 Diluted                     8       p)    6.97 p 
 
 
 
 
   Consolidated Statement of Other Comprehensive Income 
                                            Year          Year 
                                           ended         ended 
                                              30            30 
                                            June          June 
                                            2016          2015 
                                         GBP'000       GBP'000 
=================================    ===========  ============ 
 (Loss)/profit for 
  the period                            (24,164)         5,117 
 Other comprehensive 
  income - amounts that 
  may be reclassified 
  to profit or loss 
  in the future: 
 Exchange differences 
  arising on translation 
  of foreign entities                      2,542     (3,786) 
===================================  ===========  ============ 
 Total comprehensive 
  (loss)/income for 
  the period                            (21,622)         1,331 
===================================  ===========  ============ 
 Attributable to: 
 Equity holders of 
  the Company                           (22,296)         1,618 
 Non-controlling interests                   674         (287) 
===================================  ===========  ============ 
 Total comprehensive 
  (loss)/income for 
  the period                            (21,622)         1,331 
===================================  ===========  ============ 
 
 
 Consolidated Balance                   30 June 
  Sheet                                    2016     30 June 
                                                       2015 
                                Note    GBP'000     GBP'000 
=============================  =====  =========  ========== 
 Assets 
 Non-current assets 
 Goodwill                                42,821      83,157 
 Other intangible assets                 24,071      27,041 
 Investments in jointly 
  controlled entities 
  and associates                              -       1,850 
 Other Investments                            -          61 
 Property, plant and 
  equipment                                 430       6,355 
 Deferred tax                                 -         622 
=============================  =====  =========  ========== 
                                         67,322     119,086 
=============================  =====  =========  ========== 
 Current assets 
 Inventory                                  116       9,480 
 Trade and other receivables              8,901      34,556 
 Cash                                     4,769      12,143 
 Assets held for sale            7        4,804           - 
=============================  =====  =========  ========== 
                                         18,590      56,179 
=============================  =====  =========  ========== 
 Total assets                            85,912     175,265 
=============================  =====  =========  ========== 
 
 Current liabilities 
 Trade and other payables              (14,237)    (40,471) 
 Contingent consideration               (2,213)     (1,734) 
 Current tax liability                  (2,264)       (642) 
 Provisions                             (1,569)       (372) 
 Liabilities held for 
  sale                           7      (3,038)           - 
=============================  =====  =========  ========== 
                                       (23,321)    (43,219) 
 Non-current liabilities 
 Borrowings                      13     (3,727)     (4,357) 
 Other payables                           (954)           - 
 Contingent consideration               (3,196)     (3,994) 
 Deferred tax                           (1,844)           - 
 Provisions                             (3,782)     (1,029) 
=============================  =====  =========  ========== 
                                       (13,503)     (9,380) 
=============================  =====  =========  ========== 
 Total liabilities                     (36,824)    (52,599) 
=============================  =====  =========  ========== 
 
 Net assets                              49,088     122,666 
=============================  =====  =========  ========== 
 
 
 
   Equity 
 Ordinary share capital                   1,164       1,581 
 Share premium                                -      51,737 
 Merger reserve                           4,034       4,034 
 Capital redemption reserve                 417           - 
 Translation reserve                      (434)     (7,115) 
 Retained earnings                       42,950      72,191 
=============================  =====  =========  ========== 
 Total equity attributable 
  to equity holders of 
  the Company                            48,131     122,428 
 Non-Controlling interest 
  reserve                                   957         238 
=============================  =====  =========  ========== 
 Total equity                            49,088     122,666 
=============================  =====  =========  ========== 
 
   Pat Clawson                                                                       Jog Dhody 
   Chief Executive Officer                                                 Chief Financial Officer 

Company number: 05113820

Consolidated Statement of Changes to Equity

 
                                                                                            Non-controlling     Capital 
                           Share            Share     Merger    Translation    Retained         interest       redemption 
                          capital          premium    reserve     reserve      earnings         reserve         reserve       Total 
                          GBP'000          GBP'000    GBP'000     GBP'000      GBP'000         GBP'000          GBP'000      GBP'000 
=================  ====================  ==========  ========  ============  ===========  =================  ============  =========== 
 
 Balance as at 
  30 June 2014                    1,581     121,737     4,034       (3,329)        5,820                570                    130,413 
 
 Comprehensive 
  income: 
 Profit for the 
  year                                -           -         -             -        5,404              (287)             -        5,117 
 Other 
 comprehensive 
 income: 
 Exchange 
  differences 
  arising on 
  translation 
  of foreign 
  entities                            -           -         -       (3,786)            -                  -             -      (3,786) 
 Transactions 
 with 
 owners recorded 
 directly in 
 equity: 
 Recognition of 
  share based 
  payments                            -           -         -             -          914                  -             -          914 
 Dividends paid                       -           -         -             -      (3,381)                  -             -      (3,381) 
 Other 
 transactions: 
 Acquisition of 
  non-controlling 
  interest 
  without 
  a change in 
  control                             -           -         -             -      (2,938)                  -             -      (2,938) 
 Reserves 
  transfer 
  on acquisition 
  of 
  non-controlling 
  interest                            -           -         -             -           45               (45)             -            - 
 Purchase of 
  Company's 
  own shares                          -           -         -             -      (3,673)                  -             -      (3,673) 
 Conversion of 
  share premium 
  account                             -    (70,000)         -             -       70,000                  -             -            - 
=================  ====================  ==========  ========  ============  ===========  =================  ============  =========== 
 Balance as at 
  30 June 2015                    1,581      51,737     4,034       (7,115)       72,191                238             -      122,666 
=================  ====================  ==========  ========  ============  ===========  =================  ============  =========== 
 
