R e g e n e r s i s P l c A n n u a l R e p o r t & A c c o u n t s f o r t h e y e a r e n d e d 3 0 J u n e 2 0 1 5 S t o c k C o d e : R G S Annual Report and Accounts for the year ended 30 June 2015 Stock Code: RGS Supporting The Life Cycle Of Technology 24338.04 19 October 2015 10:38 AM Proof 8 Who We Are Regenersis is a global provider of diagnostics, repair and data erasure services to the consumer electronics industry. We help our clients and their customers successfully deploy, protect, maintain, and retire technology. Key Strengths • Ability to combine our capabilities in innovative ways, tailored to individual client needs • Delivering unique service propositions that reinforce trust in our clients’ brands and create value for our business partners and shareholders • Execution of key services that improve customer experience and add value to technology assets to differentiate their brands and increase customer loyalty • Unique position in a market that is experiencing explosive growth, addressing the increasing need for sophisticated technology and user support See our Business Model on page 12 Read more in The Opportunity on page 16 Navigating the Report For further information within this document and relevant page numbers Additional information online Visit us online www.regenersis.com www.regenersis.com Stock code: RGS 24338.04 19 October 2015 10:38 AM Proof 8 In This Report Our Depot Solutions Division operates client oriented electronic repair and refurbishment facilities around the world, being one of the leading operators in this field. Contents Strategic Report Financial Highlights and Timeline of Events 2014-15 Chairman’s Statement Group at a Glance Our Business Model Our Markets The Opportunity Our Strategy Business Review Key Performance Indicators Risk Management Read more about our Depot Solutions on page 10 Corporate Social Responsibility and Sustainability & Our Software and Advanced Solutions Division comprises innovative refurbishment and device management businesses, which benefit from Regenersis’ global presence and client relationships in Depot Solutions. Included within this division: Our Governance Directors and Advisers Directors’ Report Corporate Governance Report Audit Committee Directors’ Remuneration Report Statement of Directors’ Responsibilities Software contains Blancco, a business which is the global market leader in securely erasing data from devices. Read more about our Software and Advanced Solutions on page 10 Read more about Blancco on page 10 Our Financials Independent Auditors’ Report Primary Statements Notes to the Accounts Company Balance Sheet Notes to the Company Accounts Shareholder Information Notice of AGM Glossary Locations 2 6 10 12 14 16 18 22 30 32 36 44 47 49 54 61 65 68 72 76 121 122 130 136 IBC 1 24338.04 19 October 2015 10:38 AM Proof 8 Regenersis Plc Annual Report and Accounts for the year ended 30 June 2015 Financial Highlights Revenue £202.6m 2014: £197.5m 139.9 123.8 197.5 202.6 179.7 3% 2011 2012 2013 2014 2015 Headline Operating Profit £15.4m 2014: £11.0m 40% 15.4 11.0 9.5 7.8 6.3 2011 2012 2013 2014 2015 Headline Operating Cash Flow £11.6m 157% 2014: £4.5m 3.3 2011 12.9 11.6 5.9 4.5 Adjusted Earnings per Share 16.19p 12.26 2014: 16.16p 16.80 16.16 16.19 13.50 2012 2013 2014 2015 2011 2012 2013 2014 2015 Timeline of Events 2014-15 July 14 September 14 October 14 & Opening of new site in Belgium Read about our clients on page 13 Launch of Digital Care programme with largest operator in Poland Acquisition of SafeIT Opening of Czech Republic site Read about SafeIT on page 21 Read about our locations on page 17 Additional investment in Xcaliber Buy out of non controlling interest in Blancco Sweden and Blancco US 2 24338.04 19 October 2015 10:38 AM Proof 8 www.regenersis.com Stock code: RGS Software (HOP) £5.4m 2014: £0.5m 69% (proforma annualised result) 5.4 HOP before Corporate Costs £20.6m 2014: £15.6m 20.6 15.6 11.7 9.0 9.6 Nil Nil Nil 0.5 2011 2012 2013 2014 2015 32% 2011 2012 2013 2014 2015 Software & Advanced Solutions (HOP) £12.0m 12.0 7.5 2014: £7.5m 60% 2.4 2.9 3.6 2011 2012 2013 2014 2015 Read more in our Business Review from page 22 January 15 June 15 August 15 September 15 New Aftermarket Services CEO appointed Read about our management team on page 44 New Software CEO appointed Buy out of non controlling interest in Blancco Central Europe Opening of new site in Netherlands to service volumes in Holland and Germany Read about our locations on page 17 24338.04 19 October 2015 10:38 AM Proof 8 Acquisition of Tabernus Read about M&A in our Business Model on page 12 3 Regenersis Plc Annual Report and Accounts for the year ended 30 June 2015Strategic Report Supporting The Life Cycle Of Technology 4 24338-04 AR2015 Concept 7/8/2015 24338.04 19 October 2015 10:38 AM Proof 8 Strategic Report Financial Highlights and Timeline of Events 2014-15 Chairman’s Statement Group at a Glance Our Business Model Our Markets The Opportunity Our Strategy Business Review Key Performance Indicators Risk Management Corporate Social Responsibility and Sustainability 2 6 10 12 14 16 18 22 30 32 36 24338-04 AR2015 Concept 7/8/2015 24338.04 19 October 2015 10:38 AM Proof 8 5 Chairman’s Statement I am pleased to report Regenersis’ final results for the year to 30 June 2015. Results Revenue for the Group in the year was £202.6 million (2014: £197.5 million), an increase of 2.6%, while measured at constant exchange rates the growth was 13.6%. Headline Operating Profit (“HOP”, as defined in note 1.18 to the accounts) was £15.4 million (2014: £11.0 million), a rise of 40%, or 52.7% at constant exchange rates. Adjusted earnings per share were 16.19p (2014: 16.16p). Under constant currency, adjusted EPS grew by 11.9%. Further details of these results, including the effect of currency movements, are contained in the Group Financial Review. Software and Advanced Solutions Divisional revenue of £48.3 million (2014: £46.3 million) showed a year on year increase of 4.3% (10.2% at constant exchange rates). Divisional HOP of £12.0 million (2014: £7.5 million) showed a year on year increase of 60% (69.3% at constant exchange rates). The activities of the Software and Advanced Solutions Division are presented below split between Digital Security Software, and Advanced Solutions: Other. Digital Security Software Digital Security Software includes the data erasure software business Blancco, and a 49% minority stake in Xcaliber Technologies (“Xcaliber”), a provider of smartphone diagnostic and issue resolution software. Blancco has fully integrated SafeIT, acquired in September 2014. Blancco addresses the increasing enterprise focus on information security, driven by many factors including high-profile data breaches and tough new regulation. Blancco delivers a unique data erasure proposition across the widest range of devices and network storage environments. For its clients, Blancco typically replaces existing data destruction approaches which are not permanent, certified, auditable, or centrally-managed, or which result in the physical destruction of valuable assets. The approach is relevant to materially all enterprises in the world, resulting in a multi-billion dollar target addressable market for the business. Blancco’s data erasure revenues are more than seven times larger than those of its nearest competitor. Since acquiring Blancco in April 2014, Regenersis has focused on building the new management team and strategy, strengthening the business through M&A, and on profitable revenue growth. Blancco contributed revenue of £15.0 million (since acquisition in April 2014: £2.4 million; 2014 full year equivalent: £11.5 million) and HOP of £5.4 million (since acquisition in April 2014: £0.5 million; 2014 full year equivalent: £3.2 million) during the period. Annual revenue growth on a pro forma basis at constant exchange rates was 40.9%. Growth accelerated in the second half as expected, with revenue growth in the second half (versus the equivalent period in 2014) up 59%. Growth was driven by an increase in the number of clients and in erasure volumes especially on newer product sets including Blancco Mobile and Blancco Live Environment Erasure, and some targeted price increases. Blancco engaged a new CEO in January 2015. Patrick J Clawson brings more than 20 years of experience in the security software sector. Previous roles include Chairman and CEO of enterprise firewall provider Cyberguard Corp; and Chairman and CEO of enterprise endpoint security provider Lumension. Since his appointment, Pat has made several other senior hires and relocated Software’s headquarters “The Group has delivered a strong performance this year across its businesses. The highlight has been the performance of Blancco in its first full year as part of the Group” Matthew Peacock Executive Chairman 6 24338.04 19 October 2015 10:38 AM Proof 8 www.regenersis.com Stock code: RGS from Finland to Atlanta, Georgia, where it is better positioned to address the US market and major IT sector partners, and where it is now co-located with Xcaliber. A video introducing Pat Clawson and the vision for the Blancco business is available here: http://www.regenersis. com/investors/reports-presentations. Blancco acquired SafeIT for £1.4 million in September 2014, expanding its product portfolio into data centre and cloud erasure over networks, and has fully integrated this business. In April 2015, Blancco was awarded a Europe-wide patent for its solid state drive (SSD) erasure method. In the company’s view, this is the only universal method to reliably erase the broad range of different brands and models of SSD drive available in the market. SSD drives, typically used in premium-priced laptops and other IT equipment, are rapidly growing their share of the storage market. In 2016, Blancco’s aim is to maintain its rate of progress in growing sales and is investing in scaling its team and operations. Xcaliber focused in the second half of the financial year on successfully deploying its new contract with a major US carrier to deliver in-store diagnostics. This operation has performed well, providing a large- scale proven use-case and business case for the software, and resulting in opportunities for significant expansion in 2016. In 2015, Xcaliber also installed its software into the depot production facilities of the top mobile phone manufacturer in India. In 2016, Xcaliber is focused on winning clients and reaching profitability. Xcaliber and Blancco together address two fundamental hygiene factors associated with using smartphones, maintaining device functionality and data security. In May 2015 Blancco launched an integrated smartphone diagnostic solution incorporating Xcaliber technology, targeted at clients who perform both data erasure and functionality tests on devices in a single high-volume process. This product is operating at large scale with a lead client in the APAC region and demand elsewhere is encouraging. Advanced Solutions: Other Advanced Solutions: Other includes Regenersis’ Set Top Box diagnostics business which provides objective automated equipment test solutions including the In-Field Tester; and Digital Care, which provides smartphone accidental damage insurance programmes in partnership with insurance underwriters. We consider this business to be Aftermarket Services activity. This business (Advanced Solutions: Other) in aggregate contributed revenue of £33.3 million (2014: £43.9 million), a decrease of 24.1%, reflecting the wind down and subsequent disposal of the Group’s Recommerce business from the end of 2014. Recommerce delivered £16.0 million of revenue in 2014 and no significant revenue in 2015. Excluding Recommerce, the business achieved revenue growth of 19.4% in 2015. Advanced Solutions: Other, in aggregate contributed HOP of £6.6 million (2014: £7.0 million), a decrease of 5.7%. Excluding the contribution of Recommerce in 2014 (revenue of £16 million and HOP of £1.6 million) HOP grew by 22.2%. The Set Top Box Diagnostics businesses successfully scaled up a new site operation in Belgium in 2015, and grew its sales in the USA, but tested smaller overall volumes of boxes in the UK as a result of changes in the equipment base of its largest client. During the year the business also extended its contract with Liberty Global and, in a significant competitive win for the business, a new facility is under construction in Holland to take on the Western European volumes of this client. In 2016, the business will continue to focus on expanding business with its key clients in Europe and the USA. In Digital Care, as expected, the focus was on successfully managing the ramp up of clients in Poland. The policy base grew from c.0.2 million at the start of the year to c.0.4 million at the end of December 2014 and c.0.7 million at the end of the year. The majority of growth in 2015 was driven by a single client, with other clients in preparation and pilot phases during the period. However new large- scale programmes went live for two major clients in June 2015, which will increase growth in 2016. In 2016 Digital Care will focus on scaling up successfully with existing clients in Poland and on winning new business in other countries. Depot Solutions Our Depot Solutions Division operates electronic repair and refurbishment around the world, and is one of the leading global operators in this field. We also consider this business to be Aftermarket Services activity. Depot Solutions’ revenues were £154.3 million (2014: £151.2 million), an increase of 2.1% (increase of 14.6% at constant exchange rates). Headline Operating Profit of £8.6 million (2014: £8.1 million) increased by 6.2% (increase of 18.5% at constant exchange rates) and increased by 15.4% in the second half of the year compared to the equivalent prior period (30.8% at constant exchange rates). Two significant negatives affected financial growth in 2015: firstly, the need to offset the impact of a strong pound sterling against our mostly non-sterling income, as shown 24338.04 19 October 2015 10:38 AM Proof 8 7 Regenersis Plc Annual Report and Accounts for the year ended 30 June 2015Strategic Report Chairman’s Statement continued above and secondly, the need to replace revenue lost when we closed our UK mobile business in 2014. Notwithstanding these headwinds, new business wins drove overall growth in revenue and HOP. In the first half of the year business representing an estimated annual £32 million of revenue when implemented and fully operational was won. In the second half of the financial year, a further £16 million of revenue was won on the same basis. Business wins in the second half of the financial year included a large contract with a German insurer, a contract to deliver repairs for corporate clients of one of the largest global smartphone OEMs, and several contracts with fast- growing Chinese OEMs. Set against this progress as announced in July 2015, one of Regenersis’s large clients intends to consolidate its European business with another supplier, which is anticipated to adversely impact Depot Solutions performance in the 2016 financial year. This reflects an ongoing consolidation trend in the sector, of which Depot Solutions has frequently been a beneficiary in recent years. Our new facilities in Lisbon, Memphis, the Czech Republic and Moscow have scaled up as expected, creating a strong foundation for growth through 2016. There was also continued investment in our advanced technical capabilities and global IT integration to differentiate and protect our future business, including an advanced LCD screen delamination/re- lamination and refurbishment facility in Romania, Europe’s first facility of this type; the introduction of B2B operations to the United States (Memphis); and the installation of Xcaliber smartphone diagnostic systems in the Group’s largest mobile phone repair facilities. Since the beginning of calendar year 2015, the Depot Solutions Division has been focused on consolidating its new business and facilities, and reducing costs to improve underlying profitability. This remains the focus going into 2016. Corporate actions and M&A update In September 2014, Regenersis acquired 100% of the share capital of SafeIT Security Sweden AB (“SafeIT”) for SEK 16.0 million (£1.4 million). SafeIT is a leading specialist cloud data erasure business in the emerging field of virtual, server, and data centre remote erasure management. Its services and solutions help clients to pin-point and permanently erase data in complex virtual cloud environments. SafeIT and its product set have been fully integrated into Blancco, and this is expected to drive an exciting part of the growth of Blancco in 2016. During the year, the Group has undertaken several separate small transactions to consolidate its ownership of the Blancco network, purchasing the remaining equity stakes in Blancco Sweden SFO, Blancco US LLC and Blancco Central Europe GmbH for a combined consideration of £1.2 million. In July 2014, Regenersis increased its equity stake in Xcaliber to 49% by injecting $3.25 million of cash funding into the business. Xcaliber and Blancco have several significant areas of synergy, including the opportunity to launch bundled smartphone diagnostics and erasure propositions, and to share sales and operational resources. Together they represent a unique proposition to clients. In September 2015, Regenersis acquired 100% of the share capital of Tabernus LLC and Tabernus Europe Limited (together “Tabernus”), a privately owned provider of software erasure. With the majority of its revenue in the USA, Tabernus is the USA market leader. The consideration was $12 million (£7.6 million) comprising cash payment of $10 million (£6.3 million) funded through the Group revolver facility and a maximum of $2 million (£1.3 million) in deferred cash consideration payable after 2 years. On a trailing twelve month basis Tabernus had revenues of $3.0 million (£1.9 million), growing at strong double-digit rates, and an operating profit of $0.4 million (£0.3 million). Tabernus is the global number two competitor in software data erasure, further strengthening Blancco’s global market position and expanding its product portfolio in certain attractive niches. Strategy update The Group has evolved significantly in recent years and now comprises two main businesses (Digital Security Software, and Aftermarket Services) with distinct characteristics. To reflect this and with our strategic initiatives in mind, we have restructured executive leadership, with a CEO for each of these businesses, and the Board is now exploring various strategic alternatives that include the potential sale of the Aftermarket Services business. 1. Digital Security Software The Group’s software assets (including Blancco, SafeIT, Xcaliber and Tabernus) address the huge challenge for enterprises of maintaining usability and data security across a wide range of networked devices. These businesses are based on an intangible asset base and they have the benefit of scaling without a direct requirement for additional operational investment or complexity. 8 24338.04 19 October 2015 10:38 AM Proof 8 www.regenersis.com Stock code: RGS Blancco is the clear global market leader in a rapidly growing sector with an addressable market potentially comprising the entire global Enterprise market, as companies seek to improve security, reduce risk of data breaches, and ensure compliance with demanding regulations. focus on profitability and cash flow in the Depot Solutions business following a period of rapid change and expansion. He will also focus on maximising the value of the Digital Care and Set Top Box Diagnostic businesses, which provide the exciting growth ingredient to this business grouping. For this business the Blancco brand has significant value. For this reason, a new Blancco Technology Group identity has been created, bringing Blancco to the fore but enabling Xcaliber and other future brands to exist alongside. Patrick J Clawson has taken on the role of CEO of Blancco Technology Group. Patrick brings deep software and security sector experience and will focus on building a software business which grows rapidly and profitably. Should the Group transform into a pure software business it is likely that strategy would shift to invest more in growth and sector leadership, in line with common practice in the high-growth software sector. 2. Aftermarket Services (Depot Solutions and Advanced Solutions: Other) The Aftermarket Services businesses (including the Depot Solutions Division and the Digital Care and Set Top Box diagnostics activities currently reported within Advanced Solutions) broadly address the problem of faulty and damaged hardware, requiring excellence in complex operational execution and building relationships with global clients. These businesses are based on a physical asset base. Ian Powell has taken on the role of CEO of the Aftermarket Services business. Ian was previously Group Managing Director of Regenersis in the period 2011-2013. Ian brings an outstanding commercial focus to business leadership. He will Regenersis is one of the global market leaders in the aftermarket services sector. It is of strategic interest because of its unrivalled geographic footprint, high-quality client list, and innovative higher- margin service propositions (including Set Top Box Diagnostics and Digital Care). Investment bank William Blair have been appointed to advise on strategic options. Leadership update The Group has appointed a CEO for each of the two businesses, Digital Security Software and Aftermarket Services. As Chairman this will allow me to focus on delivery of shareholder value from our strategic initiatives and the potential transformation of the group to a pure software business. We expect to conclude this initiative by March 2016, after which I will complete the transition to being fully Non-Executive. I am pleased to welcome the two divisional CEOs, Ian Powell (CEO Aftermarket Services) and Patrick J. Clawson (CEO Digital Security Software) to the Group Board. I am delighted to welcome Tom Skelton to the Group Board as a Non-executive Director from 1 October 2015. Tom is a highly experienced software CEO and currently leads Surescripts, a market leading US software business which enables over six billion annual e-prescriptions and other healthcare transactions in the USA. Since 2006 he has been a Non- executive Director of leading UK software business Micro Focus International Plc. Tom will bring deep software sector experience and insight to the Board. I would like to thank Tom Russell, my partner at Hanover Investors, who steps down from the board at this time, for his contributions. Outlook Trading in the current financial year to date, and outlook for the remainder of the year, are in line with expectations. Following 18 months of intensive organic and M&A activity since acquisition, Blancco is a much larger and stronger business, with a high quality US-based management team, exciting new products, an even stronger market position, and a substantially increased revenue base. Blancco is expected to continue to grow revenue and profits rapidly in FY16. The Aftermarket Services business (including Depot Solutions, Digital Care and Set Top Box diagnostics) is solidly placed and the Group is strongly positioned financially to pursue the potential strategic process identified. The Board aims to successfully conclude its exploration of strategic alternatives by March 2016, at which point the Board would transition from the current interim arrangement to having a single Group CEO. In this process the Board is focused on both the delivery of shareholder value and a significant return of cash to shareholders. Matthew Peacock Executive Chairman 21 September 2015 24338.04 19 October 2015 10:38 AM Proof 8 9 Regenersis Plc Annual Report and Accounts for the year ended 30 June 2015Strategic Report Group at a Glance The Groups management structure is split into two divisions: Our Depot Solutions Division is one of the world’s leading operators in client oriented electronic repair and refurbishment facilities around the world. Our international network of repair centres provides product repair, refurbishment, parts management and logistics services for mobile, IT and B2B infrastructure product vendors, and their sales channels, insurers and end users. 151.5 151.2 154.3 121.1 106.3 2011 2012 2013 2014 2015 Revenue £154.3m 2014: £151.2m 2% Headline Operating Profit £8.6m 2014: £8.1m 6% 10 Operational Highlights • Poland – increase in repair work across a number of key operators and OEMs, notably with significant growth in both in-warranty and out-of-warranty repairs. • Germany – growth in B2B business by more than 20% through contracts with new and existing clients, as well as the addition of laptop and tablet work. • Czech Republic – opening of a new site in June 2014 to service the Honeywell Europe contract. • Romania – site has seen an expansion of set top box and media and entertainment products for a new customer in the year, and continues to develop new technology for LCD repairs. • India – growth in customer base secured via diversification into tablet repairs and more complex mobile repairs, as well as onward disposition of devices. 8.1 8.1 8.6 6.6 6.7 • US – expansion into new territory to service mobile repairs in a new facility in Memphis. 2011 2012 2013 2014 2015 24338.04 19 October 2015 10:38 AM Proof 8 www.regenersis.com Stock code: RGS & Our Software Division includes Blancco – our software business which is the global market leader in securely erasing data from devices, and the new partial data erasure offering of SafeIT. Our partnership with Xcaliber Technologies, a software business in the area of smartphone issue diagnosis and resolution, enhances the software capabilities of the Group. Our Advanced Solutions division provides innovative diagnostic testing, complimenting the in-house Depot Solutions operations – through development of depot tester equipment such as the Oktra. The Division also provides the Group’s as an innovative service offerings – such as the In-Field Tester – meeting the ever evolving needs of our clients. Revenue £48.3m 2014: £46.3m 4% Headline Operating Profit £12.0m 2014: £7.5m 60% 46.3 48.3 28.2 17.5 18.8 2011 2012 2013 2014 2015 12.0 7.5 2.4 2.9 3.6 The core activities are located in Glenrothes which is the hub for Regenersis’ Set Top Box diagnostics business, where we develop and market our automated functionality testing equipment. The division also markets our Digital Care brand, which provides smartphone accidental damage insurance programmes in partnership with insurance underwriters. Operational Highlights • Glenrothes – the Group has been selected as one of the two primary partners to service Liberty Global Europe. • US – successful expansion of business with two key customer in the B2B repair sector in a new facility in Memphis. • Digital Care – has moved from a start-up servicing a small proportion of insurance operators in Poland to managing contracts with the key operators and managing more complex processes. • Digital Care Poland – insurance programs for a number of key clients are well under way with a portfolio in excess of 700,000 policies. Programmes give coverage of 90% of the operator market in Poland. Blancco Highlights • Development of new Mobile product in the year to enhance the business’s portfolio. • Investment in sales force in previously underexploited territories, driving significant sales growth. • Change in client mix towards more stable corporate customers, who now make up over 25% of sales. 2011 2012 2013 2014 2015 • Acquisition of SafeIT and partial data erasure product, used by clients in cloud computing. 24338.04 19 October 2015 10:38 AM Proof 8 11 Regenersis Plc Annual Report and Accounts for the year ended 30 June 2015Strategic Report Our Business Model Our business model is founded on a platform which drives service and innovation to drive recurring income across multiple complementary lines of business, which enables us to afford the best operating platform in our sector while still delivering attractive profitability and return on capital employed for our shareholders. einvestm e nt R Clients Recurring income across multiple complementary lines of business R e i n v e s t m e n t Service Consistent high-quality execution Innovation Bringing new services to market Integration Global consistency of processes People Buidling the best team in our sector M&A Innovation and global footprint Platform Sharing costs across services, sites and clients 12 24338.04 19 October 2015 10:38 AM Proof 8 www.regenersis.com Stock code: RGS Clients Our clients are the key pillar in our business. The success of the business is driven by our customer relationships. The business model is client-centric and structured in a way to promote the interests of our customers as well as the growth and promotion of our business, both through the expansion of existing customers across services and through obtaining new customers. Read more about our services in the Business Review from page 22 Service Innovation In order to maintain our position in the market, we must ensure a continued high level of service to our customers. Our global reputation is underpinned by innovation in new technologies, both those developed in our core repair operations and those acquired through strategic M&A. Our technology portfolio ensures that we maintain our position in the market and are able to offer market leading services to our clients. Platform The platform of our business model is the foundation for the success of the Company, and brings together three key strategy principles to help us to deliver growth. Read about our innovation through our service lines on page 19 Integration People M&A We offer a full cycle refurbishment service, device diagnostics, protection and repair and onward disposition, and it is important that these service lines are integrated together. This helps us to provide a complete solution to our clients, adding value and cementing the Group as the leading market provider. Our employees are another key stakeholder in the Group. The knowledge and expertise within our workforce help to drive forward our services and products, and ensure we maintain our position in the market. The industry in which we operate is ever evolving with the pace of change in technology and this means our client needs are dynamic. We have developed our M&A strategy to complement and enhance our existing service offerings, with the focus on innovating service offerings to increase the value we provide to our clients. Case study – SafeIT on page 21 13 24338.04 19 October 2015 10:38 AM Proof 8 Regenersis Plc Annual Report and Accounts for the year ended 30 June 2015Strategic Report Our Markets Our markets are common across all of our operating segments, each providing different and complementary solutions to our clients’ needs. Read more in our Operating Matrix on page 17 These markets present a range of sizes, growth/maturity levels, and competitive intensity: Depot Advanced Solutions Software Europe USA Africa Asia South America Geographies Europe USA Africa Locations Depot Depot Europe USA Asia South Pacific South America Cloud In-field (client’s location) In-field (client’s location) In-field (client’s location) In-store services Sectors Repair and refurbishment Repair and refurbishment Aftermarket Insurance Aftermarket Aftermarket Technology development Technology development Regenersis is one of the leading players in the services and geographies in which it operates; and at a Group level Regenersis is among the top three global aftermarket services providers by revenue. Regenersis seeks to position itself in the most attractive segments of the marketplace, exhibiting rapid growth and potential for strong profitability, as described in the strategy section below. 14 24338.04 19 October 2015 10:38 AM Proof 8 www.regenersis.com Stock code: RGS Supporting The Life Cycle Of Technology Read more online at www.regenersis.com 15 24338.04 19 October 2015 10:38 AM Proof 8 Regenersis Plc Annual Report and Accounts for the year ended 30 June 2015Strategic Report The Opportunity Our customers are increasingly consolidating their supplier base and looking for a service provider which can meet its technology requirements. Through the focus on each aspect of our business model, we have been able to differentiate ourselves in the market as the global player which can meet the range of needs of our clients. Device sales volumes 2013-2017 Smartphone 1013 Tablet 407 227 197 181 123 134 125 Portable PC Desktop PC STB 66 0 1734 2017 2013 500 1000 1500 2000 The Group’s potential for growth remains strong both internally and externally. Global device sales are expected to increase significantly which expands the market in which the Group operates. The Group is continuing to fill out the operating matrix to capitalise on these advancements, with further opportunity for expansion into further service lines and locations. The opportunity remains strong across both of our operating Divisions. 16 www.regenersis.com Stock code: RGS 24338.04 19 October 2015 10:38 AM Proof 8 Operating Matrix This matrix of geographies and products is important, firstly, because it is how we leverage and build on our strengths, assets and relationships and, secondly, it is how we translate our strategy for growth in Depot Solutions and Software and Advanced Solutions into action on the ground. DEPOT SOFTWARE AND ADVANCED SOLUTIONS t n e m h s i b r u e R f & r i a p e R k r o w t e N i e c v r e S i e h c n B 2 B s t c u d o r p s c i t s o n g a d i T F I e r a C l a t i i g D e c n a r u s n I s c i t s o n g a D i e l i b o M e r u s a r E t a a D Business locations 1 UK 2 Germany 3 Poland 4 Romania 5 Russia 6 Nordics 7 USA 8 South Africa 9 Spain 10 Mexico 11 Argentina 12 India 13 Portugal 14 Belgium 15 France 16 Italy 17 Canada 18 Japan 19 Australia 20 Czech Republic 21 Malaysia 22 Netherlands KEY: Where we operate Progress in last 6 months & 17 24338.04 19 October 2015 10:38 AM Proof 8 Regenersis Plc Annual Report and Accounts for the year ended 30 June 2015Strategic Report Our Strategy Our strategy is linked to our business model, with the driving focus behind our operations being to provide innovative services to our clients. We direct our innovation organically and via M&A, towards areas which address attractive markets (large high growth and high margin) and which have synergies with existing business (in clients, operations and/ or services). This includes two main axes of development: • Adding new Advanced Solutions to our portfolio. • Building the most attractive geographic footprint of operations to serve our large multinational clients. Depot Solutions Our clients are global market leaders in their respective fields. Historically, they have outsourced their repair services to partners like Regenersis but on a one-country-at-a-time basis. Increasingly, our customers are managing the delivery of the aftermarket services through either a regional or global relationship. As a result, our strategy is to build the most attractive geographic footprint of operations to serve our large multinational clients’ growing international needs. Software & Advanced Solutions This division contains the development of new technologies and is the key strategic focus for the Group. This has included the development of the In-Field Tester (IFT), which reduces the no fault found returns into depot repair facilities, and the roll out of our market leading insurance service in Poland. During the year, the strategy has been focused around enhancing and promoting these service offerings, which has manifested through the rapid growth in our Digital Care portfolio. Our strategy is now to enhance and roll out our full life cycle solutions to our clients, underpinned by our core repair operations. Blancco The strategy for the Blancco Technology Group is to cement ourselves as an effective protector of electronic assets and mobile functionality for enterprise businesses. In combination with Xcaliber’s SmartChk diagnostic solution, we aim to provide a complete solution from device diagnosis to fault correction. We reinvest the profits of our trade back into the development of these technologies. Our mission is to be the global leader in this field. Full Life Cycle Solution Case Study Clients Client Service Outsourcing of the Depot service centre for a key B2B customer in the UK, Germany and Poland. We offer the full life cycle of device management services, managing returns through screening and subsequent repair of bespoke devices, as well as managing logistics to return those devices to the customer. The integrated service provided has resulted in a same day shipment rate of over 98% and has cut the costs for the customer compared to their previous service provider by 45%. 18 Read more online at www.regenersis.com 24338.04 19 October 2015 10:38 AM Proof 8 www.regenersis.com Stock code: RGS Service Lines Advanced Solutions • Configuration & staging insurance Software • Data erasure • Triage/QA L a u n c h Software • Data migration Depot • Service network training & support se R e e-u R Depot • Refurbishment • Swap stock Advanced Solutions • Refurbishment Software • Live environment data erasure Retire Depot Software • Buy back parts salvage • Certified complete data erasure c l e y c P r otect Full Life Cycle Solutions M aintain Software • Diagnostics • Data erasure management & Advanced Solutions • Insurance Diagnostics Depot • Parts supply • Swap stock • Carry in repair • Warranty repair • Garage repair • Delam/relam techology Depot • Preventative maintenance Advanced Solutions • Diagnostics • IFT & held service • Warranty repair • Garage repair • OOW repair 19 24338.04 19 October 2015 10:38 AM Proof 8 Regenersis Plc Annual Report and Accounts for the year ended 30 June 2015Strategic Report Our Strategic Priorities Our strategic priorities help us to fulfil each element of our business model and drive growth for the Group. Our Strategic Priorities How we achieve them Priority 1 Integrating our services Priority 2 Developing our people Priority 3 Opening new markets (M&A) Priority 4 Developing new technologies Priority 5 Becoming the market leader • Developing and merging the service offering in our operating matrix • Obtaining the best management teams to drive growth of the business • Identifying complementary business offerings to enhance the offering of the group and changing nature of the market • Investing resources in our technology to ensure they are market leading and provide value to our clients • Diversification into new markets and products • Further development of Digital Care • Becoming the key provider of data • Development of Digital Care into an operational business model, merging contracts across border and expanding capabilities across our locations • Expanding our cross border capabilities • Recruiting for senior management in • Building the best team in our sectors the growing and evolving Software segment • Acquisition of SafeIT • Further growth and integration of recent acquisitions • Release of Blancco mobile and • Creating market leading technologies further development of IFT diagnostic technology and refurbishment processes offering erasure and insurance offerings in our key territories underpinned by our reputation as a Depot repair provider 20 24338.04 19 October 2015 10:38 AM Proof 8 www.regenersis.com Stock code: RGS Case Study M&A Integration The Group has integrated SafeIT, previously a supplier to the Group, which enhances the data erasure portfolio. Bringing the company under Group control has allowed us to better bring the product to market, improving the product to customers and has seen significant sales growth in the period since acquisition. Read more online at www.regenersis.com How we measure them Progress in 2015 Priorities in 2016 Priority 1 Integrating our services Priority 2 Developing our people • Developing and merging the service offering in our operating matrix Filling out the operating matrix • Obtaining the best management teams to drive growth of the business Staff turnover • Development of Digital Care into an operational business model, merging contracts across border and expanding capabilities across our locations • Recruiting for senior management in the growing and evolving Software segment • Expanding our cross border capabilities • Building the best team in our sectors Priority 3 Opening new markets (M&A) of the market Priority 4 Developing new technologies • Investing resources in our technology to ensure they are market leading and provide value to our clients Contribution of new acquisitions to the profitability of the Group Number of new products and services launched in the period • Release of Blancco mobile and • Creating market leading technologies further development of IFT diagnostic technology and refurbishment processes • Identifying complementary business offerings to enhance the offering of the group and changing nature Filling out the operating matrix • Acquisition of SafeIT • Further growth and integration of recent acquisitions Priority 5 Becoming the market leader • Diversification into new markets and products Our place in the market • Further development of Digital Care offering • Becoming the key provider of data erasure and insurance offerings in our key territories underpinned by our reputation as a Depot repair provider 24338.04 19 October 2015 10:38 AM Proof 8 21 Regenersis Plc Annual Report and Accounts for the year ended 30 June 2015Strategic Report Business Review Results The financial performance of the business is summarised as follows: • Revenue of £202.6 million (2014: £197.5 million, growth 2.6%); • Headline Operating Profit before corporate costs of £20.6 million (2014: £15.6 million, growth 32.1%); • Headline Operating Profit after corporate costs of £15.4 million (2014: £11.0 million, growth 40.0%); • Headline Operating Profit on constant currency basis of £16.8 million (2014: reported HOP £11.0 million, growth 52.7%); • Headline Operating Profit margin of 7.6% (2014: 5.6%). Operating profit was £5.6 million (2014: £0.5 million). Increased Headline Operating Profit and reduction of exceptional acquisition and restructuring costs relative to the prior year contributed to this increase. Segmental Results Headline Operating Cash Flow was £11.6 million (2014: £4.5 million) with a cash conversion of 75.3% (2014: 40.9% conversion) relative to Headline Operating Profit. Net cash at the end of the period was £7.8 million (June 2014: £20.6 million). Key financials Revenue Headline Operating Profit before corporate costs Headline Operating Profit after corporate costs Operating profit Headline Operating Profit margin % before corporate costs Headline Operating Profit margin % Corporate costs % Operating profit % 2015 £’m 202.6 20.6 2014 £’m 197.5 15.6 15.4 11.0 5.6 10.2% 7.6% 2.6% 2.8% 0.5 7.9% 5.6% 2.3% 0.3% Depot Solutions Software Advanced Solutions Software and Advanced Solutions Total Group Corporate costs Group Revenue Headline Operating Profit HOP Margin % 2015 £’m 154.3 15.0 33.3 48.3 202.6 – 202.6 2014 £’m 151.2 2.4 43.9 46.3 197.5 – 197.5 2015 £’m 8.6 5.4 6.6 12.0 20.6 (5.2) 15.4 2014 £’m 8.1 0.5 7.0 7.5 15.6 (4.6) 11.0 2015 2014 5.6% 36.0% 19.8% 24.8% 10.2% 5.4% 20.8% 15.9% 16.2% 7.9% 7.6% 5.6% Revenue Headline Operating Profit +3% £154.3m 2014: £151.2m £48.3m 2014: £46.3m +40% £8.6m 2014: £8.1m £12.0m 2014: £7.5m Depot Solutions Software and Advanced Solutions Depot Solutions Software and Advanced Solutions 22 24338.04 19 October 2015 10:38 AM Proof 8 www.regenersis.com Stock code: RGS Depot Solutions Division The Depot Solutions Division provides the Group’s geographic infrastructure and core repair service, focusing on continuous improvement, common operating practices and IT platforms and efficiency. It includes the operations in the UK (excluding Glenrothes), Germany, Poland, Romania, Turkey, South Africa, Spain, Argentina, Mexico, India, Portugal, Russia, the USA, and the Czech Republic. Revenue increased from £151.2 million to £154.3 million as a result of volume growth across most of the existing sites as well as the expansion of new sites in the USA and the Czech Republic. Headline Operating Profit increased by 6.2% to £8.6 million, with an increase in margin from 5.4% to 5.6% Financial and operational highlights included: • Poland continued to win and implement new work with a number of operators and OEMs, including HTC, Samsung and Vodafone, and was able to service more complex repair services on a range of products. Volumes from a major OEM already decreased significantly in 2015 compared to 2014 and the recent loss of this client contract will again adversely impact volumes in 2016 compared to 2015, although this is expected to be mitigated by growth from other clients. • Spain strengthened its position as a preferred partner of OEM’s and insurance accounts. The loss of Nokia in the site will impact performance in 2016, although a number of smaller new contracts have been identified and won, which will commence in 2016. • Portugal increased its volumes from Vodafone. Further accreditations obtained during the year have begun to broaden the customer base, a trend which is expected to develop further in 2016. • Germany expanded and diversified its business in the year, winning several new B2B contracts being accredited to process IPhone repairs. Expansion of European B2B has been partly served by new operations opened in the Czech Republic in April 2014. • Russia (where the joint venture partner was bought out in 2014) has moved from an initial break-even position to make a positive contribution in 2015, with growth in B2B volumes as well as the addition of other OEM clients. The opportunities for expansion are strong. • India has shown growth since acquisition in the prior year, diversifying into higher margin tablet repairs. • The US operation, opened during the year and focused on B2B work, has made good initial progress. Software and Advanced Solutions Division The Software businesses include: • Blancco, acquired in April 2014, the global market leader in data erasure software. • Xcaliber Technologies, a smartphone diagnostic software business. The Group increased its stake in this business from 15% to 49% in July 2014. The Advanced Solutions: Other businesses include: • Set Top Box activities in Glenrothes; • Set Top Box Diagnostics globally, including the In- Field Tester business and other remote diagnostics capabilities covering countries including the USA, South Africa and Belgium; • The Digital Care Insurance program which launched in 2013, with activities principally in Poland. The Software and Advanced Solutions Division increased revenue to £48.3 million (2014: £46.3 million), driven by the acquisition of Blancco. Exit from Recommerce which ceased trading in June 2014, negatively affected revenues and Headline Operating Profit in 2015 compared to the prior year. Headline Operating Profit was £12.0 million, at a margin of 24.8%, compared to a margin of 16.2% in 2014. The Headline Operating Profit margin has improved, reflecting the relatively faster growth of the higher margin Digital Care and Software businesses. 