Unaudited full year results

RNS Number : 2121K

Elektron Technology PLC

23 June 2014

 



23 June 2014

Elektron Technology plc

Unaudited full year results for the year ended 31 January 2014

Elektron Technology plc (AIM: EKT, "Elektron" or the "Group"), the global technology group, announces its unaudited full year results for the year ended 31 January 2014.

As announced on 7 April 2014, the Board of Elektron ("the Board") commenced a Strategic Alternatives Process ("SAP") to enhance shareholder value. These alternatives included a fundraising or the possible sale of the Company, by means of a Formal Sale Process in accordance with Note 2 on Rule 2.6 of the City Code on Takeovers and Mergers (the "Code") together with other strategic alternatives including the potential sale of non-core assets and seeking finance from third parties.

The outcome of the SAP was the subject of a separate announcement made on 20 June 2014. In summary this announcement outlined the Company's intention to raise approximately £2.34m (before expenses) at an offer price of 5p per share from certain existing shareholders, structured as a cash box placing in order to provide certainty of funding for the Company. Secondly the Board being mindful of and grateful for the continuing support received from all shareholders accordingly is to offer shareholders the opportunity to subscribe for new shares on the same terms as the placing by launching an open offer at an offer price of 5p per share to raise up to £1.16m.

Summary

Financial Performance

·      Revenue on continuing operations: £46.3m (2013: £47.4m)

·      Gross profit: £16.1m (2013: £16.7m)

·      Operating profit before non-recurring or special items:£0.6m (2013: £1.0m)

·      Further rationalisation of portfolio to focus on core brands: Sale of Total Carbide, SIFAM knobs and meters and closure of the Indian operations yielding £2.3m in cash

·      Cash  non-recurring or special items expensed of £3.1m (2013: £1.8m) principally incurred with streamlining and reorganisation of the business

·      Non cash  non-recurring or special items expensed of £1.9m (2013: £0.4m),  principally in respect of impairment of goodwill and intangible assets,  

·      Loss before tax from continuing operations: £4.9m (2013: £1.5m)

·      Adjusted loss per share from continuing operations (before non-recurring or special items): 0.3 pence (2013: Earnings 0.5 pence)

·      Net borrowings: £8.0m (2013:£5.0m) with average net borrowing during the year of £7.9m (2013: £5.4m)

Restructuring & Investment

·      Streamlining of operations substantially complete

·      Gross sales of new products 5% of sales, £2.5m (2013: 1%, £0.4m)

·      Continued investment in new product development: £1.9m (2013: £1.4m), with new product releases for Bulgin, Checkit, Queensgate and Ophthalmic brands

Post Year-End Highlights

·      Q1 revenue in line with expectations, although Q2 impacted by customer destocking due to improvement of Group's on-time delivery

·      Overhead reduction and elimination of excess costs from restructuring issues last year in evidence in Q1

·      Agreement of amended revolving credit facility

·      Strategic Alternatives Process resulted in intended fund raise of £3.5m involving a share placing of £2.34m and up to a further £1.16m from an open offer.

* Results are unaudited and before non-recurring or special items

** Figures for continuing operations, except where otherwise stated

John Wilson, Chief Executive of Elektron, commented:

"The tough decisions we have taken over the past few years have had some painful short term consequences, but will make the Group stronger in the long term.

"Our immediate aim is to focus on maximising revenues from existing products and drive further operational efficiency, whilst continuing to invest in new product development.

"With the outcome of the Strategic Alternatives Process determined, I look forward to a period of greater stability that will enable us to realise our vision of Elektron as a true technology company."

Enquiries:

Elektron Technology  www.elektron-technology.com	[phone]
John Wilson - Chief Executive Officer
Andy Weatherstone - Chief Financial Officer
finnCap	[phone]
Ed Frisby / Ben Thompson - Corporate Finance
Victoria Bates - Corporate Broking
Instinctif Partners	[phone]
Adrian Duffield / Kay Larsen

Notes to Editors

Elektron conceives, designs and markets innovative engineered products and services for businesses at its technology hub in Cambridge. It has a multi skilled team of engineers and product line specialists focused on the opportunities created by disruptive global trends in the following areas:

   --      New waves of "aware" business applications:  Internet of Things

   --      Demand for ubiquitous power and data: Connectivity Solutions

   --      Growth in high precision manufacture: Nanopositioning

   --      Healthcare for the ageing population: Ophthalmology

   --      Connected customer experiences and service delivery: Ecommerce and EService

In addition it owns a portfolio of well-established products and brands which provide customer access and feedback.

Elektron Technology is headquartered in Cambridge and its shares are admitted to trading on the AIM market of the London Stock Exchange.

Overview

Elektron continues its evolution to become an innovation-led technology business, operating on an integrated basis worldwide and focussed on its distinctive portfolio of high-growth potential products and brands.

The Group endured a very difficult year during 2013/14.  As previously reported to shareholders, the move of the Group's China-based manufacturing to its existing operations in Tunisia at the start of the financial year encountered significant issues during the execution. A smaller factory move in the UK from Redhill to Torquay was also more complicated than expected.