 Comprehensive 
  income: 
 Loss for the 
  year                                -           -         -             -     (24,838)                674             -     (24,164) 
 Transfer of 
  translation 
  reserve on 
  disposal 
  of subsidiary                       -           -         -         4,139            -                  -             -        4,139 
 Other 
 comprehensive 
 income: 
 Exchange 
  differences 
  arising on 
  translation 
  of foreign 
  entities                            -           -         -         2,542            -                  -             -        2,542 
 Transactions 
 with 
 owners recorded 
 directly in 
 equity: 
 Recognition of 
  share based 
  payments                            -           -         -             -          757                  -             -          757 
 Dividends paid                       -           -         -             -      (3,071)                  -             -      (3,071) 
 Other 
 transactions: 
 Acquisition of 
  non-controlling 
  interest 
  without 
  a change in 
  control                             -           -         -             -      (3,046)                  -             -      (3,046) 
 Conversion of 
  share premium 
  account                             -    (51,737)         -             -       51,737                  -             -            - 
 On acquisition 
  of subsidiary                       -           -         -             -            -               (43)             -         (43) 
 Reserves 
  transfer 
  on acquisition 
  of 
  non-controlling 
  interest                            -           -         -             -         (88)                 88                          - 
 Repurchase and 
  cancellation of 
  Company's own 
  shares                          (417)           -         -             -     (50,692)                  -           417     (50,692) 
=================  ====================  ==========  ========  ============  ===========  =================  ============  =========== 
 Balance as at 
  30 June 2016                    1,164           -     4,034         (434)       42,950                957           417       49,088 
=================  ====================  ==========  ========  ============  ===========  =================  ============  =========== 
 
 
 
  Consolidated Cash Flow Statement 
 
                                                     Year       Year 
                                                    ended      ended 
                                                  30 June    30 June 
                                                     2016       2015 
                                          Note    GBP'000    GBP'000 
 ======================================  =====  =========  ========= 
  (Loss)/profit for the period                   (24,164)      5,117 
 ======================================  =====  =========  ========= 
  Adjustments for: 
  Results of discontinued 
   operations                              7       22,198    (8,382) 
  Net finance charges                                 933        795 
  Tax expense                                         649        869 
  Depreciation on property, 
   plant and equipment                                113         29 
  Amortisation of intangible 
   assets                                             668        195 
  Amortisation of acquired 
   intangible assets                                2,494      2,026 
  Share of losses and disposal 
   of joint ventures and associates                 1,469        746 
  Share-based payments expense                      1,167        371 
 ======================================  =====  =========  ========= 
  Operating cash flow before 
   movement in working capital                      5,527      1,766 
 --------------------------------------  -----  ---------  --------- 
  Acquisition costs                                 1,343      2,414 
  Exceptional restructuring 
   costs                                                -         67 
 --------------------------------------  -----  ---------  --------- 
  Operating cash flow before 
   movement in working capital 
   and exceptional and acquisition 
   costs                                            6,870      4,247 
 --------------------------------------  -----  ---------  --------- 
  Increase in inventories                            (41)       (19) 
  Increase in receivables                         (4,749)      (250) 
  Increase in payables and 
   accruals                                         4,169      1,462 
  Decrease in provisions                                -      (373) 
 ======================================  =====  =========  ========= 
  Cash generated from continuing 
   operations                                       4,906      2,586 
 --------------------------------------  -----  ---------  --------- 
  Acquisition costs payments                        1,080      1,436 
  Exceptional restructuring 
   payments                                             -         67 
 --------------------------------------  -----  ---------  --------- 
  Adjusted operating cash 
   flow                                             5,986      4,089 
 --------------------------------------  -----  ---------  --------- 
  Interest received                                    68         48 
  Interest paid                                     (309)      (424) 
  Tax paid                                          (629)      (569) 
 ======================================  =====  =========  ========= 
  Net cash inflow from operating 
   activities - continuing 
   operations                                       4,036      1,641 
  Net cash (outflow)/inflow 
   from operating activities 
   - discontinued operations               7     (10,890)      5,279 
 ======================================  =====  =========  ========= 
  Net cash (outflow)/inflow 
   from operating activities 
   - continuing and discontinued 
   operations                                     (6,854)      6,920 
 ======================================  =====  =========  ========= 
 
  Cash flows from investing 
   activities 
  Purchase of property, plant 
   and equipment                                    (236)      (145) 
  Purchase and development 
   of intangible assets                           (2,282)    (1,651) 
  Acquisition of investment 
   in an associate                                      -    (1,912) 
  Acquisition of subsidiaries, 
   net of cash acquired                           (7,485)    (2,450) 
  Payments made to acquire                          (345)          - 
   non-controlling interest 
 ======================================  =====  =========  ========= 
  Net cash used in investing 
   activities - continuing 
   operations                                    (10,348)    (6,158) 
  Net cash from/(used in) 
   investing activities - discontinued 
   operations                              7       65,399    (4,551) 
 ======================================  =====  =========  ========= 
  Net cash from/(used in) 
   investing activities - continuing 
   and discontinued operations                     55,051   (10,709) 
 ======================================  =====  =========  ========= 
  Cash flows from financing 
   activities 
  Dividends paid                                  (3,071)    (3,381) 
  Payment on vesting of share 
   options                                              -       (80) 
  (Repayment)/drawdown of 
   borrowings                                     (1,223)      4,066 
  Repurchase of shares                           (50,692)    (3,550) 
 ======================================  =====  =========  ========= 
  Net cash used in financing 
   activities                                    (54,986)    (2,945) 
  Net cash used in financing                            -          - 
   activities - discontinued 
   operations 
 ======================================  =====  =========  ========= 
  Net cash used in financing 
   activities - continuing 
   and discontinued operations                   (54,986)    (2,945) 
 
