Interim Results

Roxboro Group PLC 19 September 2000 Contacts: Harry Tee - Group Chief Executive Alf Vaisey - Group Finance Director The Roxboro Group PLC Telephone: 020 7796 4133 (19/09/00) 01223 424626 (thereafter) Alistair Mackinnon-Musson Philip Dennis Hudson Sandler Telephone:020 7796 4133 THE ROXBORO GROUP PLC INTERIM RESULTS The race to build data and telecommunications networks worldwide has helped lift pre-goodwill operating profits at Roxboro, the Cambridge based technology group, by 38% to £10.4m (1999: £7.5m) in the period to 30 June 2000. Virtually 50% of Group profits were derived from the communications and e-commerce sectors where the Group is rapidly becoming a major supplier of opto-electronic products. * Turnover up 35% to £81.7m (1999: £60.4m) * Operating Profit up 38% to £10.4m (1999: £7.5m) * Underlying Earnings per share up 12% to 11.3p (1999:10.1p) * Operating Cash flow doubled to £12.7m (1999: £6.3m) * Like for like order book up 30% since January 2000 * Disposal of Farnborough site raised £19.6m cash in July * Integration of Solartron and Mobrey on plan and at less than planned cost * Past investment at Dialight now paying off, with profits up strongly * Dividend up 7% to 3p per share (1999:2.8p per share) For some time the Board has been of the view that Roxboro has been undervalued and it is for this reason that it was agreed that, following a number of approaches from private equity companies, the option of the Group being taken private should be explored. Following the results announced today, and with excellent prospects ahead of us, the Board now believes it is in the best interests of shareholders that these discussions are terminated. The Board will continue to explore alternative means of enhancing shareholders value. Harry Tee, Group Chief Executive, said, 'We are enjoying very strong growth in the communications and e- commerce sector where we are an increasingly important supplier of opto-electronic products. Virtually every major producer of products and equipment into the sector now relies on us for their visual communication products. Following the acquisition of Mobrey and its successful integration into our measurement business, the Farnborough site has been sold with a gain that more than offsets the costs associated with the reorganisation, which is on target to achieve the savings we planned and well within our cost estimates.' INTERIM STATEMENT OVERVIEW The outstanding performance of Dialight, our US based opto- electronic business, which accounted for over 50% of the Group's operating profit in the first half, has contributed strongly to these results. Solartron, our measurement company, also produced improved profits. The acquisition in January of Mobrey has enabled us to successfully merge Solartron and Mobrey and relocate Solartron's manufacturing activities from Farnborough to the Mobrey sites at Slough and Crawley. This has increased operational flexibility and created a stronger, more profitable company. These moves then enabled us to dispose of the Farnborough site to J Sainsbury at the beginning of the second half, realising cash of £19.6 million for the Group. The successful integration of the two businesses has now largely been completed and the expected cost savings are being achieved at somewhat lower cost than had been planned. As previously predicted, and as a result of industry wide factors, sales for the period at Weston, our aerospace subsidiary, were flat. The company continues to increase investment for future growth in both product development and manufacturing capacity and overall it produced a solid performance in the first half. DIALIGHT DIVISION 2000 1999 £m £m ------- ------- Sales 32.2 25.8 +25% Operating Profit 6.7 4.2 +60% Sales at Dialight increased by almost 25%, but with the benefits of operational gearing and lean manufacturing techniques, operating profits grew by 60% to £6.7m for the first six months. Over the period the order book strengthened further with strong bookings continuing throughout the period. The primary markets for Dialight's opto-electronic products are the communications and e-business sectors, with customers such as CISCO, 3-Com, Lucent, Newbridge, Nokia, Ericsson and many others. Increased requirements for broadband access solutions and the demand for next generation networks continues to grow strongly and this provides an excellent opportunity for Dialight, which is already the market leader in the provision of visual communication products into the sector. Dialight's strategy of providing a wide choice of opto-electronic visual solutions to global communications and e-business customers world-wide, will continue to fuel the