2nd Mar 2005 07:02
Polaron PLC02 March 2005 2 March 2005 Polaron plc Interim results Position strengthened through acquisitive and organic growth Polaron plc, (LSE: POL) the broad-based technology group, today announces itsinterim results for the six months to 31 December 2004. Financial Highlights • Turnover up 34% to £8.23m (2003/4: £6.15m)• Gross profit up 49% to £3.85m (2003/4: £2.57m)• Profit before tax, exceptional costs and goodwill amortisation up 80% to £0.75m (2003/4: £0.42m)• Adjusted EPS up 13% to 3.4p (2003/4: 3.0p)• Interim dividend of 0.3p per share Operational Highlights • Nanotechnology division performance remains encouraging: - Strong pipeline coming through - Development of laser atom probe• Control Systems division's market position strengthened: - Acquisitions of iLight Group Ltd and Rossula for £2.05m• Components division trading well: - Disposal of commercial pressure sensor product line for £1.3m• Software republishing satisfactory Joe Stelzer, Chief Executive Officer, noted: "I am pleased with the company's continued good progress across all businessunits. Our position as a technology business that encompasses both groundbreaking nanotechnology instrumentation in the form of our 3D Atom Probe andalso the more mature Controls, Components and Software businesses, continues toprovide a strong financial base. "Our mission remains to become a significant player in the emergingnanotechnology market with our 3D Atom Probe metrology instrument whilst at thesame time maximising the business potential of our other divisions. We areconfident that further progress across all divisions will enable us to meetmarket expectations for the financial year." Enquiries: Polaron plc Tel: 01923 495 513Joe Stelzer Financial Dynamics Tel: 0207 831 3113Juliet Clarke Introduction In the first half of the current financial year, we are pleased to be able toreport continued good progress in all our business units. Our position as atechnology business that encompasses both ground breaking nanotechnologyinstrumentation and also the more mature Controls, Components and Softwarebusinesses continues to provide a strong financial base. Our performance is ontrack to meet market expectations for the full year. Financial Performance Turnover for the six months to 31 December 2004 ("2004/5") rose 34% to £8.23mcompared with £6.15m, including our share of joint venture turnover, for the sixmonths ended 31 December 2003 ("2003/4"). The increase in turnover included£1.84 million from acquisitions, principally the iLight Group, which wasacquired in early September 2004. Gross profit for 2004/5 increased by 49% to £3.85m (2003/4: £2.57m) and included£0.83m from the iLight Group. Administrative expenses, excluding depreciation, amortisation and exceptionalitems, increased from £1.80m in the first half of 2003/4 to £2.57m in the firsthalf of 2004/5, primarily due to increased staff numbers, and the administrativeexpenses of the acquired businesses, which amounted to £0.49m in the period,excluding depreciation. Amortisation increased from £0.01m in 2003/4 to £0.24m, principally due to theamortisation of goodwill arising on acquisitions during 2004/5 and a full sixmonths' charge for the amortisation of goodwill, which arose on the purchase ofthe minority interests in March 2004. Depreciation increased slightly from £0.12m in 2003/4 to £0.14m in 2004/5 due tohigher levels of capital expenditure. Exceptional costs in 2004/5 amounted to £0.25m and relate to redundancy andrestructuring costs in respect of the acquired businesses. Underlying business performance has significantly improved with profit beforeinterest, tax depreciation, exceptional items and amortisation increased by 65%from £0.57m to £0.94m for 2004/5. This reflects higher gross profits, partiallyoffset by higher administrative expenses. Cash inflow from operations was £0.40m in 2004/5, compared with £0.89m,reflecting lower operating profits as a result of exceptional costs, higherdepreciation, amortisation charges and an increase in working capital. In 2004/5 cash outflow from acquisitions and capital investment amounted to£1.40m and £0.35m, compared with £nil and £0.05m in 2003/4 respectively. At 31 December 2004, net debt was £0.25m, compared with net cash of £0.62m at 30June 2004. The reduction in net cash was due primarily to acquisitions during2004/5 of £1.40m, capital expenditure of £0.35m, partially