 
  Net decrease in cash and 
   cash equivalents                               (6,789)    (6,734) 
  Other non-cash movements 
   - exchange rate changes                          (585)    (1,918) 
  Cash and cash equivalents 
   at the beginning of period                      12,143     20,795 
 ======================================  =====  =========  ========= 
  Cash and cash equivalents 
   at end of period                                 4,769     12,143 
  Bank borrowings                                 (3,727)    (4,357) 
 ======================================  =====  =========  ========= 
  Net cash                                          1,042      7,786 
 ======================================  =====  =========  ========= 
 
 
 
   1.    Basis of preparation 

The financial information set out in this statement does not constitute the Group's statutory accounts for the years ended 30 June 2016 or 30 June 2015. The financial information is derived from those accounts for the year ended 30 June 2015 and from the draft version of those accounts of the year ended 30 June 2016. Statutory accounts for the year ended 2015 have been delivered to the Registrar of Companies and those for 2016 will be delivered in due course. The audit of the statutory accounts for the year ended 30 June 2016 is not yet complete. The Group's auditors have reported on the 30 June 2015 accounts; their report was unmodified, did not draw attention to any matters by way of emphasis without modifying their report and did not contain statements under s498 (2) or (3) of the Companies Act 2006. Whilst the financial information included in this announcement has been computed in accordance with International Financial Reporting Standards ("IFRS") this announcement does not itself contain sufficient information to comply with IFRS.

2. Segmental reporting

As outlined in the Group Strategic Review, the Group's management structure is reported in two distinct divisions:

-- The Erasure division focuses on development and delivery of innovative solutions, and includes:

o Blancco, the global market leader data of erasure software.

o SafeIT, acquired in September 2014, the leading specialist cloud and networked data erasure business.

o Tabernus, acquired in September 2015, the US market leader of software erasure products.

Both SafeIT and Tabernus have been integrated into Blancco.

-- The Diagnostic division includes Xcaliber Technologies, a smartphone diagnostics software business. The Group held a 49% stake in this business at the start of the year, this increased to 76% in January 2016 when a further 27% was purchased and increased again in March to 100% when the Group purchased the final 24%.

-- Aftermarket Services represents the discontinued business and provided the Group's core repair services and insurance offering.

 
                                                 Year       Year 
                                                ended      ended 
                                              30 June    30 June 
                                                 2016       2015 
 Continuing operations                        GBP'000    GBP'000 
=========================================   =========  ========= 
 Erasure revenue                               21,659     15,014 
==========================================  =========  ========= 
 Diagnostics revenue                            1,017        136 
 Less: share of jointly controlled 
  entity                                        (289)      (136) 
==========================================  =========  ========= 
 Diagnostics revenue                              728          - 
=========================================   =========  ========= 
 Software revenue                              22,387     15,014 
==========================================  =========  ========= 
 Erasure                                        7,592      5,382 
 Diagnostics                                       13          - 
=========================================   =========  ========= 
 Software Divisional Operating 
  Profit                                        7,605      5,382 
 Corporate costs                              (1,516)    (1,359) 
==========================================  =========  ========= 
 Adjusted Operating Profit                      6,089      4,023 
 Acquisition costs                            (1,343)    (2,414) 
 Exceptional restructuring costs                    -       (67) 
 Amortisation of intangible assets            (2,494)    (2,026) 
 Share-based payments                         (1,167)      (371) 
==========================================  =========  ========= 
 Group Operating profit/(loss)                  1,085      (855) 
 Loss on disposal of Xcaliber                 (1,314)          - 
  investment following acquisition 
 Share of results of associates 
  and jointly controlled entities               (155)      (746) 
==========================================  =========  ========= 
 Operating loss                                 (384)    (1,601) 
 Finance income                                    68         48 
 Unwinding of discount factor 
  on contingent consideration                   (292)      (171) 
 Revaluation of contingent consideration        (293)          - 
 Other finance costs                            (416)      (672) 
==========================================  =========  ========= 
 Net finance cost                               (933)      (795) 
==========================================  =========  ========= 
 Loss before tax                              (1,317)    (2,396) 
==========================================  =========  ========= 
 
 
 
                                                 Year       Year 
                                                ended      ended 
                                              30 June    30 June 
                                                 2016       2015 
 Discontinued operations                      GBP'000    GBP'000 
=========================================   =========  ========= 
 Aftermarket Services revenue                 151,901    187,550 
==========================================  =========  ========= 
 Aftermarket Services Divisional 
  Operating Profit                              9,711     15,201 
 Corporate costs                              (3,438)    (3,798) 
==========================================  =========  ========= 
 Adjusted Operating Profit                      6,273     11,403 
 M&A costs                                    (9,600)      (627) 
 Exceptional restructuring costs              (1,542)      (611) 
 Amortisation of intangible assets              (425)    (1,323) 
 Share-based payments                           (714)      (160) 
==========================================  =========  ========= 
 Operating (loss)/profit before 
  disposal of subsidiaries                    (6,008)      8,682 
 Loss on disposal of subsidiaries                   -    (1,456) 
==========================================  =========  ========= 
 Operating (loss)/profit                      (6,008)      7,226 
 Finance income                                    20         95 
 Revaluation of contingent consideration            -      3,302 
 Unwinding of discount factor 
  on contingent consideration                   (342)      (763) 
 Other finance costs                          (1,337)      (667) 
==========================================  =========  ========= 
 Net finance (cost)/income                    (1,659)      1,967 
==========================================  =========  ========= 
 (Loss)/profit before tax                     (7,667)      9,193 
==========================================  =========  ========= 
 

3. Acquisition costs

 
                                  2016      2015 
                               GBP'000   GBP'000 
==========================    ========  ======== 
 Acquisition costs and 
  other M&A related costs        1,343     2,414 
============================  ========  ======== 
 

Acquisition costs relate to the M&A activity within the year, with the most significant costs relating to the acquisition of Tabernus and Xcaliber.

