26th May 2005 07:01
Applied Optical Technologies PLC26 May 2005 26th May 2005 Applied Optical Technologies plc ("Applied Optical Technologies" or "the Group") Preliminary Announcement of Results For The Year Ended 31st March 2005 Applied Optical Technologies plc, the supplier of anti-counterfeitingtechnologies and services announces its results for the year ended 31st March2005. Highlights 2005 2004 As restatedGroup turnover £23.7m £26.1mAdjusted operating loss* £(0.5m) £(0.3m)Adjusted loss per share* (2.6)p (2.2)p*before goodwill amortisation, exceptional itemsand impairments(see notes 2 c) and 8) • The American operations reported record results for the year, with strong performance across all business segments. • The 3dcd joint venture again contributed strong earnings of £0.7 million (2004: £1.0 million). • Continued problems in Europe led to the decision to restructure radically the operations by exiting loss making markets. The restructuring was largely completed by the end of the year with the ongoing operations continuing to serve the Group's key security markets. • As at 31st March 2005 the Group had net cash balances of £4.0 million and net funds of £3.9 million. David Mahony, Chairman, said: "The continuing success of our American operations, coupled with an encouragingstart to the year from our now restructured European operations leads us toanticipate a marked improvement in the Group's fortunes in the current year. TheBoard expect the interim results for the six months ending 30th September 2005to reflect this improvement. - Ends - For further information, please contact:Applied Optical Technologies plc 0191 417 5434 Mark Turnage, Chief Executive ([email protected])Mike Angus, Finance Director ([email protected]) Weber Shandwick Square Mile 020 7067 0700 Nick Oborne 26th May 2005 Applied Optical Technologies plc ("Applied Optical Technologies" or "the Group") Preliminary Announcement of Results For The Year Ended 31st March 2005 CHAIRMAN'S STATEMENT Introduction Our American operations performed successfully in the year to 31st March 2005.The Parkton, Maryland operation obtained further extensions to the NFL and NHLbrand protection programmes and won other significant business. The Lancaster,Pennsylvania plant, which focuses primarily on the ID Technologies market,secured a number of new contracts, both in America and overseas. This, coupledwith a programme of improvements to manufacturing efficiency, resulted in a muchimproved performance for Lancaster. Inevitably, given the continued strength of sterling against the US dollar, someof the growth in America was masked by currency movements. 3dcd, despite the expected absence of major new product launches in the periodby its prime customer, achieved a good result for the year. This was aided bythe success of the programme to incorporate 3dcd's technology on a majorstudio's DVDs in Europe. The Group has suffered from the inability of its European operations to achieveturnover levels sufficient to match its cost base. As previously reported,various routes to closing this gap have been investigated over the past twoyears. Given the continuing levels of losses, the decision was taken last yearto restructure radically the European operations. Production was unified ontoone site, the product range was narrowed and staff levels were reduced by half. The European operations have retained the capability to supply a wide range ofproducts to the Group's three core security markets. Throughout the process,deliveries to continuing customers in these markets were maintained. This exercise has inevitably resulted in substantial exceptional costs but itshould be noted that in the second half of the year to 31st March 2005, theGroup achieved an adjusted operating profit of £147,000 and that the Group'scash position remains strong with minimal borrowings and cash at the year end of£4.0 million. Management In the year to 31st March 2005, a number of changes affecting the Board tookplace. Peter Emerson left the company as part of the European restructuring,Mike Angus relocated to America and Rick Salomone, whilst continuing asPresident of American Operations, resigned from the Board of the public company. Shareholder Relations It has become increasingly clear to the Board that the reporting and regulatoryrequirements required of fully listed companies are both expensive and difficultto justify for a smaller company. Having consulted all of the Group's advisorsand major shareholders, the