Half Yearly Report

Stadium Group Plc

("Stadium" or the "Group")

Half Yearly Report

Stadium Group Plc (AIM: SDM), a leading electronic technologies group, announces unaudited interim results for the six months ended 30 June 2013.

Financial headlines

· Revenues of £21.44m (2012 H1: £20.93m)

· Adjusted profit before taxation* of £0.37m (2012 H1: £0.74m)

· Strong cash conversion from underlying operations of 124%

· Cash of £4.9m, offset by loans and overdrafts of £4.6m results in net cash of £0.3m

· Adjusted earnings per share of 1.0 pence* (2012 H1: 1.9 pence)

· Interim dividend proposed of 0.45 pence per share (2012 H1: 1.05 pence)

*After adjusting for one off Rugby site closure costs and the amortisation of acquired intangible assets

Other highlights

· Appointment of Charlie Peppiatt as CEO - 1 June 2013

· UK iEMS consolidation completed (Rugby now closed)

· Restructuring of Asia and Head Office - largely complete

· Full cost savings will be achieved from Q4 2013

· Interface and Displays continuing strong growth

· Power Products showing solid forward order book

· Group sales run-rate on track as per latest trading update

Commenting on outlook, Chairman Nick Brayshaw OBE said:

"The closure of the Rugby site was completed in August 2013, the other re-organisation activities in Head Office and Asia are substantially complete, and the expected benefits will be realised in the second half of this year.

We expect a strong second half performance built on a solid order book within the interface and displays business and the book-to-bill ratio within the power products business supports a much improved second half performance, which will be further enhanced by our e-commerce platform and a broader commercial offering of power products. Within the iEMS business, we have secured a number of contracts with new customers, albeit at lower margins, reflecting the on-going pricing pressures prevalent in this market.

The Board remains committed to the growth strategy of investing in our businesses both organically and through acquisition, and will continue to explore opportunities to drive this strategy forward. Whilst trading conditions during 2013 have remained challenging, the Group is now firmly on a path to deliver improved operating performance. The Board is confident of delivering second half profits in line with current expectations, and has an increasing optimism towards 2014 performance and beyond."

Stadium Group Plc

Unaudited interim results for the six months ended 30 June 2013

Chairman's Statement

Overview

Stadium has delivered a set of results for the first half of 2013 that are in line with our expectations, despite challenging economic conditions and significant organisational change. Although the first half of the year was materially down year on year at an operating profit level, our self-help actions are positioning the Group to achieve a step-change in business performance during the second half of the year and expects the last quarter of 2013 to deliver significant cost savings from the closure of the Rugby site and consolidating UK operations to Hartlepool, as well as restructuring activities in Asia and elsewhere.

The full year effect of the Rugby site closure is forecast to deliver annual savings of approximately £1m, which in addition to the other cost-saving initiatives introduced throughout the year, will restore the profitability of the Group to a more acceptable level going forward. We expect to see the benefits of these actions in the second half of 2013 and beyond.

Furthermore, the order book is strengthening and the current run-rate of sales is in line with our expectations. IGT Industries Ltd (IGT), acquired in September 2012, is achieving its investment targets and the pipe-line for new customer wins and project orders is positive. We are also seeing traction with a more integrated sales approach, offering our complete spectrum of technologies to existing and new customers.

We remain committed to our strategic objectives, which we set out in 2011, to drive organic growth and pursue acquisitions that enhance the existing portfolio of products and improve margins. Our priority is driving operational improvements and efficiencies across our businesses whilst increasing both our investment in high growth markets and new product developments in order to accelerate our medium-term strategy of sustainable and profitable growth.

Financial review

Revenues were up 2.4% at £21.44m (H1 2012: £20.93m) year on year. On a like-for-like basis and excluding the contribution from IGT Group revenue decreased 8.1%. This reflects the continued challenging market conditions in the iEMS sector and the relatively slow start to the year in Power Products due in part to delays with one key customer, which have now been recovered.