24338.04 19 October 2015 10:38 AM Proof 8 23 Regenersis Plc Annual Report and Accounts for the year ended 30 June 2015Strategic Report Business Review continued Financial and operational highlights included: Blancco Key Figures £’m Revenue Headline Operating Profit 30 June 2015 GBP 15.0 30 June 2014 GBP 11.5 30 June 2013 GBP 8.6 5.4 3.2 2.9 IFRS revenue recognition required an accounting policy change for Blancco upon acquisition, to defer the revenue earned on software subscriptions – which have a defined term – over the term of the contract. This one-off negative impact on revenue has been absorbed in 2015. From 2016 onwards, outflow from new revenue deferrals will be largely offset by inflow from previous-year revenue deferrals. Corporate Costs Corporate costs of £5.2 million (2014: £4.6 million) have increased slightly, growing from 2.3% to 2.6% of Group revenue, driven significantly by the strength of Sterling, which comprises a large fraction of the corporate cost base. Currency Hedging Activities and Constant Currency One of the risks that the Group faces by doing business in overseas markets is currency fluctuations. In order to manage the Group’s currency fluctuations, the CFO conducts a quarterly review of the Group’s currency hedging activities and a formal recommendation for any changes is made to the Board every half year. • The launch of a site in Belgium servicing the country’s main cable operator, delivering Set Top Box test and refurbishment solutions. • Liberty Global is seeking to consolidate its aftermarket supplier base and Regenersis was selected as one of two primary partners to service Europe; we are now participating in technology design for future flagship Set Top Box and model/gateway products. We have begun construction of a new client-colocated operation in the Netherlands to support this client. • In North America the rate of growth of expansion with AT&T slowed in 2015, which we believe was driven by this client’s focus on its very large acquisition of DirectTV, completed in July 2015. The pipeline of other Set Top Box diagnostics opportunities in the US improved in 2015. • Digital Care moved from its pilot phase to full-scale operations in 2015, experiencing rapid growth. At year end the policy base was over 700,000 policies with key customers being Orange, Polkomtel and T-Mobile. Volume growth was driven by Orange in 2015, with the latter two clients moving from pilot to full-scale programs in July 2015. • New business opportunities for Digital Care have been identified in several countries. • Blancco has enhanced its portfolio of products, both through internal development including the release of a new mobile erasure product and a new version of its core IT erasure suite, and through the acquisition of the SafeIT business in September 2014. This product replaces and significantly improves upon a third party product previously resold by Blancco. • Blancco continues to grow internationally. During the year there was investment in subsidiaries in Sweden, Germany and the USA which are now owned 100% by the Group. • Xcaliber Technologies ran trials of its smartphone diagnostic solutions with several clients and secured as a result its first significant contracts in 2015, including a contract for its SmartChk in-store kiosk diagnostic solution for over 200 stores of a large mobile operator in the USA, and a contract for its SmartChk device-pre-installed diagnostic solution for a major mobile phone OEM in India. 24 24338.04 19 October 2015 10:38 AM Proof 8 www.regenersis.com Stock code: RGS This strength of the Sterling relative to the functional currencies of the Group increased during the current period. The Euro and the Polish Zloty (which together make up 55% of the Group’s HOP before corporate costs) weakened versus sterling over the current period, depreciating by 12.8% and 14.1% respectively over the previous 12 months. The other emerging market currencies in which the Group transacts have depreciated by 11.1% on average. Euro (EUR) Polish zloty (PLN) 30 June 2015 1.41 5.92 31 December 2014 1.33 5.44 30 June 2014 1.25 5.19 A reconciliation of actual results to results restated at expected exchange rates is presented below: Year ended 30 June 2015 Actual Results £’million 202.6 53.6 20.6 Year ended 30 June 2015 Constant Currency £’million 224.2 59.0 22.3 15.4 48.3 154.3 12.0 8.6 16.19 6.97 16.8 51.0 173.2 12.7 9.6 18.09 8.72 Revenue Gross profit Group HOP before corporate costs Group HOP after corporate costs Software and Advanced Solutions Revenue Depot Solutions Revenue Software and Advanced Solutions HOP Depot Solutions HOP Adjusted EPS (pence) Basic EPS (pence) The Group implements forward contracts for payments and receipts, where the amounts are large, are not denominated in the local country’s functional currency, where the timing is known in advance and 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 target company’s local currency. The Group has a mix of business across 22 different territories and this provides some degree of smoothing of currency movements in any one country through a portfolio effect. The cash and loan balances held in different currencies provide a natural hedge. However, the Group does not undertake any cash flow or profit hedging activities to insulate from currency movements in respect of overseas earnings, specifically the conversion of its largely non-Sterling generated income into the Group’s reporting currency, Sterling. No other hedging activities are undertaken in respect of tangible and intangible fixed assets, working capital (such as stock, debtors or creditors), or other balance sheet items, as these are generally small in nature in any one individual country. Mergers and Acquisition activity M&A focus has been on enhancing the Software and Advanced Solutions portfolio. Acquisition of SafeIT On 2 September 2014, the Group completed the acquisition of 100% of the issued share capital of SafeIT Security Sweden AB (“SafeIT”) for a consideration of €1.8 million (£1.4 million). SafeIT, a company headquartered in Stockholm, Sweden, is the world’s leading provider of data erasure in networked and cloud storage environments. SafeIT is a technology and development partner of VMware, Microsoft, IBM and HP. Acquisition of Tabernus In September 2015, Regenersis acquired 100% of the share capital of Tabernus LLC and Tabernus Europe Limited (together “Tabernus”), a privately owned provider of software erasure. With the majority of its revenue in the USA, Tabernus is the USA market leader. The consideration was $12 million (£7.6 million) comprising cash payment of $10 million (£6.3 million) funded through the Group’s revolver facility and a maximum of $2 million (£1.3 million) in deferred cash consideration payable after 2 years. 24338.04 19 October 2015 10:38 AM Proof 8 25 Regenersis Plc Annual Report and Accounts for the year ended 30 June 2015Strategic Report Business Review continued On a trailing twelve month basis Tabernus had revenues of $3.0 million (£1.9 million), growing at strong double- digit rates, and an operating profit of $0.4 million (£0.3 million). Tabernus is the global number two competitor in software data erasure, further strengthening Blancco’s global market position and expanding its product portfolio in certain attractive niches. Acquisition of Non-controlling Interest in Blancco Sales Offices Blancco has historically adopted a local minority-partner approach to entering new territories. In 2015, Blancco bought out its partners in three territories, the USA, Germany and Sweden: • USA – On 30 September 2014, the Group acquired the remaining 40% of the share capital of Blancco US LLC for a cost of $1.2 million (£0.7 million). There is no earn-out. • Germany – On 30 June 2015, the Group acquired the remaining 20% of the share capital of Blancco Central Europe GmbH for a cost of €0.4 million (£0.3 million). There is no earn-out. • Sweden – On 2 September 2014, the Group acquired the remaining 25% of the share capital of Blancco Sweden SFO for an initial cost of SEK 2.8 million (£0.2 million). The acquisition also includes an earn-out for the period to March 2016 and March 2017 based upon growth metrics above pre-agreed target revenue. The estimated cash outflow at the time of this report is estimated at £0.8 million on 31 March 2016 and £1.4 million on 31 March 2017. Investment in Xcaliber On 25 July 2014, the Group acquired 34% of the issued share capital of Xcaliber Technologies LLC (“Xcaliber”) for a consideration of $3.3 million (£1.9 million), bringing the Group’s share to 49%. Xcaliber is a US based smartphone diagnostics software business. Disposal of Regenersis Recommerce Limited and Regenersis Sweden AB Regenersis entered the business of remarketing smartphones in Europe in 2013, and expanded rapidly and profitably in 2014. However, the sector did not evolve as originally expected, notably in terms of increased competitive intensity and a drop in insurance-sector demand for refurbished devices, and the Board decided to exit this activity from the end of 2014. On 8 June 2015, the Group disposed of its 100% interest in Regenersis Recommerce Ltd and Regenersis Sweden AB. This resulted in a non-cash loss on disposal of these legal entities of £1.5 million. EBT Share Buy Back The Employee Benefit Trust purchased a total of 1,650,000 shares, by way of the purchase of: • 800,000 shares, at an average price of 230.8 pence per share and at a total price of £1.8 million, on 14 January 2015; • 200,000 shares, at an average price of 241.5 pence per share and at a total price of £0.5 million, on 16 January 2015; • 150,000 shares, at an average price of 200.0 pence per share and at a total price of £0.3 million, on 19 March 2015; and • 500,000 shares, at an average price of 205.0 pence per share and at a total price of £1.0 million, on 26 March 2015. The total cash outflow associated with the share buy backs throughout the period was £3.6 million and the EBT now holds 2,467,394 shares. The figure of 79,022,599 Ordinary Shares should therefore continue to be used by shareholders as the denominator for the calculations by which they will determine if they are required to notify their interest in, or a change to their interest in, the share capital of Regenersis under the FSA’s Disclosure and Transparency Regime. The figure of 76,555,205 Ordinary Shares may therefore be used by shareholders in the basic EPS calculation. 26 24338.04 19 October 2015 10:38 AM Proof 8 www.regenersis.com Stock code: RGS Net Financing Income Net financing income was £1.2 million (2014: £2.4 million). Income arose from the revaluation and resulting reduction in value of the Group’s contingent consideration payable on two acquisitions made in prior periods: Digicomp and HDM. This revaluation resulted in a non-cash profit of £3.3 million (2014: £4.7 million). Total finance costs in the year were £2.3 million (2014: £2.4 million). This includes the unwinding of the discount factor on outstanding contingent consideration of £0.9 million (2014: £1.1 million). Invoice financing facility charges were £0.2 million (2014: £0.2 million). Interest costs for the Revolving Credit Facility and other costs were £1.2 million (2014: £1.1 million). Taxation The total tax charge was £1.7 million (2014: £0.4 million credit). The increase in tax charge is driven by the higher profits generated by the Software segment, which are taxed in higher tax jurisdictions than the rest of the Group. Earnings per share Adjusted earnings per share were constant at 16.19 pence (2014: 16.16 pence). Basic EPS increased by 27.9% to 6.97 pence (2014: 5.45 pence). Exceptional Acquisition and Restructuring Costs The Group undertook a large number of relatively small but complex acquisitions in 2015. Acquisition costs amounted to £3.0 million (2014: £5.0 million), with the largest costs relating to the acquisition of Blancco in 2014, the acquisition of SafeIT, investment in Xcaliber, buy-out of minority partners in Blancco sales offices, and the due diligence of the Tabernus acquisition. Exceptional restructuring costs amounted to £0.7 million (2014: £4.4 million) and related primarily to finalisation of the restructuring activities carried out in the second half of the previous financial year. Amortisation of Acquired Intangibles and R&D Expenditure Amortisation of intangible assets was £3.3 million (2014: £0.6 million). This included both the amortisation of acquired intangibles arising from business combinations and the amortisation of R&D expenditure. The cost has increased in the year primarily due to a full year of amortisation of the Blancco intangible assets, including the brand name and intellectual property. Share Based Payments Share based payments charge was £0.5 million (2014: £0.7 million) and reflects the straight line accounting charge required for the incentive share plans established in prior periods. The charge has reduced this year due to a reduction in the fair value of payout for options which have vested but remain outstanding. On 30 June 2015, new long-term incentive plans were approved by the Remuneration Committee for Senior Management (not Executive Directors on the PLC Board). Details of these schemes can be found in note 33 in the Notes to the Accounts. 24338.04 19 October 2015 10:38 AM Proof 8 27 Regenersis Plc Annual Report and Accounts for the year ended 30 June 2015Strategic Report Business Review continued Cash flow The key working capital metrics that are monitored are: • Debtor days, which decreased to 55 days (2014: 64 days); • Stock days, which decreased to 36 days (2014: 37 days); and • Creditor days, which increased to 49 days (2014: 47 days). Tax paid was £1.0 million (2014: £0.8 million). Net interest paid was £0.8 million (2014: £0.7 million). The Group has continued to invest in differentiating its services and strengthening its platform for long term profitable growth. Capital expenditure and R&D increased to £7.3 million (2014: £6.7 million). Expenditure on tangible assets, including leasehold improvements and technical equipment, and software licences amounted to £3.3 million (2014: £3.8 million) Capital development expenditure on R&D activities amounted to £4.0 million (2014: £2.9 million) and comprised further investment in: • Software – Predominantly in the Blancco business, including the new mobile erasure product launched in 2015, and also a major new version of the core Blancco erasure software, Blancco 5.0 • Set Top Box – Predominantly in the continued development and localisation of diagnostic tools; as well as development for new video transmission technology such as the move towards 4K transmission. These activities are carried out in Glenrothes. • Mobile – Predominantly in the continued development of screen re-lamination/lamination technology of mobile phone screens for use with larger displays and other OEM device types. These activities are carried out in Romania. Operating cash flow before movement in working capital and exceptionals Movement in working capital and exceptionals Movement in provisions Headline Operating Cash Flow Net interest payments Tax paid Acquisition, exceptional payments and other movements Operating cash flow Capital expenditure Acquisition of subsidiaries, associates and other investments, net of cash acquired Net cash flow from share issues, option vesting and dividend payments Other movements Net (decrease)/increase in cash and cash equivalents Net cash 2015 £’m 18.3 (4.9) (1.8) 11.6 (0.8) (1.0) (2.9) 6.9 (7.3) (4.4) 2014 £’m 14.1 (8.6) (1.0) 4.5 (0.7) (0.8) (8.7) (5.7) (6.7) (51.1) (6.9) 89.3 (1.1) (12.8) 7.8 (3.3) 22.5 20.6 Headline Operating Cash Flow of £11.6 million (2014: £4.5 million) and operating cash inflow of £6.9 million (2014: outflow of £5.7 million) were both higher than previous periods primarily due to the increased cash flow contribution from the Software and Advanced Solutions division. Net cash at the end of the period was £7.8 million (2014: £20.6 million). Significant cash was deployed in EBT buy backs (£3.6 million), dividend payments (£3.4 million) and M&A activity (£6.1 million). Working capital increased by £4.9 million. Drivers of working capital expansion included revenue growth, the investment in growing new sites, the continuing shift in the Group’s mix of business towards Emerging Markets, which typically have longer receivables cycles, pressure from some larger clients to secure longer credit terms from Regenersis, and pressure from certain suppliers (who are often also clients of Regenersis) tightening their invoicing and collection processes. In managing these effects, the Group improved working capital management on stock and debtors in most locations and continued limited use of invoice financing facilities. 28 24338.04 19 October 2015 10:38 AM Proof 8 www.regenersis.com Stock code: RGS Net Cash Year end net cash comprised gross borrowings of £4.6 million, denominated in Sterling and Euros (2014: £0.7 million), cash and cash equivalents of £12.1 million (2014: £20.8 million) and deferred arrangement fees of £0.3 million (2014: £0.5 million). Dividend In line with our stated dividend policy, the Board is recommending a final dividend of 3.35 pence per ordinary share to be paid on 3 December 2015 to shareholders on the register on 6 November 2015. This gives a full year dividend of 5.0 pence per ordinary share, which is a 25% increase on the prior year. Post Year-end Events Banking facility In September 2015, the Group extended the term of its banking facility with HSBC from October 2016 to October 2019. The covenants were unchanged. All banking covenants have been passed and show significant headroom for the foreseeable future. Acquisition of Tabernus On 2 September 2015, the Group completed the acquisition of 100% of the share capital of Tabernus LLC and Tabernus Europe Limited for an initial consideration of $10.0 million (£6.3 million). 24338.04 19 October 2015 10:38 AM Proof 8 29 Regenersis Plc Annual Report and Accounts for the year ended 30 June 2015Strategic Report Key Performance Indicators The Group has a range of performance indicators, both financial and non-financial, to monitor and manage the business and ultimately to improve performance. These are set at the individual customer level and for business units as well as for the Group as a whole. The Group’s key performance indicators (“KPIs”) are outlined below: KPI Description Performance Commentary Future Target Continued double digit profit growth has been generated through both organic growth and successful integration of acquisitions. Positive growth for the Group overall, with the majority of growth coming from the Software and Advanced Solutions Division. Cash conversion of 80%. The business targets a strong cash conversion relative to HOP, which has returned to normal levels in 2015 following significant working capital investment in 2014. The increase in profitability of the Group has translated into higher shareholder value. The Group targets growth in EPS, and in line with profit growth. Headline Operating Profit (£’m) Headline Operating Cash Flow (£’m) Adjusted EPS (pence) 15.4 11.0 9.5 7.8 2012 2013 2014 2015 12.9 11.6 5.9 4.5 2012 2013 2014 2015 16.80 16.16 16.19 13.5 2012 2013 2014 2015 Operating profit stated before amortisation or impairment of R&D intangible assets, acquisition costs, exceptional restructuring costs and share-based payments. Operating cash flow excluding taxation, interest payments and receipts, acquisition costs, and exceptional restructuring costs. Basic earnings per share excluding amortisation or impairment of intangible assets, amortisation of bank fees, exceptional restructuring costs, acquisition costs, share-based payments, unwinding of the discounted contingent consideration and adjustments to estimates of contingent consideration. See our Strategic Priorities on page 20 30 24338.04 19 October 2015 10:38 AM Proof 8 www.regenersis.com Stock code: RGS KPI ROCE Mix of Software and Advanced Solutions to the rest of the business (Headline Operating Profit after corporate costs) Mix of Software to the rest of the business (Headline Operating Profit after corporate costs) Health & Safety RIDDOR* reportable incidents (number) Description Performance Commentary Future Target ROCE is calculated as HOP as a percentage of capital employed (non- R&D intangibles, tangible assets, stock, debtors and creditors). 172% Significant working capital investment in prior periods is now translating to profit growth. 129% 96% 99% 2012 2013 2014 2015 The proportion of divisional HOP generated by our strategically important Software and Advanced Solutions Division. 78% 68% 37% 38% 2012 2013 2014 2015 The Advanced Solutions segment has benefitted from ramp of the Digital Care offering, which underpins the stable growth in Set Top Box diagnostics. While the Group continues to invest in growth of new sites, the return to shareholders is a key metric which the Group expects to increase as the profitability of the Software and Advanced Solutions Division increases. Further expansion of Digital Care is expected to expand this division in 2016. The proportion of segmental HOP generated by our strategically important Software segment. 35% Blancco has contributed significantly to the Group’s result, benefitting from the first full year under Group management. Expansion within existing and new markets is expected to boost growth in 2016. 0% 0% 5% 2012 2013 2014 2015 Number of serious workplace accidents recorded. 4 3 No incidents have been reported in the year, which underlines the Group’s strong processes. The Group expects to maintain these high standards in the future. 0 0 2012 2013 2014 2015 * Or local country equivalent. 24338.04 19 October 2015 10:38 AM Proof 8 31 Regenersis Plc Annual Report and Accounts for the year ended 30 June 2015Strategic Report Risk Management Principal Risks and Uncertainties The Board is responsible for determining the nature and extent of the risks it is willing to take in delivering the Group’s strategic objectives, and manages these risks through the Regenersis Risk Management Framework. Risk Response As a result of this assessment and recording of risks, each Business Unit Managing Director will formulate an appropriate response for each risk, i.e. whether to tolerate, treat, or terminate the threat to the Group. This enhanced framework, which is outlined in detail below, allows the Group to manage risks across all of its operating locations, which vary by scale, complexity and impact from country to country. Appropriate actions will be agreed; for example, to mitigate, transfer (through insurance), or eliminate (by ceasing) the risk. The objective will be to continually challenge the efficiency and effectiveness of controls. Risk Agenda The Group’s risk agenda is delivered through an appropriate and embedded risk management culture and framework. This helps to ensure that appropriate and proportionate resources are allocated to risk management, in order to ensure the activities of risk assessment and risk response are further embedded in Regenersis’ governance processes going forward. Risk Assessment In identifying risks, we consider both the external factors, arising from the environment in which we operate; and the internal factors arising from the nature of our business, our controls and processes and our decision making. Business Unit Managing Directors own their respective risks and, with support from the Internal Audit function, are required to record the causes and consequences, together with mitigating factors to reduce the risks that they have identified. Each risk will be evaluated based on its likelihood of occurrence and severity of impact (on strategy, profit, regulatory compliance, reputation and/or people) and positioned on a risk ranking matrix. This approach is expected to allow the easy identification of the significant material risks, and allow management to consider the effect of any mitigating actions that they may be able to put in place. Each risk will also be assessed as to whether it is within the Group’s risk appetite. The strategic risk appetite for the business will be reviewed annually as part of the annual budgeting process by the Board. The Board will be asked to assess whether risks are within the Group’s risk appetite. Regenersis Risk Management Framework The Risk management Framework operates as follows: • The Board – Will annually undertake a formal review of the effectiveness of the Regenersis Risk Management Framework, policy and procedures, and performance of the Risk Management Committee. Twice yearly, the Board will review the key risks in the Group’s risk register, thereby allowing it the opportunity to review the level of risk that the Board is prepared to accept in pursuit of the Group’s strategic objectives; • The Audit Committee – Reviews the Group’s system of internal control, including financial, operational, compliance and risk management, as well as reviewing the system’s effectiveness. Such a system is primarily designed to mitigate risk to an acceptable level, support compliance with laws and regulations, and protect against material misstatement or loss; • The Risk Management Committee – The Board will be supported in its responsibilities by the Risk Management Committee, which is chaired by the Chief Operating Officer of the Depot Solutions Division, and is responsible for ensuring that all significant management and operational risks facing the Group are reduced to an acceptable level; and • Internal Audit – The Internal Audit function supports the Audit Committee in its review of the effectiveness of the system of internal control. There is a rolling programme of Internal Audit review carried out across the Group. During the course of the year, the Internal Audit function undertook eight reviews. Principal Risks It is recognised that the Group’s strategic objectives can only be achieved if risks are taken and managed effectively. The risks below are those considered principal to delivering our strategy and are specific to the nature of our business, although there are other risks that may occur and impact the Group’s performance. 32 24338.04 19 October 2015 10:38 AM Proof 8 www.regenersis.com Stock code: RGS Risk Area Potential Impact Mitigation Commercial Contract Risks Given the potential for onerous terms in customer contracts, it is essential that the Group continues to contract for business at acceptable rates and with appropriate commercial balance. This also includes consideration of the cash flow impact of each customer contract. The Group has a contract approval process in which key customer contracts are approved by either the CFO, Executive Chairman, and if needed, the Group Board. The risk is declining as the Group diversifies across an ever greater portfolio of operating segments, customers and locations. System Risks As data management is an essential platform of our service offering, the flexibility and reliability of the systems is critical to the ongoing development of the Group. The integrity of our systems is maintained through regular backup testing and robust disaster recovery planning. Market and Economic Risks The Group’s activities support a broad range of customer-orientated and technology rich products. There is a strong correlation between the volume of consumer sales and the number of service events arising as a result of those sales. Financing Risks There is a risk the Group will not be able to meet the day to day running obligations of the business. We have implemented policies and procedures to efficiently and safely manage all our operations and to maintain our supply of products/services to our customers. We have in place robust and comprehensive business continuity plans which are regularly reviewed and monitored to ensure their continued effectiveness. The risk is the same – the Group has a number of policies and procedures around the use of systems. However, the bespoke nature of the systems requires constant maintenance, as well as the new locations which are opened each year where, for external acquisitions, the controls over systems and processes are often below the level across the rest of the Group. The Group has been developing a diversified service capability and expanding capacity in low cost service locations to ensure a balanced portfolio of customers, services and locations. The risk is declining – the Group endeavors to diversify its portfolio across a range of service offerings, mitigating the risks which could arise. The Group continues to operate across a diverse product and client range, with an expansion in the operating matrix of eight new product/service combinations in the last 12 months. The Group has maintained a prudent approach to the management of cash flow. The Group has good access to cash reserves and a revolving credit facility. The risk is reduced following the extension of the revolving credit facility to October 2019. The Group is net cash positive. 24338.04 19 October 2015 10:38 AM Proof 8 33 Regenersis Plc Annual Report and Accounts for the year ended 30 June 2015Strategic Report Risk Management continued Risk Area Potential Impact Mitigation Customer Concentration Risks Reliance on a small number of large customers creates risks, as it puts pressure on the margins of the business. In addition, the loss of key contracts can seriously impact the ability for the Group to continue to operate as a going concern. The Board is conscious of this ongoing risk and seeks to reduce this further through the development of new customers and the creation of more dependent relationships with its existing customers. Operational Efficiency Risks Operational efficiency is vital to the profitability of the Group and to customer service. The risk arises both at a customer level – where inefficient operating processes can adversely affect the profitability of the Group – and at a business continuity level, where poor client service could lead to termination of the relationship. A number of customers are significant in the context of the Group as a whole. However, no single customer accounts for more than 14% (2014: 14%) of the revenue, and the top 10 customers represent 67% (2014: 71%) of the Group’s revenue. The risk is reduced as the concentration of customers is more spread out compared to the prior year. The Group has standardised policies and operating procedures across all locations, which drives consistency in client service. The Group undertakes cross-border Kaizen events across both new and existing territories and contracts in order to implement new work and drive a culture of continuous improvement. The trend is the same – while the Group has successfully implemented a number of Kaizen events, the continued addition of new business and new locations requires further standardisation and implementation of operating processes, resulting in a continual cycle of risk management. Compliance Risks Some of the Group’s business relies on the compliance with and enforcement of legislation consistent with the WEEE Directive. The Group maintains Government approved licenses to manage the collection, treatment and export of electrical waste. The Blancco product provides certified data erasure which is required to meet certain industry standards, including the global security certification ISO 15408. The Group must adhere to the Anti-Bribery and Corruption Act. In addition, the Group handles equipment holding personal data and is mindful of the implications of the Data Protection Act. The Group maintains internal processes to ensure appropriate guidelines are followed. The Group has a range of policies and procedures to ensure the guidelines in respect of Safety, Health and Environmental matters are monitored and adhered to. The risk on system data is further mitigated by the use of the Blancco data erasure software across the Group in order to control the Group’s sensitive data. The trend is the same – the Group continues to monitor its compliance across locations and deems the compliance risk to be reduced to a suitably low level. 34 24338.04 19 October 2015 10:38 AM Proof 8 www.regenersis.com Stock code: RGS Risk Area Potential Impact Mitigation Foreign Exchange Rate Volatility The widening geographic spread of the Group means that financial results can, increasingly, be affected by movements in foreign exchange rates. The risk presented by currency fluctuations may affect business planning and product procurement costs. Employee Engagement Staff engagement is essential to the successful delivery of service to customers and, longer term, the overall business strategy. A workforce which is not engaged and / or motivated can hinder the growth of the business. The Group monitors foreign exchange exposure closely and, when a transactional exposure is not covered through a natural hedge, will consider entering into a hedge arrangement. The trend is increasing, as the mix of overseas currencies is on an upward trend across the Group, and the sterling is strengthening against the majority of other currencies in which the Group transacts. Foreign exchange rate movements are uncertain and the timing of profits in overseas territories is uncertain, therefore the Board feels there is no economic and risk free way to hedge against this, other than the natural hedging which is currently undertaken. Considerable effort has been devoted to communicating the business strategy so employees are clear on our business objectives and their role in the strategy. The employee appraisals process and setting of personal objectives operates within the framework of our corporate objectives. This is then reinforced by the employee incentivisation process. We have succession plans in place for key roles and continue to work in developing our future leaders so that we are able to promote internally as well as sourcing talent externally. Cautionary Statement Regenersis’ business and share price may be affected by a number of risks, trends, factors and uncertainties, not all of which are within our control. The process Regenersis has in place for identifying, assessing and managing risks is set out in the Risk Management section of the Report on page 32. 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 review should be construed as a profit forecast. Matthew Peacock Executive Chairman Jog Dhody Chief Financial Officer 24338.04 19 October 2015 10:38 AM Proof 8 35 Regenersis Plc Annual Report and Accounts for the year ended 30 June 2015Strategic Report Corporate Social Responsibility and Sustainability Our solutions help consumers and businesses by supporting them to transition towards more sustainable circular business models and move away from ‘take, make, dispose’ processes and lifestyles. Our Vision The Group’s key focus across its operations is to support the life cycle of technology. As part of this strategy we aim to provide a sustainable service to our customers and the markets in which they operate. Our Services Our place in the technology sector allows us to contribute to the growth and prosperity of our environment in a number of different ways: • Helping to provide connectivity for our clients and their customers, giving access to key services • Promoting economic advancement in developing nations by providing devices to these previously unconnected areas • Providing comfort to our clients in the recycling and re-use of devices both through content erasure and complete device refurbishment Providing repair, refurbishment, and recovery solutions, we feel we are in the business of ‘closing the loop’, effectively circularising value chains within our sector. We believe this is an inherently sustainable business model that also contributes to the delivery of a nationally and globally circular economy. This is reinforced by our international repair network where we share best practice; our place as one of the leading global service providers strengthens our ability to provide these services. This is vastly more sustainable than a traditional linear economy, minimising resource consumption and reducing negative environmental and social impacts from manufacturing, consumption and disposal. What We Do Regenersis provides a sustainable business model across each of its Divisions and contributes positively to economic prosperity of the locations in which we operate. The Group has a large footprint of facilities in many emerging markets territories, and a portion of our refurbished products make their way into these less developed areas of the globe. These affordable electronic devices support social and economic advancement by allowing people who previously had no access to these technologies to become part of the global connected network. Our full product life cycle solutions aid our customers in meeting their regulatory requirements through the provision of our data erasure technology. Not only does this allow our customers to easily manage and comply with their local requirements, it also positively promotes the product life cycle, allowing redundant devices to be refurbished as ‘good as new’ and to re-enter the market. This reduces the amount of device disposal and the environmental impact this has. We also recognise the importance of our impact on the economies in which we have a presence, providing employment opportunities in those territories, but also ensuring we are a sustainable part of that geography. We achieve this through investment in sustainable business practices which promote compliance with global regulations and by ensuring both that our work is conducted in both an ethical manner and that the output of our service generates a positive impact on the environment. Why We Do It Our approach to CSR benefits both the Group and our stakeholders. Efficient operating practices help to drive cost reductions and improve our resilience in the market. The reputation of the business is improved and it helps to build trust with our customers and suppliers. 