decision has been taken to apply to join theAlternative Investment Market by 30th September 2005. The Board recognises thatthis will have disadvantages for some shareholders but the benefits to theCompany as a whole require that this change is made. Staff The Board wishes to record its thanks to all staff who were parties both toachieving the results in America and working through a period of exceptionaldisruption in the European operations. Outlook The Board is conscious that expectations of improved performance in recent yearshave not been met but the continuing success of our American operations, coupledwith an encouraging start to the year from our now restructured Europeanoperations, lead us to expect a marked improvement in the Group's performance inthe current year. The Board expects the interim results for the six monthsending 30th September 2005 to reflect this improvement. DA MahonyChairman26th May 2005 OPERATING AND FINANCIAL REVIEW Review of Operations During the year the Group's American operations reported record results, withstrong performances across all market segments. A number of major contracts weresigned and renewed and orders received. The Group's 3dcd joint venture alsodelivered results in excess of expectations, in part due to its success inextending its activities to DVD protection. The Group's European operationscontinued to be loss making and a decision was taken to undertake acomprehensive restructuring; this included exiting loss making markets,consolidating manufacturing facilities and reducing the workforce in the UK. The year to 31st March 2005 saw Group turnover fall by 9% to £23.7 million(2004: £26.1 million) and an adjusted operating loss of £0.5 million compared to£0.3 million in the previous year. After adjusting for exceptional costs of £4.1million (2004: £nil), goodwill amortisation of £1.1 million (2004: £1.2 million)and goodwill impairment of £0.4 million (2004: £nil) the Group made an operatingloss of £6.1 million (2004: £1.5 million). The loss before taxation amounted to£6.1 million (2004: £1.5 million). Review of Sales Activities At the outset of the year, the Group competed in discrete market segments underfour brands-AOT Banknote and High Security Documents, OpSec Brand Protection,Advantage ID Technologies, and Applied Product Enhancement. The restructuring ofthe European operations during the year led to an exit from the Applied ProductEnhancement business, and as from 1st April 2005 the Group has conducted itsbusiness in the three security sectors under the OpSec name. - OpSec Banknote and High Security Documents Results in this market segment fell by 22% from £8.3 million to £6.5 million. This was largely due to the expected cyclical down turn in the temporary licence plate business with AAMVA coupled with the failure to secure any euro banknote foil business. As part of the restructuring of its European operations, the Group has exited the market for euro banknote foils but continues to supply a number of other customers for banknote applications. Volumes and demand in this area continue to be robust. The Group also continues to serve the market for tax stamps and secured two new customers during the year, while continuing successfully to supply its existing business in this sector. This success was particularly notable given that this business was delivered from the Group's UK manufacturing facilities in the midst of the reorganisation and restructuring. It is expected that the market for these types of products will continue to grow and that the Group will be able to continue to compete effectively for this type of business. The Group also secured in the latter part of the financial year significant new business for a government security application in America. The benefits of this contract will be seen in the current financial year. - OpSec Brand Protection Turnover in the brand protection market fell by 2% to £9.4 million due primarily to a 9% decline in the average dollar exchange rate. During the year the Group was awarded multi-year contract extensions to its brand protection programmes with the National Football League and The National Hockey League. Following the multi-year contract renewals in the prior year for Major League Baseball and the National Basketball Association, the Group continues to serve all four major US sports leagues. New contracts were signed with two international brand owners for brand and product protection products, and the Group's new labels for DVD