14th Apr 2005 06:00
Embargoed Release: 07:00hrs Thursday 14 April 2005 DENSITRON TECHNOLOGIES PLC ("Densitron" or the "Company") PRELIMINARY FIGURES FOR THE YEAR ENDED 31st DECEMBER 2004 Company Highlights 2004 2003 ‚£ ‚£ million million Revenue 26.1 28.0 Operating profit/(loss) 1.4 (0.1) Profit/(loss) before taxation 1.3 (6.4) Earnings/(loss) per share 0.00p (24.09)p Gearing 40.0% 20.1% Order Book 13.5 16.5> Operating profit was ‚£1.4 million (2003: ‚£0.1 million loss).> ‚£1.3 million profit before tax (2003: ‚£6.4 million loss).> Increase in Gross Profit to ‚£10.9 million (2003: ‚£10.8 million).> Increase in gross margins to 41.9% (2003: 38.7%).> 13.7% reduction in administrative expenses to ‚£9.6 million (2003: ‚£11.2million).> Densitron Control Systems Limited sold in the year.> Hitech Electronics Corporation sold post year end.Chairman's Statement 2004I am pleased to report that the Group has made significant progress in itsfinancial performance through the year. Moreover, this demonstrable improvementhas been in spite of an unexpected shortfall in Associate income.2004 has been a year of consolidation, progress and success. Consolidation interms of organisational alignment and implementation of further simplification,progress in refining our strategy, and success in building on the profit trendthat began in the first half of the year. In order to provide shareholders withmore complete information on the year's progress I outline further detailbelow.StrategyAs briefly reported in my market announcement in December, during the latterpart of the year the Board undertook a further detailed strategic review of thebusiness and the various opportunities presently available to the Group. Putsimply, information in our world today has never been so readily available orin such quantities. Much of this information needs to be displayed in one formor another. Although fragmented, it is clear that the market for informationdisplay continues to grow.We now have a clearer strategy that will position the Group as a focusedprovider of display based solutions. In doing so we will seek to capitalise onthe historic Densitron brand and knowledge of appropriate technologies to servea growing mix of customers who are seeking display related solutions on a widerinternational basis. The Group can provide customers with the capability andresources covering design, engineering, sourcing, packaging, installation andmaintenance. We are currently focused on three segments.Display Solutions is the traditional Densitron business of supplying smalldisplay modules (glass and electronics) to a wide range of customers for usagesuch as hi-fi remote control, desk phone, DAB radio, marine navigationaldisplays etc. Many customers of these solutions are not `display experts' andour knowledge and experience often proves to be a competitive differentiator.In an increasing number of instances we are able to supply customers with asolution that is wider than just the display and in some cases includes thecomplete product and packaging. We will focus as far as possible on supplying acomplete display solution and in so doing expect to grow a higher marginrevenue stream. In this respect we do not see the Group as a distributor, butrather a value added reseller.Display Computers are specialist single board computers designed for industrialuse. Our initial attention has been on gaming machines, the type that aretypically found in casinos. The Group has historically conducted a low volumebusiness in this sector, supplying customers as far afield as the USA andJapan. As reported last year, despite limited resources, the Group invested ina `next generation' standards based product for the gaming market, the DPX114.Although this is long lead time business (testing, regulation and productlife-cycle) we have secured and supplied our first orders, as well as securinga good pipeline and are now further developing the product range. Year on yearthis business has grown 30% and as gaming and gambling become less regulatedacross the world we see real growth opportunities.Public Information Displays are designed and assembled at our factory inNewcastle and marketed and sold under the `Ferrograph' brand name. Typicalapplications include transportation and call