Final Results

RNS Number : 3579N

Elektron PLC

10 June 2010

 



Embargoed for release: 7:00 a.m. 10 June 2010

ELEKTRON PLC

Preliminary unaudited results for the year ended 31 January 2010

Elektron plc ("Elektron or the "Group"), the technology based provider of engineered solutions, announces its preliminary results for the year ended 31 January 2010.

 

Financial Highlights:

·      Sales of £29.9 million (2009: £35.6 million)

·      EBIT for year (before exceptional items) of £1.8 million (2009: £1.1 million)

·      Very strong second half: EBIT of £1.5 million (2009: £0.3 million)

·      Proposed final dividend up 8.7% to 0.50p (2009: 0.46p); scrip issue alternative

·      Strong performance in the final months of the year continuing in the current year

·      Interim dividend under consideration

Strategy:

To transform Elektron into a high growth investment by:

·      Prioritising innovation, creativity and technological advantage

·      Increasing sales and marketing resources in the fastest expanding economies of the world

·      Above all investing in Elektron people by attracting the best possible recruits and fostering the talents of our existing staff

Keith Daley, Chairman of Elektron commented: "To have increased profits in the depths of the deepest recession in post war history is an excellent achievement. We are excited by the opportunities that face us in the current year and beyond."

Chairman's statement

The annual figures obscure the transformation that has taken place at Elektron in the past twelve months and I thought it would be helpful to break down the results of the group into six monthly periods:

six months to	Jan 2010	Jul 2009	Jan 2009	Jul 2008
	£000	£000	£000	£000
Turnover	15,675	14,207	16,203	19,441
Gross profit	6,767	5,174	4,729	6,609
GP%	43.2%	36.4%	29.2%	34.0%
EBIT (before exceptional items)	1,531	231	284	818

There has been a dramatic improvement in margins in the final six months of the year as a result of the action that was taken to cut costs at the beginning of the recession. The task now is to increase sales whilst maintaining margins and this is starting to happen. The Group is highly operationally geared and any increase in sales should significantly improve earnings.

Innovation

In my statement last year we stated that the major focus for the Group would be innovation. We have implemented a structured management process to facilitate radical innovation.  Taking a collaborative approach allows us to leverage the multi-disciplinary skill sets we have throughout the Group across a variety of industry sectors. The approach has resulted in a number of new product projects for growth markets, with significant margin potential and which will start to be brought to market at the end of the current year.

The Group is budgeting £1.8 million technical spend for the current year which is the highest amount set aside for this purpose in its history.  This will enable Elektron to be positioned at the cutting edge of its technology, within its marketplace, with accelerated time to market.

Elektron people

As it grows, the Group is giving more attention to recruiting talent and developing its existing people. A number of new positions have been recently created including a General Manager, at Queensgate, an Elektron Technology (ET) Asia Pacific Business Development Director and Regional Sales Managers for Germany, France and Asia Pacific. We shall shortly welcome a new ET Technical Director from a major new product design house following the promotion of John Wilson to ET Divisional Managing Director. John is a former Management Development Programme (MDP) participant.

We now have four MDP participants including one each from China and the US. This programme was set up for high flyers. In addition a new online Staff Appraisal and Development Review system will go live shortly. This is designed to identify training needs more widely.

It is important that the Elektron ethos is shared by all staff and attention is being paid to improving communication throughout the world. We are shortly to install a videoconferencing system at all our locations to ensure that teams can work together across continents. This is a vital tool as we relocate important functional roles overseas and reduce reliance on the UK. In March 2010 we held our second Senior Management Conference which enabled our staff from around the world to share knowledge and ideas.

Our 2009/10 financial year started amidst great uncertainty and ended with record orders.  During the year our staff had to say farewell to many of their colleagues. This was a painful process. I should like to thank them for their professionalism and hard work.

