27th Jun 2006 07:01
Radstone Technology PLC27 June 2006 FOR IMMEDIATE RELEASE 27 June 2006 Preliminary Results "Record level of product introductions" Radstone Technology, the world's leading independent supplier ofhigh-performance, embedded computer products for defence and aerospaceapplications today announces preliminary results for the year ended 31 March2006. Key Points • Order book ended the year up 9% at £94.1m (2005 : £86.5m) • Turnover up 10% to £54.9m (2005: £49.9m). • An exceptionally active period for product development with 21 new product introductions. Spending on development in the year amounted to £7.7m (2005: £6.1m) representing 13.9% (2005: 12.2%) of revenue. • Final dividend of 3.15p per ordinary share increasing the total dividend by 17% to 4.2p (2005: 3.6p). • Adjusted Profit before tax of £5.6m (2005: £8.1m), • Basic earnings per share were 10.91p (2005: 27.97p). Adjusted earnings per share (see note 5) were 14.68p compared to 20.56p last year. • Acquisition of the assets of Sonoran Microsystems Inc. through DaqScribe Technology which further enhances the mechanical test and measurement product portfolio. Jeff Perrin, Chief Executive, commenting on the results said: "This has been an exceptionally busy period for Radstone. We have ended thefinancial year with a strong order book and have spent significant time andresource on our product development. Our efforts ensure we remain at the forefront of the military embedded computingmarket and we are confident that this will continue to provide a solid base forRadstone's future growth and strategic development." For further information: +-----------------------------------+-----------------------------------+|Radstone Technology |01327-359444 ||Jeff Perrin, Chief Executive |Web: www.radstone.co.uk ||Kevin Boyd, Group Finance Director | |+-----------------------------------+-----------------------------------+| | |+-----------------------------------+-----------------------------------+|Buchanan Communications |020 7466 5000 |+-----------------------------------+-----------------------------------+|Tim Thompson or Nicola Cronk |Email : [email protected] |+-----------------------------------+-----------------------------------+ Chairman's Statementfor the year ended 31 March 2006 This has been a busy year for the Group with new orders received totalling£62.1m, a 14% increase compared to last year and a closing order book for futuredelivery of £94.1m, up 9% over last year. Revenue for the year increased by 10%to £54.9m however adjusted profit before tax (see note 3) fell to £5.6m (2005:£8.1m). The causes of the lower adjusted profit were in equal measures, thedecline in the US$ hedged exchange rate, a higher proportion of lower marginproduct and increased development spend. Basic earnings per share were 10.91p (2005: 27.97p). Adjusted earnings per share(see note 5) were 14.68p compared to 20.56p last year. Dividend Your board is recommending a final dividend of 3.15p per ordinary share thattogether with the interim dividend of 1.05p represents a 17% increase on lastyear's total dividend. This will be paid on 27 September 2006 to shareholders onthe register on 8 September 2006. New Product Development This was an exceptionally strong year with 21 new products, including the firstfrom our new US Technology Centre. Together these will form the foundation ofour growth over the next few years, enhancing our ability to gain a steadystream of new design-wins on future programmes. Spending on development reacheda record level of £7.7m, a 26% increase over last year, and represented 13.9%(2005: 12.2%) of revenue. Acquisition During March 2006, we purchased, through DaqScribe Technology (our subsidiaryspecialising in mechanical test and measurement), the assets of SonoranMicrosystems Inc. for a consideration of $630k. We remain committed to expanding the Group both organically and throughselective acquisitions that broaden our core competencies and extend our marketreach. Board and Management At this year's AGM I will retire from the board and the office of Chairman, aposition I have held for almost 14 years. Malcolm Baggott, who joined theCompany as a non-executive director in December 2005 will take over as Chairmanand I wish him every success in the role. Sir Alan Thomas resigned as a non-executive director of the Company in January2006 and we would like