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Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
---|---|---|---|---|---|
Blancco Technology Group Plc | LSE:BLTG | London | Ordinary Share | GB00B06GNN57 | ORD 2P |
Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|---|---|
0.00 | 0.00% | 225.00 | 222.00 | 228.00 | 0.00 | 01:00:00 |
Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
---|---|---|---|---|---|
0 | 0 | N/A | 0 |
TIDMBLTG
RNS Number : 2184I
Blancco Technology Group PLC
20 March 2018
20 March 2018
BLANCCO TECHNOLOGY GROUP PLC
("Blancco", the "Company" or the "Group")
HALF YEARLY RESULTS
Blancco Technology Group plc, the leading global provider of secure data erasure solutions and mobile device diagnostics, is pleased to announce its half yearly results for the six months to 31 December 2017.
Financial highlights
-- Revenue from our continuing operations of GBP12.6 million (H1 2017 restated: GBP12.8 million). On a constant currency basis (as defined in the glossary), revenue was GBP12.8 million, in line with the prior year.
-- Group Adjusted Operating Profit (as defined in the glossary) of GBP0.8 million (H1 2017 restated: GBP2.5 million) reflected increased operating expenditure in the period from the annualisation of significant investment in personnel during FY17. Group Operating Loss from our continuing operations of GBP1.1 million (H1 2017 restated: loss of GBP1.5 million) was less than the prior year principally due to a credit from the Group's share-based payment accounting without which the loss would have been GBP1.6 million (H1 2017 restated: loss of GBP0.5 million before a share-based payment charge of GBP1.0 million).
-- Adjusted Operating Cash Flow (as defined in the glossary) was GBP0.9 million (H1 2017: GBP0.8 million) with a strong cash conversion of 110% (H1 2017 restated: 34%) signalling a return to healthy cash generation from the Group's core operations.
-- Continuing adjusted earnings per share (as defined in the glossary) of 0.72 pence (H1 2017 restated: 2.75 pence). Continuing basic loss per share was 1.76 pence (H1 2017 restated: 4.77 pence)
-- Net debt at period end of GBP3.4 million (30 June 2017: GBP1.7 million net cash), due to payments related to the restructuring of the group's management team and payments in relation to prior period M&A activity.
-- No dividend has been declared for the period (H1 2017: 0.70 pence per share).
Operational highlights
-- We reorganised and refocussed the sales and operations teams to concentrate on four key customer categories, comprising IT Asset Disposition (ITAD), Mobile Processors, Mobile Retail, and Enterprise Data Centres.
-- We sold our Mexican subsidiary and agreed a distribution model for that region. We now hold no interest in the share capital of the business. We consider that the business is now well placed with local management and stewardship to generate value for the group in the medium term.
-- We saw continued strong growth from our mobile product with 25% growth in Invoiced Sales year on year.
-- End of life erasure Invoiced Sales declined year on year, principally as a result of a number of non-repeating volume deals recognised in H1 2017. These covered multiple future years and several replaced deals previously contracted on a monthly basis, impacting the year on year comparative.
-- New enterprise customer contracts won in the first half of the year across the globe, with high value customers, covering a range of industries, demonstrated the scope and application of the Blancco product range, albeit these were not sufficient to fully mitigate the impact of multi-year contracts signed in H1 2017.
-- Further strengthening of our certification portfolio included our file erasure offerings achieving Common Criteria status.
-- The CEO recruitment process is at an advanced stage and we will update the market shortly.
Simon Herrick, Interim CEO of Blancco, said:
"I am extremely proud of the Blancco team's dedication, resilience and hard work during what has been a challenging period for the business. Our focus has been on reorganising and improving the functioning of the business to put Blancco in the best position for the new CEO to execute a sustainable growth strategy. The consistency of the team's focus and addressing successfully some challenging organisational matters has created a stable platform and these results show the underlying strength of the team, the quality of our products, our customer loyalty and satisfaction and the market's continued demand for the solutions we offer."
Unless otherwise stated, defined terms used in this announcement have the meanings given to them in the glossary at the end of this announcement.
Enquiries:
Blancco Technology Group Plc +44 (0) 20 3657 7000
Simon Herrick, Interim Chief Executive Officer & Chief Financial Officer
Peel Hunt LLP (Nominated Adviser and Broker) +44 (0) 20 7418 8900
Edward Knight
Nick Prowting
Panmure Gordon (UK) Limited (Joint Broker) +44 (0) 20 7886 2500
Dominic Morley, Corporate Finance
Charles Leigh Pemberton, Corporate Broking
Tulchan Communications +44 (0) 20 7353 4200
Tom Murray
Matt Low
www.blancco.com
CHAIRMAN'S STATEMENT
I am pleased to report Blancco's half yearly results for the six month period to 31 December 2017.
Overall performance was slightly impacted by the effects of currency in the period, but underlying constant currency revenue was in line with the prior year. Our traditional erasure product growth was below trend but management has now taken remedial action in growing sales capacity and we expect this to normalise in the second half and beyond.
Our mobile erasure and diagnostic products have continued to be our best performing products as we look to grow our presence in these markets.
The Group has completed its transition to a pure-play software business, and completed the buy-outs of several of the minority interests of various Group subsidiaries in prior periods. We now own 100% stakes in the majority of our subsidiaries, with the only minorities remaining in territories where it is strategically important to retain a local partner. This has put Blancco in the best position to drive growth in the coming years.
We also continue to push forward our indirect sales worldwide, taking on a number of partnerships in the year and seeing strong sales growth in this channel. Most notably we have converted our previous Mexican subsidiary to a channel distributor, which will continue to grow the LATAM market for Blancco products.
Additionally, the Board has reviewed the cost base of the business during the first half to ensure that the workforce is aligned to targeting the strongest growth opportunities. This review resulted in a number of people leaving the business and has better focused the team to advance towards a number of key targets. The Board feels that the business is now well balanced to welcome a new CEO who will direct the strategy of the business going forward.
The CEO recruitment process is at an advanced stage and we will update the market shortly.
The Board is confident that it has considerably improved the functioning of the business, which stands Blancco in much better stead for the new CEO to execute a sustainable growth strategy, allowing the Group to leverage its market leading position and take advantage of growing demand.
Rob Woodward
Chairman
CHIEF EXECUTIVE'S REPORT
I am pleased to report Blancco Technology Group's results for the six months ending 31 December 2017.
Revenues from continuing operations of GBP12.6 million (H1 2017 restated: GBP12.8 million) remained broadly consistent year on year. Removing the impact of currency movements, our constant currency revenue of GBP12.8 million was in line with the prior period. Adjusted Operating Profit was GBP0.8 million (H1 2017 restated: GBP2.5 million). Further details of these results are contained in the Group Financial Review.
The focus of the first half of our 2018 financial year has been on rebuilding the confidence and focus of the Blancco team. Following a difficult time for the Group we have worked as a team to focus on our core customers, products and markets and to improve communication and coordination across a geographically spread Group. Throughout this period, we continued to see high levels of customer retention and recurring revenue across our business.
In FY18 we have continued to focus on our mobile offering with strong growth in Invoiced Sales in this market. There have been significant contract wins within the smartphone remarketing ecosystem across the globe, where customers want to perform both erasure and diagnostics on used devices prior to resale. Efficient processes and an easy-to-use interface are paramount and there have been several product releases within the period to support this.
In the first half of the year we also saw new opportunities within the enterprise market, focused on the data centres operated by these organisations. Large enterprises can use our data erasure products on devices, servers, data centres and the cloud. Blancco is the only provider of such complete and broad data erasure products in what is currently a relatively thinly-penetrated market. We also see data centres, which have a need for erasing storage on site, as a key opportunity for our active erasure products.
Our diagnostic performance remained flat, in line with management's expectations for the first half, with the ramp up of some newly won contracts being offset by a few legacy (pre-acquisition) Xcaliber contracts coming to an end.
We have continued to drive market awareness for the need to erase legacy data for security and compliance purposes in the lead up to the implementation date for EU General Data Protection Regulation of 25 May 2018, with a 69% measured Share of Voice (SoV) (2017: 56%) and 1,636 press mentions (H1 2017: 3,287) The International Data Sanitisation Consortium (IDSC) continues to encourage policymakers and regulators to use appropriate terminology and requirements for secure data erasure and create future requirements for data sanitisation. This, combined with additional activities such as the quarterly State of Mobile Device Health Report, raises awareness of Blancco and facilitates the initiation of a de-facto standard in data erasure.
During this period the sales team has been reshaped and reorganised with a net reduction in headcount. This has ensured that our sales structure is aligned with the growth opportunities in our various regions and product markets. We have also made some changes to the sales leadership, with Alan Bentley taking on the role of President of Global Sales. We continue to develop our new partner business, with 35 new partner channels established in H1 FY18. Blancco recently signed a distribution agreement with Ingram Micro Inc., the world's largest wholesale technology distributor. This new relationship allows Ingram Micro and its partners to provide customers with data sanitisation from a single platform.
