Preliminary Results

RNS Number : 6914S

Regenersis PLC

15 September 2010

 

15 September 2010

Regenersis plc

 

Preliminary results for the year ended 30 June 2010

 

Regenersis plc (LSE: "RGS") ("Regenersis" or the "Group"), a strategic outsourcing partner to many of the world's leading consumer technology companies, is pleased to announce preliminary results for the year ended 30 June 2010.

 

Operational Highlights

·; Regenersis 'go-to-market' proposition now fully implemented

o Three divisions established - Mobile Communications, Media & Entertainment and Information Technology

·; TRS acquisition successfully integrated and benefits starting to show through

o Recent business wins include LG, DHL and O2

·; Foundations for growth in place

o Complementary service lines increasing client penetration and retention

·; Mobile, connective and convergent technology markets proving strong

 

Financial Highlights

·; Group revenue increased 18% to £116.4 million (2009: £98.3 million)

o Includes £18.4 million contribution from TRS

·; Headline operating profit(*) increased 11% to £5.7 million (2009: £5.2 million)

o Includes £0.7 million contribution from TRS

o Demand for recycling and end-of-life services, as expected, continued to contract

o Underlying growth in all three divisions with good future prospects

·; Operating cash flow up £5.0 million with full year inflow of £2.1 million (2009: £2.9 million outflow)

·; Net debt position further improved to £4.0 million (2009: £4.3 million)

o The Group continues to operate well within its facilities and covenants

 

(*) Headline operating profit excludes exceptional restructuring costs, amortisation of acquired intangible assets and share-based payments

 

Regenersis' Non-Executive Chairman, Jeff Hewitt commented:

 

"I am pleased with the further progress we have made this year, both financially and operationally. TRS is meeting our expectations and all three of our divisions have increased their profitability this year. Thanks to this progress, our Group is now pursuing a strategy for sustainable growth from an increasingly solid foundation. Whilst conditions in the consumer markets continue to be uncertain we have strengths in each of our key markets. Performance in the current year has started in line with our expectations and, at this stage, is ahead of the equivalent period in the prior year.

 

For further information please contact:

 

Regenersis plc +44 (0)1865 471900

Gary Stokes, Chief Executive Officer

Jeremy Wilson, Chief Financial Officer

Arden Partners plc +44 (0) 121 423 8900

Steve Douglas

 

FD +44 (0)20 7831 3113

Matt Dixon / Nicola Biles / Charles Palmer

About Regenersis

Regenersis is a strategic outsourcing partner to many of the world's leading consumer technology companies. We provide a comprehensive range of innovative and integrated customer support solutions for our clients' products, helping them protect the one asset that matters most: the integrity and reputation of their brands. By combining our in-depth knowledge of the technology markets with an unrivalled technical expertise, Regenersis offers clients an effective, efficient and responsible route to building lasting and valuable relationships with their customers.

 

Chairman's Statement

 

A Year of Further Progress

I am pleased to report that this has been a year of further progress for the Group.

 

In the last twelve months we have completed the acquisition of TRS and integrated that business quickly and successfully. The Board has finalised and communicated its strategy for the enlarged Group and has already enacted the first phase of implementation. To better fulfil the needs of our customers and drive more value from our relationships across Europe the Group has realigned its core client and technology base into three new, vertically integrated businesses focused on the Mobile Communications, Media & Entertainment and Information Technology markets.

 

Regenersis has combined its technical and environmental expertise into a cohesive, full service sales proposition for each of our served markets. The Group is making exciting progress in the development of new technology platforms and has good growth prospects in the three divisions. In the Mobile Communications division, the benefits of the TRS acquisition are now being felt and the Group's new customer-centric organisation is starting to deliver results, as demonstrated by recently announced business wins with LG, DHL and O2.

 

The last twelve months have seen an acceleration in the pace of development at Regenersis and, whilst the retail environment remains subdued across much of Europe, strong growth is expected in the medium term in the areas of internet-enabled televisions, personal computers and smartphones. Consequently, the Group is increasingly focused on these mobile, connective and convergent technologies where markets are proving stronger and better able to support Regenersis' growth ambitions.

 

Results Overview

The year to 30 June 2010 saw revenue rise 18% to £116.4 million (2009: £98.3 million) and headline operating profit, before exceptional restructuring costs, amortisation of acquired intangible assets and adjustments for share based payments, increased by 11% to £5.7 million (2009: £5.2 million).

 

TRS has been included for the ten months following completion and added £18.4 million of revenue and £0.7 million to headline operating profit. As expected, demand for recycling and end-of-life services continued to decline with revenue down £5.2 million and headline operating profit down £1.5 million to £0.5 million. The Group has ceased much of this activity and is managing the remainder to limit any negative impact. Excluding TRS and the reduced contribution from recycling and end-of-life services, the rest of the Group grew with revenue rising by £4.9 million (7%) and headline operating profit rising by £1.3 million (44%) to £4.5 million.

 

Overall, all three divisions have increased profitability this year: a positive signal as the Group continues to migrate towards a more value-added service provision.

 

Headline earnings per share of 10.57 pence (2009: 13.84 pence) and basic earnings per share of 6.89 pence (2009: 9.47 pence) reflect the expected dilutive impact of the TRS acquisition in this first year of ownership. The £6.25 million transaction cost was financed through the issue of new equity, including a placing that raised £3.3 million before expenses.

 

Net debt at the year-end has been reduced to £4.0 million, compared with £4.3 million in the previous year. This was helped by a £5.0 million improvement in operating cash flow, turning an outflow of £2.9 million in 2009 to an inflow this year of £2.1 million. Cash flows were improved in the second half when net debt reduced by £0.7 million, largely reflecting the improved performance of the Group including the contribution from TRS. Having renewed its banking facilities in 2009 in support of the TRS acquisition, the Group continues to operate well within its facilities and covenants.

 

With the acquisition of TRS completed and profitability improved, the Group's asset base has been strengthened with net assets increasing by 43% to £30.7 million.

 

Board and Employees

In anticipation of the next growth-focused stage of the Group's development, a number of management changes have recently been completed. These include the appointments of Jeremy Wilson, on 7 June 2010 as Chief Financial Officer and Sally Weatherall on 30 June 2010 as Company Secretary. The appointments follow the decisions of David Kelham and Nick Temple to stand down. Both have been valuable members of the team at Regenersis and I would like to wish them well for the future. Looking forward, Jeremy and Sally are significant additions to the team and I am sure they will bring fresh energy and impetus to the Group's future development plans.