Deal costs not included above relate to the disposal of the Repair Services Business totalling GBP9.6 million for the period (2015: GBP0.6 million) as they are presented within discontinued operations.

   4.      Exceptional restructuring costs 
 
                                             2016      2015 
                                          GBP'000   GBP'000 
================================    =============  ======== 
 Redundancies and restructuring                 -        67 
==================================    ===========  ======== 
                                                -        67 
   ==============================================  ======== 
 

No exceptional restructuring costs have been recorded in the current period (2015: GBP0.1 million relating to integration activities).

Exceptional redundancy and restructuring costs not included above relate to the restructuring activities for the disposal of the Repair Services Business totalling GBP1.5 million for the period (2015: GBP0.6 million), as they are presented within discontinued operations.

   5.      (Loss)/profit for the year 

Loss for the year (2015: profit) for the Group has been arrived at after charging/(crediting):

 
                                          Year ended   Year ended 
                                             30 June      30 June 
                                                2016         2015 
 
                                             GBP'000      GBP'000 
====================================     ===========  =========== 
 Depreciation of property, 
  plant and equipment - owned                    523        1,702 
 (Profit)/loss on disposal 
  of property, plant and 
  equipment                                     (33)          114 
 Amortisation of intangible 
  assets                                       4,058        4,452 
 Cost of inventories recognised 
  as an expense                               81,753       91,372 
 Staff costs                                  51,554       60,368 
 Net foreign exchange loss/(profit)            1,308        (233) 
=======================================  ===========  =========== 
 

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

 
                                                       Year 
                                      Year ended      ended 
                                         30 June    30 June 
                                            2016       2015 
 
                                         GBP'000    GBP'000 
================================     ===========  ========= 
 Depreciation of property, 
  plant and equipment - owned                113         29 
 Loss on disposal of property,                 -          - 
  plant and equipment 
 Amortisation of intangible 
  assets                                   3,162      2,221 
 Cost of inventories recognised 
  as an expense                              309        112 
 Staff costs                               9,954      6,219 
 Net foreign exchange 
  loss/(profit)                              169      (273) 
===================================  ===========  ========= 
 
   6.      Finance costs and finance income 
 
                                                 2016      2015 
 Continuing operations                        GBP'000   GBP'000 
=========================================    ========  ======== 
 Bank interest receivable 
  and similar income                               68        48 
 Interest payable on borrowings: 
 Bank loans and overdrafts                      (377)     (436) 
 Other finance costs                             (39)     (236) 
 Revaluation of contingent consideration        (293)         - 
 Unwind of discount factor on contingent 
  consideration                                 (292)     (171) 
 
 Net finance cost                               (933)     (795) 
===========================================  ========  ======== 
 

Contingent consideration was revalued following the UK decision to exit the European Union, which subsequently resulted in a weakening of the sterling against the US dollar, the currency in which the contingent consideration is denominated. The impact was an increase in the present value of the liability in sterling of GBP0.3 million.

   7.      Discontinued operations 
 
                                               Year      Year 
                                              ended     ended 
                                            30 June   30 June 
                                               2016      2015 
 
                                            GBP'000   GBP'000 
==================================  ===   =========  ======== 
 Discontinued operations 
  revenue                                   151,901   187,550 
 
 Divisional operating profit                  9,711    15,160 
 Head office costs                          (3,438)   (3,757) 
 Adjusted Operating Profit                    6,273    11,403 
 Acquisition and disposal 
  costs                                     (9,600)     (611) 
 Exceptional restructuring 
  costs                                     (1,542)     (627) 
 Amortisation of intangible 
  assets                                      (425)   (1,323) 
 Share-based payments                         (714)     (160) 
-----------------------------------       ---------  -------- 
 
 Operating (loss)/profit 
  before disposal of subsidiaries           (6,008)     8,682 
 Loss on disposal of subsidiaries                 -   (1,456) 
===================================       =========  ======== 
 Operating (loss)/profit                    (6,008)     7,226 
-----------------------------------       ---------  -------- 
 Revaluation of contingent 
  consideration                                   -     3,302 
 Other finance income                            20        95 
===================================       =========  ======== 
 Finance income                                  20     3,397 
-----------------------------------       ---------  -------- 
 Unwinding of contingent 
  consideration                               (342)     (763) 
 Other finance costs                        (1,337)     (667) 
===================================       =========  ======== 
 Finance costs                              (1,679)   (1,430) 
-----------------------------------       ---------  -------- 
 Profit/(loss) before tax                   (7,667)     9,193 
 Taxation                                     (609)     (811) 
===================================       =========  ======== 
 Profit/(loss) for the 
  period                                    (8,276)     8,382 
===================================       =========  ======== 
 Post tax loss on disposal                 (13,922)         - 
  of discontinued business 
===================================       =========  ======== 
 Post tax results from 
  discontinued operations                  (22,198)     8,382 
===================================       =========  ======== 
 
 

The discontinued income statement includes both the Repair Services Business and the Digital Care Businesses. The loss on disposal relates solely to the Repair Services Business as the Digital Care Business was not sold by 30 June 2016. Assets and Liabilities included in the consolidated balance sheet as held for sale relate to the Digital Care Business and are as follows:

 
 
 
                                   GBP'000 
===============================   ======== 
 Assets 
 Other intangible assets             1,479 
 Property, plant and equipment         123 
 Deferred Taxation                     297 
 Inventory                              31 
 Trade and other receivables         2,874 
================================  ======== 
 Total assets held for sale          4,804 
================================  ======== 
 
 Current liabilities 
 Trade and other payables          (3,038) 
================================  ======== 
 Total liabilities held 
  for sale                         (3,038) 
================================  ======== 
 

The loss on disposal reconciliation for the disposal of the Repair Services business and Digital Care Sweden AB is as follows:

 
                             Repair Services   Digital Care    Total 
                                    Business      Sweden AB 
                                     GBP'000        GBP'000    GBP'000 
=========================   ================  =============  ========= 
 Proceeds                             79,914              -     79,914 
==========================  ================  =============  ========= 
 Assets 
 Goodwill                             49,816              -     49,816 
 Other intangible 
  assets                               5,118             68      5,186 
 Property, plant 
  and equipment                        7,894              -      7,894 
 Deferred Taxation                     2,404              -      2,404 
 Inventory                             9,857             24      9,881 
 Cash                                  9,777            619     10,396 
 Trade and other 
  receivables                         27,572             13     27,585 
==========================  ================  =============  ========= 
 Total assets 
  disposed                           112,438            724    113,162 
==========================  ================  =============  ========= 
 
 Liabilities 
 Trade and other 
  payables                          (20,001)          (298)   (20,299) 
 Deferred Consideration              (3,166)              -    (3,166) 
==========================  ================  =============  ========= 
 Total liabilities 
  disposed                          (23,167)          (298)   (23,465) 
==========================  ================  =============  ========= 
 Transfer of translation 
  differences to 
  Income Statement                     3,292            847      4,139 
==========================  ================  =============  ========= 
 Loss on Disposal                   (12,649)        (1,273)   (13,922) 
==========================  ================  =============  ========= 
 

The arrangement for the disposal of Digital Care Sweden were that no proceeds were received but the new owners took on both the cash and the expected cost of the required rationalisation and restructuring subsequent to the acquisition.

On disposal of the Repair Services and Digital Care Sweden businesses, the Group is required to transfer accumulated foreign exchange differences from the translation reserve to the Income Statement. This charge amounted to GBP4.1 million and results predominantly from the strengthening of the Sterling relative to overseas currencies in the last 24 months.

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

 
 
                                            Year     Year 
                                           ended    ended 
                                         30 June  30 June 
                                            2016     2015 
 
                                         GBP'000  GBP'000 
 ===================================    ========  ======= 
  (Loss)/profit for the period           (8,276)    8,382 
 =====================================  ========  ======= 
  Adjustments for: 
  Net finance charges/(income)             1,659  (1,967) 
  Tax expense                                609      811 
  Depreciation on property, 
   plant and equipment                       410    1,673 
  Amortisation of intangible 
   assets                                    471      908 
  Amortisation of acquired 
   intangible assets                         425    1,323 
  Loss on disposal of subsidiary               -    1,456 
  Loss on disposal of property, 
   plant and equipment                         -      114 
  Share-based payments expense               714      160 
 =====================================  ========  ======= 
  Operating cash flow before 
   movement in working capital           (3,988)   12,860 
 =====================================  ========  ======= 
  Increase in inventories                  (495)    (358) 
  Decrease in receivables                    809    1,333 
  Decrease in payables and 
   accruals                              (6,004)  (6,329) 
  Decrease in provisions                   (222)  (1,451) 
 =====================================  ========  ======= 
  Cash (used in)/ from discontinued 
   operations                            (9,900)    6,055 
  Interest received                           20        - 
  Interest paid                            (655)    (382) 
  Tax paid                                 (355)    (394) 
 =====================================  ========  ======= 
  Net cash (outflow)/inflow 
   from operating activities 
   - discontinued operations            (10,890)    5,279 
 =====================================  ========  ======= 
 
 
 
 
   Cash flows from investing 
   activities 
  Purchase of property, plant 
   and equipment                         (1,549)  (2,443) 
  Purchase and development 
   of intangible assets                  (1,575)  (3,098) 
  Proceeds from sale of property, 
   plant and equipment                         -      990 
  Acquisition of subsidiaries 
   and payment of contingent 
   consideration                           (995)        - 
  Disposal of subsidiaries, 
   net of cash disposed                   69,518        - 
 =====================================  ========  ======= 
  Net cash from/(used in) 
   investing activities - 
   discontinued operations                65,399  (4,551) 
 =====================================  ========  ======= 
 
 
 
   8.      Earnings per share (EPS) 
 
                                               Year ended   Year ended 
                                                  30 June      30 June 
                                                     2016         2015 
 
                                                    Pence        Pence 
===========================================   ===========  =========== 
 Continuing operations 
                                                    (3.69        (3.84 
 Basic earnings per share                              p)           p) 
                                                    (3.69        (3.84 
 Diluted earnings per share                            p)           p) 
 Adjusted earnings per share                       5.63 p       2.84 p 
 Diluted adjusted earnings 
  per share                                        5.63 p       2.84 p 
============================================  ===========  =========== 
 Discontinued operations 
                                                   (31.03        10.81 
 Basic earnings per share                              p)            p 
                                                   (31.03        10.81 
 Diluted earnings per share                            p)            p 
                                                   7.18 p        13.34 
 Adjusted earnings per share                                         p 
 Diluted adjusted earnings                         7.18 p        13.34 
  per share                                                          p 
===========================================   ===========  =========== 
 Total Group 
                                                   (34.72 
 Basic earnings per share                              p)       6.97 p 
                                                   (34.72 
 Diluted earnings per share                            p)       6.97 p 
                                                    12.82        16.18 
 Adjusted earnings per share                            p            p 
 Diluted adjusted earnings                          12.82        16.18 
  per share                                             p            p 
===========================================   ===========  =========== 
 
                                               Year ended   Year ended 
                                                  30 June      30 June 
                                                     2016         2015 
 
 Continuing operations                            GBP'000      GBP'000 
===========================================   ===========  =========== 
 Loss for the period                              (1,966)      (3,265) 
 (Profit)/loss attributable 
  to non-controlling interests                      (674)          287 
============================================  ===========  =========== 
 Loss attributable to equity 
  holders of the parent parpaparentCompany        (2,640)      (2,978) 
============================================  ===========  =========== 
 