At the time of issuing the first half results in September 2013, significant progress had been made in identifying the root cause of these issues and by the year end corrective actions had been implemented. These included the temporary addition of direct labour and operational experts which led to improvements in performance and reductions in the overdue sales backlog.

Operational performance has now stabilised, although further action is required to drive production efficiencies across all the Group's operating sites. The corrective actions have also provided the Group with much improved systems and key performance indicators for operational leadership to manage the business.

Having considered the financial performance to 31 January 2014 and the resources needed to support new product development ("NPD"), the Board believes that it is in the Group's best interests not to pay a dividend for the year.

Current trading and outlook

The trading year to date has been satisfactory, notwithstanding the impact of destocking by a number of Connectivity customers mentioned in the Group's recent trading update. The Group is benefiting from a reduction in overheads and the elimination of excess costs previously incurred as part of the operational restructuringwhich the Board expects the Group to continue to benefit from for the remainder of the year. 

Overall Connectivity orders have been in line with the Board's expectations whilst IMC orders have shown some weakness but as always there is limited order visibility of around eight weeks in Connectivity and four weeks in IMC. The Group is still dependent on a relatively high proportion of aging product lines and its New Product Development programme is designed to offset market erosion. In the immediate term the Group is focussed on a strategy of seeking to maintain revenues in challenging markets and identifying further production efficiencies.

Strategic update

During the past three years the strategy for the Group has been multi-pronged:

·      Innovation - developing a highly-skilled, multi-disciplinary technical function to enable innovation to deliver a high growth product portfolio

·      Consolidating operational footprint- simplifying the Group's manufacturing footprint and reducing costs

·      Investing in infrastructure, people and capabilities - building a structure to support future growth aspirations

Innovation

The Group has continued its investment in NPD programmes and focussed resources on the refinement of five year NPD roadmaps for the Connectivity and Instrumentation, Monitoring and Control ("IMC") growth brands.  These roadmaps are the foundation of much of the growth which the Group seeks to deliver in future years.  In addition, the Group has undertaken a "value engineering" exercise in which certain existing products are evaluated with a view to significantly reducing cost and increasing margin.

Elektron has a flexible and proactive approach to NPD. The Group's engineering resources are deployed on a project basis and are non-brand specific, which allows for greater creativity from its specialist teams and reduces time to market.  This modular approach also enables the Group to respond quickly to customer enquiries for bespoke development, for which it sees an increasing need.

Elektron's investment in innovation increased by 36%, with £1.9m (2013: £1.4m) capitalised during the year, with over 36,000 hours (2013: 26,000 hours) of internal engineering time.  A further £0.7m (2013: £0.6m) of R&D costs was expensed in the Income Statement.

This investment, combined with Elektron's tailored approach, has resulted in sales of new products of £2.5m in the year (2013: £0.4m) representing over 5% of sales (2013: 1%), going some way to offset erosion in mature and declining markets.  Medium term, within three years, the Group is targeting 15% of sales per year to be generated from new products launched within the previous three years. Significant new product launches during the year were:

·      Checkit - a solution for the food industry to automate HACCP compliance. 

·      Cloud Access - allowing automatic storing of secure data, instant integration to Elektron's cloud application and remote access on any device

·      Bulgin 7000 series data connectors for harsh environments coupled with an uprating of the entire buccaneer range of connectors to the highest ingress protection possible (IP69K)

·      Queensgate Digital nano-positioning controller, featuring Elektron's Dual Sensor technology

·      Henson 9000 ophthalmic perimeter device - has been well received and offers global sales potential

Consolidating operational footprint

Streamlining the Group's operating model was a key focus during the year.  Further disposals and site closures have been made in line with the Group's strategy:

·      Sifam knobs and meters sold in October 2013 for combined cash consideration of £0.3m, realising a net loss of £0.1m.  As a result of the sale of Sifam, the Group has ceased all manufacturing operations in China.  Whilst China remains a strategic sales growth market for the Group, significantly increased costs and reduced flexible labour cost structures rendered it cost prohibitive for Elektron.  Additionally, the Group will realise savings in internal supply and logistics costs as a result of this exit.

·      Total Carbide Ltd was sold to Versarien plc for a cash consideration of £2.0m, realising a loss of £0.3m, thereby reducing the non-core Materials segment to a minimal part of Group revenues.

·      The Group's legacy Indian business, which offered factored instrumentation and calibration equipment, was closed. Declining demand and margins had made this business uneconomic.

·      The Group's US warehouse facility in Thousand Palms, California, was closed as small US accounts were transitioned to distribution partners and serviced via the UK.

Following the transfer of IMC manufacture from the Group's Sandhurst facility to West Molesey, which is planned to be completed this month, the multi-year streamlining initiative will come to an end.

These disposals, in conjunction with current and prior year consolidations have resulted in a planned, simplified operating configuration.  Further headcount reduction programmes were implemented in the second half of last year, and have been largely completed in the first quarter of the current year.

Investment in infrastructure, people and capabilities

The multi-year roll out of the Group's single Enterprise Resource Planning ("ERP") system is now complete, providing improved management information, whilst inefficient legacy management information systems have been archived. As a result of this implementation the Group introduced selective price increases to address low margin products identified through this exercise. Further work is underway to maximise the benefits of the system to allow further efficiencies to be delivered and improve the timeliness of management information being produced.