 

This is my first opportunity since the completion of the TRS acquisition to welcome our new colleagues to Regenersis and to thank them for their valuable contribution over the last ten months. TRS has an essential leadership role to play in the development of the Mobile Communications division and I am pleased with the speed with which the teams have blended. The Group is just starting to realise the real incremental benefits of the acquisition as the teams begin to secure new business together.

 

I would also like to recognise the ongoing contribution of the management and workforce as a whole. Regenersis now employs nearly 2,500 employees across Europe and is a significant employer in many of the localities in which it operates. The Group recognises the obligations it has to these communities and will continue to work to improve the prospects for employees present and future.

 

Dividend

In considering the Group's funding position and cash resources, the Board has prioritised its continuing strategic development and investment. With the general financial and economic outlook remaining uncertain the Board considers it too early to reinstate the dividend. However, the introduction of a progressive dividend policy remains a key objective when conditions allow.

 

The Board will therefore continue to review the dividend policy in the light of the ongoing performance and prospects for the Group, our existing banking agreements and the wider financial and economic outlook.

 

Outlook

Regenersis' clients recognise the need to enhance their own service as a route to increasing sales and retaining customers. It is the Board's view that the market for outsourced services will therefore continue to grow. We remain confident of the long term strategy to grow revenue and margin by delivering differentiated and innovative quality-assured services closer to both the Group's clients and the end-consumer.

 

Whilst conditions in the consumer markets continue to be uncertain we have strengths in each of our key markets: the Group offers the higher value-added and margin enhancing services that our clients increasingly demand. The Board is pleased to report that performance in the current year has started in line with our expectations and, at this stage, is ahead of the equivalent period in the prior year.

 

Business Review

 

A Strategy for Growth

The last twelve months has seen a transformational change in the strategy and focus of the Group. The acquisition of TRS early in the year provided the impetus to realign our activities around three core markets and drive a more customer-centric strategy.

 

Regenersis has a growing reputation for both technical and operational excellence but has not yet succeeded in leveraging that potential to maximum effect across its client base or geographical reach. In the main this reflects the priority in recent years to complete the restructuring, including the closure or relocation of ten facilities across Europe. However, with that process substantively completed and centres of excellence established in each of its core markets, the Group is able to shift its focus towards growth and the opportunities offered by its client base.

 

The fact that Regenersis is already an established supplier to many of the world's leading consumer technology brands provides the Group with strong foundations. Whilst the overall consumer market remains subdued, the key areas in which Regenersis is focused are faring better. The Group is servicing clients in the growth markets for mobile, connective and convergent technologies.

 

To leverage established relationships and knowledge, the team has integrated Regenersis' service offerings for these core markets in Mobile Communications, Media & Entertainment and Information Technology. By doing so, the Group is now able to more closely align itself with its clients, recognising their specific service needs and deploying Regenersis' experience and knowledge to mutual benefit.

 

As the trend to outsource non-core services continues apace, Regenersis' clients are increasingly aware that service excellence is fundamental to their customer retention and brand loyalty. Demand is therefore increasing for innovative, robust and quality assured outsource partners capable of consolidating complex reverse supply chains across a broad geographical remit. Regenersis is now aligned with these market opportunities and better able to address the needs of its clients.

 

Strong Platform Now in Place

The Group has built an established and sustainable revenue base which underpins current performance and future growth plans. Across the Group over 65% of revenues are derived from customers that Regenersis has partnered with for more than five years. This longevity is indicative of the quality of service, reputation and business continuity of Regenersis' operations. The Group has also been able to attract new clients to this established base.

 

Improving the quality and consistency of earnings is a key objective and the Group has built a strong defensive proposition that creates inter-dependency with its clients and establishes barriers to competition. The Group has also consistently and carefully managed cost, particularly in making use of lower cost geographies whilst maintaining a high quality of service.

 

As well as building long term relationships, the Group has also been addressing the potential commercial risks implicit from over-reliance on a relatively small number of clients. The Group has consequently expanded its portfolio of clients and services and its ten largest clients now account for 68% of revenue, compared with 77% two years ago. As importantly, whilst Regenersis' largest customer accounts collectively for 13% of revenue (2009: 15%), this revenue is dispersed across multiple services and delivery points, highlighting the significant client penetration of the Group's offering. The fact that these services are such an essential part of our clients customer care programme allied to the longstanding nature of our relationships provides increased confidence in the forward visibility of the business.

 

It is essential that our progress is maintained if we are to deliver sustainable profit growth. This means building capability that offers significant added value, further improves Group margins and differentiates our offering in clients' minds. An example of this is our investment in automated test development in the Media & Entertainment division. Such pioneering services will leverage Regenersis' ability to innovate and combine operational excellence and support through intimate customer relationships. In the last year, revenue derived from such value-added services has increased and it is our expectation that this trend will accelerate in future years.

 

Market Focused Organisation

To leverage the many opportunities that we see within the Group's technology and client base, the activities of the Group have been reorganised into three vertically integrated divisions in Mobile Communications, Media & Entertainment and Information Technology.

 

Segment	Revenues		Headline Operating Profit
	2010 £m	2009 £m	2010 £m	2009 £m
Mobile Communications	77.2	60.3	5.3	5.1
Media & Entertainment	20.1	21.1	2.3	2.2
Information Technology	19.1	16.9	0.8	0.1
Total Divisional	116.4	98.3	8.4	7.4
Corporate Costs	-	-	(2.7)	(2.2)
Total Group	116.4	98.3	5.7	5.2

 

All of these markets are forecast to grow rapidly in future years. A recent industry report predicted growth in demand for internet enabled television sets, video game consoles and set-top boxes of over 30% per year between now and 2014. The same report forecast demand for smartphones to grow by over 20% per year and personal computing by around 10% per year over the period.

 

Mobile Communications

The formation of the Mobile Communications division has brought together the activities previously described as Technical and Environmental Services. The division has made positive progress through the year both integrating the TRS acquisition and delivering the significant improvement in performance of the Eastern European operations. The division, now led by the former management of TRS, accounted for 66% of Group revenue over the last year.

 

To understand the relative contributions of these business activities to the Mobile Communications division the revenues and headline operating profits have been restated on a basis consistent with previous year's segmental analysis. Technical Services incorporated warranty management and repair related activities whilst Environmental Services incorporated revenues from recycling and end-of-life services as well as insurance fulfilment programmes. As these business streams have now been consolidated into one mobile service proposition this analysis will not be relevant for future periods.