Dividends

I am pleased to confirm that the Board is continuing its progressive dividend policy and proposes to pay a final dividend of 0.50p per share (2009: 0.46p) on 17 August 2010. This represents an 8.7% increase. The Board is proposing a scrip issue alternative and full details will be contained in the documentation convening the Annual General Meeting. Last year many shareholders welcomed the opportunity to increase their investment in the Company in this way.

The Board recognises that in the current investment climate, dividends are important to many shareholders. It will therefore give consideration to an interim dividend payment later in the year.

Outlook

Current sales and EBIT are well ahead of management expectations. Orders for the year to date are currently running at 148% of last year with the current Group order book standing at £8.1 million, 76% up on this time last year. It should however be borne in mind that prior year comparatives were especially weak and that it will be harder to sustain such dramatic percentage increases as the year progresses.

Success brings its own problems. ET is running into capacity constraints in a couple of areas, namely in plastic moulding and in our supply chain where certain suppliers are unable to keep up with demand. Measures are in place to deal with these issues. In addition in some areas of the Group, management is extremely stretched and a recruitment programme has commenced where we need to build resource. Investment in people, technological advantage and equipment continues to be a key management focus.

The Board continues to be concerned that governments around the world have built up an unsustainable level of debt which will be a drag on global growth for many years to come. Global economies may be subject to sudden losses of confidence which may lead to significant fluctuations in demand. Nevertheless it believes that the Elektron Group is well positioned to prosper and to create excellent long-term value.

Keith Daley

Chairman

Operational review 

Elektron Technology (ET): sales of £21.5 million (2009: £24.9 million); and EBIT before exceptional items £2.5 million (2009: £1.7 million).

Elektron Technology is the new name for Elektron Components Division.  This change reflects our mission to provide technological solutions to current and future customers.  The division owns three premium brands of electronic and electrical components: Arcolectric, Bulgin and Sifam. Bulgin in particular offers excellent potential for growth. It operates within the $35 billion connector market. The division operates in six continents and has a comprehensive sales network in 125 countries.

Despite the difficult economic climate in 2009, new products, geographic expansion and efficiency savings allowed the division to remain profitable. Following the divisional reorganisation the Sifam brand has been integrated within Elektron Technology and its off shoring is nearing completion. This has resulted in economies of scale and a more global profile through our extensive selling network.

ET has regionalised its management structure, providing higher levels of visibility at senior level, of our operations overseas where we look to create demand for our solutions.

This reorganisation has allowed for a greater regional focus with a view to reducing ET's dependence on sales from the UK and Europe where we command significant market share.  We have divided the globe into three regions: Americas, EMEA and Asia-Pacific.  This approach allows us to focus appropriately on multi-billion pound markets in which we have historically held minimal market share. The high growth economies of South America, Greater China and Asia Pacific continue to be key markets for Elektron growth. 

The Americas business unit has been further restructured and now operates a hybrid selling model through both manufacturers' representatives and a new, experienced direct sales force.  This has served to promote brand awareness in North America and resulted in an increased level of exciting opportunities, both for our core product offering and enhanced technology based capabilities.

Budgeted sales and marketing expenditure for FY2010/11 has increased by 85% to £4.3 million. The majority of the increase relates to new appointments in key geographical markets.  This reflects the increased level of sales growth we anticipate as we further penetrate both our existing and emerging markets.  We have engaged a PR and advertising firm to assist with consolidating our strong brands under the ET banner.

The technical budget has been increased by 52% to £1.3 million; highlighting the Elektron Group focus on new product development.  We have embarked on Elektron's largest ever development programme, a £1.2 million research and development project, due for launch in 2011, which will increase our accessible market by over $1 billion.  Technology platforms are being developed that leverage ET's core competencies namely:

- connectivity;

- environmental sealing;

- monitoring and control; and

- indication and illumination. 

This is the foundation of our solutions based approach in which we seek to partner with global OEMs to provide bespoke solutions to challenging technical problems.  The approach has resulted in increased margins for custom products, higher value opportunities and significant barriers to entry for potential competitors. We have had notable successes with our technology product offering in the renewable and sustainable market, in particular smart metering and solar power.  In addition our wireless portfolio continues to expand. 

