5th Mar 2008 07:00
Regenersis PLC05 March 2008 Regenersis Plc (formerly Fonebak Plc) - Interim Reportfor the six months ended 31 December 2007 Business Highlights Regenersis plc ("Regenersis" or the "Group") (LSE: "RGS"), a leading provider ofproduct lifecycle management services to the consumer and commercial technologymarkets, is pleased to announce interim results for the six month period ended31st December 2007. Operational Highlights • Restructuring Plan yielding positive results • Unprofitable areas of the business divested • Syndication of banking facilities now completed • Smaller, compact Group now well positioned for long term growth • Core strategic shift towards end-to-end product lifecycle management • Combining technical and environmental excellence • Contract wins exceed £25.0m; £6.0m incremental • Rebrand from Fonebak to Regenersis marks next phase in our plan • Focus now is profitable growth, delivered through investment in and marketing of our new capabilities • Sales pipeline is building Financial Highlights • Group revenue increased by 42% to £55.0m (2006: £38.7m) • Headline profit increased to £2.8m (2006: Headline Loss £0.3m) • Profit before tax increased to £1.6m (2006: Loss before tax £0.5m) • Significant increase in cash generated from operations at £7.9m (2006: £3.9m) • Net debt markedly improved to £3.9m (June 2007: £10.9m) from a peak in February 2007 of £16.5m Commenting on the results Regenersis Chief Executive Officer, Gary Stokes,commented: "I am pleased to be able to report that the Group has responded well and quicklyto the restructuring and reinvigoration of our business. The Group as a wholehas made a good start to the second half and, allied to the strong performancein the first half, the Board is positive about the outlook for the year as awhole. "With an improving sales pipeline and profitable operations in all our keytarget markets and territories, the Group is well placed to take the next step.We will now focus on driving growth through more aggressive and targetedmarketing capability." For further information please contact: Fonebak plc 01865 471900Gary Stokes Chief ExecutiveDavid Kelham Chief Financial Officer KBC Peel Hunt Ltd (Nominated Advisor and Broker) 020 7418 8900Jonathan Marren / Oliver Stratton Financial Dynamics 020 7831 3113Ed Bridges / Matt Dixon Operating Review A period of solid progress In the last twelve months emphasis has been on the necessary restructuring ofthe Group's activities as a result of the trading difficulties in Fonebak. Themanagement team, appointed following the acquisition of CRC in January 2007,subsequently conducted a full operational review of the business. The review highlighted four fundamental challenges to address: the decline inFonebak margins caused by a shift away from revenue share contracts; theexcessive dependency for outbound sales on a single customer; the losses beingincurred by the Fonebak repair facilities; and the significant reduction ofworking capital necessary to address excessive levels of debt. The retention ofour key clients was identified as a priority, particularly through this periodof transition. The subsequent recovery programme included the closure of sites in Barnet andStoke, the downsizing and retraining of a low-cost refurbishment facility inRomania, the termination of non-profitable contracts and the cessation of themobile phone trading activities. In addition the outbound sales network has beendeveloped and new sales channels opened. As a result of these actions, there has been a significant improvement infinancial position of the Group. For the first half of this year, the Grouprecorded a headline profit of £2.8m (2006: loss of £0.3m) on sales of £55m(2006: £38.7m). Cash generation has been strong and net debt has now reduced to£3.9m, from its peak in February 2007 of £16.5m. It has been particularly pleasing that our efforts to improve our customerservice and build stronger relationships with our clients have led to a numberof recent successes. Since we last reported results in September, contractsworth in excess of £25m a year have been won. Of these, £6.0m is incrementalrevenue with the balance relating to renewals. The progress over recent months has been considerable. The Group is now asmaller, more compact business, but with a good position in each of its retainedbusinesses. Profits and cash flow are much improved and the Group recentlycompleted the syndication of its banking facilities. The business is now in amuch better position from which to move forward. Our change of name to