 

	Revenues		Headline Operating Profit
	2010 £m	2009 £m	2010 £m	2009 £m
Mobile Communications
Technical Services	35.1	31.4	4.1	3.1
Environmental Services	23.7	28.9	0.5	2.0
TRS	18.4	-	0.7	-
Total	77.2	60.3	5.3	5.1

 

The Mobile Communications market represents the largest addressable sector for the Group, transformed by the rapid growth in demand for high-end smartphones. This trend, led by Apple and RIM, has attracted new entrants such as HTC, ZTE and Huawei from the Far East as well as established brands such as Nokia and Samsung. The increased complexity of the products, allied to premium pricing and aggressive competition, has generated a need for greater end-user support which, in turn, is leading to opportunities for new, higher value-added support services. This is a key target market for the future growth of the Mobile Communications division.

 

The Mobile Communications division is anticipating these changes and recently there have been notable business wins which demonstrate our wider capabilities. Earlier in the year the TRS team was awarded preferred partner status by DHL to establish a combined logistics and service proposition to target the mobile market. The first success of this new venture was announced in recent days with the co-location in a DHL hub of a service and returns centre for O2. This contract leverages the combined, complementary skills of both organisations to deliver a more cost effective and efficient solution to a mutual client. As evidence of a growing and successful relationship with O2, the award follows closely on the heels of the Platinum Customer support contract previously announced in August 2010.

 

Another recent and significant development is the Group's new contract with LG to provide first line contact centre support for LG's UK customers. This contract leverages Regenersis' technical expertise and expands on the call centre capability acquired with TRS. Earlier in the year Regenersis also secured an exclusive contract with Nokia to manage and develop its service network of 100 care points across the UK. Both these activities are enabling the Group to develop service models that are providing front line support for the end-user and that are transferable into new clients and markets.

 

In Regenersis' established market for warranty management and repairs, the Group's Polish facility has been contracted by Nokia to provide high level repair services for its pan-European network. This not only underpins current activity levels, but is also expected to provide increased future volumes as Nokia consolidates its reverse supply chain.

 

This growth in the more technical areas of the division has been balanced by decline in the demand for recycling and end-of-life services where revenues and profits continue to suffer from commoditisation of a volume-driven market with downward pressure on margin.

 

The processing of low value end-of-life equipment today offers little opportunity for the Group to generate a meaningful return. The service model has therefore been migrated away from this high volume, low margin business and more closely tied into the direct, retail and corporate sales channels of the major networks. Consequently the Mobile Communications division now has a full lifecycle service proposition backed by strong relationships with the major networks, manufacturers and distributors across Europe.

 

Most notably, in the UK, Regenersis supports the Orange Reward and Recycle programme in store and through its contact centres and web-based sales. Handsets and equipment recovered are being managed through Regenersis' refurbishment and repair operations and are being brought back into service at greater value. Other examples include the support programmes managed for insurance clients such as CPP and its corporate partners.

 

After an eventful year, Regenersis now has a clear focus in its Mobile Communications division with an organisation that has the scale, resources and proposition to grow the business across Europe and augurs well for the future.

 

Media & Entertainment

The Media & Entertainment division covers the audio visual markets including televisions and cable and satellite content delivery systems. Whilst technology has generally lagged the pace of development in the Mobile Communications and Information Technology markets there has been recent acceleration. The television market has seen a rapid move to digital and the introduction of affordable, mass market High Definition sets. The market is moving rapidly with next generation products including 3D and IPTV technologies. In the cable and satellite markets the delivery systems (Set-Top Boxes) are keeping pace and new interactive systems are being launched by manufacturers and content providers alike.

 

The management team has anticipated these changes and, as such, is working to expand the Group's service model by developing proprietary technology. The Group has previously pioneered automated test development to improve quality and cost effectiveness within its facilities and this technology platform is being further developed to provide in-field solutions for clients. The ability to deliver diagnostic solutions to the home is highly significant to our clients as they seek to dramatically improve the customer experience and drive down whole life service costs.

 

A research and development programme to coordinate and prioritise such activities across the Group has been put in place in recent months and Regenersis has protected its intellectual property in new markets. Technology innovations such as this are core to Regenersis' service development programme.

 

The past year has primarily been one of consolidation for the division whilst the new service and technology offering is proven. Despite this longer term focus the business has still been successful in expanding its capability on an international basis with high profile customers including UPC, Tom Tom and Toshiba. In particular, the Group's partnership with Virgin Media has grown in support of this client's drive to enhance its customer care and will see us delivering new and added-value services into the new year and beyond.

 

Information Technology

The Information Technology market is much broader but equally as fast moving as the Mobile Communications and Media & Entertainment markets. The two key sectors Regenersis currently serves are mobile computing (notebooks and netbooks) and financial transaction systems (ATM's, payment terminals and EPOS systems) where combined revenues increased by 13% over the year.

 

The Group is now established in the Information Technology markets in the UK, Germany and Eastern Europe. Of note has been the growth of the Group's activities in both cash and cashless payment systems where it is working with European market leaders. This growing niche is particularly attractive given the demanding security and technical requirements that create barriers to competitors.

 

During the year Regenersis has consolidated its relationship with Hypercom following its acquisition of the Thales terminals business. In addition, the Group has extended the customer base beyond manufacturers with a leading operator, First Data, which offers further growth potential. Regenersis is now actively delivering an end-to-end reverse logistics solution for both manufacturers and operators of cashless payment terminals; a proposition that is being expanded across Europe.

 

The markets for notebooks and netbooks have also grown significantly in recent years, now outselling traditional desktops. It is too early as yet to say what impact the launch of the new tablets will have on this market, although they clearly represent an opportunity for Regenersis to enter a new market niche.

 

During the last twelve months, the Group has expanded capacity at sites in Sommerda and Warsaw as well as relocated its facility from Paderborn to Schloss Holte. In so doing, Regenersis has secured new notebook business with Acer in Germany and Samsung in Poland such that the Group now has a growing position in the consumer and professional markets. Work has also started with Siemens Healthcare division as the Group identifies new, technically demanding and hence high value markets. The Group has achieved these business wins at the same time as increasing revenues with its five largest existing customers and targeting growth from more established partners.

 

Delivering a More Targeted Approach

Regenersis has made considerable progress over the last twelve months and has established the foundations for future profitable growth. By focusing more directly on key markets and clients and integrating the full service capability for those clients, we believe that the Group can deliver this proposition across Europe. Feedback from key markets is positive and the Group has a growing developmental programme in each of its divisions. Over the next twelve months, management will be focused on three core objectives: building more intimate customer relationships, delivering on the Group's 'innovation' programme and on a continuous pursuit of operational excellence.

