1st Jun 2006 07:01
Applied Optical Technologies PLC01 June 2006 1st June 2006 Applied Optical Technologies plc ("Applied Optical Technologies" or "the Group") Preliminary Announcement of Results For The Year Ended 31st March 2006 Applied Optical Technologies plc, the supplier of anti-counterfeitingtechnologies and services, announces its results for the year ended 31st March2006. Highlights 2006 2005 Revenue £25.4m £23.7mProfit/(loss) before tax £1.7m £(5.0m)*Basic earnings/(loss) per share 3.5p (11.6)p *Including goodwill impairment and exceptional costs of £4.6 million • Record profitability and cash flow, despite exiting a number of product areas and increases in raw material prices; • Successful completion of European operations' restructuring. Exited all non-core, non security markets. The Group now focuses exclusively on anti-counterfeiting and security authentication applications; • Substantial contract wins and contract renewals across all key business sectors and all geographic segments; • The £7 million acquisition, announced today, of US based anti counterfeiting and anti-diversion software provider GenuOne, will create a single Group to meet the on-line and supply chain environment anti-counterfeiting needs of global brand owners; • The Board is confident of further strong progress this year. David Mahony, Chairman, said: "I am pleased to report a successful year for the Group and a marked improvementin profitability. We have put in hand a number of measures which position uswell for the future. "We expect the current year to be a further period of good progress for theGroup. We are confident of continued organic growth in our underlying businessesand expect a significant contribution from 3dcd, especially in the first half;by its nature this contribution will, in large part, be one off in nature. Wealso look forward to the successful integration of GenuOne, which will lay astrong foundation for the enlarged Group's continued progress in future years." - Ends - For further information, please contact: Applied Optical Technologies plc today; 020 7067 0700Mark Turnage, Chief Executive ([email protected]) thereafter: 0191 417 5434Mike Angus, Finance Director ([email protected]) Weber Shandwick Square Mile 020 7067 0700Nick Oborne/ Stephanie Badjonat 1st June 2006 Applied Optical Technologies plc ("Applied Optical Technologies" or "the Group") Preliminary Announcement of Results For The Year Ended 31st March 2006 Chairman's Statement Introduction I am pleased to report a successful year for the Group and a marked improvementin profitability. We have put in hand a number of measures which position uswell for the future. Key to the improved performance was the successful restructuring of our Europeanoperations, where turnover increased despite exiting a number of product areas.Coupled with this, operating management was restructured and productionfacilities rationalised, resulting in a dramatic improvement in profitability. Our American operations had mixed success in the year with sales into the marketfor Banknote and High Security documents growing strongly. The year sawstability in sales to the Brand Protection sector but some decline in sales tothe market for ID Documents. A marked rise in the price of oil based rawmaterials had a significant adverse impact on margins. A number of changes tooperational management and procedures are in hand to counter these adversefactors in the current year. 3dcd, our joint venture, produced a result in advance of our initialexpectations for the year in large part due to an encouraging growth of itscustomer base. 3dcd's most significant customer is undertaking a major productlaunch and the preparatory work already undertaken leaves the joint venture wellplaced to benefit substantially from this in the current year. The Group's trading resulted in a year of strong cash generation with a year endbalance of cash and cash equivalents of £7.6m (31st March 2005: £4.0m). Corporate actions taken during the year Following shareholder approval of the Resolution tabled at the EGM held on 17thNovember 2005 the Company completed the transfer from the Official List of theLondon Stock Exchange to AIM on 16th December 2005. This move has increased theflexibility of the Group in a number of areas and will reduce costs below thelevel they would otherwise have been. In March 2006 Oriel Securities Limitedwere appointed as the Company's NOMAD and corporate broker. The Company has secured High Court approval to restructure its distributablereserves so that it will be able to pay dividends, purchase treasury shares andallow the Company to fund the existing management incentive programmes withoutissuing new shares. During the year the Group re-examined the management incentive schemes then inplace. Taking into account expert external advice these were substantiallyamended to provide