36 24338.04 19 October 2015 10:38 AM Proof 8 www.regenersis.com Stock code: RGS Work in the Community Case Study People Our facility in South Africa is accredited under the Broad- Based Black Empowerment Act of South Africa. The certification recognised the work the business does in the local community, measure by employment equity, enterprise and socio-economic development. Old spare parts in the facility were donated to a local college which provides higher education to students from disadvantaged backgrounds, specifically in the training of repair technicians in the IT sector. The donation allows the students to achieve a higher level of education, providing a benefit to the local community. Read more online at www.regenersis.com 37 24338.04 19 October 2015 10:38 AM Proof 8 Regenersis Plc Annual Report and Accounts for the year ended 30 June 2015Strategic Report Corporate Social Responsibility and Sustainability continued Compliance and Risk Management As handlers of in-use or pre-owned electronic devices, we have a legal and moral duty to handle personal data with the utmost integrity and security. To this end, we have advanced quality control and assurance programmes in place to ensure we have a robust approach. Our quality management systems are certified to ISO 9001 and we are compliant in all material aspects with data protection laws in all of the countries in which we have significant operations. Electronic devices often contain a restricted and hazardous material, which explains in part why our operations are governed by a large body of environmental legislation. Management of our environmental and legal risks is undertaken through our ISO 14001-certified Environmental Management Systems (EMS). These systems operate at all of our material repair and refurbishment facilities. Through these systems we track compliance with environmental regulations and seek to implement strategies to exceed compliance. Interactions With Our Stakeholders We recognise that, in a globalised world, the opportunity to improve social and environmental outcomes extends far beyond the front gates of our facilities. We work with our customers and suppliers to deliver innovative solutions that mitigate impacts and deliver cost efficiencies. Ethics and Values We create an ethical working environment for our workforce. Our Code of Conduct Policy, Anti-bribery and Corruption Policy and Whistleblowing Policy form key parts of staff induction and ongoing training. We recognise the importance of our employees and actively promote the development of our staff. This helps the Group to achieve its objectives while at the same time providing development to our staff, allowing them to progress their own careers as well as giving them access to and opportunities to develop the technologies in which we specialise. The Whistleblowing hotline is monitored by a third party specialist call handler compliant with the Private Security Industry Act requirements for interviewing callers. They provide a confidential and independent global service for staff to report concerns, which are then escalated immediately to the Executive Chairman and CFO for appropriate action. Our Priorities • We strive to create a working environment driven by a strong ethical foundation. • Our customers and suppliers should also adhere to these ethical principles What We Have Achieved This Year • Our supplier checklist has been distributed to provide due diligence information to support the procurement decisions at our operations. This includes consideration of a supplier’s environmental management arrangements. • We have created a global set of policies and procedures to encourage an ethical workplace and create a consistent set of operating principles across all of our locations Employee Wellbeing, Health and Safety We recognise our talented and diverse workforce as a key business asset. Their development and wellbeing is critically important to the continued success of our business. We are committed to: • Recruiting and retaining high calibre employees – We seek out employees who will help to maximise business growth and performance. We operate an equal opportunities policy and regard this as a commitment to make full use of the talents and resources of all our employees. • Developing our staff – We are committed to providing our staff with career progression at every level, tailoring training to the requirements of roles in each business area. In addition, we assess the ongoing training needs of our staff and this is a key element to the annual appraisal process. 38 24338.04 19 October 2015 10:38 AM Proof 8 www.regenersis.com Stock code: RGS Corporate Social Responsibility and Sustainability continued • Building a diverse culture – The Group operates in a • Encouraging employee involvement - Several of the diverse range of economic and cultural environments, with a lot of cross-border communications at both a senior management and an operative level. A key aspect of developing the success of the Group is to support an open culture and encourage the mix of cultures and business practices across the Group. Group’s operations have implemented Kaizen, where every employee is encouraged to come up with improvement suggestions on a regular basis. Kaizen is based on making changes anywhere in the business. It involves setting standards and then creating a process to continually improve those standards. • Providing a safe and stable working environment – We provide a working environment which meets all legislative requirements and provides all the necessary training support for employees to operate safely within it. We are intolerant of any corrupt practices by any level of employee and encourage whistleblowing (through our formal procedure) if such practices are encountered • Protecting the interests of our staff – We are intolerant of any unacceptable working practices, such as any form of discrimination, bullying or harassment. • Recognising performance - We provide appropriate remuneration for work carried out and equal opportunities for development and career advancement. The Board provides regular staff briefing sessions - both online and through newsletters from the Executive Chairman - to provide updates on business performance, strategy and developments affecting the business and to obtain feedback and suggestions on the development and growth of the business. The following table shows the composition of the Group’s workforce at the end of the year: Gender Female Male Total Board Senior Management — 5 5 16 77 93 Other Staff 1,265 2,886 4,151 Total 1,281 2,968 4,249 % 30 70 100 Our health and safety record continues to be good, with no serious reported incidents during the year. All our operational staff receive the appropriate level of health and safety training. Every operational site has an established structure in place to deal with health and safety matters. The Board monitors health and safety RIDDOR reportable (or local country equivalent) incidents as a key performance indicator. This KPI is used continually to manage the business, improve performance and compare results against target. Fatalities (number) Health and safety RIDDOR reportable incidents (number) * Calendar year. 2015* 0 0 2014* 0 0 2013* 0 4 2012* 0 3 2011* 0 4 2010* 0 4 24338.04 19 October 2015 10:38 AM Proof 8 39 Regenersis Plc Annual Report and Accounts for the year ended 30 June 2015Strategic Report Corporate Social Responsibility and Sustainability continued Our Priorities • Our people form a key part of our business model and strategic priorities. It is important that we create an environment where our employees can operate efficiently and promote themselves. • Senior management roles within the Group are filled at both a Group and local level, ensuring that there is a diverse range of management employees across the Group, benefiting from the experience of a global Plc as well as local knowledge. • It is important to create a safe and sustainable working environment for our staff to work in What We Have Achieved This Year • Second successive year with no RIDDOR reportable incidents. • Low voluntary staff turnover at both senior management and operative levels Resource Efficiency Energy We are committed to monitoring the environmental impacts of our operations. The use of fossil fuels, carbon emissions and energy security are critical issues for the globe. Legislators are seeking to wean society off traditional forms of energy, encouraging both reduced consumption and a switch to low and zero carbon renewables. As a costly commodity, there are also cost efficiency benefits to be gained from reducing energy consumption. As such, there are strong environmental, social, regulatory and economic drivers for us to take action to improve the energy profile of our products and operations. We see our repair, refurbishment and recycling business as helping to reduce the energy footprint of both our sector and society, closing the loop on product and material lifecycles. At the facility level, we leverage the requirements of our ISO14001-certified Environmental Management Systems (EMS) to promote the implementation of energy reductions targets and initiatives. Conflict Minerals We recognise the risks of significant adverse impacts which may be associated with extracting, trading, handling and exporting minerals from conflict-affected areas. The sale of conflict minerals can be used to fund rebel armies, fuelling conflict and human rights abuses. Our aim is for all products, which are manufactured, or contracted to be handled by Regenersis, to be DRC Conflict-Free. Where our businesses find products that contain conflict minerals, we will work with suppliers towards removal of conflict minerals from the product. Additionally, we may suspend purchasing new products from the supplier until the issue is resolved. If a supplier refuses to cooperate and take action towards removal of the conflict mineral source(s) from products supplied, we may suspend our relationship with the supplier. As part of the Regenersis process for the implementation of new suppliers, our supplier evaluation checklist helps ensure that materials we purchase do not contain conflict minerals, and a self-declaration is also required that the full supply chain process of the suppliers has been examined to confirm this. In addition, we have also reviewed our existing supply base, and there was no indication that any products handled by us contained conflict minerals. 40 24338.04 19 October 2015 10:38 AM Proof 8 www.regenersis.com Stock code: RGS Corporate Social Responsibility and Sustainability continued Waste and Materials Resource shortages present a growing risk to economy and society. Furthermore, the world’s producers and consumers are collectively responsible for generating an unsustainable volume of waste each year, resulting in significant social and environmental degradation. There are therefore strong motives for businesses to streamline operations and seek resource and waste efficiency gains wherever possible. Our efficiency initiatives around energy, water, waste and materials form the basis for mitigating our climate change impacts. With regards to adaptation, we recognise that as a business with a network of sites and facilities we must understand any material risks from climate change, particularly flooding events. Therefore, we are working to future-proof our operations, incorporating flood risk assessment in the due diligence procedures of our facility acquisitions. Our solutions extend the productive life of consumer electronics, avoiding the need for further resource consumption. Where we can’t repair or refurbish a product, we recover and recycle its component materials; put succinctly, our services reduce resource consumption and mitigate waste arising. At our facilities, our management systems are geared to drive continual improvements in waste reduction and landfill avoidance. Many of our waste reduction efforts rely on our engagement and partnerships with third parties. Climate Change It is generally agreed that man-made greenhouse gas emissions initiated and continue to perpetuate changes to our global climate. These emissions increase average surface temperatures, though it’s the climatic knock-on effects that are the major cause for concern, such as more frequent extreme weather events and increased global sea levels. Governments, businesses and people must now act to mitigate further change by cutting emissions and adapting to change by preparing for its effects. Our Priorities • We target low environmental impact of our operations in each of our locations, which is managed by the amount of waste product created by our facilities • Our solutions aim to reduce the waste output of our customers, by encouraging renewing devices through re-investment in the product life cycle, rather than disposal of electronics. What We Have Achieved This Year • Our office in Glenrothes has moved to a 0% landfill waste operation, with 91% of waste recycled. The office generates higher revenue from its waste than the costs of disposal as a result of this waste management. • Our operations in emerging markets such as Mexico, India and Poland recorded waste recycling rates in excess of 80%. • Carbon dioxide emissions per employee in the UK have reduced by 25% in 2015. • We have invested further in our refurbishment facility in Romania as well as the data erasure solution to provide a way for our customer to recycle and reuse their old devices. 24338.04 19 October 2015 10:38 AM Proof 8 41 Regenersis Plc Annual Report and Accounts for the year ended 30 June 2015Strategic Report Divider Supporting The Life Cycle Of Technology 42 24338.04 19 October 2015 10:38 AM Proof 8 Our Governance Directors and Advisers Directors’ Report Corporate Governance Report Audit Committee Directors’ Remuneration Report Statement of Directors’ Responsibilities 44 47 49 54 61 65 24338.04 19 October 2015 10:38 AM Proof 8 43 Directors & Advisers Matthew Peacock Executive Chairman Matthew Peacock joined the Board in February 2011. He is the founding partner of Hanover Investors Management LLP, which is a shareholder of Regenersis. Hanover Investors is a specialist turnaround and ‘Change for Growth’ investment firm. Matthew has led investments for over 20 years in, amongst other sectors, manufacturing, outsourced business services, chemicals, financial services, textiles and logistics. Prior to this, he ran the international M&A team in London at Barclays de Zoete Wedd, having started his career at Credit Suisse First Boston in New York. Jog Dhody Chief Financial Officer Jog Dhody joined the Board in March 2012. He has significant financial management experience, particularly within ambitious, growth-oriented businesses. Prior to joining Regenersis, Jog was Chief Financial Officer of the Esporta Group, a position he held for four years. During that time, he played a key role in the successful restructuring and turnaround of the business, which had been the subject of a private equity-backed refinancing, and the ultimate sale of the business. Prior to this, Jog was Group Financial Controller of the Phones4u Group. Frank Blin Senior Independent Non-executive Director Frank Blin joined the Board in December 2014 following the retirement of the incumbent Senior Independent Non-executive Director, Michael Peacock. Frank enjoyed a long and successful career with PwC, becoming Head of UK Regions and a UK Management Board member before his retirement in 2012. He is a Non-executive Director of London and Scottish Investments Limited, Urica Limited and DCM (Optical Holdings) Limited, and Chairman of the University of Strathclyde commercialisation Board. He was awarded a CBE for his services to the Scottish financial sector in 2002 and was awarded an honorary Doctorate of Business Administration by the University of Strathclyde in 2010. 44 24338.04 19 October 2015 10:38 AM Proof 8 www.regenersis.com Stock code: RGS Rob Woodward Independent Non-executive Director Rob Woodward joined the Board in June 2013. He is also Chief Executive of STV Group plc and has significant experience in the Technology, Media and Telecommunications (TMT) industry, notably with STV, as the Commercial Director of Channel 4 Television, as a Managing Director with UBS Corporate Finance and as the lead partner for Deloitte’s TMT industry group in Europe. Tom Russell Non-executive Director Tom Russell joined the Board in March 2011. He is also a partner at Hanover Investors. Prior to this, he spent nine years at Mercer Oliver Wyman, where he specialised in the Communications, Information and Entertainment sector, advising on strategy and operations. Tom Skelton (to be appointed on 1 October 2015) Non-executive Director Tom is currently Chief Executive Officer of Surescripts LLC, a leading healthcare information technology business. Before joining Surescripts he served as Chief Executive Officer for the Foundation Radiology Group and as a founding member of Confluence Medical Systems, a healthcare and technology consulting partnership. Previously he served at Misys Healthcare Systems from January 2002 until March 2007 and as a director of Misys plc. Prior to that, he was Chief Executive Officer of Medic Computer Systems, a US-based software company focused on the healthcare information technology market. He earned his BSBA from Robert Morris University, Pittsburgh, PA. 24338.04 19 October 2015 10:38 AM Proof 8 45 Regenersis Plc Annual Report and Accounts for the year ended 30 June 2015Our Governance Directors & Advisers continued Ian Powell (to be appointed on 1 October 2015) Executive Director Ian will join the main Board as Executive Director on 1 October 2015 and take on the role of CEO of Regenersis Depot Solutions and Advanced Solutions. Ian, aged 54, was previously Group Managing Director of Regenersis in the period 2011-2013, prior to that he was CEO of Chapelthorpe plc, and Chairman of Banner Limited. Patrick J Clawson (to be appointed on 1 October 2015) Executive Director Pat will join the main Board as Executive Director on 1 October 2015 and take on the role of CEO of Blancco Technology Group. Patrick brings deep software and security sector experience. Pat, aged 51, was previously Chairman/CEO of Lumension. Joint broker Panmure Gordon (UK) Ltd One New Change London EC4M 9AF Bankers HSBC 4th Floor, 120 Edmund Street Birmingham B3 2QZ Financial Advisors William Blair Investment Bank 17th Floor The Broadgate Tower 20 Primrose Street London EC2A 2EW Registrars Computershare Investor Services plc PO Box 82 The Pavilions Bridgwater Road Bristol BS99 7NH Lawyers Herbert Smith Freehills LLP Exchange House Primrose Street London EC2A 2HS Pinsent Masons 3 Colmore Circus Birmingham B4 6BH Financial public relations Tulchan Communications LLP 85 Fleet Street London EC4Y 1AE Company Secretary Lorraine Young Company Secretaries Limited 190 High Street Tonbridge Kent TN9 1BE 24338.04 19 October 2015 10:38 AM Proof 8 Registered office 190 High Street Tonbridge Kent TN9 1BE T: +44 (0)1480 482 866 Company number 05113820 Auditor KPMG LLP One Snowhill Snow Hill Queensway Birmingham B4 6GH Nominated adviser and joint broker Peel Hunt LLP Moor House 120 London Wall London EC2Y 5ET 46 www.regenersis.com Stock code: RGS Directors’ Report The Directors present their report together with the audited financial statements for the year ended 30 June 2015. Strategic Report Pursuant to sections 414A-D of the Companies Act 2006 a Strategic Report is set out on pages 6 to 41 and incorporates the Chairman’s Statement and Business Review. The Strategic Report includes details of expected future developments in the business of the Group, principal risks and uncertainties, details of key performance indicators deployed by management snd the Corporate Social Responsibility and Sustainability Report. Details of Directors’ service agreements are set out in the Directors’ Remuneration Report on pages 61 to 64. The interests of the Directors in the shares of the Company are set out on page 64. Directors’ Liability Insurance and Indemnities The Company maintains liability insurance for the Directors and Officers of all Group companies. In addition to the Strategic Report, the Corporate Governance Report on pages 49 to 60, the Audit Committee Report on pages 54 to 59 and the Directors’ Remuneration Report on pages 61 to 64 are incorporated into this report by reference. The Group is not required to comply with Schedule 8 of the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations as amended in 2013 which enhanced reporting requirements for the Directors’ Remuneration Report. However, the Remuneration Report on pages 61 to 64 does set out the policy on remuneration and shareholders are asked to vote on this report at the Annual General Meeting. The Strategic Report has been prepared to provide the Company’s shareholders with a fair review of its business and a description of the principal risks and uncertainties facing it. It should not be relied upon by anyone, including the Company’s shareholders, for any other purpose. Results and Dividends The audited accounts for the Group for the year ended 30 June 2015 are set out on pages 72 to 119. The Group profit for the year after taxation was £5.1 million (2014: £3.25 million). The Board recommends the payment of a final dividend of 3.35 pence per ordinary share. If approved, the final dividend will be paid on 3 December 2015 to shareholders on the register at the close of business on 6 November 2015. Directors Biographical details of all Directors are set out on pages 44 to 46. Michael Peacock retired from the Board in November 2014 and was replaced by Frank Blin. Jog Dhody will be offering himself for re-election at the Annual General Meeting and Frank Blin will be offering himself for election, having been appointed since the last meeting. Indemnities are in force under which the Company has agreed to indemnify the Directors to the extent permitted by applicable law and the Company’s articles of association in respect of all losses arising out of, or in connection with, the execution of their powers, duties and responsibilities as Directors of the Company or any of its subsidiaries. Neither the Group’s liability insurance nor indemnities provides cover in the event that a Director or Officer is proved to have acted fraudulently or dishonestly. Related party transactions The details of transactions with Directors and other related parties are set out in note 36 to the financial statements. Share capital The issued share capital of the Company at 30 June 2015 was £1,580,504 comprised of 79,022,599 ordinary shares of two pence each. Holders of ordinary shares are entitled to receive dividends when declared, to receive the Company’s report and accounts, to attend and speak at General Meetings of the Company, to appoint proxies and to exercise voting rights. There are no restrictions on transfer or limitations on the holding of ordinary shares and no requirements to obtain prior approval to any transfer. No ordinary shares carry any special rights with regard to control of the Company and there are no restrictions on voting rights except that a shareholder has no right to vote in respect of a share unless all sums due in respect of that share are fully paid. The Directors will be seeking shareholder approval at the AGM of the renewal of their authority to allot shares, dis- apply pre-emption rights and of the authority for the 24338.04 19 October 2015 10:38 AM Proof 8 47 Regenersis Plc Annual Report and Accounts for the year ended 30 June 2015Our Governance Directors’ Report continued Company to purchase its own shares. Full details are contained in the Notice of Annual General Meeting on pages 130 to 135. Substantial Shareholdings As at 30 June 2015, the following shareholders owned more than 3% of the issued share capital of the Company: M&G Investment Funds Hanover Investors Partners Impax Asset Management Limited Polygon Global Partners LLP FIL Limited NFU Mutual Insurance Society The Regenersis Employee Benefit Trust Investec Asset Management % of issued share capital 12.84 6.60 6.01 5.15 5.12 3.91 3.12 Number of shares 10,144,928 5,217,651 4,754,027 4,073,329 4,052,461 3,092,225 2,467,394 3.10 2,450,000 Fixed Assets In the opinion of the Directors, there is no material difference between the book value and the current open market value of the Group’s interests in land and buildings. Going Concern As highlighted in note 26 to the financial statements, the Group meets its day to day working capital requirements through cash reserves and a revolving credit facility which has been extended until October 2019. Further information on the Group’s business activities, together with the factors likely to affect its future development, performance and position, is set out in the Business Review on pages 22 to 24. Further information on the financial position of the Group, its cash flow, liquidity position and borrowing facility are described in the Business Review on pages 24 to 29. In addition, note 30 to the financial statements details the Group’s objectives, policies and processes for managing its capital and its exposures to credit risk and liquidity risk. The Group’s forecasts and projections, taking account of possible changes in trading performance, show that the Group should be able to operate within the level of its current revolving credit facility. The Board therefore has a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Thus they continue to adopt the going concern basis of accounting in preparing the annual financial statements. Subsequent Events These are detailed on page 118. Annual General Meeting The AGM of the Company will be held at 12 noon on Wednesday 25 November 2015 at Peel Hunt LLP, Moor House, 120 London Wall, London EC2Y 5ET. The Notice setting out details of the business to be considered at the meeting is included on pages 130 to 135. Financial Instruments Information on the Group’s financial risk management objectives and policies and its exposure to credit risk, liquidity risk, interest rate risk and foreign currency risk can be found in note 30. Auditor KPMG LLP have indicated their willingness to continue in office as auditor and a resolution for their reappointment will be proposed at the AGM. Disclosure of Information to the Auditor As required by Section 418 of the Companies Act 2006, each Director serving at the date of approval of the financial statements confirms that: • to the best of their knowledge and belief, there is no information relevant to the preparation of their report of which the Company’s auditor is unaware; and • each Director has taken all the steps a Director might reasonably be expected to have taken to be aware of relevant audit information and to establish that the Company’s auditor is aware of that information. Words and phrases used in this confirmation should be interpreted in accordance with Section 418 of the Companies Act 2006. By order of the Board Jog Dhody Chief Financial Officer 21 September 2015 48 24338.04 19 October 2015 10:38 AM Proof 8 www.regenersis.com Stock code: RGS Corporate Governance Report The Board of Directors are committed to maintaining strong corporate governance for the benefit of the Group’s shareholders, employees and wider stakeholders. We believe the long-term success of the Company is underpinned by effective governance, thereby enabling us to achieve our strategy and growth aims for the future. As the Company is listed on the Alternative Investment Market, it is not required to follow the provisions of any particular governance code. However, the Board of Directors considers the UK Corporate Governance Code (“the Code”) issued by the Financial Reporting Council as a suitable benchmark for the Company and has applied this when determining its governance arrangements. This report, together with the Strategic Report on pages 6 to 41, the Directors’ Report on pages 47 to 48, the Audit Committee Report on pages 54 to 59, and the Directors’ Remuneration Report on pages 61 to 64, describes how the Company has applied the relevant provisions of the Code. The Role of the Board The role of the Board is to provide entrepreneurial leadership and the Directors are collectively responsible for the long-term success of the Group. The Board also acts as custodian of the Company’s values and of its long-term vision, and provides strategic direction and guidance for the Group. In discharging its responsibilities, the Board also seeks to set, promote and demonstrate adherence to our values and ethical standards. It remains mindful of the need for the Directors to observe their legal duties, as well as to promote the success of the Group in a sustainable way, not only for our shareholders, but also for our stakeholders, which includes our employees, suppliers, customers and the wider community. The Board leads a strong governance framework throughout the business, supported by the Audit, Nominations and Remuneration Committees. The terms of reference for all three Board committees were reviewed and updated during the year. The Executive Chairman is responsible for the leadership of the Board and ensuring its effectiveness in all aspects of its role. He is also responsible for creating the right Board dynamic and for promoting a culture of openness and debate, in addition to ensuring constructive and productive relations between Executive and Non- executive Directors. The Executive Chairman is an ambassador for the Company to shareholders and other stakeholders, and works specifically to ensure there is sufficient and effective communication with shareholders and to understand their issues and concerns. The Executive Directors are responsible for the running of the business. The Non-executive Directors are responsible for exercising independent and objective judgement in respect of Board decisions, developing corporate strategy with senior management, and for scrutinising and constructively challenging the actions of senior management. Frank Blin is the current Senior Independent Non- executive Director, to whom concerns may be conveyed by shareholders if they are unable to resolve them through existing mechanisms for investor communications or where such channels are inappropriate. Frank replaced Michael Peacock in this role following Michael’s retirement in November 2014. The responsibilities of the Executive Chairman, the Senior Independent Director and the Company Secretary have been agreed by the Board and are set out in writing. Details of the terms of appointment of both the Executive and Non-executive Directors are set out in the Directors’ Remuneration Report, which refers to Executive service contracts and non-executive terms of appointment, copies of which are available for inspection at the Company’s registered office and which will be available for inspection at the AGM. 24338.04 19 October 2015 10:38 AM Proof 8 49 Regenersis Plc Annual Report and Accounts for the year ended 30 June 2015Our Governance Corporate Governance Report continued Compliance with the Code The Group has complied with the provisions of the Code throughout the year, with the following exceptions: • Matthew Peacock, as Executive Chairman, has responsibilities for both the organisation of the Board and running of the Group’s business. Whilst this does not meet the criteria set out in provision A.2 of the Code, the objectivity of the Board and its independence from management is strengthened by the designation of a Senior Independent Director, Frank Blin, to convene or chair sessions of the Non-executive Directors if required. • Tom Russell was appointed a Non-executive Director of the Company from 17 March 2015 having previously been an Executive Director. By virtue of his association with Hanover Investors Management LLP, he did not meet the independence criteria set out in provision B1.1 of the Code. Mr Russell is not a member of the Board committees. The Audit and Remuneration Committees are comprised of two Independent Non-executive Directors as required by C3.1 and D2.1, and the Nominations Committee comprises a majority of Independent Non-executive Directors as required by provision B2.1 of the Code. • Frank Blin was appointed to the Board in December 2014. The Nominations Committee decided not to openly advertise or engage an external search agency for this appointment. As required under B2.4, the Committee were of the view that in order to meet the particular skill requirements needed for the Board it was not appropriate to openly advertise or use a search agency. The Board Structure and Composition As at 30 June 2015, the Board comprised two Executive and three Non-executive Directors: Matthew Peacock Jog Dhody Tom Russell* Frank Blin Rob Woodward Executive Chairman Chief Financial Officer Non-executive Director Non-executive Director Non-executive Director Audit Committee Remuneration Committee — — — Member Chairman — — — Chairman Member Nominations Committee Chairman — — Member Member * Appointed a Non-executive Director from 17 March 2015 having previously been an Executive Director. Biographies of all the Directors at the date of this report are set out from page 44. Board Diversity Regenersis has a strong and balanced Board, with a range of complementary skills to support the strategic and operational direction of the Group. We recognise the importance of diversity at Board level and our Board members comprise members with a wide range of skills and experiences from a variety of business backgrounds, including international and industrial expertise. Whilst the Company pursues diversity, including gender diversity, throughout the business, the Board is not committing to any specific targets. Instead, the Board will continue to pursue a policy of appointing talented people at every level to deliver high performance. The composition of the Board is intended to ensure that its membership represents a mix of backgrounds and experience that will enhance the quality of its deliberations and decisions. Diversity in Board composition is an important driver of Board effectiveness. In considering the composition of the Board, consideration is given to the skills required by the Board at that time and the need to address longer-term succession and business priorities. 50 24338.04 19 October 2015 10:38 AM Proof 8 www.regenersis.com Stock code: RGS The formal annual evaluation of the Board, Board committees and individual Directors takes Board diversity into account and is instrumental in identifying any new skill requirements, as well as possible shortcomings or gaps. Further information on the number of men and women in our workforce is provided in the Corporate Social Responsibility and Sustainability Report on pages 36 to 41. Board Process The Directors ensure the effectiveness of the Board through regular meetings and by having open lines of communication between Board members. During the year, the Board made two visits to the Group’s operating sites, and believes that the benefit of its collective experience is a valuable asset to the business. On joining the Board, new Directors are provided with a tailored induction programme. They are given background information describing the Group and its activities. Meetings with principal shareholders and advisers are also arranged as appropriate. Details of attendance at scheduled Board and Board Committee meetings in this annual cycle are as follows: Board Audit Committee Remuneration Committee Nominations Committee Eligible to attend 15 7 Attended 15 6 Eligible to attend — 1 Attended 2* 1 Eligible to attend — 2 Attended 4* 2 Eligible to attend 2 — 15 15 15 7 14 15 15 5 — 4 — 3 — 4 4* 3 — 4 — 2 2* 4 3* 2 — 2 — 1 Attended 2 — — 2 1* 1 Matthew Peacock Frank Blin (Appointed 1 December 2014) Tom Russell Rob Woodward Jog Dhody Michael Peacock (Resigned 26 November 2014) * Attended by invitation. If Directors are unable to attend Board or Committee meetings they review the relevant papers and provide comments to the Executive Chairman or Committee Chairman. The Board has agreed a schedule of matters reserved specifically for its decision, which includes: • Overall strategy and objectives. • Approving interim and annual financial statements. • Approving annual budget and medium-term projections. • Reviewing operational and financial performance. • Acquisitions and disposals. • Approval of major customer contracts. • Major divestments and capital expenditure. • Ensuring maintenance of a sound system of internal control and risk management by the Group. • Reviewing the environmental and health and safety performance of the Group. • Approving appointments to the Board, including the Company Secretary. 24338.04 19 October 2015 10:38 AM Proof 8 51 Regenersis Plc Annual Report and Accounts for the year ended 30 June 2015Our Governance Corporate Governance Report continued Relations with Shareholders Dialogue The Board is committed to maintaining good communications with shareholders. Other than during close periods, the Executive Chairman and Chief Financial Officer maintain a regular dialogue with institutional shareholders throughout the year and give presentations to institutional shareholders and analysts immediately after the announcement of the Group’s half year and full year results. The Group also encourages communications with private shareholders throughout the year and welcomes their participation at shareholder meetings. The Group maintains a corporate website (www. regenersis.com), which complies with AIM Rule 26 and contains a range of information of interest to institutional and private investors, including the Group’s annual and half year reports, trading statements and press releases and all regulatory announcements relating to the Group. Constructive Use of the AGM The Board wishes to encourage the constructive use of the Company’s AGM for shareholder communication. The Executive Chairman of the Board and the Chairmen of the Audit, Remuneration and Nominations Committees will be available to answer questions at the AGM. As with previous practice, separate resolutions will be proposed on each substantive issue and the details of the numbers of proxy votes cast for and against each resolution will be available at the meeting. The Board is supplied in a timely manner with the appropriate information to enable it to discharge its duties, including providing constructive challenge to and scrutiny of, management. Procedures are in place for Directors to take independent professional advice, when necessary, at the Company’s expense. No such advice was sought during the year under review. If Directors have concerns that cannot be resolved regarding the running of the Group or a proposed action, they are encouraged to make their views known and these are recorded in the Board minutes. Directors’ Conflicts of Interest Under the Companies Act 2006, a Director must avoid a situation where he has, or can have, a direct or indirect interest that conflicts, or possibly may conflict, with the Company’s interests. The Company’s articles authorise the Directors to approve any such situational conflicts which may arise, should they consider it appropriate to do so. The Group maintains a Conflicts Register, which is a record of all the actual and potential conflicts for each of the Directors. It is reviewed at the beginning of each Board meeting. Where an actual or potential conflict exists, there are safeguards which apply when Directors decide whether to authorise a conflict or potential conflict. The Company has complied with these procedures during the year and the Board believes that they operate effectively. During the year, details of any new actual or potential conflicts were submitted to the Board for consideration and, where appropriate, these were approved. Authorised actual or potential conflicts are reviewed by the Board on an annual basis. Board Performance and Evaluation The Board carried out a formal self-assessment process for itself, its committees and individual Directors in respect of the year ended 30 June 2015. The evaluation process concluded that the Board as a whole and its committees had functioned effectively during the year and that each Director continued to make a valuable contribution. As part of the outcomes from the evaluation, the Board considers whether there is any need for additional training for Directors; the review in the current year concluded that all Directors are sufficiently experienced. 