Transcript Presentation for Ocado

Interim Results
for the 6 months ended 31 December 2014.
This presentation, which has been prepared by Regenersis PLC (“the Company”), includes statements that are, or may be
deemed to be, “forward-looking statements”. These forward-looking statements can be identified by the use of forward-looking
terminology, including the terms “believes”, “estimates”, “plans”, “projects”, “anticipates”, “expects”, “foresees”, “intends”, “may”,
“will” or “should” or, in each case, their negative or other variations or comparable terminology. These forward-looking statements
include matters that are not historical facts and include statements regarding the Company’s intentions, beliefs or current
expectations. By their nature, forward-looking statements involve risk and uncertainty because they relate to future events and
circumstances. A number of factors could cause actual results and developments to differ materially from those expressed or
implied by the forward looking statements. Any forward-looking statements in this presentation reflect the Company’s view with
respect to future events and other risks, uncertainties and assumptions relating to the Company’s operations, results of
operations, growth strategy and liquidity. The Company undertakes no obligation publicly to release the results of any revisions or
up-dates to any forward-looking statements in this presentation that may occur due to change in its expectations or to reflect
events or circumstances after the date of this presentation.
This presentation comprises information which is already in the public domain. No reliance may be placed for any purposes
whatsoever on the information contained in this document or on its completeness. None of the Company, its advisers, or any other
party is under any duty to update or inform you of any changes to the information contained in this presentation.
2
Contents
FINANCIAL HIGHLIGHTS
EXECUTIVE SUMMARY
SOFTWARE AND ADVANCED SOLUTIONS
DEPOT SOLUTIONS
FINANCIAL REVIEW
STRATEGY – PORTFOLIO
CONCLUSIONS AND OUTLOOK
3
Financial highlights
Revenue growth
£101.9m
2% revenue growth
(12% in constant
currency)
Headline OCF**
£99.7m
Cash conversion 70%
(59% H1 FY14)
£4.2m
£2.7m
H1 FY15
H1 FY14
Headline operating profit * 30% profit growth (46%
in constant currency)
£6.0m
H1 FY15
H1 FY15
Net cash
H1 FY14
Investment in R&D and
new acquisitions
£20.6m
£4.6m
£12.1m
H1 FY14
H1 FY15
FY14
(financial
year end)
4
*‘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 amortisation or impairment of acquired intangible assets, acquisition costs, exceptional restructuring costs, share based payments, share of results of
associates and jointly controlled entities and profit/losses on disposal of jointly controlled entities.
**‘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, exceptional acquisition and restructuring costs.
Executive summary (1)
Key messages at interims

Pleasing growth across the board

Margin trending upwards

Solid cash generation

Positive outlook
Results in context
2014
Launching new lines of business and restructuring the Group
2015
Consolidating this position and integrating Blancco
2016
Growing out the portfolio and rise of Software & Advanced Solutions
5
Margin progress
% HOP from Software & Advanced Solutions
H1 FY15
H1 FY14
Group headline operating margin improving
58%
48%
8.4%
HOP margins by division
H1’15
6.8%
H1‘14
Divisions pre-HQ
Divisions
pre-HQ
20.1%
H1‘14
S&AS
Software &
Advanced Solutions
6
H1‘15
4.6%
H1‘14
Total
Total Group
16.5%
5.2% 5.0%
H1’15
5.9%
H1‘15
H1‘14
Depot
Depot
Solutions
At year end 2014 our
expectation was to see the
rising divisional margins
translate to group HOP
margins
Executive summary (2)
Software and Advanced Solutions

Blancco: post-acquisition progress good – growing sales at c. 20% per
annum

IFT: important contract signed with Liberty Global – steady growth in USA
and Europe

Digital Care: good growth in H1 – entering a key period of validation at
scale

Xcaliber/SmartChk: landmark first contract with major US telco – good sales
pipeline
Break-even run
rate passed, as
expected, at the
end of H1
Depot Solutions

Organic top-line growth following exit from low margin UK mobile operations
in FY14 – good new business generation
Strategy