company's growth in a sector which is being driven by the global expansion of the internet, communications, e-business and networking systems. Additionally, Dialight's Transport business, which supplies new visual technology solutions, including solid state modules for traffic lights, continues to demonstrate substantial future potential. The installation of new technology traffic lights continues strongly and Dialight retains market leadership in this growing market. Dialight is expected to benefit from new legislation in the State of New Jersey, which is to make it mandatory to convert all traffic lights, arrows, pedestrian hands, etc. to new energy efficient technology. New Jersey is the first US State to pass such legislation. Dialight's new technology traffic signals absorb only 10% of the energy of traditional lights, which makes a compelling economic and environmental case for the product. This same technology is now being applied to products for railway signalling, runway lighting at airports, beacons for towers and buoys and many other potential new market opportunities. Dialight has expanded its operations in Mexico to support its present growth as well as expanding its automation at the North Carolina plant. Plans are being drawn up to build a new, larger manufacturing facility at Juarez in Mexico, early in 2001. SOLARTRON DIVISION 2000 1999 £m £m ------- ------- Sales 30.5 15.5 +97% Operating Profit 1.5 0.6 +150% Following the acquisition of Mobrey in January, its successful integration with Solartron Industrial Systems is well underway. The new company, Solartron Mobrey, now has all its manufacturing in plants at Slough, Crawley and Vichy in France. The project is on target to be completed before the end of the year with much of the cost reduction already in place. The Board is delighted the total savings will be marginally greater than the original plan and will be achieved at less cost. The full benefit of these savings will, as expected, be realised next year. As a result of these moves, Solartron's operations are much better positioned in their new locations, together with a new business structure, to develop their respective businesses. Although trading in the hydro-carbons sector remains sluggish as investment by oil companies lag behind oil price rises, the trading performance of Solartron is expected to improve further in the second half, with the full benefit of all the cost savings being realised next year. Solartron's Metrology business continues to perform well and to hold its position as world leader in the gauging sensor market, while Solartron Analytical is seeing an improvement in its Asian market. WESTON DIVISION 2000 1999 £m £m ------- ------- Sales 18.9 19.0 Operating Profit 3.4 3.9 Weston continued to consolidate its position in the aerospace sector, as world leader in temperature measurement for large turbo fan engines by winning new business at Rolls Royce and Pratt & Whitney through Norwich Aero Products, its US subsidiary. As previously predicted Weston produced a modest performance by its standards in the first half, where sales were flat as a result of the phasing of certain programmes some of which have seen some slippage. Prospects remain good with no fewer than 30 new customer- commissioned products in development for new programmes with major OEMs resulting in increased engineering expenditure in the period. Weston's position in pressure measurement was also strengthened further by wins at TRW and Snecma, where a contract to install pressure scanning instrumentation in aero-engine test beds was secured. The company's recently introduced Quartzonic pressure sensor range is growing well and enables Weston to offer customers the option of two of the most accurate pressure sensor technologies available anywhere in the world. As part of the Farnborough site disposal agreement, Weston will relocate into the more modern, leased building on the site early in 2001 where the company will have more space for future expansion. All the costs associated with this move will be taken into the 2000 full year accounts and will be more than offset by the gain on the disposal of the property. CASH FLOW During the period the Group has continued to invest in future growth both in capital expenditure (£3.0m), the acquisition of Mobrey (£22.9m) and in new product development (£4.5m). Although the Group once again demonstrated its ability to generate strong operational cash flows, which doubled to £12.7m, these investments resulted in borrowings increasing in the first half to £31.3m The disposal of the Farnborough site in July (after the half year) for £19.6m, and the continued cash generation at the