The business has not engaged in any merger and acquisition activity in the period, although it continues to satisfy earn outs falling due from legacy acquisitions. We now own 100% of all Group companies except for those in Japan (51%), Singapore and Malaysia (both 70%) and China (56%). During the prior year we engaged in the acquisition of minority interests across several of our subsidiaries and we are now seeing the benefit of better control and an enhanced sales force, albeit these countries are growing off a low base revenue and therefore do not yet contribute significantly to the Group's total revenue.
The Group disposed of its 70% ownership of its Mexican subsidiary in January 2018, following a decision to move this business from an ownership to a distribution model. The LATAM market has seen mixed fortunes in recent years with a number of one off deals arising, which while contributing to revenues and cash in the periods, didn't represent reliable revenue streams. The sales cycle in Mexico is significantly different to the rest of the business, with the Mexican government requiring stringent data erasure rules, and this has meant that the sales approach needs to be much more tailored at the local level. With the business moving to a distribution model, the local team can better control selling into this more complex market and promote growth of the business, with Blancco ultimately receiving a reseller percentage of all sales made. Blancco will continues to focus its direct sales across the rest of the world and primarily across the territories in which we already have a footprint.
Financial Results
We have restated the first half prior year results by including a number of the full year adjustments in the correct period. Additionally, we have included the restatement of the Blancco Mexico results as a discontinued operation. The prior year first half restatement does not change the previously reported full year 2017 results. The full impact of these adjustments is further disclosed in note 1.1.
Blancco's revenue from continuing operations for the period was GBP12.6 million (H1 2017 restated: GBP12.8 million), in line with prior year on a constant currency basis following the strengthening of Sterling.
Group Adjusted Operating Profit was GBP0.8 million (H1 2017 restated: GBP2.5 million) with Adjusted Operating Profit of GBP1.0 million on a constant currency basis. Adjusted earnings per share were 0.72p (H1 2017 restated: 2.75p). Further details of these results are contained in the Group Financial Review.
Gross margins have remained steady at 96% (H1 2017 restated: 96%). Costs of sales are largely incurred in the sale of hardware that forms a small part of our Invoiced Sales.
Blancco's sales, general and administrative overheads associated with its continuing operations, inclusive of corporate costs, were GBP11.3 million (H1 2017: GBP9.8 million), and GBP10.1 million (H1 2017: GBP9.1 million) before depreciation and amortisation. The increase in the latter of GBP1.0 million is predominantly associated with the annualisation of the investment in the sales team, and other areas of the business, made during the first half of the prior year. During the period there has been a restructuring of the business, in particular focussed on the management team, with an emphasis on scaling the team to support the current size of the business, which has resulted in a reduction in the cost base from a level that had risen significantly in the prior period.
The adjusted operating profit margin before corporate costs has reduced to 13.9% (H1 2017 restated: 25.8%), which is a product of the rise in cost base from the prior year. The benefits of the reorganisation will only be fully realised in the second half.
Cash flow
Adjusted operating cash flow from continuing operations was GBP0.9 million (H1 2017 restated: GBP0.8 million). Operating cash flow in the period was significantly better than the prior period, demonstrating a return to strong cash generation from our core operations and a closer alignment between revenue and cash. This represented adjusted operating cash flow conversion of 110% (H1 2017 restated: 34%).
However, we have seen in the period that our net cash position has moved from GBP1.7 million net cash at 30 June 2017 to GBP3.4 million net debt, driven by several factors.
In the period, there were payments in respect of prior year exceptional costs and earn out payments relating to previous acquisitions.
Additionally, the costs of restructuring were GBP0.6 million. This has resulted in a reduction in the cost base to a level that better represents that required to support current revenue expectations, and will allow the business to generate stronger levels of cash from its operating activities. Reducing this semi-fixed cost base also allows the Group to make short-term investment decisions to take advantage of opportunities, which may generate more immediate revenue growth and cash generation.
Capital expenditure in the period was GBP1.4 million (H1 2017: GBP1.5 million) which is in line with the prior period and continues to be focused on the development of our range of industry leading products, with the investment in R&D subject to capitalisation increasing by GBP0.2 million versus the prior period.
Key Performance Indicators
6 months ended Year ended 31 December 30 June 2016 2017 6 months ended 31 December 2017 (restated) (restated) Invoiced Sales (GBP'm) 12.8 13.9 27.8 ============================= ============= ============= ============ Invoiced Sales by Geography ============================= ============= ============= ============ North America 4.5 5.1 9.9 Europe 4.9 5.2 10.0 Asia and rest of world 3.4 3.6 7.9 ============================= ============= ============= ============ Invoiced Sales by Product type ============================= ============= ============= ============ Active erasure 0.4 0.4 0.7 Mobile erasure 3.6 2.8 6.3 End of Life erasure 6.5 7.9 15.2 Professional services 0.6 0.9 1.5 Diagnostics 1.7 1.9 4.1 ============================= ============= ============= ============ Average annual spend per customer* (GBP'000) 59.4 54.3 58.9 ============================= ============= ============= ============ Headcount ============================= ============= ============= ============ R&D 88 101 106 Sales/support 110 128 125 Admin/other 41 33 42 ============================= ============= ============= ============ Total 239 262 273 ============================= ============= ============= ============
* For customers spending over EUR10k per year
Technology and Development update
Blancco development update
In the first half of this financial year, Blancco focused on refining the product portfolio to align with four key customer categories comprising IT Asset Disposition (ITAD), Mobile Processors, Mobile Retail, and Enterprise Data Centres. This refinement allows Blancco to address more clearly the needs of customers in these key markets.
Two notable releases in this period include the Mobile Dynamic Workflow in Blancco Mobile Device Eraser and the introduction of Business Intelligence Dashboards in Blancco Management Console. The Mobile Dynamic Workflow allows Mobile Processor customers to tailor the different orders of actions quickly and easily and make decisions based on those actions or mobile device information. This is all done through the built-in workflow editor. Secondly, the Business Intelligence Dashboard in Management Console quickly surfaces operational and performance details on the devices processed by ITADs and Mobile Processors. This allows management and executives the ability to refine their processes quickly based on the real-time feedback provided in the dashboards.
Technology Patents and Certifications
Blancco continues to lead the industry with its technology certifications and patents. In the first half of this financial year, Blancco filed a new patent on its Mobile Dynamic Workflow technology and expanded the reach of three additional patents to worldwide protection. The Mobile Dynamic Workflow technology uniquely positions Blancco to be configurable to any customer's mobile processing facilities.
Blancco achieved new certifications and updated existing certifications in this period as well. Most notably, Blancco achieved Common Criteria certification for Blancco File Eraser. Common Criteria is an international standard for computer security and is recognised by more than 20 countries worldwide. Blancco File Eraser is the only technology of its kind that carries this certification. In addition, Blancco Drive Eraser achieved National Cyber Security Centre Commercial Product Assurance (NCSC-CPA). NCSC is the successor to the UK government's National Technical Authority for Information Assurance (CESG). As part of this certification, Blancco Drive Eraser successfully verified against the Security Characteristic Data Sanitisation for Solid State Drive (SSD) media, keeping Blancco at the forefront of storage technology sanitisation.
Conclusions and outlook
During the six months to the end of December 2017 significant management time and effort was focused on the immediate priorities required to place Blancco on the best operational and financial footing following the resignation of the previous CEO and the review of the accounting for contracts and financial controls. The outcome of this is a better organised and controlled business which is in the best possible state to welcome a new CEO and enable them to make more strategic decisions about the future development and growth of the business.
Simon Herrick
Interim Chief Executive Officer
& Chief Financial Officer
GROUP FINANCIAL REVIEW
Results
6 months 6 months Year ended ended ended 31 December 31 December 30 June 2017 2016 (restated) 2017 GBP'million GBP'million GBP'million ============================ ============ ================= ============ Revenue 12.6 12.8 26.9 ============================ ============ ================= ============ AOP before Corporate Costs 1.7 3.3 4.9 Corporate costs (0.9) (0.8) (1.7) Total adjusted operating profit (AOP) 0.8 2.5 3.2 ============================ ============ ================= ============
Group Financial Review
The continuing business consists of the software business which includes our erasure and diagnostic product offerings, but excludes our Mexican business. The Group now consists of one segment plus corporate costs, as the previously reported erasure and diagnostics businesses have integrated across our operations and no longer run separately.
The discontinued business comprises our operations in Mexico, which were also engaged in the sale of erasure and diagnostic software, as the Group completed the disposal of this entity in January 2018. This is therefore presented separately in the financial statements. The discontinued operations for the prior year also include three months of trading in the Mobile Insurance business that was disposed of in September 2016. There have been no profits or losses generated in the current period from the previously disposed of Mobile Insurance or Repair Service businesses, although there has been a very small level of cash outflow for commitments which have now fallen due.