offset by operationalcash flow of £0.40m and £0.50m received from a loan draw down. This cashposition at 31 December 2004 does not include the subsequent receipt of £1.3mfrom the sale of the commercial pressure sensor product line referred to below. At 31 December 2004, the Group had undrawn loan facilities of £1.20m. Adjusted earnings per share, which excludes exceptional costs and goodwillamortisation, increased from 3.0p to 3.4p in 2004/5. Earnings per share in 2004/5 were 0.5p compared with 2.9p for 2003/4, due to lower profits (as a result ofexceptionals and increased goodwill amortisation and depreciation) in 2004/5,compared with 2003/4. An interim dividend of 0.3p per share will be payable on 25 April 2005 toshareholders on the register on 29 March 2005. Acquisitions and Disposals Our first two acquisitions as a public company were in the Controls area,strengthening our position in both the architectural and entertainment lightingmarkets. The combined purchase price for both Rossula and iLight Group was£2.05m of which £1.25m was satisfied in cash and £0.8m by the issue of newshares. The combined turnover for both businesses in their respective lastfinancial periods was approximately £8m. Shortly after the end of the half year, the Company disposed of its commercialpressure sensor product line contained within Polaron Components Ltd. Thedisposal price was £1.3m in cash. The Company had purchased the whole pressuresensor business from receivership for approximately £0.25m in July 2002. The new businesses (which trade under the names iLight, Zero88, Lightfactor andLightprocessor) are being integrated into a common manufacturing operation basedin Cwmbran in Wales. Whilst there have been restructuring costs involved duringthe integration process (approx. £0.25m in the period), we expect the resultswill be earnings enhancing for the current full financial year. Nanotechnology 3D Atom Probe Turnover during the period was £1.15m (2003: £0.98m), an increase of 16% againstthe first half of last year. In the period, one Atom probe was shipped to India and the remaining twoscheduled for the first half were shipped and invoiced after the period end. Thecustomers for these two 3DAPs were the National Institute for Materials in Japan(2nd 3DAP for this customer) and Shanghai University. Our first order from Chinahas received widespread publicity both directly through the Chinese academiccommunity and also as part of the UK and Chinese Government's initiative called"UK-China Partners in Science". Shanghai University has arranged a countrywidesymposium in March in order to educate the Chinese academic community on the3DAP and its uses. Our non-executive Chairman, Professor George Smith, will bethe key contributor at the symposium together with Dr Peter Clifton, Director ofOxford Nanoscience business development, who joined us from Seagate during 2004.We are confident that this symposium will provide several commercialopportunities within the Chinese market. On a broader level, we have experienced continued and growing interest in our 3DAtom Probe. The performance of our product has improved significantly during theperiod with an almost 25% improvement in mass resolution at full width tenthmaximum. This improvement allows scientists to differentiate ions (electricallycharged atoms) with very similar atomic masses. Our existing Atom Probe isrestricted to analysing samples which are electrical conductors (ie metals andhighly doped semiconductors). We are at an advanced stage in the development ofa laser atom probe that will allow the analysis of low doped semiconductors andin general non-conducting samples. Initial results for pure silicon samplesindicate that we are achieving a similar mass resolution. We expect this productto be available for sale by the financial year end. Currently, our customer base is predominantly comprised of organisationsinvolved in metallurgy. Our technique for analysis was originally developed forthis market and continues to provide a source of new customer prospects. Severalof these prospects are at an advanced stage. Key to our continued growth is thewider acceptance of the 3DAP technique and more specifically the availability ofthe laser atom probe which will allow entry into the much larger semiconductormarket. Given the 3DAP's atomic scale resolution, its importance for this marketwill come as feature size reduces further. The