Operationally, ET has commenced a vertical integration programme to enhance in-house capabilities, reducing dependence on external suppliers which will provide competitive advantage through increased flexibility and reduced lead times.  Increased levels of vertical integration will result in even more favourable margins as a result of additional value added activity at point of manufacture.

ET has introduced a graduate development programme for both our sales & marketing and technical functions.   These new team members will benefit from a tailored development programme, providing the division with eager new talent and management for the future.

As 2010 progresses, it is clear that our strategy has gained traction.  ET continues to buck the trend in difficult trading conditions as it evolves from a commodity market player. In summary it is well positioned and structured for significant future growth.

Elektron Ventures (EV): sales of £8.4 million (2009: £10.8 million); and LBIT before exceptional items £0.5 million (2009: £0.3 million).

EV manages a portfolio of four companies in diverse fields within the industrial and technological sectors, each managed for growth and where possible technological innovation. It is designed to act as an incubator for businesses that will become substantial contributors to the Group in the years to come. EV distinguishes itself from purely financial venture capital companies in that it can provide smaller businesses with both financial resources and high quality management that is normally found in larger companies.

Queensgate Instruments: sales of £0.8 million (2009: £0.9 million); and EBIT of £0.2 million (2009: £0.1 million).

Queensgate's growth proposition is to diversify its high technology business from the semiconductor industry by applying its core capability to a variety of industries.

The company made a small profit in the financial year. It has had an excellent start to the current financial year and has already exceeded the current year budgeted operating profit.

Queensgate Instruments is a specialist in nanopositioning and measurement and represents one of the highest growth potential business units within the division. Traditionally focussing on the semiconductor and hard disk drive industries, Queensgate is already seeing the benefits of the upturn in these industries with a strong order book in the first half of 2010. Building on the strength of this upturn we are now focussing on diversifying and stabilising the business for the future by making inroads into other high growth areas such as bio-nanotechnology and microscopy. Focus has also begun on establishing a global distribution and representative network to capitalise on overseas markets. 

Capital investment has been allocated to bring the manufacturing and test facilities back to world class level enabling further efficiency gains in what is already a high margin business. The recruitment of key staff (including a new General Manager who brings with him a strong business development and nanotechnology background), coupled with plans to recruit new engineering staff and build on our existing links with several universities in the UK and abroad, mean that a new exciting range of products will begin to emerge from Queensgate within the coming year.

The Queensgate business is perhaps the best example of the EV philosophy at work. It was acquired as part of Sifam Instruments a few years ago and has suffered from lack of investment as a result of being buried within a number of poorly performing businesses. During the year it was constituted as a separate business which has allowed much greater management focus and this will enable faster growth.

Digitron Instruments: sales of £2.2 million (2009: £2.6 million); and LBIT of £0.2 million (2009: £0.1 million).

Digitron's growth proposition is to target areas of high growth in the mobile and wireless temperature measurement industry.

Digitron is transitioning from a provider of commodity handheld instruments for measuring temperature and pressure, into a company providing high value bespoke solutions for large national and multinational companies. It is at the start of this process and is incurring restructuring costs. It is currently the only loss making business within the Group.

Digitron is engaged in the design, development and manufacture of a range of handheld and wireless instruments for the food retail, food manufacturing, HVAC and healthcare industries. It recently completed development of Kyros, a wireless sensor network system, which has been installed in a leading hotel complex in Dubai for the real-time temperature monitoring of over 250 fridges and freezers.

Current projects include customising Kyros for a major building utilities provider for the remote monitoring of water temperature using both cloud computing and GSM technologies, developing a programmable graphical display based thermometer for a major supermarket chain and developing an oven temperature data logging system for a leading pub food chain.

Total Carbide; sales of £3.1 million (2009: £4.8 million); and LBIT before exceptional items of £0.7 million (2009: £0.3 million).

Total Carbide's growth proposition is to apply its powder metallurgy technology to a variety of sectors including the semiconductor industry.