52 24338.04 19 October 2015 10:38 AM Proof 8 www.regenersis.com Stock code: RGS Board Committees Remuneration Committee Role of the Committee and Responsibilities The Remuneration Committee is chaired by Rob Woodward and its other member is Frank Blin. The Executive Directors occasionally attend meetings by invitation only. Under its terms of reference, the Remuneration Committee is responsible for: • Considering and approving all aspects of the Company’s remuneration policy for the Executive Directors (including the Executive Chairman), making recommendations to the Board as appropriate. • Ensuring that the remuneration and conditions of service of the Executive Directors support corporate objectives and shareholders’ interests, represent value for money and reflect the performance of the Company and the individual Directors as appropriate. • Determining the individual remuneration packages for the Executive Directors and the Executive Chairman (including bonuses and other incentives). • Recommending and monitoring the structure and level of pay for the senior management team. • Agreeing a policy for the authorisation of expenses claimed by all Directors and reviewing annually a schedule of expenses claimed by the Directors in the preceding financial year. Nominations Committee Role of the Committee and Responsibilities The Nominations Committee is chaired by Matthew Peacock. Rob Woodward and Frank Blin are also members. Under its terms of reference, the Nominations Committee is responsible for: • regular review of the structure, size and composition of the Board. • reviewing plans for the orderly succession for both Executive and Non-executive Directors and in particular for the key roles of Executive Chairman and Senior Independent Director. • membership of the Audit and Remuneration Committees, in consultation with the relevant Chairmen of those committees. • making recommendations to the Board on the re- appointment of any Non-executive Director at the conclusion of their specified term of office, having given due regard to their performance and ability to continue to contribute to the Board in light of the knowledge, skills and experience required. The Committee meets as and when required and met after the year end to evaluate its own performance. During the year, the Committee, in accordance with its terms of reference, recommended the appointment of Frank Blin to join the Board. The Committee recommended his appointment based on the skills and experience that would be brought to the Board. • Making whatever other recommendations to the Board it deems appropriate on any area within its remit where action or improvement is needed. Part of the role of the Committee is to keep the other interests of the Non-executive Directors under review to ensure the effectiveness is not compromised. During the year the committee met four times. Full details of the role, policies and activities of the Remuneration Committee are set out in the Directors’ Remuneration Report on pages 61 to 64. At the 2014 Annual General Meeting all of the resolutions were passed with the exception of the advisory vote on the Director’s Remuneration Report. Following the meeting the Directors have maintained a dialogue with investors regarding the structure of future incentives for the Executive team and will continue to do so. 24338.04 19 October 2015 10:38 AM Proof 8 53 Regenersis Plc Annual Report and Accounts for the year ended 30 June 2015Our Governance Corporate Governance Report continued Audit Committee Role of the Committee and Responsibilities The Audit Committee is chaired by Frank Blin and its other Non-executive member is Rob Woodward. By virtue of his former Executive and current Non-executive roles, the Directors consider that Frank Blin has recent and relevant financial experience. The Executive Chairman and Chief Financial Officer attend meetings of the Audit Committee by invitation. The Chairman and/or the Committee meets with the external auditor without any Executive Directors present whenever this is considered appropriate. The Audit Committee Chairman also meets with the Head of Internal Audit on a regular basis without any Executive Directors present whenever this is considered appropriate. New for 2015 • The Committee has revisited the Blancco revenue recognition policy, since the business has now been under Group control for its first full year. The complexity arises around multiple service element deliverables. The Committee reviewed the policy and concluded the approach to be reasonable. • The Committee has reviewed the Digital Care revenue recognition approach which has become more significant to the Group in the year as the business has grown. Complexities arise in the revenue recognition in assessing the various elements of the contract, including insurance revenue. The Committee reviewed the empirical data and concluded the approach was reasonable. The Committee’s responsibilities include: • The Committee has reviewed the acquisition • Monitoring the integrity of the financial statements of the Group and any formal announcements relating to the Group’s financial performance and reviewing significant financial reporting judgements contained therein. • Making recommendations to the Board to be put to shareholders on the appointment, reappointment and removal of the external auditor, approving the remuneration and terms of engagement of the external auditor and agreeing the scope of the audit engagement; • Keeping under review the effectiveness of the Group’s systems of internal financial control and reporting to the Board regarding such systems on an annual basis; and • Reviewing the arrangements by which Group employees may, in confidence, raise concerns about possible improprieties in matters of financial reporting (or other matters). Key Areas of Focus During the Year During this annual cycle, the Audit Committee met four times. It has an annual work plan, developed from its terms of reference, with standing items that the Committee considers at each meeting in addition to any specific matters on which the Committee has chosen to focus. The work of the Audit Committee covered the following areas: accounting for the new acquisitions in the year, including further investment in Xcaliber and the Blancco sales offices, as well as the acquisition of SafeIT. Complexities arise in this accounting due to the estimations involved in assessing the value of the acquisitions and related contingent consideration, where appropriate. The Committee concluded that the treatment adopted in the case of each acquisition was reasonable. Risk management and internal controls • Considered reports from the Head of Internal Audit on their work and ongoing assessment of the control environment. • Considered reports from the external auditor on their assessment of the control environment. • Considered the ongoing increase in the size and complexity of the Group, particularly overseas and the need to implement additional and appropriate controls to mitigate the higher levels of risk that the Group was exposed to. • Reviewed the Risk Register and discussed the approach that executive management was expecting to adopt in the ensuing financial year to enhance mitigating actions. • Reviewed the outcome of the Risk Management Committee activities. • Reviewed the resources of the Internal Audit function and considered and approved the scope of the internal audit programme. • Reviewed the outcome from the conflict minerals survey. 54 24338.04 19 October 2015 10:38 AM Proof 8 www.regenersis.com Stock code: RGS • Considered the effectiveness of Group-wide controls, including financial controls and disaster recovery procedures. • Considered the effectiveness of the Internal Audit function. • Considered the Group’s treasury policies, including cash and foreign currency management procedures. • Considered the effectiveness of the Group’s whistleblowing policy, both for raising issues and their resolution, and reviewed the outcomes from the instances of whistleblowing in the year. External auditor • Considered and approved the audit approach and scope of the audit work to be undertaken by the external auditor and the fees for the same. • Reviewed reports on audit findings. • Considered the independence of the auditor and their effectiveness, taking into account: (a) the nature and value of the non-audit work undertaken by the external auditor; (b) the approval process for non audit work over £20,000; (c) the tendering process undertaken where necessary for the provision of significant non- audit work; (d) the knowledge, skills and experience of the auditor; and (e) the Committee’s own assessment. • Considered the recommendations in the Code regarding the fees of the external auditor. • Considered and approved the letter of representation issued to the external auditor. Accounting and financial reporting • Reviewed the half year and annual financial statements and the significant financial reporting judgements and significant risks. • Reviewed the capital reduction process during the year • Considered the liquidity risk and the basis for preparing the Group half year and full year accounts on a going concern basis and reviewed the related disclosures in the Annual Report and Accounts. • Reviewed an accounting matters update, including consideration of relevant accounting standards and underlying assumptions. • Reviewed disclosures in the Annual Report and Accounts in order to advise the Board on whether, taken as a whole, it was fair, balanced and understandable and provided the information necessary for shareholders to assess the Company’s performance, business model and strategy. • Reviewed disclosures in the Annual Report and Accounts in relation to disclosures around internal controls, risk management, principal risks and uncertainties and the work of the Committee. Audit independence The Audit Committee and the Board place great emphasis on the objectivity of the external auditor in their reporting to shareholders. The audit partner and senior manager are present at Audit Committee meetings as required to ensure full communication of matters relating to the audit. The overall performance of the auditor is reviewed annually by the Audit Committee, taking into account the views of management, and feedback is provided when necessary to senior members of KPMG unrelated to the audit. This activity also forms part of KPMG’s own system of quality control. The Audit Committee also has discussions with the auditor, without management being present, on the adequacy of controls and on any judgemental areas. These discussions have proved satisfactory to date. The scope of the forthcoming year’s audit is discussed in advance by the Audit Committee. Audit fees are approved by the Audit Committee after discussions between the businesses and KPMG. Rotation of the audit partner’s responsibilities within KPMG is required by their profession’s ethical standards. There will be rotation of the audit partner and key members within the audit team as appropriate. Assignments of non-audit work have been and are subject to controls by management that have been agreed by the Audit Committee so that audit independence is not compromised. In summary, these procedures are as follows: • Audit related services: as auditor. If any additional support is required, this is considered competitively if appropriate. • Tax consulting: after considering competitive offers, in cases where they are best suited, the Group has engaged KPMG and its associates. • M&A advice and due diligence: after considering competitive offers, in cases where they are best suited, the Group has engaged KPMG and its associates. 24338.04 19 October 2015 10:38 AM Proof 8 55 Regenersis Plc Annual Report and Accounts for the year ended 30 June 2015Our Governance Corporate Governance Report continued Other than audit, the Board is required to give prior approval of work carried out by KPMG and its associates in excess of £20,000. Part of this review is to determine that other potential providers of the services have been adequately considered. These controls provide the Audit Committee with confidence in the independence of KPMG in their reporting on the audit of the Group. As a result of their review, and confirmation from the auditor of their independence and objectivity, the Audit Committee has concluded that KPMG is independent of the Company. Accounting and Financial Reporting Matters Considered by the Audit Committee After discussion with both management and the external auditor, the Audit Committee determined that the key risks of misstatement of the Group’s financial statements related to: • Recoverability of goodwill. • Business combinations. • Revenue recognition. • Capitalisation of intangible assets These issues were discussed with management during the year and with the external auditor at the time the Committee reviewed and agreed the external auditor’s audit plan, and also at the conclusion of the audit of the annual financial statements in September 2015. The Audit Committee placed significant reliance on the analyses presented by management and the results of the audit work presented by the external auditor. Risk factor considered Sources of evidence and conclusions reached Recoverability of goodwill The Group has been particularly active in recent acquisitions and this has led to the creation of significant acquired goodwill. There is potential risk of non-recoverability of: Management highlighted to the Committee how they arrived at the key assumptions to estimate the future cash flows associated with each cash generating unit. These included: • Budget and other underlying assumptions • Quality and integrity of the Group forecast profit & loss and cash • Historically generated goodwill; and flow models • Goodwill newly created through • Sensitivity analysis performed acquisitions and business combinations. This uncertainty arises due to the difficulty in forecasting and discounting future cash flows associated with the individual cash generating units that support the recoverability of the goodwill in the future. The accounting policies of the Group are outlined in notes 1.5 and 2.2 to the accounts. • Annual testing procedure • The discount rates used • Benchmark analyses against the relevant peer group. The Committee interrogated management’s key assumptions to understand their impact. The Committee was satisfied that the assumptions used were appropriately scrutinised, challenged and sufficiently robust. The Committee was further satisfied with the disclosures in the financial statements. The Committee concluded that: • The change to the CGUs in the year more accurately reflects the split of operations of the Group • Impairment testing indicated continuing high levels of headroom on Goodwill associated with the Software and Advanced Solutions Division • Headroom was tighter, but still comfortable in relation to the Goodwill associated with the Depot Solutions Division. 56 24338.04 19 October 2015 10:38 AM Proof 8 www.regenersis.com Stock code: RGS Risk factor considered Sources of evidence and conclusions reached Business combinations The Group has been particularly active in recent acquisitions and, in particular in relation to certain acquisitions, there is a potential risk of misstatement of: Management highlighted to the Committee how they arrived at the key assumptions to estimate the value of each acquired asset or liability, the fair value of consideration, and the valuation of the acquired intangibles in the current and previous years. This included: • Contingent consideration for acquisitions. • Identification of all acquired assets and completeness of • Fair value of net assets acquired • Valuation of intangibles arising on acquisition. This uncertainty arises due to the judgement required in assessing newly acquired assets and liabilities and in turn the goodwill. This uncertainty is increased when one considers the dispersed geographic nature of the acquired businesses. The accounting policies of the Group are outlined in notes 1.5, 1.7 and 2.2 to the accounts. liabilities. • Assessment of fair values of identified assets and liabilities. • Underlying assumptions used. • Sensitivity analysis performed. • Assessment of contingent consideration and assumptions behind it. • Review of estimates of future cash flows associated with each acquired intangible asset including customer contracts, intellectual property and brands. • Results of work performed by external experts to value significant acquired intangibles. • Review of previously established fair value adjustments to determine if adjustments should be made to the goodwill on acquisition or the Income Statement in line with the relevant accounting standards The Committee interrogated management’s key assumptions to understand their impact. The Committee was satisfied that the assumptions used were appropriately scrutinised, challenged and sufficiently robust. The Committee was further satisfied with the disclosures in the financial statements. The Committee concluded that: • In respect of the fair value of net assets acquired - it concluded that the treatment adopted by management was reasonable. • In respect of the fair value assessments created or updated during the year - it concluded that the treatment adopted by management was reasonable. • In respect of the valuation of the intangibles - based upon the valuation methodology used it concluded that the treatment adopted by management was reasonable. • In respect of the calculation of contingent consideration - it was concluded that a reasonable estimation of the pay out was made based on forecast data. 24338.04 19 October 2015 10:38 AM Proof 8 57 Regenersis Plc Annual Report and Accounts for the year ended 30 June 2015Our Governance Corporate Governance Report continued Risk factor considered Sources of evidence and conclusions reached Revenue recognition The Group has developed or acquired new offerings and entered new contracts where revenue recognition is becoming more complex, particularly in the Software and Advanced Solutions Division. There is potential risk of misstatement of revenues associated with the following business units that have either separable elements to services being delivered or where judgement is required as to when the obligation under the service agreement was fulfilled: • Digital Care, Insurance and Warranty services. • Software licenses. This uncertainty arises due to the requirement to identify the separable components of the revenue and to determine the timing of the recognition of the revenue. The accounting policies of the Group are outlined in note 1.10 to the accounts. Management highlighted to the Committee how they arrived at the key assumptions. This included: • A summary of the main contract terms. • The point of revenue recognition under the contract. • Comparison of the payment profile with the revenue profile of key contracts. • Analyses of separable elements of the revenue streams where multiple service components are delivered to the customers. The Committee interrogated management’s key assumptions to understand their impact. The Committee was satisfied that the assumptions used were appropriately challenged and sufficiently robust. The Committee was further satisfied with the disclosures in the financial statements. The Committee concluded that: • In respect of the Digital Care contracts – the amounts allocated to the separate deliverables identified and assumptions used were reasonable based upon empirical data and the treatment adopted by management was reasonable. • In respect of the software and services element arrangements - the calculation used was reasonably based on contract terms and the treatment adopted by management was reasonable. 58 24338.04 19 October 2015 10:38 AM Proof 8 www.regenersis.com Stock code: RGS Risk factor considered Sources of evidence and conclusions reached Capitalisation of development costs The Group undertakes development of a range of new product and service offerings in the Depot Solutions Division and ongoing Blancco and other product development in the Software and Advanced Solutions business. There is a potential risk of misstatement of: • Inappropriate judgements on whether a project meets the criteria for capitalisation • Impairment of capitalised assets, which depends on future cash flows The uncertainty arises due to the classification of work into research or development, which must be accounted for separately under IFRS. Additional uncertainty arises due to the difficulty in forecasting and discounting future cash flows associated with the development expenditure. The accounting policies of the Group are outlined in note 1.5 to the accounts Management highlighted to the Committee how they arrived at the key assumptions. This included: • A summary of the processes used in determining what costs to capitalise, including assessment of projects completed in the year. • Consideration of the future economic benefit of current development work, including scrutiny of budget. • Review of estimates of future cash flows associated with each asset. • Review of the assumed useful economic life of each development project. • Review of past development projects which have generated economic benefit for the Group. The Committee interrogated management’s key assumptions to understand their impact. The Committee was satisfied that the assumptions used were appropriately scrutinised, challenged and sufficiently robust. The Committee concluded that: • In respect of the capitalisation of costs – the amounts allocated to the development phase of the intangible assets were appropriately capitalised and supported by project data • In respect of the potential impairment of development intangibles – there were no impairment indicators and the Committee noted that the future economic benefit from the development expenditure was evident in the Group budget. Conclusion in Respect of the Annual Report and Financial Statements The production and the audit of the Company’s Annual Report and Financial Statements is a comprehensive process requiring input from a number of different contributors. One of the key governance requirements of the Company’s Annual Report and Financial Statements is that they are fair, balanced and understandable. The Board has requested that the Audit Committee advise on whether it considers that the Annual Report and Financial Statements fulfil these requirements. As a result of the work performed, the Committee has concluded that the Annual Report and Financial Statements for the year ended 30 June 2015, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company’s performance, business model and strategy and has reported on these findings to the Board. The Board’s conclusions in this respect are set out in the Statement of Directors’ Responsibilities on page 65. Frank Blin Chairman Audit Committee 21 September 2015 24338.04 19 October 2015 10:38 AM Proof 8 59 Regenersis Plc Annual Report and Accounts for the year ended 30 June 2015Our Governance Corporate Governance Report continued Other Committees Risk Management Committee (‘RMC’) Role of Committee and Responsibilities This Management Committee is chaired by the Chief Operating Officer. In addition, it comprises the Head of Internal Audit and other members of senior management from each of the Group’s segments. The Committee includes representatives of key support functions in the business, such as Finance, IT and Legal and reports to the Audit Committee. The RMC is responsible for ensuring that all significant operational and management risks facing the Group are reduced to an acceptable level. Key Focus During the Year During the course of the year, the RMC met three times and reported to the Board formally once. The findings of the RMC are also discussed at the Audit Committee. The work of the Committee focussed on the following areas: • Reviewing the effectiveness of the risk management framework in identifying and managing risks and controlling internal processes • Reviewing the risk management process annually and report this in an annual report on risk management to the Board and the Audit Committee. • Establishing formal mechanisms that will facilitate the timely identification, management and mitigation of risks. • Ensuring policies are established and adopted for the oversight and management of material business risks. • Identifying and evaluating the significant risks faced by the Group. • Participating in the annual review on the effectiveness of the system of internal control and risk management. Internal Controls The Board is responsible for maintaining a sound system of internal control to safeguard shareholders’ investments and the Group’s assets. Such a system is designed to manage rather than eliminate the risk of failure to achieve business objectives and can provide only reasonable and not absolute assurance against material misstatement or loss. The Group is committed to conducting its business responsibly and in accordance with all applicable laws and regulations. Employees are encouraged to raise concerns about fraud, bribery and other matters through a whistleblowing procedure. All such concerns are referred to the Executive Chairman or Chief Financial Officer, who then recommend appropriate remedial action. During the course of the year, there were four incidents reported. All of them were investigated by the Head of Internal Audit and appropriately resolved. The nature and outcomes of these incidents were summarised and also reported to the Audit Committee. The Group’s financial reporting processes are detailed and regularly reviewed. The detailed reporting is reviewed at least each month end by the members of the Central Finance team, highlighting areas of concern and checking and confirming that the reasons for variations are valid. Quarterly reviews of each of the businesses are performed by the Chief Financial Officer covering both historic and forthcoming financial and business performance as well as anticipating key future events. In addition each business unit is required to submit a monthly controls checklist which is signed locally to say that controls and reviews have been carried out both during the month and as part of the month end close process. A six monthly self-assessment exercise is also completed by business units that allow the Board to review the performance of internal controls within the Group and allows their state of health from a risk management viewpoint. It is designed to ensure that risks threatening business objectives are identified and also provides: • A commitment from the Board to maintain good internal controls. • A standard approach for risk management and controls across the Group. • The Business Unit Managing Directors with individual responsibility and accountability for addressing risk hence, maintaining effective controls and compliance with Group policies, standards and delegations of authority. 60 24338.04 19 October 2015 10:38 AM Proof 8 www.regenersis.com Stock code: RGS Directors’ Remuneration Report Remuneration Committee The Committee determines on behalf of the Board the Company’s policy on the remuneration and terms of engagement of the Executive Directors and senior managers. Executive Directors attend by invitation only when appropriate and are not present at any discussion of their own remuneration. The remuneration strategy is designed to be in line with the Group’s fundamental values of fairness, competitiveness and equity and also to support the Group’s corporate strategy. A cohesive reward structure consistently applied, with links to corporate performance, is seen as critical in ensuring attainment of the Group’s strategic goals. The members of the Remuneration Committee and details of attendance at the meetings are disclosed in the table in the Corporate Governance Report on page 51. The Committee members have no personal financial interest, other than as shareholders, in the matters to be decided. They have no conflicts of interest arising from cross-directorships or from being involved in the day-to- day business of the Group. Committee members do not participate in any formal bonus, share awards or pension arrangements. Remuneration Policy The Group operates in a highly competitive environment. For the Group to continue to compete successfully, it is essential that the level of remuneration and benefits offered achieves the objectives of attracting, retaining, motivating and rewarding the high calibre of individuals at all levels across the Group. The Group therefore sets out to provide competitive remuneration to all its employees, appropriate to the business environment in the market in which it operates. To achieve this, each individual’s remuneration package is based upon the following principles: The Group also seeks to align the interests of shareholders with those of Executive Directors and senior employees by giving the latter opportunities and encouragement to build up a shareholding interest in the Company through long-term incentive plans. Remuneration of Executive Directors Elements of remuneration The Executive Directors’ total remuneration currently consists of: • Fixed elements, comprising basic salary or fees, benefits and pensions. • Performance-related elements comprising performance-related bonuses and long-term performance arrangements satisfied primarily by share awards. The elements of the remuneration packages are designed in order to incentivise the Directors, and to align their interests with shareholders. This includes performance- related elements which challenge the Directors to achieve targets in the interest of promotion and growth of the Group. • Total rewards should be set to provide a fair and attractive remuneration package. Each of these elements of remuneration is explained below. • Appropriate elements of the remuneration package should be designed to reinforce the link between performance and reward. • Executive Directors’ incentives will be aligned with the interests of shareholders. Basic Salary or Fees Basic salaries or fees are set by the Remuneration Committee on an annual basis after taking into consideration the performance of the individuals, their levels of responsibility and rate of salary or fees for similar positions in comparator companies. 24338.04 19 October 2015 10:38 AM Proof 8 61 Regenersis Plc Annual Report and Accounts for the year ended 30 June 2015Our Governance Directors’ Remuneration Report continued Benefits in Kind These principally comprise car benefits, life assurance and membership of the Group’s healthcare insurance scheme or payment in lieu of these benefits. These benefits do not form part of pensionable earnings. Pensions The Group makes defined contributions into individual pension plans. The Directors may opt out of the UK Pension Auto Enrolment scheme. The amounts paid in the financial year are set out in the Directors’ emoluments table on page 63. Annual Performance Related Bonuses Performance related bonuses for the Executive Directors are contractual and are determined by reference to performance targets based on the Group’s financial results and personal objectives set at the beginning of the financial year. Terms and conditions are based on the recommendations of the Remuneration Committee. The Executive Directors are eligible to receive a cash bonus of up to the following amounts for the year ended 30 June 2015. Matthew Peacock Executive Chairman Jog Dhody Chief Financial Officer Maximum % eligible of basic salary or fees 100% 70% Actual % awarded of basic salary or fees 0% 0% No bonus award has been made in this financial year as a result of bonus objectives not having been achieved. Long-Term Incentive Arrangements The Group has implemented long term incentive arrangements for its senior management and Directors in order to align their interests to those of the shareholders. The Directors participated in Incentive Share Plan (ISP3) in the current year. Incentive Share Plan (ISP3) On 14 January 2014, the Company established the Regenersis Incentive Share Plan (“ISP3”) on similar lines to ISP2, to incentivise management to achieve further shareholder value growth. The terms of this scheme were disclosed in the financial statements for the year to 30 June 2014. No awards have vested during the current year since none of the performance targets have been met. The Executive Directors are the only participating members of this scheme as at 30 June 2015; the grants in respect of Jog Dhody and Hanover General Partners II L.P. are 1.25% and 7.0% of the increase in shareholder value respectively (2014: 1.25% and 7.0%). Service Agreements Executive Director services are provided by way of rolling service contracts held between Regenersis Plc or one of its subsidiaries and Hanover General Partner LLP, providing six months’ notice on either side. Matthew Peacock and Tom Russell are both associated with Hanover General Partner LLP. Jog Dhody has a rolling Executive Director service agreement with Regenersis Plc and one of its subsidiaries that provides for 12 months’ notice from the Company and six months’ notice from him. In the event that the Group serves notice to terminate the contract of any Executive Director, the Group may make a payment in lieu of notice, but is not obliged to do so. Such payments are restricted to the unexpired portion of the duration of the Executive’s employment or entitlement to notice. The dates of the contracts are as follows: Matthew Peacock Jog Dhody Tom Russell 3 December 2014 11 June 2013 14 June 2013 All of the awards under two Incentive Share Plans (ISP1 and ISP2) were exercised in the previous financial year. The Remuneration Committee also determines the terms and conditions of employment of the Executive Directors. 62 24338.04 19 October 2015 10:38 AM Proof 8 www.regenersis.com Stock code: RGS Non-executive Directors’ Remuneration Non-executive Directors are appointed for a specified term, being an initial three-year period subject to their re-election by shareholders at the first AGM after their appointment. The initial three-year period may be extended for a further three-year term, at the discretion of the Board and subject to the ongoing requirement for re-election by shareholders under the Company’s articles. On termination, no compensation is payable other than outstanding fees. The following are the Non-executive Directors with the dates they joined the Board: The Non-executive Directors receive fees set at a level commensurate with their experience and ability to make a contribution to the Group’s affairs and these are set by the Board as a whole. No incentives, pensions or other benefits are available to the Non-executive Directors and, accordingly, they have opted out of the UK Pension Auto Enrolment scheme. The Board may request Non-executive Directors to perform specific additional work at an agreed per daily rate. It would be the intention of the Board that the Directors’ independence is not prejudiced by the nature of any such additional work. Frank Blin Rob Woodward Tom Russell 1 December 2014 1 June 2013 17 March 2015 Details of the Directors’ emoluments and share awards are given below and have been audited. Executive Matthew Peacock1 Jog Dhody Tom Russell1 Non-executive Michael Peacock (resigned 25 November 2014) Frank Blin (appointed 1 December 2014) Rob Woodward Tom Russell1 Total Salary, fees, benefits 2015 £’000 Bonus 2015 £’000 Pension contributions 2015 £’000 265 199 91 555 19 26 41 20 106 661 — — — — — — — — — — — 68 — 68 — — — — — 68 Total 2015 £’000 265 267 91 623 19 26 41 20 106 729 Total 2014 £’000 605 337 35 977 51 — 43 — 94 1,071 1 Matthew Peacock and Tom Russell’s fees are paid to Hanover Investors Management LLP or one of its connected parties for the provision of their services as Executive Chairman and Non-executive Director respectively. 24338.04 19 October 2015 10:38 AM Proof 8 63 Regenersis Plc Annual Report and Accounts for the year ended 30 June 2015Our Governance Directors’ Remuneration Report continued Long-Term incentives Vested During the Current Financial Year No long term incentives vested for any of the directors during the current financial year Long-Term incentives Vested During the Previous Financial Year The table below outlines awards made under ISP1 to Executive Directors which vested in the previous financial year: Director Jog Dhody Vesting Date 14 January 2014 Award Basis Share price increase Number of shares vested * Vesting price of award £3.09 * Awards vested and exercised by Jog Dhody in the previous financial year consisted of cash payments of £156,503. The table below outlines awards made under ISP2 to Executive Directors which vested in the previous financial year: Director Matthew Peacock Jog Dhody Tom Russell Vesting Date 14 January 2014 14 January 2014 14 January 2014 Award Basis Share price increase Share price increase Share price increase Number of shares vested ** 100,591*** ** Vesting price of award £3.25 £3.25 £3.25 ** Matthew Peacock and Tom Russell have an indirect beneficial interest in awards made to Hanover (Cayman) General Partner II LP, through their association with Hanover Investors Management LLP. Awards vested and exercised by Hanover (Cayman) General Partner II LP in 2014 consisted of cash payments of £4,422,981. *** Awards vested and exercised by Jog Dhody consisted of 100,591 shares and cash payments of £344,228. Directors’ Beneficial interests in Shares The interests of the Directors who held office at 30 June 2015 and their connected parties in the ordinary share capital of the Company are as shown in the table below. Executive Matthew Peacock Jog Dhody Non-executive Michael Peacock** Frank Blin*** Rob Woodward Tom Russell As at the date of this report Number As at 30 June 2015 Number As at 30 June 2014 Number * 418,081 * 418,081 * 405,581 — 18,000 4,459 * — 18,000 4,459 * 3,000 — 4,459 * * Matthew Peacock and Tom Russell have an indirect beneficial interest in the shares of the Group, through their association with Hanover Investors Management LLP. The combined holding of Hanover Investors Management LLP and its connected parties is 5,217,651 ordinary shares at 30 June 2015 (2014: 5,043,651). ** To 26 November 2014. *** From 1 December 2014. This report has been approved by the Board and has been signed on its behalf by: Rob Woodward Chairman of the Remuneration Committee 21 September 2015 64 24338.04 19 October 2015 10:38 AM Proof 8 www.regenersis.com Stock code: RGS Statement of Directors’ Responsibilities in respect of the Annual Report and Accounts and the Financial Statements Responsibilities Statement The Directors confirm to the best of their knowledge: • The financial statements, prepared in accordance with IFRS as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole, including the individual Company accounts which are prepared under UK GAAP. • The Strategic Report includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face. • The Annual Report and Financial Statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company’s performance, business model and strategy. The Directors are responsible for preparing the Annual Report in accordance with applicable law and regulations. Having taken advice from the Audit Committee, the Board considers the Annual Report and Financial Statements, taken as a whole, are fair, balanced and understandable and that it provides the information necessary for shareholders to assess the Company’s performance, business model and strategy. Neither the Company nor the Directors accept any liability to any person in relation to the Annual Report except to the extent that such liability could arise under English law. The Directors are responsible for preparing the Annual Report and the Group and Parent Company Financial Statements in accordance with applicable law and regulations. Company law requires the Directors to prepare Group and Parent financial statements for each financial year. Under that law they have elected to prepare the Group financial statements in accordance with IFRSs as adopted by the EU and applicable law and have elected to prepare the Parent Company financial statements in accordance with UK accounting standards. Under company law, the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the Group at the end of the financial year and of their profit or loss for that period. In preparing those financial statements, the Directors are required to: • Select suitable accounting policies and apply them consistently. • Make judgements and estimates that are reasonable and prudent. • State whether they have been prepared in accordance with IFRSs as adopted by the EU. • State for the Company financial statements whether applicable UK accounting standards have been followed. • Prepare the financial statements on a going concern basis unless it is inappropriate to presume that the Company and the Group will continue in business. The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Parent Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Parent Company and enable them to ensure that its financial statements comply with the Companies Act 2006. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities. 24338.04 19 October 2015 10:38 AM Proof 8 65 Regenersis Plc Annual Report and Accounts for the year ended 30 June 2015Our Governance Divider Supporting The Life Cycle Of Technology 66 24338.04 19 October 2015 10:38 AM Proof 8 Our Financials Independent Auditors’ Report Primary Statements Notes to the Accounts Company Balance Sheet Notes to the Company Accounts Shareholder Information Notice of AGM Glossary Locations 68 72 76 121 122 130 136 IBC 24338.04 19 October 2015 10:38 AM Proof 8 67 Independent Auditor’s Report to the members of Regenersis Plc only Opinions and conclusions arising from our audit 1. Our opinion on the financial statements is unmodified We have audited the financial statements of Regenersis Plc for the year ended 30 June 2015 set out on pages 72 to 129. In our opinion: • The financial statements give a true and fair view of the state of the Group’s and of the parent company’s affairs as at 30 June 2015 and of the Group’s profit for the year then ended; • The Group financial statements have been properly prepared in accordance with International Financial Reporting Standards as adopted by the European Union; • The Parent Company financial statements have been properly prepared in accordance with UK Accounting Standards; and • The financial statements have been prepared in accordance with the requirements of the Companies Act 2006. 2. Our assessment of risks of material misstatement In arriving at our audit opinion above on the financial statements the risks of material misstatement that had the greatest effect on our audit were as follows: Recoverability of goodwill (£83.2 million) Refer to page 56 (Audit Committee report), page 78 (accounting policy) and page 97 (financial disclosures). • The risk – The recoverability of goodwill is considered to be a significant audit risk due to the high level of recent business combinations and the associated significant goodwill arising. The value in use of the cash generating units, which include the goodwill and is the level at which these are assessed for recoverability, is dependent on the related businesses generating sufficient cash flows. Due to the inherent uncertainty involved in forecasting and discounting future cash flows, this is one of the key judgement areas for our audit. • Our response – In this area our audit procedures included, testing of the Group’s budgeting procedures upon which the forecasts are based; and the principles and integrity of the Group’s discounted cash flow model. We evaluated the assumptions and methodologies used by the Group, in particular those relating to the forecast revenue growth and profit margins. We compared the Group’s assumptions to our assessments in relation to key inputs such as projected economic growth, cost inflation and discount rates, as well as performing break-even analysis on the assumptions. We used our own valuation specialist to benchmark the assumptions used in determining the discount rates applied and compared these rates to externally derived data comprising groups in similiar operating markets. We compared the sum of the discounted cash flows to the Group’s market capitalisation to assess the reasonableness of those cash flows. We also assessed whether the Group’s disclosures, in particular about the sensitivity of the outcome of the impairment assessment to changes in key assumptions reflected the risks inherent in the valuation. Business combinations (Contingent consideration payable of £5.7 million) Refer to page 57Audit Committee report), page 78 (accounting policy) and page 92 (financial disclosures). • The risk – The Group has completed a number of significant business combinations. Those transactions require the Directors to make ongoing judgements in the following areas: — in respect of HDM, Digicomp and Blancco Sweden acquisitions, determining or updating the fair value of the contingent consideration payable which relies on forecasting future earnings and — in respect of the Digicomp and Blancco acquisitions, determining adjustments required to the provisional fair value of assets and liabilities acquired, and whether these adjustments related to circumstances which existed at the date of acquisition (and therefore are made to acquired goodwill) or after that date (and therefore made to the Income statement), which is complex given the large number of locations and their geographic spread. 