to thank him for his contribution. As previously announced in May of this year, Kevin Boyd our Group FinanceDirector will be leaving the Company in August 2006 to take up a role as GroupFinance Director of another listed company; we wish him well in his new positionand thank him for his contribution to the development of the Company. We arecurrently in the process of recruiting his replacement. Outlook The record level of product introductions ensures that we will retain ourcompetitive advantage. This enables us to benefit from the strong prospectswithin the worldwide military market, particularly in the USA where the recentlypublished Quadrennial Defense Review underlines the opportunities for growth inour largest market. We are confident that the military market will continue to provide a solid andgrowing base for the strategic development of the Group. Rhys Williams, Chairman Operations Reviewfor the year ended 31 March 2006 Embedded Computing 2006 2005 £'000 £'000 Total revenue (all external) 46,032 41,822Gross profit 23,090 23,676Result before amortisation and 8,849 11,481unallocated costs As in previous years revenue was heavily weighted towards the second half of theyear, with 63% of deliveries made during quarters 3 and 4, compared with 70%last year. In our main US market, deliveries of £28.8m represented 63% of EmbeddedComputing sales and 52% of Group revenue. Major US deliveries made during theyear were to General Dynamics on the M1A2 tank, Raytheon on the MK-48 and MK54torpedo upgrade programmes and on the Advanced Targeting Forward-LookingInfra-red pod for the F/A-18 Hornet fighter aircraft. Gross profit at £23.1m was a similar level to last year, with margins decreasingfrom 56.6% to 50.2%. This was mainly due to the decline in our US$ hedgedexchange rates and a greater proportion of sales of lower margin products. The result before amortisation and unallocated costs decreased to 19.2% of sales(2005: 27.5%) due to the gross margin reduction mentioned in the above paragraphand the increased development expenditure which was 26% above last year. In order to enhance DaqScribe, our Test & Measurement business, we acquired theassets of Sonoran Microsystems Inc. based in Tucson, Arizona. Sonoran designsadvanced custom signal conditioning products for use in mechanical test andmeasurement applications. This addition, following on from the acquisition ofSavvy Corp in the previous year, will further enhance DaqScribe's productportfolio. This will enable DaqScribe to offer turnkey solutions for transient,dynamic and static test applications. Within the next twelve months we willintegrate Sonoran with DaqScribe's existing facility in Centennial, Colorado. In June 2005 we relocated our US headquarters from New Jersey to our technologycentre near Boston, Massachusetts. Since opening the centre in November 2004three software products have been introduced which provide a softwareenvironment designed to accelerate the development and deployment of complexsignal processing applications requiring multiprocessor systems. Radstone has a strong record of developing leading edge products and our highlyfocused product development programme differentiates us from the competition andmakes us the preferred supplier to leading military and aerospace companies. Ourinvestment in development in the year amounted to £7.7m (2005: £6.1m)representing 16.6% (2005: 14.5%) of Embedded Computing sales. This year has beenan exceptionally productive period with 21 new product introductions; amongthese was the CPX24 rugged gigabit ethernet switch designed to exploit thegrowing use of this technology as the networking infrastructure in militarysystems. Also introduced was the ICS-8145, a rugged data acquisition board forsonar applications. We also launched a Pentium M-based graphics processor,designed for the most demanding simulation, embedded training and war-gamingapplications, transferring this capability from training rooms into anoperational system. A product of our development programme from the previous year, the GS16 EthernetSwitch, was selected by Boeing to take part in a F-15E1 test mission todemonstrate the capabilities of DARPA's Tactical Targeting Network TechnologyProgram. The mission was successfully completed in September 2005. DARPA is theDefense Advanced Research Projects Agency, a US government body which managesand directs