Total Carbide incurred heavy losses in the past two years as a result of a dramatic drop in demand and heavy restructuring costs. It is now trading profitably.

The company has exited several low margin sectors which it previously served and is now positioned to offer engineered powder metallurgy components to the oil and gas exploration market.  It offers a premium product with focus on fast turnaround and service.  Key achievements for this company include the penetration of new markets, new regions and new products.  The business has an aggressive budget focused on capturing market share.

The company has targeted the commercialisation of a new powder metallurgy product that offers significant quantifiable customer benefits for the semiconductor industry.

Titman Tip Tools: sales of £2.3 million (2009: £2.4 million); and EBIT of £0.2 million (2009: £nil).

Titman's growth proposition is to develop its premium branded UK router cutter business into overseas markets.

Titman has been traditionally regarded as a "cash cow" business. It was profitable in the last year in spite of the recession. The task now is to grow its sales.

Having developed the company over the previous year the goals are set higher for the coming year with exploitation into North America and aggressive targets for our central European sales office. A directed investment programme focussed on developing the current team, and supporting the expansion with new recruits as appropriate is in place.

Financial review

 

Given the economic turmoil facing the global economy, results for the year were particularly pleasing, with earnings before interest, tax and exceptional items up 60% to £1.8 million from £1.1 million despite a sales decrease of 16% to £29.9 million.

The gross margin improved to 40% from 32% in the previous year as a result of savings from off shoring and lower material costs. Currency gains in the year were £53,000 compared with £474,000 in the previous year.

Exceptional costs of £1.4 million (2009: £3.2 million) were incurred in the year mainly comprising redundancy and reorganisation costs primarily incurred in the transfer of moulded knobs and meters offshore together with the completion of the switch assembly transfer to China.

At the previous year end we wrote down the value of our 23% stake in Hartest Holdings Plc (an AIM quoted instrumentation group) to a market value of £0.5 million and the £0.9 million charge was taken through the income statement in exceptional costs.  At this year end the market value was £1.3 million.  Accounting rules require us to take the £0.8 million gain through equity in the balance sheet.

A tax credit of £69,000 arises from disclaiming capital allowances in the previous year allowing enhanced utilisation of Group relief in the current year. There are unrecognised deferred tax assets totalling £0.7 million relating to tax losses carried forward in Total Carbide and Elektron Instruments Limited. The Group continues to enjoy the exemption from corporate taxes in its Tunisian operations.

Earnings per share metrics were:

·              basic earnings of 0.34p (2009: loss 2.36p) and diluted earnings of 0.34p (2009: loss 2.36p).

The replacement of the Group's legacy systems has been ongoing with Total Carbide being the first to go live. Implementation in the Technology division has now commenced.  This project, when complete, will greatly enhance management productivity and reporting systems.

The Board is proposing a final dividend of 0.50p per share (2009: 0.46p) payable on 17 August 2010 to shareholders on the register at 18 June 2010. The Board is proposing a scrip issue alternative and full details are to be contained in the documentation convening the Annual General Meeting.

The Group generated £1.6 million of cash from trading including £0.4 million of working capital decreases and payment of £1.3 million in restructuring and other exceptional costs. It paid £0.9 million (net of finance) to purchase plant and machinery, repaid £0.8 million of borrowings (including interest) and paid £0.2 million in dividends thus utilising £0.3 million net cash in the year.

The Group meets its day-to-day working capital requirements through the invoice discounting facilities.  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 and terms of its current facilities.  No matters have been drawn to the Company's attention to suggest that continuation of invoice discounting facilities will not be forthcoming on acceptable terms.

Net assets of the Group are £8.5 million (2009: £7.9 million) with net debt at 31 January 2010 of £3.4 million (2009: £3.3 million).  Net gearing has decreased to 40% from 42%.