68 24338.04 19 October 2015 10:38 AM Proof 8 www.regenersis.com Stock code: RGS • Our response – In this area our audit procedures included: — challenging the key assumptions and methodologies used in determining the current estimate of the contingent consideration payable in respect of the Digicomp, HDM and Blancco Sweden acquisitions; — challenging the basis used by the Group to retrospectively adjust the provisional fair value of the assets and liabilities acquired and whether these adjustments were appropriately made to acquired goodwill or to the income statement. We corroborated the explanations provided by comparing to the facts and circumstances specific to the businesses acquired, our past experience of similar transactions and the Group’s business plan supporting the acquisition; — consideration of the appropriateness of the accounting for significant fair value adjustments in subsequent periods with reference to relevant accounting standards; and — consideration of the presentation and disclosure of any material adjustments in the financial statements and the adequacy of the disclosure of the sensitivity of key estimates made. Capitalisation of development costs (Additions to intangible development costs of £4.0 million) Refer to page 59 (Audit Committee report), page 78 (accounting policy) and page 99 (financial disclosures). • The risk – The Group incurred research and development costs in the year, some of which met the criteria for capitalisation as development costs. There is significant judgement involved in determining whether a particular project or activity has met these criteria and therefore must be capitalised. There is a risk that capitalisation occurs on projects that do not meet these criteria or that incorrect amounts are allocated to projects. • Our response – In this area our audit procedures included interrogations of the Group’s assessments of future cash flows from significant research and development projects, so as to assess the benefits expected to be generated from these projects and whether these projects meet the criteria for capitalisation. In respect of those projects, that meet the criteria, our audit procedures included, obtaining a breakdown of additions to internally generated intangible assets at a project level, verifying a sample of costs back to time recorded or to invoices and assessing the reasonableness of labour rates used. We evaluated the assumptions and methodologies used by the Group, in particular those relating to engineers’ time which may be capitalised. We considered the adequacy of the disclosure in the financial statements in respect of judgements made in capitalising these costs. 24338.04 19 October 2015 10:38 AM Proof 8 69 Regenersis Plc Annual Report and Accounts for the year ended 30 June 2015Our Financials Independent Auditor’s Report continued to the members of Regenersis Plc only Revenue recognition (£33.3 million Advanced Solutions and £15.0 million Software) Refer to page 58 (Audit Committee report), page 80 (accounting policy) and page 86 (financial disclosures). • The risk – The Group has a number of revenue streams reflecting the diversity of services offered to its customers. Although the recognition of revenue for repairs is relatively straightforward, certain other income streams, particularly in the Software and Advanced Solutions division, can be more complex. In Blancco, software licences may need to be spread over the licence period or separated into their respective deliverables; whilst in Digital Care policies have several elements which can include insurance. The application of the Group’s accounting for arrangements involving multiple elements can be complex as the total contract value is allocated to each identified component on a relative fair value basis and recognised as revenue as the related goods or services are delivered. With regard to these contracts the identification of components and allocation and recognition of revenue is a key area of judgement. • Our response – Our audit procedures included selecting contracts based on quantitative factors (for example, those with the greatest impact on the Group’s financial results) and qualitative factors (for example, new contracts or services entered into during the financial year). In respect of those contracts we assessed the appropriateness of the Group’s revenue recognition policies, with reference to relevant accounting standards, and considered whether revenue on the contracts selected was recognised in accordance with these policies. We also challenged the revenue amounts assigned to each deliverable by assessing the Group’s delivery of its performance obligations with respect to contractual terms, particularly where the Group made estimates or applied judgement relating to the timing and value of revenue recognised. We considered the adequacy of the disclosure of these policies in the financial statements. In the prior year we considered “Tax provisioning and the recoverability of deferred tax assets” to be a significant audit risk. We consider this risk to be less significant in the current year. 3. Our application of materiality and an overview of the scope of our audit The materiality for the Group financial statements as a whole was set at £1,200,000, determined with reference to a benchmark of Group revenue, of which it represents 0.6%. We consider revenue to be the most appropriate benchmark as it provides a more stable measure year on year than Group profit before tax. We report to the Audit Committee any corrected or uncorrected identified misstatements exceeding £60,000, in addition to other identified misstatements below that threshold that warranted reporting on qualitative grounds. Of the Group’s 60 reporting components, 22 were subject to audits for Group reporting purposes. We conducted specified audit procedures at a further 15 non-significant components. The components for which we performed work other than audits for Group reporting purposes were not individually significant but were included in the scope of our Group reporting work in order to provide further coverage over the Group’s results. The components within the scope of our work accounted for the following percentages of the Group’s results. Audits for group reporting purposes Specified audit procedures Total Revenue 86% Profit before tax 80% 12% 98% 16% 96% Total assets 80% 17% 97% For the remaining 23 components, we performed analysis at an aggregated Group level to re-examine our assessment that there were no significant risks of material misstatement within these. The Group audit team instructed component auditors as to the significant areas to be covered, including the relevant risks detailed above and the information to be reported back. The Group audit team approved the component materialities, which ranged from £60,000 to £900,000, having regard to the mix of size and risk profile of the Group across components. The work on 12 of the 22 components subject to audit was performed by component auditors and the rest by the Group audit team. 70 24338.04 19 October 2015 10:38 AM Proof 8 www.regenersis.com Stock code: RGS • the Parent Company financial statements are not in agreement with the accounting records and returns; or • certain disclosures of Directors’ remuneration specified by law are not made; or • we have not received all the information and explanations we require for our audit. We have nothing to report in respect of the above responsibilities. Scope of report and responsibilities As explained more fully in the Directors’ Responsibilities Statement set out on page 65, the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. A description of the scope of an audit of financial statements is provided on the Financial Reporting Council’s website at www.frc.org.uk/auditscopeukprivate. This report is made solely to the Company’s members as a body and is subject to important explanations and disclaimers regarding our responsibilities, published on our website at www.kpmg.com/uk/auditscopeukco2014b, which are incorporated into this report as if set out in full and should be read to provide an understanding of the purpose of this report, the work we have undertaken and the basis of our opinions. Stuart Smith (Senior Statutory Auditor) for and on behalf of KPMG LLP, Statutory Auditor Chartered Accountants One Snowhill Snow Hill Queensway Birmingham B4 6GH 21 September 2015 The Group audit team visited 17 component locations in the UK, Spain, Poland, Finland, Romania, South Africa, USA and India. Telephone conference meetings were also held with these component auditors and the others that were not physically visited. At these visits and meetings, the findings reported to the Group audit team were discussed in more detail, and any further work required by the Group audit team was then performed by the component auditor. 4. Our opinion on other matters prescribed by the Companies Act 2006 is unmodified In our opinion the information given in the Strategic Report and the Directors’ Report for the financial year for which the financial statements are prepared is consistent with the financial statements. 5. We have nothing to report in respect of the matters on which we are required to report by exception Under ISAs (UK and Ireland) we are required to report to you if, based on the knowledge we acquired during our audit, we have identified other information in the annual report that contains a material inconsistency with either that knowledge or the financial statements, a material misstatement of fact, or that is otherwise misleading. In particular, we are required to report to you if: • we have identified material inconsistencies between the knowledge we acquired during our audit and the Directors’ statement that they consider that the annual report and financial statements taken as a whole is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group’s performance, business model and strategy; or • the Audit Committee report does not appropriately address matters communicated by us to the Audit Committee. Under the Companies Act 2006 and under the terms of our engagement we are required to report to you if, in our opinion: • adequate accounting records have not been kept by the Parent Company, or returns adequate for our audit have not been received from branches not visited by us; or 24338.04 19 October 2015 10:38 AM Proof 8 71 Regenersis Plc Annual Report and Accounts for the year ended 30 June 2015Our Financials Consolidated Income Statement for the year ended 30 June 2015 Group revenue Headline Operating Profit Acquisition costs Exceptional restructuring costs Amortisation of intangible assets Share-based payments Group Operating Profit before disposal of subsidiaries Loss on disposal of subsidiaries Group Operating Profit Share of results of equity accounted investment Profit on disposal of equity accounted investment Operating profit from continuing operations Revaluation of contingent consideration Other finance income Finance income Unwinding of discount factor on contingent consideration Other finance costs Finance costs Profit before tax Taxation Profit for the year Attributable to: Equity holders of the Company Non-controlling interest Profit for the year Earnings per share Basic Diluted 2015 £’000 Note 3 3,302 143 (934) (1,339) 6 7 18 33 16 20 30 10 10 11 12 12 2015 £’000 202,564 15,426 (3,041) (678) (3,349) (531) 7,827 (1,456) 6,371 (746) — 5,625 3,445 (2,273) 6,797 (1,680) 5,117 5,404 (287) 5,117 6.97p 6.97p Consolidated Statement of Comprehensive Income for the year ended 30 June 2015 Profit for the year Other comprehensive income – Amounts that may be reclassified to profit or loss in the future: Exchange differences arising on translation of foreign entities Total comprehensive income/(expense) for the year Attributable to: Equity holders of the Company Non-controlling interests Total comprehensive income/(expense) for the year 2014 £’000 4,695 86 (1,063) (1,311) 2014 £’000 197,482 10,965 (5,044) (4,351) (589) (658) 323 — 323 (100) 240 463 4,781 (2,374) 2,870 381 3,251 2,975 276 3,251 5.45p 5.41p 2015 £’000 5,117 (3,786) 1,331 1,618 (287) 1,331 2014 £’000 3,251 (3,403) (152) (428) 276 (152) 72 24338.04 19 October 2015 10:38 AM Proof 8 www.regenersis.com Stock code: RGS Consolidated Balance Sheet as at 30 June 2015 Assets Non-current assets Goodwill Other intangible assets Equity accounted investments Other investments Property, plant and equipment Deferred tax Current assets Inventory Trade and other receivables Cash Total assets Current liabilities Trade and other payables Contingent consideration Provisions Income tax payable Non-current liabilities Borrowings Contingent consideration Provisions Total liabilities Net assets Equity Ordinary share capital Share premium Merger reserve Translation reserve Retained earnings Total equity attributable to equity holders of the Company Non-controlling interests Total equity Note 2015 £’000 2014 £’000 17 18 20 20 19 31 21 22 23 24 30 29 26 30 29 32 32 32 32 32 83,157 27,041 1,850 61 6,355 622 119,086 9,480 34,556 12,143 56,179 175,265 (40,471) (1,734) (372) (642) (43,219) (4,357) (3,994) (1,029) (52,599) 122,666 1,581 51,737 4,034 (7,115) 72,191 122,428 238 122,666 81,791 28,479 10 745 5,341 1,182 117,548 10,137 37,742 20,795 68,674 186,222 (44,330) - (792) (1,476) (46,598) (194) (6,358) (2,659) (55,809) 130,413 1,581 121,737 4,034 (3,329) 5,820 129,843 570 130,413 The financial statements were approved by the Board of Directors and authorised for issue on 21 September 2015. They were signed on its behalf by: Matthew Peacock Executive Chairman Company number: 05113820 Jog Dhody Chief Financial Officer 24338.04 19 October 2015 10:38 AM Proof 8 73 Regenersis Plc Annual Report and Accounts for the year ended 30 June 2015Our Financials Consolidated Statement of Changes in Equity for the year ended 30 June 2015 Share capital £’000 994 Share premium £’000 26,592 Merger reserve £’000 3,088 Translation reserve £’000 74 Retained earnings £’000 8,650 Non- controlling interest reserve £’000 — Total £’000 39,398 — 2,975 276 3,251 (3,403) — — (3,403) — — 587 — — — — — 95,145 — — — — — 946 — — — — — — — — 867 (5,142) (1,530) — 5,820 — — — — 294 570 96,678 867 (5,142) (1,530) 294 130,413 — 1,581 — 121,737 — 4,034 — (3,329) — — — — — — — — — — — — — — — (70,000) — — — — — — — — — 5,404 (287) 5,117 (3,786) — — (3,786) — — — — — — 914 (3,381) (2,938) — — — 914 (3,381) (2,938) 45 (45) — (3,673) 70,000 — — (3,673) — 1,581 51,737 4,034 (7,115) 72,191 238 122,666 Balance as at 30 June 2013 Comprehensive income: Profit for the year Other comprehensive income: Exchange differences arising on translation of foreign entities Transactions with owners recorded directly in equity: Issue of share capital Recognition of share-based payments Vesting of share options Dividends paid Other transactions: On acquisition of subsidiary Balance as at 30 June 2014 Comprehensive income: Profit for the year Other comprehensive income: Exchange differences arising on translation of foreign entities Transactions with owners recorded directly in equity: Recognition of share-based payments Dividends paid Other transactions: Acquisition of non-controlling interest without a change in control Reserves transfer on acquisition of non-controlling interest Purchase of Company’s own shares Conversion of share premium account Balance as at 30 June 2015 74 24338.04 19 October 2015 10:38 AM Proof 8 www.regenersis.com Stock code: RGS Consolidated Cash Flow Statement for the year ended 30 June 2015 Profit for the year Adjustments for: Net finance (income) Tax expense/(credit) Depreciation on property, plant and equipment Amortisation of intangible assets Impairment of intangible assets Share of results of equity accounted investment Loss/(gain) on disposal of subsidiary/equity accounted investment Loss/(gain) on disposal of property, plant and equipment Share-based payments expense Operating cash flow before movement in working capital Acquisition costs Exceptional restructuring costs Operating cash flow before movement in working capital and exceptionals Decrease/(increase) in inventories Decrease/(increase) in receivables (Decrease)/increase in payables and accruals Decrease in provisions Cash generated from/(used in) operations Acquisition costs payments Exceptional restructuring payments Headline Operating Cash Flow Interest received Interest paid Tax paid Net cash inflow/(outflow) from operating activities Cash flow from investing activities Purchase of property, plant and equipment Purchase and development of intangible assets Proceeds from sale of property, plant and equipment Acquisition of investment in an associate Acquisition of subsidiary, net of cash acquired Net cash used in investing activities Cash flow from financing activities Proceeds from issue of share capital (net) Payment on vesting of share options Repurchase of shares Drawdown/(repayment) of borrowings Dividends paid Net cash (outflow)/inflow from financing activities Net (decrease)/increase in cash and cash equivalents Other non-cash movements – exchange rate changes Cash and cash equivalents at the beginning of year Cash and cash equivalents at end of year Cash and cash equivalents at end of year Bank borrowings Net cash Note 10 11 19 18 18 19 18 20 14 31 32 28 25 23 26 27 2015 £’000 5,117 (1,172) 1,680 1,702 4,452 — 746 1,456 114 531 14,626 3,041 678 18,345 (377) 1,083 (4,867) (1,824) 8,641 1,708 1,223 11,572 100 (858) (963) 6,920 (2,588) (4,749) 990 (1,912) (2,450) (10,709) — (80) (3,550) 4,066 (3,381) (2,945) (6,734) (1,918) 20,795 12,143 12,143 (4,357) 7,786 2014 £’000 3,251 (2,407) (381) 1,619 2,152 5 100 (240) (5) 658 4,752 5,044 4,351 14,147 (2,725) (9,227) 4,025 (1,049) (4,224) 4,679 4,024 4,479 86 (792) (816) (5,746) (2,814) (3,874) 231 (745) (50,484) (57,686) 95,732 (4,924) — (6,724) (1,530) 82,554 19,122 (2,846) 4,519 20,795 20,795 (194) 20,601 24338.04 19 October 2015 10:38 AM Proof 8 75 Regenersis Plc Annual Report and Accounts for the year ended 30 June 2015Our Financials Notes to the Accounts for the year ended 30 June 2015 1. General information Regenersis Plc is a company incorporated in the United Kingdom under the Companies Act 2006. Details of its registered office are published on the inside back cover, whilst the nature of the Group’s operations and principal activities are set out in the Strategic Report from page 6. These financial statements are presented in thousand pounds sterling, which is the functional currency of the Group and Parent Company. Foreign operations are included in accordance with the policies set out in note 1.4. 1.1 Basis of preparation These consolidated financial statements have been prepared in accordance with all International Financial Reporting Standards (“IFRS”) as adopted by the EU (“Adopted IFRS”). The financial statements of the Parent Company have been prepared in accordance with United Kingdom Generally Accepted Accounting Practice (“UK GAAP”) and presented from page 121. Changes in accounting policies The standards, changes to existing standards and interpretations listed below have been enacted and adopted by the Group in the period in the preparation of these financial statements. They have not had a significant impact on the Group’s accounting. At the date of approval of these financial statements, the following Standards and Interpretations which have not been applied in these financial statements were in issue but not yet effective: IFRS 9 IAS 16/IAS 38 Financial Instruments Clarification of Acceptable Methods of Depreciation and Amortisation Effective for periods beginning on or after: 1 January 2018 1 January 2016 The Group does not consider the adoption of these standards will have any material impact on its financial statements. The financial statements are prepared under the historical cost convention, except where the measurement of balances at fair value is required as set out below. The accounting policies below have been consistently applied to all periods presented in these consolidated financial statements. 1.2 Going concern As highlighted in note 26 to the financial statements, the Group meets its day-to-day working capital requirements through a Revolving Credit Facility which is not due for renewal until October 2019. Further information on the Group’s business activities, together with the factors likely to affect its future development, performance and position is set out in the Business Review on pages 22 to 29. Further information on the financial position of the Group, its cash flow, liquidity position and borrowing facility is also described in this review. In addition, note 30 to the financial statements includes the Group’s objectives, policies and processes for managing its capital, and its exposures to credit risk and liquidity risk. The Group’s forecasts and projections, taking account of reasonably possible changes in trading performance, show that the Group should be able to operate within the level of its Revolving Credit Facility. 76 24338.04 19 October 2015 10:38 AM Proof 8 www.regenersis.com Stock code: RGS After making enquiries, the Board has a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the Annual Report and Accounts. 1.3 Basis of consolidation The consolidated financial statements aggregate the results, cash flow and balance sheets of Regenersis Plc (“the Company”) and its subsidiary undertakings (together the “Group”) drawn up to 30 June each year. A list of the Company’s principal subsidiary undertakings including details of statutory year ends that differ from the Group is given in note 20. The results of subsidiary undertakings, acquired during the financial year are included from the date of acquisition. The financial statements of subsidiaries are prepared in accordance with the Group’s accounting policies and to coterminous balance sheet dates. Subsidiaries comprise the entities controlled by the Group. Control exists when the Group has power over an entity, is exposed or has the rights to variable returns from its involvement with the entity and has the ability to affect those returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The financial statements over subsidiaries are included in the consolidated financial statements from the date that commences until it ceases. Intra-Group balances and transactions, and any unrealised income and expenses arising from intra-Group transactions are eliminated in preparing the consolidated financial statements. On acquisition of a subsidiary, applicable assets and liabilities existing at the date of acquisition are reflected at their fair values. Non-controlling interests in the net assets of consolidated subsidiaries are identified separately from the Group’s equity therein. Non-controlling interests consist of the amount of those interests at the date of the original business combination and the share of the changes in equity since the date of the combination. Losses applicable to the non- controlling interest that are in excess of the non-controlling interest in the subsidiary’s equity, are allocated against the interests of the Group only if there is a binding obligation to fund the losses and the Group is able to make an additional investment to cover the losses. Acquisition of non-controlling interests’ equity stakes in the Group’s subsidiaries are recorded directly through reserves, with a transfer of the non-controlling interest’s share of net assets directly to retained earnings on the date of acquisition. 1.4 Foreign currencies Transactions denominated in foreign currencies are translated into Sterling at the exchange rate ruling at the date of the transaction. Foreign currency monetary assets and liabilities are translated into Sterling at rates of exchange ruling at the balance sheet date. The income statements and cash flow of overseas subsidiaries are translated into sterling at the weighted average exchange rates applicable during the year and their assets and liabilities are translated at the rates ruling at the balance sheet date. Exchange differences arising on the retranslation of opening net assets of overseas subsidiaries, together with differences between profit and loss accounts at average and closing rates, are included within other comprehensive income. In addition, exchange differences arising on long-term intercompany loans are included within other comprehensive income. All other exchange differences are accounted for within the income statement. 24338.04 19 October 2015 10:38 AM Proof 8 77 Regenersis Plc Annual Report and Accounts for the year ended 30 June 2015Our Financials Notes to the Accounts continued for the year ended 30 June 2015 1.5 Goodwill and intangible assets Goodwill arising on consolidation represents the excess of the cost of the acquisition over the Group’s interest in the fair value of the identifiable assets and liabilities of a business at the date of the acquisition. Goodwill is initially recognised as an asset at cost and is subsequently measured at cost less any accumulated impairment losses. Goodwill is reviewed for impairment at least annually. Any impairment is recognised immediately in the income statement and is not subsequently reversed. Goodwill arising on acquisitions before the date of transition to IFRS has been retained at the previous UK GAAP amounts subject to being tested for impairment at that date. Goodwill and other intangible assets with indefinite useful lives are reviewed for impairment annually, or whenever there is an indication that they may be impaired, by comparing the carrying value of the asset, or group of assets, to its recoverable amount. Assets which do not generate cash inflows independent of other assets are aggregated into cash generating units (CGUs) and the recoverable amount of the CGU to which the asset belongs is estimated. The recoverable amount of an asset or CGU is the higher of its fair value less costs to sell and its value in use. The value in use is estimated by calculating the present value of its future cash flow. Impairment charges are recognised in the income statement to the extent that the carrying value exceeds the recoverable amount in the period in which the impairment is identified. Goodwill acquired in a business combination is allocated to each of the cash generating units that is expected to benefit from the synergies of the combination. Separately identifiable intangible assets arising on business combinations Other intangible assets, such as customer relationships, brand names and other intellectual property, are recognised on business combinations if they are separable or arise from a legal or contractual right. Separately identifiable intangible assets are amortised over their expected future lives unless they are regarded as having indefinite useful lives, in which case they are not amortised, but subject to an annual impairment test. • Customer relationships are being amortised on a straight line basis over three to 12 years. • Brand names are being amortised on a straight line basis over 14 years. • Intellectual property is being amortised on a straight line basis over ten years. Development expenditure Expenditure on research and certain development activities is recognised as an expense in the period in which it is incurred. Any internally generated development costs (including software development) are recognised as an asset only if the following criteria are met: • An asset is created that can be identified. • It is probable and intended that the asset created will generate future economic benefits. • The development costs of the asset can be measured reliably. • There is availability of adequate resources to complete the development. Amortisation of acquired intangibles and internally generated development expenditure is excluded from Headline Operating Profit in the Consolidated Income Statement. Where no internally generated intangible asset can be recognised, the development expenditure is recognised as an expense in the period in which it is incurred. Internally generated intangible assets are amortised on a straight line basis over three to five years once the asset is available for use. 78 24338.04 19 October 2015 10:38 AM Proof 8 www.regenersis.com Stock code: RGS Software licences Software licences are initially measured at cost. Cost includes the purchase price of the assets and the directly attributable cost of bringing the asset into its intended use. After initial recognition, the intangible asset is carried at cost, less accumulated amortisation, less any accumulated impairment losses. Amortisation is charged evenly over the assets’ estimated useful lives, which are between three and five years. 1.6 Property, plant and equipment Property, plant and equipment are carried at cost less accumulated depreciation and accumulated impairment losses. Subsequent costs are capitalised only when it is probable that they will result in future economic benefits flowing to the Group and when they can be measured reliably. Depreciation begins when the asset is available for use and is charged to the income statement on a straight line basis so as to write off the cost less residual value of the asset over its estimated useful life as follows: Leasehold improvements — over the period of the lease or life of the improvements if less Plant and machinery Computer equipment Motor vehicles Fixtures and fittings — 16%–20% per annum — 25%–30% per annum — 25% per annum — 16%–50% per annum The useful economic lives are reviewed on an annual basis to ensure that they are appropriate. Gains and losses arising on the disposal of an asset are determined as the difference between the sale proceeds and the carrying amount of the asset and are recognised in the income statement. 1.7 Interests in joint ventures and associates A joint venture is a contractual arrangement whereby the Group undertakes an economic activity that is subject to joint control. Joint control exists when the strategic financial and operating policy decisions relating to the activity require the unanimous consent of the parties sharing control. The Group has an interest in an associate where they have significant influence over the operations of that entity. The Group generally regards an equity ownership of between 20% and 49% to represent significant influence, although other factors are taken into account such as the influence over operating policy decisions. The Group’s interest in jointly controlled entities and associates is accounted for using the equity method. Under this method the Group’s share of the profits less losses of jointly controlled entities and associates is included in the consolidated income statement and its interest in their net assets is included in investments in the consolidated balance sheet. Where the share of losses exceeds the interests in the entity the carrying amount is reduced to nil and recognition of further losses is discontinued. Interest in the entity is the carrying amount of the investment together with any long-term loan that, in substance, forms part of the net investment in the entity. 1.8 Inventories Inventories and work in progress are stated at the lower of cost and net realisable value. The cost of inventories is based on the first-in first-out principle and includes all direct expenditure and an appropriate proportion of attributable overheads that have been incurred in bringing the inventories and work in progress to their present location and condition. Net realisable value represents the estimated selling price less all estimated costs to be incurred in marketing, selling and distribution. The amount of any write-down of inventories to net realisable value is recognised as an expense in the year in which the write-down occurs. 24338.04 19 October 2015 10:38 AM Proof 8 79 Regenersis Plc Annual Report and Accounts for the year ended 30 June 2015Our Financials Notes to the Accounts continued for the year ended 30 June 2015 1.9 Accruals and provisions A provision is recognised when there is a present obligation, whether legal or constructive, as a result of a past event for which it is probable that a transfer of economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Provisions in respect of contingent consideration for acquisitions are made at the Board’s best estimate of the likely consideration payable taking account of the performance criteria which affect the level of contingent consideration. Provisions are determined by discounting the expected future cash flow at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. The unwinding of the discount rate is recognised as a finance cost. A provision for onerous contracts is recognised when the expected benefits to be derived by the Group from a contract are lower than the unavoidable costs of meeting its obligations under the contract. The provision is measured at the present value of the lower of the expected cost of terminating the contract and the expected net cost of continuing with the contract. Before a provision is established, the Group recognises any impairment loss on the assets associated with the contract. 1.10 Revenue recognition Revenue is measured at the fair value of the consideration received or receivable and is net of value added tax and other duties. Revenue is recognised when the delivery of goods or services has taken place in accordance with the terms of the sale, and there is certainty on the value, recoverability is reasonably assured and risk has transferred to the customer. Revenue on software sales is recognised according to the terms of individual contracts, which fall into two types: either a volume or subscription basis. For sales of licences made under a subscription model, revenue is deferred and recognised over the length of the user agreement. Revenue billed in advance is deferred within deferred income and billing in arrears is recognised in accrued income. Where Blancco software is sold on a volume basis a finite number of “uses” are delivered. Revenue is recognised on delivery as this is the point at which risk and reward is transferred to the customer and there are no continuing obligations to the Group. Bundled sales or multiple-element arrangements require the Group to deliver hardware and/or a number of services under one agreement, or a series of agreements which are commercially linked. Under such agreements, an assessment is made over the ability to identify and account for each of the components separately. In order for these components to be identified it is determined whether the component has stand-alone value to the customer and whether the fair value of the component can be measured reliably. If these criteria are deemed to be met the components are accounted for separately. Where these agreements are accounted for separately, the consideration received is allocated to each of the identifiable components based on the relative fair values. Fair values are determined on a hierarchical basis as follows: • Evidence where the Group sells on a stand-alone basis. • Evidence where the same or similar components are being sold by another third party. • Best estimate of the selling price. The amount of revenues allocated to the hardware or service element is accounted for on delivery, and when all revenue recognition criteria are met. The amount allocated to services is accounted for over the term in which those services are being delivered. 80 24338.04 19 October 2015 10:38 AM Proof 8 www.regenersis.com Stock code: RGS Revenue generated from revenue sharing agreements is recognised in full in revenue with the revenue share due to third parties recognised as a cost of sale. Revenue share comprises amounts payable to network operators and other sources of product in respect of equipment which is sourced from them and which are sold by the Group to independent third parties. The following factors are relevant to the accounting treatment for this revenue sharing business as the Group: • Takes full title and ownership of the products prior to onward sale. • Is sometimes exposed to stockholding risks such as loss or damage and also bears the risk of stock obsolescence. • Processes and decides on the best route to market for the equipment. • Has full discretion in identifying customers for onward sale of products and establishes the selling price to these customers. • Bears the full credit risk of these sales. Given the above factors the gross inflows are recognised as revenue. The Group undertakes some insurance contracts, which are accounted for in accordance with IFRS 4 “Insurance Contracts”. Under these agreements, the Group receives compensation for administrative as well as insurance services. In all cases the insurance is underwritten to some extent thus limiting the exposure to insurance risk on the Group. The multiple-element arrangements are separated and recognised in accordance with the Group’s revenue recognition policy. The insurance revenue is recognised on a straightline basis over the life of the Group’s policies. Amounts for the year as on 30 June 2015 are not considered material. 1.11 Taxation The tax expense represents the sum of the tax currently payable and deferred tax. The tax currently payable is based on the taxable profit for the year. Taxable profit differs from net profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantially enacted by the balance sheet date. Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of the taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary differences arise from the goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the tax profit nor the accounting profit. Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates, and interest in joint ventures, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. 24338.04 19 October 2015 10:38 AM Proof 8 81 Regenersis Plc Annual Report and Accounts for the year ended 30 June 2015Our Financials Notes to the Accounts continued for the year ended 30 June 2015 The carrying amount of the deferred tax asset is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax is calculated at the tax rates expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity. 1.12 Employee benefits Pensions The Group offers defined contribution pension arrangements to certain employees. Payments to defined contribution pension schemes are expensed as incurred. Share-based payments Some Directors and employees are granted share options which may, if certain performance criteria are met, allow these employees to acquire shares in the Company. The specific schemes are detailed in note 33 to the accounts, and include both market and non-market based schemes. The fair value of options granted after 7 November 2002 under market based schemes, are recognised as an employee expense with a corresponding increase in equity. The fair value is measured at grant date and spread over the period during which the employees become unconditionally entitled to the options. The fair value of the options granted is measured using an option pricing model, taking into account the terms and conditions upon which the options were granted. The amount recognised as an expense is adjusted to reflect the actual number of share options that vest except where variations are due only to share prices not achieving the threshold for vesting. The fair value of options granted under non-market based schemes are recorded in the same way, however the fair value is reassessed at each reporting date, with the corresponding change in fair value recorded as an expense with a corresponding increase in equity. Cash settled option schemes The Group grants options to certain employees which, on vesting, are settled in cash. These are detailed in note 33 to the accounts and are referred to as Phantom Share Schemes. An option pricing model is used to ascertain the fair value of the option at each balance sheet date. A charge is recognised and included within share-based payments with a corresponding liability, based on the expected number of options to vest, pro-rated for the vesting period that has expired. 1.13 Own shares held by EBT Transactions of the Company-sponsored EBT are treated as being those of the Company and are therefore reflected in the Parent Company and Group financial statements. In particular, the trust’s purchases of shares in the Company are debited directly to equity. 1.14 Dividends on shares presented within equity Dividends unpaid at the balance sheet date are only recognised as a liability at that date to the extent that they are appropriately authorised and are no longer at the discretion of the Company. Unpaid dividends that do not meet these criteria are disclosed in the notes to the financial statements. 82 24338.04 19 October 2015 10:38 AM Proof 8 www.regenersis.com Stock code: RGS 1.15 Leases Lease arrangements entered into by the Group are assessed at the inception of the lease and classified as either an operating or a finance lease. A lease is classified as a finance lease if it transfers substantially all the risks and rewards of incidental ownership to the lessee. All other lease arrangements are classified as operating leases. Rentals payable under operating leases are recognised in the income statement on a straight line basis over the periods of the leases. Assets acquired under finance leases are capitalised and the outstanding future lease obligations are shown under creditors. 1.16 Financial instruments Financial assets and financial liabilities are recognised in the Group’s balance sheet when the Group becomes a party to the contractual provisions of the instrument. Equity instruments Equity instruments issued by the Group are initially recorded at the proceeds received, net of direct issue costs. Non-derivative financial instruments Non-derivative financial instruments include investments, cash and cash equivalents, trade and other receivables, trade and other payables and borrowings. • Cash and cash equivalents comprise cash balances and short-term deposits. Bank overdrafts that are repayable on demand and form an integral part of the Group’s cash management are included as a component of cash and cash equivalents for the purposes of the consolidated cash flow statement. • Trade and other receivables are recognised initially at fair value. Subsequent to initial recognition they are measured at amortised cost. • Trade and other payables are recognised initially at fair value. Subsequent to initial recognition they are measured at amortised cost. • Bank borrowings: Bank borrowings are recognised initially at fair value net of directly attributable transaction costs incurred. Borrowings are subsequently stated at amortised costs. Any difference between the proceeds (net of transaction costs) and redemption value is recognised in the income statement over the period of the borrowings using the effective interest method. 1.17 Government grants Government grants are recognised on the balance sheet and released to the income statement over the term to which the grant relates. 1.18 Headline Operating Profit / Headline Operating Cash Flow “Headline Operating Profit” is the key profit measure used by the Board to assess the underlying financial performance of the operating divisions and the Group as a whole. Headline Operating Profit is stated before the following items for the following reasons: • 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 businesses • 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. 