 
 Reconciliation to adjusted 
  profit: 
 Unwinding of contingent 
  consideration                                       292          171 
 Revaluation of contingent                            293            - 
  consideration 
 Acquisition costs                                  1,343        2,414 
 Amortisation of intangible 
  assets                                            2,494        2,026 
 Exceptional restructuring 
  costs                                                 -           67 
 Exceptional bank charges                              17          148 
 Share based payments                               1,167          371 
 Loss on disposal of Xcaliber                       1,314            - 
  investment following acquisition 
 Tax impact of above adjustments                    (251)         (14) 
============================================  ===========  =========== 
 Adjusted profit for the 
  period                                            4,029        2,205 
============================================  ===========  =========== 
 
 
                                       Year ended   Year ended 
                                                       30 June 
                                     30 June 2016         2015 
 
 Discontinued operations                  GBP'000      GBP'000 
=================================   =============  =========== 
 Loss for the period                     (22,198)        8,382 
 (Profit)/loss attributable                     -            - 
  to non-controlling interests 
=================================   =============  =========== 
 Loss attributable to equity 
  holders of the parent 
  parpaparentCompany                     (22,198)        8,382 
==================================  =============  =========== 
 
 
 Reconciliation to adjusted 
  profit: 
 Unwinding of contingent 
  consideration                               342          763 
 Revaluation of deferred 
  consideration                                 -      (3,302) 
 Acquisition costs                          9,600          626 
 Amortisation of intangible 
  assets                                      425        1,323 
 Exceptional restructuring 
  costs                                     1,542          611 
 Exceptional bank charges                     793          482 
 Share based payments                         714          160 
 Disposal of subsidiary                         -        1,456 
 Disposal of discontinued                  13,922            - 
  operations 
 Tax impact of above adjustments                -        (155) 
==================================  =============  =========== 
 Adjusted profit for the 
  period                                    5,140       10,346 
==================================  =============  =========== 
 
 
 Number of shares                             '000s    '000s 
 Weighted average number of shares used 
  to calculate earnings per share 
 
        *    Basic                           71,537   77,550 
 
        *    Diluted                         71,537   77,563 
==========================================  =======  ======= 
 
   9.      Acquisitions during the year 

Acquisition of Tabernus

On 11 September 2015 the Group completed the acquisition of 100% of the issued share capital of Tabernus LLC and Tabernus Europe Limited for a headline price of $12 million, consisting of consideration of $11.7 million (GBP7.7 million) and debt acquired of $0.3 million (GBP0.2 million), which was funded though the Group's cash reserves. The debt was immediately settled on completion.

In the ten months to 30 June 2016, this acquisition has contributed total revenue of GBP1.5 million.

If the acquisition had been completed on the first day of the financial year, management estimates that the benefit to consolidated revenue for the year would have been GBP1.9 million.

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

 
                                      Book     Fair Value       Fair 
                                     Value    adjustments      Value 
                                                 and IFRS 
                                                alignment 
                                   GBP'000        GBP'000    GBP'000 
===============================  =========  =============  ========= 
 Intangible assets arising 
  on consolidation                       -          1,548      1,548 
 Property, plant and equipment          30           (30)          - 
 Deferred tax                            -             32         32 
 Overdraft and other short 
  term borrowings                    (175)              -      (175) 
 Trade and other receivables           257           (42)        215 
 Trade and other payables            (163)        (1,677)    (1,840) 
===============================  =========  =============  ========= 
 Net assets acquired                  (51)          (169)      (220) 
 Goodwill                                                      7,544 
===============================  =========  =============  ========= 
 Total consideration                                           7,324 
===============================  =========  =============  ========= 
 
 Satisfied by: 
 Cash paid                                                     6,390 
 Deferred consideration                                          934 
===============================  =========  =============  ========= 
 Total consideration                                           7,324 
===============================  =========  =============  ========= 
 

The Directors identified a number of adjustments that were required to the book values, following a review of all balance sheet categories. These adjustments include a write off of property, plant and equipment items (GBP30,000), provision against doubtful debtors (GBP42,000), provisions against litigations and claims and other unrecorded liabilities (GBP1,677,000).

Under IFRS 3 "Business Combinations" separately identifiable intangible assets arising from the acquisition have been capitalised. These relate to technology of GBP583,000, customer contracts of GBP695,000 and marketing brand of GBP270,000. The key assumption used was the discount rate for future cash flows which was estimated at 12%.

Trade receivables acquired totalled GBP200,000 gross and there was no bad debt provision. The goodwill of GBP7,544,000 can be attributed to the anticipated growth of the Group, strategic benefits and workforce in place. The goodwill represents the synergies arising on the acquisition.

Contingent cash consideration

The acquisition includes an earn-out based on earnings, to be paid in September 2018. The estimated cash outflow at the time of settlement will be $2 million (GBP1.3 million). A deferred liability of $1.4 million (GBP0.9 million) has been established which represents the fair value at the acquisition date, using a discount rate of 12%. At 30 June 2016, the deferred liability was $1.8 million (GBP1.1 million).

Acquisition of Xcaliber

On 4 January 2016 the Group acquired an additional 27% of the issued share capital of Xcaliber Technologies LLC for a consideration of $0.5 million (GBP0.3 million) bringing the Group's share to 76%. At this point, the Group is required to account for a disposal of its investments previously held on the balance sheet and reflect ownership of the business, consolidating the results in the Income Statement and Balance Sheet from this date.

Xcaliber is a US based software business with a market leading mobile diagnostics technology which adds to our existing diagnostics offering in Europe, the US and globally.

In the six months to 30 June 2016, this acquisition has contributed total revenue of GBP700,000 and Adjusted Operating Profit of GBPnil.