The Group continues to build an organisation designed to support its growth aspirations.  The senior management has been further strengthened, with expert additions in the key functions of finance, operations and technical.  Recognising the need to invest in the future of the Group, an apprenticeship scheme is being rolled out, both in the UK and Tunisia.

Operational review

Segmental Performance

Connectivity

£m	2014	2013
Revenue	27.0	25.9
Operating profit before non-recurring or special items	1.7	1.4

Whilst factory relocation issues encountered in the first half of the year resulted in low H1 revenue of £12.5m, sales rebounded strongly by 16% in H2 to £14.5m, as production ramped up and the overdue backlog was reduced to normal levels.  In order to maintain continuity of supply to the Group's customers, the Group incurred £1.4m of one-off costs.

To minimise disruption to customers, some product that ordinarily would have been automatically assembled was assembled by hand and increased management was required in Tunis to oversee the stabilisation programme.  The Tunis local management has been substantially strengthened with the Connectivity Operations Director now based in Tunisia.

Bulgin sales grew 5% in the year, in part, due to a full year of 6000 series power and data connectors and early stocking packages of 7000 power connectors launched at the end of Q2.  In EMEA and the Americas, Arcolectric sales also grew as the customer base was mostly protected from supply issues due to the stocking levels held by the Group's key distributors.  Conversely, in APAC, where stocking distributors are significantly fewer and as a direct result of the implementation of global standardised pricing, demand declined.

During the previous three years, the Connectivity sales channel has been optimised as smaller direct accounts have been transitioned to distributors.  This optimisation has resulted in a leaner, more agile external and internal sales force to manage both channel partners and key OEMs.  In addition, the Group has introduced a "value-add" capability to its Connectivity portfolio, offering customers a high quality "one stop shop" engineering resource using Elektron's technical expertise and extensive knowledge across a range of engineering disciplines to provide human-centred design, in addition to turnkey project management capabilities.  Whilst this is relatively embryonic, significant opportunities have been identified within OEMs that should drive sales growth.

IMC

£m	2014	2013
Revenue	17.2	19.1
Operating loss before non-recurring or special items	(1.4)	(0.4)

A 10% decline in IMC sales resulted in a corresponding increase in operating loss.  Whilst Ophthalmic sales grew 180% over prior year, primarily as a result of new products launched in FY2013, Sheen and Wallace brands declined due to increasing competition and disruption from the Redhill factory relocation. Seeking to reduce its reliance on declining UK public sector spending Carnation continues to develop in North America, where a distributor has been appointed.

Whilst Queensgate legacy sales also declined, particularly in APAC and the Americas, its nano-positioning products are actively being refocussed to capitalise on the increasing opportunities within this sector.

The launch of Checkit at the start of the financial year was met with strong interest from the market, with high-end hotels and restaurants purchasing the Group's  "v1" product.  Checkit monitors and measures key parameters and activities using an array of static sensors coupled with a wireless handheld device to record temperatures and record actions. The launch of a Cloud solution allows customers to instantly link multiple sites to give integrated reporting and management.  Further significant product launches, using the Group's Checkit platform, will provide the Group with the opportunity to grow in new market areas. Checkit is delivered via a low cost subscription based system and as a result revenues are expected to build gradually. However, over time this product is expected to bring in valuable recurring income into the Group.

The launch of the Henson 9000 ophthalmic perimeter device has also been met with an encouraging level of interest, with orders taken pre-launch of the device.

At the end of the year Agar launched its first venture into e-commerce and has attracted customers from many countries.  During this year Digitron and Titman e-commerce sites are expected to go live, enabling the Group's customers to order product 24/7.

In addition, much progress has been made in developing the IMC sales channel, especially in South America, with the appointment of key distributors.

After an internal review, towards the end of FY2014 and for implementation at the start of FY2015, IMC was segmented into three autonomous business units:

·      Growth Brands - Checkit, Queensgate, Ophthalmic

·      E-commerce, Service and Distribution("ESD") - Agar, Digitron, Qados

·      Manufactured brands - Carnation, Sheen, Wallace, Titman

This more closely aligns the structure to the Group's innovation strategy to exploit:

·      New waves of "aware" business applications:  Internet of Things

·      Growth in high precision manufacture

·      Healthcare for the ageing population: Ophthalmology

·      Connected customer experiences and service delivery through the Group's distribution brands: E-commerce and E-Service

Materials

£m	2014	2013
Revenue	2.1	2.4
Operating profit before non-recurring or special items	0.3	-

Since the disposal of Total Carbide, the materials segment now solely consists of Titman.

Titman has performed extremely well as a result of rationalisation of product offering, cost reduction initiatives and selective price increases. Although the Board considers the business to be non-core to the Group's strategy, it continues to provide a valuable contribution to the Group.

Financial review

During the year the Group continued to implement its strategy of reducing its operational footprint, exiting from non-core businesses whilst at the same time investing in new product development to support future growth. As a consequence the reported numbers reflect a year of considerable change.

Revenue from continuing operations for the year was £46.3m (2013: £47.4m), which generated an operating profit before non-recurring or special items of £0.6m (2013: £1.0m).