24338.04 19 October 2015 10:38 AM Proof 8 83 Regenersis Plc Annual Report and Accounts for the year ended 30 June 2015Our Financials Notes to the Accounts continued for the year ended 30 June 2015 • 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 • Disposal of subsidiaries, because these represent a one off non-cash charge to the consolidated Income Statement. “Headline Operating Cash Flow” is a key internal measure used by the Board to evaluate the cash flow of the Group. It is defined as operating cash flow excluding taxation, interest payments and receipts, acquisition costs, and exceptional restructuring costs. 1.19 Adjusted earnings per share An adjusted measure of earnings per share has also been presented, which the Board consider gives a useful additional indication of the Group’s performance. Adjusted earnings are stated before amortisation or impairment of acquired intangible assets and development expenditure capitalised, amortisation of bank fees, exceptional restructuring costs, acquisition costs, share-based payments, loss on disposal of subsidiaries, unwinding of the discounted contingent consideration and adjustments to estimates of contingent consideration. 2. Critical judgements and estimations in applying the Group’s accounting policies 2.1 Judgements In the process of applying the Group’s accounting policies, management makes various judgements that can significantly affect the amounts recognised in the financial statements. The critical judgements are considered to be the following: • Recoverability of goodwill and carrying value and useful economic life of other intangible assets. • Assessment of the fair value of assets and liabilities acquired in business combinations. • Revenue recognition on new revenue streams in more complex areas of the business. • Underlying assumptions used in taxation and recoverability of any related deferred tax assets. • Judgements in determining whether development expenditure meets the criteria for capitalisation 2.2 Estimations • Goodwill and other intangible assets Determining whether goodwill or other intangibles are impaired requires an estimation of the value in use of the cash generating units to which the goodwill or other intangible is allocated. The value in use calculation includes estimates about future financial performance and long-term growth rates and requires management to select a suitable discount rate in order to calculate the present value of those cash flows. The key assumptions used in the impairment review are disclosed in note 17 to the Financial Statements. • Revenue Recognition The Group has developed or acquired new offerings and entered new contracts where revenue recognition is becoming more complex. The complexity arises around identification of the separable elements generating revenue within each contract and estimation of the fair value of those elements. Judgement is also required as to when the obligation under the service agreement was fulfilled and therefore the timing of when revenue may be recognised. 84 24338.04 19 October 2015 10:38 AM Proof 8 www.regenersis.com Stock code: RGS • Tax The Group has recognised deferred tax assets in respect of unutilised losses and other temporary differences arising in certain of the Group’s businesses. This requires management to make decisions on the recoverability of such deferred tax assets based on future forecasts of taxable profits. If these forecast profits do not materialise, or there are changes in the tax rates or to the period over which the losses or temporary difference might be recognised, the value of the deferred tax asset will need to be revised in a future period. The Group has losses for which no value has been recognised for deferred tax purposes in these financial statements, as future economic benefit of these temporary differences is not probable. If appropriate profits are earned in the future, the temporary difference may result in a benefit to the Group in the form of a reduced tax charge in a future period. • Customer relationships The assessment of the future economic benefits generated from acquired customer relationships, and the determination of the related amortisation profile, involves a significant degree of judgement based on management estimation of future potential revenue and profit and the useful lives of the assets. • Contingent consideration The Directors use their judgement to determine the extent to which contingent consideration will be payable. To assist in making this estimation the Directors use all available information when preparing these financial statements. • Current asset provisions In the course of normal trading activities, judgement is used to establish the net realisable value of various elements of working capital, principally inventory and trade receivables. Provisions are established for net realisable value and bad and doubtful debt risks. Provisions are based on the facts available at the time and may also be determined by using profiles, based upon past practice, applied to inventory and aged receivables. In estimating the net realisable value of inventory, judgement is required in assessing their likely value on realisation taking into account market and technological changes. In estimating the collectability of trade receivables, judgement is required in assessing their likely realisation, including the current creditworthiness of each customer and related ageing of past due balances. Specific accounts are assessed in situations where a customer may not be able to meet its financial obligations due to deterioration of its financial condition, credit ratings or bankruptcy. The judgement as outlined above is also used when acquiring a company and assessing the net assets acquired to ensure they are stated at their realisable value. 24338.04 19 October 2015 10:38 AM Proof 8 85 Regenersis Plc Annual Report and Accounts for the year ended 30 June 2015Our Financials Notes to the Accounts continued for the year ended 30 June 2015 3. Segmental reporting Depot Solutions The Depot Solutions Division provides the Group’s geographic infrastructure and core repair service, focusing on continuous improvement, common operating practices, IT platforms and efficiency. It includes the operations in the UK (excluding Glenrothes), Germany, Poland, Romania, Turkey, South Africa, Spain, Argentina, Mexico, India, Portugal, Russia, the USA, and the Czech Republic. Software and Advanced Solutions The Software segment includes: • The Blancco business which was acquired in the previous financial year. The business specialises in the provision of data erasure software and is the leading global provider in this field. • The Xcaliber smartphone diagnostic business which has moved from a start-up, focused on product development in the prior year to a business with a product ready to market and with a promising sales pipeline. The Group increased its ownership of this business from 15% to 49% in July 2014. The Advanced Solutions: Other businesses include: • The Set Top Box activities in Glenrothes; • The Set Top Box Diagnostics business which started in 2011 – including the In-Field Tester business and other remote diagnostics capabilities covering countries including the USA, South Africa and Belgium; • The Digital Care Insurance business which started in 2013, with activities principally in Poland; Revenue from external customers Depot Solutions Software Advanced Solutions Software and Advanced Solutions Total Group Revenue 2015 £’000 154,262 15,150 33,288 48,438 202,700 Share of associate 2015 £’000 — (136) — (136) (136) Revenue 2015 £’000 154,262 15,014 33,288 48,302 202,564 Revenue 2014 £’000 151,641 2,382 43,905 46,287 197,928 Share of JV 2014 £’000 (446) — — — (446) Revenue 2014 £’000 151,195 2,382 43,905 46,287 197,482 There are two customers who account for more than 10% of the Group’s revenue and had total revenues of: £27,878,429 and £24,909,276; (2014: three customers £28,264,525, £23,920,662 and £20,112,833). The revenues from the two largest customers were split across the segments as follows: Depot Solutions £51,407,198 (2014 from the three largest customers: £70,963,608), Advanced Solutions £1,380,507 (2014: £1,334,412) and Software £nil (2014: £nil). These are significant in the context of the Group although we contract with them under several service agreements in several different countries. 86 24338.04 19 October 2015 10:38 AM Proof 8 www.regenersis.com Stock code: RGS Headline segment profit Depot Solutions Software Advanced Solutions Software and Advanced Solutions Total Group Corporate costs Headline Operating Profit Exceptional restructuring costs Acquisition costs Amortisation of intangible assets Share-based payments Group Operating Profit before disposal of subsidiaries Loss on disposal of subsidiaries Group Operating Profit Share of results of equity accounted investments Profit on disposal of jointly controlled entity Operating profit from continuing operations Finance income Revaluation of contingent consideration Unwinding of discount factor on contingent consideration Other finance costs Net finance income Profit before tax Depot Solutions Software Advanced Solutions Software and Advanced Solutions Total Group Corporate Depot Solutions Software Advanced Solutions Software and Advanced Solutions Total Group Corporate costs 2015 £’000 8,623 5,382 6,578 11,960 20,583 (5,157) 15,426 (678) (3,041) (3,349) (531) 7,827 (1,456) 6,371 (746) — 5,625 143 3,302 (934) (1,339) 1,172 6,797 2014 £’000 8,112 502 6,951 7,453 15,565 (4,600) 10,965 (4,351) (5,044) (589) (658) 323 — 323 (100) 240 463 86 4,695 (1,063) (1,311) 2,407 2,870 Segment assets 2015 £’000 59,762 11,075 23,599 34,674 94,436 80,829 175,265 Segment assets 2014 £’000 62,418 10,369 11,847 22,216 84,634 101,588 186,222 Segment liabilities 2015 £’000 52,387 4,318 21,584 25,902 78,289 (25,690) 52,599 Segment liabilities 2014 £’000 48,672 3,566 17,169 20,735 69,407 (13,598) 55,809 Capital expenditure 2015 £’000 2,860 1,641 1,751 3,392 6,252 1,085 7,337 Capital expenditure 2014 £’000 3,542 200 1,701 1,901 5,443 23,102 28,545 Depreciation & amortisation 2015 £’000 2,588 2,250 1,110 3,360 5,948 206 6,154 Depreciation & amortisation 2014 £’000 1,862 14 1,092 1,106 2,968 299 3,267 24338.04 19 October 2015 10:38 AM Proof 8 87 Regenersis Plc Annual Report and Accounts for the year ended 30 June 2015Our Financials Notes to the Accounts continued for the year ended 30 June 2015 Geographical information The following geographical information is based on the location of the business units of the Group: Revenue from external customers UK Germany Poland Spain Rest of World Less: share of jointly controlled entity Inter-location revenue UK Poland Romania Rest of World Non-current assets UK Non-UK 4. Auditors’ remuneration Fees payable to the Company’s auditor for the audit of the Company’s annual accounts The audit of the Company’s subsidiaries pursuant to legislation Total audit fees Non-audit fees Taxation compliance services Taxation advisory services Transaction services Non-audit fees 2015 £’000 2014 £’000 34,042 31,484 51,167 30,755 55,252 202,770 (136) 202,564 2015 £’000 881 972 1,215 551 3,619 2015 £’000 56,427 27,469 44,717 33,508 35,807 197,928 (446) 197,482 2014 £’000 3,940 1 212 267 4,420 2014 £’000 28,071 91,015 119,086 28,987 88,561 117,548 2015 £’000 19 428 447 33 1,170 144 1,347 1,794 2014 £’000 19 351 370 41 725 432 1,198 1,568 The audit fee for the Group has increased in 2015 as a result of the new legal entities acquired in previous years as well as the general growth in the Group. The Board considered the level of fees paid to the auditor and in particular the level of non-audit fees. Having considered their own view and the view of KPMG, the Board concluded appropriate safeguards were in place to ensure the independence of the auditor. 88 24338.04 19 October 2015 10:38 AM Proof 8 www.regenersis.com Stock code: RGS 5. Operating profit Revenue Less: share of jointly controlled entity Group revenue Cost of sales Gross profit Headline administrative expenses Headline Operating Profit Other administrative expenses Profit on disposal of jointly controlled entity Loss on disposal of subsidiaries Share of results of equity accounted investment Operating profit Administrative expenses 6. Acquisition costs Acquisition costs, deal costs and other M&A related costs 2015 £’000 202,700 (136) 202,564 (148,961) 53,603 (38,177) 15,426 (7,599) — (1,456) (746) 5,625 47,232 2014 £’000 197,928 (446) 197,482 (151,436) 46,046 (35,081) 10,965 (10,642) 240 — (100) 463 45,723 2015 £’000 3,041 2014 £’000 5,044 Acquisition costs relate to the M&A activity within the year, with the most significant relating to the acquisition of SafeIT and additional investments in Xcaliber and Blancco sales offices. 7. Exceptional restructuring costs Redundancies and restructuring Onerous lease and dilapidation provision 2015 £’000 678 — 678 2014 £’000 3,610 741 4,351 Exceptional redundancy and restructuring costs relate primarily to finalisation of the restructuring activities carried out in the second half of the previous financial year. 8. Profit for the year Profit for the year has been arrived at after charging/(crediting): Depreciation of property, plant and equipment – owned Loss/(profit) on disposal of property, plant and equipment Amortisation of intangible assets including software licences Cost of inventories recognised as an expense Staff costs (note 9) Net foreign exchange (gains)/ losses 2015 £’000 1,702 114 4,452 91,372 60,368 (233) 2014 £’000 1,619 (5) 2,152 100,406 59,142 241 Within the Consolidated Income Statement, the Group has realised a profit arising due to the translation of sales and purchases in foreign currencies into the reporting currency of the Group’s subsidiaries. 24338.04 19 October 2015 10:38 AM Proof 8 89 Regenersis Plc Annual Report and Accounts for the year ended 30 June 2015Our Financials Notes to the Accounts continued for the year ended 30 June 2015 9. Staff costs Average numbers employed Production Sales and business development Administration Aggregate employment costs Wages and salaries Social security costs Share-based payments Pension and other staff costs 2015 Number 2014 Number 3,426 142 681 4,249 2015 £’000 51,806 6,564 531 1,467 60,368 3,515 136 561 4,212 2014 £’000 49,924 6,678 658 1,975 59,235 Key management personnel have been identified as the main Board, the Depot Solutions Board, and the Software and Advanced Solutions Board. Remuneration of key management personnel is as follows: Key management personnel costs Short-term employee benefits Post-employment benefits Share-based payments 2015 £’000 1,852 117 531 2,500 2014 £’000 2,565 144 658 3,367 The remuneration of individual Directors is detailed in the table at the bottom of page 63 in the Remuneration Report. The reduction in the remuneration of key personnel in the current year is due to no bonus or long term incentive plan pay-outs accruing to the Directors. 10. Finance costs and finance income Bank interest receivable and similar income Revaluation of contingent consideration (note 30) Total finance income Interest payable on borrowings: Bank loans and overdrafts Other finance costs Unwind of discount factor on contingent consideration (note 30) Total finance costs Net finance income 2015 £’000 143 3,302 3,445 583 756 934 2,273 1,172 2014 £’000 86 4,695 4,781 647 664 1,063 2,374 2,407 Invoice financing facility charges were £0.2 million (2014: £0.2 million). Interest costs for the Revolving Credit Facility and other costs were £1.2 million (2014: £1.1 million). The HDM contingent consideration is payable in September 2015 with a final payment agreed with the vendor of €1.4 million (£1.0 million). As a result, a revaluation of the contingent consideration in the year has resulted in a non-cash profit recorded of £3.3 million. 90 24338.04 19 October 2015 10:38 AM Proof 8 www.regenersis.com Stock code: RGS 11. Tax Current tax UK corporation tax Overseas tax Adjustments in respect of prior years Total current tax charge Deferred tax UK Overseas Adjustments in respect of prior years Total deferred tax charge/(credit) (note 31) Tax charge/(credit) 2015 £’000 180 1,796 (945) 1,031 (577) (126) 1,352 649 1,680 2014 £’000 — 972 (542) 430 (221) (932) 342 (811) (381) UK corporation tax is calculated at 20.75% (2014: 22.5%) 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 Consolidated Income Statement as follows: Profit before tax Tax at standard UK corporation tax rate of 20.75% (2014: 22.5%) Effects of: Permanent differences Income not taxable Rate differences Adjustment in respect of previous periods Loss on disposal of subsidiaries Brought forward losses no longer recognised Current year losses not recognised Relief on research and development costs Other timing differences 2015 £’000 6,797 1,410 (751) — (493) 407 310 798 65 — (66) 1,680 2014 £’000 2,870 646 201 (1,120) (275) (200) — — 633 (266) — (381) Factors that may affect future current and total tax charges Reductions in the UK corporation tax rate from 23% to 21% (effective from 1 April 2014) and 20% (effective from 1 April 2015) were substantively enacted on 2 July 2013. In the Budget on 8 July 2015, the Chancellor announced additional planned reductions to 18% by 2020. This will reduce the company’s future tax charge accordingly. The deferred tax asset at 30 June 2015 has been calculated based on the rate of 20% substantively enacted at the balance sheet date. 12. Earnings per share (EPS) Basic earnings per share Diluted earnings per share Adjusted earnings per share Adjusted diluted earnings per share 2015 Pence 6.97 6.97 16.19 16.19 2014 Pence 5.45 5.41 16.16 16.06 91 24338.04 19 October 2015 10:38 AM Proof 8 Regenersis Plc Annual Report and Accounts for the year ended 30 June 2015Our Financials Notes to the Accounts continued for the year ended 30 June 2015 Profit for the year Loss/(profit) attributable to non-controlling interests Basic EPS/profit attributable to equity holders of the Company Reconciliation to adjusted profit: Amortisation of intangible assets Exceptional bank charges Acquisition costs Share-based payments Unwinding of discount on contingent consideration Adjustment to fair value of contingent consideration Exceptional restructuring costs Loss on disposal of subsidiaries Tax impact of above adjustments Adjusted EPS/profit for the year Number of shares Weighted average number of ordinary shares Treasury shares excluded Weighted average number of ordinary shares (basic) Effect of share options in issue Weighted average number of ordinary shares (diluted) 2015 Pence per share 6.60p 0.37p 6.97p 2014 Pence per share 5.96p (0.51p) 5.45p 4.32p 0.94p 3.92p 0.69p 1.20p (4.26p) 0.88p 1.88p (0.35p) 16.19p 1.08p 0.91p 9.24p 1.21p 1.95p (8.60p) 7.97p (0.44p) (2.61p) 16.16p 2015 £’000 5,117 287 5,404 3,349 730 3,041 531 934 (3,302) 678 1,456 (269) 12,552 2015 ’000 80,017 (2,467) 77,550 13 77,563 2014 £’000 3,251 (276) 2,975 589 495 5,044 658 1,063 (4,695) 4,351 (240) (1,418) 8,822 2014 ’000 55,438 (854) 54,584 359 54,943 13. Acquisitions during the year Acquisition of SafeIT On 2 September 2014 the Group completed the acquisition of 100% of the issued share capital of SafeIT Security Sweden AB for a consideration of €1.8 million (£1.4 million), which was funded through the Group’s cash reserves. In the ten months to 30 June 2015, this acquisition has contributed total revenue of £260,000, Headline Operating Profit of £149,000 and operating profit of £149,000. If the acquisition had been completed on the first day of the financial year, management estimates that the benefit to consolidated revenue for the year would have been £315,000, the benefit to consolidated Headline Operating Profit would have been £180,000, and the benefit to consolidated operating profit would have been £180,000. In determining these amounts, management has assumed that the fair value adjustments, determined provisionally, that arose on the date of acquisition would have been the same if the acquisition had occurred on 1 July 2014. 92 24338.04 19 October 2015 10:38 AM Proof 8 www.regenersis.com Stock code: RGS The provisional book value and fair value of the assets acquired and liabilities assumed were as follows: Intangible assets – customer contracts Property, plant and equipment Deferred tax Cash External borrowings Trade and other receivables Trade and other payables Net assets acquired Goodwill Total consideration Satisfied by: Cash paid in 2015 Total consideration Book Value £’000 — 3 (11) 153 — 29 (55) 119 IFRS alignment £’000 — — — — — — (100) (100) Fair value adjustments £’000 197 (3) 18 — — (27) (210) (25) Fair Value £’000 197 — 7 153 — 2 (365) (6) 1,410 1,404 1,404 1,404 There were a number of fair value adjustments identified to get to the fair value following a review of all balance sheet categories. These adjustments include £197,000 relating to customer contracts intangibles, a provision against doubtful debtors (£27,000), write off of previously disposed property, plant and equipment (£3,000), and the recognition of accruals in respect to litigation, claims and other unrecorded liabilities (£310,000). Trade receivables acquired totalled £29,000 gross and there was no bad debt provision. The goodwill of £1,410,000 can be attributed to the anticipated growth of the Software group, strategic benefits and workforce in place. Acquisition of non-controlling interests in Blancco On 2 September 2014, the Group acquired the remaining 25% of the share capital of Blancco Sweden SFO which it did not already own for an initial cost of SEK 2.8 million (£0.2 million). The acquisition also includes an earn-out for the period to March 2016 and March 2017 based upon some growth metrics above a pre-agreed target revenue. The estimated cash outflow at the time of settlement is difficult to predict but has been estimated as £1.9 million. A deferred liability of £1.3 million has been established which represents the fair value at the acquisition date, using a discount rate of 13.1%. At 30 June 2015, the deferred liability had increased to £1.9 million. The earn-out is payable partly in Euros and partly in Swedish Krone. On 30 September 2014, the Group acquired the remaining 40% of the share capital of Blancco US LLC which it did not already own for a cost of $1.2 million (£0.7 million). There is no earn-out. On 30 June 2015, the Group acquired the remaining 20% of the share capital of Blancco Central Europe GmbH which it did not already own for a cost of €0.4 million (£0.3 million). There is no earn-out. 24338.04 19 October 2015 10:38 AM Proof 8 93 Regenersis Plc Annual Report and Accounts for the year ended 30 June 2015Our Financials Notes to the Accounts continued for the year ended 30 June 2015 The buy outs of non-controlling interests do not require a fair value assessment as both companies were already under control of the Group when the initial Blancco acquisition was completed on 16 April 2014. The fair value assessment performed for the Blancco Group can be found below. In accordance with IFRS 10 “Consolidated Financial Statements”, the purchase prices for each acquisition have been taken directly to the profit and loss reserve, in addition to the non-controlling interest in the balance sheet attributable to Blancco Sweden SFO, Blancco US LLC and Blancco Central Europe GmbH as at the respective acquisition dates. Acquisitions in the year ended 30 June 2014 Acquisition of Blancco On 17 April 2014, Regenersis completed the acquisition of all of the issued share capital of Blancco Oy Ltd and controlling stakes in its major sales offices (together comprising “Blancco”) for a consideration of €60,000,000 on a cash and debt free basis comprising approximately €58,700,000 (£48,558,000) in cash and €1,300,000 (£952,000) in consideration shares. Total shares issued to the vendors were 225,096 at a value of £3.73. The book value and revised fair value of the assets acquired and liabilities assumed were as follows: Intangible assets arising on consolidation Goodwill recognised in subsidiaries’ books Property, plant and equipment Investments in associates Cash External borrowings Inventory Trade and other receivables Trade and other payables Deferred tax Total net assets Net assets attributable to non-controlling interests Net assets acquired Goodwill Total consideration Satisfied by: Cash Equity instruments issued Total consideration Book Value £’000 — 1,899 69 134 3,205 (142) 57 2,480 (1,294) (147) 6,261 IFRS alignment £’000 — (1,899) — (21) — — — (395) (2,211) — (4,526) Fair value adjustments £’000 22,120 — (27) (103) — — (57) (145) (2,423) (3,227) 16,138 Fair Value £’000 22,120 — 42 10 3,205 (142) — 1,940 (5,928) (3,374) 17,873 (294) 17,579 31,931 49,510 48,558 952 49,510 The IFRS alignment and fair value adjustments relate to intangibles arising on consolidation (£22,120,000), true up of goodwill to Regenersis level (£1,899,000), write off of unusable property, plant and equipment (£27,000), correction of investment accounting (£21,000), write off of unprofitable investments (£103,000), write off of inventory (£57,000), correction of sub-consolidation accounting (£395,000), provision against doubtful debtors (£145,000), provisions against litigations and claims and other unrecorded liabilities (£4,634,000), and the deferred tax impact of the above (£3,227,000). Trade receivables acquired totalled £2,158,000 gross, which consisted of £724,000 net and bad debt provision of £1,434,000. 94 24338.04 19 October 2015 10:38 AM Proof 8 www.regenersis.com Stock code: RGS Under IFRS 3 “Business Combinations” separately identifiable intangible assets arising from the acquisition have been capitalised. These relate to product development valued at £11,872,000, customer contracts and relationships valued at £7,360,000 and the Blancco brand name, valued at £2,888,000. The intangible assets were valued by an external valuer, Global View Advisors. The key assumption used was the discount rate for future cash flows which was estimated at 15%. The sensitivity of each asset’s value to a change in the discount rate is summarised below. Sensitivity factor Discount rate on product development Discount rate on customer relationships Discount rate on brand name Effect of +1% change in factor £ (296,000) (271,000) (142,000) The remaining goodwill of £31,984,000 can be attributed to the anticipated profitability through the growth of the enlarged Group synergistic benefits and workforce in place. Acquisition of Digicomp On 10 September 2013 the acquisition of 80% of the issued share capital of Digicomp Complete Solutions Limited (“Digicomp”) was completed. The book value and fair value of the assets acquired and liabilities assumed were as follows: Intangible assets Intangible assets – customer contracts Property, plant and equipment Deferred tax liability Overdraft Inventory Trade and other receivables Trade and other payables Other long-term payables Net assets acquired Goodwill Total consideration Satisfied by: Initial cash consideration Deferred cash consideration Contingent consideration for redeemable preference shares Total consideration Book Value £’000 252 — 793 (94) (493) 597 1,642 (654) (113) 1,930 IFRS alignment £’000 (213) — (429) — — (404) (163) (288) — (1,497) Fair value adjustments £’000 — 242 (216) 1 — (146) (209) (1,042) — (1,370) Fair Value £’000 39 242 148 (93) (493) 47 1,270 (1,984) (113) (937) 7,667 6,730 4,517 2,213 — 6,730 The adjustments relating to IFRS accounting alignment include: intangibles not eligible for capitalisation under IFRS (£213,000); alignment of depreciation policies on property, plant and equipment (£429,000); alignment of stock provisioning on stock (£404,000); incorrectly applied accruals accounting on debtors (£21,000); provisions against doubtful debts and customer claims (£142,000); provisions for onerous transactions (£206,000); incorrectly applied accruals accounting on payables (£76,000); and other provisions required by IFRS (£6,000). In addition to the adjustments noted above, the Directors identified a number of further fair value adjustments that were required to the book values, following a review of all balance sheet categories. These adjustments include write off of obsolete property, plant and equipment and stock (£362,000), provisions against doubtful debtors (£209,000); intangibles arising from customer contracts (£242,000); and provisions against litigations and claims and other unrecorded liabilities (£1,042,000). 24338.04 19 October 2015 10:38 AM Proof 8 95 Regenersis Plc Annual Report and Accounts for the year ended 30 June 2015Our Financials Notes to the Accounts continued for the year ended 30 June 2015 Trade receivables acquired totalled £999,000 gross, which consisted of £865,000 net and bad debt provision of £134,000. The contingent consideration in respect of the Digicomp acquisition, was originally payable in September 2016 and based on a fixed earnings multiple applied to EBIT achieved in the 12 month period ending 31 March 2016. During the year, the terms of the earn-out have been renegotiated with the vendors, with the earn out now becoming payable on one of three pre-determined dates between 31 March 2017 and 31 March 2018, depending on meeting certain EBIT thresholds at these dates. Regenersis will be able to exercise their option over the remaining share capital if these thresholds are not achieved at any of these dates, with an unconditional right to acquire the shares on 31 March 2018. The value of the earn out will be based on a fixed earnings multiple applied to the EBIT achieved in the 12 month period ending on the trigger date. Acquisition of Regenersis Rus Ooo (Russia) On 26 December 2013 Regenersis completed the acquisition of the remaining 50% of the issued share capital of Regenersis Rus Ooo which became a fully wholly owned subsidiary from this date. The book value and fair value of the assets acquired and liabilities assumed were as follows: Intangible assets Property, plant and equipment Deferred tax asset Cash Inventory Trade and other receivables Trade and other payables Net liabilities acquired Goodwill Total consideration Satisfied by: Initial cash consideration Disposal proceeds Total consideration Book Value £’000 15 61 89 324 170 462 (1,239) (118) IFRS alignment £’000 — (37) — — (34) (126) (210) (407) Fair value adjustments £’000 — — (86) — (99) (108) (26) (319) Fair Value £’000 15 24 3 324 37 228 (1,475) (844) 1,529 685 445 240 685 A gain of £240,000 was recognised in the prior year on the disposal of the 50% equity interest on 31 December 2013 which was required to be accounted for prior to the acquisition. The adjustments relating to IFRS accounting alignment includes property, plant and equipment accounting policies alignment (£37,000); revaluation of stock (£34,000); provisions for irrecoverable debtors (£126,000); and incorrectly applied accruals accounting on payables (£210,000). In addition to the adjustments noted above, the Directors identified a number of further adjustments that were required to the book values, following a review of all balance sheet categories. These adjustments include provision against recoverability of tax assets (£86,000), provision against unusable stock (£99,000); provisions against doubtful debtors (£108,000); and provisions against litigations and claims and other unrecorded liabilities (£26,000). Trade receivables acquired totalled £262,000 gross, which consisted of £65,000 net and bad debt provision of £197,000. The remaining goodwill of £1,529,000 can be attributed to the anticipated profitability through the growth of the enlarged Group, synergistic benefits and workforce in place. 96 24338.04 19 October 2015 10:38 AM Proof 8 www.regenersis.com Stock code: RGS 14. Cash flow – acquisition of subsidiaries net of cash acquired Within the consolidated cash flow statement, the cash flow relating to acquisitions, net of cash acquired is reconciled as per the table below: SafeIT acquisition – initial cash consideration SafeIT acquisition – cash acquired Blancco Sweden minority buy out – cash consideration Blancco US minority buy out – cash consideraton Blancco Central Europe minority buy out – cash consideration Net cash flow – acquisition of subsidiaries, net of cash acquired £’000 1,404 (153) 238 698 263 2,450 No cash or overdraft was acquired as part of the minority buy outs since the cash balances were consolidated by virtue of the initial shareholding being a controlling stake. 15. Other acquisition Investment in Xcaliber On 21 November 2013 we completed the acquisition of 15% of the issued share capital of Xcaliber Technologies LLC and Xcaliber Infotech PVT Ltd (together “Xcaliber”) for a consideration of $1.2 million (£0.75 million). On 25 July 2014 the Group completed the acquisition of an additional 34% of the issued share capital of Xcaliber Technologies LLC for a consideration of $3.3 million (£1.9 million) bringing the Group’s share to 49%. Xcaliber is a US based software business with a market leading mobile diagnostics technology which adds to our existing diagnostics offering in Europe, the US and globally. The initial consideration of $1.2 million cash was funded through the Group’s Revolving Credit Facility and the subsequent consideration of $3.3 million (£1.9 million) cash was funded through the Group’s cash reserves. 16. Disposal of subsidiaries On 8 June 2014 the Group disposed of its entire shareholding in Regenersis Recommerce Limited and Regenersis Sweden AB for a consideration of £1. The directors do not consider this to be a separate major line of business and so, in accordance with IFRS 5, its results have not been classified as a discontinued operation. This transaction resulted on a non-cash loss on disposal of £1,456,000. 17. Goodwill Cost At 1 July 2014 Acquisitions Reassessment of fair value accounting At 30 June 2015 Accumulated impairment losses At 1 July 2014 and 30 June 2015 Net book value At 30 June 2015 At 1 July 2014 24338.04 19 October 2015 10:38 AM Proof 8 Total £‘000 88,372 1,410 (44) 89,738 6,581 83,157 81,791 97 Regenersis Plc Annual Report and Accounts for the year ended 30 June 2015Our Financials Notes to the Accounts continued for the year ended 30 June 2015 The addition to goodwill in the year relates to the acquisition of SafeIT (see note 13). The Blancco fair value assessment, originally calculated on 30 June 2014, was reassessed during the year and resulted in a reduction of the goodwill value by £44,000. The revaluation relates to a number of small changes across several balance sheet accounts for which additional information about the acquired value became known during the current year. IFRS requires for the change in value to be adjusted through the goodwill value, since the reassessment took place within 12 months of the acquisition date and relates to conditions that were present at the acquisition date. The Directors have assessed the recoverable amount of the Group’s goodwill as at 30 June 2015. The recoverable amount of each cash generating unit (CGU) has been determined from the value in use, calculated with reference to the net present value of its future cash flow. Cash flow projections are based on the latest budget for each CGU approved by the Board. Beyond this, the projections extend to 20 years using a long-term growth rate for each CGU which the Executive Directors consider to be specific to the business. This exceeds the post-war real annual average growth in GDP in the markets the Group serves, however the assessment to impairment is not considered sensitive to changes in this assumption. In establishing the discount factor for each CGU, the Group’s weighted average cost of capital was calculated and then flexed according to CGU geographical spread, customer concentration, length of customer contracts and risk of loss, breadth of services offered, longer term profitability trend, unique selling points, expected business change and growth opportunity. The Board believes that, even in the current economic conditions, any reasonable change in the key assumptions on which the recoverable amounts are based would not cause the CGU’s carrying amount to exceed the recoverable amount. Depot Solutions Advanced Solutions Software Total Goodwill The average long term growth rates and pre-tax discount rates applied are as follows: Depot Solutions Advanced Solutions Software 2015 Growth rate % 5% 5% 15% 2015 Discount rate % 16% 18% 15% 2015 Carrying value £‘000 38,583 11,344 33,230 83,157 2014 Growth rate % 6% 8% 8% 2014 Carrying value £‘000 38,583 11,344 31,863 81,791 2014 Discount rate % 12% 13% 13% Management has undertaken sensitivity analysis on a number of the key assumptions in the value in use calculations. Sensitivity analysis on the discount rate shows that the discount rate would have to increase to a minimum of 17.8% for Depot Solutions, to a minimum of 55.1% for Advanced Solutions and to a minimum of 24.4% for Software before impairment was triggered in any CGU. Sensitivity analysis was applied to the cash flows used to determine the value in use by reducing growth rates to 3.1% growth, 19.0% shrinkage and 5.7% growth respectively. On the basis of the sensitivity analysis undertaken in relation to cash flows, Group management concluded that there is a more than adequate amount of headroom in the value in use calculations before an impairment would be triggered. 98 24338.04 19 October 2015 10:38 AM Proof 8 www.regenersis.com Stock code: RGS 18. Other intangible assets Cost At 1 July 2013 Additions On acquisitions Disposals Exchange movement At 30 June 2014 Additions On acquisitions Disposals Reclassification Exchange movement At 30 June 2015 Accumulated amortisation At 1 July 2013 Charge for the year On acquisitions Disposals Impairment Exchange Movement At 30 June 2014 Charge for the year Disposals Exchange movement At 30 June 2015 Brand Name £’000 Intellectual Property £’000 Customer contracts £’000 Development expenditure £’000 Software licences £’000 — — 2,888 — — 2,888 — — — — — 2,888 — 43 — — — — 43 206 — — 249 — — 11,872 — — 11,872 — — — — — 11,872 — 247 — — — — 247 1,187 — — 1,434 3,465 — 7,601 (106) — 10,960 — 197 — — — 11,157 2,695 299 — — — — 2,994 787 — — 3,781 2,381 2,928 — (3) (29) 5,277 3,959 — (219) (1,141) (66) 7,810 550 896 13 — 5 (11) 1,453 1,169 (407) 8 2,223 4,028 946 92 (62) (158) 4,846 790 — (1,357) — (485) 3,794 2,041 667 18 (22) — (77) 2,627 1,103 (724) (213) 2,793 Total £‘000 9,874 3,874 22,453 (171) (187) 35,843 4,749 197 (1,576) (1,141) (551) 37,521 5,286 2,152 31 (22) 5 (88) 7,364 4,452 (1,131) (205) 10,480 Net book value at 30 June 2015 2,639 10,438 7,376 5,587 1,001 27,041 Net book value at 30 June 2014 Net book value at 30 June 2013 2,845 — 11,625 — 7,966 770 3,824 1,831 2,219 1,987 28,479 4,588 The Group capitalised development expenditure of £4.0 million (2014: £3.8 million) predominantly in the continued development of in-field testing, remote diagnostics and development of Blancco software. Amortisation of internally generated development expenditure is £1.3 million (2014: £0.9 million) 24338.04 19 October 2015 10:38 AM Proof 8 99 Regenersis Plc Annual Report and Accounts for the year ended 30 June 2015Our Financials Notes to the Accounts continued for the year ended 30 June 2015 19. Property, plant and equipment Leasehold improvements £’000 Plant and machinery £’000 Computer equipment £’000 Motor vehicles £’000 Fixtures and fittings £’000 Cost At 1 July 2013 Additions On acquisitions Disposals Exchange movement At 30 June 2014 Additions Disposals Reclassification Exchange movement At 30 June 2015 Accumulated depreciation At 1 July 2013 Charge for the year On acquisitions Disposals Exchange movement At 30 June 2014 Charge for the year Disposals Exchange movement At 30 June 2015 4,344 581 137 — (200) 4,862 588 (621) — (425) 4,404 2,472 461 121 — (118) 2,936 461 (584) (250) 2,563 8,508 872 410 (79) (370) 9,341 364 (1,864) 1,141 (509) 8,473 7,382 332 383 (52) (273) 7,772 146 (1,413) (400) 6,105 5,478 891 422 (82) (180) 6,529 752 (1,741) — (310) 5,230 4,823 532 311 (60) (130) 5,476 663 (1,718) (238) 4,183 Net book value at 30 June 2015 1,841 2,368 1,047 Net book value at 30 June 2014 Net book value at 30 June 2013 1,926 1,871 1,569 1,125 1,053 655 There are no assets held under finance leases. 84 48 28 (39) (14) 107 — (15) — (5) 87 48 6 28 (32) (5) 45 17 (9) (5) 48 39 62 35 Total £‘000 21,322 2,814 1,130 (235) (897) 24,134 2,588 (4,451) 1,141 (1,504) 21,908 16,940 1,619 1,010 (158) (618) 18,793 1,702 (3,877) (1,065) 15,553 2,908 422 133 (35) (133) 3,295 884 (210) — (255) 3,714 2,215 288 167 (14) (92) 2,564 415 (153) (172) 2,654 1,060 6,355 731 695 5,341 4,381 During the year, there was a reclassification of £1.1 million from Development Expenditure to Plant and Machinery. This relates to the proportional reclassification of the capitalisation of the continued Oktra development. 100 24338.04 19 October 2015 10:38 AM Proof 8 www.regenersis.com Stock code: RGS 20. Investments The Group’s subsidiary undertakings and investments are as follows: Principal activity of the company Holding Company Holding Company Insurance Intermediary Dormant Technical repair services Holding Company Dormant Company name Held directly by the Company Regenersis Central Services Limited Regenersis (Depot) Services Limited Regenersis (Digital Care) Limited Regenersis (Glasgow) Limited Regenersis (Glenrothes) Limited Regenersis (IG) Limited Regenersis Refurbishment LLP Regenersis (SCS Partnership) Limited Holding Company Regenersis (Software) Services Limited Holding Company Holding Company Regenersis (Spain) Limited Holding Company Regenersis (Sweden) Limited Trustee for the Regenersis Employee Benefit Regenersis TrustSub Limited Trust Trustee for the Regenersis Employee Benefit Trust Regenersis (Bucharest) SRL* Technical repair services Regenersis (South Africa) (PTY) Limited Technical repair services Technical repair services Regenersis Istanbul Teknoloji Danısmanlıgı Limited Sirketi Regenersis (Nederland) BV Regenersis Trustees Limited Holding company Technical repair services Technical repair services Technical repair services Dormant company Non-trading entity Holding Company Technical services Holding Company Held indirectly by the company HDM Argentina* Regenersis Belgium SPRL Regenersis (Czech) s.r.o Regenersis (AIDL) Limited Regenersis Distribution Limited Regenersis Finance Limited Regenersis Huntingdon Limited Regenersis (Germany) Limited Regenersis Mobile Diagnostics Limited Dormant Regenersis Finland Acquisitions Oy Holding Company Regenersis Finland Oy Holding Company Regenersis GmbH Technical repair services Regenersis Services GmbH Device buy-back and repair Xcaliber Infotech Private Limited Mobile diagnostics Regenersis Mexico S.A.de C.V.