selected basic and applied research and development projects for theDepartment of Defense. It pursues research and technology where risk and payoffare both very high and where success may provide dramatic advances fortraditional military roles and missions. Electronic Manufacturing Services (EMS) 2006 2005 £'000 £'000 Total revenue 9,589 8,800Sales to Embedded Computing (695) (735)External revenue 8,894 8,065Gross profit 2,272 1,873Result before amortisation and unallocated costs 2,106 1,644 An excellent year for our EMS business. The result before amortisation andunallocated costs represented a margin of 22.0%, compared to 18.7% last year. Approximately 80% of the external revenue in the year was for commercialcustomers involved in areas such as test & measurement, industrial control,electronic displays and electronics for motor sports. With an order book of £4.4m for short term delivery, the first half of 2007 willbe an extremely active period for the EMS business, but as one or two specificcontracts are due for completion by August the second half is likely to besomewhat quieter. Group Orders New orders booked totalled £62.1m, compared with £54.4m in 2005, producing abook to bill ratio of 1.13 for the Group. Orders received from the USA were £38.5m (2005: £30.2m) including two majormulti-year production contracts. The first of these, for $12.5m, was receivedfrom Raytheon in September 2005 for the Advanced Targeting Forward LookingInfra-red pod programme for the F/A-18 Hornet fighter aircraft; this is inaddition to over $10m received on this contract in earlier years. During thesecond half of the year an order was received from Harris for $13m on theupgrade to the Universal Fire Control System programme for the High MobilityArtillery Rocket System. UK orders for the Group totalled £13.8m (2005: £18.3m) including a £2.5m orderfor Octec to supply the ballistics predictor and auto tracker for a smallcalibre gun system to be fitted to the Royal Navy Type 23 Frigates. Order intakefor the UK includes £9.0m for the EMS business, which is all UK based. Thiscompares to £8.4m last year. Orders from mainland Europe of £6.5m (2005: £4.6m) and the Far East of £2.1m(2005: £0.8m) increased for the second consecutive year. With a number ofidentified opportunities and increased investment in these territories, furtherprogress is expected in 2007. Orders from rest of the world were £1.2m, (2005: £0.7m) the majority originatingfrom Israel. We begin the financial year 2007 in a strong position, with the Group order bookat £94.1m, an increase of 9% from the same period last year. From this orderbook, £32.4m is deliverable by 31 March 2007 compared to £28.0m last year. Jeff Perrin, Chief Executive Financial Reviewfor the year ended 31 March 2006 Overview Total Group sales increased by 10.1% to £54.9m with the percentage growth beingidentical in both divisions. Underlying growth in Embedded Computing was 9.0%after adjusting for the effect of the US dollar and the acquisitions anddisposals made in the prior year. Reported gross margins in Embedded Computing fell to 50.2% from 56.6%. Strippingout the effects of currency hedging, margins in constant dollars dropped 3.2percentage points, a reflection of the change in the mix of products shippedduring the year. The EMS business improved on last year's impressive result, lifting grossmargins from 21.3% to 23.7% as they continue to benefit from operationalefficiencies and successfully targeting high added value contracts. In this yearin particular we saw an increased proportion of "free issue" business whichresults in a better percentage gross margin. Expenditure on operating expenses (Distribution costs, Development costs andAdministrative expenses) increased by £2.6m, the majority of the increase beingin Development costs (£1.9m). Under the new IFRS accounting standards, the"Amortisation of intangible assets arising from acquisitions" is included underDevelopment costs. Under UK GAAP this was reported as "Goodwill amortisation".Excluding the movement in amortisation, the increase in Development costs was£1.6m. The majority of this was due to the establishment of our US softwarecentre, increased investment in our test and measurement subsidiary andadditional costs due to the full year of ownership of Octec. Under IFRS, interest charges are reported under the headings "Investmentrevenue" and "Finance costs". Net borrowing costs were lower by £0.1m at £0.9m. Finance costs also include the IAS 19 charge which represents a notional financecharge for the deficit on the Group's pension schemes. The tax charge of £0.7m is 18% of the pre-tax profit compared to 20% in 2005.This improved percentage reflects the disproportionate effect of R&D tax creditson the lower profit for the year. Basic earnings per share of 10.91p were 17.06p below last year due to acombination of reduced profits, exceptional profits in the prior year and themovements in the fair values of financial instruments. The adjusted earnings per share (see calculation in note 5) at 14.68p fellproportionally less than adjusted profit due to the favourable tax chargediscussed above. Cash flow Net cash flow from operating activities was £1.6m, a drop of £3.6m over theprior year, while EBITDA (see note 6) fell £2.4m to £9.1m reflecting the fall inadjusted profit. The difference between EBITDA and net cash flow from operating activities isprimarily due to a £5.3m increase in working capital, additional payments to thedefined benefit pension scheme and a reduction in tax paid. Inventoriesincreased broadly in line with revenues and include components for a majorEuropean programme which have been purchased in advance to secure preferentialpricing. Receivables increased by £6.6m due to high fourth quarter sales. After taking into account capital expenditure, the acquisition of Sonoran,dividends, the purchase of own shares for employee incentive schemes andinterest received, net debt increased from £16.6m to £18.2m. Information Technology In July 2001 we successfully introduced SAP, an enterprise resource planningsystem, across the Radstone Group. We are now in the process of implementingthis within the companies acquired since then. Octec Ltd successfullyimplemented SAP in December 2005 and ICS Ltd is planning to complete theirimplementation by September 2006. Pensions The Group has two defined benefit pension schemes which were closed to newentrants in March 1997. During the year liabilities as measured under IAS 19grew by £4.0m while the assets also grew by £4.0m leaving the deficit before taxvirtually unchanged at £9.5m. Plans are in place to eliminate this deficit overthe next ten years. In June 2006 we started a process of consultation with the members of the aboveschemes with the intention of ceasing future service accrual after 31 March 2007and introducing a defined contribution element. Dividends Dividends paid and proposed for the year increased by 17% from 3.6p to 4.2p pershare. Investment With the completion of the Towcester facility in the prior year, capitalexpenditure returned to 2004 levels at £1.6m. In March we announced the acquisition of the trade and assets of SonoranMicrosystems Inc. of Tucson, Arizona by our Test & Measurement subsidiary,DaqScribe Inc. for a consideration of $630k Liquidity Net debt of £18.2 m equates to gearing of 40.6% compared to 39.3% at the end ofthe prior year. Interest cover, based on adjusted operating profit was 7.4 times(2005: 9.2). Dividend cover (paid and proposed) based on adjusted earnings was3.5 times (2005: 5.6). The Group seeks to reduce financial risk and to ensure sufficient liquidity isavailable to meet foreseeable needs. Our policy is to maintain a balance betweencontinuity of funding and flexibility through the cost-effective use ofborrowings with a range of maturities. Performance Adjusted earnings per share, (see calculation in note 5), fell to 14.68p (2005:20.56p). In constant dollar terms adjusted earnings per share would have been17.6p. Treasury With a substantial percentage of revenue in United States dollars, hedgingforeign exchange fluctuations against this currency is recognised by thedirectors as a key responsibility. While this exposure is naturally hedged bypurchases of components in US dollars and the local costs of our US operations,there still remains a net exposure to be hedged. In the year, the net exposurewas approximately $40m. Translation exposure arising on the consolidation of the Group's US and Canadianassets is hedged by use of US and Canadian dollar loans in the UK parentcompany. The net effects of these are taken directly to reserves, ensuring thatonly trading transaction gains and losses on foreign exchange are represented inthe income statement. The interest rate