Although the consolidation of the Group's China-based manufacturing into its Tunisian plant encountered a number of significant issues leading to inefficiencies, excess costs and a backlog of overdue orders, the Group was able to successfully reduce the backlog in the last quarter of the year resulting in revenue in Connectivity of £27.0 m, £1.1m (4%) ahead of the previous year, helped also by the implementation of selective price rises across its product range. As a result, operating profits before non-recurring or special items grew by 21% to £1.7m (2013: £1.4m).

IMC revenue declined to £17.2m, a fall of £1.9m (10%) resulting in an  operating loss before non-recurring or special items of £1.4m (2013: £0.4m). This was largely due to increased competition for legacy product ranges and manufacturing disruption arising from site relocation in the Sheen and Wallace brands as well as a decline in demand for Carnation and Qados product.  Materials, which comprises solely Titman Tools, performed well in the year generating an improved operating profit  before non-recurring or special items of £0.3m (2013: £nil) on 12% lower revenue of £2.1m (2013: £2.4m) as the product range was rationalised and the business focussed on sales of higher margin product lines.

There have been a number of non-recurring or special items during the year, which in total amounted to £5.0m for continuing operations of which £1.9m were non-cash:

	2014 £m	2013 £m
Relocation of Chinese operations to Tunisia	1.4	-
UK restructuring	0.9	1.5
Redundancy and severance	0.4	0.3
Review of the Group's strategic options	0.4	-
Amortisation of goodwill of £0.2m and impairment of intangibles and goodwill of £1.5m which has arisen as a result of the decline in the performance in certain IMC brands together with an increase in the estimated cost of capital of the Group to 15% (2013: 8.5%).	1.7	0.2
Charges relating to share based incentive plans	0.2	0.2
Total	5.0	2.2

The main elements of the restructuring are largely complete, with the improvement to the production cost base in evidence in the final quarter of the year with the elimination of excess costs in the areas of freight, scrap and labour costs.

Charges in respect of non-recurring or special items are expected to be significantly lower in the current financial year, although further costs will be incurred in connection with the SAP and re-financing. Management is continuing to examine the Group's cost base and ways in which further efficiencies can be made.

The overall loss before tax from continuing operations was £4.9m (2013: £1.5m).

Discontinued operations, comprising Total Carbide, SIFAM Knobs and Meters and the Tinsley operation in India, contributed a loss of £1.4m (2013: profit of £0.7m). Prior year numbers have been restated accordingly.

Interest costs on borrowing increased by £0.2m to £0.5m, reflecting the increase in average level of net debt from £5.4m in 2013 to £7.9m in 2014, representing an effective interest rate of 6.3% (2013: 5.5%).

In light of the Group's recent performance and in accordance with IAS12, no deferred tax asset has been recognised in respect of UK trading losses. Accordingly the deferred tax asset at 31 January 2013 of £0.4m has been expensed to the Income Statement. 

At 31 January 2014 the Group had unused trading losses in excess of £6.5m to offset against future UK profits.

The average number of ordinary shares in issue during the year was 105.4m (excluding shares held by the Employee Benefit Trust). Basic loss per share in respect of continuing operations before non-recurring or special items was 0.3 pence (2013: earnings 0.5 pence).

After taking into account non-recurring or special items the Group recorded a loss per share on continuing operations of 5.1 pence (2013: 1.0 pence).

Having considered the financial performance to 31 January 2014 and the resources needed to support NPD, the Board believes that it is in the Group's best interests not to pay a dividend for the year.

The Group generated cash of £2.3m (2013 £6.4m) from operations before non-recurring or special items in the year and spent £4.5m (2013: £2.5m) on restructuring and other non-recurring costs.

The Group also maintained its investment programme in new product development which amounted to £1.9m (2013:£1.4m). Total capital investment in the year was £3.1m (2013: £3.4m) representing 206% of depreciation and amortisation. This was in part funded by proceeds from the disposal of non-core businesses which yielded net proceeds of £2.3m.

Overall total net borrowings (including hire purchase obligations) increased by £3.0m to £8.0m. Average net borrowings during the year amounted to £7.9m (2013: £5.4m). This compares to available facilities of £9.9m which include a revolving credit facility of £4.3m, available invoice finance facilities of £4.7m (which could increase up to £6.0m depending on sales levels) and leasing facilities of £0.8m together with a bank overdraft of £0.1m.

The Group successfully agreed revised covenants in respect of its revolving credit facility with its existing lender in May 2014. The facility runs until April 2016 amortising by £1.1m each year.

Potential litigation

A shareholder, Mr B Bridge, has issued proceedings under The Companies Act 2006 (the "Act") in the Liverpool District Registry of the High Court seeking permission to pursue a derivative claim against certain directors of the Company, (namely Mr Keith Daley, Mr Anthony Harris, Mr Richard Piper and Mr John Wilson) and certain former directors (namely Mr Noah Franklin and Mr Simon Acland), collectively the "Directors". 

The Act provides a means by which an individual shareholder of a company may bring proceedings in respect of a claim which vests in, and in which a remedy is sought on behalf of, the Company. This is known as a derivative claim.