* Technical repair services Regenersis Cooperatife WA Holding Company Regenersis Finance BV Holding Company Holding Company Regenersis Finance US BV Regenersis (Software) Netherlands BV Holding Company Ownership percentage by the Group as at 30 June 2015 Country of incorporation 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 50% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 15% 100% 100% 100% 100% 100% England and Wales England and Wales England and Wales Scotland England and Wales England and Wales England and Wales England and Wales England and Wales England and Wales England and Wales England and Wales England and Wales Romania South Africa Turkey Netherlands Argentina Belgium Czech Republic England and Wales England and Wales England and Wales England and Wales England and Wales England and Wales Finland Finland Germany Germany India Mexico Netherlands Netherlands Netherlands Netherlands 24338.04 19 October 2015 10:38 AM Proof 8 101 Regenersis Plc Annual Report and Accounts for the year ended 30 June 2015Our Financials Notes to the Accounts continued for the year ended 30 June 2015 Principal activity of the company Technical repair services Technical repair services Insurance Intermediary Technical repair services Technical repair services Technical repair services Technical repair services Technical repair services Insurance intermediary Technical repair services Technical repair services Holding Company Company name Regenersis (Portugal) Limited Regenersis SC Refurbishment (Bucharest)* Regenersis Rus O.o.o* Landela Electronics Pty Limited Regenersis (Warsaw) Sp.z.o.o. Regenersis (Sommerda) GmbH Regenersis Digital Care Sp. z.o.o. Regenersis Spain 1, S.L. Regenersis Spain 2, S.L. Regenersis (Spain) Comanditaria Simple Regenersis Digital Care AB (Sweden) Regenersis Inc Regenersis (Software) Services US Inc Holding Company Holding Company Regenersis Services US LLC Holding Company Regenersis Mobile Diagnostics Inc Mobile diagnostics Xcaliber Technologies LLC Mobile diagnostics Xcaliber IP LLC Technical repair services Regenersis India Limited** Data erasure Blancco Oy Limited Data erasure Blancco UK Limited Data erasure Blancco Italy SRL Data erasure Blancco France SAS* Data erasure Software Blancco S.A. de C.V. Mx* Data erasure Blancco US LLC Data erasure Blancco Central Europe GmbH* Data erasure Blancco Canada Inc Data erasure Blancco SEA Sdn Bhd Data erasure Blancco Australasia Pty Limited Data erasure Blancco Japan Inc* Data erasure Blancco Sweden SFO Data erasure SafeIT Security Sweden AB Ownership percentage by the Group as at 30 June 2015 100% 100% Country of incorporation Portugal Romania 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 49% 49% 80% 100% 100% 100% 51% 51% 100% 100% 50% 100% 100% 51% 100% 100% Russia South Africa Poland Germany Poland Spain Spain Spain Sweden United States of America United States of America United States of America United States of America United States of America United States of America India Finland England and Wales Italy France Mexico United States of America Germany Canada Malaysia Australia Japan Sweden Sweden * ** Year end date is 31 December Year end date is 31 March All investments are in the ordinary share capital of the subsidiaries. All subsidiaries are included in the consolidated results of the Group. 102 24338.04 19 October 2015 10:38 AM Proof 8 www.regenersis.com Stock code: RGS Investments in Part Owned Subsidiaries Summarised financial information relating to each of the Group’s subsidiaries with non-controlling interests (NCI) that are material to the Group, before any intra-group eliminations is shown below. These are aggregated because they are all Blancco sales offices performing the same function for the Group in different jurisdictions: Share holdings Current assets Non-current assets Current liabilities Non-current liabilities Net Assets Net assets attributable to NCI Revenue Profit after taxation Profit after taxation attributable to NCI Blancco 2015 £’000 50-80% 2,426 206 (1,655) (82) 895 238 7,507 (667) (287) Blancco 2014 £’000 50-80% 2,523 86 (1,043) (78) 1,487 570 1,496 475 276 A profit after tax attributable to the NCI arose in the prior year due to a number of high value sales between the date of acquisition and the year end. In the current period, the deferral of subscription revenue has been greater which has resulted in a net loss attributable to NCI. Other Investments On 1 July 2014, the Group held 15% of the issued share capital of Xcaliber Technologies LLC which it acquired for a consideration of US$1.2 million (£0.75 million) in a prior period. On 25 July 2014 the Group completed the acquisition of an additional 34% of the issued share capital for a consideration of $3.3 million (£1.9 million) bringing the Group’s share to 49%. 24338.04 19 October 2015 10:38 AM Proof 8 103 Regenersis Plc Annual Report and Accounts for the year ended 30 June 2015Our Financials Notes to the Accounts continued for the year ended 30 June 2015 From the date of ownership of 49% of the share capital, the Group has significant influence over the associate. In accordance with IFRS 3, Business Combinations, management have considered whether Regenersis has control of the Xcaliber, which included assessment of the following factors: • Composition of the Board • The day to day management of the business • Options to acquire further equity in the business Management deemed that insufficient criteria were met to demonstrate that the Group had control over Xcaliber. As a result, the investment is treated as an equity accounted associate, with the Group consolidating its share of profit of loss since the date of ownership of the 49% stake. This is done through one line on the Consolidated Income Statement, below Group Operating Profit. The Groups’ share of associates’ assets, liabilities, income and expenses, which were comprised of Regenersis Rus Ooo (Russia) in the prior year, are as follows: Current assets Current liabilities Non-current assets Non-current liabilities Net assets/(liabilities) Group’s share of net assets (49%) Goodwill Carrying amount of investment in associate Income Expense Net expense of equity accounted investments Group’s share of revenue (Xcaliber: 49% (2014: Russia: 50%)) Group’s share of net expense (Xcaliber: 49% (2014: Russia: 50%)) The reconciliation of total investments is as follows: At 1 July Transfer of carrying value on recognition of significant influence Acquisition of investment Disposal of investment Retained (loss) Trade and other receivables eliminated on acquisition At 30 June Blancco ZAO 2015 £’000 Xcaliber US 2015 £’000 10 — — (10) — — — — 684 1,912 — (746) — 1,850 The Group’s investments are presented in the following captions in the balance sheet: Equity accounted investments Other investments Total 104 24338.04 19 October 2015 10:38 AM Proof 8 2015 Xcaliber US £’000 491 (526) 694 — 659 323 1,527 1,850 277 (1,798) (1,521) 136 (746) Total 2015 £’000 10 684 1,912 (10) (746) — 1,850 2015 £‘000 1,850 61 1,911 2014 Russia £’000 — — — — — — — — 892 (1,220) (328) 446 (164) Total 2014 £’000 185 10 — (100) (85) 10 2014 £‘000 10 745 755 www.regenersis.com Stock code: RGS Included within other investments is the investment in Xcaliber India Pvt Limited, representing a 15% ownership, made during the prior year. A share of losses of associate has been recorded through the Consolidated Income Statement for the year ending 30 June 2015 of £0.7 million (2014: £nil). The loss share reflects that the business is still in development stage and is only now starting to gain customers. Other Investing Activities On 16 April 2014, the Group completed the acquisition of Blancco Oy and stakes in its international sales offices. This included a 20% stake in Blancco ZAO, with an acquisition book value of £10,000. During the current year, and within the 12 month hindsight period, management has revisited the carrying value of this investment in accordance with IFRS 3 ‘Business Combinations’ and determined that on acquisition, the fair value of this investment was £1. The revision of the fair value is a result of the sale of the 20% stake in Blancco ZAO for £1 to a third party on 9 April 2015. Since Blancco ZAO has not traded between 16 April 2014 and 9 April 2015, management has deemed the carrying value on acquisition equates to the consideration received of £1. On 25 June 2015, the Group disposed of its 20% holding in Varsta Software Oy. Varsta was acquired as an associate through the acquisition of Blancco Oy and its subsidiaries on 16 April 2014. 21. Inventories Raw materials Work in progress Finished goods 22. Trade and other receivables Trade receivables Less: provision for doubtful trade receivables Trade receivables net of provision Prepayments and accrued income A reconciliation of the movement in the provision for doubtful trade receivables is as follows: At 1 July Provision created Amounts written off as uncollectable Amounts recovered during the year Amounts written off resulting from disposal of subsidiary At 30 June 2015 £’000 7,214 515 1,751 9,480 2015 £’000 22,850 (204) 22,646 11,910 34,556 2015 £’000 534 75 (29) (195) (181) 204 2014 £’000 7,560 1,085 1,492 10,137 2014 £’000 26,652 (534) 26,118 11,624 37,742 2014 £’000 159 379 — (4) — 534 24338.04 19 October 2015 10:38 AM Proof 8 105 Regenersis Plc Annual Report and Accounts for the year ended 30 June 2015Our Financials Notes to the Accounts continued for the year ended 30 June 2015 23. Cash and cash equivalents Cash at bank and in hand 24. Trade and other payables Trade payables Other taxes and social security Other payables Accruals and deferred income 25. Dividends Previous year final Current year interim dividend 26. Bank borrowings Due after more than one year: Secured bank loan Repayable: In the first to second years inclusive In the third to the fifth years inclusive 2015 £’000 12,143 2015 £’000 14,795 1,786 4,444 19,446 40,471 2014 £’000 885 645 1,530 2015 £’000 4,357 4,357 — 2014 £’000 20,795 2014 £’000 15,562 535 7,070 21,163 44,330 2014 Pence per share 1.83 1.32 3.15 2014 £’000 194 — 194 2015 £’000 2,118 1,263 3,381 2015 Pence per share 2.68 1.65 4.33 The bank borrowing is secured on the majority of the Group’s assets for the duration of the Revolving Credit Facility. The total facility available to the Group as at 30 June 2015 totalled £39.0 million (2014: £39.0 million), of which £4.6 million (2014: £0.5 million) had been drawn down in cash, resulting in an unutilised facility of £34.4 million (2014: £38.5 million). Borrowing costs of £0.3 million (2014: £0.5 million) are set-off against the amount owing at year end. In September 2015, the Group extended the term of its banking facility with HSBC from October 2016 to October 2019, which gives Regenersis clear certainty of funding over the next four years. All banking covenants have been satisfied in the year and show significant headroom for the foreseeable future. 106 24338.04 19 October 2015 10:38 AM Proof 8 www.regenersis.com Stock code: RGS 27. Net cash Cash Bank borrowings (non-current) 28. Reconciliation of movement in net cash 2015 £’000 12,143 (4,357) 7,786 2014 £’000 20,795 (194) 20,601 Cash at bank and in hand Borrowings 29. Provisions At 1 July 2014 Utilised during the year Unused amounts released At 30 June 2015 Net cash at 1 July 2014 £’000 20,795 (194) 20,601 Cash flow £’000 (8,014) — (8,014) Drawdown of borrowings £’000 — (4,066) (4,066) Other non- cash items £’000 (638) (97) (735) Net cash at 30 June 2015 £’000 12,143 (4,357) 7,786 Onerous leases £’000 2,958 (1,824) (226) 908 Dilapidations £’000 493 — — 493 Total £’000 3,451 (1,824) (226) 1,401 Provisions relate to a period of between one and five years and are analysed between current and non-current as follows: Current Non-current 2015 £’000 372 1,029 1,401 Opening provisions relate to onerous lease and dilapidation provisions relating to the restructuring in Glasgow. The remaining provision at 30 June 2015 covers residual lease commitments which expire between 2017 and 2019 in Glasgow. 24338.04 19 October 2015 10:38 AM Proof 8 107 Regenersis Plc Annual Report and Accounts for the year ended 30 June 2015Our Financials Notes to the Accounts continued for the year ended 30 June 2015 30. Financial instruments — risk management Capital risk management The Group manages its capital to ensure that entities in the Group will be able to continue as going concerns while maximising return for stakeholders through the optimisation of the debt and equity balance. The Group’s capital structure is as follows: Total borrowings Cash and cash equivalents Net cash Equity holders of the Company Gearing ratio (net debt to equity) 2015 £’000 (4,357) 12,143 7,786 122,428 — 2014 £’000 (194) 20,795 20,601 129,843 — Debt is primarily used for financing acquisitions. Under the Revolving Credit Facility the Group is subject to certain financial covenants relating to: • Leverage – the ratio of total net debt to EBITDA. • Interest cover – the ratio of EBITDA to total debt costs. • Capital expenditure – any obligation treated as such under accounting principles. The Group has complied with these financial covenants in the year and future forecasts indicate these will be met for the foreseeable future. Categories of financial instruments The following assets and liabilities at carrying values meet the definition of financial instruments and are classified according to the following categories. Assets carried at amortised cost Trade and other receivables Cash Financial assets Liabilities carried at amortised cost Trade and other payables Income tax payable Borrowings Liabilities carried at fair value Contingent consideration Financial liabilities 2015 £’000 34,556 12,143 46,699 2015 £’000 40,471 642 4,357 5,728 51,198 2014 £’000 37,742 20,795 58,537 2014 £’000 44,330 1,476 194 6,358 52,358 Estimation of fair values The table above analyses financial instruments into a fair value hierarchy based on the valuation technique used to determine fair value. 108 24338.04 19 October 2015 10:38 AM Proof 8 www.regenersis.com Stock code: RGS Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices) Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs). The only Level 3 instrument is contingent consideration liability and is carried at fair value derived using a Level 3 valuation method. The movement in the fair value is shown below: At 30 June 2014 Created on acquisition Unwinding of discount factor on contingent consideration Revaluation of contingent consideration At 30 June 2015 Digicomp £’000 2,425 — 398 — 2,823 HDM £’000 3,933 — 364 (3,302) 995 Blancco Sweden £’000 — 1,738 172 — 1,910 Total £’000 6,358 1,738 934 (3,302) 5,728 The contingent consideration payable as part of the HDM acquisition in 2013 falls due in September 2015, and has accordingly £1.0 million been reclassified from non-current liabilities to current liabilities at 30 June 2015. Part of the contingent consideration payable for the Blancco Sweden acquisition in the year falls due in March 2016 and accordingly £0.7 million has been reclassified from non-current to current liabilities at 30 June 2015. All other payments are due in excess of 12 months from the balance sheet date. The fair value is calculated based on management’s best estimate of forecast performance, and therefore the valuation is most sensitive to movements in forecast EBIT. A 10% decrease in the forecast EBIT of the respective subsidiaries would reduce the fair value by £0.4 million. For the other financial assets and financial liabilities, the carrying value and fair value are considered to be the same with the following assumptions: For trade and other receivables/payables with a remaining life of less than one year, the carrying amount is deemed to reflect the fair value. For cash and cash equivalents, the amount reported on the balance sheet approximates to fair value. For borrowing at floating rates, the carrying value is deemed to reflect the fair value as it is considered to represent the price of the instrument in the marketplace. Financial risk management The main risks arising from the Group’s financial instruments were market risk (including foreign currency risks and interest rate risk), liquidity risk and credit risk. The Group seeks to minimise the effects of these risks by developing and consistently applying Board approved policies and procedures. Such policies and procedures are regularly reviewed for their appropriateness and effectiveness to deal with the changing nature of financial risks. Market risk - interest rate risk The Group holds cash in a variety of currencies within the business units in order to meet working capital requirements. During the year, the Revolving Credit Facility attracted margins of between 2.00% and 2.75% above LIBOR (for GBP and ZAR amounts drawn down) and between 2.00% and 2.75% above EURIBOR (for EUR amounts drawn down) depending on the ratio of EBITDA to net debt. In the prior year, the margin also ranged from 2.00% to 2.75%, also depending on the ratio of EBITDA to net debt. The undrawn part of the Revolving Credit Facility is subject to a charge during its availability computed at 40% of margin. 24338.04 19 October 2015 10:38 AM Proof 8 109 Regenersis Plc Annual Report and Accounts for the year ended 30 June 2015Our Financials Notes to the Accounts continued for the year ended 30 June 2015 A change in the LIBOR rate of 1% would increase/decrease the annual interest charge on the GBP/ZAR Revolving Credit Facility drawn down as at 30 June 2015 of £3,400,000 (2014: £500,000) by £34,000 (2014: £5,000). A change in the EURIBOR rate of 1% would increase/decrease the annual interest charge on the revolving credit facility drawn down as at 30 June 2015 of £1,000,000 (2014: £nil) by £10,000 (2014: £nil). The CFO continues to monitor the exposure to interest rate risk and the requirement to use an interest rate swap agreement or other financial instruments. Foreign currency risk One of the risks that the Group faces in doing business in overseas markets is currency fluctuations. The Group takes the following approach to managing currency fluctuations: • The CFO conducts a quarterly review of the Group’s currency hedging activities. • A formal recommendation for any changes is then made to the Board once every half year. The Group’s hedging policy is the responsibility of the Board. The Group adopts the following hedging activities: • We undertake a limited number of forward contracts for certain payments and receipts, where the amounts are large, are not denominated in the local country’s functional currency, where the timing is known in advance, and where the amount can be predicted with certainty. • We undertake natural hedging between the cash and loan balances of different currencies. • We undertake natural hedging by structuring and paying future earn-outs on acquisitions in the target company’s local currency. • We do not undertake any other hedging activities in respect of tangible and intangible fixed assets, working capital such as stock, debtors, or creditors, or other balance sheet items, as these are generally small in nature in any one individual country. We do not undertake any cash flow or profit hedging activities to insulate from currency movements in respect of overseas earnings, as the earnings cannot be assessed with any high degree of accuracy in terms of timings and amounts. The Group has a good mix of business across 22 different territories and this does provide some degree of smoothing of currency movements in any one country through a portfolio effect. Over the last few periods this has resulted in a sensible and well managed position. The table below shows the extent to which the Group had significant monetary assets and liabilities denominated in currencies other than the local currency of the company in which they are recorded. Monetary assets Monetary liabilities Net monetary (liabilities)/assets ZAR denominated Euro denominated USD denominated 2015 £’000 — (359) (359) 2014 £’000 — (3,835) (3,835) 2015 £’000 5,198 (2,364) 2,834 2014 £’000 7,189 (8,757) (1,568) 2015 £’000 2,677 (3,062) (385) 2014 £’000 3,359 (3,640) (281) 110 24338.04 19 October 2015 10:38 AM Proof 8 www.regenersis.com Stock code: RGS Sensitivity analysis This quantifies the impact of change in value of assets and liabilities denominated in a currency other than the functional currency of that business unit. A 10% appreciation/depreciation of the South African Rand, the Euro and the US Dollar against the Sterling, applied to the net exposures as at 30 June, would give rise to the following gain/ (loss) in the retranslation of these balances: Profit/(loss) before tax – gain/(loss) 10% appreciation of ZAR/Euro/USD 10% depreciation of ZAR/Euro/USD ZAR denominated Euro denominated USD denominated 2015 £’000 (4) 4 2014 £’000 (384) 384 2015 £’000 283 (283) 2014 £’000 (157) 157 2015 £’000 (39) 39 2014 £’000 (28) 28 The analysis has been performed using the Group exchange rates at the 30 June 2015 reporting date of 19.24 ZAR/£ (2014: 18.06); 1.41 €/£ (2014: 1.25 €/£); and 1.57 US$/£ (2014: 1.70 US$/£).The Group is exposed to fluctuations in exchange rates on the translation of net assets and profits earned by its subsidiaries in Argentina, Australia, Belgium, Canada, the Czech Republic, Finland, France, Germany, India, Italy, Japan, Malaysia, Mexico, the Netherlands, Poland, Portugal, Romania, Russia, South Africa, Spain, Sweden, Turkey, and the USA. These profits are translated at the prior month closing exchange rate during the year, which is an approximation to the rates at the date of the transaction. Credit risk The top ten customers (all of which are major international businesses) account for 66.5% (2014: 71.2%) of the Group’s revenue and hence there is some customer reliance risk although the biggest single customer is 13.7% (2014: 14.3%) of revenue and is spread over many of our countries and several contracts. This is distinct from credit risk. At the balance sheet date one customer made up of several contracts amounted to 17% (2014: 13%) of the Group’s total trade receivables and accrued income balances. Over the past year the ageing profile has remained strong and, as at the year end, 85% (2014: 80%) of our trade receivables balances were in terms and therefore the Board believes these balances do not present a significant credit risk which could lead to a loss for the Group. Ageing of trade receivables, net of impaired balances, is as follows: Neither past due nor impaired Past due but not impaired Less than 30 days overdue 30 to 60 days overdue More than 60 days overdue 2015 £’000 19,151 2,498 640 357 22,646 2015 % 85% 11% 3% 1% 100% 2014 £’000 20,889 2,969 1,092 1,168 26,118 2014 % 80% 11% 4% 5% 100% The average credit period taken on sales has improved to 55 days (2014: 64 days). The Group has provided for specific trade receivables where the recoverability is uncertain. As at 30 June 2015 the doubtful debtors balance was £204,000 (2014: £534,000), of which £30,000 (2014: £37,000) was more than 60 days overdue. The Board believes there is no further provision required in excess of the allowance for doubtful debts. Receivables are written off against the impairment provision when management considers the debt is no longer recoverable. 24338.04 19 October 2015 10:38 AM Proof 8 111 Regenersis Plc Annual Report and Accounts for the year ended 30 June 2015Our Financials Notes to the Accounts continued for the year ended 30 June 2015 Liquidity risk The Group ensures that there are sufficient levels of committed facility, cash and cash equivalents to ensure that the Group is at all times able to meet its financial commitments. The total facility available to the Group as at 30 June 2015 totalled £39.0 million (2014: £39.0 million), of which £4.6 million (2014: £0.5 million) had been drawn down in cash, resulting in an unutilised facility of £34.4 million (2014: £38.5 million). The table below summarises the contractual maturity profile of the Group’s financial liabilities: Trade and other payables Income tax payable Provisions Bank borrowings 31. Deferred tax assets Property, plant and equipment Intangible assets Short-term timing differences Tax losses Property, plant and equipment Intangible assets Short-term timing differences Tax losses 2015 Effective interest rate (%) — — 5.0 2.5 — 2015 Less than one year £’000 40,471 642 372 — 41,485 2015 One to five years £’000 — — 1,029 4,357 5,386 2014 Effective interest rate (%) — — 5.0 2.5 — 2014 Less than one year £’000 44,330 1,476 645 — 46,451 2014 One to five years £’000 — — 2,805 194 2,999 At 1 July 2014 £’000 1,304 (4,345) 3,029 1,194 1,182 At 1 July 2013 £’000 1,093 — 2,046 308 3,447 Recognised in the income statement £’000 (209) 111 (1,423) 872 (649) Recognised in the income statement £’000 204 — (276) 883 811 Recognised upon acquisition £’000 — — 7 — 7 Recognised Upon acquisition £’000 7 (4,427) 954 — (3,466) Exchange £’000 — 6 74 2 82 Exchange £’000 — 82 305 3 390 At 30 June 2015 £’000 1,095 (4,228) 1,687 2,068 622 At 30 June 2014 £’000 1,304 (4,345) 3,029 1,194 1,182 Deferred tax assets are recognised to the extent that they are considered recoverable against the future profits of the Group. No deferred tax asset has been recognised in relation to taxation on UK losses amounting to £1.2 million (2014: £2.7 million). Certain deferred tax assets and liabilities have been offset to the extent permitted by IAS 12. The deferred tax asset balance as at 30 June 2015 is made up of a UK deferred tax asset balance of £2.5 million (2014: £0.9 million) and an overseas balance of £2.9 million (2014: £1.5 million). 112 24338.04 19 October 2015 10:38 AM Proof 8 www.regenersis.com Stock code: RGS 32. Called up share capital Allotted, called up and fully paid: Ordinary shares of 2p 2015 Number of shares 2015 £’000 2014 Number of shares 2014 £’000 79,022,599 1,581 79,022,599 1,581 The Company has one class of ordinary shares, which carry no rights to fixed income. The holders of ordinary shares are entitled to receive dividends as declared and are entitled to one vote per share at meetings of the Company. Share premium This arises on issue of the Company’s shares over and above the nominal value of the shares, less any expenses of issue incurred in issuing equity. Movements within share premium this year relate primarily to the transfer to retained earnings of £70 million following High Court approval of this capital conversion on 17 December 2014. Merger reserve The merger reserve arises in respect of the premium arising on the ordinary shares issued as consideration for the acquisition of shares in another company. Translation reserve The translation reserve comprises all foreign currency differences arising from the translation of the financial statements of foreign operations. Employee Benefit Trust (EBT) Of the issued share capital at 30 June 2015, 2,467,394 (30 June 2014: 853,497) shares are held by the Employee Benefit Trust. During the year, following a recommendation by the Company and with the intention that they could be used to satisfy employee share option awards in the future, the Employee Benefit Trust purchased a total of 1,650,000 shares, by way of the purchase: • 800,000 shares, at an average price of 230.8 pence per share and at a total price of £1.8 million, on 14 January 2015; • 200,000 shares, at an average price of 241.5 pence per share and at a total price of £0.5 million, on 16 January 2015; • 150,000 shares, at an average price of 200.0 pence per share and at a total price of £0.3 million, on 19 March 2015; and • 500,000 shares, at an average price of 205.0 pence per share and at a total price of £1.0 million, on 26 March 2015. During the year 38,499 shares held by the EBT were used to settle awards under the historic Performance Share Plan. The plan was fully vested in the prior year, however some awards were only exercised in the current year. The scheme is closed to new members. Outstanding options have been granted to the Directors and employees of the Group under the Incentive Share Plans over shares in Regenersis Plc. Further details of these are included within note 33. Details of the share plans and share options held by Directors are included in the Remuneration Report on pages 61 to 64. 24338.04 19 October 2015 10:38 AM Proof 8 113 Regenersis Plc Annual Report and Accounts for the year ended 30 June 2015Our Financials Notes to the Accounts continued for the year ended 30 June 2015 33. Share-based payments The Group has implemented long-term incentive arrangements for its senior management and Directors in order to align their interests to those of the shareholders. The following incentive plans were in place during the current financial year: • Incentive Share Plan (ISP1) • Incentive Share Plan (ISP3) • Depot Incentive Share Plan • Digital Care Incentive Share Plan • Software Incentive Share Plan On 30 June 2015, the Company cancelled/modified the existing long-term incentive schemes for certain senior management staff, in order to better align the performance incentives for their particular roles. This was achieved by implementing new incentive plans that are specific to the operating segments in which those employees are engaged, notably the Depot and Software segments. An additional scheme for the Digital Care businesses was implemented since the product is at an earlier stage of its life cycle than the Depot repair business, and the growth incentives have been tailored accordingly. All of the awards under Incentive Share Plan (ISP2) were exercised in the previous financial year. Incentive Share Plan (ISP3) On 14 January 2014, the Company established the Regenersis Incentive Share Plan (“ISP3”) to incentivise management to achieve further shareholder value growth. The terms of this scheme were disclosed in the financial statements for the year to 30 June 2014. No awards have vested during the current year since none of the performance targets have been met. Certain members of the ISP3 scheme have not met the ongoing employment obligations of the scheme and their awards have lapsed. In addition, some members were transferred onto one of the new divisional LTIP schemes effective from 30 June 2015 and are no longer eligible to awards under this scheme. Following these amendments, awards in respect of 2.7% of the increase in shareholder value lapsed or were cancelled. The Executive Directors are the only participating members of this scheme as at 30 June 2015. The grants in respect of Jog Dhody and Hanover General Partners II L.P. remain at 1.25% and 7.0% respectively (2014: 1.25% and 7.0%). 114 24338.04 19 October 2015 10:38 AM Proof 8 www.regenersis.com Stock code: RGS Incentive Share Plan (ISP2) On 14 March 2013, the Company established ISP2. On 14 January 2014, all of the awards granted under ISP2 (in respect of 11.66% of the increase in shareholder value) vested and were exercised. All of the awards under Incentive Share Plan (ISP2) were exercised in the previous financial year. Incentive Share Plan (ISP1) On 1 July 2011, the Company established the Regenersis Incentive Share Plan (“ISP1”) for the senior management team including Hanover Investors Management LLP. The terms of this scheme were disclosed in the financial statements for the year to 30 June 2013. On 22 February 2013, the performance target was met and all of the awards under ISP1 (representing 11.85% of the increase in shareholder value) became available for vesting. No awards were exercised during the year and as at 30 June 2015 outstanding awards in respect of 0.4% of the increase in shareholder value had not yet been exercised. At 30 June 2015, the outstanding liability of £248,000 was included in accruals and deferred income in respect of the outstanding awards under ISP1. Liability brought forward 30 June 2014 Revaluation of liability Liability remaining at 30 June 2015 £’000 421 (173) 248 Depot Incentive Share Plan On 30 June 2015, the Company established the Depot Incentive Share Plan to incentivise management of the Depot Solutions division to achieve further shareholder value growth. This plan was established for the senior management of the Depot Solutions Division only. The Executive Directors of the Group are not eligible to participate in this scheme. Under this plan, employees, at the discretion of the Company were granted rights to acquire a share of the growth in the value of the division, subject to continuing employment. The value growth is determined from the date of the grant of the award and is calculated using a pre-determined HOP multiple to give a base value of the division. The performance period runs for three years after the date of grant, with vesting of awards taking place at each anniversary. At each vesting period, the increase in value of the division will be based on a pre-determined last 12 months HOP multiple. At the end of the performance period, the Remuneration Committee will determine the increase in division value over the three year period and recommend a final payout. The value of the share of growth will be settled by the issuing of shares in Regenersis Plc at par. As at 30 June 2015, awards had been granted in respect of 1.5% of the increase in value of the Division. 24338.04 19 October 2015 10:38 AM Proof 8 115 Regenersis Plc Annual Report and Accounts for the year ended 30 June 2015Our Financials Notes to the Accounts continued for the year ended 30 June 2015 Digital Care Incentive Share Plan On 30 June 2015, the Company established the Digital Care LTIP to incentivise management of the Depot business to achieve further shareholder value growth. This plan was established for the senior management of the Digital Care business only. The Executive Directors of the Group are not eligible to participate in this scheme. Under this plan, employees, at the discretion of the Company were granted rights to acquire a share of the growth in the value of the division, subject to continuing employment. The value growth is determined from the date of the grant of the award and is calculated using a pre-determined HOP multiple to give a base value of the division. The performance period runs for three years after the date of grant, with vesting of awards taking place at each anniversary. At each vesting period, the increase in value of the division will be based on a pre-determined last 12 months HOP multiple. At the end of the performance period, the Remuneration Committee will determine the increase in division value over the three year period and recommend a final pay-out. The value of the share of growth will be settled by the issuing of shares in Regenersis Plc at par. As at 30 June 2015, awards had been granted in respect of 10% of the increase in value. Software Incentive Share Plan On 30 June 2015, the Company established the Software LTIP to incentivise management of the Software business to achieve further shareholder value growth. The Executive Directors are not eligible to participate in this scheme. The pay-out in respect of this scheme is dependent on the performance of the Software business, which is externally valued. As at 30 June 2015, no awards have been granted in respect of the Software LTIP Performance Share Plan The Company had historically operated a Performance Share Plan (‘‘PSP’’) in which members of senior management (excluding the Directors) were able to acquire shares at no cost, if certain performance criteria were achieved over a three year period. On 1 July 2013, these performance criteria were achieved and awards were made to two employees. The awards were settled by: transferring 88,666 existing shares from the Employee Benefit Trust (EBT) and reserving 51,332 existing shares from the Employee Benefit Trust (EBT) for future transfer by 7 April 2016. Of these shares, 38,499 were sold during the current year at an average price of 209 pence, resulting in cash payments to the employees totalling £80,335. At 30 June 2015 the total dilution to existing shareholders, from the exercise of the awards during the financial year, was nil. This scheme is now closed and only the reserved shares noted above which total 12,833 remain unsettled. 116 24338.04 19 October 2015 10:38 AM Proof 8 www.regenersis.com Stock code: RGS The fair values for the above options were calculated using the inputs and pricing models outlined in the table below: Date of grant Option pricing model used Fair value of options granted (per share) at date of grant Expected volatility Risk free interest rate Exercise price (per share) Expected dividends Expected term (years) Expected departures Settlement Incentive Share Plan 2 1 November 2013 Monte Carlo 23.0p Incentive Share Plan 2 23 September 2013 Monte Carlo 26.0p Incentive Share Plan 2 14 June 2013 Monte Carlo 30.5p Incentive Share Plan 2 6 May 2013 Monte Carlo 30.3p Incentive Share Plan 2 25 April 2013 Monte Carlo 30.7p Incentive Share Plan 2 14 March 2013 Monte Carlo 31.1p 27% 30% 27% 30% 30% 0.3%—1.4% 0.3% — 1.7% 0.3% — 1.3% 0.2%—0.9% 0.2%—0.8% 0.1% — 1.0% 2.0p — 3.0 — Equity 2.0p — 2.8 — Equity 2.0p — 2.9 — Equity 2.0p — 2.9 — Equity 2.0p — 2.5 — Equity 2.0p — 2.4 — Equity 30% Date of grant Option pricing model used Fair value of options granted (per share) at date of grant Expected volatility Risk free interest rate Exercise price (per share) Expected dividends Expected term (years) Expected departures Settlement 30 June 2015 Digital Care ISP Digital Care ISP 30 June 2015 Software ISP 30 June 2015 Black Scholes Black Scholes Black Scholes 20.0p 27% 20.0p 27% 2% 2.0p — 3 — Equity 20.0p 27% 2% 2.0p — 3 — Equity Incentive Incentive Share Plan 3 Share Plan 3 14 January 31 January 2014 2014 Monte Carlo Monte Carlo 44.1p 43.2p 27% 27% 2% 0.3% — 2.2% 0.3%—2.4% 2.0p 2.0p — — 3.0 2.8 — — Equity Equity 2.0p — 3 — Equity Total expense recognised in the income statement for each of the schemes and disclosed on the face on the income statement was as follows: Performance Share Plan Incentive Share Plans Phantom Share Scheme 2015 £’000 — 531 — 531 2014 £’000 (71) 670 59 658 There is no charge in the year for the divisional schemes as they were introduced on 30 June 2015. 24338.04 19 October 2015 10:38 AM Proof 8 117 Regenersis Plc Annual Report and Accounts for the year ended 30 June 2015Our Financials Notes to the Accounts continued for the year ended 30 June 2015 34. Commitments Minimum lease payments under operating leases recognised as an expense in the year: 2015 £’000 3,967 2014 £’000 4,090 The Group has outstanding commitments for total future minimum lease payments under non-cancellable operating leases, which fall due as follows: Not less than one year Later than one year and not later than five years Later than five years 2015 £’000 4,132 6,498 23 10,653 2014 £’000 3,720 6,367 467 10,554 The majority of the leases which the Group has entered into relate to land and buildings with terms ranging from three months to five years. 35. Subsequent Events Banking facility In September 2015, the Group extended the term of its banking facility with HSBC from October 2016 to October 2019, which gives Regenersis clear certainty of funding over the next four years. The costs of borrowing have fallen and the covenants remain unchanged. All banking covenants have been passed and show significant headroom for the foreseeable future. Acquisition of Tabernus In September 2015, Regenersis acquired 100% of the share capital of Tabernus LLC and Tabernus Europe Limited, a privately owned provider of software erasure with the majority of its revenue in the USA. The consideration was $12 million (£7.6 million) comprising cash payment of $10 million (£6.3 million) funded through the Group revolver facility and a maximum of $2 million (£1.3 million) in deferred contingent consideration payable after two years. Fair value calculations for this acquisition have not been completed due to the proximity of the acquisition to the published date of the accounts and as such has not been disclosed. 118 24338.04 19 October 2015 10:38 AM Proof 8 www.regenersis.com Stock code: RGS 36. Related party transactions Transactions between Regenersis plc and its 100% subsidiaries, which are related parties, have been eliminated on consolidation. No disclosure of these transactions is required under IAS 24. Matthew Peacock, Executive Chairman, and Tom Russell, Non-executive Director, are associated with Hanover Investors Management LLP, and a fee is charged for their services as Executive Directors which is disclosed in the Directors’ Remuneration Report. They also have an indirect beneficial interest in the shares of the Group. At 30 June 2015, the combined holding of Hanover Investors Management LLP and its connected parties is 5,217,651 (2014: 5,043,651) ordinary shares equating to 6.60% (2014: 6.38%) of the issued share capital of the Company. All transactions with Directors are included in the Directors’ Remuneration Report on pages 61 to 64 and also in the key management personnel disclosures in note 9. During the year fees amounting to £540,000 were paid for acquisition-related services provided by Hanover Investors Management LLP or its connected parties (2014: £790,000). At 30 June 2015, £290,000 was outstanding in relation to these services (2014: £574,000). Property lease costs of £188,000 (2014: £nil) were recharged to Hanover Investors Management LLP in the year, of which £nil was outstanding at the year end (2014: £nil). Management charges totalling £430,000 (2014: £300,000) were recharged to Xcaliber during the year, of which £430,000 (2014: £300,000) was still owed at the year end. 24338.04 19 October 2015 10:38 AM Proof 8 119 Regenersis Plc Annual Report and Accounts for the year ended 30 June 2015Our Financials 120 24338.04 19 October 2015 10:38 AM Proof 8 Company Balance Sheet as at 30 June 2015 Assets Fixed assets Goodwill Tangible assets Investments in subsidiaries Current assets Debtors Cash Creditors: Amounts falling due within one year Provisions Net current assets Total assets less current liabilities Creditors: Amounts falling due after more than one year Provisions Amounts falling due after more than one year Net assets Equity Ordinary share capital Share premium Merger reserve Profit and loss account Equity shareholders’ funds Note 2015 £’000 2014 £’000 4 5 6 7 9 12 10 12 15 16 16 16 4,389 91 25,248 29,728 110,692 — 110,692 (12,024) (372) 98,296 128,024 (4,335) (1,029) (5,364) 122,660 1,581 51,737 4,034 65,308 122,660 5,232 903 42,292 48,427 78,453 11,089 89,542 (5,195) (645) 83,702 132,129 (19) (1,268) (1,287) 130,842 1,581 121,737 4,034 3,490 130,842 The financial statements were approved by the Board of Directors and authorised for issue on 21 September 2015. They were signed on its behalf by: Matthew Peacock Executive Chairman Company number: 05113820 Jog Dhody Chief Financial Officer 24338.04 19 October 2015 10:38 AM Proof 8 121 Regenersis Plc Annual Report and Accounts for the year ended 30 June 2015Our Financials Notes to the Company Accounts for the year ended 30 June 2015 1. Basis of preparation The Financial Statements have been prepared under the historical cost convention and in accordance with applicable accounting standards in the United Kingdom, which have been applied on a consistent basis, and on a going concern basis. Under Section 408 of the Companies Act 2006, the Company is exempt from the requirement to present its own profit and loss account. 