exposure on the US dollar, Canadian dollar and sterling loansare managed by a number of interest rate swaps. International Financial Reporting Standards This is the first year that the Group has reported its results underInternational Financial Reporting Standards (IFRS). The main variations from UKGAAP are: Goodwill is no longer amortised. For acquisitions after 1 April 2004, it isnecessary to identify separately from goodwill, values for acquired intangibleassets that previously under UK GAAP would have been included in goodwill. Theseintangible items are then amortised to the income statement over their estimateduseful lives and reported on the line "Amortisation of intangibles arising fromacquisitions". In Radstone's case this applies to the acquisitions of OctecLimited and Sonoran Inc, where the only separable intangible item recognised wastechnology. Due to its exposure to the US dollar the Group uses foreign currency derivativesto hedge future cash flows. The Group has decided that the additional costs ofmeeting the extensive documentation requirements of IAS 39 to apply hedgeaccounting are not merited. Accordingly we cannot use hedge accounting for ourforeign currency derivatives; and gains and losses on marking to market suchderivatives at the balance sheet date have to be reflected in the incomestatement and are disclosed on the line "Loss on fair value movement onfinancial instruments" within Finance costs. It should be emphasised that thisnotional reported "loss" will never be realised; it is simply a timing effect.The real worth of the hedging is to fix the value in local currency of foreigncurrency sales receipts in the future, thus reducing the uncertainty that wouldotherwise exist as to their realisable value. Under the transitionalarrangements for the implementation of IFRS this item was not reported in theprior year. Pension deficits are now included in the consolidated Balance Sheet whereasformerly they were disclosed as a note. Dividends are now recorded as a liability when approved and not when proposed aswas previously the case. Kevin Boyd, Group Finance Director Consolidated Income Statementfor the year ended 31 March 2006 Notes 2006 2005 £'000 £'000Continuing operationsRevenue 54,926 49,887Cost of sales (29,564) (24,338) Gross profit 25,362 25,549 Distribution costs (6,745) (6,346) Development costs- Product development (7,662) (6,078)- Amortisation of intangibles arising from acquisitions (1,050) (757) (8,712) (6,835)Administrative expenses (3,991) (3,652)Other operating income - 2,912 Operating profit* 5,914 11,628 Investment revenue 138 160 Finance costs- Borrowing costs (1,079) (1,195)- Loss on fair value movement on financial instruments (565) -- Retirement benefit scheme finance charges (424) (301) (2,068) (1,496) Profit before tax** 3,984 10,292 Tax (699) (2,045) Profit for the year from continuing operationsattributable to equityholders of the parent 3,285 8,247 Ordinary dividends 4 1,137 954 Earnings per share (pence)from continuing operations Basic 5 10.91p 27.97p Diluted 5 10.89p 27.81p Adjusted 5 14.68p 20.56p * Adjusted operating profit 3 6,964 9,473** Adjusted profit before tax 3 5,599 8,137 Balance Sheetat 31 March 2006 2006 2005 £'000 £'000Non-current assetsGoodwill 24,741 24,733Intangible assets arising from acquisitions 6,233 6,917Other intangible assets 22 46Property, plant and equipment 16,315 16,761Deferred tax assets 2,844 2,869 50,155 51,326 Current assetsInventories 12,284 11,219Trade and other receivables 24,228 17,872Derivative financial instruments 214 -Cash and cash equivalents 2,188 4,304 38,914 33,395Total assets 89,069 84,721 Current liabilitiesTrade and other payables 10,470 8,562Tax liabilities 1,103 1,161Obligations under finance leases 192 259Derivative financial instruments 547 -Bank overdrafts and loans 4,812 3,500 17,124 13,482 Non-current liabilitiesBank loans 15,189 16,693Retirement benefit obligations 9,479 9,564Deferred tax liabilities 2,179 2,433Obligations under finance leases 219 406 27,066 29,096Total liabilities 44,190 42,578 Net assets 44,879 42,143 EquityShare capital 3,792 3,787Share premium account 25,152 25,059Own shares (753) (431)Other reserve 1,388 1,388Hedging and translation reserves 673 139Retained earnings 14,627 12,201Total equity 44,879 42,143 Cash Flow Statementfor the year ended 31 March 2006 Notes 2006 2005 £'000 £'000 Net cash