Regenersis, following shareholder approval, is significantin that it marks a transition to the next stage of our recovery programme:namely the integration and proactive marketing of our capabilities under acommon brand, message and purpose. Ongoing strategy Having repositioned the business, Regenersis is now a leading provider ofmanaged services to many of the premier brands in the consumer and commercialtechnology markets. In the twelve months to 31st December 2007 the Group managedover 7 million service events on behalf of our clients. We regularly interfacewith end-users through our contact centres, web enabled services, walk incentres and service points. A positive experience of our business is essentialto the preservation of our client's brand reputation and investment. The services we provide support the full product life cycle; from originaldesign input, pre-sale testing, local customisation and configuration through tofield support activities that include technical assistance as well as productrepair, replacement and refurbishment programmes. The timely and cost effectiveexecution of these services is imperative to our clients. If a mobile phone orset top box is not functioning, this leads to lost revenue for our clients andthe risk of long term, negative consequences of churn and brand switching. At the end of the product's life we will take that product back and whereappropriate match it to a need in a secondary market, thereby extending theuseable life of the product and creating value for our clients. If that productis beyond use we ensure it is recycled; recover its components and materials andput them back into productive use. We do this in a way that ensures we complywith the most demanding of standards and provide the necessary evidence notes.Our environmental WEEE licenses and end-to-end auditable systems differentiateus from our competitors and provide assurance to our clients. By protecting our clients' brand we create value and interdependence. As abusiness our strategy is to market this capability proactively and develop ourposition as a strategic partner within our core clients. There is scope for usto do much more with our skill and knowledge base. This is a market that isstill young, fragmented and underdeveloped. It offers opportunity for a creativeand well-run business. Our strategy is to exploit that opportunity. Regenersis: progress by segment Regenersis today is a new, refocused business. Our aim is to offer a complete,end-to-end suite of product lifecycle management services structured around keymarkets across Europe. Today's company comprises the former CRC businesses, acquired by Fonebak Groupin 2007, which provide a range of services focused on product warrantyprogrammes including technical repairs and associated activities. It alsocomprises the old "Core" Fonebak services including product take back andrecycling as well as insurance related product replacement schemes. Product repair services UK The UK as a whole has traded well despite the impact of the previously announcedlower volumes in Nottingham. Glenrothes has recently received confirmation ofthe award of new business with UPC, a Netherlands based cable operator. Thecontract is significant in that it marks our first with a major Europeanoperator. The site has also been awarded sole supplier status with Virgin Mediato support their set top box programme for the UK. Both these contracts aresignificant and include accreditations to support new technologies and OEM's. The closures of Barnet and Stoke were completed with the minimum of disruption.The principal motivations for closure were the termination of unprofitablecontracts and the elimination of excess capacity. Business with DSGi and Orangehas been retained and relocated to other UK sites and will provide furtherdevelopment opportunities for the future. Germany In Germany activity has been considerable. Compared to 2006 the number ofservice events has more than doubled. The combination of a highly skilledworkforce and good technical facilities has led to further success in the highsecurity financial services sector where we have won new business with themarket leaders. The new facilities in Eastern Germany are now in full operation and making animportant contribution. Negotiations are currently under way to contractadditional space as we start to introduce new clients. At the main Paderborn site, union negotiations have made good progress and a newtariff agreement has recently been concluded which will improve the cost base;the benefits of which will become evident in