21st Mar 2007 15:26
TG21 Plc21 March 2007 21 March 2007 TG21 plc Preliminary results announcement for the year ended 31 December 2006 Highlights •Full year in line with City expectation •Net debt down to £3.3m from £3.8m •Overhead savings of 10% achieved in H2 €21st Century wins new business in UK and overseas •Pay As You Go trials nearing completion For Further Information: TG21 plc Wilson Jennings 020 8710 4000 Finance Director Hogarth Partnership Limited Barnaby Fry/Harriet Pask 020 7357 9477 Chairman's statement Trading Results 2006 was an extremely challenging year and, while the company achieved operatingprofit in line with full year City expectation, the legacy businesses continuedto show the marked decline highlighted in my interim results statement. Theoperating profit was £1.0m before amortisation. However, the impact of thedeclining activities reduced turnover by £5.1m (2006: £31.2m; 2005: £36.3m)clearly underlining our need to accelerate progress in the new market sectorswithin which we now operate and which have greater potential. Gross margins weredown as a result of competitive pricing pressures in our legacy distributionbusinesses and the increased proportion of low margin satellite navigationsales. As a result of cost savings within our less profitable sectors the groupachieved breakeven at the net profit line (2005: £1.2m profit). Group 2006 2005 £m Restated (note 1) £m Turnover 31.2 36.3 Gross profit 11.9 14.9 Gross profit percentage 38.1% 41.0% Total operating expenses including share of loss ofassociate but excluding amortisation and impairment of intangibles (10.9) (12.4) Total operating profit before amortisation and impairmentof intangibles 1.0 2.5 Amortisation and impairment of intangibles (0.6) (0.4) Total operating profit 0.4 2.1 Net profit attributable to members of the parentcompany - 1.2 EPS (basic) 0.00p 1.45p Net debt 3.3 3.8 Analysis of turnover 2006 2005 £m £mDistribution 18.4 21.9Insurance Services 5.6 7.1Technical Services 4.3 5.4Public transport CCTV 2.9 1.9Total turnover 31.2 36.3 In the interim statement for 2006 I indicated that as a result of the decline inour legacy businesses and delays in the revenue streams from our new initiativeswe would need to reduce overheads and consider exit strategies from some of ourmature markets. During the second half of the year we made overhead savings ofover 10% per month overall. These savings have largely come about throughrefocusing our Distribution sales channels from field sales to telesales and weare currently enhancing our web sales capability. During the year we have successfully integrated 21st Century's public transportCCTV business into our operations and have undertaken two significant trials forinsurance Pay As You Go schemes. Cash flow Cash flow remains strong and we have reduced our borrowings during the year by afurther £0.5m so that net debt now stands at £3.3m (2005: £3.8m). Current trading and outlook Public transport CCTV In 2006 21st Century supplied 465 CCTV systems for its main customer. Thecurrent year proposed roll out schedule from this customer's UK regions is for afurther 1,000 CCTV system installations, substantially underpinning the 21stCentury business for 2007. At the end of 2006, 21st Century won new business from another major busoperator in the London region and also made its first export sales to busoperators in Ireland and Scandinavia. While these are excellent opportunities,we have come to learn that the gestation period for the development of newbusiness in this market can be very long. Consequently, we have to be moreprudent in our expectations for growth from these new projects in the currentyear. In July 2006 the company acquired an option to purchase Cyberlyne CommunicationsLimited ("CCL"). CCL is a private company based in the North East of England.Like 21st Century it specialises in the supply and installation of on-board CCTVfor public transport vehicles. CCL's customers include First Bus, Go-Ahead andTranslink. We feel that this company will significantly strengthen TG21'spresence in the public transport CCTV market. For the year to 31 December 2006CCL made a net loss of £0.5m on turnover of £2.9m (£60,000, being our share ofthis loss, is included within the group results for the year). We are encouragedby the improvement in the order book that CCL has achieved in the first quarterof the current year. However, if we were to take a controlling interest in CCLwe would need to reorganise the business to reduce its overhead base and tointegrate it within the group's operation. Pay As You Go In the second quarter of the current year we expect to