4th Mar 2005 07:00
Flomerics Group PLC04 March 2005 IMMEDIATE RELEASE 4 March 2005 Preliminary results for Flomerics Encouraging Progress Flomerics Group PLC, supplier of analysis software to the telecommunications,semiconductor and computer industries, and other sectors of the electronicsindustries, announces its results for the year ended 31 December 2004. Key Points • Turnover flat at £10.2m, but at constant rates of exchange up 7% • Profit Before Tax up 47% to £671,000 (2003 : £455,000) • Basic Earnings per Share up 41% at 3.88p (2003 : 2.75p) • Dividend increased by 10% to 1.1p per share (2003: 1p) • Strong cash position with a balance of £3.3m (2003 : £2.5m) • Revenues from FLO/EMC up 46% (at constant rates) • Growth in Asia Pacific revenues of 28% (at constant rates) • FLO/PCB launched and well received Commenting on the results and prospects, David Mann, the Chairman, said: "Flomerics has demonstrated that it is ready to advance again. With thestrengthened management team, an impressive array of market-leading products anda global presence, the directors believe that Company is well placed to seizeopportunities for growth in revenue and for these to lead to a steadyimprovement in profit margin." For further information please contact: Flomerics:David Mann, Chairman 020 8941 8810David Tatchell, Chief ExecutiveChris Ogle, Finance Director Buchanan Communications:Tim Thompson / Nicola Cronk 020 7466 5000 Chairman's Statement Results I am very pleased to report a positive set of results for the Company with goodprogress in all areas. Turnover for the year was flat compared to 2003 at £10.2million, but at constant rates of exchange, turnover was up by 7% compared to a10% contraction in 2003. Profit before tax has increased by 47% to £671,000,resulting in a significant improvement in the pre-tax profit margin from 4% toover 6% and an increase in earnings per share of 41%. The total of the Group'scash balances has strengthened to £3.3 million. The board is recommending adividend of 1.1 p per share, an increase of 10%. The comparisons made with the prior year below and in the Chief Executive'sReview are all at constant rates of exchange. On this basis revenue from each ofthe Company's products was greater than in 2003. It is particularly encouraging that revenue from the flagship product, FLOTHERM,grew by 2% compared to an 8% contraction in the previous year. The Company isbenefiting from the recovery that is taking place in the electronics sector andFLOTHERM has retained a strong competitive position. It is also encouraging that there was significant growth of 46% in revenue fromFLO/EMC. Whilst this is still a small part of the business (7% of totalrevenues), the product has a key position in the strategy for broadening therange of the Company's offerings. FLO/PCB was released during the year and is another important part of theCompany's toolset. The product has been well received and we expect good growthin 2005. In the regions, Asia Pacific performed particularly well with growth of 28%, andrevenues from Europe increased by 9%. Revenues from the US were 1% down on 2003,reflecting the fact that some customers have moved their design work from the USto Asia Pacific. Personnel All members of the Flomerics team have my sincere thanks for the hard work anddedication that has enabled the Company to post these results. I particularlyappreciate the leadership from David Tatchell and the management team, which hasenabled the Company to come through a challenging period with confidence and astrong sense of direction. Earlier this year Gary Carter was appointed to the board as Chief OperatingOfficer. Gary has an impressive track record in the field of analysis software.The intention is that David Tatchell, one of the founders of the Company, willhand over the role of CEO to Gary by mid-2006. Outlook After some difficult years during which the Company was able to maintainprofitability, Flomerics has demonstrated that it is ready to advance again.With the strengthened management team, an impressive array of market-leadingproducts and a global presence, the directors believe that the Company is wellplaced to seize opportunities for growth in revenue and for these to lead to asteady improvement in profit margin. David Mann Chairman 4 March 2005 CHIEF EXECUTIVE'S REVIEW A RECAP - FLOMERICS' STRATEGY FOR GROWTH Over the years, Flomerics has been successful in establishing a strong,market-leading position as the supplier of analysis software for the thermaldesign/cooling of electronic equipment - to the extent that manufacturers ofvirtually all types of electronics equipment are now utilising our FLOTHERMsoftware as a key component of their product design process. Our strategy has been to leverage this unique market position by broadening