Overall gross margin was 20.0% versus 19.5% in the prior year due to the shift in sales mix towards IGT. Underlying gross margin, excluding IGT, deteriorated 1.2% due to continued margin pressures in global iEMS.

Operating expenses increased by £0.68m year on year with the additional overhead from IGT accounting for £0.50m of the increase. The remaining increase was driven by the project management costs associated with the Rugby closure.

Reported profit before tax was £0.04m (H1 2012: £0.58m). Normalised profit before tax, after adjusting for exceptional items including the re-organisation of the Rugby site and the amortisation of acquired intangibles from the IGT acquisition, was £0.37m (2012: £0.74m). Excluding the impact from the IGT acquisition, normalised profit before tax on a comparative basis was £0.20m.

Reported loss per share from continuing operations was 0.1 pence (2012 H1: Profit of 1.4 pence). Normalised earnings per share before one-off items and amortisation of acquired intangibles was 1.0 pence (H1 2012: 1.9 pence).

Statement of financial position and cash flow

The gross cash position at 30th June 2013 was £4.94m (2012: £4.03m), and net cash, after deduction of bank overdraft and loans, was £0.29m, an improvement of £0.17m from the year end.

The Group measures operating cash flow as: trading cash flow of £0.60m less purchases of plant and equipment of £0.26m which yields an operating cash flow of £0.35m; equivalent to a cash conversion to operating profit ratio of 124% (2012: 66%). Improvements in working capital management have been driven notably by more closely matching trade debtor and creditor terms and debt collection. The IGT acquisition has also enhanced the Group's overall cash conversion ratio.

Headroom against existing bank facilities at 30 June 2013 was £11.78m (31 December 2011: £11.62m), with £3.49m of the £8m acquisition facility being utilised to date.

Operational performance

*Note: - the operating profit margin above excludes the amortisation of intangibles of £0.13m.

We are delighted about the performance of IGT which is achieving the performance targets set at the time of acquisition. The response to our integrated sales approach with the Power and the iEMS businesses is encouraging, and additional sales opportunities are being pursued in this area. We remain convinced that interface and displays is a highly attractive market, complementary to our existing technology, which is margin and profit enhancing to the Group.

The Power Products division has had a weak first half with one key customer delaying orders to the second half of the year. The operating margins increased marginally year on year by proactive cost control.

*Note: - the operating profit margin above excludes one off items of the £0.19m. iEMS also absorbs all of the Group overhead, consistent with prior year presentations.

Broadly, volumes in the global iEMS business were flat year on year, although the impact of pricing and other mix changes resulted in sales down by 4.3%.

Dividend

The Board proposes an interim dividend of 0.45 pence (2012: 1.05 pence) per share to be paid on 18 October 2013 to shareholders on the register on 20 September 2013. The Board's policy on dividends, as previously stated, is to maintain a dividend cover of three times through the cycle, measured against profit after tax attributable to shareholders.

Board Changes

On 31st May 2013, Stephen Phipson stepped down as CEO. On behalf of the Board, I would like to thank Stephen for his contribution over the past two years, in particular for helping to devise the Group's strategy for growth and for delivering the IGT acquisition.

I was delighted to be able to announce the appointment of Charlie Peppiatt as the CEO with effect from 1st June 2013. As part of the Group's succession planning, Charlie joined in October 2011 in a newly created role as Group Operations Director, and has therefore been closely involved in all aspects of the Group's activities since that time. His appointment provides a seamless transition in the leadership of the Group at this critical business time.

Managing talent

Recruitment and development of talented people is imperative to the long-term future performance of the Group. Whilst undergoing significant restructuring across the Group, we have consciously invested in up-skilling and strengthening our middle and senior management teams, with key appointments being made both in Asia and the UK.