complete pilot Pay As YouGo schemes with two major insurers. We were awarded these opportunities on theback of the long and valued relationships which we have established in thismarket through our insurance replacement services. We hope to report later inthe year on progress of these projects which offer the potential of significantgrowth for our installation services. Distribution, Technical Services and Insurance Services Our Distribution businesses continue to suffer from the impact of competitivepricing pressures on gross margins. We have seen a further decline inDistribution sales and we anticipate that this trend will prevail through thecurrent year and beyond. We have also seen a marked slow down in mobile 'phonehands free installations as more new vehicles are supplied with 'phone kits asstandard. We are more encouraged by the results of our insurance replacementbusiness which has held up a little better than expected so far in the currentyear. Staff My thanks and those of the board go to all our staff who have worked extremelyhard in what has been a challenging year. Peter WardChairman 21 March 2007 Business review The group operates in three divisions: Public transport on-board monitoring systems Principal activities in this division are the supply of CCTV, black box andother monitoring systems for use on public transport vehicles. Services Principal activities within Services are the replacement of stolen in-carentertainment and navigation systems for insurance company customers and thesupply and installation of mobile 'phone hands-free kits for corporate fleets.Following the acquisition of 21st Century, the division now also undertakesinstallations of public transport monitoring systems. Distribution Principal activities within Distribution consist of the distribution of in-carentertainment systems, satnav/communications equipment, speed camera alerts,audio leads and own brand automotive and motorcycle alarms to the retail trade. Business environment A number of the group's legacy businesses are in mature and declining marketsnamely: Within Services •Insurance replacement of stolen in-car entertainment systems Improved vehicle security, reduced retail prices for in-car entertainmentsystems combined with increased insurance excess payments have led to a 20% fallin sales within this niche insurance replacement market during 2006. Within Distribution: •Distribution of in-car audio, navigation and vehicle security systems Retail prices in the in-car entertainment and navigation market have reduceddramatically over the last few years and new vehicles increasingly come withmore accessories as standard. In addition, the introduction of portablesatellite navigation to the market has further brought down prices. While salesvolumes in the navigation market have undoubtedly increased, these sales are atmuch reduced margins. Moreover, since 1998 all new vehicles sold within the UKmust have an immobiliser fitted and most also come with an alarm supplied by themanufacturer. These factors have led to increased pricing pressure in the in-carentertainment and navigation market and a significant decline in the volume ofproduct sold through the security aftermarket. Strategy and key performance indicators The group's immediate objective is to re-position the business into markets withattractive and sustainable rates of growth and returns through a combination ofacquisitions and organic growth. Ideally these new markets will leverage ourthree core strengths: €70 seat call centre €60 mobile installation engineers •Distribution network with over 1,000 active independent retail accounts Public transport CCTV In 2005 we took a majority stake in 21st Century Crime Prevention ServicesLimited which is a leading provider and installer of high-tech CCTV systems tothe UK public transport market. 21st Century contributed £1.1m to groupoperating profit before amortisation of intangibles in 2005. However, itsdependence on one major customer was highlighted when that customer reduced itsspend in 2006. This factor, when combined with increased investment in newproducts, resulted in a fall in contribution of £0.7m in 2006. During the second half of 2006 we further increased our potential presence inthis market by acquiring an option to purchase the whole of the share capital ofCyberlyne Communications Limited which, while currently loss making, has a widercustomer base. We are looking for these two investments to give us a platform inthe UK from which we can develop a substantial export and distribution businessfor public transport CCTV systems. We aim to secure future growth from these