ourproduct range, to address complementary problems in the "physical design ofelectronics", and thereby to open up new growth opportunities alongside thematuring FLOTHERM market. Most significantly, FLO/EMC addresses the need toimprove the electromagnetics shielding of electronics equipment, by analysingthe emissions from the equipment. And FLO/PCB is targeted at electronicsdesigners, who increasingly need access to a first-level thermal-analysis toolto improve circuit board layout, and to communicate effectively with themainstream thermal design team using FLOTHERM. These products - the established FLOTHERM product, plus the newer complementaryproducts FLO/EMC and FLO/PCB - do, we believe, provide significant growthopportunities, all in the physical design of electronics. Beyond this, we seeadditional opportunities in other markets from the Micro-Stripes and FLOVENTproducts. Micro-Stripes provides high-frequency electromagnetics analysis forantenna and microwave equipment design - and FLOVENT analyses heating andventilation for the building services industry. These products benefit fromstrong synergies - in technology and software - with (respectively) FLO/EMC andFLOTHERM. They therefore enable us to address these additional markets in a costeffective manner. To recap - Flomerics' current business strategy can therefore be summarised as: • Ensuring that FLOTHERM returns to growth as the electronics industries recover; • Leveraging the FLOTHERM market position by introducing new products (FLO/EMC and FLO/PCB) alongside it, addressing the broader needs of "physical design of electronics"; • And exploiting cost-effective opportunities in additional markets from products (Micro-Stripes and FLOVENT) with strong synergy with the core products. PROGRESS IN 2004 As highlighted elsewhere, it is pleasing to be able to report, after a difficultperiod, a number of positive trends in Flomerics' business in 2004, whichadvance this strategy. Firstly, as the recovery in the electronics industries has taken root, we haveseen a return to some level of growth in FLOTHERM. On a like for like basis(that is, without currency variations) FLOTHERM has grown by 2% over 2004,following two years of contraction. Secondly, good progress has been made with broadening our range of products inthe physical design of electronics. FLO/EMC is beginning to become establishedin the market, as is demonstrated by the strong growth in 2004 (46%). Alongsidethis, the new FLO/PCB product, released in March 2004, is making headway, and isbecoming established in a number of major accounts. And thirdly, both Micro-Stripes and FLOVENT have benefited from a re-focussingof resources during 2004. Micro-Stripes has been particularly successful,showing strong growth (20%). This was mainly achieved in Japan and Europe - for2005 we have also added dedicated resources in the US, and anticipate goodgrowth from this market. And FLOVENT showed 5% growth over 2003, reversing thetrends of prior years. LOOKING FORWARD We are now building on these successes in a number of ways. In order to maintain the growth momentum we need to add and refocus resources,carefully targeted on market and products needs. This means additional sales andsupport resources in key emerging territories (during 2004 we added a new SalesOffice in India, and expanded the operation in China) - and addingelectromagnetics technical expertise within our existing infrastructure, tosupport and drive the growth in FLO/EMC and Micro-Stripes. In addition, during 2004 we have established an Offshore Development Centre inIndia (in Bangalore, co-located with the India Sales Office). This is alreadymaking a significant contribution to our product development program. By takingresponsibility for product quality assurance and testing, and certain specificaspects of development, it is enabling us to accelerate product development in acost effective manner. And - perhaps most importantly - we are re-positioning Flomerics and itsproducts in a fairly crucial way. In order to address the increasingcomplexities of current and future electronics equipment, our customers areincreasingly needing to move beyond "point solutions" addressing particulardesign issues in isolation, to "integrated solutions" which operate efficientlytogether, and promote effective communication and team work. We have always seen FLOTHERM, FLO/EMC and FLO/PCB as a suite of integratedproducts, together addressing the primary design needs in the physical design ofelectronics. The integration is reflected particularly in the common userinterfaces, and the sharing of data and design models between the products. Anumber of customers are already taking advantage of this integration - and weare beginning to market the product suite as (rather than individual products)an "Integrated