company has developed asignificant pipeline for its 3DAPs and we are encouraged by the level of seriousenquiries. However it remains difficult to predict the likely timing of theconversion of the sales pipeline into firm orders. IMOSTM Towards the end of the period, the Company acquired an option to purchase theremainder of Epiic (the optical component integration spin out from ImperialCollege, London) that it does not already own together with IP relating toQuantum Dot research currently being carried out by Imperial's materialsdepartment. In addition, the Company and Imperial College have recently beenawarded a grant by the DTI under their Smart Pixel Optoelectronic Technologiesfor next generation Sensors (SPOTS) program. The total project size is £819,000(of which 50 per cent is funded by the DTI). It is expected that Epiic's IMOS(Integrated Monolithic Optical Structure) process for the integration of opticalcomponents will be proven by the company's financial year end, at which pointlicensing opportunities will be explored. The SPOTS program is specificallytargeting a particular implementation of IMOS for advanced laser based sensorarrays that are able to provide a 3D imaging capability for the determination ofan object's shape, location, distance or spectral signature. Controls Turnover for the period was £3.81m (2003: £2.10m), an increase of 81%. Theincrease in turnover is largely attributable to the acquisition of iLight Ltd.We have incurred restructuring costs of £0.25m during the period creating acentralised manufacturing operation in our Cwmbran facility and streamlining themanagement teams of both iLight and Zero88. Customer enquiries are strong and weexpect performance to improve further once the benefits of an enhanced productportfolio filter through the sales cycle. Components Turnover for the period was £2.54m (2003: £1.77m), an increase of 43%.Performance was particularly strong with respect to the product lines that werenot disposed of shortly after the period end. Ongoing longer term contracts arecontinuing at projected run rates. We are encouraged with the improvingperformance of this division. Shipments of products to our major customersBritish Aerospace and Metronet Rail continue to proceed against forecastedmonthly quantities. Software Turnover during the period was £0.75m (2003: £0.94m), a decrease of 24%. Duringthe period, a number of new versions of existing strong selling titles werereleased. However the retail channel through which the products are sold wasgenerally weak over the Christmas trading period. We are optimistic about the potential sales for our latest product MagixRingtonemaker, which is due to be launched in early March 2005. This product hasbeen the subject of significant interest in both the media and retail channelsgiven the ability of the product to create real ringtones on a variety of mobilephones (using WAV, mp3, AMR and ADPCM file formats) using a bluetooth enabled PCor laptop (subject to having the approval of the copyright holder of anypublished material). Senior Management I am delighted to welcome two new members to the Board. Fraser Searle joined us as Finance Director during January. Fraser's predecessorJon Clough has remained with the Company assisting us with the integration ofnew acquisitions and implementation of our Management Information System.Fraser, age 42, joins the Board of Polaron after 4.5 years at Turbo Genset Inc.,the fully listed electronics technology company. Fraser joined Turbo Genset inMarch 2000 and oversaw a period of strong growth, including the company'slisting on the London Stock Exchange and a key acquisition. Prior to TurboGenset, Fraser spent 14 years at Ernst & Young providing commercial businessadvisory and consulting services to energy companies, before starting up his owncompany to provide financial advice and outsourced accountancy services tostart-up companies in the technology sector. Simon Redvers joined us in February as Group Managing Director and hisappointment to the Board is effective as of today. Simon joined us fromHoneywell where he was responsible for business development in their sensorsdivision. His prior experience included various strategic operations roles atNortel, GEC and Hanson. Simon has an MBA from London Business School and anundergraduate degree in Engineering, Economics and Management from OxfordUniversity. Simon is responsible for setting