Outlook

The closure of the Rugby site was completed in August 2013, the other re-organisation activities in Head Office and Asia are substantially complete, and the expected benefits will be realised in the second half of this year. In addition, the key building blocks are now in place to convert sales at higher profit margins than previously, with a positive mix shift towards the technology-led businesses and a reduced cost base in iEMS.

We expect a strong second half performance built on a solid order book within the interface and displays business and the book-to-bill ratio within the power products business supports a much improved second half performance, which will be further enhanced by our e-commerce platform and a broader commercial offering of power products. Within the iEMS business, we have secured a number of contracts with new customers, albeit at lower margins, reflecting the on-going pricing pressures prevalent in this market. We will however endeavour to introduce new customers with whom we can form a strategic alliance, and exploit our combined technology offering, supplying Power Products, Interface and Displays and iEMS.

In the second half of the year, the working capital level is expected to improve as inventory at the half year is inflated by the need to stock-build in light of the Rugby site closure, which is forecast to unwind to normal levels by the year end.

The Board remains committed to the growth strategy of investing in our businesses both organically and through acquisition, and will continue to explore opportunities to drive this strategy forward. Whilst trading conditions during 2013 have remained challenging, the Group is now firmly on a path to deliver improved operating performance. The Board is confident of delivering second half profits in line with current expectations, and has an increasing optimism towards 2014 performance and beyond.

Nick Brayshaw OBE

Chairman

10 September 2013

Consolidated income statement (unaudited)

for the six months ended 30 June 2013

Consolidated statement of comprehensive income (unaudited)

for the six months ended 30 June 2013

Consolidated statement of financial position (unaudited)

at 30 June 2013

Consolidated statement of changes in equity (unaudited)

for the six months ended 30 June 2013

Consolidated statement of cash flows (unaudited)

for the six months ended 30 June 2013

Notes to the financial statements

1. Basis of preparation

The annual financial statements of Stadium Group plc for the year ending 31 December 2013 will be prepared in accordance with the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB), as adopted for use by the European Union (EU) effective at 31 December 2013 and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS. Accordingly, the interim financial report has been prepared using accounting policies consistent with those which will be adopted by the Group in the financial statements and in compliance with IAS 34 Interim Financial Reporting.

The Group's IFRS accounting policies, set out below, have been consistently applied to all the periods presented. The information has been prepared under the historical cost basis.

The comparative figures for the year ended 31 December 2012 do not constitute statutory accounts for the purposes of Section 435 of the Companies Act 2006. A copy of the statutory accounts for the year ended 31 December 2012 has been delivered to the Registrar of Companies and contained an unqualified auditor's report in accordance with Section 495 of the Companies Act 2006.

Basis of consolidation

The Group financial information consolidates that of the Company and its subsidiaries. Businesses acquired or disposed of during the period are consolidated from the effective date of acquisition or until the effective date of disposal.

All intra-group transactions, balances, income and expenses are eliminated on consolidation.

Goodwill

Goodwill arising on consolidation consists of the excess of the fair value of the consideration over the fair value of the Group's interest in the identifiable tangible and intangible assets net of liabilities including contingencies of the business acquired at the date of acquisition.

Goodwill is recognised as an asset at cost less any recognised impairment losses. It is reviewed for impairment at least annually and any impairment is recognised immediately in the income statement.

Revenue recognition

Revenue is measured at the fair value of goods and services provided to customers net of returns, discounts, value added tax and other sales taxes. Revenue is recognised when goods are despatched and title has passed to the customer and the collectability of the revenue is reasonably assured.

Property, plant and equipment

Property, plant and equipment are stated at cost less accumulated depreciation and any recognised impairment losses.

Depreciation is charged at rates calculated to write down the cost of assets (excluding freehold land) over their estimated useful lives by equal instalments at the following rates:

Freehold buildings 2%

Plant and machinery 10% - 25%

Fixtures and equipment 10% - 25%

Useful lives and residual values are reviewed annually.