The loss after tax for the period, including the impact of the required accounting for discontinued operations was GBP1.0 million (H1 2017 restated: loss of GBP4.5 million). The loss before accounting for discontinued operations was GBP1.1 million (H1 2017 restated: loss of GBP2.3 million).
The full results of the discontinued business are presented in note 8.
We have a wide range of products that enable customers to erase and repurpose IT devices with certified software and provide consistent, accurate and measurable diagnostics of smartphones and tablets. Both suites of products are marketed and sold by all of our trading subsidiaries, often as an integrated product offering. Revenue for the period covering both product sets was GBP12.6 million (H1 2017 restated: GBP12.8 million) with constant currency revenues of GBP12.8 million. The biggest currency impact on the results was observed in Japan which contributed 20% of revenue but saw Sterling strengthen 10% against the Yen resulting in an adverse impact on reported revenue.
Adjusted operating profit before corporate costs was GBP1.7 million (H1 2017 restated: GBP3.3 million) at a margin of 13.9% (H1 2017 restated: 25.8%). The margin has declined against the prior year due to annualisation of the cost base including investment made in the prior years to grow the sales force.
Impact of Revenue Recognition
Blancco has two main pricing models, volume-based pricing, where clients purchase a fixed number of erasure licences, and subscription pricing, where clients purchase a time-bound right of use of Blancco products. From a revenue perspective, absent of any other significant deliverables, volume-based sales are recognised at the point of invoice (being the point at which the software is delivered), whereas subscription sales are recognised monthly over the term of the subscription (even if the subscription is invoiced as an up-front payment).
Invoiced Sales recognises both volume-based and subscription business in the same way, at the point of invoice, and is the main internal management measure of sales performance. This differs from the reported revenue figures as IFRS revenue recognition requires the business to defer the revenue earned on software subscriptions - which have a defined term - over the duration of the contract.
This has an adverse impact on revenue in the period in which the sale was made, as the revenue is held on the balance sheet and released in future periods as the contract is fulfilled. The impact is shown below:
6 months 6 months ended 31 ended December 31 December 2017 2016 (restated) GBP'm GBP'm ======================================== ========== ============= Invoiced Sales (Continuing Operations) 12.8 13.9 Net revenue deferral of subscription sales (0.2) (1.1) Reported revenue (IFRS) 12.6 12.8 ======================================== ========== =============
The decrease in Invoiced Sales observed during the first half of the year is partially due to the prior year Invoiced Sales figure consisting of a number of deals where software was delivered in full to the customer, but would serve the customer for multiple years, and therefore have not fallen due for renewal in this period. Those non-repeating deals, which were volume in nature have impacted directly on revenue, with new business wins being just sufficient to make up this shortfall in H1 FY18 (on a constant currency basis). Non-repeating subscription deals have adversely impacted the year on year progression at the Invoiced Sales level, but since these deals are deferred at the point of invoicing, there is a minimal impact at revenue level. For this reason, the year on year decline in revenue is less pronounced than Invoiced Sales, underpinning a more stable licence consumption model despite a more volatile sales line.
The total deferred revenue for the continuing Group at 31 December 2017 was GBP4.9 million (30 June 2017: GBP5.9 million) which represented revenue to be recognised in future periods. The deferred revenue on the balance sheet has reduced even though we deferred a net GBP0.2 million of Invoiced Sales, because the deferred revenue balance at 30 June 2017 included GBP1.0 million arising from an invoice raised in June 2017 for which the contract was subsequently renegotiated, which resulted in a change to the invoicing profile. This renegotiation has not resulted in any change to the profile of revenue to be recognised.
As a result of the above, we have restated the Invoiced Sales figure for the year ended 30 June 2017 to remove this invoice from the period.
Corporate Costs
Corporate costs of GBP0.9 million (H1 2017: GBP0.8 million) are associated with running the plc and central functions and are slightly higher than expected due to the costs associated with the replacement of the Chief Executive Officer and Chief Financial Officer.
Impact of Foreign Exchange Movements
One of the risks that the Group faces by doing business in overseas markets is currency fluctuations. In order to manage the Group's exposure to this, the CFO conducts a periodic review of the Group's currency hedging activities and makes a formal recommendation for any changes to the Board every half year by exception.
The Group is well diversified across a number of currencies, with Sterling representing only around 10% of revenues. Over the course of the first half of FY18, Sterling has strengthened against most currencies in which the Group trades, most significantly against the US Dollar (comprising 30% of revenue) and Japanese Yen (comprising 20%).
In comparison to the prior period, the main currencies in which the Group trades have weakened by 2% on average and therefore the overseas earnings are now worth less in Sterling terms. The Group has historically matched its revenues and costs denominated in the same currencies and the underlying impact on Adjusted Operating Profit is minimised. However, this hasn't been observed in the current period, where there have been two distinct impacts:
1. We have seen a growth in our indirect sales, which carry a lower fixed cost base. Indirect sales are invoiced at a price effectively net of the cost of sales with the costs in Blancco being the channel sales team. The lower cost base on these sales means that the business is marginally less hedged on sales denominated in foreign currencies.
2. The foreign exchange movement specifically against the Yen has been significant in the period and has been passed down to the profit line, due to strong revenue generation in this territory versus a relatively low fixed cost base.
The exchange rates applied for our significant currencies at the period end are as follows:
31 December 30 June 31 December 2017 2017 2016 ================ =========== ======= =========== Euro 1.13 1.14 1.18 US Dollar 1.35 1.30 1.23 Japanese Yen 152.13 145.44 145.02 ================ =========== ======= ===========
A comparison of actual results to results on a constant currency basis is presented below:
6 months 6 months ended ended 31 31 December December 2017 2017 Actual Constant Results Currency GBP'million GBP'million ================================== ============= ============ Invoiced Sales 12.8 13.0 Revenue 12.6 12.8 Adjusted operating profit before corporate costs 1.7 1.9 Group adjusted operating profit (AOP) 0.8 1.0 =================================== ============= ============ Adjusted earnings per share (pence) 0.72p 1.04p Basic earnings per share (pence) (1.76p) (1.44p) =================================== ============= ============
The Group implements forward contracts for payments and receipts, where the amounts are large, where they are not denominated in the local country's functional currency, where the timing is known in advance, and where the amount can be predicted with certainty. In addition, the Group undertakes natural hedges by structuring and paying future earn-outs on acquisitions in the acquired company's local currency.
The Group does not undertake any cash flow or profit hedging activities to insulate from currency movements in respect of overseas earnings, specifically the conversion of its largely non-Sterling generated income into the Group's reporting currency, Sterling.
No other hedging activities are undertaken in respect of tangible and intangible fixed assets, working capital (such as stock, debtors, or creditors), or other balance sheet items, as these are generally small in nature in any one country.
Dividends paid to Non-Controlling Interests
On 29 September 2017, a dividend was declared and paid by Blancco Japan Inc. The total dividend of Yen59.0 million (GBP0.4 million) was paid, of which Yen28.9 million (GBP0.2 million) was paid to the minority shareholder, representing its 49% interest in the subsidiary. This resulted in a cash outflow for the Group of GBP0.2 million and a corresponding reduction in the non-controlling interest reserve held on the balance sheet. The reduction in the reserve represents the realisation of cash from the subsidiary and therefore a reduction in the minority shareholder's interest in the net assets of Blancco Japan Inc.
Exceptional Acquisition and Restructuring Costs
The Group has undertaken restructuring of the business and key management team in the first half of the year, which has resulted in exceptional costs of GBP0.6 million. Additionally, the Group has incurred legal costs associated with matters arising from the review of contracts for the years ended 30 June 2016 and 2017. Further details regarding these matters were disclosed in the announcement made on 4 September 2017.
The total exceptional costs incurred in the period were GBP1.2 million (H1 2017: GBP0.5 million) with the exceptional costs in the prior year period predominantly arising from legal fees associated with the defence of the Group's patents following claims from a competitor.
Acquisition costs incurred in the period were GBPnil (H1 2017: GBP1.2 million) due to the fact that there was no acquisition activity initiated or completed in the current period for the continuing business. In the prior year, the Group's strategy focused on several acquisitions of non-controlling interests including France, Australia, South East Asia and Canada, with the latter completed at the beginning of H2 2017.
In the discontinued business, the exceptional costs totalled GBP0.1 million (H1 2017: GBP0.6 million) and relate to the disposal of the Mexican entity that was completed in January 2018. The costs in the prior period relate to the restructuring and subsequent disposal of the Mobile Insurance Business and also the acquisition of 19% of the shares previously held by the minority interest of the Mexican entity.
Amortisation of Internally Generated Intangible Assets
The activity of the R&D team is split between research and administration activity which is not eligible for capitalisation, and development time which is required to be capitalised under IFRS. Amortisation of internally generated intangible assets which have been generated by the Group is presented within Adjusted Operating Profit.
The amortisation charge for the period is GBP1.1 million (H1 2017: GBP0.6 million) and is increasing over time due to the accumulation of capital expenditure since the acquisition of Blancco in April 2014. The Group is continuing to invest greater amounts each year in its development activities and amortises the expenditure over the period the version of the product is expected to be in use, generally four years. The amortisation continues to lag behind the capitalised development expenditure of GBP1.2 million in the period.