the 2008/9 financial year. The Epson hub established for the German and Austrian markets is now up andrunning and trading well. The development of the customer base also includesrecent contract wins with Tyco and Daimler as we enter the industrial market andUniwill, a Chinese OEM manufacturing notebooks for Fujitsu Siemens. Eastern Europe In Eastern Europe the facility in Warsaw continues to break all previous recordsfor output with volumes increasing by 25%. Short-term actions have been taken toincrease capacity, however, given demand a longer-term solution is stillrequired and a number of options are under consideration. The Romanian facility, previously under threat of closure, has been retainedfollowing actions taken in the summer to reduce the cost base. Sony Ericsson hasnow accredited the facility for repair work and a programme to ramp up capacityis underway. Environmental services In line with our recovery programme, the shift in emphasis saw the outboundsales of mobile phones on revenue share contracts increase 16% over the periodto 1.3m units. Despite a market expectation that sales prices would fall, ourexperience has been that, year-on-year, they have held up well and margins haveincreased. There has also been a concerted focus on the clearance of surplus phone stockswritten down in the first half of 2006. Since this exercise started in 2007,over 600,000 phones have been cleared from stock. With our forward emphasis now shifting to business development, more resource isbeing recruited into the client facing activities. The benefit of this isalready coming through with contract wins covering such iconic products asiPhone and Blackberry as well as leading network operators such as O2. We have previously referred to our desire is to have a more direct route to ourkey markets. To this end we recently established a sales presence in Hong Kong;the results so far are positive and we will now look to assess the merits ofother markets. Continental Europe has been a consistent challenge for us and whilst the marketis well established it is significantly different to the UK. Generally mobilemarkets in these countries are not subsidised so heavily by the Operators and,as a consequence, the product we receive is typically older and of a lowerspecification. On average, phones collected in the UK sell for twice the valueof those from Europe. Recognising these structural differences, we are currently in negotiation toestablish a vertically integrated 'in-country' solution that combines theinbound, processing and outbound sales activities. We expect to have our firstfacility in France up and running by the end of the current financial year. Finally, the market for insurance related services provides another opportunityfor the Group to develop. This part of our business, previously branded as IntecDistribution, has recently concluded an agreement with T-mobile in the UK thatwill support significant growth into the next financial year. There is also asmall project starting in support of an existing client that will be our firstforay into the International market. Encouraging financial performance Sales for the six months ended 31st December 2007 were £55.0m, including acontribution from the acquired CRC Group of £31.1m. Sales for the prior yearperiod, which excluded CRC, were £38.7m, including sales of £5.3m frombusinesses subsequently closed. On a like-for-like basis therefore, Fonebaksales declined by a net £9.5m, but almost entirely as a result of the Board'sdecision to terminate the loss making mobile phone trading activities. The actions taken over the past six months have delivered an immediateimprovement in profitability. Headline profits were £2.8m for the six months to31st December 2007, compared to a loss of £0.3m for the equivalent prior yearperiod. This year-on-year improvement reflects the benefits from the completion of ourrestructuring efforts. The operations in Stoke and Barnet were closed early in2007 and losses in Romania have been much reduced. The mobile phone remarketingand recycling activities have been trading at lower volumes but focused on moreprofitable revenue share contracts. The combination of these actions hasresulted in an improvement in the profitability of the original Fonebakbusinesses by £1.8m. The former CRC businesses, which are not included in the prior year numbers,have contributed an additional £2.8m in the period. Each territory has traded ata profit, which means that all the principal activities of the Group are makinga positive contribution. After deducting corporate and