The gain or loss arising on disposal or retirement of an asset is determined as the difference between the sale proceeds and the carrying amount of the asset and is recognised in income.

Inventories

Inventories are stated at the lower of cost and estimated net realisable value. Cost is determined on a first-in-first-out basis including transport and handling costs and, in the case of manufactured products, includes all direct expenditure and production overheads based on normal levels of activity.

Deferred taxation

Deferred taxation is recognised in respect of all temporary differences that have originated but not reversed at the period end date where transactions or events that result in an obligation to pay more tax in the future or a right to pay less tax in the future have occurred at the period end date. A deferred tax asset is regarded as recoverable and therefore recognised only when, on the basis of all available evidence, it can be regarded as more likely than not that there will be suitable taxable surpluses from which the future reversal of the underlying temporary differences can be deducted.

Pension costs

Defined benefit scheme

Assets and liabilities arising from retirement benefit obligations and the related funding are reflected at fair value in the financial statements and operating and finance costs are recognised in the financial periods in which they arise. Gains and losses arising from actuarial experience during the accounting period are recognised in the statement of comprehensive income.

Defined contribution schemes

Contributions payable are charged to the income statement in the accounting period in which they are incurred.

Foreign currencies

Transactions denominated in foreign currencies are recorded at the prevailing rate on the date of the transaction.

Trading assets and liabilities denominated in foreign currencies are translated into Sterling at the rate prevailing at the period end. Gains and losses arising on the translation of foreign currencies are dealt with as part of operating profit.

The assets and liabilities of foreign subsidiary undertakings are translated into Sterling at the period end exchange rate. The income and expenditure of foreign subsidiary undertakings are translated into Sterling at the average exchange rate prevailing during the period. Exchange differences arising on retranslation of opening assets and liabilities, long term financing denominated in foreign currency and the trading of foreign subsidiary undertakings are taken directly to the translation reserve.

Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate. The Group has elected to treat goodwill and fair value adjustments arising on acquisitions before than date of transition to IFRS as Sterling denominated assets and liabilities.

Provisions

A provision is recognised in the statement of financial position when the Group has a present legal or constructive obligation as a result of a past event and it is probable that an outflow of economic benefits will be required to settle the obligation. A warranty provision is recognised when the related goods are sold. The provision is based upon historical customer claims data relative to levels of sales activity.

Discontinued operations and non-current assets classified as held for resale

A discontinued operation is an element of the Group that represents a separate operating or geographical segment that has been disposed of or is held for sale. Classification as a discontinued operation occurs upon disposal or when the operation satisfies the criteria to be classified as held for sale if this is earlier. When an operation is classified as discontinued, the comparative income statement and the statement of cash flows are restated as if the operation had been discontinued from the start of the comparative period.

Non-current assets and liabilities classified as held for sale are recognised at the lower of their book value and fair value less selling costs. Non-current assets held for sale are not depreciated, but reviewed for impairment and any impairment losses are recognised in the statement of income.

Research and development

Research expenditure is charged to the income statement as an expense when incurred. Development expenditure is capitalised as an internally generated intangible asset once criteria relating to the product's technical and commercial feasibility have been met and the decision to complete the development has been taken and resources committed to the completion of the project. Development expenditure capitalised includes the cost of materials used and direct labour. Capitalised development expenditure is stated at cost less accumulated amortisation and impairment losses. Development costs are amortised over five years in a profile which matches the revenue generation profile of the product.

Leased assets

Leases of property, plant and equipment where the Group assumes substantially all of the risks and rewards of ownership are classified as finance leases. Assets held under finance leases are capitalised at fair value of the leased asset. The corresponding leasing commitments, net of finance charges, are included in liabilities.

Leasing payments are analysed between capital and interest components so the interest element is charged to the income statement over the period of the lease at the constant periodic rate of interest on the remaining balance of the liability outstanding.

Depreciation on assets held under finance leases is charged to the income statement over the useful life of the asset.