businesses by developing othermonitoring systems for use on public transport vehicles. Our success in this market will initially be measured by our ability to attractnew customers and to develop and launch new products. There are relatively fewmajor operators in the bus market and so a new customer win drawn from theseoperators could lead to significant future orders. At the end of 2006 21stCentury won orders from one new major customer in the UK and two overseascustomers. In 2006 we increased our installed base of WiFi CCTV units to over2,500 systems and we believe this makes us the UK's leading supplier andinstaller of WiFi systems to the public transport market. During 2006 we alsoestablished trials for two new products with a major UK bus operator and we hopeto build on this in the current year. Pay As You Go Within the Services Division we have been undertaking installations of black boxtechnology for two major insurance companies who are piloting Pay As You Goinsurance schemes. Our success on this project will be measured by how well we perform in terms ofcustomer satisfaction: with the quality of the work undertaken by ourinstallation engineers and customer management by our call centre staff. Keyperformance indicators are monitored by ourselves and our customers for most ofthe installation work we undertake. Statistics typical of our performance showthat with one client we have improved our scores for customer satisfaction andquality of work in 2006, so that we now rank first amongst the sub-contractorsemployed by that client. New products for Distribution Through our Distribution division we are constantly looking for new products tobring to market, ideally on an exclusive basis. One of the more recent productsadded to our exclusive range is the Inforad speed camera warning device. Our key measure of success in this area is the percentage increase in sales andgross margin within Distribution year on year. Unfortunately in 2006 the fall insales within our legacy sectors of in-car entertainment and security was greaterthan the increase attributable to new products. Consequently our Distributionsales fell overall by 16% and our gross margin in this division fell 4 pointsfrom 23% to 19%. Net debt and cash generation Since 1998 the company has financed its acquisitions through bank borrowingserviced by cash generated from operations. At 31 December 2006 net debt was£3.3m (2005: £3.8m). A key objective is to manage cash flow through tight working capital control andreduce net debt as quickly as possible. A key performance indicator is thereforethe amount of cash generated from operations. In 2006 the group generated £1.8mfrom operations and £4.1m in 2005. Principal risks and uncertainties The management of the business and the execution of the company's strategy aresubject to a number of risks. Risks are formally reviewed by the board and wherepossible appropriate processes put in place to monitor and mitigate them. Ifmore than one event occurs, it is possible that the overall effect of suchevents would compound the possible adverse effects on the company. The keybusiness risks affecting the company are set out below: Dependence on major customers Within the Services and CCTV divisions there is a high dependence on arelatively small number of customers and consequently the loss of one singlecustomer would have a significant impact on the business. This risk is mitigatedby monitoring and managing the businesses key performance indicators which areagreed with most of these customers. A key focus is to win new business in theCCTV market and thereby reduce reliance on the existing customer base. Competition The group operates in highly competitive markets and there is significantpressure to maintain quality of service and reduce costs. The sales team haveready access to market pricing information so that they can respondappropriately to price movements. Quality of service is monitored throughquestionnaires given to our installation customers and through reviews of ourkey performance indicators. Decline of our legacy businesses The business has its foundation in several markets which are now mature or indecline. We have made significant strides is recent years to move into newgrowth markets but the risk remains that reduced sales from our in-carentertainment and security businesses will impact more quickly than the benefitsof these new markets can be exploited. Future outlook We have successfully achieved the first stages of our strategy to reposition thebusiness. However, our CCTV business had a challenging year in 2006 as a resultof the dependence of 21st Century