from operating activities 6 1,601 5,234 Investing activitiesInterest received 138 159Proceeds on disposal of SensorCom Inc. - 832Proceeds on disposal of property, plant and equipment 1 3,908Net cash disposed of with sale of - (251)SensorCom Inc.Purchases of property, plant and equipment (1,566) (4,701)Purchase of other intangible assets - (5)Purchases of trade and assets (381) (92)Deferred consideration on acquisition of ICS Limited - (3,254)Increase in cost of investment in ICS Limited - (28)Net cash acquired with Octec Limited - 1,979Acquisition of Octec Limited - (12,501)Net cash used in investing activities (1,808) (13,954) Financing activitiesDividends paid (1,137) (954)Issue of share capital 87 6,170Purchase of own shares under Employee Incentive Schemes (409) (152)Repayments of borrowings (877) (2,493)Repayments of obligations under finance leases (259) (289)New bank loans raised 1,358 1,118Net cash (used in)/from financing activities (1,237) 3,400 Net decrease in cash and bank overdrafts (1,444) (5,320) Cash and bank overdrafts at start of year 3,766 9,150 Effect of foreign exchange rate changes (134) (64) Cash and bank overdrafts at end of year 7 2,188 3,766 Consolidated Statement of RecognisedIncome and Expensefor the year ended 31 March 2006 2006 2005 £'000 £'000Adoption of IAS 32/39:Fair value of financial instruments at 1 April 2005 957 - Exchange differences on translation of foreign operations 464 505 Actuarial losses on defined benefit pension schemes (197) (2,391) Tax on items taken directly to equity (78) 717 Net income/(expense) recognised directly in equity 1,146 (1,169) Transferred to profit or loss on cash flow hedges (726) - Tax on items transferred from equity 218 - Profit for the period 3,285 8,247 Total recognised income and expense for the period attributable to equity holders of the parent 3,923 7,078 Notes: 1. Basis of accounting The Group's principal accounting policies, as set out in its interim statementof 23 November 2005, which is available on the Company's websitewww.radstone.co.uk, have been applied consistently. This announcement was approved by the Board of Directors on 26 June 2006. 2. Segmental information Business segments For management purposes, the Group is organised into two divisions, EmbeddedComputing and Electronics Manufacturing Services. These divisions are the basison which the Group reports its primary segment information. Segmental information about these businesses is presented below. Electronic Embedded Manufacturing Computing Services Total 2006 2005 2006 2005 2006 2005 £'000 £'000 £'000 £'000 £'000 £'000 RevenueTotal revenue 46,032 41,822 9,589 8,800 55,621 50,622Inter-segment sales - - (695) (735) (695) (735) External revenue 46,032 41,822 8,894 8,065 54,926 49,887 Cost of Sales (22,942) (18,146) (6,622) (6,192) (29,564) (24,338) Gross profit 23,090 23,676 2,272 1,873 25,362 25,549 Inter-segment sales are charged at prevailing market prices. ResultResult before amortisation andunallocated costs 8,849 11,481 2,106 1,644 10,955 13,125Amortisation of intellectual property arisingthroughacquisition (1,050) (757) - - (1,050) (757)Gain on disposal of SensorCom Inc. - 641 - - - 641Segment result 7,799 11,365 2,106 1,644 9,905 13,009 Unallocated corporate expenses (3,991) (3,652) Profit on disposal of freehold land andbuildings - 2,271 Profit from operations 5,914 11,628 Investment revenue 138 160Finance costs (2,068) (1,496) Profit before tax 3,984 10,292Tax (699) (2,045) Profit after tax 3,285 8,247 2. Segmental information (continued) Capital expenditure, additions to intangibles, depreciation and amortisation Electronic Embedded Manufacturing Computing Services Total 2006 2005 2006 2005 2006 2005 £'000 £'000 £'000 £'000 £'000 £'000 Capitalexpenditure andadditions tointangibles (excludinggoodwill) 1,272 4,515 294 191 1,566 4,706 Depreciation andamortisation 2,871 2,430 345 339 3,216 2,769 Total assets by segment Electronic Embedded Manufacturing Computing Services Total 2006 2005 2006 2005 2006 2005 £'000 £'000 £'000 £'000 £'000 £'000 Segment assets 78,765 73,904 4,208 3,644 82,973 77,548Unallocated 6,096 7,173 Total assets 89,069 84,721 Unallocated assets represent tax recoverable, deferred tax assets, derivativesat fair value and cash and cash equivalents. Total liabilities by segment Electronic Embedded Manufacturing Computing Services Total 2006 2005 2006 2005 2006 2005 £'000 £'000 £'000 £'000 £'000 £'000 Segment 8,477 6,776 2,402 2,451 10,879 9,227liabilitiesUnallocated 33,311 33,351 Total liabilities 44,190 42,578 Unallocated liabilities represent derivatives at fair value, tax payable,deferred tax liabilities, retirement benefit obligations and bank loans andoverdrafts. Geographical segments 2006 2005 £'000 £'000External Revenue United Kingdom 13,358 10,931Rest of Europe 6,265 6,399North America 28,795 28,960Rest of World 6,508 3,597 54,926 49,887 Revenues are based on the location of the customer. 