up and managing an infrastructurefor continued growth across the whole group. Outlook Our mission remains to become a significant player in the emergingnanotechnology market with our 3D Atom Probe metrology instrument whilst at thesame time maximising the business potential of our other divisions. We areconfident that further progress across all divisions will enable us to meetmarket expectations for the financial year. CONSOLIDATED PROFIT AND LOSS ACCOUNTfor the six months ended 31 December 2004 Year ended 30 June Notes Six months ended 31 December 2004 2003 2004 £'000 £'000 £'000 (unaudited) (unaudited) (audited)Turnover: Group and share of joint ventureContinuing operations 6,393 6,152 13,090Acquisitions 1,835 - 297 ---------- ---------- ---------- 8,228 6,152 13,387less: share of joint venture turnover - (296) (485) ---------- ---------- ----------Group Turnover 2 8,228 5,856 12,902Cost of sales 9 4,379 3,282 7,477 ---------- ---------- ----------Gross profitContinuing operations 3,015 2,574 5,327Acquisitions 834 - 98 ---------- ---------- ---------- 2 3,849 2,574 5,425 Distribution expenses 9 344 227 594 Administrative expenses 9 2,972 1,930 3,810Exceptional administrative expenses 10 252 - 214 ---------- ---------- ----------Total administrative expenses 3,224 1,930 4,024Other operating income (6) (2) (1) ---------- ---------- ----------Group operating profitContinuing operations 285 419 789Acquisitions 2 - 19 ---------- ---------- ---------- 287 419 808Share of operating profit in joint ventures - 22 10 ---------- ---------- ----------Profit on ordinary activities before interestand taxation 287 441 818Interest receivable and similar income 3 - 4Interest payable and similar charges (15) (35) (65) ---------- ---------- ----------Profit on ordinary activities before taxation 275 406 757Taxation on profit on ordinary activities 7 207 122 264 ---------- ---------- ----------Profit on ordinary activities after taxation 68 284 493Minority interest - 4 (2) ---------- ---------- ----------Profit for the period/year 68 288 491Dividends 43 - 34 ---------- ---------- ----------Retained profit for the period/year 25 288 457 Retained profit brought forward 1,055 598 598 ---------- ---------- ----------Retained profit carried forward 1,080 886 1,055 ========== ========== ========== Earnings per share - pence 3Basic 0.5 2.9 4.5Basic - adjusted for exceptional items 3.4 3.0 6.8 and goodwill amortisation Dividend per share - penceInterim 0.30 - -Final - - 0.25 CONSOLIDATED BALANCE SHEET31 December 2004 Notes December December June 2004 2003 2004 £'000 £'000 £'000 (unaudited) (unaudited) (audited)Fixed Assets Intangible assets 4,049 152 2,254 Tangible assets 3,059 2,569 2,675 Fixed asset investments 12 41 1 ---------- ---------- ---------- 7,120 2,762 4,930Current Assets Stocks 2,881 1,307 1,637 Debtors 4,313 3,259 3,402 Cash at bank and in hand 5 646 652 917 ---------- ---------- ---------- 7,840 5,218 5,956 Creditors: amounts falling due 5,619 3,966 2,894within one year ---------- ---------- ---------- Net current assets 2,221 1,252 3,062 ---------- ---------- ---------- Total assets less current liabilities 9,341 4,014 7,992 Creditors: amounts falling due aftermore than one year Bank loans 5 500 569 - Finance leases 199 244 207 Provision for liabilities and charges 138 154 106 ---------- ---------- ---------- 837 967 313 ---------- ---------- ---------- 8,504 3,047 7,679 ========== ========== ========== Capital and Reserves Called up share capital 1,379 994 1,340 Shares to be issued 172 - 72 Share premium account 4,729 - 4,068 Revaluation reserve 1,465 1,465 1,465 Merger capital reserve (321) (321) (321) Profit and loss account 1,080 886 1,055 ---------- ---------- ----------Shareholders' funds (equity) 8 8,504 3,024 7,679Minority interests (equity) - 23 - ---------- ---------- ---------- 8,504 3,047 7,679 ========== ========== ========== CONSOLIDATED CASH FLOW STATEMENTfor the six months ended 31 December 2004 Year ended 30 June Notes Six months ended 31 December 2004 2003 2004 £'000 £'000 £'000 (unaudited) (unaudited) (audited) Net cash inflow from operating activities 4 403 892 992 Net cash outflow from returns on (12) (35) (24)investments and servicing of finance Taxation Corporation tax paid (57) - (281) Capital expenditure and financial investment Payments to acquire tangible fixed assets (100) (51) (237) Payments to acquire intangible fixed assets (90) - (47) Own equipment capitalised (152) - - Payments to acquire fixed asset investments (11) (1) (1) ---------- ---------- ----------Net cash (outflow)/inflow from capitalexpenditure and financial investment (353) (52) (285) Acquisitions and disposals Purchase of iLight Group 9 (1,049) - - Purchase of Rossula Group 9 (250) - - Purchase of business operations - - (368) Net overdrafts acquired with subsidiary companies (100) - (34) ---------- ---------- ----------Net cash outflow from acquisitionsand disposals (1,399) - (402) Equity dividend paid (34) (608) (616) ---------- ---------- ----------Cash (outflow)/inflow before useof liquid resources and financing (1,453) 197 (616)Management of liquid resources Decrease/ (Increase) in short term deposits 200 - (200) Financing New loans 500 - - Loans repaid - (35) (640) Shares issued, net of costs - - 2,563 Capital element of finance leases repaid (117) (78) (161) ---------- ---------- ----------Net cash inflow/(outflow) from financing 383 (113) 1,762 ---------- ---------- ----------Increase/(decrease) in cash 5,6 (870) 84 946 ========== ========== ========== NOTES TO THE INTERIM FINANCIAL STATEMENTfor the six months ended 31 December 2004 1 Basis of preparation The financial information contained in this interim report does not constitutestatutory accounts within the meaning of section 240 Companies Act 1985. Theinterim results have been prepared using accounting policies consistent withthose used in the preparation of the Annual Report and Accounts for the yearended 30 June 2004. Those accounts have been filed with the Registrar of Companies and received anunqualified audit report which did not contain a statement under section 237(2)or (3) Companies Act 1985. The acquired businesses have been accounted for using the acquisition method ofaccounting and the financial results of these businesses are separatelydisclosed in the consolidated profit and loss account under acquisitions. The Interim Financial Statements were approved by the Board of Directors on 1March 2005. 2 Segmental analysis by class of business: Six months Six months Year ended ended ended 31 December 31 December 30 June 2004 2003 2004 £'000 £'000 £'000 (unaudited) (unaudited) (audited)TurnoverElectronic equipment 7,477 5,158 11,710Software republishing 751 994 1,677 ---------- ---------- ---------- 8,228 6,152 13,387 ========== ========== ==========Joint venture - 296 485Group 8,228 5,856 12,902 ---------- ---------- ---------- 8,228 6,152 13,387 ========== ========== ==========Profit before taxElectronic equipment 156 314 681Software republishing 119 92 76 ---------- ---------- ---------- 275 406 757 ========== ========== ==========Joint venture - 22 10Group 275 384 747 ---------- ---------- ---------- 275 406 757 ========== ========== ========== 3 Earnings per share and profit The adjusted earnings per share has been calculated to provide a betterunderstanding of the underlying performance of the Group. Six months Six months Year ended ended ended 31 December 31 December 30 June 2004 2003 2004 (unaudited) (unaudited) (audited) Weighted average number of shares 13,658,289 9,940,000 10,805,830 Earnings per share - penceBasic EPS 0.5 2.9 4.5Adjusted earnings per share 3.4 3.0 6.8 Earnings - £'000Earnings used for calculation of basic EPS 68 288 491Goodwill amortisation 225 11 94Exceptional costs, net of tax 176 - 150 ---------- ---------- ----------Adjusted earnings 469 299 735 ========== ========== ========== 4 Reconciliation of operating profit to net cash inflow fromoperating activities Six months Six months Year ended ended ended 31 December 31 December 30 June 2004 2003 2004 £'000 £'000 £'000 (unaudited) (unaudited) (audited) Operating profit 287 419 808Amortisation of intangible fixed assets 242 15 108Depreciation of tangible fixed assets 163 112 247Loss on disposal of fixed assets 3 - 4(Increase)/decrease in stocks (563) (6) (196)Decrease/(increase) in debtors 909 (98) 101(Decrease)/increase in creditors (693) 450 (80)Other non cash items 55 - - ---------- ---------- ----------Net cash inflow from operating activities 403 892 992 ========== ========== ========== 5 Analysis of net debt As at 1 Cash flow Acquisitions, Other non As at 31 July 2004 excluding cash cash items December 2004 and overdrafts £'000 £'000 £'000 £'000 £'000 (audited) (unaudited) (unaudited) (unaudited) (unaudited)Net cash:Cash at bankand in hand 717 (71) - - 