2. Accounting policies The significant accounting policies applied in the preparation of the Company financial statements are as follows: 2.1 Going concern As highlighted in note 26 to the Group’s Financial Statements, the Group meets its day to day working capital requirements through its cash reserves and a Revolving Credit Facility which, in September 2015, was extended until October 2019. Further information on the Group’s business activities, together with the factors likely to affect its future development, performance and position is set out in the Business and Financial Review on pages 22 to 29. Further information on the financial position of the Group, its cash flow, liquidity position and borrowing facility is described in this review. In addition, note 30 to the Group’s financial statements includes the Group’s objectives, policies and processes for managing its capital; and its exposures to credit risk and liquidity risk. The Group’s forecasts and projections, taking account of reasonably possible changes in trading performance, show that the Group should be able to operate within the level of its cash reserves and credit facility. After making enquiries, the Board have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the Annual Report and Accounts. 2.2 Intangible assets and goodwill Goodwill is calculated as the excess of the fair value of the purchase consideration over the fair value attributable to the separately identifiable assets and liabilities of the acquired business. Goodwill is capitalised on acquisition and amortised on a straight line basis over its estimated useful economic life. The life is determined after taking account of the nature of the business acquired and the nature of the markets in which it operates, and is typically between five and 20 years. 2.3 Impairment Goodwill and other intangible assets are reviewed for impairment at the end of the first full financial year following acquisition and, together with tangible fixed assets, in other periods if events or changes in circumstances indicate that the carrying value may not be recoverable. 122 24338.04 19 October 2015 10:38 AM Proof 8 www.regenersis.com Stock code: RGS The impairment review is performed by comparing the carrying value of the asset or group of assets, with the recoverable amount. The recoverable amount is the higher of net realisable value and the asset’s value in use, which is estimated by calculating the present value of its future cash flow. Impairment charges are recognised in the profit and loss account to the extent that the carrying value exceeds the recoverable amount in the periods in which the impairment is identified. 2.4 Tangible fixed assets and depreciation Tangible fixed assets are stated at cost less accumulated depreciation. Depreciation is provided at rates calculated to write off the cost less residual value of each asset on a straight line basis over the asset’s estimated useful life as follows: Leasehold improvement — over the period of the lease or life of the improvements if less Computer equipment Fixtures and fittings — 33% per annum — 16%–50% per annum 2.5 Investments Investments are stated in the balance sheet of the Company at cost less amounts written off. Amounts denominated in foreign currency are translated into Sterling at historical exchange rates. Other investments are stated in the Company and Group balance sheets at cost less amounts written off. 2.6 Stock and work in progress Stock and work in progress is stated at the lower of cost and net realisable value. Cost includes all direct expenditure and an appropriate proportion of attributable overheads that have been incurred in bringing the stock and work in progress to their present location and condition. Net realisable value represents the estimated selling price less all estimated costs to be incurred in marketing, selling and distribution. The amount of any write down of inventories to net realisable value is recognised as an expense in the year in which the write down occurs. 2.7 Deferred taxation Deferred tax is recognised in respect of all timing differences which have originated but not reversed at the balance sheet date where transactions or events which result in an obligation to pay more tax in the future or a right to pay less tax in the future have occurred at the balance sheet date. Timing differences are differences between the Company’s taxable profits and its results as stated in these financial statements. Deferred tax is recognised in respect of the retained earnings of overseas subsidiaries only to the extent that, at the balance sheet date, dividends have been accrued as receivable or a binding agreement to distribute past earnings in the future has been entered into by the subsidiary. Deferred tax is measured at the average tax rates which are expected to apply in the periods in which timing differences are expected to reverse, based on tax rates and laws which have been enacted or substantially enacted by the balance sheet date. Deferred tax is measured on an undiscounted basis. Deferred tax assets are recognised only to the extent that it is considered more likely than not that there will be suitable taxable profits from which the underlying timing differences can be deducted or where there are deferred tax liabilities against which the assets can be recovered. 24338.04 19 October 2015 10:38 AM Proof 8 123 Regenersis Plc Annual Report and Accounts for the year ended 30 June 2015Our Financials Notes to the Company Accounts continued for the year ended 30 June 2015 2.8 Leases Lease arrangements entered into by the Company are assessed at the inception of the lease and classified as either an operating or a finance lease. A lease is classified as a finance lease if it transfers substantially all the risks and rewards of incidental ownership to the lessee. All other lease arrangements are classified as operating leases. Rentals payable under operating leases are recognised in the profit and loss account on a straight line basis over the periods of the leases. Assets acquired under finance leases are capitalised and the outstanding future lease obligations are shown under creditors. 2.9 Foreign currencies Transactions denominated in foreign currencies are translated into Sterling at the exchange rate ruling at the date of the transaction. Foreign currency monetary assets and liabilities are translated into Sterling at rates of exchange ruling at the balance sheet date. All other exchange differences are dealt with in the profit and loss account. 2.10 Pensions The Company offers defined contribution pension arrangements to certain employees. Payments to defined contribution pension schemes are expensed as incurred. The Company does not operate any defined benefit pension arrangements. 2.11 Provisions A provision is recognised when there is a present obligation, whether legal or constructive, as a result of a past event for which it is probable that a transfer of economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Provisions in respect of deferred taxation are dealt with in the accounting policy above. Provisions in respect of deferred contingent consideration for acquisitions are made at the Directors’ best estimate of the likely consideration payable taking account of the performance criteria which affect the level of contingent consideration. Provisions are determined by discounting the expected future cash flow at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. The unwinding of the discount rate is recognised as finance cost. A provision for onerous contracts is recognised when the expected benefits to be derived by the Group from a contract are lower than the unavoidable costs of meeting its obligations under the contract. The provision is measured at the present value of the lower of the expected cost of terminating the contract and the expected net cost of continuing with the contract. Before a provision is established, the Group recognises any impairment loss on the assets associated with the contract. 2.12 Bank borrowings and financing costs Interest-bearing bank loans and overdrafts are stated at the amount of the proceeds received, net of financing costs (including Revolving Credit Facility fees and redemption premia) where the intention is to hold the debt instrument to maturity. Financing costs are amortised over the expected term of the loan so as to produce a constant rate of return over the period to the date of expected redemption. In instances where the Company has an early redemption option, the term over which financing costs are amortised is the period to the earliest date the option can be exercised, unless there is no genuine commercial possibility that the option will be exercised. 2.13 Share-based payments Some Directors and employees are granted share options which may, if certain performance criteria are met, allow these employees to acquire shares in the Company. The specific schemes are detailed in note 33 to the Group’s financial statements and include both market and non-market based schemes. The fair value of options granted after 7 November 2002 are recognised as an employee expense with a corresponding increase in equity. The fair value is measured at grant date and spread over the period during which the 124 24338.04 19 October 2015 10:38 AM Proof 8 www.regenersis.com Stock code: RGS employees become unconditionally entitled to the options. The fair value of the options granted is measured using an option pricing model, taking into account the terms and conditions upon which the options were granted. The amount recognised as an expense is adjusted to reflect the actual number of share awards that vest except where variations are due only to share prices not achieving the threshold for vesting. The fair value of options granted under non-market based schemes are recorded in the same way, however the fair value is reassessed at each reporting date, with the corresponding change in fair value recorded as an expense with a corresponding credit being recognised directly in equity. Where the Company grants options over its own shares to the employees of its subsidiaries it recognises, in its individual financial statements, an increase in the cost of investment in its subsidiaries equivalent to the equity-settled share-based payment charge recognised in its consolidated financial statements with the corresponding credit being recognised directly in equity. 2.14 Own shares held by the Regenersis Employee Benefits Trust Transactions of the Company-sponsored EBT are treated as being those of the Company and are therefore reflected in the Parent Company and Group Financial Statements. In particular, the trust’s purchases of shares in the Company are debited directly to equity. 3.Staff costs Please see disclosure note 9 to the Group’s financial statements. Disclosure of individual Directors’ remuneration is included in the Remuneration Report on pages 61 to 64. 4. Goodwill Cost 1 July 2012, 30 June 2013 and 30 June 2014 Amortisation 1 July 2014 Amortisation charge for the year 30 June 2015 Net book value 30 June 2015 30 June 2014 24338.04 19 October 2015 10:38 AM Proof 8 £’000 16,854 11,622 843 12,465 4,389 5,232 125 Regenersis Plc Annual Report and Accounts for the year ended 30 June 2015Our Financials Notes to the Company Accounts continued for the year ended 30 June 2015 5. Tangible assets Cost At 1 July 2014 Additions Disposals At 30 June 2015 Depreciation 1 July 2014 Charge for the year On disposals At 30 June 2015 Net book value 30 June 2015 30 June 2014 Leasehold improvements £’000 Computer Equipment £’000 Fixtures and Fittings £’000 260 — (23) 237 102 51 (7) 146 91 158 1,005 262 (1,267) — 305 325 (630) — — 700 69 — (69) — 24 10 (34) — — 45 Total £‘000 1,334 262 (1,359) 237 431 386 (671) 146 91 903 During the year a number of the assets were transferred to a subsidiary company. These assets were transferred at net book value and no profit on disposal was recorded. 6. Fixed asset investments Cost At 1 July 2014 Additions Disposals At 30 June 2015 Impairment 1 July 2014 Charge for the year At 30 June 2015 Net book value 30 June 2015 30 June 2014 Shares in subsidiary undertakings £’000 52,662 3,465 (19,987) 36,140 10,370 522 10,892 25,248 42,292 The additions within the year relate to additional investments in Regenersis Finance Limited and Regenersis Mobile Diagnostics Inc. The disposal in the year relates to Regenersis Recommerce Limited. In addition there were transfers to other companies within the Group of Regenersis Finance Limited and Regenersis Mobile Diagnostics Inc. 126 24338.04 19 October 2015 10:38 AM Proof 8 www.regenersis.com Stock code: RGS 7. Debtors Amounts falling due within one year Trade receivables Amounts due from subsidiaries Deferred tax asset (note 8) Prepayments, other debtors and accrued income 8. Deferred tax assets At 1 July 2014 Credit/(charge) for the year At 30 June 2015 2015 £’000 87 108,017 950 1,638 110,692 Depreciation in excess of capital allowances £’000 57 96 153 Other timing differences £’000 373 424 797 2014 £’000 332 75,640 430 2,051 78,453 Total £’000 430 520 950 Deferred tax assets are recognised to the extent that they are considered recoverable against future profits of the Company. No deferred tax asset has been recognised in relation to tax losses amounting to £0.7 million (2014: £1.0 million). 9. Creditors - amounts falling due within one year Trade creditors Bank overdraft Amounts due to subsidiaries Accruals and deferred income 10. Creditors - amounts falling due after more than one year Bank loans and other borrowings 2015 £’000 632 10,302 — 1,090 12,024 2015 £’000 4,335 2014 £’000 462 — 614 4,119 5,195 2014 £’000 19 24338.04 19 October 2015 10:38 AM Proof 8 127 Regenersis Plc Annual Report and Accounts for the year ended 30 June 2015Our Financials Notes to the Company Accounts continued for the year ended 30 June 2015 11. Bank and other borrowings Due after more than one year: Secured bank loan Repayable: In the first to second years inclusive In the third to fifth years inclusive 2015 £’000 4,335 4,335 — 2014 £’000 19 — 19 The bank borrowing is secured on the majority of the Group’s assets for the duration of the Revolving Credit Facility. The total facility available to the Group as at 30 June 2015 totalled £39.0 million (2014: £39.0 million), of which £4.6 million (2014: £0.5 million) had been drawn down in cash, resulting in an unutilised facility of £34.4 million (2014: £38.5 million). Borrowing costs of £0.3 million (2013: £0.5 million) are set-off against the amount owing at year end. 12. Provisions At 1 July 2014 Unused amounts released Paid in the period At 30 June 2015 Provisions are analysed between current and non-current as follows: Current Non-current Onerous Leases £’000 2,958 (226) (1,824) 908 Dilapidations £’000 493 — — 493 Total £’000 3,451 (226) (1,824) 1,401 2015 £’000 372 1,029 1,401 Provisions relate to onerous lease and dilapidation provisions relating to the restructuring in Glasgow, covering residual lease commitments which expire between 2017 and 2019. 13. Operating lease commitments Lease expiry: Within one year Between one and five years 2015 Land & buildings £’000 2014 Land & buildings £’000 115 96 211 115 212 327 The operating lease commitment relates to the rental of the London office which is due to expire in April 2017. During the year, the premises were sublet to Hanover Investor Management LLP until April 2017 for a fee of £188,000 per year. 128 24338.04 19 October 2015 10:38 AM Proof 8 www.regenersis.com Stock code: RGS 14. Share-based payments The share options outstanding for the Company are the same as for the Group and are disclosed in note 33 to the Group’s Financial Statements. 15. Share capital The movements on share capital are disclosed in note 32 to the Group’s Financial Statements. 16. Reserves At 1 July 2014 Share premium conversion Share-based payments Buy-back of treasury shares Dividends issued Retained loss for the year At 30 June 2015 Share premium account £’000 121,737 (70,000) — — — — 51,737 Merger reserve £’000 4,034 — — — — — 4,034 Retained earnings £’000 3,490 70,000 914 (3,673) (3,381) (2,042) 65,308 Total £’000 129,261 — 914 (3,673) (3,381) (2,042) 121,079 17. Subsequent Events Regenersis Plc sold its holdings in the following companies to Regenersis (Depot) Services Limited for the considerations listed: Company Regenersis (Glasgow) Limited Regenersis (SCS Partnership) Limited Regenersis (Spain) Limited Regenersis Digital Care Limited Regenersis (Glenrothes) Limited Regenersis Istanbul Teknoloji Danısmanlıgı Limited Sirketi Regenersis (South Africa) Pty Shareholding 100% 100% 100% 100% 100% 99.5% Date of Transaction 18th August 2015 27th August 2015 27th August 2015 27th August 2015 27th August 2015 31st August 2015 100% 21st September 2015 Consideration £1 £1 £1 £1 £13,231,694 £1 £1,274,916 24338.04 19 October 2015 10:38 AM Proof 8 129 Regenersis Plc Annual Report and Accounts for the year ended 30 June 2015Our Financials Notice of Annual General Meeting Notice is given that the tenth Annual General Meeting of Regenersis Plc (“the Company”) will be held at 12 noon on Wednesday 25 November 2015 at Peel Hunt LLP, Moor House, 120 London Wall, London EC2Y 5ET to consider the following resolutions of which numbers 1 to 11 will be proposed as ordinary resolutions and numbers 12 and 13 as special resolutions: 1) To receive the Annual Report and Accounts for the year ended 30 June 2015. 2) To approve the Directors’ Remuneration Report for the year ended 30 June 2015. 3) To declare a final dividend of 3.35 pence per ordinary share. 4) To re-elect Jog Dhody as a Director of the Company. 5) To elect Frank Blin as a Director of the Company. 6) To elect Pat Clawson as a Director of the Company. 7) To elect Ian Powell as a Director of the Company. 8) To elect Tom Skelton as a Director of the Company. 9) To reappoint KPMG LLP as auditor of the Company to hold office until the conclusion of the next General Meeting at which accounts are laid before the members. 10) To authorise the Directors to determine the remuneration of the auditor. 11) That, the Directors be generally and unconditionally authorised in accordance with section 551 of the Companies Act 2006 (“the Act”) and in substitution for all existing authorities under that section, to exercise all the powers of the Company to allot shares in the Company or to grant rights to subscribe for, or to convert any security into, shares in the Company (“Rights”) up to an aggregate nominal amount of £526,817.33 during the period commencing on the date of the passing of this resolution and expiring at the conclusion of the next Annual General Meeting of the Company or on 25 February 2017, whichever is earlier, and provided further that the Company shall be entitled before such expiry to make an offer or agreement which would or might require shares to be allotted or Rights to be granted after such expiry and the Directors shall be entitled to allot shares and grant Rights under such offer or agreement as if this authority had not expired. 12) That, subject to the passing of resolution 11 above, the Directors be empowered under section 570 of the Act to allot equity securities as defined in section 560 of the Act, as if section 561(1) of the Act did not apply to any such allotment, provided that this power shall be limited to the allotment or allotments of equity securities up to a nominal amount or (in the case of any other equity securities) giving the right to subscribe for or convert into relevant shares having a nominal amount, not exceeding in aggregate £158,045.20 and this power shall expire, unless previously revoked, renewed or varied, at the conclusion of the next Annual General Meeting of the Company or on 25 February 2017, whichever is the earlier, except that the Company may before such expiry make offers or agreements which would or might require equity securities to be allotted after such expiry and the directors may allot securities under such offer or agreement as if this power had not expired. 130 24338.04 19 October 2015 10:38 AM Proof 8 www.regenersis.com Stock code: RGS 13) That the Company be generally and unconditionally authorised for the purposes of section 701 of the Act to make market purchases (within the meaning of section 693(4) of the Act) of ordinary shares of 2 pence each in the capital of the Company (“Shares”), provided that: (a) the Company does not purchase under this authority more than 7,902,260 shares; (b) the Company does not pay less than 2 pence for each share (c) the Company does not pay more for each share than 5% over the average of the middle market price of the ordinary shares for the five business days immediately before the date on which the company agrees to buy the shares concerned, based on share prices published in the Daily Official List of the London Stock Exchange; such authority shall continue in force until the conclusion of the next Annual General Meeting of the Company, or on 25 February 2017 whichever is the earlier, provided that, if the Company has agreed before this date to purchase ordinary shares where these purchases will or may be executed after the authority terminates (either wholly or in part), the Company may complete such processes. By Order of the Board Lorraine Young For and on behalf of Lorraine Young Company Secretaries Limited Company Secretary 23 October 2015 Registered Office 190 High Street Tonbridge Kent TN9 1BE 24338.04 19 October 2015 10:38 AM Proof 8 131 Regenersis Plc Annual Report and Accounts for the year ended 30 June 2015Other Information Notice of Annual General Meeting continued Explanation of Business Resolution 1: To receive the report and accounts Company law requires the Directors to present the Annual Report and Accounts of the Company to shareholders in respect of each financial year. Resolution 2: To approve the remuneration report As the Company’s shares are traded on AIM, it is not required to put the Remuneration Report to shareholders for approval. However, the Directors recognise the importance of adopting best practice corporate governance and are therefore putting the Remuneration Report to shareholders for approval voluntarily. The Remuneration Report is set out on pages 61 to 64 of the Annual Report. It describes the Group’s policy on remuneration and gives details of Directors’ remuneration for the year ended 30 June 2015. The vote is advisory and does not affect the actual remuneration paid to any individual Director. Resolution 3: To declare a final dividend A final dividend on 3.35 pence per ordinary share is proposed. An interim dividend of 1.65 pence per ordinary share was paid during the year. If approved, the final dividend will be paid on 3 December 2015 to shareholders on the register at the close of business on 6 November 2015. Resolutions 4 to 8: To re-elect Directors Jog Dhody is retiring by rotation under the articles of association and offers himself for re-election. Frank Blin was appointed on 1 December 2014 and Patrick Clawson, Ian Powell and Tom Skelton, were appointed on 1 October 2015. In accordance with the articles of association, any directors appointed by the Board during the year are to offer themselves for election at the first annual general meeting following their appointment. Directors’ biographical details are given on pages 44 to 46 of the Annual Report. Resolutions 9 and 10: To reappoint the auditor and authorise the Board to determine their remuneration The Company is required to reappoint the auditor at each General Meeting at which accounts are laid before the members. The Audit Committee has reviewed the effectiveness, independence and objectivity of the external auditor, KPMG LLP, on behalf of the Board and recommends their reappointment. Resolution 10 authorises the Directors, in accordance with standard practice, to negotiate and determine the remuneration of the auditor. In practice, the Audit Committee will consider the audit fees for recommendation to the Board. Resolution 11: Directors’ authority to allot shares At the 2014 Annual General Meeting, the Directors were given authority to allot shares in the Company and Resolution 11 seeks to renew that authority until the conclusion of the next Annual General Meeting or 25 February 2017, whichever is earlier. The resolution would give the Directors authority to allot ordinary shares, and grant rights to subscribe for or convert any security into shares in the Company, up to an aggregate nominal value of £526,817.33. This amount represents one-third of the issued ordinary share capital of the Company as at 16 October 2015, the latest practicable date prior to the publication of this document. The Directors have no present intention to allot new shares other than in connection with employee share and incentive plans. 132 24338.04 19 October 2015 10:38 AM Proof 8 www.regenersis.com Stock code: RGS Resolution 12: Disapplication of pre-emption rights If Directors of a Company wish to allot shares in the Company, or to sell treasury shares, for cash (other than in connection with an employee share scheme) company law requires that these shares are offered first to shareholders in proportion to their existing holdings. The purpose of Resolution 12 is to authorise the Directors to allot ordinary shares in the Company, or sell treasury shares, for cash (i) in connection with a rights issue; and, otherwise, (ii) up to a nominal value of £158,045.20, equivalent to ten per cent of the total issued ordinary share capital of the Company as at 16 October 2015 without the shares first being offered to existing shareholders in proportion to their holdings. This level of authority is required in order to give the Company flexibility in the event of acquisition opportunities and major shareholders will be consulted in advance of the authority being exercised. The Directors do not intend to issue more than 7.5% of the total issued ordinary share capital of the Company for cash on a non-pre-emptive basis within any rolling three-year period without prior consultation with shareholders. Resolution 13: Authority to buy back shares Under company law, the Company requires authorisation from shareholders if it wishes to purchase its own shares. Resolution 13 seeks to renew the authority given at the last Annual General Meeting. The resolution specifies the maximum number of shares that may be purchased (approximately 10% of the Company’s issued share capital) and the highest and lowest prices at which they may be bought. If the Company buys back its own shares it may cancel them immediately or hold them in treasury. Treasury shares may be sold for cash, cancelled or used to satisfy awards under employee share schemes. The Directors believe that it is desirable for the Company to have this choice as it will give flexibility in the management of its capital base. It is therefore likely that the Company would hold any shares purchased under this authority in treasury. However, in order to respond properly to the Company’s capital requirements and prevailing market conditions, the Directors would need to assess the most appropriate course of action at the time of any actual purchase. The Directors have no present intention of exercising this authority but will keep under review the Company’s potential to buy back its shares, taking into account other investment and funding opportunities. The authority will only be used if in the opinion of the Directors this will result in an increase in earnings per share or would otherwise be in the best interests of shareholders generally. No dividends will be paid on, and no voting rights will be exercised in respect of, treasury shares. 24338.04 19 October 2015 10:38 AM Proof 8 133 Regenersis Plc Annual Report and Accounts for the year ended 30 June 2015Other Information Notice of Annual General Meeting continued Explanatory Notes to the Notice of Meeting Entitlement to appoint proxies 1) Members are entitled to appoint a proxy to exercise all or any of their rights to attend, speak and vote on their behalf at the meeting. A shareholder may appoint more than one proxy in relation to the AGM provided that each proxy is appointed to exercise the rights attached to a different share or shares held by the shareholder. A proxy need not be a member of the Company. If shareholders return a form of proxy they will still be able to attend the AGM, speak and vote in person if they wish. Appointing Proxies 2) A shareholder wishing to appoint one or more proxies can do so by: (a) Completing the accompanying form of proxy and returning it to Computershare Investor Services PLC, The Pavilions, Bridgwater Road, Bristol BS99 6ZY (together with any power of attorney or other written authority under which it is signed); or (b) Submitting your proxy electronically by using the CREST proxy service. CREST members may appoint a proxy or proxies electronically via Computershare (ID number 3RA50) in accordance with note 4 below. To appoint more than one proxy, you may either photocopy the form of proxy accompanying this Notice or contact Computershare on 0390 889 4099 to request additional forms of proxy. If more than one proxy appointment is returned in respect of the same shareholding, the proxy last received by Computershare before the latest time for the receipt of proxies will take precedence. To be valid, any proxy form or other instrument appointing a proxy must be deposited with Computershare or lodged via the CREST proxy service (in each case) no later than 12 noon on Monday 23 November 2015. Electronic proxy appointment through CREST 3) CREST members who wish to appoint a proxy or proxies using the CREST electronic proxy appointment service may do so by following the procedures described in the CREST Manual. CREST personal members or other CREST sponsored members, and those CREST members who have appointed a voting service provider(s), should refer to their CREST sponsor or voting service provider(s), who will be able to take the appropriate action on their behalf. 4) In order for a proxy appointment made by means of CREST to be valid, the appropriate CREST message (a ‘CREST Proxy Instruction’) must be properly authenticated in accordance with Euroclear UK & Ireland Limited (‘EUI’) specifications and must contain the information required for such instructions, as described in the CREST Manual. The message, regardless of whether it relates to the appointment of a proxy or to an amendment to the instructions given to a previously appointed proxy must, in order to be valid, be transmitted so as to be received by the issuer’s agent (ID 3RA50) by 12 noon on Monday 23 November 2015. For this purpose, the time of receipt will be taken to be the time (as determined by the timestamp applied to the message by the CREST Applications Host) from which the issuer’s agent is able to retrieve the message by enquiry to CREST in the manner prescribed by CREST. After this time, any change of instructions to proxies appointed through CREST should be communicated to the appointee through other means. 5) CREST members and, where applicable, their CREST sponsors or voting service provider(s) should note that EUI does not make available special procedures in CREST for any particular messages. Normal system timings and limitations will therefore apply in relation to the input of CREST Proxy Instructions. It is the responsibility of the CREST member concerned to take (or, if the CREST member is a CREST personal member or sponsored member or has appointed a voting service provider(s), to procure that his CREST sponsor or voting service provider(s) take(s)) such action as shall be necessary to ensure that a message is transmitted by means of the CREST system by any particular time. In this connection, CREST members and, where applicable, their CREST sponsors or voting service provider(s) are referred, in particular, to those sections of the CREST Manual 134 24338.04 19 October 2015 10:38 AM Proof 8 www.regenersis.com Stock code: RGS concerning practical limitations of the CREST system and timings. 6) The Company may treat as invalid a CREST Proxy Instruction in the circumstances set out in Regulation 35(5)(a) of the Uncertificated Securities Regulations 2001. Joint holders 7) In the case of joint holdings, only one holder needs to sign the form of proxy. The vote of the senior holder who tenders a vote shall be accepted to the exclusion of the votes of the other joint holders, seniority for this purpose being determined by the order in which the names stand in the register of members. Entitlement to attend and vote 8) In accordance with Regulation 41 of the Uncertificated Securities Regulations 2001, only those whose names are on the register of members of the Company at the close of business two days (excluding non-working days) before the meeting or any adjourned meeting, shall be entitled to attend or vote at the meeting in respect of the number of shares registered in their name at that time. Changes to entries in the register of members after that time shall be disregarded in determining the rights of any person to attend or vote at the meeting. Corporate Representatives 9) Any corporation which is a member can appoint one or more corporate representatives who may exercise on its behalf all of its powers as a member provided that they do not do so in relation to the same shares. Voting Rights 10) As at 22 October 2015 (being the last business day prior to the publication of this Notice), the Company’s issued share capital consisted of 79,022,599 ordinary shares, carrying one vote each. There were no shares held in treasury, therefore the total voting rights in the Company as at that date were 79,022,599. Communicating with the Company in relation to the AGM 11) Except as provided above, shareholders wishing to communicate with the Company in relation to the AGM should write to the Company Secretary, Regenersis Plc, 190 High Street, Tonbridge, Kent, TN9 1BE. 12) You may not use any electronic address provided either in this Notice or any related documents (including the proxy form), to communicate with the Company for any purposes other than those expressly stated. Inspection of documents 13) Copies of the Executive Directors’ service contracts and Non-executive Directors’ letters of appointment will be available for inspection during normal business hours at the registered office of Regenersis Plc, 190 High Street, Tonbridge, Kent, TN9 1BE. They will also be available for inspection at the AGM venue for at least 15 minutes before the meeting until its conclusion. Voting Results 14) The Company will publish the results of the AGM via a regulatory announcement and on its website www. regenersis.com. 24338.04 19 October 2015 10:38 AM Proof 8 135 Regenersis Plc Annual Report and Accounts for the year ended 30 June 2015Other Information Glossary Adjusted Earnings Per Share: Basic earnings per share excluding 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 disposal of investments and jointly controlled entities, unwinding of the discounted contingent consideration, adjustments to estimates of contingent consideration and tax impacts of the above ‘Adjusted earnings per share’ is the key earnings per share measure used by the Board. Advanced Solutions (segment): This Advanced Solutions segment includes: — The Set Top Box activities in Glenrothes; — The Set Top Box Diagnostics business which started in 2011 - including the In-Field Tester business and other remote diagnostics capabilities covering countries including the USA, South Africa and Belgium; — The Digital Care Insurance business which started in 2013, with activities principally in Poland. APAC: the Asia Pacific region. B2B: Business to business transactions. 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 reported within the balance sheet and reassessed at each reporting period. Corporate Costs: Costs incurred by central departments for the benefit of the Group as a whole and which cannot be allocated to specific business Divisions or subsidiaries. Digital Care: Part of the Software and Advanced Solutions division which operates in insurance activities. Diluted Adjusted Earnings Per Share: Adjusted earnings per share stated after adjustments to the number of shares for convertible share options. Diluted Earnings Per Share: Basic earnings per share stated after adjustments to the number of shares for convertible share options. Earn-out: See ‘Contingent Consideration’ Forward Contracts (currency hedging): A banking 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. Headline Cash Conversion: Headline Operating Cash Flow stated as a percentage of Headline Operating Profit. Headline Operating Cash Flow: Operating cash flow excluding taxation, interest payments and receipts, acquisition costs, and exceptional restructuring costs. This is the key operating cash flow measure used by the Board to assess the underlying cash flow of the Group. Headline Operating Margin: Headline Operating Profit stated as a percentage of revenue. Headline Operating Profit: Operating profit stated before amortisation or impairment of acquired intangible assets and development expenditure capitalised, acquisition costs, exceptional restructuring costs, share- based payments and disposal of subsidiaries. This is the key profit measure used by the Board to assess the underlying financial performance of the operating divisions and the Group as a whole. . Depot Solutions (division): The Depot Solutions Division provides the Group’s geographic infrastructure and core repair service, focusing on continuous improvement, common operating practices, IT platforms and efficiency. It includes the operations in the UK (excluding Glenrothes), Germany, Poland, Romania, Turkey, South Africa, Spain, Argentina, Mexico, India, Portugal, Russia, the USA and the Czech Republic 136 24338.04 19 October 2015 10:38 AM Proof 8 www.regenersis.com Stock code: RGS IFT: ‘In-Field Tester’ business which offers a diagnostic hardware which is used by field engineers to test Set Top Box devices in the end customer’s home Live Environment (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. M&A: Mergers and acquisitions. This is the Group’s activity in acquisitions of other companies, both to full and part ownership. Net Cash: Cash stated after offsetting gross debt against cash reserves. Non-controlling interest: Regenersis 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 Regenersis owns (directly or indirectly) between 50% and 99% of the share capital; in the current and prior period these are only some Blancco sales offices. At the end of each reporting period, the Group must allocate the non-controlling interest, its share of profits and net assets in the subsidiary in which the ownership is shared, which are recorded through the Consolidated Income Statement and Consolidated Balance Sheet respectively. OEM: An ‘‘Original Equipment Manufacturer’’. Oktra: A Depot Set Top Box diagnostic tool, developed in-house, which allows for simultaneous testing of up to eight devices prior to entry to the repair line. Operating Cash Flow: Cash flows originating from transactions in the core operational activities of the Group, e.g. 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. Operating Matrix: The combination of territories and service lines in which the Group operates. Patent Box: A tax scheme whereby profits earned from patented technology are taxed at a lower rate than normal corporation tax. Pure-play: A company which invests its resources in a single line of business. R&D: Research and development into new technologies to improve client service, reduce costs or enhance revenue. Remote Diagnostics Business: Included within the Software and Advanced Solutions division, this consists of the In Field Tester (“IFT”) business for Set Top Box diagnostics in the customer home and the Mobile diagnostics business, provided through the Xcaliber investment and its SmartChk solution. Software and Advanced Solutions (division): This division comprises of two segments - Advanced Solutions and Software. Software (segment): The Software segment includes: — The Blancco business which was acquired in the previous financial year. The business specialises in the provision of data erasure software and is the leading global provider in this field. — The Xcaliber smartphone diagnostic business which has moved from a start-up, focusseed on product development, in the prior year to a busines with a product ready to market and with a promising sales pipeline. The Group has increased its investment in this business during the year from 15% to 49% ownership in July 2014. Subscription (revenue stream - Blancco): Contracts with customers which are for a fixed term, typically one to three years. 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. 24338.04 19 October 2015 10:38 AM Proof 8 137 Regenersis Plc Annual Report and Accounts for the year ended 30 June 2015Other Information Shareholder Notes 138 24338.04 19 October 2015 10:38 AM Proof 8 www.regenersis.com Stock code: RGS Locations Registered Office Regenersis Plc 19 High Street Tanbridge Kent TN9 1BE UK James Watt Avenue Westwood Park Glenrothes, Fife KY7 4UA Kingfisher Way Hinchingbrooke Business Park Huntingdon Cambridgeshire PE29 6FN Unit 5 The Arc 25 Colquhoun Avenue Hillington Park Glasgow G52 4BN Argentina California 2082 Central Park, C1289AAN Capital Federal Buenos Aires Belgium Rue de Liège 70 Courzelles 6180 Czech Republic CTPark Teplice Kateřinská 96 Krupka 41742 Nové Modlany Finland Länsikatu 15 FIN-80110 Joensuu Germany An der Gehespitz 90 D-63263 Neu-Isenburg Bahndamm 39 D-33758 Schloß Holte-Stukenbrock Erfurter Höhe 10a 99610 Sömmerda India 80/1, 1st Floor, 1st Main Road, 3rd Cross New Timber Yard Layout Mysore Road Bangalore 560 026 Mexico Tres Anegas 425 Bodega 7 Col. Nueva Industrial Vallejo CP 07700 Delegación Gustavo A Madero Mexico City, Mexico DF Netherlands WTC Schiphol Schiphol Boulevard 127 1118 BG Schiphol Poland Janki UI. Falencka 1B 05-090 Raszyn UI. 19 Kwietnia 31 05-090 Raszyn Portugal Av. Severiano Falcao Nº 6, 6ª, 2685 -378 - Prior – Velho Lisboa Romania 92F Timisoara Bd C2/C23 Sector 6 Bucharest 061334, Romania Russia Elektrolitniy proezd 3 buil 81 Moscow 115230 South Africa Unit C, Alphen Square West 338 George Street Ranjespark Midrand Gauteng 1682 Marpless Business Park 65 Landmarks Ave Unit 4 Kosmosdal Pretoria Spain Av. Leonardo Da Vinci, 13 Parque Empresarial “La Carpetania” 28906 Sweden Smedjegatan 6 3tr 13154 Nacka Vevgatan 18 SE-504 64 Borås Turkey Tatlısu Mahallesi Şenol Güneş Bulvarı Mira Tower Sitesi No:2 Zemin Kat D:2 34775 Ümraniye, Istanbul United States 1228 East 7th Avenue Tampa Florida 33605 3919 Hickory Hill Rd Memphis Tennessee 38115 11675 Rainwater Drive Suite 100 Alpharetta Georgia 30009 24338.04 19 October 2015 10:38 AM Proof 8 R e g e n e r s i s P l c A n n u a l R e p o r t & A c c o u n t s f o r t h e y e a r e n d e d 3 0 J u n e 2 0 1 5 S t o c k C o d e : R G S Regenersis Plc 19 High Street Tanbridge Kent TN9 1BE T: +44 (0)1480 482 866 Company Number 05113820 24338.04 19 October 2015 10:38 AM Proof 8