centres. Currently Ferrographsupplies bus stops and stations (and is the UK market leader), airports andrail stations. New uses are emerging around advertising (petrol stations,supermarkets) and entertainment (pubs, bars) and we believe Ferrograph cancapitalise on this. Prior to its acquisition by Densitron, Ferrograph had madeinitial inroads into the rail market at the time of privatisation and we intendto leverage this initial progress to re-establish our position as a marketleader. Sales strength has been increased and is now supplemented by theadditional marketing expertise in Biggin Hill. Recent customers of Ferrographare consistently complimentary about product and service.Non-core AssetsHitech Electronics Corporation is a key supplier of display modules to theGroup and in which, at the year end, we held a 45% share. Hitech is a private,Taiwanese registered company, which we have traditionally consolidated into ouraccounts as a subsidiary. Over recent years Hitech has established anadditional business designing and manufacturing Human Machine Interfaces (HMIs)for manufacturing machinery, largely for supply to Mainland China. HMI nowaccounts for more than half of Hitech's turnover. As part of our strategicreview we resolved to look for an exit opportunity that would accomplish anumber of things: - deliver a good profit on our original investment, enable usto immediately crystallise the asset for re-investment, de-risk the Group fromthe increasingly competitive HMI business (about which we have no expertise),eliminate a substantial part of the Group's minority interests, whilstsustaining a reliable source of supply.As recently announced we have agreed the disposal of our interest in the Hitechbusiness to Beijer Electronics AB, an HMI manufacturer in Sweden. We havereceived ‚£4.1million on 1st April 2005 and a further amount representing 22.5%of the Hitech 2005 pre-tax profits is receivable in 2006. For its financialyear ended 31st December 2004 Hitech reported a pre-tax profit of ‚£1,364,000.We have negotiated an exclusive agreement to purchase Hitech's display modulesfor sale in Europe, USA and Japan that lasts for five years and is renewable.This will ensure product supply continuity in one of our core markets.VBest Electronics Co., Ltd. is a high volume LCD manufacturer headquartered inTaiwan with factories both there and in Mainland China. The Group has a 24.5%share in the company that was floated on the Taiwanese emerging market in May2004. Densitron provided the necessary shares for this IPO realising a profitof ‚£94,000.During the year substantial and continuing difficulties have been experiencedwith product supplied from VBest. Both the level of specification and qualityrequired by Densitron's customers in Europe and the USA have challenged VBest.We continue to work closely with the VBest management and our customers toresolve these difficulties and progress is being made. There is no doubt thatin the year the Group lost hard won orders and suffered a considerableshortfall in turnover as a result of these problems.During the latter part of the year VBest restated (downwards) their interimresults and significantly lowered their profit forecast for the year. Ireferenced this in my December statement and despite this the Group has stillachieved a result close to market expectation. It is anticipated that VBestwill make management changes. We have resolved to treat our shareholding inVBest and our relationship with them as a supplier as entirely separate. VBestnow go through the same qualification process as any other Group supplier. Ourequity holding in VBest is therefore an asset, which we expect at some point torealise. This will obviously depend on the future performance of VBest and itsshare price. Our goal is to secure the best possible return on this asset butshareholders should remain aware of the various disposal regulations imposed bythe Taiwanese Stock Exchange to which the Group is subject. Realistically agood return is not anticipated in the immediate future.Shareholders will be aware of the sports ground that the Group owns inBlackheath, that I reported on extensively last year. Suffice to say thatlittle has changed, any really beneficial disposal being limited to a change ofuse