anti-counterfeiting protection achieved significant success in Europe. The Group continues to offer a broad array of products and services to this market, and believes it is well positioned both to maintain current profitability and successfully to expand its business in this market. - OpSec ID Technologies The Group saw a 17% increase in turnover in its ID business from £5.6 million to £6.6 million. The Group's American ID business, which had suffered a downturn in the prior year, returned to prior levels of profitability due to increased business from existing customers and a number of new accounts. New business was secured for use in Iraq, Afghanistan and Pakistan, demonstrating the strength and awareness in the market of the Group's ID authentication technologies in areas demanding the highest level of security. Improvements in the efficiency of the manufacturing facility in Lancaster, Pennsylvania also contributed to the sales growth. The Group continues to invest heavily in the ID sector to accommodate increasing demand by governments for secure ID products. American Operations On a dollar basis, turnover in our American Operations increased by 10% andoperating profits before corporate recharges increased by 39%. Strong growth inbrand protection and, especially, ID Systems offset the cyclical down turn inthe temporary license plate business with AAMVA. The continuation of the Group's strong presence in brand protection was seen inthe renewal of key contracts; new contracts were secured in the governmentsecurity area, and the ID business saw a substantial turnaround from the prioryear. Both American manufacturing facilities showed progress in increasing efficiencyand productivity of output, with gross margins improving in both locations.Several new products for authentication technologies were successfully launchedduring the year and the Group's market position in America continues to bestrong and stable. European Operations The European operations saw a decrease in turnover of 17% and an increase inoperating losses before corporate recharges of 7%. These losses led to thedecision during the year to restructure comprehensively the operations. Keyelements of this restructuring included a reduction in staff from 164 to 83; anexit from the supply of euro foils, brand enhancement and metallisingbusinesses; and a consolidation of its UK based manufacturing facilities. PeterEmerson, the Managing Director, left the Board of Directors and the Europeanmanagement team has been restructured. In addition, the Group surrendered thelease of its main manufacturing site at Crowther and simultaneously entered intoa new lease for the same premises on a reduced rent and with a shorter breakperiod. The lease surrendered carried a high rent consistent with the facilitiesprovided by the landlord to enable the supply of Euro banknote foils. The exitcosts of £1.1 million have been charged as an exceptional item. The new leasenow reflects the commercial rates appropriate to the markets served by theremaining business. During the financial year the Group also completed the sale of its property atGrove Park, Leicester and leased back parts of the building. We expect thisoperation to be relocated to a nearby site within the current financial year. The restructuring of the UK operations has largely been completed, and theoperations are now focused on key security markets where the Group has asuccessful track record. The exceptional costs associated with the restructuringhave been reflected in these accounts and further costs are not expected toimpact the current year. The early signs are encouraging and we are confidentthat results for the current year will show significant progress. Research and Development The Group continues to invest heavily in research and development and asignificant percentage of the Group's expenditure is focused on new ID products.New generation optical elements and other types of technologies, including radiofrequency based authentication technologies, are being developed eitherinternally or with external partners to accommodate increasing demand bycustomers for authentication products. In addition the Group continues to invest in the development of its opticaltechnologies, which constitute a key element of its technical capabilities. Joint Venture The contribution from the Group's 50% share in 3dcd decreased from £1.0 millionto £0.7 million, reflecting the anticipated lower sales of product by itssoftware customer. The impact of this