12th Sep 2006 14:24
Polaron PLC12 September 2006 12 September 2006 Polaron plc Preliminary results Polaron plc, (LSE: POL) the focused controls group, today announces itspreliminary results for the year ended 30 June 2006. Financial Highlights • Turnover up 26% to £23.72m (2005: £18.76m) • Loss before tax £0.69m (2005: Profit £1.26m) • Loss per share 6.2p (2005: Earnings 5.3p) • Recommended final dividend of 0.9p per share (2005: 0.9p), bringing the full year dividend to 1.35p per share (2005 - 1.2p) Continuing Operations • Profit before tax, exceptional costs and goodwill amortisation increased by 12% to £1.65m (2005: £1.47m) • Adjusted EPS increased by 19% to 8.7p (2005: 7.3p) • Net debt, excluding shares to be issued, at the year end of £1.46m and undrawn committed facilities of £1.92m Operational Highlights • Controls business showing strong growth: o Turnover increased 55% to £22.38m (2005: £14.48m), which includes £6.44m from DMS Controls Ltd o Acquisition of DMS for £3.68m • Loss making Nanotechnology business sold to two parties for £2.54m, comprising cash (£1.29m) and shares (£1.25m) • Software Publishing business sold to management for £0.18m in cash Joe Stelzer, Chief Executive Officer, commented: "As evidenced by these results, the decision to focus purely on being a Controlsbusiness is already showing benefits both in terms of turnover, profit growthand cash generation. Polaron has a strong range of products, a highly innovativeR&D team and a dynamic sales force that operates across a wide range of marketsas a cohesive team. I am looking forward to the coming year as an opportunity todemonstrate these strengths through further growth." Enquiries: Polaron plc Tel: 01923 495 513Joe StelzerFraser Searle Conduit PR Tel: 0207 429 6666Lawrence Read/Abigail Singleton Chairman's Statement The year ended 30th June 2006 has been a busy time for Polaron. At the beginningof the year, we disposed of our non-core business FastTrak Software PublishingLimited to its management and acquired DMS Controls Ltd, a supplier of buildingmanagement and HVAC control systems. Following a strategic review in September2005, the Board decided to dispose of the Nanotechnology division as a result ofcontinuing losses through slow conversion of the sales pipeline and increasingR&D expenditure. At the beginning of April 2006, the Nanotechnology business wassold to two parties for a total consideration of £2.54m, comprising cash(£1.29m) and shares (£1.25m). We are now a focused Controls business operating in markets that should provideus with an ideal platform to benefit from a global drive towards energyconservation and construction activity arising from London's hosting of the 2012Olympics. On 5th September 2006, the Company made the following announcement : "The Board of Polaron Plc notes the recent share price movement and announcesthat it is currently examining a number of strategic options which could includea sale of the company. The Company is in preliminary discussions with a numberof parties which may or may not lead to an offer being made for the Company. A further announcement will be made when appropriate." I would like to thank my fellow Board members and the staff of Polaron for theirvalued contributions and hard work during the past year. Will DavidNon Executive Chairman Chief Executive's Statement Introduction------------ The net result of the year's acquisitions and disposals is a Controls businesscomprising three divisions: Products, Systems and Distribution. The Products division operates in two areas: Architectural and Entertainmentlighting control markets under the brand names iLight, Zero88 and Lightprocessorand Precision Components supplying the Transport, Aerospace and Military marketsunder the brand names Polaron, Nelco and Engel & Gibbs. The Systems division operates as a single business unit under the name DMSControls Ltd ("DMS") and is involved in designing, installing and commissioningsystems for Building Management, HVAC, CCTV, Fire, Security & Smarthomes. The Distribution division operates in two areas: Entertainment lighting controland Home Install for Smarthomes under the names Lightfactor and Marata Vision. I am very pleased to report that despite the significant amount of managementtime spent on disposing of the Nanotechnology business, we were able to producesignificant growth in turnover and profit in the continuing Controls business.Polaron has met its operating targets for the continuing business during theperiod and has started the 2007 financial year in good shape. Business Review - Continuing Operations--------------------------------------- Continuing operations produced turnover of £22.38m (2005: £14.48m) representingan increase of 55%. Of this, £6.44m was attributable to DMS. Products Division----------------- Lighting Control products------------------------- The