If the acquisition had been completed on the first day of the financial year, management estimates that the benefit to consolidated revenue for the year would have been GBP1.3 million and the benefit to consolidated Adjusted Operating Profit would have been GBPnil.

The provisional book value and fair value of the assets acquired and liabilities assumed at the 4 January 2016 were as follows:

 
                                      Book     Fair Value       Fair 
                                     Value    adjustments      Value 
                                                 and IFRS 
                                                alignment 
                                   GBP'000        GBP'000    GBP'000 
===============================  =========  =============  ========= 
 Intangible assets arising 
  on consolidation                       -          1,835      1,835 
 Property, plant and equipment          31              -         31 
 Deferred tax                          102          (146)       (44) 
 Cash                                  431              -        431 
 Trade and other receivables           520           (15)        505 
 Trade and other payables          (1,676)        (2,081)    (3,757) 
===============================  =========  =============  ========= 
 Total net assets                    (592)          (407)      (999) 
 Non-controlling interest                                         43 
===============================  =========  =============  ========= 
 Net assets acquired                                           (956) 
===============================  =========  =============  ========= 
 Goodwill                                                      1,936 
===============================  =========  =============  ========= 
 Total consideration                                             980 
===============================  =========  =============  ========= 
 
 Satisfied by: 
 Cash paid                                                       342 
 Disposal of 49% associate                                       638 
===============================  =========  =============  ========= 
 Total consideration                                             980 
===============================  =========  =============  ========= 
 

A loss of GBP1.3 million was recognised on the disposal of the 49% interest on 4 January 2016 which was required to be accounted for immediately prior to the accounting for the acquisition.

The Directors identified a number of adjustments that were required to the book values, following a review of all balance sheet categories. These adjustments include provisions against litigations and claims and other unrecorded liabilities (GBP2.1 million).

Under IFRS 3 "Business Combinations" separately identifiable intangible assets arising from the acquisition have been capitalised. These relate to technology GBP1,687,000, customer contracts of GBP38,000 and marketing brand of GBP111,000. The key assumption used was the discount rate for future cash flows which was estimated at 14%.

Trade receivables acquired totalled GBP240,000 gross and there was a GBP1,000 bad debt provision. The goodwill of GBP1,936,000 can be attributed to the anticipated growth of the Software group, strategic benefits and workforce in place.

On 17 March 2016 the Group completed the purchase of an additional 24% of the issued share capital of Xcaliber Technologies LLC for $0.5 million (GBP0.3 million) bringing the Groups share to 100%. The acquisition was funded through the Group's cash reserves. On completion, all debts to companies associated with the seller were settled amounting to an additional cash outflow of $0.4 million (GBP0.3 million).

The second investment was made to obtain the full ownership of the business from the previous partner, while the first was an investment to enhance the operations business, and accordingly the two transactions have been accounted for separately.

This investment represents the buy out of the non-controlling interest at this date, which does not require a fair value assessment as this was already completed on 4 January 2016. In accordance with IFRS 10 "Consolidated Financial Statements", the purchase price for the acquisition has been taken directly to the profit and loss reserve.

Contingent consideration

The investment on the 17 March 2016 includes an earn-out to be paid over various stages of the next 3 years. The estimated cash outflow at the time of settlement will be $4.7 million (GBP3.3 million). A deferred liability of $3.8 million (GBP2.7 million) has been established which represents the fair value at the investment date, using a discount rate of 14%. At 30 June 2016, the deferred liability was $3.8 million (GBP2.9 million).

   10.   Cash flow - acquisition of subsidiaries net of cash acquired 

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

 
                                                  GBP'000 
==============================================   ======== 
 Tabernus acquisition - initial cash 
  consideration                                     6,390 
 Tabernus acquisition - overdraft                       4 
 Tabernus acquisition - debt                          171 
 Xcaliber acquisition - initial cash 
  consideration                                       342 
 Xcaliber acquisition - cash acquired               (431) 
 Xcaliber acquisition - debt                          287 
 Payment of contingent consideration 
  on Blancco Sweden acquisition                       722 
===============================================  ======== 
 Net cash flow - acquisition of subsidiaries, 
  net of cash acquired                              7,485 
===============================================  ======== 
 

No cash or overdraft was acquired as part of the non-controlling interest buy outs since the cash balances were consolidated by virtue of the existing shareholding being a controlling stake.

Cash outflow on the buy out of the Xcaliber non-controlling interests was GBP0.3 million

11. Investments in Blancco sales offices

The Group's interest in the key Blancco erasure legal entities is as follows:

 
                           Ownership     Ownership 
                          percentage    percentage 
                              of the        of the 
                               Group         Group 
                               as at         as at 
                             30 June       30 June       Country of 
 Company name                   2016          2015    incorporation 
======================  ============  ============  =============== 
 
 
 Blancco Oy Limited             100%          100%          Finland 
                                                        England and 
 Blancco UK Limited             100%          100%            Wales 
 Blancco Italy SRL              100%          100%            Italy 
 Blancco France 
  SAS                            51%           51%           France 
 Software Blancco 
  S.A. de C.V. Mx                51%           51%           Mexico 
 Blancco US LLC                 100%          100%              USA 
 Blancco Central 
  Europe GmbH                   100%          100%          Germany 
 Blancco Canada 
  Inc                            50%           50%           Canada 
 Blancco SEA Sdn 
  Bhd                           100%          100%         Malaysia 
 Blancco Australasia 
 Pty Limited                    100%          100%        Australia 
 Blancco Japan Inc               51%           51%            Japan 
 Blancco Sweden 
  SFO                           100%          100%           Sweden 
 SafeIT Security 
  Sweden AB                     100%          100%           Sweden 
======================  ============  ============  =============== 
 