operating level will, however, result in a much reduced borrowings level at the year end. The net effect of the property sale and the total re- organisation and relocation costs, is a small one-off gain in the current year and a very positive cash contribution. DIVIDEND The Board has declared an interim dividend of 3 pence per share, an increase of 7% on last year (1999: 2.8p). The dividend will be paid on 20 October to shareholders registered on 29 September 2000. OUTLOOK For some time the Board has been of the view that Roxboro has been undervalued by the stock market and it is for this reason it was agreed to explore, on behalf of all shareholders, the option of the Group being taken private following approaches from private equity companies. Following the excellent performance announced today and with good prospects ahead of us, we now believe it is in shareholders' interests that Roxboro continues as a quoted company and that all our shareholders have the opportunity of benefiting from the growth of the Group. The Board will continue to explore alternative means of enhancing shareholders value. Past investment in new technologies and products at Weston and Dialight is paying off, while the Mobrey acquisition recently made to strengthen Solartron, has resulted in a stronger, more profitable company. The growth in demand for our new technology products in the communications, e-commerce and transport sectors together with our leadership in the aerospace sensor market and the increasing strength of our measurement business all contribute to the prospect of future profitable growth for Roxboro. The Board is confident of the Group's prospects. Sir Alan Cockshaw Harry Tee Chairman Group Chief Executive Group Profit and Loss Account Unaudited interim results for the half year ended 30 June 2000 2000 1999 1999 6 months6 months12 months ended ended ended 30 June 30 June31 December Notes £'000 £'000 £'000 ----- ----- ----- Turnover Continuing operations 67,915 60,395 124,836 Acquisitions 13,755 - - ----- ----- ----- 2(a) 81,670 60,395 124,836 ----- ----- ----- Operating profit before goodwill amortisation Continuing operations 10,350 7,474 18,455 Acquisitions 55 - - ----- ----- ----- 10,405 7,474 18,455 ----- ----- ----- Goodwill amortisation (439) (102) (274) ----- ----- ----- Total operating profit 2(b) 9,966 7,372 18,181 Exceptional item: Costs of restructuring the Operating Division 4 (3,640) - - ----- ----- ----- Profit on ordinary activities before interest 6,326 7,372 18,181 ----- ----- ----- Profit on ordinary activities before taxation 4 4,956 7,457 17,852 Tax on profit on ordinary activities 5 (1,641) (2,461) (6,057) ----- ----- ----- Profit for the financial period attributable to shareholders 3,315 4,996 11,795 Dividends (1,693) (1,577) (4,901) ----- ----- ----- Retained profit 1,622 3,419 6,894 ----- ----- ----- Pence Pence Pence Dividends per share 7 3.0 2.8 8.7 ----- ----- ----- Earnings per share Basic 8 5.9 8.9 20.9 Adjusted 8 11.3 10.1 22.5 Diluted 8 5.7 8.7 20.7 Group Balance Sheet Unaudited interim results at 30 June 2000 2000 1999 1999 30 June 30 June31 December Notes £'000 £'000 £'000 ----- ----- ----- Fixed assets Intangible assets 6 17,509 6,744 6,572 Tangible assets 38,042 32,109 32,561 Investments 16 39 39 ----- ----- ----- 55,567 38,892 39,172 ----- ----- ----- Current assets Stock 21,657 13,152 13,770 Debtors 30,061 24,592 24,686 Cash at bank and in hand 8,917 1,083 4,531 ----- ----- ----- 60,635 38,827 42,987 Creditors: Amounts falling due within one year Borrowings (21,509)(12,569)(13,966) Other creditors (25,049)(22,004)(21,968) ----- ----- ----- (46,558)(34,573)(35,934) Net current assets 14,077 4,254 7,053 ----- ----- ----- Total assets less current liabilities 69,644 43,146 46,225 Creditors: Amounts falling due after more than one year Borrowings (18,694) (974) (771) ----- ----- ----- 47,118 41,467 44,713 ----- ----- ----- Capital and reserves Called up share capital 564 563 563 Share premium account 5,045 4,871 4,893 Capital redemption reserve 51 51 51 Profit and loss account 41,458 35,982 39,206 ----- ----- ----- 47,118 41,467 44,713 ----- ----- ----- Group statement of total recognised gains and losses Unaudited interim results for the half year ended 30 June 2000 2000 1999 1999 6 months6 months12 months ended ended ended 30 June 30 June31 December £'000 £'000 £'000 ----- ----- ----- Profit for the period attributable to equity shareholders 3,315 4,996 11,795 Currency translation differences on foreign currency net investments 630 636 362 ----- ----- ----- Total gains recognised in the period 3,945 5,632 12,157 ----- ----- ----- Reconciliation of movements in shareholders' funds Unaudited interim