iLight and Zero88 brands showed strong growth, benefiting from new productsand enlarged sales teams. The new DIN rail products launched at Licht & Bild(Lighting & Building) exhibition in Frankfurt during April were well received.Further new products will be released during 2007 to complete our strategy ofbroadening our product range to allow entry into several, as yet untapped marketopportunities. Our range of products are now suitable for use in energy management biasedoffice lighting and external environmental control, mood lighting control forhotels, superyachts, board rooms, homes and entertainment lighting for pubs,clubs, pop concerts and theatres. Across these application areas we haveproducts specific for low power (the DIN rail range) and high power (individualdimmer racks). From a user's perspective other new products allow our systems to be controlledautomatically via time clocks or building management systems or fromcustomisable and easy to use colour LCD touchscreens. We have worked closelywith architects and lighting designers to enhance our range of aestheticallycrafted wall mounted control panels. Our Internet Gateway product allowscustomers access to their systems remotely and also allows us to diagnose systemproblems and perform system upgrades globally from our head office in Watford. In the entertainment market, our recently introduced Frog2 lighting control deskhas become an accepted mainstream tool for show designers - the most recentinstance being the Lotus stand at the British Motor show in July. Precision Components-------------------- This is a mature business that benefits from close relationships with keycustomers. Performance during the year has been stable. Current contracts fortwo London Underground tube lines are nearing an end and there is a prospect offurther contracts for other lines in the near future. Other long term contractscontinue and the pressure sensor and heart pacemaker components continue toperform consistently. Systems Division---------------- DMS has benefited from a buoyant London office refurbishment market and hasgrown rapidly during the year. Successful performance on a number of high valuecontracts gives us confidence that we will have a strong opportunity to beawarded repeat business in the future. Order placement cycles have reduced inthe marketplace and our ability to react quickly will allow us to be well placedto win further business. DMS is now able to provide integration engineering over a wide range of productsthat are used in intelligent buildings. These include building managementsystems, HVAC control, Fire Detection, Security and CCTV, Audio Visual andLighting Control. Markets serviced include office buildings, data centres,schools and universities, hospitals and high end smarthomes. The rationale of acquiring DMS to complement our existing system engineeringbusiness was to create a cross disciplinary selling team that could offer largepackaged solutions from one organisation. We have demonstrated our capability onseveral smaller projects during the year and are now looking to leverage thisexperience into larger projects during the coming year. The DMS management teamhave assumed responsibility for Polaron's system engineering division and arebeginning to implement a rationalisation of sales and engineering functions. Distribution Division--------------------- The Distribution division has coped extremely well with a number of distributionlines being replaced during the year. Turnover showed a strong increase over theprevious year with margins remaining stable. Strong selling products across thetwo distribution businesses include the Aquavision range of waterproof TV's forbathrooms and showers for Marata Vision and the SGM range of LED based movinglights for Lightfactor. Several opportunities exist for increasing the productportfolio further and these opportunities are likely to be determined during thecoming year. Discontinued Operations----------------------- Nanotechnology & Software Republishing-------------------------------------- The losses incurred in our Nanotechnology business Oxford Nanoscience were notsustainable given the lack of sales orders for atom probes, the lack ofvisibility in the order placement cycle and the aggressive R&D programmerequired by the company to keep up with its principal competitor ImagoScientific Instruments Corporation of Madison, Wisconsin ("Imago"). In view ofthis, the disposal of the business to Imago was seen as beneficial not only interms of removing the cash drain on the rest of the group, but also in terms ofgiving Polaron the opportunity of significant upside in the form of part of theconsideration being taken in preference shares in Imago, as and when the atomprobe technique becomes widely accepted and system sales follow suit. I believethat the intellectual