 

Financial Review

 

Operating performance	2010	2009
Revenue £m	116.4	98.3
Gross profit £m	30.7	27.1
Headline operating profit £m	5.7	5.2
Operating cash flow £m	2.1	(2.9)
Key performance indicators
Revenue growth %	18.4%	(6.3)%
Gross margin %	26.4%	27.5%
Operating costs % of revenue	21.5%	22.3%
Headline operating profit %	4.9%	5.2%
Net debt £m	(4.0)	(4.3)
Net assets £m	30.7	21.5

 

Results

Group revenue was £116.4 million, up 18% from 2009 whilst the Group's headline operating profit was £5.7 million, up 11% from 2009. The most significant factor was the acquisition of TRS, adding £18.4 million of revenue and £0.7 million of headline operating profit. The TRS acquisition was completed in September 2009 and would have added another £4.0 million to revenues and £0.1 million to headline operating profit if it had been consolidated for the full year. The business has been successfully integrated in the Mobile Communications division where the management team has delivered a number of notable business wins including the recently announced contracts with LG, DHL and O2.

 

Elsewhere within Mobile Communications, a strong performance in Eastern Europe reflects the increased demand for cost effective and quality assured repair and refurbishment services. Meanwhile the restructuring of the UK operations following completion of the TRS acquisition included the closure of the Nottingham facility and the consolidation of the return and repair activities in Glasgow, ensuring a better utilisation of the Group's assets.

 

The Media & Entertainment division performed well during a year of transition as the business focused on the development of new technologies and services, the benefit of which will become evident in the coming years. A substantial investment in capitalised research and development costs (£0.5 million) is reflective of the increased activity in this area. In addition the customer base has been expanded such that the service capability has now been extended into Eastern Europe. These developments will provide the base to grow the business further and develop a stronger position in mainland Europe.

 

In Information Technology, the restructuring programme from prior years was completed with the final stage being the relocation of the main service centre in Paderborn to a new and lower cost facility in Schloss Holte. The benefits of this move are becoming evident as operational costs are reduced and new business is attracted to the site.

 

Gross Margin

In the twelve months to 30 June 2010 the gross margin declined to 26.4% (2009: 27.5%). Whilst the Group aims to maximise its gross margin in each market, the characteristics and pricing of services varies considerably. As such the Group considers margin targets on an individual account and service basis. Inevitably year-on-year comparisons will reflect the relative mix of business and services between divisions and individual customers and services.

 

In general terms, however, market pricing for more commoditised services has been declining consistently for a number of years; that trend has continued over the last twelve months. Regenersis has largely resisted these pressures but has also been able to attract greater volumes of product to mitigate potential loss of profit; this is particularly true of the operations in Eastern Europe.

 

The decline in overall margin year-on-year is therefore despite the increased proportion of revenues generated from lower cost facilities. This is primarily explained by the relative increase in the cost of materials consumed by the Group. As the proportion of high-value products serviced by the Group has increased (for example with smartphones) so too has the cost of materials to service them. As material revenues generate very low margin, the enriched product mix, whilst maintaining gross profit, inherently has a dilutive impact on gross margin.

 

The current strategy reflects expectations to improve margins through the development of value-added services. These include the marketing of the innovations and intellectual property the Group is creating through its development programmes and the integration of a more comprehensive suite of services.

 

Operating Costs

The Group continues to mitigate downward pressure on revenues and gross margins through the active management of the operating cost base. Although operating costs increased in absolute terms due to the acquisition of TRS, the Group has managed operating costs tightly and, during the year, these were reduced from 22.3% of revenues to 21.5%. This was achieved through a combination of increasing the proportion of business delivered in Eastern Europe and the reduction in the cost base in Germany following the relocation of the Paderborn facility to Schloss Holte. This overall reduction in operating costs relative to revenues was achieved despite the inclusion of additional Corporate Costs of £0.3 million relating to management changes for the new organisation structure.

 

Average labour costs have been reduced by 4.7% reflecting this close management by the Group of both salary levels and the selection of location for the service to the client.

 

Exceptional Costs

The Group has incurred one-off costs relating to the acquisition of TRS and the subsequent integration of that business, including the closure of the Nottingham facility and the relocation of the mobile phone warranty repair activities to Glasgow. These actions were undertaken and charged in the first half of the year. There have been no significant changes to the organisation in the second half deemed to be exceptional. Other costs excluded from headline operating profit were the ongoing amortisation of acquired intangible assets and share-based payments.

 

Net Financing Charges

Costs totalling £0.3 million have been included in net financing charges relating to the renegotiation of the existing banking arrangements at the time of the TRS acquisition. Aside from these charges, the underlying net financing charges were £0.4 million (2009: £0.4 million). During the year the Group had higher average net debt offset by lower average interest rates.

 

Taxation

The tax charge of £0.8 million (2009: £0.9 million) represents an effective tax rate of 22% (2009: 27%) of the reported profit before tax. The lower rate reflects one of the benefits of the proactive management of business towards countries with lower operating costs but also lower tax rates.

 

Earnings per Share

As expected, with the acquisition of TRS and the accompanying share issue, the headline earnings per share fell to 10.57 pence (2009: 13.84 pence) and basic and diluted earnings per share was 6.89 pence (2009: 9.47 pence). The headline earnings per share calculation excludes amortisation of acquired intangible assets together with exceptional items, net of tax. The acquisition of TRS has had a dilutive effect in its first year but the overall business contribution has been in line with expectations.

 

Exchange Rates

During the year, the Euro and Polish Zloty strengthened slightly relative to Sterling, however, the impact has not been significant overall. Restating the prior year results to 2010 exchange rates, would have increased comparative revenue by £0.5 million and headline operating profit by £0.04 million. As the overseas operations grow it is anticipated that the Group will report routinely in constant exchange rates.

 

Changes to Segmental Reporting

The Group reporting reflects the segmentation of the Group into the Mobile Communications, Media & Entertainment and Information Technology divisions. To understand the impact of these changes, together with the acquisition of TRS, compared to previous reporting, the results have been restated below according to the origins of these businesses in the Technical and Environmental (incorporating recycling and end-of-life) Services.

 

The financial reporting will focus on revenues and the controllable headline operating profit. To that end, corporate costs, which were previously allocated to the individual segments, are being shown separately. The corporate costs consist of the Board and head office running costs as well as Group initiatives such as sales and marketing, corporate development, strategic and incentive programmes. In 2009, the £2.2 million of corporate costs were allocated £1.4 million to Technical Services and £0.8 million to Environmental Services.