For further information please contact:

Keith Daley	Clive Carver/Rose Herbert
Chairman	finnCap Ltd
Elektron Plc	Tel: [phone]
Tel: [phone]

 

Group income statement
Preliminary Unaudited Results to 31 January 2010
	Year to	Year to
	31 January 2010 Unaudited	31 January 2009 Audited
	£'000	£'000
Revenue from continuing operations	29,882	35,644
Cost of sales	(17,941)	(24,306)
Gross profit	11,941	11,338
Net operating expenses (including exceptional items)	(11,578)	(13,395)
Operating profit before interest and tax	1,762	1,102
Exceptional items	(1,399)	(3,159)
Operating profit/(loss) before interest and tax	363	(2,057)
Finance income	-	41
Finance costs	(141)	(249)
Profit/(loss) before taxation	222	(2,265)
Taxation	69	233
Profit/ (loss) after taxation attributable to equity shareholders	291	(2,032)
Earnings/ (loss) per share - basic                                             - diluted	0.34p 0.34p	(2.36p) (2.36p)

Group statement of comprehensive income and expense

Preliminary Unaudited Results to 31 January 2010
		Year to 31 January 2010			Year to 31 January 2009
		Unaudited			Audited
		£'000	£'000		£'000	£'000
Profit/(loss) for the year			291			(2,032)
Available for sale financial assets: Gains arising during the year		805			-
Exchange differences on translation of foreign operations		(309)			298
Other comprehensive income for the year			496			298
Total comprehensive income/(expense) for the year attributable to equity shareholders			787			(1,734)

Group balance sheet
Preliminary Unaudited Results at 31 January 2010
	31 January 2010 Unaudited		31 January 2009 Audited
	£'000		£'000
Assets
Non-current assets
Property, plant and equipment	4,300		3,926
Available for sale financial assets	1,315		458
Deferred tax	583		485
	6,198		4,869
Current assets
Inventories	4,892		5,654
Trade  and other receivables	6,898		5,861
Cash and cash equivalents	504		834
Total current assets	12,294		12,349
TOTAL ASSETS	18,492		17,218
Equity and liabilities
Equity attributable to equity holders of the parent
Called-up share capital	4,406		4,279
Share premium	117		244
Merger reserve	1,047		1,047
Capital redemption reserve	163		163
Other reserves	125		434
Retained earnings	2,635		1,723
Total equity	8,493		7,890
Non-current liabilities
Long-term borrowings	1,198		1,701
Other long term liabilities	150		179
Long-term provisions	64		64
Total non-current liabilities	1,412		1,944
Current liabilities
Trade and other payables	4,562		3,776
Short-term borrowings	1,761		1,516
Current portion of long-term borrowings	911		880
Current tax payable	650		613
Short-term provisions	703		599
Total current liabilities	8,587		7,384
Total liabilities	9,999		9,328
TOTAL EQUITY AND LIABILITIES	18,492		17,218

Group statement of changes in equity

		Share capital		Share premium		Merger reserve		Capital redemption reserve		Other reserves		Retained earnings		Total
		£'000		£'000		£'000		£'000		£'000		£'000		£'000
Balance at 1 February 2009		4,279		244		1,047		163		434		1,723		7,890
Profit for the year		-		-		-		-		-		291		291
Other comprehensive income for the year		-		-		-		-		(309)		805		496
Total comprehensive (expense)/income for the year		-		-		-		-		(309)		1,096		787
Share issues		127		(127)		-		-		-		-		-
Dividends		-		-		-		-		-		(393)		(393)
Adjustment for scrip dividend element		-		-		-		-		-		209		209
Balance at 31 January 2010		4,406		117		1,047		163		125		2,635		8,493
Results to 31 January 2009
		Share capital		Share premium		Merger reserve		Capital redemption reserve		Other reserves		Retained earnings		Total
		£'000		£'000		£'000		£'000		£'000		£'000		£'000
Balance at 1 February 2008		4,336		244		1,047		106		136		4,304		10,173
Loss for the period		-		-		-		-		-		(2,032)		(2,032)
Other comprehensive income for the year		-		-		-		-		298		-		298
Total comprehensive income/(expense) for the year		-		-		-		-		298		(2,032)		(1,734)
Dividends		-		-		-		-		-		(385)		(385)
Own shares acquired in the year		(57)		-		-		57		-		(164)		(164)
Balance at 31 January 2009		4,279		244		1,047		163		434		1,723		7,890