All other leases are treated as operating leases with annual rentals charged to the income statement, net of any incentives granted to the lessee, over the term of the lease.

Financial instruments

The Group's financial instruments comprise borrowings, some cash and liquid resources and items such as trade debtors and trade creditors that arise directly from its operations. The main purpose of these financial instruments is to manage the finance of the Group's operations.

Financial assets and financial liabilities are recognised in the Group's statement of financial position when the Group becomes a party to the contractual provisions of the instrument.

Trade receivables

Trade receivables do not carry any interest and are stated at their nominal value less appropriate allowances for estimated irrecoverable amounts.

Cash and cash equivalents

Cash includes bank current accounts and petty cash balances, which are subject to significant risk of changes in value.

Bank borrowings

Interest bearing bank loans and overdrafts are recorded at the proceeds received net of direct issue costs. Finance charges, including premiums payable on settlement or redemption and direct issue costs, are accounted for on an accruals basis to the income statement and are added to the carrying amount of the instruments to the extent that they are not settled in the period in which they arise.

Trade payables

Trade payables do not carry any interest and are stated at their nominal value.

Equity instruments

Equity instruments issued by the Group are recorded at the proceeds received net of direct issue costs.

It has been, throughout the period under review, the Group's policy that no trading in financial instruments shall be undertaken. The Group does not consider that it has any obligations or rights under derivative financial instruments.

The main risks arising from the Group's financial instruments are credit risk, interest rate risk, liquidity risk and foreign currency risk. The Board reviews and agrees policies for managing each of these risks and these policies are summarised below.

Credit risk

The Group has a credit policy in place and exposure to credit risk is monitored on an ongoing basis. Credit evaluations are carried out on all significant prospective customers and all existing customers requiring credit beyond a certain threshold. Credit risk is actively managed. Remedial actions are taken, including the variation of terms of trade under guidance from senior management, where credit risk is deemed to have risen to an unacceptable level.

Interest rate risk

The Group finances its operations through a mixture of retained profits and bank borrowings. The Group holds cash and borrowings in various currencies at floating rates of interest.

Liquidity risk

As regards liquidity, the Group's policy is to maintain undrawn overdraft borrowing facilities in order to provide flexibility in the management of the Group's liquidity.

Foreign currency risk

The Group has transactional and translational currency exposures. Transactional exposures arise from sales or purchases by operating units in currencies other than Sterling, being the Group's functional currency. The Group matches payments and receipts to minimise exposure, and buys the currency when the liability falls due. Translational exposure arises when the results of Stadium Asia, which are reported in Hong Kong Dollars, are translated into Sterling for inclusion in the Group results. Part of this exposure is hedged by entering into loan facilities denominated in US Dollars.

Accounting estimates and judgements

The estimates and judgements that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are shown below.

Key sources of estimation uncertainty

Stock provisions - The stock provision is based on average loss rates of stock in recent months. The provision makes use of stock counts performed which is considered to be representative of all stock items held.

Retirement benefit obligations - Obligations under the final salary pension scheme are affected by the discount rate applied to future pension obligations, the expected rate of return on the scheme's investments, the rate of inflation in future salaries and pensions and the mortality rate of scheme members. The assumptions over these factors are updated annually by the scheme actuary and the obligation to make future pension payments is re-evaluated at the annual reporting date.

Goodwill - Goodwill is evaluated for impairment at each reporting date. The recoverable amounts of cash generating units have been estimated based on value in use calculations.

Credit risk - Trade and other receivables are recognised to the extent that, in the opinion of the directors, they are recoverable in the ordinary course of business.

2. Segmental reporting analysis

By operating segment

By geographic location

3. Operating expenses

Operating expenses include one-off items as follows:

4. Finance costs comprises:

5. Dividends

An interim dividend of 45p per share amounting to £135,000 will be paid on 18 October 2013 to shareholders on the register on 20 September 2013.

6. Earnings per share

All earnings arise from continuing operations.