a range of incentives for senior management. If the maximumbenefits are to be achieved the management team will be required to ensure aperiod of continuous and sustained growth in earnings and the share price. These results are the first to be issued since our adoption of IFRS. The mostsignificant area of impact on our earnings for the year under review, asprepared under IFRS compared to those we would have reported under UK GAAP,arises from the elimination of the goodwill amortisation. Acquisition of GenuOne The Company is pleased to announce that it has today signed an agreement toacquire the entire issued share capital of GenuOne for a consideration of $13million (approximately £7 million). This acquisition underpins our plans forfuture growth from protecting global brands. GenuOne is a provider of anti-counterfeiting and anti-diversion softwareproducts with a customer base compromising 45 major global brands. The crossselling opportunities between the two companies are significant. In addition,GenuOne lacks the extended distribution network which our Group has established.As a Board we are particularly impressed by the strength of the management teamin place and its commitment to growing the business. In the current year we willassist GenuOne in a major marketing drive to expand the roll out of theirproducts. The acquisition will be financed in cash derived from our own resources and amodest level of debt which will be paid down from our strong continuing cashflow. Employees The Board wishes to record its thanks to all employees who were integral toachieving the significant improvement to our results for the year under review. The current year Within our European operations we will continue to seek to grow the customerbase to reduce its exposure to a limited range of major accounts. We also expectto finalise our plans for plant investment to improve product quality andprofitability. Until these measures are completed there will remain some riskwithin the business, but at a reduced and acceptable level. In our American operations plans are in hand to re-cast the management of ouroperations so as to provide a fresh focus on ID Technologies. Revisions to ourpricing policies to reflect the continuing high cost of oil derived rawmaterials are in place and investment in new production equipment is under way.This programme, when complete, will materially extend our product range andreduce manufacturing costs. 3dcd's efforts to diversify its customer base will continue whilst fullysupporting its largest customer's launch programme which will have a significantimpact on the first half of the current year. The joint venture continues toinvest heavily in future generations of its core technologies. The Group's subsidiaries currently trade under the OpSec name, while the parentcompany is listed as Applied Optical Technologies plc. The Directors will seekshareholder approval at the Annual General Meeting on 27th July 2006 to changethe name of the parent company to OpSec Security Group plc. Outlook We expect the current year to be a further period of good progress for theGroup. We are confident of continued organic growth in our underlying businessesand expect a significant contribution from 3dcd, especially in the first half;by its nature this contribution will, in large part, be one off in nature. Wealso look forward to the successful integration of GenuOne, which will lay astrong foundation for the enlarged Group's continued progress in future years. DA MahonyChairman1st June 2006 BUSINESS AND FINANCIAL REVIEW The year ended 31st March 2006 marked the first year of operations following therestructuring of the European operations. The restructuring yielded verypositive results for the Group, and the improvements made this year have set thestage for continued progress in future years. Review of Operations The year to 31st March 2006 saw Group turnover increase by 7% to £25.4 million(2005: £23.7 million), and a Group operating profit of £1.6 million compared toa loss of £5.1 million in the prior year. The profit before taxation amounted to£1.7 million (2005: loss of £5.0 million). Adoption of International Financial Reporting Standards ("IFRS") The profit and earnings reported for the financial year to 31st March 2005reflect the adoption of IFRS in place of the UK Generally Accepted AccountingPractices ("UK GAAP") used previously. The principal effects on the historicaccounts arise from differences in the treatment of the charge for goodwillamortisation and the reclassification of certain fixed assets as assets held forresale. Cash flow/Balance Sheet The Group had a net cash inflow from operating activities for the year of £3.3million (2005: outflow of £0.6 million). As at 31st March 2006, the Group hadnet cash at bank and in hand of £7.6 million (2005: £4.0 million). The share premium account reduction approved at