 

Segment	Revenues		Headline Operating Profit
	2010 £m	2009 £m	2010 £m	2009 £m
Technical Services	74.3	69.4	7.2	5.4
TRS	18.4	-	0.7	-
Total Technical Services	92.7	69.4	7.9	5.4
Environmental Services	23.7	28.9	0.5	2.0
Total	116.4	98.3	8.4	7.4
Corporate Costs	-	-	(2.7)	(2.2)
Group	116.4	98.3	5.7	5.2
Excluding TRS and Environmental	74.3	69.4	4.5	3.2

 

Revenue from technical services increased by £4.9 million (7%) like-for-like and by £23.3 million (33%) including the TRS acquisition. Headline operating profit margin improved to 6.1% (2009: 4.5%). The strong margin performance from Technical Services reflects the tight cost control, increased activity levels and a richer mix of value-added business.

 

Conversely the contribution from Environmental Services, including recycling and end-of-life services declined with revenues down by £5.2 million and headline operating profits down by £1.5 million to £0.5 million. With headline operating margins at 2% these activities have had a dilutive effect on the overall operating margins of the Group and partly mask the strong performance of Technical Services.

 

Excluding both TRS and Environmental Services the underlying performance of the Group, after corporate costs shows revenue growth on a like-for-like basis of 7% and headline operating profit growth of 44%.

 

The Acquisition of TRS

The acquisition of TRS was completed with effect from 1 September 2009. Regenersis acquired the entire share capital of TRS for a total enterprise value of £6.25 million, satisfied through the issue of £3.25 million of Consideration Shares and a further £3.0 million of Placing Shares, issued to fund the cash payment to the vendor. The cash was utilised by the vendor to settle the bank borrowings of TRS, effectively rendering the acquisition debt-free on completion. The fair value of net assets acquired was £3.3 million with the remainder (£3.0 million) shown as goodwill.

 

Cash Flow

The Group's operating cash flow performance was £5.0 million better in 2010 compared to prior year. Year end net debt was reduced to £4.0 million (2009: £4.3 million).

 

Cash flow from operating activities improved with a net inflow of £2.1 million (2009: net outflow £2.9 million). The year-on-year improvement is primarily explained by the slowdown in growth of working capital despite the inclusion of TRS. Overall working capital increased by £3.3 million, including £1.3 million from TRS, compared to an increase of £6.5 million the previous year. As reported previously, the unwind of the negative working capital generated by recycling and end-of-life services, as the business has reduced, has been the most significant factor in working capital outflows. However, the Group successfully managed the continued pressure on its working capital as the business has grown and has contained inventories and receivables to similar levels to prior year, despite the 18% revenue increase.

 

Expenditure on capital assets was reduced to £1.3 million (2009: £1.6 million) as the investment programme supporting the upgrade and expansion of facilities was completed. However, expenditure on intangible assets was increased to £0.7 million (2009: £0.1 million) as work on new technology and test development accelerated to support the Group's research and development programme.

 

Tax paid reduced to £0.7 million (2009: £1.6 million) as the Group benefited from the losses acquired with TRS and the accelerated capital allowances on research and development expenditure. The prior year was higher because of the changes last year to the tax payment timetable; the Group had to make payments on account for the current year as well as payments for the prior year. This was a one-off adjustment and will not impact future periods.

 

Financial Position

The Group has strong financial metrics with interest cover of 21.4 times (2009: 16.2 times) and a net debt to EBITDA ratio of 0.5 (2009: 0.7), with significant headroom to the Group's banking covenants. At 30 June 2010 net debt was £4.0 million, which was £0.3 million better than last year, due primarily to improved management of working capital.

 

Year end net debt comprised gross borrowings of £6.5 million (all in Sterling) and cash and cash equivalents of £2.5 million.

 

The Group completed the renegotiation of its existing banking facilities in support of the TRS acquisition in August 2009. The Group had available facilities of £12.5 million at the end of the year (2009: £12.5 million) and headroom over gross borrowings of £6.0 million (2009: £5.0 million). The interest rate charged on the drawn down portion of the revolving credit facility is between 2.5% and 3.0% above LIBOR dependent upon the ratio of EBITDA to net debt.

 

Under the terms of this agreement the facility will reduce in six monthly instalments until it expires on 31 March 2013. The first such reduction of £1.75 million is due on 30 September 2010.

 

Risks

The principal risks are similar to those reported last year, save for the successful integration of the TRS acquisition during the year, and they will be disclosed in the Annual Report.

 

Summary

The Group has progressed well during the year with growth in revenue, profit and operating cash flow. We have completed and integrated the acquisition of TRS, realigned the combined organisation structure and management teams, and commenced implementation of our new strategy to focus the enlarged Group on sustainable growth. The early benefits of these actions are becoming evident as we secure meaningful new business.

 

 

Gary Stokes

Chief Executive Officer

 

Jeremy Wilson

Chief Financial Officer

15 September 2010

 

 

Cautionary statement

 

This review has been prepared solely to provide additional information to shareholders to assess the Group's strategy and the potential of that strategy to succeed and should not be relied upon by any other party or for any other purpose. It contains certain forward-looking statements with respect to the financial condition, results, operations and businesses of Regenersis plc.

 

These statements and forecasts involve risk and uncertainty because they relate to events and depend upon the circumstances that may occur in the future.

 

There are a number of factors that could cause actual results or developments to differ materially from those expressed or implied by these forward-looking statements and forecasts. Nothing in this announcement should be construed as a profit forecast.

 

Consolidated Income Statement

For the year ended 30 June 2010

 

			2010	2009
	Note		£'000	£'000
Group revenue	2		116,353	98,308
Headline operating profit			5,724	5,155
Exceptional restructuring costs	4		(929)	(927)
Amortisation of acquired intangible assets			(502)	(410)
Share-based payments			(62)	(51)
Group operating profit			4,231	3,767
Share of results of jointly controlled entity			(25)	-
Operating profit from continuing operations			4,206	3,767
Finance income	7		18	36
Finance costs	7		(372)	(404)
Exceptional finance costs	8		(296)	-
Total finance costs			(668)	(404)
Profit before tax			3,556	3,399
Taxation	9		(798)	(919)
Profit for the year			2,758	2,480
Attributable to:
Equity holders of the Company			2,739	2,456
Non-controlling interest			19	24
Profit for the year			2,758	2,480
Earnings per share
Basic	10		6.89p	9.47p*
Diluted	10		6.89p	9.47p*
Headline	10		10.57p	13.84p*

 

* Restated - see note 10

 

 

Consolidated Statement of Comprehensive Income

For the year ended 30 June 2010

 