on one major customer. In the second half ofthe year we made overhead savings of over 10% per month overall and increasedour potential to access more of the public transport market through ourinvestment in Cyberlyne Communications Limited. Towards the end of the year 21stCentury was successful in winning business from new customers. In addition, wesee the potential to grow our installation services business through thedevelopment of Pay As You Go insurance initiatives. Consequently we remainconfident that we can build on these opportunities to achieve sustainable growthin the long term. Nick Grimond Chief Executive Consolidated profit and loss accountfor the year ended 31 December 2006 Before Amortisation of 2006 2005 amortisation intangibles Restated (note 1) Notes £'000 £'000 £'000 £'000 Turnover 31,228 - 31,228 36,316 Cost of sales (19,310) - (19,310) (21,409) --------- --------- -------- -------- Gross profit 11,918 - 11,918 14,907Other operating expenses (10,827) (576) (11,403) (12,664) --------- --------- -------- --------Group operating profit 1,091 (576) 515 2,243 Share of operating lossin associate 2 (60) - (60) (137) --------- --------- -------- --------Total operating profit 1,031 (576) 455 2,106Interest payable andsimilar charges (427) - (427) (500) --------- --------- -------- -------- Profit on ordinaryactivities before taxation 604 (576) 28 1,606Taxation - - - (289) --------- --------- -------- -------- Profit on ordinaryactivities after taxation 604 (576) 28 1,317Minority interest -equity (27) - (27) (132) --------- --------- -------- -------- Profit for the yearattributable to members ofthe parent company 577 (576) 1 1,185 ========= ========= ======== ======== Earnings pershare - basic 0.71p (0.71)p 0.00p 1.45p- diluted 0.71p (0.71)p 0.00p 1.45p All operations above relate to continuing operations - the share of the loss ofthe associate in 2006 relates to an acquisition in the year which forms part ofcontinuing operations. Consolidated note of group historical cost profits and lossesFor the year ended 31 December 2006 2006 2005 Restated (note 1) £'000 £'000Reported profit on ordinary activities before taxation 28 1,606 Difference between historical cost depreciation charge andactual depreciation charge for the year calculated on therevalued amount 28 28 -------- -------- Historical cost profit on ordinary activities before tax 56 1,634 ======== ======== Historical cost profit on ordinary activities after taxand minority interest 29 1,213 ========= ========= Consolidated statement of total recognised gains and lossesFor the year ended 31 December 2006 2006 2005 Restated (note 1) £'000 £'000Profit for the financial year- Group 61 1,322- Associate company (60) (137) -------- -------- 1 1,185 -------- --------Prior period adjustment - FRS 20 (150) - -------- -------- Total recognised (loss)/gain for the year (149) 1,185 ======== ======== Group (89) 1,322Associate company (60) (137) --------- --------- (149) 1,185 ========= ========= Balance sheets As at 31 December 2006 Group Company Notes 2006 2005 2006 2005 £'000 £'000 £'000 £'000Fixed assetsIntangible assets 4,447 4,850 - -Tangible assets 4,600 4,645 - -Investments 2 - - 14,928 13,721 ------- -------- ------- -------- 9,047 9,495 14,928 13,721 -------- -------- -------- -------- Current assetsStocks 3,114 3,799 - -Debtors 4,662 6,771 1,815 3,395Cash at bank and in hand 745 1,525 127 40 -------- -------- -------- -------- 8,521 12,095 1,942 3,435 -------- -------- -------- -------- Creditors: amounts falling duewithin one year (6,334) (8,865) (1,003) (1,088) -------- -------- -------- -------- Net current assets 2,187 3,230 939 2,347 -------- -------- -------- -------- Total assets less currentliabilities 11,234 12,725 15,867 16,068Creditors: amounts falling dueafter more than one year (1,989) (3,468) (1,989) (3,468) -------- -------- -------- -------- Net assets 9,245 9,257 13,878 12,600 ======== ======== ======== ======== Capital and reservesCalled up share capital 8,169 8,169 8,169 8,169Share premium account 3,387 12,110 3,387 12,110Special Reserve 1,206 - 1,206 -Other reserve 43 43 43 43Merger reserve - - 1,001 1,001Revaluation reserve 1,350 1,378 - -Profit and loss account 3 (4,954) (12,665) 72 (8,723) --------- --------- --------- --------- Total equity shareholders' 4 9,201 9,035 13,878 12,600fundsMinority interests 44 222 - - --------- --------- --------- --------- Capital employed 9,245 9,257 13,878 12,600 ========= ========= ========= ========= Consolidated statement of cash flows For the year ended 31 December 2006 2006 2005 Notes £'000 £'000 Net cash inflow from operating activities 5 1,813 