Where a shareholder seeks to bring a derivative claim, the Act imposes a filtering process by which the claim can only be continued if the Court grants permission. The shareholder must make the Company a defendant to the proceedings for the purpose of the permission stage and Mr Bridge has done this. The Court has listed Mr Bridge's permission application for a one day hearing on 1 October 2014. If the claim is continued it would be expected to come to Court in 2015 or 2016.

The Company has instructed solicitors and counsel to advise and represent it. It should be noted, that although a party to the proceedings at this time, the Company will only have a limited, neutral role and that the permission hearing will be conducted principally between Mr Bridge and the Directors. The Court is obliged to refuse permission for a derivative action to proceed if a person acting under a general duty to promote the success of the company would not seek to continue the claim.

The Company has received professional advice that, on the evidence, the Court is at the moment more likely to refuse, than to grant, permission. This advice is subject to on-going review.

In summary, Mr Bridge is alleging various breaches of duty by the Directors, including dishonesty, 'a reckless acquisition spree', illegal share price manipulation and the implementation of unfair bonus and share schemes without proper shareholder approval. The Directors refute the allegations made by Mr Bridge and have instructed their own solicitors and counsel.

Having taken legal advice, the Company considers that it is appropriate at this time to make the shareholders aware of the legal action given the potential costs consequences for the Company as outlined below:

In the event that the permission application is successful, the Board believes that it is likely the Court will order the Company to indemnify Mr Bridge in respect of his legal costs of pursuing the derivative claim. However, as far as these costs are concerned, the Company expects to be able to recover them in accordance with the terms of its own insurance policy.

If the permission application is unsuccessful, the claim will not proceed and the only issue for the Company will be that it will be liable for that element of the Directors' costs that is irrecoverable and/or not covered by their insurance, under the indemnity given by the Company to its officers under its Articles of Association. The Company will not be able to recover these costs through the Company's insurance.

Should the permission be granted but the claim subsequently fails, the Company has been advised that it could be liable for the entirety of the Directors' costs under the indemnity referred to above and the Company would not expect to be able to recover any of these costs through its insurance.

At present it is not possible to estimate the uninsured costs, but in a worst case scenario they could be significant. In view of the advice received the Company, having carefully considered the matter does not consider that it is appropriate to make a provision for the costs mentioned above.

Going concern basis

The Directors have prepared and reviewed forecasts and projections for a period of not less than 12 months from the date of this announcement.  These are based upon detailed assumptions in particular with regard to the key risks and uncertainties, together with the level of borrowings and other facilities made available to the Group.

The Board also takes account of reasonable possible changes in trading performance to determine whether the Group should be able to operate within its current level of facilities. Key factors that have been considered are:

·      Performance in the last financial year was adversely impacted by production disruptions following a consolidation of a number of its operating sites leading to a significant level of overdue orders. It has been assumed that these issues are now largely resolved with overdue order backlog reduced by the end of May to approximately £1.2m from a peak of £3.3m last year.

·      Borrowings increased by £3.0m as a result of the restructuring and disruptions causing the Group's headroom on its working capital facilities to tighten. The Group has announced that it will be raising £2.34m from a placing and up to a further £1.16m from an open offer.

·      Certain terms of the Group's revolving credit facility have recently been renegotiated, providing a committed facility through to April 2016. The facility is at a level of £3.9m, with scheduled reductions of £0.3m quarterly. These facilities contain performance covenants including minimum headroom, interest cover, debt to borrowing ratio and debt service ratio, which if breached could lead to a need to renegotiate terms or in the extreme case, a reduction or withdrawal of the facilities concerned.

·      The Group only has a limited forward order book for its products creating a risk of unpredictability in revenues and cash.

The Directors after taking into account the factors noted above and in particular the receipt of the £2.34m from its proposed placing via a cash box structure have concluded that the Group has adequate financial resources to continue in operational existence for the foreseeable future. For this reason the Directors continue to adopt the going concern basis.

Unaudited consolidated statement of comprehensive income

year ended 31 January 2014

	Notes	Unaudited 2014 £m	Audited 2013 £m
Revenue	2	46.3	47.4
Cost of sales		(30.2)	(30.7)
Gross profit		16.1	16.7
Operating expenses
Operating expenses (excluding non-recurring or special items)		(15.5)	(15.7)
Operating profit before non-recurring or special items		0.6	1.0
Non-recurring or special items	3	(5.0)	(2.2)
Total operating expenses		(20.5)	(17.9)
Operating loss		(4.4)	(1.2)
Finance costs		(0.5)	(0.3)
Loss before taxation		(4.9)	(1.5)
Taxation		(0.4)	0.4
Loss after taxation from continuing operations		(5.3)	(1.1)
Discontinued operations	3	(1.4)	0.7
Loss for the period		(6.7)	(0.4)
Exchange differences on translation of foreign operations being total other comprehensive expense		(0.4)	(0.2)
Total comprehensive expense for the financial year attributable to equity shareholders		(7.1)	(0.6)
(Loss)/earnings per share from Continuing Operations	5
Basic and Diluted EPS		(5.1)p	(1.0)p
Adjusted and Diluted adjusted EPS*		(0.3)p	0.5p
(Loss)/earnings per share from Continuing and Discontinued Operations
Basic and Diluted EPS		(6.4)p	(0.4)p
Adjusted and Diluted adjusted EPS*		(0.6)p	1.2p