2. Segmental information (continued) Other Information Total Assets Additions to property, plant and equipment and intangible assets 2006 2005 2006 2005 £'000 £'000 £'000 £'000 United Kingdom 47,226 45,538 1,337 4,530North America 35,745 32,006 229 176Rest of Europe 2 4 - - 82,973 77,548 1,566 4,706Unallocated 6,096 7,173 - - 89,069 84,721 1,566 4,706 Total assets are based on the location of the assets. Unallocated assetsrepresent taxation, derivatives at fair value and cash and cash equivalents. Additions to property, plant and equipment and intangible assets are based onthe location of the assets. 3. Reconciliations between profit and adjusted profit Additional performance indicators have been used based upon adjustments tooperating profit to exclude exceptional non-trading income and amortisation ofintangible assets. These are calculated as follows: Notes 2006 2005 £'000 £'000 Operating profit 5,914 11,628 Amortisation of intangibles arising from acquisitions (a) 1,050 757Profit on disposal of freehold land and buildings - (2,271)Gain on disposal of SensorCom Inc. - (641)Adjustments to operating profit 1,050 (2,155)Adjusted operating profit 6,964 9,473 Profit before tax 3,984 10,292 Financial instruments (b) 565 -Adjustments to operating profit (above) 1,050 (2,155)Adjustments to profit before tax 1,615 (2,155)Adjusted profit before tax 5,599 8,137 Profit for the year 3,285 8,247 Adjustments to profit before tax (above) 1,615 (2,155)Tax effect of adjustments to profit (479) (30)Adjusted profit for the year (c) 4,421 6,062 (a) Amortisation of intangibles arising on acquisitions relates to acquiredintellectual property. Under UK GAAP this charge would have formed part of theamortisation of goodwill, which was also excluded from the adjusted operatingprofit. (b) IAS 39 ("Financial Instruments: Recognition and Measurement") was adoptedwith effect from 1 April 2005. IAS 39 requires the Group to fair value thefinancial instruments used to manage Radstone's foreign exchange exposures. Thiscreates volatility on profit over the full term of the outstanding instrumentsas exchange rates move over time. This will have minimal impact on profit overthe full term of the instruments, but can cause significant volatility onparticular balance sheet dates. Radstone is therefore stating profit before taxand profit for the year before changes in the valuation of these instruments sothat the underlying performance of the Group can more clearly be seen. 3. Reconciliations between profit and adjusted profit (continued) 2006 2005 £'000 £'000Movement in fair value of financial instruments: Fair value at 31 March 2006 (334) -less: initial fair value recognised on 1 April 2005 (957) - (1,291) -Recycled gains to income statement from initial fair value 726 -Financial instruments (565) - (c) The adjusted profit for the year forms the basis of the earnings used in thecalculation of adjusted earnings per share, as set out in note 5. 4. Dividends Amounts recognised as distributions to equity holders in the year: 2006 2005 £'000 £'000 Final dividend for the year ended 31 March 2005 of 2.7p (31 March 2004: 2.25p) per ordinary share 819 681 Interim dividend for the year ended 31 March 2006 of 1.05p (31 March 2005: 0.90p) per ordinary share 318 273 1,137 954 Proposed final dividend for the year ended 31 March 2006 of 3.15p (31 March 2005: 2.7p) pershare 956 819 The proposed final dividend is subject to approval by shareholders at the AnnualGeneral Meeting and has not been included as a liability in these financialstatements. 