During the second half of this financial year, the Blancco business will have been owned for over four years, and therefore development expenditure capitalised immediately post acquisition will become fully amortised due to an average useful economic life assessment of 4 years. From this period onwards, there will be a complete 4 years' worth of aggregated capitalisation subject to depreciation, and the amortisation charge will no longer be catching up with the cost capitalised in the year. Amortisation will then rise if the levels of capitalisation exceed the average amount spent over the previous four years.
Amortisation of Acquired Intangibles
Amortisation of acquired intangible assets, acquired as part of the Group's previous M&A activity, was GBP1.2 million (H1 2017: GBP1.3 million). These intangibles relate to the acquisition of Blancco in 2014, SafeIT in 2014, Tabernus in 2015 and Xcaliber in 2016.
Share Based Payments
Share based payments credit was GBP0.4 million (H1 2017: GBP1.0 million charge) and represents the impact of the Group's Software LTIP for senior executives, full details of which are provided in the Annual Report and Accounts for the year ended 30 June 2017.
The Software LTIP rewards participants for growth in the total value of the company, in comparison to the valuation on inception. A credit of GBP0.4 million for the period represents the reduction in value of the scheme for the participants against the share price at 31 December 2017 with no schemes with any vesting value. Accordingly, there is no balance sheet liability for these schemes at 31 December 2017.
Net Financing Expense
Net financing income was GBP0.1 million (H1 2017: GBP0.6 million expense). Included within the financing costs are:
-- The unwind of the time value of money on the deferred contingent consideration payable in future periods for the Group's acquisitions, which represents a non-cash charge of GBP0.2 million (H1 2017: GBP0.3 million). The reduction is a result of the ceasing of the unwind of the discount factor on the contingent consideration recognised on the Blancco Sweden acquisition, which concluded in the prior year.
-- The revaluation of contingent consideration, which represented a credit of GBP0.2 million (H1 2017: GBPnil) due to foreign exchange movements, particularly the strengthening of Sterling against the US Dollar.
-- The revaluation of the fair value of the Tabernus contingent consideration, which has resulted in a non-cash credit of GBP0.2 million (H1 2017: GBPnil) to the consolidated income statement.
-- The cost associated with the Group's banking facility of GBP0.2 million (H1 2017: GBP0.3 million), primarily interest.
The finance income represents the interest earned on cash holdings around the Group.
Taxation
The total tax credit was GBPnil (H1 2017 restated: GBP0.2 million charge), representing taxes payable in certain jurisdictions of GBP0.7 million offset against deferred tax credits, for which the cash benefit will be realised in future periods.
Earnings per share
Adjusted EPS for the continuing operations were 0.72 pence (H1 2017 restated: 2.75 pence) which is due to a reduction in Adjusted Operating Profit. The basic loss per share of 1.76 pence (H1 2017 restated: 4.77 pence) has benefitted from the revaluation of the Software LTIP scheme and the revaluation of contingent consideration due to foreign exchange movements and change in fair value of the Tabernus earn-out.
Cash and Working Capital
6 months 6 months Year ended ended ended 31 December 31 December 30 June 2017 2016 2017 (unaudited) (unaudited, (audited) restated) GBP'm GBP'm GBP'm =================================== ============ ============ ========== Adjusted Operating Cash Flow before movement in working capital and exceptionals 2.0 3.2 5.0 Movement in working capital and exceptionals (1.0) (2.4) (1.1) Movement in provisions (0.1) - (0.7) ==================================== ============ ============ ========== Adjusted Operating Cash Flow 0.9 0.8 3.2 Net interest payments (0.2) (0.3) (0.3) Tax paid (1.5) (0.4) (0.7) M&A payments (0.4) (1.3) (1.5) Exceptional payments (1.0) (0.4) (0.9) ==================================== ============ ============ ========== Net cash from operating activities - continuing operations (2.2) (1.6) (0.2) Capital expenditure (1.4) (1.5) (3.4) Acquisition of subsidiaries, (0.7) (0.6) (1.0) Net cash flow from share issues, option vesting and dividend payments (0.2) (1.0) 8.1 Other movements (0.2) (0.2) (0.2) Cash flow on discontinued operations (0.4) (2.0) (2.6) ==================================== ============ ============ ========== Total cash flow (5.1) (6.9) 0.7 ==================================== ============ ============ ========== Net (debt)/cash (3.4) (5.9) 1.7 ==================================== ============ ============ ==========
Group Review - Cash Flows
The cash flows of the discontinued operations have been removed from the individual captions in the cash flow statement and are presented separately. The cash outflow in the period is derived from Blancco Mexico.
There has been a reduction in net cash since June 2017 with the operating cash inflow offset by the following items:
-- The payment of tax that related to prior periods of GBP1.5 million.
-- Acquisition payments in the period of GBP1.0 million relating to the Xcaliber, Mexico and Sweden minority interest earn outs.
-- Restructuring of the management team, which incurred exceptional payments of GBP0.6 million, and settlement of unpaid exceptional costs from the prior year of GBP0.9 million.
Within trade creditors at 31 December 2017, there is a further GBP0.7 million of exceptional costs, which were settled in January 2018.
Adjusted Operating Cash Flow ("AOCF") was marginally higher than the prior period at GBP0.9 million (H1 2017 restated: GBP0.8 million), however, adjusted cash conversion (as defined in the glossary) of 110% (H1 2017 restated: 34%) is significantly higher than the previous year.
Capital expenditure and R&D qualifying for capitalisation was GBP1.4 million (H1 2017: GBP1.5 million). Of this capital expenditure, GBP1.2 million (H1 2017: GBP1.0 million) was incurred in the ongoing development of the Blancco product range. The remaining expenditure relates to purchase of property, plant and equipment and investment in the Group's operating systems.
Dividend paid of GBP0.2 million represents the dividend paid to minority shareholders of the Group's Japanese subsidiary. In the prior year the dividends paid of GBP1.0 million represented both the dividend paid to shareholders of the Group (GBP0.7 million) and dividends paid to minority shareholders of the Group's Japanese and Australian subsidiaries (GBP0.3 million).
Other movements outflow of GBP0.2 million (H1 2017: GBP0.2 million) includes changes in the value of overseas cash held on deposit when translated back into Sterling at the exchange rates prevailing at the end of the period and the removal of cash held in the discontinued operations.
Net debt of GBP3.4 million (FY17: net cash of GBP1.7 million; H1 2017: net debt of GBP5.9 million) comprised gross debt of GBP8.9 million (FY17: GBP9.9 million, H1 2017: GBP9.2 million), and cash and cash equivalents of GBP5.6 million (FY17: GBP11.6 million, H1 2017: GBP3.3 million).
Dividend
Given the position of the business and the requirement to invest for growth, the Board has decided not to pay an interim dividend.
Post Balance Sheet Events
On 18 January 2018, the Group completed the disposal of its holding of 70% of the issued share capital of Software Blancco S.A. de CV for a consideration of $0.5 million (GBP0.4 million). A payment plan has been agreed, with full settlement to be received during the second half of the financial year. The entity will become a distributor of Blancco products in the LATAM region going forward, with Blancco earning a licence fee on sales of product.