property that Imago now owns in this area creates a verysignificant barrier to market entry for any competitor and as such I see an exitstrategy for our stake in Imago in the medium term either by trade sale or IPO. In September 2005, the Software Republishing business was sold to itsmanagement. Polaron retained 90% of the benefit in respect to any benefitrelating to proceedings issued by it against its former republishing partnerMagix AG of Germany. Proceedings were issued early in September 2006 for breachof contract against Magix in a Berlin court. Financial Review---------------- Turnover 2006 2005 £'million £'millionControls 22.38 14.48Nanotechnology - discontinued operation 1.14 2.89Software republishing - discontinued operation 0.20 1.39 -------- -------- 23.72 18.76 ======= ======= Total turnover for 2006 increased by 26% to £23.72m (2005: £18.76m). The majorgrowth was in the Controls business which grew by 55%. Nanotechnology revenue in2006 is for 9 months, and on a pro-rata basis is lower than in 2005 due to alack of atom probe sales. Software republishing is for 3 months, and on apro-rata basis was lower than in 2005 due to difficult market conditions andcontractual disputes with Magix. Revenue in the Controls business by division is as follows 2006 2005 % Growth £'million £'millionProducts - Lighting controls 24 8.32 6.69Products - Precision components (32) 3.09 4.54Systems 475 8.69 1.51Distribution 31 2.28 1.74 -------- --------- 55 22.38 14.48 ======== ======== Revenue from Lighting control products grew by 24% due to new products and anenlarged sales team. Revenue from Precision component products decreased by 32%,mainly due to the loss of approximately £1.3m of annual revenue following thedisposal of part of the pressure sensor business in February 2005. Excluding DMS, the Systems division grew by 48%. DMS contributed turnover of£6.44m in the year to the Systems division. The Distribution business grew by31% due to a full year contribution from the Lightfactor business, but also 22%growth in Home Install revenue. Gross profit 2006 2006 2005 2005 Margin % £'million Margin % £'millionControls 41.6 9.31 47.9 6.93Nanotechnology - discontinued 21.9 0.25 35.3 1.02 operationSoftware republishing - discontinued 70.0 0.14 54.7 0.76 operation -------- --------Gross profit 40.9 9.70 46.4 8.71 ======== ======== Overall, gross profit rose by 11% to £9.70m (2005: £8.71m), due to the growth inturnover offset by a decrease in the overall gross margins from 46.4% in 2005 to40.9% in 2006. The decrease in Controls business gross margin is due to theacquisition of DMS, which achieved a gross margin of 28%, compared with 47.1%(2005 - 47.9%) in the other businesses. The gross margin in Nanotechnology fellfrom 35.3% to 21.9% due to a lack of atom probe sales in 2006. Distribution costs Distribution costs decreased by £0.41m to £1.92m in 2006. Administrative expenses 2006 2005 £'million £'millionResearch and development costs 0.58 0.53Goodwill amortisation 0.97 0.55Amortisation of other intangible assets 0.12 0.05Depreciation 0.41 0.32Exceptional items - 0.47Other administrative expenses 5.63 4.11 -------- --------Total administrative expenses 7.71 6.03 ======== ======== Total administrative expenses increased by £1.68m from £6.03m in 2005 to £7.71min 2006. Research and development costs in 2006 of £0.58m are comparable with £0.53m in2005. The cost in 2006 includes a full contribution from the businesses acquiredin 2005, offset by cost savings from rationalisation of product developmentactivity in the Controls business. Research and development costs inNanotechnology increased from £0.02m to £0.06m in 2006. In addition, £0.12m ofNanotechnology development costs were capitalised during 2006. Goodwill amortisation increased from £0.55m to £0.97m in 2006, reflecting a fullyear's charge for the acquisitions completed in 2005 and the amortisationattributable to the acquisitions of DMS in 2006, which amounted to £0.43m. Exceptional costs in 2005 amounted to £0.47m and related to the restructuring ofthe acquired businesses and reorganising the enlarged Controls business. Other administrative expenses in 2006 were £5.63m compared with £4.11m in 2005.The increase is primarily due to £0.86m of expenses attributable to DMS, a fullyear's contribution from the businesses acquired in 2005, an increase inoverhead costs, offset by lower overheads in respect of the businesses sold in2006. Operating profit, excluding goodwill amortisation 2006 2005 £'million £'millionControls 1.92 1.05Nanotechnology - discontinued operation (0.92) (0.19)Software republishing - discontinued operation 0.04 0.04 -------- -------- 1.04 0.90 ======== ======== Operating profit, excluding goodwill amortisation, increased from £0.90m to£1.04m, due to improved profitability in the Controls business, offset byincreased losses in the