5. Earnings per share 2006 2005 Pence Pence per per share share Earnings per share from continuing operations Basic 10.91 27.97 Diluted 10.89 27.81 Adjusted 14.68 20.56 5. Earnings per share (continued) The calculation of the basic, diluted and adjusted earnings per share is basedon the following data: 2006 2005 £'000 £'000 Earnings Earnings for the purposes of basic earnings per share being profit for the period from continuingoperations 3,285 8,247 Profit for the period from continuing operations 3,285 8,247 Adjustment to exclude amortisation of intangibles arising from acquisitions (net of tax) 741 525Adjustment to include financial instruments (net of tax) 395 -Adjustment to exclude profit on disposal of freehold land and buildings (net of tax) - (2,334)Adjustment to exclude gain on disposal of SensorCom Inc. (net of tax) - (376) Earnings for the purposes of adjusted earnings per share 4,421 6,062 2006 2005 '000 '000 Number of shares Weighted average number of ordinary shares for the purposes of basic and adjusted earnings per share 30,109 29,488 Effect of dilutive potential ordinary shares: Share options 61 170 Weighted average number of ordinary shares for the purposes of diluted earnings per share 30,170 29,658 6. Notes to the cash flow statement 2006 2005 £'000 £'000 Profit from operations 5,914 11,628Adjustments for:Profit on disposal of freehold land and buildings - (2,271)Gain on disposal of SensorCom Inc. - (641)Depreciation of property, plant and equipment 2,142 1,972Amortisation of intangible assets 1,074 797 EBITDA 9,130 11,485 Loss on disposal of property, plant and equipment 3 4Cost of equity settled employee share schemes 175 187Decrease in post employment benefit obligation (25) (46)Cash payments to the pension scheme in excess of the charge to the income statement (710) -Decrease in provisions - (216) Operating cash flows before movements in working capital 8,573 11,414 Increase in inventories (1,054) (1,576)Increase in receivables (6,631) (3,131)Increase in payables 2,386 1,707 Cash generated by operations 3,274 8,414 Income taxes paid (524) (2,136)Interest paid (1,149) (1,044) Net cash from operating activities 1,601 5,234 2006 2005 £'000 £'000Reconciliation of cash and bank overdrafts to netdebt Decrease in cash and bank overdrafts (1,444) (5,320)Effect of foreign exchange rate changes on cash and bank overdrafts (134) (64) (1,578) (5,384) Cash outflow from decrease in debt and lease financing 1,136 2,782Cash inflow from increase in debt and lease financing (1,358) (1,118) Change in net debt arising from cash flows (1,800) (3,720) Effect of foreign exchange rate changes on borrowings 130 (117) Movement in net debt in the period (1,670) (3,837) Net debt at start of the year (16,554) (12,717) Net debt at end of the year (18,224) (16,554) 7. Cash and cash equivalents Cash and cash equivalents comprise cash held by the Group and short-term bankdeposits with an original maturity of three months or less. The carrying amountof these assets approximates their fair value. The credit risk on liquid funds is limited because the counterparties are bankswith high credit ratings assigned by international credit-rating agencies. 2006 2005 £'000 £'000 Cash at bank and in hand 2,188 4,304 Cash and cash equivalents 2,188 4,304 Cash and bank overdrafts as shown in theconsolidated cash flow statement comprise: Cash and cash equivalents 2,188 4,304Bank overdrafts (included within current liabilities) - (538) Cash and bank overdrafts 2,188 3,766 8. The financial information above does not constitute the Company's statutoryaccounts. The auditors have still to report on the statutory accounts for theyear ended 31 March 2006. Statutory accounts for the year ended 31 March 2005have been reported on without qualification by the Company's auditors andwithout reference to S237 (2) or (3) of the Companies Act 1985. Statutoryaccounts for the year ended 31 March 2005 have been prepared under UK GAAP andhave been delivered to the Registrar of Companies. Whilst the financialinformation included in this preliminary announcement has been computed inaccordance with IFRS this announcement does not itself contain sufficientinformation to comply with IFRS. The statutory accounts for the year ended 31March 2006, prepared under IFRS, will be delivered to the Registrar in duecourse. 9. Copies of the 2006 Report and Accounts will be sent to shareholders in duecourse. Further copies will be available from the registered office of RadstoneTechnology PLC, Tove Valley Business Park, Towcester, Northants NN12 6PF. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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