			2010	2009
			£'000	£'000
Profit for the year			2,758	2,480
Other comprehensive income:
Exchange differences arising on translation of foreign entities			40	(446)
Total comprehensive income for the year			2,798	2,034
Attributable to:
Equity holders of the Company			2,779	2,010
Non-controlling interest			19	24
Profit for the year			2,798	2,034

 

Consolidated Balance Sheet

As at 30 June 2010

 

			2010	2009
	Note		£'000	£'000
Assets
Non-current assets
Goodwill			26,936	23,978
Other intangible assets			2,130	1,272
Investments in jointly controlled entities			-	1
Property, plant and equipment			3,292	2,978
Deferred tax			1,332	1,098
			33,690	29,327
Current assets
Inventory	11		4,277	4,091
Trade and other receivables	12		14,922	14,747
Current tax asset			35	-
Cash	13		2,543	3,375
			21,777	22,213
Total assets			55,467	51,540
Current liabilities
Borrowings	15		-	(178)
Current tax liability			-	(76)
Trade and other payables	14		(18,245)	(22,288)
			(18,245)	(22,542)
Non-current liabilities
Borrowings	15		(6,500)	(7,500)
Total liabilities			(24,745)	(30,042)
Net assets			30,722	21,498
Equity
Ordinary share capital	18		896	566
Share premium			19,702	16,753
Merger reserve			3,088	-
Translation reserve			785	745
Retained earnings			6,208	3,410
Total equity attributable to equity holders of the parent			30,679	21,474
Non-controlling interest			43	24
Total equity			30,722	21,498

 

The financial statements were approved by the Board of Directors and authorised for issue on 15 September 2010.

 

They were signed on its behalf by:

 

 

 

Jeremy Wilson Gary Stokes

Chief Financial Officer Chief Executive Officer

 

Company number: 05113820

Consolidated Statement of Changes to Equity

For the year ended 30 June 2010

 

	Attributable to equity share holders
	Share capital	Share premium	Merger reserve	Translation reserve	Retained earnings	Minority interests	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Balance as at 1 July 2008	566	16,753	-	1,191	917	-	19,427
Comprehensive income:
Profit for the year	-	-	-	-	2,456	24	2,480
Other comprehensive income:
Exchange differences arising on translation of foreign entities	-	-	-	(446)	-	-	(446)
Transactions with owners recorded directly in equity:
Recognition of share based payments - pre tax	-	-	-	-	56	-	56
Deferred tax related to share based payments	-	-	-	-	(19)	-	(19)
Balance as at 30 June 2009	566	16,753	-	745	3,410	24	21,498
Comprehensive income:
Profit for the year	-	-	-	-	2,739	19	2,758
Other comprehensive income:
Exchange differences arising on translation of foreign entities	-	-	-	40	-	-	40
Transactions with owners recorded directly in equity:
Shares issued	330	3,174	3,088	-	-	-	6,592
Expenses of shares issued	-	(225)	-	-	-	-	(225)
Recognition of share based payments - pre tax	-	-	-		59	-	59
Balance as at 30 June 2010	896	19,702	3,088	785	6,208	43	30,722

 

Consolidated Cash Flow Statement

For the year ended 30 June 2010

 

			2010	2009
	Note		£'000	£'000
Profit for the year			2,758	2,480
Adjustments for:
Net finance charges	7		650	368
Tax expense	9		798	919
Depreciation on property, plant and equipment			1,514	1,236
Amortisation of intangible assets			335	138
Amortisation of acquired intangible assets			502	410
Loss on disposal of property, plant and equipment			17	36
Share-based payments expense			62	51
Operating cash flows before movement in working capital			6,636	5,638
Decrease in inventories			577	578
Decrease/(increase) in receivables			2,119	(1,967)
Decrease in payables and accruals			(5,996)	(5,124)
Cash flows from operating activities			3,336	(875)
Interest received			18	36
Interest paid			(586)	(457)
Tax paid			(666)	(1,630)
Net cash inflow/(outflow) from operating activities			2,102	(2,926)
Cash flows from investing activities
Purchase of property, plant and equipment			(1,342)	(1,585)
Purchase and development of intangible assets			(705)	(138)
Proceeds from disposal of property, plant & equipment			-	20
Acquisition of subsidiary (net of cash acquired)	19		(3,000)	-
Investment in jointly controlled entity			-	(1)
Net cash used in investing activities			(5,047)	(1,704)
Cash flows from financing activities
Net proceeds on issue of shares			3,117	-
(Repayment)/draw-down of borrowings			(1,000)	4,500
Net cash used from financing activities			2,117	4,500
Net decrease in cash and cash equivalents			(828)	(130)
Other non cash movements - exchange rate changes			174	(413)
Cash and cash equivalents at the beginning of year			3,197	3,740
Cash and cash equivalents at end of year	13		2,543	3,197
Cash and cash equivalents at end of year			2,543	3,197
Bank borrowings			(6,500)	(7,500)
Net debt	16		(3,957)	(4,303)

 

1. Basis of Preparation

 

The information contained within this Preliminary Announcement has been extracted from the financial statements which have been prepared in accordance with IFRS as adopted by the European Union ('adopted IFRS'), and with those parts of the Companies Act 2006 applicable to companies reporting under adopted IFRS.

 

In preparing these preliminary results consistent accounting policies in accordance with IFRS have been applied.

 

The financial information in this announcement does not constitute statutory accounts for the year ended 30 June 2010 but is derived from these accounts. The auditors have reported on the consolidated Group accounts and their report was unqualified.

 

The preliminary announcement for the year ended 30 June 2010 was approved by the Board for release on 15 September 2010.

 

 

2. Segmental reporting

 

Previously the Group reported under two segments, Environmental Services and Technical Services. Following the acquisition of Total Repair Solutions Limited, (note 19), the Group has identified its operating segments as Mobile Communications, Media & Entertainment and Information Technology representing the three core markets.

 

The Mobile Communications segment services mobile phones, PDA's, smart phones and related technology. Our vertically integrated service offering incorporates all areas of reverse logistics including return and repair activities, professional services such as call centres, warranty management, insurance and fulfilment services as well as end-of-life and refurbishment services.

 

Media and Entertainment segment includes technologies such as digital television and monitors, set top boxes, gaming systems, MP3 and MP4 players, PND's and e-books.

 

Information Technology focuses on the notebook and netbook markets, including peripheral equipment, as well as supporting compatible technologies such as those employed in the banking, retail and healthcare markets.