Nanotechnology business. Loss on disposal The loss on disposal in 2006, arose from the disposal of the Nanotechnology(£0.43m) and the Software republishing businesses (£0.06m). In 2005, the profiton disposal related to the sale of part of the pressure sensor business, whichwas completed in February 2005 and amounted to £0.96 million. Interest payable and similar charges 2006 2005 £'million £'millionBank loans and overdrafts 0.15 0.03Interest on finance leases and hire 0.03 0.02 purchase contractsInterest charge in respect of deferred 0.12 - consideration -------- -------- 0.30 0.05 ======== ======== The interest charge in 2006 was £0.30m compared with £0.05m in 2005. Theincrease is due to higher levels of bank borrowings, which were used to fund theacquisitions in 2006, and £0.12m arising from the unwinding of the discountedvalue of the DMS deferred consideration. (Loss)/profit before taxation, goodwill amortisation and exceptional items 2006 2005 £'million £'millionControls 1.65 1.47Nanotechnology - discontinued operation (0.92) (0.19)Software republishing - discontinued operation 0.04 0.04 ------- ------- 0.77 1.32 ======= ======= The profit before taxation, goodwill amortisation and exceptional items (EBETA)for the Controls business increased from £1.47m to £1.65m in 2006. Overall EBETAdecreased from £1.32m to £0.77m due to increased losses in the Nanotechnologybusiness. (Loss)/profit before taxation The loss before tax in 2006 was £0.69m compared with a profit of £1.26m in 2005. The taxation charge decreased from £0.54m in 2005 to £0.17m in 2006, reflectinglower profits. The taxation charge as a % of profit before tax, goodwillamortisation and, in 2006, the loss on disposal, was 21.9 % compared with 29.6%in 2005. The lower % in 2006 reflects a credit in respect of prior periods of£0.04m. (Loss)/profit for the financial year The loss for the financial year was £0.86m compared with a profit of £0.73m in2005. (Loss)/earnings per share and dividends The loss per share from continuing and discontinued operations in 2006 was 6.2p,compared with earnings per share of 5.3p in 2005. Earnings per share fromcontinuing operations was 3.2p in 2006, compared with 7.7p in 2005. The adjusted earnings per share from continuing operations, which excludesgoodwill amortisation, exceptional items and disposals, increased from 7.3p in2005 to 8.7p in 2006. The Board is recommending a final dividend for the year of 0.9p (2005 - 0.9p)per ordinary share, payable to shareholders on the register on 29th September2006. This will bring the total dividends payable for the year to 1.35p pershare (2005 - 1.2p per share). Cash flow and facilities Net cash flow from operating activities Net cash flow from operating activities totalled £0.88m, compared with £0.81m in2005, reflecting lower operating profits in 2006 of £0.07m (2005 - £0.35m), anincrease in the depreciation and amortisation charge from £0.92m in 2005 to£1.50m in 2006 and an increase in the cash absorbed into working capital from£0.50m in 2005 to £0.70m in 2006. Net cash flow from capital expenditure, acquisitions and disposals 2006 2005 £'million £'millionTangible assets (0.25) (0.38)Intangible assets (0.19) (0.53)Purchase of subsidiary companies, net of overdrafts (0.89) (1.46)Disposal of subsidiary companies 0.55 -Disposal of part of pressure sensor business - 1.23Other (0.03) 0.08 -------- --------Net cash outflow (0.81) (1.06) ======== ======== Net cash outflow from capital expenditure, acquisitions and disposals amountedto £0.81m in 2006, compared with £1.06m in 2005. The cash consideration paid forthe acquisition of DMS during 2006 amounted to £0.89m, net of cash acquired of£0.53m, whilst the net proceeds from the disposal of the Software republishingand Nanotechnology businesses amounted to £0.02m and £0.53m, respectively. The cash consideration paid for the two acquisitions during 2005 amounted to£1.46m, including overdrafts acquired of £0.08m, whilst the net proceeds fromthe disposal of part of the pressure sensor business amounted to £1.23m. Net cash flow from financing Cash outflow from financing amounted to £nil, compared with an inflow of £0.26min 2005. During 2006, £0.20m (2005 - £0.50m) was drawn down from the loanfacility of £2.11m. The repayment of the capital element of finance leasestotalled £0.20m in 2006 compared with £0.24m in 2005. Net cash flow Net cash outflow in 2006 was £0.65m, compared with £0.42m in 2005. Net debt and facilities At 30 June 2006, the Group had net debt, excluding shares to be issued as futureconsideration, of £1.46m, comprising cash of £0.03m (2005 - £0.20m), bankoverdrafts of £0.48m (2005 - £nil), bank loans of £0.70m (2005 - £0.50m) andfinance leases of £0.31m (2005 - £0.40m). Shares to be issued as future consideration amounted to £0.60m (2005 - £0.07m)and, notwithstanding that the number of shares