Analysis Environment" for the physical design of electronics. This repositioning of Flomerics and its products represents an importantevolution in our business approach. It provides the opportunity for us to marketand sell our multi-product suite effectively, to build higher-levelrelationships with our customers, and to build greater barriers to competition.We are therefore devoting significant efforts to re-orienting the business(sales, marketing, engineering, and product) to this new business model. And weare seeing the first successes in (for example) Philips and Ericsson in Europe,and Cisco, Intel and Tellabs in the US. APPOINTMENT OF NEW CHIEF OPERATING OFFICER Earlier this year we announced the appointment of Gary Carter as Chief OperatingOfficer. Gary joins us from ANSYS, Inc., a major US-based Computer AidedEngineering (CAE) Company, where he was Managing Director and Vice President ofEuropean Sales. Gary brings experience of building and managing a CAE software business severaltimes the size of Flomerics, and of leading a major, successful, internationalsales operation. In particular, his prior experiences in building corporatelevel relationships with major customers will be invaluable in implementing our"Integrated Analysis Environment" strategy. I am therefore delighted that Gary has joined Flomerics, and I am confident thathe will play a major part in enabling Flomerics to realise its exciting growthopportunities. David Tatchell Chief Executive 4 March 2005 OPERATING AND FINANCIAL REVIEW Overview Turnover for the year was maintained at its 2003 level at £10.2 million. Profitbefore tax has increased by 47% to £671,000 and cash balances have strengthenedto £3.3 million. Turnover Approximately 50% of the Group's revenues are received in dollars and this hashad a significant negative impact on the turnover figure in 2004. The effect onturnover of reporting this at the average rate of exchange for the year of 1.83compared to 1.64 last year is over £600,000. At constant rates of exchangeturnover has increased by 7%, compared to contraction of 10% in 2003. The comparisons made below by region and by product are all at constant rates ofexchange. The area showing most growth was Asia Pacific with over 28%. This region nowaccounts for over 20% of total revenues - compared to 17% in 2003. Chinaperformed particularly well, with growth in excess of 100% and is now proving tobe a very successful operation. The improved economy in Japan and more focus onMicro-Stripes enabled this territory to increase revenues by 34%. Europe also showed good growth (9%), particularly in Germany and France,although some of this can be attributed to multi-year licences. Revenues from the US have stabilised (99% of 2003) following contraction in theprevious two years. The US is our biggest region but now accounts for 42% ofturnover compared to 48% in 2003. We have seen some evidence of our customersmoving their design work, along with the manufacturing, to Asia Pacific andthis is reflected in our sales. Revenues increased from all of the Group's products compared to 2003. 2004 wasthe first full year for the merged product of FLO/EMC and it performed well withgrowth of 46%. FLOTHERM, which still accounts for 75% of total revenue, showeda small amount of growth (2%) but this follows two years of contraction.Revenues for Micro-Stripes and FLOVENT increased over 2003 by 20% and 5%respectively. Most of the Group's revenues, 73%, are derived from licences but maintenancerevenue is becoming increasingly important and in 2004 accounted for 15% oftotal revenues (2003:13%), an increase of 20%. The balance comes from training,consultancy and the Group's magazine - "Electronics Cooling." Recurring revenues(i.e. licence renewals and maintenance revenue) accounted for 56% of totalrevenues (2003: 58%). Revenue from new licences increased by 13% compared to2003 and represented 33% of total revenues. This is encouraging and is strongevidence of a recovery following a period of contracting revenues from newlicences. There was a significant increase in revenues coming from perpetuallicences and in 2004 they accounted for 18% of total revenues, compared to 13%in 2003. This is largely due to the increase in business coming from AsiaPacific where perpetual licences are more the norm. Operating Expenses Total operating costs were down 2%. Cost of sales were down by 22% to £201,000due to lower royalties being paid to third party licensors. Research anddevelopment costs are down 4% compared to 2003 and at £2,271,000 represent 22%of turnover compared to 23% in 2003. Other costs were flat compared to lastyear. Staff related costs are the Group's biggest expense, and represent 58% ofturnover. In 2004 total staff costs increased by 1%. The average number ofemployees was down