 

			2010	2009
			£'000	£'000
Revenue from external customers
Total Mobile Communications			77,502	60,324
Less: share of jointly controlled entity			(369)	-
Mobile Communications			77,133	60,324
Media & Entertainment			20,084	21,086
Information Technology			19,136	16,898
Total			116,353	98,308

 

There are two customers in the Mobile Communications segment, including the newly acquired TRS business, which individually represent more than 10% of the Group's revenues. The revenue attributable to each customer is £15,235,000 (2009: £14,710,000) and £12,704,000 (2009: nil).

 

			2010	2009
			£'000	£'000
Headline segment profit
Mobile Communications			5,266	5,070
Media & Entertainment			2,295	2,175
Information Technology			838	120
			8,399	7,365
Corporate costs			(2,675)	(2,210)
Headline operating profit			5,724	5,155
Exceptional restructuring costs			(929)	(927)
Amortisation of acquired intangible assets			(502)	(410)
Share-based payments			(62)	(51)
Group operating profit			4,231	3,767
Share of results of jointly controlled entity			(25)	-
Operating profit from continuing operation			4,206	3,767
Net finance expense			(650)	(368)
Profit before tax			3,556	3,399

 

 

		Segment assets	Segment assets	Segment liabilities	Segment liabilities
		2010	2009	2010	2009
		£'000	£'000	£'000	£'000
Mobile Communications		31,902	26,662	9,896	13,738
Media & Entertainment		11,019	11,675	3,782	4,252
Information Technology		8,157	8,602	2,343	2,194
		51,078	46,939	16,021	20,184
Corporate		4,389	4,601	8,724	9,858
		55,467	51,540	24,745	30,042

 

 

		Capital expenditure	Capital expenditure	Depreciation & amortisation	Depreciation & amortisation
		2010	2009	2010	2009
		£'000	£'000	£'000	£'000
Mobile Communications		1,556	1,060	1,236	633
Media & Entertainment		626	494	629	710
Information Technology		420	169	452	407
		2,602	1,723	2,317	1,750
Corporate		-	-	34	34
		2,602	1,723	2,351	1,784

 

Geographical information

 

The following geographical information is based on the location of the businesses in the Group:

 

			2010	2009
			£'000	£'000
Revenue from external customers
UK			59,997	53,527
Poland			29,561	20,133
Germany			15,950	14,437
Rest of World			11,214	10,211
			116,722	98,308
Less: share of jointly controlled entity			(369)	-
			116,353	98,308

 

			2010	2009
			£'000	£'000
Inter-segment revenue
UK			325	333
Poland			248	48
Rest of World			97	-
			670	381

 

			2010	2009
			£'000	£'000
Non-current assets
UK			30,972	26,372
Non-UK			2,718	2,955
			33,690	29,327

 

 

3. Operating profit

 

			2010	2009
			£'000	£'000
Revenue			116,722	98,308
Less: share of jointly controlled entity			(369)	-
Group revenue			116,353	98,308
Cost of sales			(85,636)	(71,251)
Gross profit			30,717	27,057
Headline administrative expenses			(24,993)	(21,902)
Headline operating profit			5,724	5,155
Other administrative expenses			(1,493)	(1,388)
Share of results of jointly controlled entity			(25)	-
Operating profit			4,206	3,767
Administrative expenses			26,486	23,290

 

The increase in administrative expenses is due primarily to the acquisition of the TRS business.

 

Following the acquisition of TRS and the strategic review of the Group there has been a change in presentation within the income statement. The effect in 2009 is that has £5,265,000 is moved from cost of sales to headline administrative expenses to ensure that the treatment is consistent with the current year.

 

4. Exceptional restructuring costs

 

			2010	2009
			£'000	£'000
Acquisition costs of TRS			60	60
Redundancies and restructuring			154	176
Provision for closure of Nottingham site			715	-
Strategic review			-	164
German relocation			-	527
			929	927

 

The major restructuring costs relate to the closure of the Nottingham site and the transfer of work up to Glasgow following the TRS acquisition. In 2009 the main cost related to the relocation of the German business from Paderborn to Schloss Holte.

5. Profit for the year

 

Profit for the year has been arrived at after charging/ (crediting):

	2010	2009
	£'000	£'000
Depreciation of property, plant and equipment - owned	1,514	1,236
Loss on disposal of property, plant and equipment	17	36
Amortisation of intangible assets	837	548
Cost of inventories recognised as an expense	46,877	42,125
Staff costs (note 6)	42,354	34,272
Net foreign exchange losses/(gains)	196	(122)

 

  6. Staff costs

 

			2010	2009
Average numbers employed			Number	Number
Production			2,047	1,559
Sales and business development			24	26
Administration			302	244
			2,373	1,829

 

			2010	2009
Aggregate employment costs			£'000	£'000
Wages and salaries			36,514	30,010
Compensation for loss of office			220	-
Social security costs			4,757	3,776
Share based payments			62	51
Other pension costs			801	435
			42,354	34,272

 

7. Finance costs and finance income

 

			2010	2009
			£'000	£'000
Bank interest receivable and similar income			18	36
Total finance income			18	36
Interest payable on borrowings:
Bank loans and overdrafts			286	404
Other finance costs			86	-
Exceptional finance charge (note 8)			296	-
Total finance costs			668	404
			650	368

 

 

8. Exceptional finance charge

 

The exceptional finance charge of £296,000 relates to the renegotiation of the banking facility terms carried out at the time of the TRS acquisition and the banking due diligence to approve the acquisition of TRS.

 

 

9. Tax

 

			2010	2009
			£'000	£'000
Current tax
UK Corporation tax			115	406
Overseas tax			521	422
Adjustments in respect of prior years			(70)	263
Total current tax charge			566	1,091
Deferred tax
UK			(23)	73
Overseas			(35)	(22)
Adjustments in respect of prior years			290	(223)
Total deferred tax charge/( credit)			232	(172)
			798	919

 

UK Corporation tax is calculated at 28% (2009: 28%) of the estimated assessable profit for the year. Taxation for other jurisdictions is calculated at the rates prevailing in the respective jurisdictions.