the Extraordinary GeneralMeeting on 17th November 2005 eliminated the deficit on the distributablereserves of the holding company. This will enable the Company to utilise futureprofits to pay dividends, buy back shares in the open market and providereserves to fund the current management incentive schemes, thereby avoiding theneed to issue new shares. Review of Sales Activities The Group competes in four distinct market sectors - Banknote and High Security,Brand Protection, ID documents, and (via its joint venture, 3dcd) in theprotection of CDs and DVDs. Banknote and High Security Turnover in this market increased by 48% from £6.5 million to £9.6 million,reflecting significant progress in both the American and European operations.Contributing to these results were a large new government contract in America,and continued success in providing excise stamps and currency security productsthrough the European operations. This increase in banknote and high securitysales in Europe occurred despite the exit from the Euro banknote foil marketannounced last year. The major government security contract in America which was expected to lastapproximately one year, has now been completed. The American operations continueto serve other banknote and high security markets and have now received thefirst purchase order for another significant government security application. The supply of products for currency applications continues and the Group seesstrong growth opportunities in this sector, particularly in excise stamps andgeneral government security applications. Brand Protection Sales in this sector grew by 5% to £9.9 million. America saw a slowdown in salesinto the sports leagues and studios, offset by sales to new customers. Strongsales in the protection of automotive parts and sales of brand protectionproducts for official merchandise of the 2006 Turin Winter Olympics assistedgrowth in European brand protection sales. ID Technologies Turnover in this sector was down 15%, reflecting a slowdown in sales in bothAmerica and Europe. In America, a lower level of ordering by a major LatinAmerican customer adversely impacted sales in this product area. In Europe theextension of a significant contract for a major European nation's passport wasnot sufficient during the year to offset a slowdown in orders elsewhere. The Group continues to invest in both Research and Development and marketingsupport for the ID Technologies sector, with the goal of broadening further itscustomer base so as to offset the cyclical ordering pattern of its keycustomers. 3dcd The contribution from the joint venture was down 6% at £690,000. A lowercontribution from 3dcd's major software customer was anticipated ahead of thatcustomer's release of new software during the current year, but this lowercontribution was partially offset by contribution from other customers who havestarted to utilise 3dcd technologies. During the year new business was securedwith an additional software company and the studios DVD business saw someexpansion. Discussions continue with a variety of other potential customers toprotect their optical disk products. The Group anticipates a significant increase in income from 3dcd in the currentyear given the anticipated product launch of its major customer's new software.This is expected to strongly favour the first half of the current year. American Operations Turnover for the American operations increased by 7% to £15.4 million (2005:£14.4 million), but operating profit declined from £2,600,000 to £2,189,000. Thedecline in profitability was due to a change in the mix of business andsignificant increases in the price of oil based raw materials. A systematicre-evaluation of the supply and manufacturing chain has been undertaken toaddress these issues. A programme of action has been implemented to reduce theexposure to raw material price increases. The American operations remain strategically positioned and continue to competevigorously for business across all market sectors. New business in the yearincluded several new brand protection programmes, new ID Technologies customers,as well as the new government security orders referred to above. European Operations The European operations experienced a significant increase in both sales andprofitability following the restructuring in the prior year. Turnover increased9% to £12.2 million (2005: £11.2 million), and the operations generated a profitfor the year of £579,000 (2005: loss of £7,131,000). The increase in turnoverwas achieved despite the exit from all non-core business. Substantial increases in sales of brand protection and banknote and highsecurity products were recorded during a period of significant change in theoperations, including a consolidation of manufacturing facilities, a substantialoverhaul of the manufacturing operations and extensive changes to the managementteam. The