*Before non-recurring orspecial items

Unaudited consolidated balance sheet

as at 31 January 2014

		Unaudited 2014 £m	Audited 2013 £m
Assets
Non-current assets
Goodwill		-	1.2
Capitalised R&D		3.1	1.8
Other intangible assets		2.7	3.0
Property, plant and equipment		3.4	5.4
Deferred tax		-	0.5
Total non-current assets		9.2	11.9
Current assets
Inventories		6.2	7.8
Trade and other receivables		9.5	10.0
Cash and cash equivalents		0.8	1.2
Total current assets		16.5	19.0
Total assets		25.7	30.9
Current liabilities
Trade and other payables		8.9	9.3
Borrowings		3.7	0.6
Current portion of long-term borrowings		1.5	0.4
Provisions		0.5	1.1
Total current liabilities		14.6	11.4
Non-current liabilities
Long-term borrowings		3.6	5.2
Long-term provisions		0.1	-
Total non-current liabilities		3.7	5.2
Total liabilities		18.3	16.6
Net assets		7.4	14.3
Equity attributable to equity holders of the parent
Called-up share capital		6.0	6.0
Share premium		5.4	5.4
Merger reserve		1.1	1.1
Capital redemption reserve		0.2	0.2
Own shares		(3.5)	(3.5)
Other reserves		0.5	0.3
Translation reserve		(0.6)	(0.2)
Retained earnings		(1.7)	5.0
Total equity		7.4	14.3

Unaudited consolidated statement of changes in equity

year ended 31 January 2014

	Share capital £m	Share  premium £m	Merger reserve £m	Capital redemption reserve £m	Own shares £m	Other reserves £m	Translation reserve £m	Retained earnings £m	Total £m
At 1 February 2012	6.0	5.4	1.1	0.2	(3.0)	0.1	-	6.0	15.8
Total comprehensive expense for the year	-	-	-	-	-	-	(0.2)	(0.4)	(0.6)
Purchase of treasury shares*	-	-	-	-	(0.5)	-	-	-	(0.5)
Dividends paid on ordinary shares	-	-	-	-	-	-	-	(0.6)	(0.6)
Credit to equity for share based payments	-	-	-	-	-	0.2	-	-	0.2
At 31 January 2013	6.0	5.4	1.1	0.2	(3.5)	0.3	(0.2)	5.0	14.3
Total comprehensive expense for the year	-	-	-	-	-	-	(0.4)	(6.7)	(7.1)
Credit to equity for share based payments	-	-	-	-	-	0.2	-	-	0.2
At 31 January 2014	6.0	5.4	1.1	0.2	(3.5)	0.5	(0.6)	(1.7)	7.4

* The treasury shares are held by the Elektron Technology 2012 Employee Benefit Trust.

Unaudited consolidated statement of cash flows

year ended 31 January 2014

	Notes	2014 £m	2013 £m
Net cash (outflow)/ inflow from operating activities	6	(2.3)	3.3
Investing activities
Purchase of property, plant and equipment		(0.7)	(1.5)
Purchase of other intangible assets		(2.4)	(1.9)
Disposal of businesses		2.3	0.6
Net cash used in investing activities		(0.8)	(2.8)
Financing activities
Purchase of own shares		-	(0.5)
Increase in bank loans		2.9	0.9
New finance leases		0.2	0.6
Payment of hire purchase and finance liabilities		(0.4)	(0.5)
Dividends paid		-	(0.6)
Net cash from/(used in) financing activities		2.7	(0.1)
Net (decrease)/increase in cash and cash equivalents		(0.4)	0.4
Cash and cash equivalents at the beginning of period		1.2	0.8
Cash and cash equivalents at the end of period		0.8	1.2

Notes to the unaudited consolidated accounts for the year ended 31 January 2014

1.   Basis of Preparation

While the financial information included in this unaudited preliminary announcement has been prepared in accordance with the recognition and measurement criteria of International Financial Reporting Standards (IFRSs), this announcement does not itself contain sufficient information to comply with IFRSs. The Group will publish full financial statements that comply with IFRSs.

The financial information set out in this unaudited announcement does not constitute the Group's statutory accounts for the year ended 31 January 2014 or 31 January 2013, within the meaning of Section 435 of the Companies Act 2006. The audit of the statutory accounts for the year ended 31 January 2014 is not yet complete. These accounts will be finalised on the basis of the financial information presented by the directors in this unaudited announcement and will be delivered to the Registrar of Companies following the Group's annual general meeting.

In assessing the appropriateness of preparing these unaudited results on a going concern basis, the Directors have prepared and reviewed forecasts and projections for a period of not less than 12 months from the date of this announcement.  These are based upon detailed assumptions in particular with regard to the key risks and uncertainties, together with the level of borrowings and other facilities made available to the Group.

The Board also takes account of reasonable possible changes in trading performance to determine whether the Group should be able to operate within its current level of facilities. Key factors that have been considered are:

·      Performance in the last financial year was adversely impacted by production disruptions following a consolidation of a number of its operating sites leading to a significant level of overdue orders. It has been assumed that these issues are now largely resolved with overdue order backlog reduced by the end of May to approximately £1.2m from a peak of £3.3m last year.