 
   12.   Dividends 
 
                          2016          2016      2015                  2015 
                         GBP'000   Pence per   GBP'000             Pence per 
                                       share                           share 
======================  ========  ==========  ========  ==================== 
 Previous year 
  final                    2,565        3.35     2,118                  2.68 
 Current year interim 
  dividend                   506        0.66     1,263                  1.65 
======================  ========  ==========  ========  ==================== 
                           3,071        4.01     3,381                  4.33 
======================  ========  ==========  ========  ==================== 
 
   13.   Bank borrowings 
 
                                 2016      2015 
                              GBP'000   GBP'000 
=========================    ========  ======== 
 Due after more than 
  one year: 
 Secured bank loan              3,727     4,357 
===========================  ========  ======== 
 Repayable: 
  In the first to second 
  years inclusive                   -     4,357 
 In the third to fifth 
  years inclusive               3,727         - 
===========================  ========  ======== 
 

The bank borrowing is secured on the majority of the Group's assets for the duration of the Revolving Credit Facility. The total facility available to the Group as at 30 June 2016 totalled GBP11.5 million (2015: GBP39.0 million), of which GBP3.7 million (2015: GBP4.6 million) had been drawn down in cash, resulting in an unutilised facility of GBP7.8 million (2015: GBP34.4 million). Borrowing costs of nil (2015: GBP0.3 million) are set-off against the amount owing at year end.

In September 2015, the Group extended the term of its banking facility with HSBC from October 2016 to October 2019, which gives Blancco clear certainty of funding over the next three years.

In April 2016, following the disposal of the Repair Services Business, the banking facility was renegotiated for the continuing software Group in order to provide an appropriate level of financing for the current profitability, which resulted in the reduction of the total available facility.

All banking covenants have been satisfied in the year and show headroom for the foreseeable future.

   14.       Subsequent Events 

On 17 August 2016, the group acquired the remaining 49% of the share capital of Blancco Australasia Pty Ltd that it did not already own for a cost of AU$ 0.1 million (GBP0.1 million). The consideration was funded through the Group's cash reserves.

On 19 September 2016 we reached an agreement to sell the Digital Care business to Mazovia Capital for initial contingent consideration of EUR1.2 million (GBP1.0 million) with a further contingent earn out of EUR3.3 million (GBP2.8 million) payable over 2 to 3 years. These proceeds will be reinvested into the Software business.

   15.       Related party transactions 

Transactions between Blancco and its 100% subsidiaries, which are related parties, have been eliminated on

consolidation.   No disclosure of these transactions is required under IAS24. 

Matthew Peacock, Executive Chairman, and Tom Russell, Non-executive Director, are associated with Hanover Investors Management LLP, and a fee is charged for their services as Executive Directors which is disclosed in the Directors' Remuneration Report.

They also have an indirect beneficial interest in the shares of the Group. At 30 June 2016, the combined holding of Hanover Investors Management LLP and its connected parties is 209,728 (2015: 5,217,651) ordinary shares equating to 0.36% (2015: 6.60%) of the issued share capital of the Company.

All transactions with Directors are included in the Directors' Remuneration Report, which is disclosed in the Annual Report and Accounts.

During the year fees amounting to GBP1,580,200 were paid for M&A related consultancy services provided by Hanover Investors Management LLP or its connected parties (2015: GBP540,000). At 30 June 2016 GBPnil was outstanding in relation to these services (2015: GBP290,000).

These services were for corporate finance advisory and were fully contingent on the execution of the M&A deal in the year, including the acquisitions of Tabernus and Xcaliber (the latter in two stages), and the disposals of the Repair Services business and the Digital Care division.

These fees were benchmarked against fees paid to our other advisors, with the Board considering that Hanover offered the best alternative to any third parties based on the work performed for the Group on previous acquisitions. The nature of the services provided by Hanover included the following:

In respect of the acquisitions:

   --     Management of deal timetable 
   --     Negotiation with the third parties and legal advisors 
   --     Negotiation on terms of the deals 

In respect of the disposals Hanover's role was to take ownership of the execution of the deal in conjunction with our corporate advisor, William Blair, whose role it was to identify the most appropriate buyer of the business.

Property lease costs of GBP165,000 (2015: GBP188,000) were recharged to Hanover Investors Management LLP in the year, of which GBPnil was outstanding at the year-end (2015: GBPnil).

Management charges totaling GBP423,000 (2015: GBP430,000) were recharged to Xcaliber during the year of which GBPnil (2015: GBP730,000) was still owed at the year end. The management charges in the current year relate to charges up to the acquisition date in January 2016 only, the prior period figures relate to the period from 1 July 2014 to 30 June 2015.

   16.   Definitions 

Adjusted Operating Profit: Operating Profit stated before amortisation or impairment of acquired intangible assets, acquisition costs, exceptional restructuring costs, share-based payments and disposal of subsidiaries and associates. This is the key profit measure used by the Board to assess the underlying financial performance of the operating divisions and the Group as a whole.

Adjusted operating cash flow: Operating cash flow excluding taxation, interest payments and receipts, acquisition costs, and exceptional restructuring costs. This is the key operating cash flow measure used by the board to assess the underlying cash flow of the Group.

Adjusted earnings per share: Basic earnings per share excluding amortisation or impairment of acquired intangible assets, amortisation of bank fees, exceptional restructuring costs, acquisition costs, share-based payments, losses on disposal 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.

   17.   Notice of Annual General Meeting 

The Annual General Meeting of the Company will be held at 12 noon on Tuesday 29 November 2016 at Shakespeare Martineau LLP, 60 Gracechurch Street, London EC3V 0HR.

   18.   Report and Accounts 

Copies of the Annual Report and Accounts will be available from the Company's website - www.blancco.com from 5 October 2016. Copies will be sent to shareholders in due course and will be available from the registered office of 60 Gracechurch Street, London EC3V.

This information is provided by RNS

The company news service from the London Stock Exchange

END

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September 20, 2016 02:01 ET (06:01 GMT)

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