other shared costs the net improvementyear-on-year is £3.1m. For the purposes of comparison the headline Group profitfor the six months to 31st December 2006, had the results of CRC been included,would have been £0.8m. On this basis the underlying profit improvementyear-on-year would have been £2m. Significant balance sheet improvements Significant progress continues to be made in the management of the Group'sfinances. In the six months to 31st December 2007 the Group generated net cashinflows of £7.9m (2006: £3.4m) from operating activities, more than the totalfor the whole of the previous year. The improved trading position allied to a continued focus on the management ofworking capital has led to a reduction in the Group's net debt from £10.9m at30th June 2007 to £3.9m as at 31st December 2007 (2006: £3.9m). Virtually allthe cash generated has therefore been applied to the reduction of the Group'sborrowings. The Group has also recently completed the successful syndication of its bankingfacilities, despite the challenging debt market, and now has a more appropriatefinancing structure in place to support the ongoing business. Exceptional costsof £0.4m in respect of loan fees connected with the acquisition of CRC inJanuary 2007 have now been written off. Despite the much improved trading and financial position of the Group theDirectors are unable to consider a dividend at this time given past losses.However, with significant reserves in the share premium account the Board iscurrently considering whether the surplus can be converted to distributablereserves. Outlook The Group as a whole has made a good start to the second half and, allied to thestrong performance in the first half, the Board is positive about the outlookfor the year as a whole. As noted already the main site in Glenrothes has made significant progress in ashort space of time. The recent contract wins with first UPC and Virgin Mediaare demonstration of our capability and will provide the volume the site needsto continue its development. As such a number of uncertainties anticipated inour Trading Update of 21 December 2007 are being resolved positively. With an improving sales pipeline and profitable operations in all our keymarkets and territories, the Group is well placed to take the next step. Therebranding of the Group marks the turning point as the recovery phase shifts toone with greater emphasis on growth and more aggressive marketing of ourcapabilities. Cautionary statement This announcement contains certain forward-looking statements with respect tothe financial condition, results, operations and businesses of Regenersis Plc.These statements and forecasts involve risk and uncertainty because they relateto events and depend upon circumstances that will occur in the future. There area number of factors that could cause the actual results or developments todiffer materially from those expressed or implied by these forward lookingstatements and forecasts. Nothing in this announcement should be construed as aprofit forecast. G M Stokes Chief Executive Officer D W Kelham Chief Financial Officer Consolidated Income StatementSix months ended 31 December 2007 Note Six months Six months Year ended 30 ended 31 ended 31 June 2007 December 2007 December (restated under (unaudited) 2006 IFRS) (unaudited) £'000 £'000 £'000Revenue 54,990 38,678 96,130 Headline profit /(loss) 2 2,845 (311) (324) Exceptional goodwill impairment - - (6,581)Amortisation of acquired intangible asset (205) - (171)Exceptional restructuring costs (34) - (3,133)Share based payments (46) (65) 124 Operating profit/(loss) 2,560 (376) (10,085)Net financing costs (556) (156) (646)Exceptional finance charge 3 (406) - -Profit/(loss) before tax 1,598 (532) (10,731)Taxation 4 (576) 59 670Profit/(loss) for the period 1,022 (473) (10,061) Profit/(loss) per share - basic 5 3.61p (2.46)p (45.70)pProfit/(loss) per share - diluted 5 3.61p (2.46)p (45.70)p Headline profit/(loss) per share - basic 5 5.58p (2.13)p (5.63)pHeadline profit/(loss) per share - diluted 5 5.58p (2.13)p (5.63)p Consolidated Statement of Recognised Income and ExpenseSix months ended 31 December 2007 Six months Six months Year ended 30 ended 31 ended 31 June 2007 December December (restated under 2007 2006 IFRS) (unaudited) (unaudited) £'000 £'000 £'000Exchange adjustment 584 (1) -Cash flow hedge (281) - 248Tax on items taken directly to equity 84 - (74)Net income recognised directly to equity 387 (1) 174Profit/(loss) for the period 1,022 (473) (10,061)Total recognised income and expenses relatingto the period 1,409 (474) (9,887) Consolidated Balance SheetAs at 31 December 2007 Note Six months Six months Year ended 30 ended 31 ended 31 June 2007 December December (restated under 2007 2006 IFRS) unaudited) (unaudited) £'000 £'000 £'000AssetsNon-current assetsGoodwill 23,978 19,214 23,978Other intangible assets 1,981 112 2,121Property, plant and equipment 2,429 628 2,425Deferred tax 744 32 600 29,132 19,986 29,124Current assetsInventory 3,471 5,290 6,079Trade and other receivables 11,566 6,759 16,411Current tax asset 727 5 1,287Derivative and financial instruments - 33 281Cash and cash equivalents 6,101 643 9,072 21,865 12,730 33,130Current liabilitiesBorrowings - (1,623) (5,536)Trade and other payables (24,456) (12,673) (27,632) (24,456) (14,296) (33,168) Net current liabilities (2,591) (1,566) (38)Total assets less current liabilities 26,541 18,420 29,086Non-current liabilitiesBorrowings 8 (10,000) (2,949) (14,000) (10,000) (2,949) (14,000)Net assets 16,541 15,471 15,086 EquityOrdinary share capital 566 384 566Share premium 25,304 15,076 25,304Hedging reserve - 23 197Translation reserve 584 (1) -Retained earnings (9,913) (11) (10,981)Total equity 16,541 15,471 15,086 Consolidated Cash Flow StatementSix months ended 31 December 2007 Note Six months Six months Year ended 30 ended 31 ended 31 June 2007 ecember 2007 December (restated under (unaudited) 2006 IFRS) (unaudited) £'000 £'000 £'000Profit for the period 1,022 (473) (10,061)Adjustments for:Finance charges 556 156 646Tax expense 492 (59) (611)Depreciation on property, plant and equipment 723 166 964Amortisation of intangible assets 106 40 318Amortisation of acquired intangible assets 205 - 171Impairment of goodwill - - 6,581Exceptional finance charge 406 - -Loss on disposal of intangible assets 26 - -Share-based payment expense 46 65 (124)Operating cash flows before movement inworking capital 3,582 (105) (2,116)Decrease/(increase) in inventories 2,764 2,824 4,759Decrease/(increase) in receivables 4,879 (1,837) 2,249(Decrease)/increase in payables (3,228) 2,996 3,404Cash flows from operating activities 7,997 3,878 8,296Tax paid (77) (468) (600)Net cash from operating activities 7,920 3,410 7,696 Cash flows from investing activitiesPurchase of property, plant and equipment (727) (131) (496)Purchase of intangible assets (197) - (158)Proceeds from disposal of property, plant &equipment - - 7Interest received 84 58 175Acquisition of subsidiary - (406) (14,044)Cash acquired with subsidiary - - (1,302)Deferred consideration in respect of previous (2,442) (2,682)acquisition -Net cash used in investing activities (840) (2,921) (18,500) Cash flows from financing activitiesDividends paid 6 - (192) (192)Interest paid (374) (178) (785)Proceeds from issue of share capital - - 10,004Costs associated with issue of shares - - (787)New borrowings - - 19,500Repayment of borrowings (9,500) (600) (9,365)Repayment of finance leases - (13) (70)Net cash used in financing activities (9,874) (983) 18,305 Net increase in cash and cash equivalents (2,794) (494) 7,501Other non cash movements 257 - -Cash and cash equivalents at the beginning of 8,638 1,137 1,137yearCash and cash equivalents at end of year 6,101 643 8,638 Notes to the Interim Report 1. Basis of preparation This Interim Report has been prepared in accordance with the accounting policiesexpected to be applied in the financial statements for the year ending 30 June2008 by the Regenersis Plc Group ("the Group") under International FinancialReporting Standards (IFRS) for the first time. All IFRS and InternationalAccounting Standards ("IAS") and interpretations currently endorsed by theInternational Accounting Standards Board ("IASB") and its committees as requiredto be adopted by AIM listed companies have been applied. The Group previously reported under UK Generally Accepted Accounting Principles("UK GAAP"). A reconciliation from the previously reported UK GAAP results andfinancial position to those under IFRS has been prepared as at the transitiondate to IFRS, 1 July 2006, and for the subsequent periods for the six monthsended 31 December 2006 and the year ended 30 June 2007, was published on 5February 2008. The figures for the year ended 30 June 2007 are based upon the Group's auditedaccounts prepared under UK GAAP at that date and adjusted under IFRS. Thestatutory accounts for the year ended 30 June 2007 have been delivered to theRegistrar of Companies. The Auditors' report on those accounts was unqualifiedand did not contain a statement under Section 237(2) or 237(3) of the CompaniesAct 1985. This unaudited Interim Report was approved by the Board of Directors on 4 March2008. 