to be issued was known at 30 June2006, are required to be presented as debt in accordance with FRS25. At 30 June 2006, the Group had undrawn committed borrowing facilities of £1.92m(2005 - £2.11m). Discontinued operations The Nanotechnlogy and Software republishing businesses were sold during 2006 andaccordingly the results of these business segments have been classified asdiscontinued operations in 2006 and 2005, as set out in note 2 to thepreliminary statement. New Accounting Standards. In preparing the 2006 financial statements the Group has adopted for the firsttime two new standards which resulted in a restatement of the 2005 financialstatements, as follows: FRS21 'Events after the balance sheet date'. Previously, equity dividends declared after the balance sheet date wererecognised as liabilities at the year end. In accordance with FRS 21 and recentchanges to company law, final dividends declared after the balance sheet datebut before the financial statements are authorised for issue, are not recognisedas a liability at the balance sheet date. The adoption of FRS21 has resulted inan increase in the shareholders' funds of £125,000 at 1 July 2005 (2004 -£34,000) due to the write back of the dividend proposed at 30 June 2005. FRS25 'Financial Instruments: Disclosure and presentation'. The Group has adopted FRS25, which requires that equity shares to be issued inrespect of deferred consideration are treated as a financial liability ratherthan as part of shareholders' funds. The adoption of FRS25 has resulted in a decrease in the shareholders' funds of £72,000 at 1 July 2005 (2004 - £72,000)and a corresponding increase in net debt. Outlook As evidenced by these results, the decision to focus purely on being a Controlsbusiness is already showing benefits both in terms of turnover, profit growthand cash generation. Polaron has a strong range of products, a highly innovativeR&D team and a dynamic sales force that operates across a wide range of marketsas a cohesive team. I am looking forward to the coming year as an opportunity todemonstrate these strengths through further growth. Joe StelzerChief Executive Officer CONSOLIDATED PROFIT AND LOSS ACCOUNTfor the year ended 30 June 2006 Discontinued Continuing operations Total Total Note operations Acquisitions 2006 2006 2006 2006 2005 Restated £'000 £'000 £'000 £'000 £'000 Group Turnover 2,3 1,346 6,444 15,932 23,722 18,764Cost of sales 954 4,640 8,427 14,021 10,056 ------ ------ ------ ------ ------Gross profit 392 1,804 7,505 9,701 8,708 Distribution costs 168 - 1,754 1,922 2,335 Administrative expenses Research and development 59 - 521 580 531 costs Goodwill amortisation 200 427 340 967 548 Exceptional items 13 - - - - 472 Other administrative 1,040 862 4,258 6,160 4,481 expenses ------ ------ ------ ------ ------Total administrative 1,299 1,289 5,119 7,707 6,032 expenses Other operating income - - 2 2 10 ------ ------ ------ ------ ------Group operating (loss)/ (1,075) 515 634 74 351 profit(Loss)/profit on 14 (496) - - (496) 960 disposal of businesses ------ ------ ------ ------ ------ (Loss)/profit on ordinary (1,571) 515 634 (422) 1,311 activities before ------ ------ ------ interest and taxationInterest receivable and 28 5 similar incomeInterest payable and (296) (55) similar charges ------ ------(Loss)/profit on ordinary 3 (690) 1,261 activities before taxationTaxation on (loss)/profit 10 169 536 on ordinary activities ----- -----(Loss)/profit for the (859) 725 financial year ===== ===== (Loss)/earnings per share 4 - penceFrom continuing and discontinued operations Basic (6.2) 5.3Diluted (6.2) 5.2 From continuing operations Basic 3.2 7.7Diluted 3.0 7.7 CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSESfor the year ended 30 June 2006 2006 2005 Restated £'000 £'000 (Loss)/profit for the financial year (859) 725 ------- -------Total recognised gains and losses for the year (859) 725 =======Prior year adjustment - refer note 1 (72) -------Total recognised gains and losses since the (931) last financial statements ======= CONSOLIDATED BALANCE SHEETat 30 June 2006 2006 2005 Restated Notes £'000 £'000Fixed Assets Intangible assets 4,533 4,201 Tangible assets 2,987 3,072 Fixed asset investments 1,250 11 ------- ------- 8,770 7,284Current Assets Stocks 2,272 2,219 Debtors 4,991 4,091 Cash at bank and in hand 8 33 196 ------- ------- 7,296 6,506Creditors: amounts falling due 6 6,137 3,845within one year ------- ------- Net current assets 1,159 2,661 ------- ------- Total assets less current liabilities 9,929 9,945 Creditors: amounts falling due after 7 885 726more than one yearProvisions 127 130 ------- ------- 1,012 856 ------- ------- 8,917 9,089 ======= ======= Capital and Reserves Called up share capital 1,475 1,386 Share premium account 4,067 4,067 Revaluation reserve 1,465 1,465 Other reserves 1,219 433 Profit and loss account 