Preliminary Unaudited Results to 31 January 2010

Group cash flow statement
Preliminary Unaudited Results to 31 January 2010
	31 January 2010 Unaudited	31 January 2009 Audited
	£'000	£'000
Cash flows from operating activities
Profit/(loss) before taxation	222	(2,265)
Adjustments for:
Depreciation	928	1,217
Loss on disposal of fixed assets	-	17
Restructuring and other exceptional charges	1,399	2,140
Impairment of tangible fixed assets	-	109
Fair value losses on available for sale financial assets	-	910
Interest receivable	-	(41)
Interest payable	141	249
Operating cash flow before working capital changes	2,690	2,336
(Increase)/decrease in trade and other receivables	(1,391)	2,042
Decrease in inventories	726	1,082
Increase/(decrease) in trade payables	1,038	(1,607)
Payments for restructuring and other exceptional costs	(1,293)	(2,202)
Other non-cash movements	(142)	109
Cash generated from operations	1,628	1,760
Interest paid	(141)	(249)
Taxation (paid)/received	(4)	147
Net cash inflow from operating activities	1,483	1,658
Cash flows from investing activities
Costs of investment	(51)	(1,368)
Purchase of property, plant and equipment	(1,373)	(1,521)
Proceeds of sale of property, plant and equipment	22	25
Interest received	-	41
Net cash used in investing activities	(1,402)	(2,823)
Cash flows from financing activities
Purchase of own shares	-	(164)
Movement in long-term borrowings	(400)	900
Movement in short-term borrowings	245	(867)
New capital leases	479	749
Payment of hire purchase and finance liabilities	(551)	(221)
Dividends paid	(184)	(385)
Net cash (used in)/from financing activities	(411)	12
Net decrease in cash and cash equivalents	(330)	(1,153)
Cash and cash equivalents at the beginning of year	834	1,987
Cash and cash equivalents at the end of year	504	834

Notes to the Preliminary Unaudited Results to 31 January 2010

1.   Accounting policies

The financial information has been prepared on the basis of International Financial Reporting Standards (IFRS) as adopted by the European Union.  Full details of accounting policies will be included in the annual report for the year ended 31 January 2010.  These are not expected to be materially different from those set out in the Group's statutory accounts for the year ended 31 January 2009.

2.   Other information

The financial information in respect of the year ended 31 January 2010 set out in this statement has been extracted from the statutory financial statements which have not yet been audited but are not expected to differ materially from the information given in this statement.

The financial information in this statement does not constitute statutory accounts. The financial information in respect of the year ended 31 January 2009 has been extracted from the statutory accounts which have been filed with the Registrar of Companies.  The auditors' report on those accounts was unqualified and did not contain any statement under Section 237 of the Companies Act 1985.

Audited financial statements will be sent to shareholders at the start of July 2010.  Copies of this announcement can be viewed on the Company's website at www.elektronplc.com and are available free of charge from the Company's registered office at Melville Court, Spilsby Road, Romford, Essex RM3 8SB for a period of one month from the date hereof and copies of the audited financial statements will be so available for at least 14 days from date of publication.

The Annual General Meeting will be held at 3.00 pm on 29 July 2010 at Melville Court, Spilsby Road, Romford, Essex RM3 8SB.

3.         Dividend/scrip alternative

The dividend, if approved at the annual general meeting, will be paid on 17 August 2010 to shareholders on the register at 18 June 2010. Certificates for the scrip alternative if approved at the annual general meeting, will be posted to shareholders on 18 August 2010 to shareholders on the register at 18 June 2010. The first day of dealings is expected to be 19 August 2010.

4.         Nominated Adviser/Broker

The Company has been advised that, with effect from 30 April 2010, its nominated adviser and broker has changed its name to finnCap Ltd.

 

END

 

 

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