2. Headline profit "Headline profit" is the key profit measure used by the Board to assess theunderlying financial performance of the operating divisions and the Group as awhole. "Headline profit" is stated before amortisation of acquired intangibleassets, goodwill impairment charges, exceptional restructuring costs and sharebased payments. 3. Exceptional finance charge The exceptional finance charge of £406,000 arises in respect of loan feesconnected with the acquisition of CRC Group plc in January 2007. On completionof the Group's new banking facilities in September 2007 the costs previouslycarried forward have been written off in full. 4. Taxation The tax charge for the six months ended 31 December 2007 is based in theestimated tax rate for the full year in each jurisdiction. The tax charge forthe period includes a tax credit of £122,000 in relation to the exceptionalfinance charge amortised in the period. 5. Earnings per share Six Six Year Months Months ended 30 ended 31 ended 31 June December December 2007 2007 2006EPS Summary Pence Pence PenceBasic EPS 3.61p (2.46)p (45.70)pDiluted EPS 3.61p (2.46)p (45.70)pAdjusted EPS 5.58p (2.13)p (5.63)pDiluted adjusted EPS 5.58p (2.13)p (5.63)p An adjusted earnings per share has also been presented, which the Directorsconsider gives a useful additional indication of the Group's performance. Theeffects of the adjustments are as follows: Six Six Year Six Six Year months months Ended months months ended 30 ended 31 ended 31 30 ended 31 ended 31 June December December June December December 2007 2007 2006 2007 2007 2006 Pence per Pence per Pence per £'000 £'000 £'000 share share shareProfit/(loss) for the period 3.61p (2.46)p (45.70)p 1,022 (473) (10,061)Reconciliation to adjusted profit:Exceptional goodwill impairment - - 29.89p - - 6,581Intangible asset amortisation 0.72p - 0.78p 205 - 171Exceptional finance charge 1.00p - - 284 - -Exceptional restructuring costs 0.09p - 9.96p 24 - 3,133Share based payments 0.16p 0.33p (0.56)p 46 65 (124) Adjusted profit 5.58p (2.13)p (5.63)p 1,581 (408) (300) Number of shares ('000) Six Six Year months months ended 30 ended 31 ended 31 June December December 2007 2007 2006 '000 '000 '000Weighted average number of shares used 28,343 19,200 22,015to calculate basic earnings per shareDilutive share options - - -Number of shares used to calculate 28,343 19,200 22,015diluted earnings per share The Group does not currently have any dilutive options. The 2,150,000 sharesissued to the Employee Benefit Trust on 26 July 2007 at 55.5p are included inthe basic earnings per share calculation. 6. Dividends No interim dividend is proposed in respect of the six months to 31 December2007. A final dividend in respect of the year ended 30 June 2006 of 1.0 penceper share, totalling £192,000, was paid on 27 December 2006. 7. Net debt 31 December 31 December 30 June 2007 2007 2006 (restated under (unaudited) (unaudited) IFRS) £'000 £'000 £'000Cash and cash equivalents 6,101 643 9,072Overdrafts - - (434)Unamortised loan fees - - 406Bank borrowings - current - (1,600) (5,500)Bank borrowings - non-current (10,000) (2,900) (14,000)Finance leases - (72) (8)Interest rate swap - 33 281Net debt (3,899) (3,896) (10,183) 8. Borrowings The Group concluded the reshaping of its banks facilities with KBC Bank NV on18th September 2007. Originally the facility of £25m was structured as a £17.5mterm loan, repayable by ten, 6 monthly, equal instalments of £1.75m, commencingon 30th September 2007 and a £7.5m Revolving Credit Facility ("RCF"). The facility is now structured completely as a RCF facility which reduces by£1.75m each 6 months commencing on 30th September 2007. As at 31 December 2007 the facility available to the Group was £23.25 million ofthis £10 million was drawn down in cash and £5 million in letter of creditsresulting in an unutilised facility of £8.25 million. Following the completion of the syndication in February 2008, which saw RoyalBank of Scotland take on a share of the facility, the Group has voluntarilyreduced the facility with its banks to £18.25 million as the £5 million letterof credits are no longer required. The Group will continue to review thefacility available and make additional repayments where appropriate. 9. Copies of the Interim Statement Further copies of the Interim Report are available from the registered office, 4Elm Place, Old Witney Road, Eynsham, Oxfordshire, OX29 4BD This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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