 

The Group's total income tax charge for the year can be reconciled to the profit per the income statement as follows:

 

			2010	2009
			£'000	£'000
Profit before tax			3,556	3,399
Tax at standard UK corporation tax rate of 28% (2009: 28%)			996	952
Effects of:
Permanent differences			(59)	312
Losses utilised			(72)	(126)
Rate differences			(287)	(185)
Adjustment in respect of previous periods			220	(34)
Release of tax asset			-	10
Double tax relief			-	(10)
			798	919

 

 

10. Earnings per share (EPS)

 

					2010	2009
EPS Summary					Pence	Pence
Basic earnings per share					6.89	9.47
Diluted earnings per share					6.89	9.47
Headline earnings per share					10.57	13.84
Headline diluted earnings per share					10.57	13.84

 

 

			2010	2009	2010	2009
			Pence per share	Pence per share	£'000	£'000
Profit for the year			6.89p	9.47p	2,758	2,480
Reconciliation to adjusted profit:
Amortisation of acquired intangible assets			1.26p	1.57p	502	410
Exceptional finance charge (net of tax)			0.53p	-	213	-
Exceptional restructuring costs (net of tax)			1.74p	2.61p	692	684
Share based payments			0.15p	0.19p	62	51
			10.57p	13.84p	4,227	3,625

 

Number of shares ('000)					2010	2009
					'000	'000
Weighted average number of shares used to calculate basic and diluted earnings per share					40,007	26,193

 

2,150,000 shares were issued to the Employee Benefit Trust on 26 June 2007 and are not included in the basic earnings per share calculation as they are classified as treasury shares. The prior year comparative has been restated since it previously included these treasury shares. The conditions for the existing share options to be exercised have not been achieved and therefore have not been included when calculating the diluted EPS.

 

11. Inventories

 

			2010	2009
			£'000	£'000
Raw materials			2,926	2,990
Work in progress			419	257
Finished goods			932	844
			4,277	4,091

 

 

12. Trade and other receivables

 

			2010	2009
			£'000	£'000
Trade receivables			11,169	10,585
Less: provision for doubtful trade receivables			(435)	(356)
Trade receivables net of provision			10,734	10,229
Prepayments and accrued income			4,188	4,518
			14,922	14,747

 

 

13. Cash and cash equivalents

 

			2010	2009
			£'000	£'000
Cash at bank and in hand			2,543	3,375
Bank overdrafts			-	(178)
			2,543	3,197

 

 

14. Trade and other payables

 

			2010	2009
			£'000	£'000
Trade payables			5,206	6,429
Other taxes and social security			1,986	1,519
Other payables			3,102	2,290
Accruals and deferred income			7,951	12,050
			18,245	22,288

 

 

15. Bank borrowings

 

			2010	2009
			£'000	£'000
Due within one year:
Unsecured bank overdrafts			-	178
				178
Due after more than one year:
Secured bank loan			6,500	7,500
			6,500	7,678

 

The bank borrowing is secured on all the Group's assets for the duration of the facility.

 

As at 30 June 2010 the facility available to the Group was £12.5 million (2009: £12.5 million), of which £6.5 million (2009: £7.5 million) was drawn down in cash resulting in an unutilised facility of £6.0 million (2009: £5.0 million). The Group renegotiated the terms of the existing facility during the year as part of the TRS acquisition. The available facility reduces every 6 months from 30 September 2010 until it expires on 31 March 2013.

The borrowings are repayable as follows:

 

			2010	2009
			£'000	£'000
On demand or within one year			-	178
In the second year			1,250	-
In the third to fifth years inclusive			5,250	7,500
			6,500	7,678

    16. Net (debt)/cash

 

		2010	2009
		£'000	£'000
Cash and cash equivalents		2,543	3,375
Overdrafts		-	(178)
Bank borrowings - non-current		(6,500)	(7,500)
		(3,957)	(4,303)

 

 

17. Reconciliation of movement in net debt

 

	Cash at bank and in hand	Over-drafts	Total net cash	Debt due within one year	Debt due after one year	Total debt	Net debt
	£'000	£'000	£'000	£'000	£'000	£'000	£'000
At 1 July 2009	3,375	(178)	3,197	-	(7,500)	(7,500)	(4,303)
Cash flow	(1,006)	178	(828)	-	1,000	1,000	172
Non-cash changes	174	-	174	-	-	-	174
At 30 June 2010	2,543	-	2,543	-	(6,500)	(6,500)	(3,957)

 

 

18. Called up share capital

 

	2010	2010	2009	2009
	Number of shares	£'000	Number of shares	£'000
Authorised:
Ordinary shares of 2p	59,760,350	1,195	40,000,000	800
Allotted, called up and fully paid:
At 1 July	28,342,577	566	28,342,577	566
New share capital subscribed	16,477,675	330	-	-
Ordinary shares of 2p	44,820,252	896	28,342,577	566

 

 

19. Acquisition of business

 

On 1 September 2009 the Group completed its transaction to buy the entire share capital of Total Repair Solutions Limited ("TRS") for a total enterprise value of £6.25 million. This was satisfied through the issue of £3.25 million of consideration shares to the vendor and the payment of a further £3.0 million in cash which was utilised by the vendor to settle the bank borrowings of TRS, effectively rendering the acquisition debt-free on completion.

 

8,125,000 shares were issued to the vendor at 40p per share. The cash consideration was funded by issuing 8,352,675 new shares to existing share holders at a price of 40p per share, raising total funds of £3,341,000 from existing shareholders, the balance being used to settle acquisition fees.

 

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

 

			Book value	Fair value
			£'000	£'000
Intangible assets			438	438
Intangible assets - customer contracts			-	555
Property, plant and equipment			530	530
Deferred tax asset			-	478
Inventory			1,708	801
Trade and other receivables			2,973	2,717
Trade and other payables			(2,161)	(2,227)
Net assets acquired			3,488	3,292
Goodwill				2,958
Total consideration				6,250

 

 

				£'000
Satisfied by:
Cash				3,000
Shares				3,250
Consideration				6,250
Net cash outflow arising on acquisition
Cash consideration				3,000

 

The write down of the stock valuation was fully expected as part of the due diligence process on the acquisition of TRS. This write down has no impact on future Group profitability or cash flow as the Group has used the lower figures in all projections. Similarly certain accrued income balances have been considered doubtful and have been provided against.

 

A deferred tax asset has been recognised on the tax losses available at the date of the acquisition given the ability to utilise against future taxable profits of TRS.

 

Under IFRS 3, "Business Combinations", the only separately identifiable intangible asset arising from the acquisition relates to customer contracts and relationships valued at £555,000. The remaining goodwill of £2,958,000 can be attributed to the anticipated profitability through the growth of the enlarged group and synergistic benefits.

 

Since the date of acquisition TRS has contributed revenue of £18,436,000 and headline operating profit of £713,000.

 

If the acquisition had been completed on the first day of the financial year the Group revenues for the year would have been £120,358,000 and Group headline operating profit attributable to the equity holders of the parent would have been £5,805,000.