and that is unlikely to be for residential development. The land forms partof the Kidbrook Vision, a consultative document for the London Borough ofGreenwich and the Group is still in negotiation with the Borough regarding apotential land swap which could lead to a more attractive valuation andtherefore disposal. We are working in conjunction with a national house builderwho has a similar interest to ours and who has provided further developmentexpertise. Shareholders can be assured that we intend to dispose only when thebest opportunity arises. As you would expect we will take further independentprofessional advice before agreeing a disposal. Further information on theKidbrook Vision may be found at: www.greenwich.gov.uk/Greenwich/YourEnvironment/Regeneration/DevelopmentAreas/Kidbrooke/KidbrookeMasterplan.htmWe have continued to simplify and dispose in line with the intent stated lastyear. To that end during the year we disposed of Densitron Control SystemsLimited for ‚£617,000 payable over five years. This is a small business thatwhilst successful, was not in our displays focus.Financial PerformanceThe Group has returned to profitability with a ‚£1.3 million profit on ordinaryactivities before taxation. This contrasts with a loss of ‚£6.4 million in 2003.The strategy to focus on higher margin, solutions orientated business hasresulted in an increase in margin across all core product groups.Sales for the year were ‚£26.1 million (2003: ‚£28.0 million). Turnover in Europereduced by 13% primarily due the disposal of Densitron Control Systems andcontinuing difficulties experienced in Public Information Displays. Turnover inAmerica reduced by 23% partly due to the weakness in the US Dollar comparedwith 2003 and the continuing weakness in the US markets. Turnover in Asiaincreased by 14% due to the strong sales of computer boards into the Japanesegaming market but this increase was negated slightly by the competitiveness andconsequential price pressure being experienced in the Human Machine Interfacemarket.The Group made an operating profit of ‚£1.4 million (2003: loss of ‚£0.1million).Net debt increased by ‚£1.6 million in 2004 (reduced by ‚£2.2 million in 2003);gearing stood at 40.0% at 31st December 2004 (2003: 20.1%). This increase isprincipally the result of an increase in stock at Hitech, which will beeliminated with the effect of the sale, and a reduction in creditors.The earnings per share for 2004 were 0.00p (2003: loss of 24.09p). TheDirectors will not be recommending a final dividend for 2004 (2003: nil).New order intake in 2004 was ‚£24.4 million (2003: ‚£26.1 million) and theGroup's order book stood at ‚£13.5 million at 31st December 2004 (2003: ‚£16.5million).GeneralDisplay Solutions continues to be an expanding market and we have increased ourefforts on marketing to reach a wider customer base. Supply chain difficultiescontinue, with quality, delivery and price stability being the main areas ofchallenge. We continue to strengthen our processes around supplier selection,monitoring and management.Display Computers will lend themselves to other industrial applications but weare currently applying all our energies to establishing Densitron as a marketleader in the gaming sector. Our DPX114 was well received and we have attendedimportant shows to increase awareness of the technology and brand. Lead timesare long, as gaming machine manufacturers will design in a new computer onlywhen they develop new machines. The advantage of course is that if the machineis successful, production runs and supply contracts are multi year, ourJapanese contract being a good example. Eastern Europe presents a potentiallyattractive market as it has limited regulation and is growing very fast. Forexample, we now have outstanding enquires from 14 Russian gaming machinemanufacturers. The USA and Australia are large and established markets butregulation is heavy and obtaining certification takes time. Moreover, the majorgaming machine manufacturers tend to develop and manufacture their own computerboards. We believe that this trend will decrease as they can gain speed andcost savings by utilising a `standards' based platform from Densitron.Continuing development is necessary to stay ahead of our competition.Public Information