Simon Herrick
Interim Chief Executive Officer
& Chief Financial Officer
Condensed Consolidated Income Statement for the six months ended 31 December 2017 6 months 6 months Year ended ended ended 31 December 31 December 30 June 2017 2016 2017 (unaudited) (unaudited, (audited) restated*) Note GBP'000 GBP'000 GBP'000 =========================== ===== =================== =================== ========== Continuing operations revenue 12,607 12,788 26,914 Adjusted operating profit before corporate costs 1,749 3,293 4,860 Corporate costs (920) (813) (1,665) Adjusted operating profit 829 2,480 3,195 Acquisition costs 6 (2) (1,230) (1,558) Exceptional costs 7 (1,178) (487) (1,024) Amortisation of acquired intangible assets (1,209) (1,282) (2,494) Share-based payments 419 (983) (675) --------------------------- ----- ------------------- ------------------- ---------- Group Operating loss (1,141) (1,502) (2,556) --------------------------- ----- ------------------- ------------------- ---------- Revaluation of contingent consideration 432 6 1,686 Other finance income 6 2 2 =========================== ===== =================== =================== ========== Finance income 438 8 1,688 --------------------------- ----- ------------------- ------------------- ---------- Unwinding of contingent consideration 12 (220) (309) (523) Revaluation of contingent consideration - - (84) Other finance costs (159) (344) (321) =========================== ===== =================== =================== ========== Finance costs (379) (653) (928) --------------------------- ----- ------------------- ------------------- ---------- Loss before tax (1,082) (2,147) (1,796) Taxation 3 22 (177) (660) =========================== ===== =================== =================== ========== Loss for the period (1,060) (2,324) (2,456) =========================== ===== =================== =================== ========== Discontinued operations Post tax results from
discontinued operations 8 14 (2,190) (1,856) =========================== ===== =================== =================== ========== Loss for the period (1,046) (4,514) (4,312) =========================== ===== =================== =================== ========== Attributable to: Equity holders of the Company (1,081) (5,086) (4,866) Non-controlling interest 35 572 554 =========================== ===== =================== =================== ========== Loss for the period (1,046) (4,514) (4,312) =========================== ===== =================== =================== ==========
*see note 1.1
Earnings per share Continuing Operations: (4.77 (5.12 Basic 4 (1.76p) p) p) (4.77 (5.12 Diluted 4 (1.76p) p) p) Discontinued Operations: (4.36 (3.46 Basic 4 0.01p p) p) (4.36 (3.46 Diluted 4 0.01p p) p) Total Group: (9.13 (8.58 Basic 4 (1.75p) p) p) (9.13 (8.58 Diluted 4 (1.75p) p) p) Consolidated Statement of Comprehensive Income for the six months ended 31 December 2017 6 months 6 months Year ended ended ended 31 December 31 December 30 June 2017 2016 2017 (unaudited) (unaudited, (audited) restated*) GBP'000 GBP'000 GBP'000 ============================== ==== ================== ============ ============ Loss for the period (1,046) (4,514) (4,312) Other comprehensive income - amounts that may be reclassified to profit or loss in the future: Exchange differences arising on translation of foreign entities (374) (385) (347) ============================== ==== ================== ============ ============ Total comprehensive loss for the period (1,420) (4,899) (4,659) ============================== ==== ================== ============ ============ Attributable to: Equity holders of the Company (1,429) (5,471) (5,234) Non-controlling interests 9 572 575 ============================== ==== ================== ============ ============ Total comprehensive loss for the period (1,420) (4,899) (4,659) ============================== ==== ================== ============ ============ *see note 1.1 Condensed Consolidated Balance Sheet as at 31 December 2017 31 December 31 December 30 June 2017 2016 (unaudited, 2017 (unaudited) restated*) (audited) Note GBP'000 GBP'000 GBP'000 ============================= ===== ============ ============= ========== Assets Non-current assets Goodwill 42,821 42,821 42,821 Other intangible assets 11 22,402 23,628 23,330 Property, plant and equipment 394 461 446 65,617 66,910 66,597 ============================= ===== ============ ============= ========== Current assets Inventory 136 146 142 Trade and other receivables 6,935 8,842 8,438 Cash 9 5,559 3,262 11,648 Assets held for sale 950 - - ============================= ===== ============ ============= ========== 13,580 12,250 20,228 ============================= ===== ============ ============= ========== Total assets 79,197 79,160 86,825 ============================= ===== ============ ============= ========== Current liabilities Trade and other payables (10,937) (13,866) (13,958) Contingent consideration 12 (2,299) (2,162) (1,726) Current tax liability (534) (1,778) (1,450) Provisions (323) (204) (386) Liabilities held for (810) - - sale ============================= ===== ============ ============= ========== (14,903) (18,010) (17,520) Non-current liabilities Borrowings 9 (8,923) (9,179) (9,916) Other payables (1,887) (1,826) (1,681) Contingent consideration 12 (651) (3,243) (2,418) Deferred tax (1,855) (1,407) (2,611) Provisions (1,994) (3,662) (2,035) ============================= ===== ============ ============= ========== (15,310) (19,317) (18,661) ============================= ===== ============ ============= ========== Total liabilities (30,213) (37,327) (36,181) ============================= ===== ============ ============= ========== Net assets 48,984 41,833 50,644 ============================= ===== ============ ============= ==========
*see note 1.1
Equity Ordinary share capital 1,280 1,164 1,280 Share premium 9,152 - 9,152 Merger reserve 4,034 4,034 4,034 Capital redemption reserve 417 417 417 Translation reserve (1,332) (815) (984) Retained earnings 34,622 36,126 35,703 ============================= ======== ======= ======= Total equity attributable to equity holders of the Company 48,173 40,926 49,602 Non-Controlling interest reserve 811 907 1,042 ============================= ======== ======= ======= Total equity 48,984 41,833 50,644 ============================= ======== ======= ======= Condensed Consolidated Statement of Changes in Equity for the six months ended 31 December 2017 6 months 6 months Year ended ended ended 31 December 31 December 30 June 2017 2016 2017 (unaudited) (unaudited, (audited) restated*) GBP'000 GBP'000 GBP'000 ==================================== ============ ============ ========== Balance at the start of the period 50,644 47,597 47,597 Total comprehensive loss for the period (1,420) (4,899) (4,659) Equity settled share based payments - 315 343 Acquisition of non-controlling interest without a change in control - (324) (1,041) Issue of shares to non-controlling interest - 136 163 Reserves transfer on disposal of subsidiary - - (182) Share placing - - 9,268 Share options exercised - - 407 Vesting of options to sell shares in subsidiary - - 165 Dividends paid to shareholders - (747) (1,139) Dividends paid to non-controlling interests (240) (245) (278) ===================================== ============ ============ ========== Balance at the end of the period 48,984 41,833 50,644 ===================================== ============ ============ ==========
*see note 1.1
Consolidated Cash Flow Statement for the six months ended 31 December 2017 6 months 6 months Year ended ended ended 31 December 31 December 30 June 2017 2016 2017 (unaudited) (unaudited, (audited) restated*) Note GBP'000 GBP'000 GBP'000 ======================================= ===== ============ ============ ========== Loss for the period (1,046) (4,514) (4,312) ======================================= ===== ============ ============ ========== Adjustments for: Results of discontinued operations (14) 2,190 1,856 Net finance (income)/charges (59) 645 (760) Tax (credit)/expense (22) 177 660 Depreciation on property, plant and equipment 104 89 191 Amortisation of intangible assets 1,110 628 1,579 Amortisation of acquired intangible assets 1,209 1,282 2,494 Share-based payments (income)/expense (419) 983 675 ======================================= ===== ============ ============ ========== Operating cash flow before movement in working capital 863 1,480 2,383 --------------------------------------- ----- ------------ ------------ ---------- Acquisition costs 2 1,230 1,558 Exceptional restructuring costs 1,178 487 1,024 --------------------------------------- ----- ------------ ------------ ---------- Operating cash flow before movement in working capital and exceptional and acquisition costs 2,043 3,197 4,965 --------------------------------------- ----- ------------ ------------ ---------- Decrease/(increase) in inventories 9 (34) (26) Decrease/(increase) in receivables 996 (2,392) (941) (Decrease)/increase in payables and accruals (2,350) 129 131 Decrease in provisions (103) (33) (732) ======================================= ===== ============ ============ ========== Cash (used in)/generated from continuing operations (585) (850) 815 Acquisition costs payments 445 1,300 1,477 Exceptional restructuring payments 1,049 387 890 --------------------------------------- ----- ------------ ------------ ---------- Adjusted operating cash flow 909 837 3,182 --------------------------------------- ----- ------------ ------------ ---------- Interest received 6 1 2 Interest paid (159) (344) (321) Tax paid (1,493) (430) (731) ======================================= ===== ============ ============ ========== Net cash (outflow) from operating activities - continuing operations (2,231) (1,623) (235) Net cash (outflow) from operating activities - discontinued operations 8 (31) (1,971) (2,551) ======================================= ===== ============ ============ ========== Net cash (outflow) from operating activities - continuing and discontinued operations (2,262) (3,594) (2,786) ======================================= ===== ============ ============ ========== Cash flows from investing activities Purchase of property, plant and equipment (53) (124) (243) Purchase and development of intangible assets (1,349) (1,405) (3,146) Acquisition of subsidiaries, net of cash acquired (652) - (657) Proceeds from issue of shares to non-controlling interest - 136 136 Payments made to acquire non-controlling interest - (730) (462) ======================================= ===== ============ ============ ========== Net cash used in investing activities - continuing operations (2,054) (2,123) (4,372) Net cash used in investing activities - discontinued operations 8 (322) (62) (67) ======================================= ===== ============ ============ ========== Net cash used in investing activities - continuing and discontinued operations (2,376) (2,185) (4,439) ======================================= ===== ============ ============ ========== Cash flows from financing activities Dividends paid to shareholders - (747) (1,139) Dividends paid to non-controlling interests (240) (245) (278) (Repayment)/drawdown of borrowings (1,000) 5,444 6,174 Share placing net of fees - - 9,479 Net cash (used in)/generated from financing activities (1,240) 4,452 14,236 Net cash used in financing activities - continuing and discontinued operations (1,240) 4,452 14,236 Net (decrease)/increase in cash and cash equivalents (5,878) (1,327) 7,011 Other non-cash movements - exchange rate changes (134) (180) (132) Reclassification of cash (77) - - to assets held for sale Cash and cash equivalents at the beginning of period 11,648 4,769 4,769 ======================================= ===== ============ ============ ========== Cash and cash equivalents at end of period 5,559 3,262 11,648 Bank borrowings (8,923) (9,179) (9,916) ======================================= ===== ============ ============ ========== Net (debt)/cash (3,364) (5,917) 1,732 ======================================= ===== ============ ============ ==========
*see note 1.1
Notes to the Half Year Report
For the six months ended 31 December 2017
1. Basis of Preparation
These half yearly results have been prepared on the basis of the accounting policies expected to be adopted for the year ended 30 June 2018. These are in accordance with the Group's accounting policies as set out in the latest audited annual financial statements for the year ended 30 June 2017.