7
To deliver strong upward trend in profit margins and shareholder value
Focus on growing these lines of business, including Depot as the key to
client access
Shift towards
higher margin
S&AS business
means less
emphasis on
revenue
Software & Advanced Solutions
Recommerce contributed
£16M revenue at high
single digit margins in
FY14
 Blancco is continuing to perform well under our
ownership and is growing sales at around 20% p.a.
 Bolt-on acquisitions: SafeIT live-environment erasure
business; buy-out of minorities in Blancco US and
Sweden
H1 FY15 H2 FY14 H1 FY14 H2 FY13
 Clear market leadership position continues
Revenue £M
 IFT: Set top box diagnostics showed steady growth
 Contract with Liberty Global extended from 2016 to
Growth / Const.
currency
2018
 Digital Care reached break-even run-rate in
December
HOP £M
Growth / Const.
currency
22.4
HOP margin
15.8
+42% / +59%
4.5
4.9
2.6
 Xcaliber won its first two significant SmartChk
contracts (after period end)
 Strong endorsement / validation of the technology
 Good sales pipeline to build on
8
2.2
-8% / 0%
+73% / +89%
20.1%
16.1%
16.5%
 Strong potential demand for accidental damage
programs in other geographies
14.0
-27% / -18%
 Focus for H2 is successfully managing the ramp up
in Poland
30.5
Acquisition of
Blancco boosted
margins
15.7%
Underlying Software & Advanced
Solutions trend
Reported Software and Advanced Solutions
HOP margin %
Doubling of
S&AS margin
Underlying trend in Software & Advanced
Solutions HOP, eliminating one-offs
£million
25%
20%
Reported HOP
15%
Recommerce
10%
IFRS revenue
recognition at
Blancco
5%
0%
H1'13
H2'13
H1'14
H2'14
H1'15
Underlying
HOP
H1'13 H2'13 H1'14 H2'14 H1'15
1.4
1.4
2.2
2.6
4.9
(0.4)
(1.2)
2.2
2.2
4.5
0.1
1.0
3.8
5.5
2 months
Blancco
consolidated
Outlook
 Software & Advanced Solutions is the largest and fastest growing part of the Group in profit terms
 Enabling expected double digit operating profit growth, at steadily improving margins, at the Group
level
9
Depot Solutions

Strong growth in H1 2015, following contraction in
H2 2014 on exit from low margin UK mobile
operations

Ramp up phase of Memphis, Portugal and Czech
sites (approximately (£0.5 million) HOP impact in
the half year, or 0.6% of revenue)

£32 million of new business won in H1 2015
including

Sony mobile business in Mexico

New HTC EMEA and USA volumes

ASUS business in Germany

Absorbed volume reductions at one large OEM
client, and some operational issues in Spain and
India

Target: deliver higher margins from
10

Improved position in terms of clients and
geographies

Ongoing continuous improvement

Reduced level of change

Roll out of IT system
FY14 closure of
low margin UK
mobile business
H1 FY15 H2 FY14 H1 FY14 H2 FY13
Revenue £M
Growth / Const.
currency
HOP £M
79.5
HOP margin
83.9
75.5
4.2
3.9
5.0%
5.2%
+18% / +29%
-5% / +3%
4.1
Growth / Const.
currency
67.3
3.9
+5% / +15%
-2% / +7%
5.2%
Ramp up of new
business and
depot sites
5.8%
Underlying Depot Solutions trend
Depot Revenue Split
100%
100%
Major change in the Depot portfolio
Depot UK
2%
14%
34%
Depot RoW:
Nokia & RIM

Exit from UK and shrinkage in Nokia & RIM

Offset by growth in the rest of the business (£55m to
£120m run-rate)
26%
84%
Depot RoW:
Other clients
40%
FY13


£6.0m
7.0%
£5.0m
6.0%
5.0%
£4.0m
4.0%
£3.0m
HOP and HOP margin have been stable, but:

Suppressed in H2 FY14 (£1.0m) and H1 FY15
(£0.5m) by new site start-up site costs

Suppressed throughout the last 2 years by costs of
changing the revenue mix

Reduced levels of change going forward should
push margins upwards
3.0%
4.2m
3.9m
4.2m
3.9m
4.1m
£1.0m
0.0%
H1'13
11
2.0%
1.0%
1.
Underlying growth ex-UK has been good
Excluding costs of
start-up sites
(£0.5m)
FY15
Depot HOP and HOP margin
£2.0m
Approximately 2/3 organic1
H2'13
H1'14
H2'14
H1'15
Note FY13 included 10 months of HDM acquisition leaving approx. £4 million annualisation benefit in FY14. £16 million of revenue acquired with Bitronic,
Digicomp, Landela, Regenersis Russia. Total £20 million acquired Depot revenue between FY13-FY15.
Financial review
Income Statement
£’million
Revenue
Headline operating profit before corporate costs
Corporate costs
Headline operating profit after corporate costs
Acquisition costs
Exceptional Restructuring Costs
Amort'n of acquired intangible assets
Share-based payments
Share of results of associates and jointly
controlled entities
Operating profit
Unwinding of deferred consideration
Revaluation of deferred consideration
Other finance charges
Profit before tax
Tax
Profit after tax
12
H1 FY15
H1 FY14
101.9
8.6
(2.6)
6.0
(1.3)
(0.4)
(1.1)
(0.6)
99.7
6.8
(2.2)
4.6
(1.2)
(0.1)
(0.2)
(0.3)
(0.2)
2.3
(0.4)
2.2
(0.6)
3.5
0.8
4.3
2.9
(0.9)
(0.4)
1.6
(0.2)
1.4

2.2% revenue growth – 12.2%
under constant currency

26.5% growth in headline
operating profit before corporate
costs – 45.7% under constant
currency