The calculation of basic loss per share is based on the loss for the financial period and the weighted average number of ordinary shares in issue (June 2013: 29,456,625 shares; June 2012: 29,414,980 shares; December 2012: 29,426,250 shares).

Fully diluted loss per share does not reflect potential ordinary shares that could arise from 1,187,000 share options granted as they would be anti-dilutive. The calculation therefore reflects a weighted average number of shares of 29,456,625 ordinary shares (June 2012: 29,534,457 shares; December 2012: 30,256,393 shares).

7. Non-current payables

8. Net cash inflow from operating activities

9. Analysis of changes in net debt

10. Risk management

The main financial risks faced by the Group are credit risk, foreign currency risk, interest rate risk and liquidity risk. The directors regularly review and agree policies for managing these risks. Further details of the risk management policies are set out in Note 1.

These risks have developed and been managed as follows since the last Group Annual Report.

Credit risk

The Group has paid particular attention to managing the credit risk inherent in new customers during a period of revenue growth. Awareness is maintained of any changes in customers' credit requirements, payment habits and the conditions in their own market sectors.

The Group has not incurred any significant bad debts during the period.

Foreign currency risk

There has been no significant change during the period in the nature of the Group's exposure to currency risk. There continues to be no significant exposure to currency risk on transactions due to the policy of matching the currency of payments and receipts.

A net gain of £398,000 (2012: loss £16,000; 2012 full year: loss £255,000) on the translation of the net assets of Stadium Asia, denominated in Hong Kong Dollars, and long term borrowings denominated in US Dollars was recorded through the translation reserve.

At 30 June 2013 the Group had borrowings denominated in US Dollars of £812,000 (2012: £1,056,000) and in Hong Kong Dollars of £198,000 (2012: £205,000).

Interest rate risk

The Group holds cash and borrows in Sterling and US Dollars at floating rates of interest. The exposure to interest rate risk all relates to the floating rates at which the Group borrows and lends. The risk is monitored continually to ensure that the Group remains able to meet its financing commitments from operational cash flows.

The Group's financial liabilities are denominated in Sterling and Hong Kong dollars and have fixed and floating interest rates. The financial liabilities comprise:

· bank borrowings in Hong Kong dollars that bear interest on a floating rate of LIBOR plus 2.0%;

· loans in US dollars that bear interest at rates based on a floating rate of LIBOR plus 2.0%; and

· overdraft in Sterling that bears interest on a floating rate of LIBOR plus 2.0%.

Liquidity risk

The Group's policy of managing liquidity risk by maintaining sufficient headroom in its undrawn overdraft facilities has been applied throughout the period.

At the end of the period the Group had overdraft facilities of £3,000,000 (2012: £2,288,000) of which £1,230,000 was being utilised (2012: £nil) but had overall net available cash of £3,714,000 (2012: £2,070,000). The Group also had loan facilities for corporate acquisitions of £8,000,000 (2012: £3,493,000) of which £4,895,000 (2012: £2,232,000) remains unutilised.

11. Going concern and liquidity

The directors confirm that, after having made the appropriate enquiries, they have a reasonable expectation that the Group and the Company have adequate resources and sufficient liquidity to continue operations for the foreseeable future. Accordingly, the directors have adopted the going concern basis in the preparation of this report.

Corporate and company directories

Corporate directory

Stadium Group plc

Registered office

Stephen HouseBrenda RoadHartlepoolTS25 2BQRegistered number 236394

Independent auditor

BDO LLP

1 Bridgewater PlaceWater LaneLeeds

LS11 5RU

Bankers

HSBC Bank plc

North East Corporate Banking CentreMaingateKingsway NorthTeam Valley Trading EstateGatesheadNE11 0BE

Advisors

Nplus1 Singer Advisory LLP

7 Melville CrescentEdinburghEH3 7JA

Registrars

Capita Registrars

34 Beckenham RoadKentBR3 4TU