All International Financial Reporting Standards ('IFRS'), International Accounting Standards ('IAS') and interpretations currently endorsed by the International Accounting Standards Board ('IASB') and its committees, as adopted by the EU and as required to be adopted by AIM listed companies, have been applied. AIM listed companies are not required to comply with IAS 34 'Interim Financial Reporting' and accordingly the Company has taken advantage of this exemption.
In preparing the prior year interim report, certain lines of business have been reclassified as discontinued and the primary statements adjusted accordingly, and in line with IFRS 5, Non-current Assets Held for Sale and Discontinued Operations.
The financial information in these half yearly results does not constitute statutory accounts for the six months ended 31 December 2017 and should be read in conjunction with the Group's annual financial statements for the year ended 30 June 2017.
The condensed consolidated half yearly financial statements for the six months to 31 December 2017 have not been audited or reviewed by auditors pursuant to the Auditing Practices Board guidance on Review of Half yearly Financial Information.
These unaudited half yearly results were approved by the Board of Directors on 19 March 2018.
1.1 Prior Period Adjustment
A prior period adjustment has been made in relation to the recognition of GBP0.9 million of revenue that was previously booked in the six months ended 31 December 2016. This comprised:
-- Invoiced Sales totalling GBP1.0 million (GBP1.1 million inclusive of local value added taxes) and recognised revenue of GBP0.7 million relating to a contract within the now discontinued Mexican business that was recognised in the first half of the year, but subsequently reversed in the second half of the year, as subsequent review identified that, although certain licences had been delivered to the customer, no contractual agreement was in place with the customer which adequately supported the criteria for revenue recognition under the Group's accounting policies. Of the amount invoiced, GBP0.3 million had been originally deferred due to service elements not yet delivered.
-- The other GBP0.2 million relates to revenue recognition adjustments between H1 and H2 of FY17, reviewed and identified during the Group's year end processes. There is no impact on the full year comparatives, which remain as reported, but include the appropriate reallocation to discontinued operations of the performance of the Mexican entity.
Additionally we restated the tax charge for the year in respect of the above adjustments, resulting in a GBP0.2 million adjustment to previously reported figures.
A summary of the impact of the prior period adjustment on the consolidated income statement and the consolidated statement of cash flows for the period ended 31 December 2016, as well as the consolidated balance sheet as at 31 December 2016 arising from the restatements is as follows:
Period Period ended Reclassification ended 31 December Restatement of Mexico 31 December Consolidated Income 2016 and deferral results 2016 Statement As Reported of revenue to discontinued As Restated GBP'000 GBP'000 GBP'000 GBP'000 ======================== ============= ============== ================= ============== Group revenue 14,217 (889) (540) 12,788 Adjusted operating profit 3,594 (889) (225) 2,480 Group operating loss (435) (889) (178) (1,502) Loss before tax (1,080) (889) (178) (2,147) Tax (337) 160 - (177) Loss for the period (1,417) (729) (178) (2,324) Loss from discontinued operations (2,368) - 178 (2,190) Loss for the period (3,785) (729) - (4,514) ======================== ============= ============== ================= ==============
There is no change to the previously reported Group cash flow from operating activities, cash used in investing activities and cash used in financing activities other than the reclassification to discontinued operations of cash flows associated with the Mexican legal entity. The cash conversion has been restated to 34%, previously 22%, following the reduction in Adjusted Operating Profit.
Consolidated Balance Sheet as at 31 December 2016
As reported Adjustment Restatement As restated to the and deferral accounts of revenue for the year ended 30 June 2017 GBP'000 GBP'000 GBP'000 ========================== ============ ============ ============== ============ Assets Non-current assets Goodwill 42,821 - - 42,821 Other intangible assets 23,628 - - 23,628 Property, plant and equipment 461 - - 461 66,910 - - 66,910 ========================== ============ ============ ============== ============ Current assets Inventory 146 - - 146 Trade and other receivables 12,330 (2,350) (1,138) 8,842 Cash 3,262 - - 3,262 15,738 (2,350) (1,138) 12,250 ========================== ============ ============ ============== ============ Total assets 82,648 (2,350) (1,138) 79,160 ========================== ============ ============ ============== ============ Current liabilities Trade and other payables (14,974) 859 249 (13,866) Contingent consideration (2,162) - - (2,162) Current tax liability (1,938) - 160 (1,778) Provisions (204) - - (204) (19,278) 859 409 (18,010) Non-current liabilities Borrowings (9,179) - - (9,179) Other payables (1,826) - - (1,826) Contingent consideration (3,243) - - (3,243) Deferred tax (1,407) - - (1,407) Provisions (3,662) - - (3,662) ========================== ============ ============ ============== ============ (19,317) - - (19,317) ========================== ============ ============ ============== ============ Total liabilities (38,595) 859 409 (37,327) ========================== ============ ============ ============== ============ Net assets 44,053 (1,491) (729) 41,833 ========================== ============ ============ ============== ============
Further details of the adjustment to the accounts for the year ended 30 June 2017, have been disclosed in note 1.2 of the Annual Report and Accounts for the year ended 30 June 2017. Due to this being adjusted in the opening balance sheet at 1 July 2017, there is no impact on profit for the current period.
2. Segmental reporting
As outlined in the Group Financial Review, the Group's continuing operations consist of one segment covering the previous erasure and diagnostic product offerings.
Discontinued revenues are comprised of the results of the Mexican legal entity that has been disposed of in January 2018, and additionally, in the prior year revenues associated with the Digital Care Mobile Insurance business disposed of in September 2016.
6 months ended 6 months Year ended ended 31 December 31 December 30 June 2017 2016 2017 (unaudited, (unaudited) restated) (audited) Discontinued operations GBP'000 GBP'000 GBP'000 ==================================== ============= ============= =========== Software Revenue 185 540 770 Mobile Insurance Revenue - 1,740 1,740 Total Revenue 185 2,280 2,510 ==================================== ============= ============= =========== Software adjusted operating profit 45 225 245 Mobile Insurance adjusted operating profit - (346) (346) ==================================== ============= ============= =========== Divisional operating profit/(loss) 45 (121) (101) Corporate costs - (415) (415) ==================================== ============= ============= =========== Adjusted operating profit/(loss) 45 (536) (516) Exceptional costs (39) (635) (938) Other exceptional income - 816 1,478 Operating profit/(loss) 6 (355) 24 Revaluation of contingent 8 - - consideration ==================================== ============= ============= =========== Profit/(loss) before tax 14 (355) 24 ==================================== ============= ============= ===========
All of the exceptional costs incurred in the current period relate to the disposal of the Mexican entity (H1 2017: disposal of the Mobile Insurance Business and acquisition of the minority interest of the Mexican legal entity).
3. Taxation
The tax credit for the six months to 31 December 2017 is based on the estimated tax rate for the full year in each jurisdiction.
There has been no material impact as a result of the US tax reform on these financial statements, although the business will benefit from lower tax charges on its future profits generated in this country.