Corporate costs increased to
support growth

Tax credit arising due to
reassessment of brought forward
tax losses
Balance sheet
H1 FY15
FY14
Goodwill and investments
85.5
82.6
Acquired intangible assets
21.7
22.5
Internally generated intangible assets *
7.0
6.0
Tangible assets *
5.7
5.3
Deferred tax
2.2
1.2
122.1
117.6
Stock *
10.0
10.1
Debtors *
38.7
37.7
Creditors *
(42.8)
(44.3)
Provisions *
(0.6)
(0.8)
Other net current liabilities
(2.3)
(1.4)
3.0
12.1
1.3
20.6
Deferred consideration
(5.9)
(6.4)
Other non current liabilities
(2.3)
(2.7)
(8.2)
129.0
(9.1)
130.4
18.0
14.0
66.6%
78.3%
£’million
Non current assets

Goodwill arising on SafeIT
acquisition

ROCE remains strong

Continue to turn stock quickly
Current assets
Net Cash
Non current liabilities
Net assets
Capital Employed (*)
ROCE annualised (HOP / Capital employed)
13
Cash flow
Cash conversion of
70% (H1 FY14:
59%)
Capex and R&D spend of
£4.0m – up 82%.
Development expenditure
and intangibles comprising
59% of spend
35.0
30.0
£25.1m
£ millions
25.0
Xcaliber
SafeIT
Blancco
Other
Total
£2.0M
£1.6M
£1.1M
£0.2M
£4.9M
Repayment of
borrowings and
foreign exchange
movements
£20.6m
20.0
15.0
£12.1m
10.0
5.0
0.0
14
Strategy – portfolio
Group portfolio today
Future vision
100%
Blancco
Software
Xcaliber
IFT
10%
Digital
Care
Depot
1%
1%
10%
100%
1000%
Operating margin
Operating margin
100%
10%
Depot
1%
1%
10%
100%
Revenue growth outlook
Revenue growth outlook
(Illustrative scaling by HOP)
15
Digital
Care
IFT
1000%
Software and Advanced Solutions intent
Blancco
What might
bronze, silver and
gold look like?

B
Top-line growth from 20% p.a. up to 30%+ by improving sales operations

S
New products like Live Environment Erasure and Data Erasure Management boost growth to 50%+
 Blancco finds a product/market/channel fit that drives strong growth
G
Digital Care

B
Contracts in Poland scale up to deliver several million live policies
S

We win contracts in other geographies over the next 12 months
G
 We convert an early lead into sustained market leadership in this new mobile insurance category
Set top box diagnostics

B
Roll out successfully into the European estate of Liberty Global

S
Also roll out into the full estate of the current main US client
 We win new clients in the US
G
Xcaliber – too early to predict but early signs encouraging
16
Conclusions and outlook
Outlook
 The Board expects that full year results will be in line with market expectations
 Remains confident that the Group’s portfolio of businesses will generate further growth in Group
profit margins and substantial value for shareholders
 Strategy being followed presents the opportunity for continued double digit growth in Headline
Operating Profit.
“The Group made good progress in the first half of the year. Depot Solutions has delivered
organic growth following our decision to exit our lower margin mobile operations in the UK, and it
is a significant milestone that Software and Advanced Solutions is now the largest, as well as the
fastest-growing part of the Group in profit terms, with very exciting market opportunities in
prospect. As a result the Group profit margin is tracking upwards, and we expect to be able to
deliver steadily improving operating margins over the medium term.”
Matthew Peacock, Executive Chairman
17
Appendix
Our key asset = relationships
Large geographical footprint
Leading international clients
Complementary services
19
Operating matrix
X X
X
X
X X
X
X
X
X
Mobile
diagnostics
X
X
X
Malaysia
X
Czech
Republic
Australia
Japan
X X X
X X
X
X X X
X
X X
X X X X X X
X = Progress in
the last 6 months
20
Canada
Italy
France
Belgium
Portugal
India
Argentina
Mexico
Spain
South
Africa
USA
Nordics
Russia
Position
start 2011
Digital Care
Insurance
Data Erasure
Romania
IFT Diagnostics
Software and
Advanced
solutions
X X X X X X X X X X X X X
Service
Network
B2B niche
products
Poland
Depot
Germany
UK
Repair &
Refurbishment
X
Repair sector underlying drivers
Device sales volumes 2013-2017
Source: IDC 2013
1734
Smartphone
1013
407
227
Tablet
197
181
Portable PC
Dektop PC
123
134
STB*
125
66
0
500
2017
2013
1000
1500
Millions of units
* STB forecast from HIS Inc, 2014 (covering 2012-2017)
21
Smartphone ASP by OS 2012-18
Source: IDC 2014
2000
Foreign Exchange
EUR:GBP
H1
2014
RON:GBP
H2
2014
H1
2015
PLN:GBP
ZAR:GBP
Combined
50% of
Group
revenues
and profit
MXN:GBP
 Foreign currencies in which the Group transacts
are weakening compared to Sterling
 The Euro and the Polish Zloty have weakened
10.4% and 12.2% since H1 2014.
 Further weakening of currencies from 1 January
2015 to date
22
Emerging
markets
currencies
combined 40%
of Group
revenues and
profit, including
Romanian Leu,
South African
Rand and
Mexican Peso