691 1,738 ------- ------Shareholders' funds 11 8,917 9,089 ======= ====== The financial statements were approved by the Board and authorised for issue on12th September 2006. CONSOLIDATED CASH FLOW STATEMENTfor the year ended 30 June 2006 2006 2005 Notes £'000 £'000 Net cash inflow from operating 5 877 813activities Net cash outflow from returns on (154) (50)investments and servicing offinance Taxation Corporation tax paid (377) (512) Capital expenditure Payments to acquire tangible (252) (375) fixed assets Payments to acquire intangible (190) (526) fixed assets Payments to acquire fixed asset - (10) investments Proceeds from disposal of 4 83 tangible assets ------- ------- Net cash outflow from capital expenditure (438) (828) Acquisitions and disposals Purchase of interests in 12 (890) (1,381) subsidiary companies Net overdrafts acquired with - (79) subsidiary companies Payment of deferred purchase (25) - consideration Net proceeds from disposal of 546 - interests in subsidiary companies Net proceeds from disposal of part - 1,232 of pressure sensor business ------- -------Net cash outflow from acquisitions (369) (228)and disposals Equity dividend paid (188) (76) ------- -------Cash outflow before use of liquid (649) (881)resources and financingManagement of liquid resources Decrease in short term deposits - 200 Financing New loans 200 500 Capital element of finance leases (198) (242) repaid ------- -------Net cash inflow from financing 8 2 258 ------- -------Decrease in cash 8 (647) (423) ======= ======= NOTES TO THE PRELIMINARY STATEMENTfor the year ended 30 June 2006 1 Basis of preparation This preliminary announcement has been prepared on the basis of the accounting policies as set out in the annual financial statements for the year ended 30 June 2006. There have been no changes in accounting policies since 2005, other than as set out below: New accounting standards In preparing these financial statements the Group has adopted for the first time FRS 21 'Events after the balance sheet date', FRS 22 'Earnings per share', FRS 25 'Financial Instruments: Disclosure and presentation', FRS28 'Corresponding amounts' and amendments to FRS2 'Accounting for subsidiary undertakings'. Change to accounting policy - FRS21 'Events after the balance sheet date'. Previously, equity dividends declared after the balance sheet date were recognised as liabilities at the year end, as required by company law and SSAP 17 'Accounting for post balance sheets events'. In accordance with FRS 21 and recent changes to company law, if a final equity dividend is declared after the balance sheet date but before the financial statements are authorised for issue, the dividend is not recognised as a liability at the balance sheet date. The adoption of FRS21 has resulted in an increase in the shareholders' funds of £125,000 at 1 July 2005 (2004 - £34,000) due to the write back of the dividend proposed at 30 June 2005. Change to accounting policy - FRS25 'Financial Instruments: Disclosure and presentation' The Group has adopted FRS25, which requires that equity shares to be issued in respect of deferred consideration are treated as a financial liability rather than as part of shareholders' funds. The adoption of FRS25 has resulted in an decrease in the shareholders' funds of £72,000 at 1 July 2005 (2004 - £72,000) and a corresponding increase in net debt. Acquisitions The acquired businesses have been accounted for using the acquisition method of accounting and the financial results of these businesses are separately disclosed in the consolidated profit and loss account under acquisitions. Acquisitions made in the year ended 30 June 2006 are shown as part of continuing operations. 2 Corresponding amounts The analysis between continuing and discontinued operations for the year ended 30 June 2005 is shown below. The Nanotechnlogy and Software republishing businesses were sold during the year and have been classified as discontinued for the year ended 30 June 2006 and have been similarly classified in 2005. Acquisitions made in the year ended 30 June 2005 are shown as part of continuing operations. Discontinued Continuing Total in 2006 operations £'000 £'000 £'000 Group turnover 4,279 14,485 18,764Cost of sales 2,494 7,562 10,056 ------- ------- ------Gross profit 1,785 6,923 8,708 Distribution costs 494 1,841 2,335Administration expenses 1,708 4,324 6,032 ------- ------- ------- (417) 758 341Other operating income - 10 10 ------- ------- -------Group operating (loss)/profit (417) 768 351 ======= ======= ======= 3 Segmental analysis by class of business 2006 2005 £'000 £'000Turnover Controls 22,376 14,485 Nanotechnology - discontinued operation 1,145 2,892 Software republishing - discontinued operation 201 1,387 ------- ------- 23,722 18,764 ======= =======Operating profit, excluding goodwill amortisation Controls 