4. Earnings per share (EPS) 6 months 6 months ended ended Year ended 31 December 31 December 30 June 2017 2016 2017 (unaudited, (unaudited) restated) (audited) Pence Pence Pence ================================= ============ ============ =========== Continuing operations (1.76 (4.77 (5.12 Basic earnings per share p) p) p) (4.77 (5.12 Diluted earnings per share (1.76p) p) p) Adjusted earnings per share 0.72 p 2.75 p 2.78 p Diluted adjusted earnings per share 0.72 p 2.75 p 2.78 p ================================= ============ ============ =========== Discontinued operations (4.36 (3.46 Basic earnings per share 0.01 p p) p) (4.36 (3.46 Diluted earnings per share 0.01 p p) p) Adjusted earnings per (1.41 (1.67 share 0.06 p p) p) Diluted adjusted earnings (1.41 (1.67 per share 0.06 p p) p) ================================= ============ ============ =========== Total Group (1.75 (9.13 (8.58 Basic earnings per share p) p) p) (1.75 (9.13 (8.58 Diluted earnings per share p) p) p) Adjusted earnings per share 0.78 p 1.34 p 1.11 p Diluted adjusted earnings 0.78 per share p 1.34 p 1.11 p ================================= ============ ============ =========== 6 months 6 months ended ended Year ended 31 December 31 December 30 June 2017 2016 2017 (unaudited, (unaudited) restated) (audited) Continuing operations GBP'000 GBP'000 GBP'000 ================================= ============ ============ =========== Loss for the period (1,060) (2,324) (2,456) Profit attributable to non-controlling interests (27) (334) (448) ================================= ============ ============ =========== Loss attributable to equity holders of the Company (1,087) (2,658) (2,904) ================================= ============ ============ =========== Reconciliation to adjusted profit: Unwinding of discount on contingent consideration 220 309 523 Revaluation of contingent consideration (432) (6) (1,602) Acquisition costs 2 1,230 1,558 Amortisation of intangible assets 1,209 1,282 2,494 Exceptional restructuring costs 1,178 487 1,024 Exceptional bank charges 7 7 14 Share based payments (419) 983 675 Tax impact of above adjustments (236) (99) (205) ================================= ============ ============ =========== Adjusted profit for the period 442 1,535 1,577 ================================= ============ ============ =========== Number of shares '000s '000s '000s Weighted average number of shares used to calculate earnings per share * Basic 61,714 55,761 56,668 55,761 * Diluted 61,714 55,761 56,668 ========================= === ======== ======== ======= 5. Profit for the period
Profit for the period for the entire Group has been arrived at after charging/(crediting):
6 months 6 months Year ended ended ended 31 December 31 December 30 June 2017 2016 2017 (unaudited) (unaudited) (audited) GBP'000 GBP'000 GBP'000 ================================ ============= ============= ========== Depreciation of property, plant and equipment - owned 110 103 211 Loss/(profit) on disposal of property, plant and equipment - - 12 Amortisation of intangible assets 2,319 1,966 4,129 Cost of inventories recognised as an expense 77 104 167 Staff costs 6,306 6,077 12,904 Net foreign exchange (profit)/loss (224) 40 (1,226) ================================== ============= ============= ==========
The figures for the Group's continuing operations are as follows:
6 months 6 months Year ended ended ended 31 December 31 December 30 June 2017 2016 2017 (unaudited) (unaudited) (audited) GBP'000 GBP'000 GBP'000 =================================== ============= ============= ========== Depreciation of property, plant and equipment - owned 104 89 191 Loss/(profit) on disposal of property, plant and equipment - - 12 Amortisation of intangible assets 2,319 1,910 4,073 Cost of inventories recognised as an expense 77 104 167 Staff costs 6,278 5,695 12,490 Net foreign exchange (profit)/loss (195) (33) (1,195) ===================================== ============= ============= ========== 6. Acquisition costs 6 months 6 months Year ended ended ended 31 December 31 December 30 June 2017 2016 2017 (unaudited) (unaudited) (audited) GBP'000 GBP'000 GBP'000 ========================== ============= ============= ========== Acquisition costs and other M&A related costs 2 1,230 1,558 ============================ ============= ============= ==========
The acquisition costs are significantly lower than the prior period, as the prior year included acquisition costs incurred in the minority interest buy-outs of Group companies in France, South East Asia and Australia that took place in this period.
Deal costs not included above relate to the disposal of the Mexican entity totalling GBP0.1 million for the period (H1 2017: GBP0.6 million) as they are presented within discontinued operations. The deal costs incurred in the prior year relate to the disposal of the Mobile Insurance business.
7. Exceptional restructuring costs 6 months 6 months Year ended ended ended 31 December 31 December 30 June 2017 2016 2017 (unaudited) (unaudited) (audited) GBP'000 GBP'000 GBP'000 =============== ============= ============= ========== Restructuring 593 292 846 Legal costs 585 195 178 ================= ============= ============= ========== 1,178 487 1,024 =============== ============= ============= ==========
Exceptional restructuring costs relate to costs associated with the restructure of the business during the first half of the year and legal costs associated with matters arising from the review of contracts for the years ended 30 June 2016 and 2017, which were detailed in a previous announcement released on 4 September 2017. The costs in the previous year relate to integration of acquired businesses and the defence of a claim against one of the Group's patents.
Exceptional redundancy and restructuring costs related to discontinued operations were GBPnil in the period (H1 2017: GBP0.1 million), with the exceptional restructuring costs in the prior period relating to the Mobile Insurance business, and they are presented within discontinued operations.
8. Discontinued Operations 6 months 6 months Year ended ended ended 31 December 31 December 30 June 2017 2016 2017 (unaudited) (unaudited, (audited) restated) GBP'000 GBP'000 GBP'000 ================================== === ============ ============ ========== Discontinued operations revenue 185 2,280 2,510 Divisional operating profit/(loss) 45 (121) (101) Corporate costs - (415) (415) Adjusted operating profit/(loss) 45 (536) (516) Exceptional costs (39) (635) (938) Other exceptional income - 816 1,478 Operating profit/(loss) 6 (355) 24 Revaluation of contingent 8 - - consideration ---------------------------------- --- ------------ ------------ ---------- Profit/(loss) before tax 14 (355) 24 Taxation - - (324) ======================================= ============ ============ ========== Profit/(loss) for the period 14 (355) (300) ======================================= ============ ============ ========== Post tax loss on disposal of discontinued business - (1,835) (1,556) ======================================= ============ ============ ========== Post tax results from discontinued operations 14 (2,190) (1,856) ======================================= ============ ============ ==========
The discontinued income statement includes both the Mexican operations and the Mobile Insurance businesses, which are presented separately in note 2. The loss on disposal relates solely to the Mobile Insurance business as the Mexican entity was not disposed of before 31 December 2017. Assets and liabilities included in the Consolidated Balance Sheet as held for sale relate to the Mexican entity and are as follows:
2017 GBP'000 Assets Cash 77 Trade and other receivables 873 Total assets held for sale 950 ================================= ========== Liabilities Trade and other payables (810) Total liabilities held for sale (810) ================================= ==========
The cash flows associated with the discontinued operations are as follows:
6 months 6 months Year ended ended ended 31 December 31 December 30 June 2017 2016 2017 (unaudited) (unaudited) (unaudited) GBP'000 GBP'000 GBP'000 ================================= ============ =========== =========== Profit/(loss) for the period 14 (355) (300) ================================== ============ =========== =========== Adjustments for: Tax expense - - 324 Finance income (8) - - Depreciation on property, plant and equipment 6 14 20 Amortisation of intangible assets 56 56 Operating cash flow before movement in working capital 12 (285) 100 ================================== ============ =========== =========== Increase in inventories - (11) (11) (Increase)/decrease in receivables (211) 177 (263) Increase/(decrease) in payables and accruals 168 (1,852) (899) Decrease in provisions - - (1,478) ================================== ============ =========== =========== Cash used in discontinued operations (31) (1,971) (2,551) Net interest - - - Tax paid - - - ================================= ============ =========== =========== Net cash outflow from operating activities - discontinued operations (31) (1,971) (2,551) ================================== ============ =========== =========== Cash flows from investing activities Purchase of property, plant and equipment - (13) (18) Purchase and development of intangible assets - (49) (49) Acquisition of subsidiaries and payment of contingent consideration (322) - - Net cash used in investing activities - discontinued operations (322) (62) (67) ================================== ============ =========== ===========
During the current period, the cash flows relate to the Mexican business.
9. Net Cash 6 months 6 months ended ended Year ended 31 December 31 December 30 June 2017 2016 2017 (unaudited) (unaudited) (audited) GBP'000 GBP'000 GBP'000 =============================== ============= ============= =========== Cash 5,559 3,262 11,648 Bank borrowings (non-current) (8,923) (9,179) (9,916) ================================ ============= ============= =========== Net (debt)/cash (3,364) (5,917) 1,732 ================================ ============= ============= ===========
The total facility available to the Group is GBP12.4 million (30 June 2017: GBP12.4 million; 31 December 2016: GBP11.5 million). The facility expires on 31 October 2019, and all banking covenants were met during the period.
10. Acquisitions
Contingent Cash Consideration on Acquisitions in the Prior Year
The Tabernus acquisition includes an earn-out based on earnings, not to be paid before September 2018. The estimated cash outflow at the time of settlement is $1.5 million (GBP1.1 million). A deferred liability of $1.4 million (GBP0.9 million) had been established which represented the fair value at the acquisition date, using a discount rate of 12%. At 31 December 2017, the deferred liability was $1.5 million (GBP1.1 million).
The Xcaliber investment on 17 March 2016 included an earn-out to be paid over various stages of the next 3 years. The initial total estimated cash outflow was $4.7 million (GBP3.3 million) with a deferred liability of GBP3.8 million (GBP2.7 million) having been established using a discount rate of 14%. The current total estimated cash outflow is $4.1 million (GBP3.0 million). Since acquisition, payments totalling $1.5 million (GBP1.1 million) have been made and the remaining deferred liability is $2.6 million (GBP1.9 million), or $2.4 million (GBP1.7 million) when discounted at a rate of 14%.
