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
END
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