1,916 1,045 Nanotechnology - discontinued operation (917) (186) Software republishing - discontinued operation 42 40 -------- -------- 1,041 899 ======== ========(Loss)/profit before tax Controls 888 1,678 Nanotechnology - discontinued operation (1,620) (457) Software republishing- discontinued operation 42 40 -------- -------- (690) 1,261 ========= ========4 Earnings per share 2006 2005 Weighted average number of shares Basic 13,902,896 13,758,080 Diluted 14,734,266 13,862,327 Earnings (£'000) From continuing and discontinued operations (Loss)/profit for the year (859) 725 Basic (loss)/earnings per share (pence) (6.2) 5.3 Diluted (loss)/earnings per share (pence) (6.2) 5.2 Earnings (£'000) From continuing operations (Loss)/profit for the year (859) 725 Loss for the year from discontinued 1,571 417 operations Net interest expense attributable to 6 3 discontinued operations Taxation attributable to discontinued (278) (80) operations ------- ------- Earnings from continuing operations 440 1,065 ======= ======= Basic earnings per share (pence) 3.2 7.7 Diluted earnings per share (pence) 3.0 7.7 Earnings (£'000) From discontinued operations Loss for the year from discontinued (1,571) (417) operations Net interest expense attributable to (6) (3) discontinued operations Taxation attributable to discontinued 278 80 operations ------- ------- Earnings from discontinued operations (1,299) (340) ======= ======= Basic and diluted loss per share (pence) (9.3) (2.5) Earnings (£'000) Adjusted Earnings from continuing operations 440 1,065 Goodwill amortisation in respect of 767 281 continuing operations Net exceptional costs, net of tax where - (342) applicable ------- ------- Adjusted earnings 1,207 1,004 ------- ------- Basic earnings per share (pence) 8.7 7.3 Diluted earnings per share (pence) 8.2 7.2 Adjusted earnings per share has been calculated to provide a better understanding of the Group's underlying performance. 5 Reconciliation of operating profit to net cash inflow from operating activities 2006 2005 £'000 £'000 Operating profit 74 351 Amortisation of intangible fixed assets 1,088 599 Depreciation of tangible fixed assets 408 319 Loss/(profit) on disposal of fixed assets 10 (10) Increase in stocks (675) (184) (Increase)/decrease in debtors (206) 1,041 Increase/(decrease) in creditors 178 (1,357) Other non cash items - 54 ------- ------- Net cash inflow from operating activities 877 813 ======= ======= 6 Analysis of creditors: amounts falling due within one year 2006 2005 Restated £'000 £'000 Bank loans and overdrafts (secured) 484 - Shares to be issued as future consideration 600 72 Future consideration to be settled in cash 875 - Trade creditors 2,377 2,129 Corporation tax 211 221 Finance leases 124 178 Other creditors 1,466 1,245 ------- ------- 6,137 3,845 ======= ======= 7 Analysis of creditors: amounts falling due after more than one year 2006 2005 £'000 £'000 Bank loans (secured) 700 500 Finance leases 185 226 ------- ------- 885 726 ======= ======= 8 Analysis of net debt 1 July Cash flow Other non 30 June 2005 cash 2006 items Restated £'000 £'000 £'000 £'000 Net cash Cash at bank and in hand 196 (163) 33 Bank overdrafts - (484) - (484) ------- (647) Debt due within one year Deferred consideration (72) - (528) (600) on acquisitions - ordinary shares to be issued Debt due after one year (500) (200) - (700) Finance Leases (404) 198 (103) (309) ------- ------- ------- ------ (2) ------- (780) (649) (631) (2,060) ======= ======= ======= ======= 9 Reconciliation of net cash flow to movement in net debt 2006 2005 Restated £'000 £'000 Decrease in cash (647) (423) Cash inflow from changes in net debt (2) (258) Cash inflow from changes in liquid - (200) resources ------- ------- Movement in net debt resulting from cash flows (649) (881) Finance leases acquired from subsidiary - (41) companies Inception of finance leases (463) (259) Finance leases sold with subsidiary 360 - companies Increase in shares to be issued as future (528) - consideration ------- ------- Movement in net debt (1,280) (1,181) Opening net (debt)/funds (780) 401 ------- ------- Closing net debt (2,060) (780) ====== ====== At 30 June 2006, the Group had committed undrawn facilities of £1.92 million (2005 - £2.11 million). 