Displays has still to deliver a satisfactory financialperformance and this will be governed entirely by sales. The majority of ourcurrent sales are into public sector situations usually via a prime contractor.The decision making process is invariably protracted and forecasting accuratelyhas been very difficult. We have now established a largely new, enthusiasticand dedicated Ferrograph sales force to exploit our high quality products andadditional investment in marketing. Shareholders may recall that Densitronacquired the assets of Ferrograph some 30 months ago and whilst themanufacturing has been brought into shape the broken customer relationships andmarket expansion have taken longer. Drastic action on Ferrograph would realiselittle by way of a disposal and leave the Group with the overhead of an emptyfactory. We remain convinced that we can be successful in this market and thatFerrograph will become adequately profitable in the medium term to justify ourefforts and provide a satisfactory return on investment to the Group.Management and StructureHaving simplified the Group and established a clear focus around DisplaySolutions we need to attract and retain an increasing number of customers. Tolead this process we were delighted to bring Grahame Falconer into the Groupand onto the Board as Sales and Marketing Director. Grahame brings muchexperience and has set about these functions with a reassuring level ofenthusiasm, energy and urgency by hiring good people, setting clear objectivesand meeting forecasts.Operations are a key function in the Group and I have already referred to theunacceptable level of supply chain issues. We have a factory in Newcastle, anengineering and supplier management function in Taiwan and ongoing customerproject management and order processing/scheduling requirements. To lead all ofthis we have appointed Alan Bell as director of Operations. Alan comes from astrong and successful background in high technology manufacturing (includingdisplays) and came to us initially to bring the appropriate disciplines toFerrograph. Having dealt with that we have expanded his remit and feelconfident that he will instil the necessary processes to ensure success.Earlier this year and after 22 years at Densitron (most recently leading theDPX114 development), Nick Jarmany decided to resign as Technical Director topursue other personal interests. We thank Nick for his efforts over all hisyears with the Group and wish him well in the future. Whilst understandingtechnology is key to supplying the right solution we do not manufacture it assuch. The Group's success will come from clever use of the appropriatetechnology, delivered in a solution most applicable to customers' needs. Inthis case we have determined that product management and customer requirementsare the vital components we require of our technologists. To this end we havepromoted Edward Price to Director of Technology. Ed is a young engineer withhuge energy and an enthusiasm for displays and their applications. Ed isrestructuring the technical team to meet the needs of our three distinctdisplay segments.Early in 2004 our CEO David McQuiggan confirmed his desire to return to LosAngeles where he had lived with his family for many years and as such could notcontinue as CEO. Given our strategy of simplifying and consolidating weconcluded (with the support of our institutional shareholders) that thebusiness could be run, at least for a while, by the current executive team withadditional help from myself and without the expense of another CEO.My time commitment over the past two years has been significantly in excess ofexpectations and has often conflicted with my other interests. Consequently Ihave made the decision to stand down and will leave when a suitable candidatehas been identified. With this set of results I believe the corner is turned,the Group is set for a positive and exciting future and so I have put in placethe process for my replacement.Having discussed the executive team I must in all consciousness include our CFORob Smith. He continues to work tirelessly and shareholders should be aware ofthe fact that the Group's recovery is due in no small measure to the efforts ofRob and his team.Overall the business has been managed