·      Borrowings increased by £3.0m as a result of the restructuring and disruptions causing the Group's headroom on its working capital facilities to tighten. The Group has announced that it will be raising £2.34m from a placing and up to a further £1.16m from an open offer.

·      Certain terms of the Group's revolving credit facility have recently been renegotiated, providing a committed facility through to April 2016. The facility is at a level of £3.9m, with scheduled reductions of £0.3m quarterly. These facilities contain performance covenants including minimum headroom, interest cover, debt to borrowing ratio and debt service ratio, which if breached could lead to a need to renegotiate terms or in the extreme case, a reduction or withdrawal of the facilities concerned.

·      The Group only has a limited forward order book for its products creating a risk of unpredictability in revenues and cash.

The Directors after taking into account the factors noted above and in particular the receipt of the £2.34m from its proposed placing via a cash box structure have concluded that the Group has adequate financial resources to continue in operational existence for the foreseeable future. For this reason the Directors continue to adopt the going concern basis.

The financial information for the year ended 31 January 2013 is derived from the statutory accounts for that year which have been delivered to the Registrar of Companies. The Group's auditor issued a report on those financial statements that was unqualified and did not draw attention to any matters by way of emphasis and did not contain a statement under section 489 (2) or (3) of the Companies Act 2006.

2.   Segmental reporting

	Segment revenue		Operating (loss)/profit before non-recurring or special items		Operating (loss)/profit
Segment revenues and results of continuing operations	2014 £m	2013 £m	2014 £m	2013 £m	2014 £m	2013 £m
Connectivity	27.0	25.9	1.7	1.4	(0.6)	0.2
Instrumentation, Monitoring & Control	17.2	19.1	(1.4)	(0.4)	(4.1)	(1.4)
Materials	2.1	2.4	0.3	-	0.3	-
Total	46.3	47.4	0.6	1.0	(4.4)	(1.2)
Finance costs (net)					(0.5)	(0.3)
Loss before tax					(4.9)	(1.5)

Revenue reported above represents revenue generated from external customers.

Segment profit represents the profit earned by each segment including a share of central administration costs, which are allocated on the basis of actual use or pro-rata to sales. This is the measure reported to the Chief Operating Decision Maker for the purposes of resource allocation and assessment of segment performance.

Segment assets					2014 £m	2013 £m
Connectivity					13.2	12.9
Instrumentation, Monitoring & Control					11.5	12.9
Materials					1.0	5.1
Consolidated assets					25.7	30.9

Segment liabilities					2014 £m	2013 £m
Connectivity					9.8	5.6
Instrumentation, Monitoring & Control					7.7	6.1
Materials					0.8	4.9
Consolidated liabilities					18.3	16.6

	Depreciation and amortisation		Additions to non-current assets
Other segment information	2014 £m	2013 £m	2014 £m	2013 £m
Connectivity	0.6	0.5	1.3	1.3
Instrumentation, Monitoring & Control	0.9	0.7	1.8	2.0
Materials	0.2	0.4	-	0.1
Total	1.7	1.6	3.1	3.4

Geographical information

The Group considers its operations to be in the following geographical regions:

	Revenue from external customers		Non-current assets
	2014 £m	2013 £m	2014 £m	2013 £m
United Kingdom	20.6	20.7	8.2	10.4
Rest of Europe, Middle East and Africa	12.7	12.3	0.6	0.5
Asia Pacific and China	5.7	7.1	0.3	0.9
Americas	7.3	7.3	0.1	0.1
Total	46.3	47.4	9.2	11.9

3.   Non-recurring or special items

	2014 £m	2013 £m
Non-recurring or special items:
- Tunisia restructuring costs	1.4	-
- UK restructuring costs	0.9	1.5
- Redundancy costs	0.4	0.3
- Strategic review costs	0.4	-
- goodwill impairment charge	1.1	-
- IFRS 2 charge	0.2	0.2
- amortisation of acquisition intangible assets	0.2	0.2
- impairment of acquisition intangible assets	0.4	-
Total non-recurring or special items	5.0	2.2

Discontinued operations comprise Total Carbide Limited (sold on 12 June 2013), the Sifam and Tinsley brands and the manufacturing subsidiary Elektron Components (Shenzen) Limited (sold on 21 October 2013) and the discontinuance of Tinsley brand activities in India.

The results of the discontinued operations, which have been included in the consolidated statement of comprehensive income, were as follows:

			2014 £m	2013 £m
Revenue			3.4	9.2
Òperating expenses			(3.7)	(8.6)
Non-recurring or special items			(0.7)	(0.1)
(Loss)/profit before tax			(1.0)	0.5
Attributable tax credit/(charge)			-	-
(Loss)/gain on disposal of discontinued operations			(0.4)	0.2
Attributable tax expense			-	-
Net (loss)/profit from discontinued operations attributable to equity shareholders			(1.4)	0.7

During the year, Total Carbide Limited  contributed  £0.1m (2013: £0.6m) to the Group's net operating cash flows, paid less than £0.1m (2013: less than £0.1m) in respect of investing and paid less than £0.1m (2013: less than £0.1m) in respect of financing activities.