11. Other Intangible assets
Brand Intellectual Customer Development Software Name Property contracts expenditure licences Total GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 ========================== ======== ============= =========== ============= ========== ======== Cost At 1 July 2016 (audited) 3,269 14,142 8,290 3,456 1,044 30,201 Additions - - - 2,564 582 3,146 Exchange movement - - - 184 37 221 At 30 June 2017 (audited) 3,269 14,142 8,290 6,204 1,663 33,568 Additions - - - 1,161 188 1,349 Exchange movement - - - 53 12 65 At 31 December 2017 (unaudited) 3,269 14,142 8,290 7,418 1,863 34,982 ========================== ======== ============= =========== ============= ========== ======== Accumulated amortisation At 1 July 2016 (audited) 680 2,751 1,869 693 137 6,130 Charge for the year 276 1,452 766 1,183 396 4,073 Exchange movement - - - 24 11 35 At 30 June 2017 (audited) 956 4,203 2,635 1,900 544 10,238 Charge for the year 136 706 367 870 240 2,319 Exchange movement - - - 18 5 23 At 31 December 2017 (unaudited) 1,092 4,909 3,002 2,788 789 12,580 ========================== ======== ============= =========== ============= ========== ======== Net book value at 31 December 2017 (unaudited) 2,177 9,233 5,288 4,630 1,074 22,402 ========================== ======== ============= =========== ============= ========== ======== Net Book value at 30 June 2017 (audited) 2,313 9,939 5,655 4,304 1,119 23,330 Net book value at 30 June 2016 (audited) 2,589 11,391 6,421 2,763 907 24,071 ========================== ======== ============= =========== ============= ========== ========
12. Contingent consideration
Blancco Xcaliber Tabernus Blancco Blancco Sweden France Mexico Total GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 =========================== ======== ========= ========= ======== ======== ======== At 1 July 2016 (audited) 177 2,180 1,347 110 330 4,144 Unwinding of discount factor on contingent consideration - 138 82 - - 220 Revaluation of contingent consideration - (133) (300) 1 (8) (440) Payment of contingent consideration (177) (475) - - (322) (974) ============================ ======== ========= ========= ======== ======== ======== At 31 December 2017 (unaudited) - 1,710 1,129 111 - 2,950 ============================ ======== ========= ========= ======== ======== ========
In August 2017, GBP0.2 million (EUR0.2 million) was paid in respect of Blancco Sweden as part of the renegotiation of the terms of the earn-out completed in August 2017. The remaining contingent consideration will be settled following collection of cash from contracts which comprised part of the earn-out value. At 31 December 2017, the fair value of the deferred contingent consideration was GBPnil. Also in August 2017, GBP0.3 million ($0.4 million) was paid in respect of the acquisition of 19% of the issued share capital in Software Blancco S.A de C.V. Following the disposal of this business in January 2018, all obligations from the acquisition of the previous 19% were extinguished. The fair value of the payment obligations at the balance sheet date was GBPnil.
All contingent consideration is current except for GBP0.7 million in respect of Xcaliber. The contingent consideration with respect to Tabernus is payable in cash or shares at the Group's discretion.
Deferred consideration for Tabernus, Xcaliber and Blancco France have been revalued as the consideration is payable in non-Sterling currencies, resulting in a non-cash credit to the Group Income Statement of GBP0.2 million. The deferred consideration for Tabernus was also revalued to fair value resulting in a non-cash credit of GBP0.2 million.
13. Subsequent events
On 18 January 2018, the Group completed the disposal of its holding of 70% of the issued share capital of Software Blancco S.A. de CV for a consideration of $0.5 million (GBP0.4 million). The entity will become a distributor of Blancco products in the LATAM region going forward.
14. Cautionary statement
This document contains certain forward-looking statements with respect to the financial condition, results, operations and businesses of Blancco Technology Group plc. These statements and forecasts involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future. There are a number of factors that could cause the actual result or developments to differ materially from those expressed or implied by these forward looking statements and forecasts. Nothing in this document should be construed as a profit forecast.
Glossary
Active Erasure (data erasure): Data erasure within active computer applications, including servers and networks of computers. The main application is for data that has expired on systems or where unnecessary duplication of data exists, and to provide selective erasure of that data.
Adjusted Cash Conversion: Adjusted Operating Cash Flow stated as a percentage of Adjusted Operating Profit.
Adjusted Earnings Per Share: Adjusted earnings are stated before amortisation or impairment of acquired intangible assets and development costs capitalised, amortisation of bank fees, exceptional restructuring costs, acquisition costs, share-based payments, losses on disposals of investments and jointly controlled entities, unwinding of the discounted contingent consideration, adjustments to estimates of contingent consideration, and tax impacts of the above. 'Adjusted earnings per share' is the key earnings per share measure used by the Board.
Adjusted Operating Cash Flow or AOCF: Operating cash flow excluding taxation, interest payments and receipts, acquisition costs, and exceptional restructuring costs. This measure excludes capital expenditure. This is the key operating cash flow measure used by the Board to assess the underlying cash flow of the Group.
Adjusted Operating Profit or AOP: Operating Profit stated before acquisition costs (because these are one off in nature), exceptional restructuring costs (because these are not considered to reflect the underlying performance of the Group's operating business), share-based payment charges (because these represent a non-cash accounting charge for long term incentives to senior management rather than the underlying operations of the Group's business), Amortisation or impairment of acquired intangible assets (because these are non-cash charges arising as a result of the application of acquisition accounting, rather than core operations), the non-cash amortisation charge of development expenditure capitalised (because this does not reflect an ongoing cash outflow of the Group), and disposal of subsidiaries (because these represent a one off non-cash charge to the Consolidated Income Statement).
APAC: The Asia Pacific region.
Basic Earnings Per Share: Profit after tax attributable to the equity holders of the Company, stated per share.
Capital Expenditure: Expenditure on property, plant and equipment, intangible assets, and capitalised R&D.
Contingent Consideration: A future cash payment for vendors of acquired companies, contingent on that company's performance in a pre-determined period after acquisition. This is recorded within the balance sheet and reassessed at each reporting period.
Constant Currency Basis: The results of the Group when translating the performance of foreign operations into Sterling at the foreign exchange rates observed in the prior period. This allows comparison of like-for-like results with the elimination of foreign exchange rate fluctuations.
Corporate Costs: Costs incurred centrally for the benefit of the Group as a whole and which cannot be allocated to specific divisions or subsidiaries.
Digital Care: Part of the Aftermarket Services segment (but not the Repair Services Business) which operated in the mobile phone insurance market. Also referred to as the mobile insurance business.
Diluted Adjusted Earnings Per Share: Adjusted earnings per share stated after adjustments to the number of shares for share options.
Diluted Earnings Per Share: Basic earnings per share stated after adjustments to the number of shares for share options.
Earn-out: See 'Contingent Consideration'.
File Eraser: File erasure to permanently remove files on PC computers, laptops and servers
Forward Contracts (currency hedging): A mechanism for fixing the future exchange rates for known and committed cash flows in order to mitigate the exposure of the Group to movements on exchange rates for these cash flows.
Gross Debt: The total external borrowings of the Group, net of capitalised bank fees.
LATAM: The Latin America region.
M&A: Mergers and acquisitions. This is the Group's activity in relation to acquisitions of other companies, both to full and part ownership.
Management Console: A customer tool to manage data erasure licences and give complete visibility of erasure activities.
Net Cash: Cash stated after offsetting gross debt against cash reserves.
Non-controlling interest: The Group does not fully own some of its subsidiaries, and for those in which the ownership is shared, the other party is the 'non-controlling interest'. This is relevant for all subsidiaries in which the Group owns (directly or indirectly) between 50% and 99% of the share capital; in the current and prior period these are only entities covering some of the Blancco sales offices. At the end of each reporting period, the Group must allocate to the non-controlling interest, its share of profits and net assets in the subsidiary in which ownership is shared, which are recorded through the Consolidated Income Statement and Consolidated Balance Sheet respectively.
OEM: An 'Original Equipment Manufacturer'.
Operating Cash Flow: Cash flows originating from transactions in the core operational activities of the Group, for example cash flows resulting from revenues earned and expenditure paid. This excludes cash flows relating to investing or financing activities.
Operating Margin: Operating profit stated as a percentage of revenue.
R&D: Research and development into new technologies to improve client service, reduce costs or enhance revenue.
Repair Services Business: Part of the Aftermarket Services segment which was disposed of on 4 April 2016 to Communications Test Design Inc. for a consideration of EUR103.5 million (GBP79.9 million). This represents the Group's previous Depot Solutions and Advanced Solutions divisions, excluding the mobile insurance business, Digital Care.
Solid State Drive (SSD): A location for storing data on a platform comprised of microchips, typically in a PC or a laptop.
Subscription (revenue stream): Contracts with customers which are for a fixed term, typically one to three years.
Volume (revenue stream): Contracts with customers which involve an upfront delivery of licences, and typically no additional obligations to the customer.
Working Capital: A measure of the Group's current liquidity by showing how much cash has been invested in day to day trading. Working capital is the sum of stock, current debtors, accrued income, current creditors and accrued payments.
This information is provided by RNS
The company news service from the London Stock Exchange
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