strategic and operational positioning of the Group in Europe and its keymarkets has been strengthened by the restructuring completed during the year.The operations continue vigorously to compete in all three market sectors. Corporate Costs Following the adoption of IFRS corporate overheads are now separately reported.These overheads include all centrally controlled costs; legal and professionalcosts, intellectual property costs, public company costs, Group technical costsand management incentive schemes. The total costs for the year ended 31st March2006 increased 38% from £1,364,000 to £1,876,000 due in large part to the oneoff costs of moving to AIM, restructuring the balance sheet and adopting IFRS. Acquisition of GenuOne, Inc. Subsequent to the close of the year, the Group announced the intendedacquisition of GenuOne Inc. based in Boston, Massachusetts. GenuOne is aprovider of anti-counterfeiting and anti-diversion software products whichenable brand owners to monitor and protect their products and brands across arange of online environments, including auction sites, retail and wholesaleinternet exchanges, and business to business boards where significant sale ofcounterfeit products occurs. GenuOne also provides product tagging and trackingservices to its customers which comprise 45 major global brands. The Group believes the acquisition of GenuOne to be of fundamental importance toits brand protection business. The combination of the Group's current overt andcovert tracking products, with GenuOne's software and tracking technologies,creates a single company able to meet the needs of global brand owners in boththe online and supply chain environments. The ability of a single company toprovide this range of services is unique in the industry. The larger size of thecombined Group will assist the marketing of GenuOne products globally. In addition to expanding the range of products supplied by the Group, theacquisition of GenuOne adds a significant number of global brands as customers.The cross selling opportunities between GenuOne and the existing Group aresignificant. The strong management and operating team at GenuOne will enhanceGroup operating management. The acquisition will be financed in part from the Group's cash resources withthe balance met from a new revolving credit facility which has been secured withBank of America. The facility allows the Group to borrow up to $10 million at avariable rate equal to The Wall Street Journal LIBOR one month floating rateplus 150 basis points. Any principal borrowed will be repayable within threeyears and will be secured on the assets of the Group's American operations. Research and Development The Group continues to invest heavily in Research and Development across allmarket sectors to allow it to offer its customers a range of the most advancedanti-counterfeiting technologies. The main focus of this investment is currentlyon core optical technologies and the development of a new generation ofcolour-shifting films and materials. The Group will invest in further developingand enhancing GenuOne's products. Taxation The corporation tax charge in the year ended 31st March 2006 relates to deferredtaxation and overseas taxation in respect of income which cannot be fullyrelieved by brought forward trading losses. Earnings Per Share The basic and fully diluted earnings per share for the year were 3.5 pence and3.4 pence respectively (2005: losses of 11.6 pence). 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 £1.2 million (2005: £1.1 million). The majorexpenditure in the year related to the completion of the restructuring of theGroup's facilities in Europe, investment in new optical developments andupgrading the Group's manufacturing and IT capabilities generally. It is anticipated that significant capital expenditure will be undertaken inboth the American and European production facilities. These investments areexpected, when completed, to improve the efficiency of current productionprocesses and to extend the product range offered to customers. The Group's main capital commitments relate to the installation of a newprinting press in the Lancaster facility and completion of the upgrade of theGroup's optical imaging and colour-shifting technologies. Shareholders' FundsShareholders' funds increased during the year from £18.0 million to £21.7million. This represents a net asset value of 41 pence per share (2005: 34 penceper share). MT TurnageChief Executive1st June 2006 APPLIED OPTICAL TECHNOLOGIES plcConsolidated income statement Year ended Year ended 31-Mar-06 31-Mar-05 £'000 £'000 Revenue 25,390 23,747Cost of sales (15,759) (16,168) ---------- ----------Gross profit 9,631 7,579 Distribution and selling costs (3,051) (3,267) ---------- ----------Administrative expenses (5,688) (5,558)Exceptional administrative expenses - (4,552) ---------- ----------Total