4,092 --------- --------- Returns on investments and servicing of financeInterest paid (407) (463)Issue costs of new loans - (40)Dividend paid to minority interest (205) - --------- --------- (612) (503) --------- --------- TaxationUK corporation on tax paid (192) (151) --------- --------- Capital expenditure Purchase of tangible fixed assets (446) (699) --------- --------- AcquisitionsCosts of acquisition of associate (25) -Purchase of investment in subsidiary - (3,133)Cash acquired - 319 --------- --------- (25) (2,814) --------- --------- Cash inflow/ (outflow) before financing 538 (75) Financing (Decrease)/increase in long term borrowings (1,500) 2,500Repayment of principal under finance leases - (2) --------- --------- (1,500) 2,498 --------- --------- (Decrease)/increase in cash in the year 6 (962) 2,423 ========= ========= Notes to the preliminary announcementFor the year ended 31 December 2006 1. Restatement of 2005 operating expenses Share based payments are now accounted for under FRS 20. The adoption of thisstandard represents a change in accounting policy and comparative figures havebeen restated accordingly. Applying the Black Scholes valuation model gives afair value charge for the company's share options which in accordance with FRS20 has been added to other operating expenses in each period as follows: 2006 2005 £'000 £'000Share based remuneration charge (FRS 20) 165 150 ========== ========== 2. Purchase of an associate On 26 July 2006 TG21 entered into a loan and share option agreement withCyberlyne Communications Limited ("CCL"). Under the agreement TG21 made a loanof £430,000 to CCL bearing interest from 1 January 2007 at 9.3%. In parallelwith the loan agreement, CCL has granted an option to TG21 to acquire 50% ofCCL's share capital for a nominal value of £100. TG21 has also been granted asecond option to acquire the remaining 50% of the share capital for £1,000,000if TG21 chose to exercise the option before 30 April 2007 or the higher of£1,000,000 in cash or the cash equivalent of five times CCL's 2007 operatingprofit before management charges if the option is exercised after completion ofthe CCL's 2007 accounts. The consideration for both options is to be paid incash and both options will lapse if not exercised by 30 June 2009. Neitheroption has yet been exercised. TG21 plc has the ability to exercise its first option at any time from the dateof signing the option agreement on 26 July 2006. However, the equity method ofaccounting has only been adopted from 29 September 2006, being the date thatTG21 plc appointed its second nominated director to the board of CCL and thecompany thereby, in the opinion of the board of TG21 plc, was able to exercisesignificant influence over CCL. From 29 September 2006 to 31st December 2006 the acquisition contributed a netloss of £60,000 to the group's results for the year. In its last financial yearto 31 December 2006, the unaudited accounts of CCL show a net loss after tax of£500,000. The analysis of net assets acquired and the fair value to the group is asfollows: Book value of TG21 Group Fair value Fair value to net assets Share adjustment group £'000 £'000 £'000 £'000 Tangible fixedassets 172 86 - 86Stocks 929 465 (23) 442Debtors 358 179 - 179Creditors:falling duewithin oneyear (892) (446) - (446)Creditors:falling dueafter one year (472) (236) - (236) -------- -------- --------- --------- Net assets 95 48 (23) 25 -------- -------- --------- --------- Consideration:Cash -Acquisition costs 25 ---------Total consideration 25 --------- Goodwill - ========= The fair value adjustment relates to additional provision for obsolete stock. The fair values of the net assets acquired are provisional. Details of the company's investments are: Interests in group undertakings £'000Cost:At 1 January 2006 23,870Additions 1,207 ------------ At 31 December 2006 25,077 ------------ Amounts provided:At 1 January 2006 (10,149)Provided in the year - ------------ At 31 December 2006 (10,149) ------------ ============Net book amounts: 14,928At 31 December 2006 ============ At 31 December 2005 13,721 ============ During the year Toad (UK) Limited a wholly owned subsidiary issued one new £1ordinary share to the company at a premium of £1,017,000. Following anapplication to the High Court this share premium was offset against the broughtforward losses of Toad (UK) Limited. The cost of this ordinary share is includedin additions above along with £165,000 being the share based payments cost inrelation to employee services provided to Toad (UK) Limited and £25,000 inrespect of the costs of the acquisition of the associate company CyberlyneCommunications Limited. 