was partially offset by strong sales ofits inner mirror band for DVD authentication within Europe. The joint venturerecently agreed to extend this product into Latin America with a major studiocustomer. Taxation The corporation tax charge in the year ended 31st March 2005 relates to overseastaxation in respect of income which cannot be fully relieved by brought forwardtrading losses. The remainder of the charge relates to deferred taxation. Earnings Per Share The basic and fully diluted loss per share for the year was 13.7 pence (2004:4.5 pence as restated). On an adjusted basis (removing the effect of goodwill amortisation andimpairment and exceptional items) the loss per share was 2.6 pence (2004: 2.2pence as restated) on a non-diluted basis and on a fully diluted basis. Cash Flow and Financing The Group had a net cash outflow from operating activities for the year of £0.5million (2004: £0.3 million). As at 31st March 2005, the Group had net cash at bank and in hand of £4.0million (2004: £1.1 million) and net funds of £3.9 million (2004: £1.1 million). Treasury Whilst a substantial proportion of the Group's revenue and profit is earnedoutside the UK, subsidiaries generally trade in their own currency. The Group istherefore not subject to any significant foreign exchange transaction exposure.The Group's principal exposure to foreign currency lies in the translation ofoverseas profits into sterling. Capital Expenditure Capital expenditure in the year was £1.1 million (2004: £1.0 million). The major expenditure in the year related to upgrading the manufacturingcapabilities of our Lancaster operations. The Group's main capital commitments relate to completion of the unification ofthe UK manufacturing sites and to the Group's optical imaging andcolour-shifting technologies. Shareholders' Funds Shareholders' funds decreased during the year from £25.6 million to £16.7million. These represent a net asset value of 31 pence per share (2004: 48 penceper share). Urgent Issues Task Force Abstract 38 Accounting for ESOP Trusts has been adoptedfor the first time resulting in a restatement of the 2004 Accounts. Furtherdetails are given in Note 1. International Financial Reporting Standards The Company's decision to move to the Alternative Investment Market means thatInternational Financial Reporting Standards (IFRS) will not impact itsaccounting policies until the year ending 31st March 2008. Consequently, adetailed assessment of the potential impact of IFRS has not yet been undertaken. M TurnageChief Executive26th May 2005 Applied Optical Technologies plcConsolidated Profit and Loss AccountFor the year ended 31st March 2005 2005 2004 (as restated) £'000 £'000 Turnover; Group and share of joint venture 25,203 28,271Less; share of joint venture's turnover (1,456) (2,214) -------- --------Group turnover 23,747 26,057Cost of sales (16,202) (18,042) -------- --------Gross profit 7,545 8,015 Goodwill impairment (417) -Exceptional items (4,069) -Goodwill amortisation (1,093) (1,203)Other operating expenses (8,825) (9,318)Net operating expenses (14,404) (10,521) -------- --------Group operating loss (6,859) (2,506)Share of operating profit of joint venture 735 993 -------- -------- Operating loss (6,124) (1,513)Interest receivable and similar income 36 (26)Income from other investments 7 -Interest payable and similar charges (7) 46 -------- -------- Loss before taxation (6,088) (1,493)Taxation (808) (796) -------- --------Retained loss for the financial year (6,896) (2,289) ======== ======== Basic loss per share (13.7)p (4.5)p ======== ========Diluted loss per share (13.7)p (4.5)p ======== ========Adjusted basic loss per share (2.6)p (2.2)p ======== ========Adjusted diluted loss per share (2.6)p (2.2)p ======== ======== All results above relate to continuing operations Applied Optical Technologies plcConsolidated Balance SheetAs at 31st March 2005 2005 2004 (as restated) £'000 £'000 Fixed assets Intangible assets 4,928 6,582Tangible assets 5,084 10,654 Investments Investments in joint venture Share of gross assets 764 913 Share of gross liabilities (313) (237) -------- -------- 451 676 -------- --------Other investments 28 28 -------- -------- 10,491 17,940 -------- -------- Current assetsStocks 2,101 2,522Debtors - amounts falling due within one year 4,787 6,918 - amounts falling due after more than one year 889 1,545 -------- -------- 5,676 8,463 -------- -------- Cash at bank and in hand 3,954 1,851 -------- -------- 11,731 12,836 -------- -------- -------- --------Creditors: Amounts falling due within one year (5,549) (6,750) -------- -------- -------- --------Net current assets 6,182 6,086 -------- -------- Total assets less current liabilities 16,673 24,026 Creditors: Amounts falling due after more than one year (22) (56) -------- --------Net assets 16,651 23,970 ======== ========Capital and reservesCalled up equity share capital 2,669 2,669Share premium account 53,160 53,160Profit and loss account (39,178) (31,859) -------- --------Equity shareholders' funds 16,651 23,970 ======== ======== Applied Optical Technologies plcConsolidated Cash Flow StatementFor the year ended 31st March 2005 2005 2005 2004 2004 £'000 £'000 £'000 £'000 Cash outflow from operating activities (522) (342)Dividends received from joint venture 932 602Returns on investments and servicing of finance 37 (40)Taxation (80) (97)Capital expenditure and financial investment 2,544 (1,001) ------- -------Cash inflow/(outflow) before financing 2,911 (878)Financing Issue of shares - 29 Decrease in debt (33) (433) ------- -------Net cash outflow from financing (33) (404) ------- -------Increase/(decrease) in cash in the year 2,878 (1,282) ======= =======------------------------------------------------------------------------------------------------------Reconciliation of net cash flow to movement in net funds Increase/(decrease) in cash in the year 2,878 (1,282) Cash outflow from decrease in debt and lease financing 33 433 ------- ------- Change in net funds resulting from cash flows 2,911 (849)Foreign exchange movements (73) (316) ------- -------Movement in net funds in year 2,838 (1,165) Net funds at 1st April 2004 1,102 2,267 ------- -------Net funds at 31st March 2005 3,940 1,102 ======= ======= Applied Optical Technologies plcStatement of Group Total Recognised Gains and LossesFor the year ended 31st March 2005 2005 2004 (as restated) £'000 £'000 Loss for the financial year attributable to shareholders (6,896) (2,289) Translation of net foreign currency investments (423) (2,837) -------- --------Total gains and losses relating to the year (7,319) (5,126) ======== ======== Reconciliation of Group Movements in Shareholders' FundsFor the year ended 31st March 2005 2005 2004 (as restated) £'000 £'000 Loss for the financial year attributable to shareholders (6,896) (2,289) Translation of net foreign currency investments (423) (2,837) Sale of shares from Employee Benefit Trust - 29 -------- --------Movement for the year (7,319) (5,097) -------- --------Opening shareholders' funds - as previously stated 25,578 30,741 Prior year adjustment (1,608) (1,674) -------- --------Opening shareholders' funds - as restated 23,970 29,067 -------- -------- Closing shareholders' funds 16,651 23,970 ======== ======== Applied Optical Technologies plcNotes to the Preliminary AnnouncementFor the year ended 31st March 2005 1) The financial information contained in this announcement does not constitute the Company's statutory accounts for the years ended 31st March 2004 or 2005 but is derived from those accounts. Statutory accounts for 2004 have been delivered to the registrar of companies, and those for 2005 will be delivered following the Company's Annual General Meeting. The auditors have reported on those accounts; their reports were unqualified and did not contain statements under section 237 (2) or (3) of the Companies Act 1985. Urgent Issues Task Force Abstract 38 Accounting for ESOP Trusts has been adopted for the first time resulting in a restatement of the 2004 accounts. The Abstract requires that the Company's own shares held by the Employee Benefit Trusts are deducted from shareholders' funds until they vest unconditionally with employees. Prior to the adoption of UITF 38 these shares were recognised as fixed asset investments. As a result, investments and shareholders funds as at 31st March 2004 have each been reduced by £1,608,000. 