administrative expenses (5,688) (10,110) ---------- ---------- 892 (5,798) Share of profit of joint ventures 690 735Other operating income - 7 ---------- ----------Operating profit/(loss) 1,582 (5,056) Financial income 151 36Financial expenses (2) (7) ---------- ----------Profit/(loss) before tax 1,731 (5,027) Income tax 40 (808) ---------- ----------Profit/(loss) for the yearattributable to equity holders of the parent 1,771 (5,835) ========== ==========Basic earnings/(loss) per share (p) 3.5 (11.6) ---------- ----------Diluted earnings(loss) per share (p) 3.4 (11.6) ========== ========== APPLIED OPTICAL TECHNOLOGIES plcConsolidated statement of recognised income and expense Year ended Year ended 31-Mar-06 31-Mar-05 £'000 £'000 Foreign exchange translation differences 1,495 (446) ---------- ----------Net income / (expense) recogniseddirectly in equity 1,495 (446) Profit/ (loss) for the year 1,771 (5,835) ---------- ----------Total recognised income and expensefor the year attributable to equity holders of the parent 3,266 (6,281) ========== ========== APPLIED OPTICAL TECHNOLOGIES plcConsolidated balance sheet 31-Mar-06 31-Mar-05 £'000 £'000ASSETSNon-current assetsProperty, plant and equipment 4,966 4,895Intangible assets 6,498 5,965Investments in joint venture 329 451Other investments 28 28Deferred tax assets 1,758 1,586 ---------- ----------Total non-current assets 13,579 12,925 ---------- ----------Current assetsInventory 1,839 2,101Trade and other receivables 3,616 4,090Cash and cash equivalents 7,568 3,954Assets classified as held for resale - 134 ---------- ----------Total current assets 13,023 10,279 ---------- ---------- ---------- ----------Total assets 26,602 23,204 ---------- ---------- LIABILITIESCurrent liabilitiesInterest-bearing loans and borrowings - 14Deferred government grants 21 21Trade and other payables 4,876 5,158 ---------- ----------Total current liabilities 4,897 5,193 ---------- ---------- Non-current liabilitiesDeferred government grants - 22 ---------- ----------Total non-current liabilities - 22 ---------- ---------- ---------- ----------Total liabilities 4,897 5,215 ---------- ---------- ---------- ----------Net assets 21,705 17,989 ========== ==========EQUITYCapital and reservesIssued capital 2,669 2,669Share premium account 29,309 53,160Translation reserve 1,049 (446)Retained earnings (11,322) (37,394) ---------- ----------Total equity attributable to equityholders of the parent 21,705 17,989 ========== ========== APPLIED OPTICAL TECHNOLOGIES plcConsolidated statement of cash flows Year ended Year ended 31-Mar-06 31-Mar-05 £'000 £'000Cash flows from operating activitiesProfit/(loss) for the year 1,771 (5,835)Depreciation 1,332 1,912Impairment losses - 1,791Profit on sale of property, plant and equipment (97) (97)Release of government grants (21) (21)Share based payment expense 329 225Share of joint venture income (690) (735)Dividend income - (7)Finance income (151) (36)Finance expenses 2 7Income tax expense (40) 808Movement in inventory 415 383Movement in debtors 683 1,932Movement in creditors (129) (849) ---------- ----------Cash from operating activities 3,404 (522)Interest paid (2) (11)Income tax paid - overseas (111) (80) ---------- ----------Net cash inflow/(outflow) from operating activities 3,291 (613) ---------- ----------Cash flows from investing activitiesAcquisition of property, plant and equipment (1,397) (920)Proceeds from sale of property, plant and equipment 286 3,464Dividends received from joint venture 849 932Income from other fixed asset investments - 7Interest received 130 41 ---------- ----------Net cash (outflow)/inflow from investing activities (132) 3,524 ---------- ----------Cash flows from financing activitiesPayment of finance lease liabilities (14) (33)Proceeds from sale of own shares 121 - ---------- ----------Net cash inflow/(outflow) from financing activities 107 (33) ---------- ----------Net increase in cash and cash equivalents 3,266 2,878 Cash and cash equivalents at the start of the year 3,954 1,149Effect of exchange rate fluctuations on cash 348 (73) ---------- ----------Cash and cash equivalents at the end of the year 7,568 3,954 ========== ========== APPLIED OPTICAL TECHNOLOGIES plcNotes to the Preliminary AnnouncementFor the year ended 31st March 2006 1) The financial information set out above does not constitute theCompany's statutory accounts for the years ended 31st March 2006 or 2005 but isderived from the 2006 accounts. Statutory accounts for 2005 which, were preparedunder UK GAAP, have been delivered to the registrar of companies, and those for2006, prepared under accounting standards adopted by the EU, will be deliveredin due course. The auditors have reported on those accounts; their reports were(i) unqualified, (ii) did not include references to any matters to which theauditors drew attention by way of emphasis without qualifying their reports and(iii) did not contain statements under section 237 (2) or (3) of the CompaniesAct 1985. 