slightly at 117 compared to 120 in 2003. Staff numbers havecome down in the US in line with the reduced turnover but have increased inChina, where we now have 5 employees and in India where we have 11. Other Income, Tax and Earnings per Share Other operating income represents rent received and is up 63% at £75,000 due toa full year's rent being received on the Group's freehold property in Hamptoncourt. Interest received has also increased by 54% to £71,000 due to higher cashbalances. The net result is an increase in profit before tax of 47% to £671k. Thisrepresents an improvement in the pre-tax margin from 4.5% to 6.6%. The Group's tax rate remains low because of the benefit of the Research andDevelopment tax credits. In 2004 the tax rate was 15%, slightly higher than lastyear (11%), which benefited from a repayment of withholding tax. Basic earnings per share are thus 41% up on last year at 3.88 pence (2003:2.75pence). Dividend The Board is recommending a dividend of 1.1p per share (2003: 1.0p per share).Subject to approval from shareholders, the dividend will be paid on 6 May 2005to shareholders on the register at the close of business on 8 April 2005. Thecash effect of this is £161,000. Financing and Cash Flows Cash generated from operating activities was £1.1 million (2003: £0.8 million).After capital expenditure of £302,000 (2003: £196,000), tax refunded of £227,000(2003: £76,000 paid) and a dividend paid to shareholders of £146,000 (2003:£146,000) the cash inflow to the Group was £851,000 (2003: £331,000.) The cashbalance has thus increased from £2.5 million to £3.3 million and net funds arenow £2.8 million (2003: £1.9 million). The Group has borrowings of £509,000,being the mortgage on a freehold property that is being repaid over ten years. In order to maximise the interest received, the Group compares interest ratesfrom different banks and deposits are placed for varying terms. £71,000 of bankinterest was received in the year (2003: £46,000). Because of the international nature of the business there is significantexposure to exchange rate fluctuations. The UK company receives royalty paymentsfrom the US subsidiary and forward exchange contracts are taken out to partlyhedge the exposure. In addition forward exchange contracts are entered into topartly hedge the exposure to the Yen from payments that it receives from Japan. Trade debtors at the and of 2004 were £3.4 million (2003:£3.0 million). Debtordays, calculated on a count-back basis, have improved from 80 to 72 days. Accounting Standards On October 7 2004, the Stock Exchange announced that it intended to mandate thatAIM companies should adopt International Accounting Standards (IAS) from 1January 2007. It was previously the intention that this would be mandatory from1 January 2006, whilst voluntary adoption could take place from 1 January 2005.The Board now intends to adopt IAS with effect from the new date of 1 January2007. We have been working with our auditors to understand the implications of the newstandards. Whilst it has been possible to reach some high level conclusionsabout the areas likely to be affected, more time is needed to assess the impactaccurately. With effect from 1 January 2006, in accordance with FRS20, the Group will needto show the "cost" of share options granted in the profit and loss account.There is still some debate in the accountancy world about how best to value theoptions granted and again the Board is working with its advisors to assess theeffect. Chris Ogle Finance Director 4 March 2005 FLOMERICS GROUP PLCCONSOLIDATED PROFIT AND LOSS ACCOUNTFOR THE YEAR ENDED 31 DECEMBER 2004 2004 (Unaudited) 2004 2003* 2003* £'000 (Unaudited) (Audited) (Audited) £'000 £'000 £'000 Turnover 10,241 10,221 Cost of sales (201) (259) _________ _________ Gross profit 10,040 9,962 Administrative expenses Research and development cost (2,271) (2,365) Goodwill amortisation (82) (82) Other (7,096) (7,124) ________ ________ Total administrative expenses (9,449) (9,571) ________ ________ 591 391 Other operating income 75 46 ________ ________ Operating profit 666 437 Other interest receivable and similar income Interest payable and similar charges 71 55 (66) (37) ________ ________Profit on ordinary activities beforetaxation (Note 3) 671 455Tax on profit on ordinary activities (102) (52) _________ _________ Profit for the financial year 569 403 Dividends (161) (146) _________ _________ Retained profit for the financial year 408 257 _________ _________ Earnings per share (Note 4) 3.88p 2.75pDiluted earnings per share (Note 5) 3.85p 2.74pEarnings per share before amortisation ofgoodwill 4.44p 3.31p * As restated (see Note 6) FLOMERICS GROUP PLCCONSOLIDATED BALANCE SHEETAT 31 DECEMBER 2004 2004 2004 2003 2003 (Unaudited) (Unaudited) (Audited) (Audited) £'000 £'000 £'000 £'000 Fixed assets Intangible assets 376 458 Tangible assets 1,658 1,675 _______ _______ 2,034 2,133 Current assets Debtors 3,891 3,835 Cash at bank and in hand 3,314 2,490 _______ _______ 7,205 6,325 Creditors: amounts falling due within one year (3,605) (3,067) _______ _______ Net current assets 3,600 3,258 _______ _______ Total assets less current 5,634 5,391 liabilities Creditors: amounts falling due after more than one year (446) (506) ________ ________ Net assets (Note 3) 5,188 4,885 _______ _______ Capital and reserves Called up share capital 146 146 Share premium account 1,602 1,602 Merger reserve 759 759 Profit and loss account 2,681 2,378 ________ ________ Equity shareholders' funds 5,188 4,885 _______ _______ FLOMERICS GROUP PLCSUMMARY CONSOLIDATED CASH FLOW STATEMENTFOR THE YEAR ENDED 31 DECEMBER 2004 2004 2003* (Unaudited) (Audited) £'000 £'000 Operating ActivitiesOperating profit 666 437Depreciation and amortisation charges 395 505Loss on disposal of fixed assets - 1Exchange differences (72) (70)(Increase) / decrease in debtors (375) 381Increase / (decrease) in creditors 513 (419)Net cash inflow from operating activities 1,127 835Net cash inflow from returns on investment and servicing of finance 5 18Tax received / (paid) 227 (76)Net cash outflow from capital expenditure (302) (196)Equity dividend paid (146) (146) ________ ________Net cash inflow before financing 911 435 Net cash outflow from financing (60) (104) ________ ________Increase in cash in the year 851 331 ________ ________ RECONCILIATION OF NET CASH FLOW TO MOVEMENTIN NET FUNDSIncrease in cash in period 851 331Cash outflow from decrease in debt and leasefinancing 60 104Foreign exchange differences (27) -Movement in net funds in the year 884 435Net funds at 1 January 1,921 1,486Net funds at 31 December 2,805 1,921 * As restated (see Note 6) Notes: 1. The Group recognised unrealised losses on translation of foreigncurrency net investments of £105,000 (2003: £75,000) in the year, which weretaken to reserves and are not included in the profits above. 2. The financial information shown for the years ended 31 December 2004and 2003 set out above does not constitute statutory accounts but is derivedfrom those accounts. The results have been prepared using accounting policiesconsistent with those used in the preparation of the statutory accounts. Thefinancial information contained in this announcement does not constitutestatutory accounts within the meaning of Section 240 of the Companies Act 1985.The financial information for the year ended 31 December 2003 has beenextracted from the statutory accounts for that year which have been filed withthe Registrar of Companies and which contain an unqualified audit report. Thefinancial information for the year ended 31 December 2004 has been extractedfrom the draft statutory accounts for that year upon which the auditors have yetto report. Copies of this announcement are available at the registered officesof the Company (81 Bridge Road, Hampton Court, Surrey, KT8 9HH) and at theoffices of the company's nominated advisors, Teather & Greenwood Ltd. (BeaufortHouse, 15 St Boltolph Street, London EC3A 7QR) for a period of 14 days from thedate hereof. 3. The Group's turnover and profit before tax for each geographic area ofoperation is: Turnover Profit Before Taxation 2004 2003 2004 2003 £'000 £'000 £'000 £'000 United States of America 4,291 4,864 261 153Europe 3,899 3,650 (532) (556)Asia Pacific 2,051 1,707 942 858 _______ _______ _______ _______ 10,241 10,221 671 455 _______ _______ _______ _______ The loss in Europe is after central costs including research and development. The net assets attributable to each geographic area are: 2004 2003 £'000 £'000 United States of America 759 553Europe 4,391 4,358Asia Pacific 38 (26) _______ _______ 5,188 4,885 _______ _______ 4. The earnings per share figure for 2004 has been calculated based on theprofit on ordinary activities after taxation and the weighted average number ofshares in issue of 14,646,580 (2003: 14,646,580 ). 5. In accordance with FRS14 issued in October 1998 the fully dilutedearnings per share were 3.85 pence per share (2003: 2.74p). The diluted numberof shares was 14,791,000 (2003: 14,724,000) 6. Previously, rental income was classified within other interestreceivable and similar income. This year the directors believe that it is moreaccurate to reflect rental income as other operating income. The effect of thisis to increase operating profit by £75,000 (2003: £46,000). There is no overallimpact upon retained profits. 7. The AGM will be held at 10.30 am on 27 April 2005 at the registeredoffice of the company (81 Bridge Road, Hampton Court, Surrey, KT8 9HH). This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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