3. Share premium account and reserves Group Share premium Special Share capital Revaluation Profit and loss to be issued reserve account reserve £000 £000 £000 £000 £000 At 1 January2006 12,110 - 43 1,378 (12,665) Transfer inrespect ofexcessdepreciation - - - (28) 28 Cancellationof sharepremium (8,723) - - - 8,723 Profit forthe year - - - - 1 FRS20 reserve - - - - 165 Transfer toSpecialReserve - 1,206 - - (1,206) -------- -------- -------- --------- --------At 31December 3,387 1,206 43 1,350 (4,954)2006 ======== ======== ======== ========= ======== Company Share premium Special reserve Share capital Merger reserve Profit and loss to be issued account £000 £000 £000 £000 £000 At 1 January2006 12,110 - 43 1,001 (8,723) Cancellationof sharepremium (8,723) - - - 8,723Profit forthe year - - - - 1,113FRS 20 Reserve - - - - 165Transfer toSpecial Reserve - 1,206 - - (1,206) -------- -------- -------- -------- --------At 31December 3,387 1,206 43 1,001 722006 ======== ======== ======== ======== ======== At the Annual General Meeting held on 23 May 2006 a special resolution waspassed to transfer £8,723,000 standing on the credit of the company's sharepremium account to distributable reserves. Following the AGM an application tothe High Court was made and this completed on 28 June 2006. For the protectionof creditors an amount equal to the dividends received from subsidiary companiesout of the prior year profit has been transferred to the Special Reserve. 4. Reconciliation of movements in equity shareholders' funds Group 2006 2005 Restated (note 1) £'000 £'000 Opening shareholders' funds 9,035 7,700FRS 20 reserve 165 -Profit for the year 1 1,335 -------- -------- Closing equity shareholders' funds 9,201 9,035 ======== ======== Company 2006 2005 £'000 £'000 Opening shareholders' funds 12,600 12,672 FRS 20 Reserve 165 -Profit/(loss) for the year 1,113 (72) -------- -------- Closing equity shareholders' funds 13,878 12,600 ======== ======== 5. Reconciliation of operating profit to net cash inflow from operatingactivities 2006 2005 Restated (note 1) £'000 £'000 Operating profit 515 2,243Depreciation on tangible fixed assets 491 482Amortisation and impairment of intangible fixed assets 576 312FRS20 charge 165 150Decrease in stocks 685 273Decrease/(increase) in debtors 2,142 (364)(Decrease)/increase in creditors (2,761) 996 -------- -------- Net cash inflow from continuing operating activities 1,813 4,092 ======== ======== 6. Reconciliation of net cash flow to movement in net debt 2006 2005 £'000 £'000 (Decrease)/increase in cash in the year (962) 2,423Cash outflow/(inflow) from movement in debt 1,500 (2,498) -------- -------- Change in net debt arising from cash flows 538 (75) -------- --------Capitalisation of loan issue costs - 40Amortisation of loan issue costs (21) (33) -------- -------- Movement in net debt in the year 517 (68)Net debt at 1 January (see note 7) (3,793) (3,725) -------- -------- Net debt at 31 December (see note 7) (3,276) (3,793) ======== ======== 7. Analysis of net debt At 31 December Cash flow Non cash At 31 December 2005 movement 2006 £'000 £'000 £'000 £'000 Cash at bankand in hand 1,525 (780) - 745Bank overdrafts (850) (182) - (1,032) --------- -------- --------- --------- 675 (962) - (287) ========= ======== ========= ========= Short termbank loans (1,000) 1,000 (1,000) (1,000)Other loans (3,468) 500 979 (1,989) --------- --------- --------- --------- (3,793) 538 (21) (3,276) ========= ========= ========= ========= The net non cash movement relates to the movement in amortised loan issue costsduring the year. 8. Publication of non-statutory accounts and basis of preparation The preliminary results announcement for the year ended 31 December 2006 isunaudited. The financial information contained in this preliminary announcementdoes not constitute statutory accounts for the year ended 31 December 2006. Thefinancial information for the year ended 31 December 2005 is derived from thestatutory accounts for that period (after the restatement described at note 1above) which have been delivered to the Registrar and included an audit reportwhich was unqualified and did not contain a statement under either Section 237(2) or Sections 237(3) of the Companies Act 1985. The statutory accounts forthe year ended 31 December 2006 will be finalised on the basis of the financialinformation presented by the directors in the preliminary announcement and willbe delivered to the Registrar of Companies following the company's AnnualGeneral Meeting. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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