with prudence. Necessary action has beentaken to reduce costs in line with simplifying the Group and we believe thereis now a good foundation to grow from. We remain conscious of our shareholders'investment and faith and plan to deliver capital and then dividend growth.Every business is dependant on its people and Densitron is no exception. Therehave been some outstanding efforts and the whole team all deserve our thanksand appreciation for their considerable dedication.Trading Update2005 has started well. First quarter order intake in our core continuingactivities is higher than in the corresponding period last year. We are seeinggood levels of enquiries for both new and repeat business in all areas.We have started the year with a full complement of staff in sales and marketingthat will help us to build the pipeline and close the contracts to meet ourforecasts. So, the efforts we have made to strengthen not only the Group'ssales but marketing and supply chain as well are now bearing fruit and we willcontinue to drive improvement in all areas. Our cost base is at a sustainablelevel and I am very enthusiastic about prospects for the future.Phil LawlerChairman13th April 2005 CONSOLIDATED PROFIT AND LOSS ACCOUNT For the year ended 31st December 2004 2004 2003 ‚£'000 ‚£'000 TURNOVER 26,085 27,995 Cost of sales (15,161) (17,153) GROSS PROFIT 10,924 10,842 Distribution costs (138) (87) Administrative expenses (9,648) (11,176) Other operating income 228 298 OPERATING PROFIT/(LOSS) 1,366 (123) Share of associates' operating 372 272profit Profit on disposal of shares in 94 -associate Impairment of goodwill relating - (5,982)to associate 466 (5,710) Loss on sale of subsidiary (28) - PROFIT/(LOSS) ON ORDINARY ACTIVITIES BEFORE 1,804 (5,833)INTEREST Interest receivable and similar 33 22income Interest payable and similar (515) (617)charges PROFIT/(LOSS) ON ORDINARY ACTIVITIES BEFORE 1,322 (6,428)TAXATION Tax on profit/(loss) on ordinary (522) (575)activities PROFIT/(LOSS) ON ORDINARY ACTIVITIES AFTER 800 (7,003)TAXATION Minority interests - equity (797) (801) RETAINED PROFIT/(LOSS) FOR THE FINANCIAL YEAR 3 (7,804) Basic and diluted earnings/ 0.00p (24.09)p(loss) per share CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES For the year ended 31st December 2004 2004 2003 ‚£'000 ‚£'000 Group loss for the financial year (142) (7,990) Associated undertakings' profit for the 145 186financial year Dilution of shareholding in associate (8) - Foreign exchange adjustments (226) (778) Total recognised gains and losses for (231) (8,582)the year CONSOLIDATED AND PARENT COMPANY BALANCE SHEETS As at 31st December 2004 The Group The Company 2004 2003 2004 2003 ‚£'000 ‚£'000 ‚£'000 ‚£'000 FIXED ASSETS Intangible Assets 178 385 - - Tangible Assets 1,904 2,007 390 514 Investments 6,448 6,678 9,089 9,089 8,530 9,070 9,479 9,603 CURRENT ASSETS Stocks 4,318 3,081 - - Debtors - due after more than 657 495 - -one year Debtors - due within one year 5,337 5,407 7,593 10,102 Total Debtors 5,994 5,902 7,593 10,102 Cash at bank and in hand 2,565 2,956 11 11 12,877 11,939 7,604 10,113 CREDITORS: AMOUNTS FALLING DUE (10,193) (9,259) (3,179) (2,053)WITHIN ONE YEAR NET CURRENT ASSETS 2,684 2,680 4,425 8,060 TOTAL ASSETS LESS CURRENT 11,214 11,750 13,904 17,663LIABILITIES CREDITORS: AMOUNTS FALLING DUE (865) (1,422) (869) (1,596)AFTER MORE THAN ONE YEAR PROVISIONS FOR LIABILITIES AND (950) (763) (530) (365)CHARGES 9,399 9,565 12,505 15,702 CAPITAL AND RESERVES Called up share capital 3,233 3,233 3,233 3,233 Share premium account 21,204 21,204 21,204 21,204 Revaluation reserve 132 132 117 117 Profit and loss account (18,103) (17,872) (12,049) (8,852) TOTAL EQUITY SHAREHOLDERS' FUNDS 6,466 6,697 12,505 15,702 MINORITY INTERESTS - Equity 2,933 2,868 - - 9,399 9,565 12,505 15,702 CONSOLIDATED CASH FLOW STATEMENT For the year ended 31st December 2004 2004 2003 ‚£'000 ‚£'000 NET CASH (OUTFLOW)/INFLOW FROM (355) 1,005OPERATING ACTIVITIES DIVIDENDS RECEIVED FROM ASSOCIATED 96 346UNDERTAKINGS RETURNS ON INVESTMENTS AND SERVICING OF FINANCE Interest received 33 19 Interest paid (430) (597) Interest element of finance (12) (20)lease payments Dividends paid to minority (794) (949)interests (1,203) (1,547) TAXATION PAID UK tax paid - (3) Overseas tax paid (156) (304) (156) (307) CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT Payment to acquire tangible (248) (58)fixed assets Receipts from the sale of 6 229tangible fixed assets (242) 171 ACQUISITIONS AND DISPOSALS Purchase of shares in subsidiary - (93)undertakings Sale of shares in subsidiary undertaking 6 - Purchase of shares in associated (4) -undertaking Sale of shares in associated undertaking 204 - 206 (93) FINANCING Share Issues: rights issue 304 2,930 Share Issues: expenses (282) (86) Capital element of finance lease (33) (244)payments Decrease in advances from factors (2) (58) Increase/(decrease) in letters 47 (306)of credit Repayment of bank loans (445) (490) NET CASH (OUTFLOW)/INFLOW FROM (411) 1,746FINANCING (DECREASE)/INCREASE IN CASH (2,065) 1,321 NOTES RECONCILIATION OF OPERATING PROFIT/(LOSS) TO NET CASH (OUTFLOW)/INFLOW FROM OPERATING ACTIVITIES 2004 2003 ‚£'000 ‚£'000 Operating profit/(loss) 1,366 (123) Depreciation and impairment of tangible 278 486fixed assets Amortisation and impairment of intangible 30 37assets Loss on sale of fixed assets 48 24 (Increase)/decrease in stocks (1,550) 634 Increase in debtors (169) (884) (Decrease)/increase in creditors (613) 690 Increase in provisions for liabilities 187 163and charges Currency adjustments 68 (22) NET CASH (OUTFLOW)/INFLOW FROM OPERATING (355) 1,005ACTIVITIES RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT 2004 2003 ‚£'000 ‚£'000 (Decrease)/increase in cash (2,065) 1,321 Cash outflow from decrease in debt and 433 1,098lease finance (Increase)/decrease in net debt from cash (1,632) 2,419flows Inception of finance leases - (42) Foreign exchange movements (14) (131) (Increase)/decrease in net debt (1,646) 2,246 Net debt at 1st January (1,923) (4,169) NET DEBT AT 31ST DECEMBER (3,569) (1,923) ANALYSIS OF NET DEBT 1st Cash Foreign 31st January Flow Exchange December 2004 Movements 2004 ‚£'000 ‚£'000 ‚£'000 ‚£'000 Cash at bank and in 2,956 (374) (17) 2,565hand Bank overdraft (2,308) (1,691) 2 (3,997) NET CASH/(OVERDRAFT) 648 (2,065) (15) (1,432) Loans (1,693) 445 - (1,248) Finance leases (72) 33 - (39) Advances from factors (4) 2 - (2) Letters of credit (802) (47) 1 (848) BORROWINGS (2,571) 433 1 (2,137) NET DEBT (1,923) (1,632) (14) (3,569)TURNOVERAnalysis of turnover and gross profit by class of business 2004 2003 Turnover Gross Turnover Gross Profit Profit ‚£'000 ‚£'000 ‚£'000 ‚£'000 Display related products 13,873 6,168 14,148 5,968 Computer products 2,901 1,451 2,232 1,068 Human machine interfaces 5,076 1,912 5,794 2,176 Public information displays 3,115 1,086 4,163 1,030 Electro-mechanical products 1,120 307 1,658 600 26,085 10,924 27,995 10,842 BASIC AND DILUTED EARNINGS/(LOSS) PER SHAREBasic earnings/(loss) per share has been calculated on the Group profitattributable to the ordinary shareholders on ordinary activities after taxationand minority interests, of ‚£3,000 (2003: loss of ‚£7,804,000) and the averagenumber of ordinary shares in issue during the year being 64,669,106 (2003:32,391,139). There are no share options in existence so the diluted earnings/(loss) per share is the same as the basic earnings/(loss) per share.STATUTORY INFORMATIONThe preliminary announcement is not the Company's statutory accounts but isderived from those accounts, which have been prepared under accounting policiesconsistent with those in the 2003 accounts. The statutory accounts for the yearended 31st December 2003 have been delivered to the Registrar of Companies andreceived an audit report which was unqualified and did not contain statementsunder S237(2) or (3) of the Companies Act 1985. The statutory accounts for theyear ended 2004 have been audited and received an unqualified opinion but havenot yet been filed with the Registrar of Companies.Copies of the Annual Report will be despatched shortly to all shareholderscurrently on the Register.Densitron Technologies plc, Unit 4, Airport Trading Estate, Biggin Hill, Kent,TN16 3BW.Telephone 01959 542000For further details please contact:Rob Smith - Finance Director Telephone: 01959 542000Densitron Technologies plcAndrew Tan - Account Director Telephone: 020 7245 1100Hansard CommunicationsENDDENSITRON TECHNOLOGIES PLCRelated Shares:
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