2) Segment Information Year ended Year ended 31-Mar-06 31-Mar-05 £'000 £'000a) Revenue by geographic segment American operations 15,369 14,398European operations 12,226 11,168Intersegment sales (2,205) (1,819) ---------- ---------- 25,390 23,747 ========== ==========b) Revenue by market sector Banknote and high security 9,647 6,519documentsBrand protection 9,868 9,386ID Technologies 5,598 6,562Other 277 1,280 ---------- ---------- 25,390 23,747 ========== ========== c) Operating profit/(loss) by geographic segment American operations 2,189 2,600European operations 579 (7,131)Joint Ventures 690 735Trade investments - 7Corporate costs (1,876) (1,267) ---------- ----------Operating profit /(loss) 1,582 (5,056)Exclude goodwill impairment - 450Exclude exceptional items - 4,102 ---------- ----------Adjusted operating profit/(loss) 1,582 (504) ========== ========== d) Adjusted operating profit/(loss) by geographicsegment American operations 2,189 2,600European operations 579 (2,482)Fixed asset investments - 7Joint Ventures 690 735Corporate costs (1,876) (1,364) ---------- ---------- 1,582 (504) ========== ========== 3) Net Operating Expenses 2006 2005 £'000 £'000Distribution CostsDistribution and selling costs 3,051 3,267 ---------- ----------Administrative ExpensesTechnical Support 463 450Research and development costs 1,082 1,036Administrative costs 4,143 4,072Exceptional costs - 4,552 ---------- ---------- 5,688 10,110 ---------- ----------Net Operating Expenses 8,739 13,377 ========== ==========Exceptional items included within administrative expenses Goodwill impairment - 450Lease surrender costs - 1,093Reorganisation costs - 1,765Profit on disposal of tangible fixed assets - (97)Tangible fixed asset impairment - 1,341 ---------- ---------- - 4,552 ========== ========== 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 2006. 5) Financial Income 2006 2005 £'000 £'000 Interest income 129 42Exchange gain/(losses) on foreign currency deposits 22 (6) ---------- ---------- 151 36 ========== ========== 6) Financial Expenses 2006 2005 £'000 £'000 Interest expense - 25Exchange losses/(gains) on foreign currency borrowings 2 (18) ---------- ---------- 2 7 ========== ========== 7) Taxation 2006 2005 £'000 £'000Overseas TaxCorporation Tax (12) 69Deferred Tax (28) 739 ---------- ---------- (40) 808 ========== ========== No taxation is payable in the current year by any of the Group's UK basedcompanies due to trading losses brought forward. Corporation tax on profits arising in the Group's American subsidiaries islimited to state taxes and statutory minima due to losses brought forward fromprior years. Corporation tax arising on the Group's joint venture has beenreduced by losses brought forward. At 31st March 2006 the Group had a deferred tax asset of £1,758,000 (2005:£1,586,000) due to losses available in America to carry forward to offsetagainst future profits of the same trades and other short term timingdifferences. At 31st March 2006 the Group had additional tax losses in respect of Europeanoperations. No deferred tax asset has been recognised in respect of theselosses. 8) Earnings/(Loss) Per Share The calculations of earnings per share are based upon the following losses andnumbers of shares. 2006 2005 £'000 £'000 Earnings Earnings/(Loss) for the financial year (basic and diluted) 1,771 (5,835) ========== ========== Weighted average number of shares No. of shares No. of shares For basic EPS 50,725,745 50,516,234 ========== ==========For diluted EPS 52,034,094 50,516,234 ========== ========== 9) Reconciliation of Movements in Capital and Reserves Year ended 31st March 2006 Attributable to equity shareholders Share Share Translation Retained capital premium reserve earnings Total £'000 £'000 £'000 £'000 £'000 At 1st April 2005 2,669 53,160 (446) (37,394) 17,989Total recognised income and expense - - 1,495 1,771 3,266Share based payments - - - 329 329Capital restructuring - (23,851) - 23,851 -Own shares sold - - - 121 121 ------- -------- ---------- -------- -------At 31st March 2006 2,669 29,309 1,049 (11,322) 21,705 ======= ======== ========== ======== ======= Year ended 31st March 2005 Attributable to equity shareholders Share Share Translation Retained capital premium reserve earnings Total £'000 £'000 £'000 £'000 £'000 At 1st April 2004 2,669 53,160 - (31,784) 24,045Total recognised income and expense - - (446) (5,835) (6,281)Share based payments - - - 225 225 ------- -------- ---------- -------- -------At 31st March 2005 2,669 53,160 (446) (37,394) 17,989 ======= ======== ========== ======== ======= 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 forrelease on 1st June 2006. - Ends - This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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