During the year, Elektron Components Shenzen Limited and Sifam and Tinsley brands  contributed  £0.1m (2013: £0.2m) to the Group's net operating cash flows, paid less than £0.1m (2013: less than £0.1m) in respect of investing and paid less than £0.1m (2013: less than £0.1m) in respect of financing activities.

4.   Disposal of Businesses

a)   Total Carbide Limited

The net assets at the date of disposal:

			2014 £m
Property, plant and equipment			1.3
Inventories			0.7
Trade and other receivables			0.8
Trade and other payables			(0.4)
Borrowings			(0.1)
			2.3
Loss on disposal			(0.3)
Total consideration			2.0
Satisfied by:
Cash and cash equivalents			1.3
Shares (subsequently sold)			0.7

Loss on disposal includes £0.3m loss on sale of Versarien shares acquired as part of the proceeds for the sale of Total Carbide Limited and then subsequently sold.

b)   Elektron Components Shenzhen Limited and Sifam and Tinsley businesses

The net assets at the date of disposal:

			2014 £m
Property, plant and equipment			0.2
Intangible assets			0.2
Inventories			0.2
Trade and other payables			(0.2)
			0.4
Loss on disposal			(0.1)
Total consideration			0.3
Satisfied by:
Cash and cash equivalents			0.3

5.   Earnings per share

The calculation of the basic earnings per share (Basic EPS), diluted earnings per share (Diluted EPS) and earnings per share before non-recurring or special items (Adjusted EPS) is based on the following data. Shares held in treasury are excluded from the number of shares in issue for the purposes of earnings per share calculations. The calculation of the diluted earnings per share is based on the basic earnings per share adjusted to allow for the issue of shares on the assumed conversion of all dilutive options. However, in accordance with IAS33 'Earnings Per Share', potential ordinary shares are only considered dilutive when their conversion would decrease the profit per share or increase the loss per share from continuing operations attributable to the equity shareholders. As at 31 January 2014 there were 2,608,000 potential ordinary shares which have been disregarded in the calculation of diluted earnings per share as they were considered non-dilutive at this date.

Earnings

Earnings from Continuing Operations			2014 £m	2013 £m
Earnings for the purposes of Basic and Diluted EPS being net loss attributable to the owners of the Company			(5.3)	(1.1)
Adjustment in respect of non-recurring or special items net of taxation nil (2013: £0.6m)			5.0	1.6
Earnings for the purposes of Adjusted EPS			(0.3)	0.5

Earnings from Continuing and Discontinued Operations			2014 £m	2013 £m
Earnings for the purposes of Basic and Diluted EPS being net loss attributable to the owners of the Company			(6.7)	(0.4)
Adjustment in respect of non-recurring or special items net of taxation nil (2013: £0.6m)			6.1	1.7
Earnings for the purposes of Adjusted EPS			(0.6)	1.3

Number of shares

	2014 No.	2013 No.
Weighted average number of ordinary shares for the purposes of Basic EPS	104,450,615	105,375,535
Effect of dilutive potential ordinary shares:
Share options	-	275,000
Weighted average number of ordinary shares for the purposes of Diluted EPS	104,450,615	105,650,535

Earnings per share

From Continuing Operations			2014	2013
Basic and Diluted EPS			(5.1)p	(1.0)p
Adjusted and Diluted adjusted EPS			(0.3)p	0.5p

From Continuing and Discontinued Operations			2014	2013
Basic and Diluted EPS			(6.4)p	(0.4)p
Adjusted and Diluted adjusted EPS			(0.6)p	1.2p

6.   Net cash flows from operating activities

	2014 £m	2013 £m
Loss before taxation - from continuing operations	(4.9)	(1.5)
(Loss)/profit before taxation  - from discontinued operations	(1.4)	0.7
Adjustments for:
Depreciation	0.9	1.1
Non recurring or other special items - continuing	5.0	2.2
Non recurring or other special items - discontinued	0.7	0.1
Amortisation of development costs and computer software	0.6	0.3
Loss on disposal of fixed assets	0.3	-
Loss/(gain) on disposal of discontinued operations	0.4	(0.2)
Interest payable	0.5	0.3
Operating cash flow before working capital changes and non-recurring or special items	2.1	3.0
(Increase)/decrease  in trade and other receivables	(0.6)	2.0
Decrease in inventories	0.7	1.4
Increase in trade and other payables	0.2	0.1
Payments for restructuring and other special items	(4.5)	(2.5)
Other non-cash movements	(0.1)	(0.1)
Cash (utilised)/generated by operations	(2.2)	3.9
Interest paid	(0.5)	(0.3)
Taxation refunded/(paid)	0.4	(0.3)
Net cash (outflow)/inflow from operating activities	(2.3)	3.3

7. Cautionary Statement

The statement contains indications of likely future developments and other forward-looking statements that are subject to risk factors associated with, among other things, the economic and business circumstances occurring from time to time in the countries, sectors and business segments in which the Group operates.

These and other factors could adversely affect the Group's results, strategy and prospects. Forward-looking statements involve risks, uncertainties and assumptions. They relate to events and/or depend on circumstances in the future which could cause actual results and outcomes to differ materially from those currently anticipated. No obligation is assumed to update any forward looking statements, whether as a result of new information, future events or otherwise.

 

END

 

 

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