results for the half year ended 30 June 2000 2000 1999 1999 6 months6 months12 months ended ended ended 30 June 30 June31 December £'000 £'000 £'000 ----- ----- ----- Total recognised gains and losses 3,945 5,632 12,157 Dividends (1,693) (1,577) (4,901) Shares issued 153 282 304 Goodwill written back - 68 91 ----- ----- ----- Net change to shareholders funds 2,405 4,405 7,651 Balance brought forward 44,713 37,062 37,062 ----- ----- ----- Balance carried forward 47,118 41,467 44,713 ----- ----- ----- Group Statement of Cash Flows Unaudited interim results for the half year ended 30 June 2000 2000 1999 1999 6 months6 months12 months ended ended ended 30 June 30 June31 December Notes £'000 £'000 £'000 ----- ----- ----- Cash flow from operating activities Net cash inflow from trading operations 3 12,690 6,266 18,714 Outflow related to exceptional item 4 (1,005) - - ----- ----- ----- Cash flow from operating activities 11,685 6,266 18,714 Returns on investments and servicing of finance Interest paid (1,644) (208) (635) Interest received 226 308 363 ----- ----- ----- Net cash (outflow)/inflow from returns on investment and servicing of finance (1,418) 100 (272) Taxation (2,575) (1,698) (7,234) Capital expenditure and financial investment Purchase of tangible fixed assets (3,046)(16,819)(19,580) Sale of tangible fixed assets 204 57 106 ----- ----- ----- Net cash outflow from investing activities (2,842)(16,762)(19,474) Acquisitions and disposals (22,913) (7,536) (7,536) Equity dividends paid (3,324) (3,034) (4,611) ----- ----- ----- Cash outflow before use of liquid resources and financing (21,387)(22,664)(20,413) ----- ----- ----- Financing Issue of ordinary share capital 153 282 304 Loan advances 25,665 14,001 9,699 Capital element of finance lease rental payments (45) (8) (60) ----- ----- ----- 25,773 14,275 9,943 ----- ----- ----- Increase/(decrease) in cash in the period 4,386 (8,389)(10,470) ----- ----- ----- Reconciliation of net cash flow to movements in net debt 2000 1999 1999 6 months6 months12 months ended ended ended 30 June 30 June31 December £'000 £'000 £'000 ----- ----- ----- Increase/(decrease) in cash in the period 4,386 (8,389)(10,470) Cash flow from increase in debt and lease financing (25,620)(13,993) (9,639) ----- ----- ----- Change in net debt resulting from cash flows (21,234)(22,382)(20,109) Loans and finance leases acquired with subsidiary undertakings - (1,345) (1,345) Loan notes issued - (590) (590) Translation difference 154 (39) (58) ----- ----- ----- Movement in net debt in the period (21,080)(24,356)(22,102) Net (debt)/ cash at beginning of period (10,206) 11,896 11,896 ----- ----- ----- Net debt at end of period (31,286)(12,460)(10,206) ----- ----- ----- Notes to the Financial Report 1) Basis of preparation of interim financial information The interim financial information has been prepared on the basis of the accounting policies set out in the group's statutory accounts for the year ended 31 December 1999. 2) Segmental information Turnover, operating profit and net assets are analysed below: 2000 1999 1999 6 months6 months12 months ended ended ended 30 June 30 June31 December £'000 £'000 £'000 ----- ----- ----- a) Turnover By geographical destination: UK 19,448 14,292 29,974 USA 38,240 32,729 65,334 Other European countries 14,814 7,956 15,896 Rest of the world 9,168 5,418 13,632 ----- ----- ----- 81,670 60,395 124,836 ----- ----- ----- By geographical origin: UK 43,391 31,869 66,882 USA 37,331 30,882 63,137 Other European countries 6,261 896 1,763 ----- ----- ----- 86,983 63,647 131,782 Inter-segment sales (5,313) (3,252) (6,946) ----- ----- ----- 81,670 60,395 124,836 ----- ----- ----- By business operation: Dialight 32,221 25,810 52,608 Weston 18,941 19,038 38,340 Solartron 30,508 15,547 33,888 ----- ----- ----- 81,670 60,395 124,836 ----- ----- ----- Notes to the Financial Report 2) Segmental information (continued) 2000 1999 1999 6 months6 months12 months ended ended ended 30 June 30 June31 December £'000 £'000 £'000 ----- ----- ----- b) Operating profit By geographical origin: UK 5,520 4,703 11,946 USA 6,227 4,087 8,814 Other European countries (202) (42) (152) ----- ----- ----- Operating profit before central costs and goodwill amortisation 11,545 8,748 20,608 Central costs (1,140) (1,274) (2,153) Goodwill amortisation (439) (102) (274) ----- ----- ----- Operating profit on ordinary activities 9,966 7,372 18,181 ----- ----- ----- By business operation: Dialight 6,668 4,232 8,904 Weston 3,351 3,873 8,334 Solartron 1,526 643 3,370 ----- ----- ----- Operating profit before central costs and goodwill amortisation 11,545 8,748 20,608 Central costs (1,140) (1,274) (2,153) Goodwill amortisation (439) (102) (274) ----- ----- ----- Operating profit on ordinary activities 9,966 7,372 18,181 ----- ----- ----- Notes to the Financial Report 2) Segmental information (continued) 2000 1999 1999 6 months6 months12 months ended ended ended 30 June 30 June31 December £'000 £'000 £'000 ----- ----- ----- c) Net assets By geographical origin: UK 23,545 18,516 19,220 USA 14,279 11,660 11,862 Other European countries 2,562 198 (99) ----- ----- ----- 40,386 30,374 30,983 Unallocated central net assets 6,732 11,093 13,730 ----- ----- ----- 47,118 41,467 44,713 ----- ----- ----- By business operation: Dialight 16,778 12,765 13,500 Weston 9,248 8,108 11,046 Solartron 14,360 9,501 6,437 ----- ----- ----- 40,386 30,374 30,983 Unallocated central net assets 6,732 11,093 13,730 ----- ----- ----- 47,118 41,467 44,713 ----- ----- ----- The comparative figures shown in note 2 for the period ended 30 June 1999 and the period ended 31 December 1999 have been restated following the reorganisation of the Group into three business entities. The reorganisation achieved clarity with the Group's activities focused under 3 brand names. 3) Reconciliation of operating profit to net cash inflow from operating activities 2000 1999 1999 6 months6 months12 months ended ended ended 30 June 30 June31 December £'000 £'000 £'000 ----- ----- ----- Operating profit 9,966 7,372 18,181 Depreciation 2,847 2,080 4,301 Goodwill amortisation 439 102 274 Profit on sale of tangible fixed assets (52) (2) (26) Increase in stocks (1,769) (1,485) (2,337) Decrease/(increase) in debtors 2,005 (2,947) (3,084) (Decrease)/increase in creditors (552) 1,235 1,314 Other non cash items (194) (89) 91 ----- ----- ----- Net cash inflow from operating activities 12,690 6,266 18,714 ----- ----- ----- 4) Exceptional items 2000 1999 1999 6 months6 months12 months ended ended ended 30 June 30 June31 December £'000 £'000 £'000 ----- ----- ----- Recognised in arriving at operating profit: Non-recurring costs Aborted acquisition costs - 189 189 Re-organisation costs - 270 270 Costs in respect of successful litigation - 265 319 ----- ----- ----- - 724 778 ----- ----- ----- Recognised below operating profit: Costs of restructuring the operating division 3,640 - - ----- ----- ----- 3,640 724 778 ----- ----- ----- The tax effect in the profit and loss account relating to the exceptional item recognised below operating profit is a credit of £1,032,000. 5) Taxation The tax charge of £1,641.000 for the half year to 30 June 2000 reflects the anticipated effective tax rate for the year ending 31 December 2000. The tax charge arising from the sale of the Farnborough site, which is lower than the standard rate, has been included in the calculation of the anticipated effective tax rate. 6) Acquisitions The Group acquired the entire issued share capital of each of the companies in the Mobrey Group on 8 January 2000 for consideration (including costs) of £23.86m. The fair value of net assets acquired amounted to £12.484m giving rise to goodwill of approximately £11.376m. The goodwill shown above is based on preliminary estimates of the fair value of net assets acquired. 7) The directors have declared an interim dividend of 3.0p (1999: 2.8p net) payable on 20 October 2000 to shareholders on the register on 29 September 2000. 8) Earnings per share attributable to equity shareholders are based upon the weighted average number of shares in issue during the period of 56,373,862 (30 June 1999 56,276,392 shares; 31 December 1999 56,302,832 shares). The diluted earnings per share are based upon the weighted average number of shares in issue during the period as adjusted for options outstanding. 2000 1999 1999 6 months6 months12 months ended ended ended 30 June 30 June31 December Pence Pence Pence ----- ----- ----- Reconciliation to adjusted earnings per share: Basic earnings per share 5.9 8.9 20.9 Non-recurring exceptional costs 4.6 - - Non-recurring operating costs - 1.0 1.1 Goodwill amortisation 0.8 0.2 0.5 ----- ----- ----- Adjusted earnings per share 11.3 10.1 22.5 ----- ----- ----- 9) Events since the balance sheet date On 20 July 2000 the Group announced the disposal of the Farnborough site for a cash consideration of £19.6 million and a leaseback of part of the site. 10)The financial information for each of the half years does not constitute statutory accounts as defined in section 240 of the Companies Act 1985. The comparative financial information for the year ended 31 December 1999 is abridged and has been extracted from the Statutory Accounts, on which the auditors issued an unqualified opinion, and which have been delivered to the Registrar of Companies.

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