2) Segment Information 2005 2004 £'000 £'000a) Turnover by market sector Banknote and high security documents 6,519 8,337Brand protection 9,386 9,600Brand protection via joint venture 1,456 2,214ID technologies 6,562 5,631Product enhancement 756 1,388Metallising 310 528Other 214 573 -------- -------- 25,203 28,271 ======== ======== b) Turnover by geographical origin American operations 14,398 14,281American operations via joint venture 1,456 2,214European operations 11,168 13,397Inter-segment sales (1,819) (1,621) -------- -------- 25,203 28,271 ======== ======== c) Operating loss by geographical origin American operations 979 1,011European operations (7,103) (2,524)Operating loss (6,124) (1,513)Exclude goodwill amortisation 1,093 1,203Exclude goodwill impairment 417 -Exclude exceptional items 4,069 - -------- --------Adjusted operating loss (545) (310) ======== ======== Adjusted operating (loss)/profit arises from American operations 1,350 1,171European operations (2,630) (2,474)Joint Venture 735 993 -------- -------- (545) (310) ======== ======== 3) Net Operating Expenses 2005 2004 £'000 £'000Distribution Costs Selling and Marketing costs 3,267 3,591 -------- --------Administrative Expenses Technical Support 450 557Research and development costs 1,036 1,075Administrative costs 4,072 4,095Exceptional costs 4,069 -Goodwill amortisation 1,093 1,203Goodwill impairment 417 - -------- -------- 11,137 6,930 -------- --------Net Operating Expenses 14,404 10,521 ======== ======== Exceptional items included within administrative expenses Lease surrender costs 1,093 -Reorganisation costs 1,765 -Profit on disposal of tangible fixed assets (4) -Tangible fixed asset impairment 1,215 - -------- -------- 4,069 - ======== ======== 4) Share of Operating Profit of Joint Venture The share of operating profit of joint venture represents the Group's share ofthe results of 3dcd for the year ended 31st March 2005. 5) Interest Receivable and Similar Income 2005 2004 £'000 £'000 Bank interest receivable 41 11Exchange losses on foreign currency deposits (5) (37) -------- -------- 36 (26) ======== ======== 6) Interest Payable and Similar Charges 2005 2004 £'000 £'000 On bank loans and overdrafts 22 46On finance leases and hire purchase agreements 3 5Exchange gains on foreign currency borrowings (18) (97) -------- -------- 7 (46) ======== ======== 7) Taxation 2005 2004 £'000 £'000Overseas Tax Corporation Tax 69 386Deferred Tax 739 410 -------- -------- 808 796 ======== ======== No taxation is payable in the current year by any of the Group's UK based companies due to trading losses incurred. Corporation tax on profits arising in the Group's American subsidiaries is limited to state taxes and statutory minima due to losses brought forward from prior years. Corporation tax arising on the Group's joint venture has been reduced by losses brought forward. At 31st March 2005 the Group had a deferred tax asset of £1,586,000 (2004: £2,373,000) due to losses available in America to carry forward to offset against future profits of the same trades and other short term timing differences. At 31st March 2005 the Group had additional tax losses in respect of European operations. No deferred tax asset has been recognised in respect of these losses. 8) Loss Per Share The calculations of earnings per share are based upon the following losses andnumbers of shares. 2005 2004 (as restated) £'000 £'000 EarningsLoss for the financial year (basic and diluted EPS) (6,896) (2,289) ======== ======== Adjusted earningsLoss for the financial year (6,896) (2,289)Exclude goodwill amortisation 1,093 1,203Exclude goodwill impairment 417 -Exclude exceptional items in Operating Expenses 4,069 -Adjusted loss (basic and diluted) (1,317) (1,086) ======== ======== Weighted average number of shares No. of shares No. of shares For basic and diluted EPS 50,516,234 50,482,935 ======== ======== 9) Notes to the Cash Flow Statement Reconciliation of Group Operating Loss to Operating Cash Flows 2005 2004 £'000 £'000 Group operating loss (6,859) (2,506)Depreciation 1,946 2,214(Profit)/Loss on sale of fixed assets (4) 21Goodwill amortisation 1,093 1,203Goodwill impairment 417 -Fixed asset impairment 1,215 -Movement in stocks 383 (177)Movement in debtors 1,932 (1,733)Movement in creditors (645) 636 -------- --------Net cash outflow from operating activities (522) (342) ======== ======== Analysis of Net Funds At 1st Cashflows Exchange At 31st April 2004 adjustments March 2005 £'000 £'000 £'000 £'000 Cash at bank and in hand 1,851 2,176 (73) 3,954Bank overdraft (702) 702 - -Hire purchase agreement and finance leases (47) 33 - (14) --------- --------- --------- --------- 1,102 2,911 (73) 3,940 ========= ========= ========= ========= 10) A copy of the preliminary statement is available from the Company Secretary, 40 Phoenix Road, Crowther District 3, Washington, Tyne & Wear, NE38 0AD. 11) The preliminary announcement was approved by the Board of Directors for release on 26th May 2005. - Ends - This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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