10 Taxation on profit on ordinary activities 2006 2005 £'000 £'000 UK corporation tax Current tax on profits for the year 233 503 Adjustments to taxation in respect (36) (22) of prior periods Deferred tax Accelerated capital allowances and (28) 55 other timing differences ------- ------- Taxation on profit on ordinary activities 169 536 ======= ======= 11 Reconciliation of movement in shareholders' funds 2006 2005 Restated £'000 £'000 (Loss)/profit for the year (859) 725 Dividends paid (188) (76) ------- ------- (1,047) 649 Shares issued 875 800 ------- -------- Net (reduction)/addition to (172) 1,449 shareholders' funds -------- -------- Opening shareholders' funds - as 9,036 7,678 previously reported Prior year adjustments - proposed dividends 125 34 - shares to be issued as future (72) (72) consideration -------- -------- Opening shareholders' funds - as restated 9,089 7,640 -------- -------- Closing shareholders' funds 8,917 9,089 ======== ======== 12 Acquisition of subsidiary undertakings In July 2005, the Group acquired the entire issued share capital of DMS for a maximum total consideration of £3.7 million. An initial cash consideration of £1.4 million was paid and in June 2006 a further £800,000 was paid through the issue of 810,783 shares at a value of 98.67p per share. Additional consideration of £1.5million is also payable following the achievement of pre-tax profits of £700,000 for the fourteen month period ended 30 June 2006. This deferred consideration will be satisfied by the issue of £900,000 of loan notes and 831,370 shares at a value of 72.17p per share. Book and provisional fair values £'000 Tangible fixed assets 17 Debtors 824 Cash 528 Creditors (965) -------- Net assets acquired 404 Goodwill arising on acquisition 3,166 -------- 3,570 ========= Consideration to be satisfied by: Cash paid 1,378 Fair value of share consideration 1,325 Fair value of deferred cash consideration 827 Acquisition costs 40 -------- Cost of investment 3,570 ========12 Acquisition of subsidiary undertakings (continued) £'000 The net cash outflow arising from the acquisition was as follows Cash paid 1,378 Cash acquired (528) Acquisition costs 40 ------- Net cash outflow 890 ======= 13 Exceptional items The exceptional costs in the year ended 30 June 2005 relate to redundancy and other restructuring costs in respect of the businesses acquired in 2005. 14 Disposal of businesses a. Disposal of FastTrak Software Publishing Limited ("FastTrak") In September 2005, the Group sold the entire issued share capital of FastTrak to its management team for approximately £177,000 payable in cash, of which £100,000 was received upon completion and the balance was received in June 2006. The loss on disposal was £62,000, with a corresponding tax charge of £nil. b. Disposal of CVT Limited ("CVT") In March 2006, the Group sold the entire issued ordinary share capital of CVT, which held the assets and liabilities of the Vacuum Chamber business of Oxford Nanoscience Limited to Weltonbridge Limited, a company owned by Richard Davies, the former managing director of Oxford Nanoscience Limited. The consideration paid was satisfied by the issue of 5% preference shares, with a nominal value of £267,000, in Weltonbridge Limited. The fair value of these shares has been assessed at £48,000. The loss on disposal was £219,000, with a corresponding tax charge of £nil. c. Sale of Oxford Nanoscience Limited ("ONS") In April 2006, the Group sold the entire issued share capital of Oxford Nanoscience Ltd to Imago Scientific Instruments, the US manufacturer of atom probes based in Madison, Wisconsin. The total consideration was $4.35 million, satisfied by a payment of $2.25 million in cash and the issue of $2.1 million of preferred stock. The cash payments are staged with $1.5 million received on completion, $500,000 after 12 months and the remainder after 18 months. The loss on disposal was £195,000, with a corresponding tax charge of £nil. d. Disposal of part of pressure sensor business In February 2005, the Group sold part of its pressure sensor business interests ("the Business Interests") for £1.3 million, payable in cash, to Measurement Specialities, Inc. ("MSI"), a designer and manufacturer of sensors and sensor based consumer products based in New Jersey, USA. The Business Interests comprise the stock, design rights and global distribution rights for the industrial pressure sensor product range. The profit on disposal was £960,000, with a corresponding tax charge of £288,000. 15 Financial Information The financial information set out above does not constitute the Company's statutory financial statements for the years ended 30 June 2006 or 2005, but is derived from the audited financial statements for the year ended 30 June 2006. Statutory financial statements for 2006 will be delivered to the Registrar of Companies following the Company's annual general meeting. The auditors have reported on those financial statements; their report was unqualified and did not contain statements under s237(2) or (3) Companies Act 1985. 16 Annual Report The Annual Report, which will contain the audited financial statements, will be issued to shareholders in due course and will be available to members of the public from the Company's registered office at 26 Greenhill Crescent, Watford Business Park, Watford, Herts. WD18 8XG. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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