646Bank overdrafts (98) (799) - - (897) ---------- (870)Debt due withinone year - - - - -Debt due afterone year - (500) - - (500)Finance Leases (346) 116 (33) (125) (388) ---------- (384)Other liquidresources 200 (200) - - - ---------- ---------- ---------- ---------- ---------- 473 (1,454) (33) (125) (1,139) ========== ========== ========== ========== ========== 6 Reconciliation of net cash flow to movement in net debt Six months Six months Year ended ended ended 31 December 31 December 30 June 2004 2003 2004 £'000 £'000 £'000 (unaudited) (unaudited) (audited) (Decrease)/increase in cash (870) 84 946Cash (inflow)/outflow from changes in net debt (384) 113 801Cash (inflow)/outflow from changes in liquid (200) - 200resources ---------- ---------- ----------Movement in net debt resulting from cash flows (1,454) 197 1,947 ---------- ---------- ---------- Debt acquired on acquisitions (33) - -Inception of finance leases (125) (85) (119) ---------- ---------- ----------Movement in net debt (1,612) 112 1,828Opening net debt 473 (1,355) (1,355) ---------- ---------- ----------Closing net debt (1,139) (1,243) 473 ========== ========== =========== 7 Taxation on profit on ordinary activities Six months Six months Year ended ended ended 31 December 31 December 30 June 2004 2003 2004 £'000 £'000 £'000 (unaudited) (unaudited) (audited)UK corporation taxCurrent tax on profits for the period/year 175 122 317Deferred taxAccelerated capital allowances and other timingdifferences 32 - (53) ---------- ---------- ----------Taxation on profit on ordinary activities 207 122 264 ========== ========== ========== The taxation charge has been calculated on the estimated effective tax rate forthe year ended 30 June 2005. 8 Reconciliation of movement in shareholders' funds Six months Six months Year ended ended ended 31 December 31 December 30 June 2004 2003 2004 £'000 £'000 £'000 (unaudited) (unaudited) (audited) Profit for the period/year 68 288 491Dividends (43) - (34) ---------- ---------- ----------Retained profit 25 288 457Shares issued, net of issue costs - - 2,563Shares issued in respect of acquisitions 700 - 1,851Shares to be issued as future consideration 100 - 72 ---------- ---------- ---------- 825 288 4,943Opening shareholders' funds 7,679 2,736 2,736 ---------- ---------- ----------Closing shareholders' funds 8,504 3,024 7,679 ========== ========== ========== 9 Acquisition of subsidiary undertakings iLight Rossula £'000 £'000 (unaudited) (unaudited)Fair value of net assets acquiredIntangible fixed assets 38 -Tangible fixed assets 204 34 Stocks 412 268Debtors 1,360 487Cash - 1 Creditors (1,598) (837)Bank overdraft (36) (65)Finance lease creditors (33) - ---------- ---------- 347 (112)Goodwill 1,436 462 ---------- ---------- 1,783 350 ========== ==========Satisfied byShares 700 100Cash 1,000 250 ---------- ---------- 1,700 350Other acquisition costs 83 - ---------- ----------Cost of investment 1,783 350 ========== ========== iLight Group Limited On 1 September 2004 the Company acquired 100% of share capital of iLight GroupLtd, which contains the market leading lighting control companies' iLight Ltdand Zero 88 Lighting Ltd. The total consideration was £1,700,000 comprising£1,000,000 in cash and the balance was satisfied by the issue of 389,250 shares. Rossula Limited On 17 December 2004 the Company acquired 100% of the share capital of RossulaLtd, the holding company for Lightfactor Sales Limited and Light Processor Ltdwhich are two leading UK entertainment products companies. The totalconsideration was £350,000 comprising £250,000 in cash and the balance wassatisfied by the issue of 67,340 shares in January 2005. The following amounts relate to acquisitions and have been included in thecorresponding profit and loss account headings: Six months Six months Year ended ended ended 31 December 31 December 30 June 2004 2003 2004 £'000 £'000 £'000 (unaudited) (unaudited) (audited) Cost of sales 1,001 - 199Distribution costs 56 - -Administrative expenses 528 - 79 10 Exceptional items The exceptional costs in 2004/5 relate to redundancy and other restructuringcosts in respect of the acquired businesses. 11 Post balance sheet events On 3 February 2005, the Group sold part of its pressure sensing businessinterests ("the Business Interests") for £1.3 million, payable in cash, toMeasurement Specialties, Inc. ("MSI"), a designer and manufacturer of sensorsand sensor based consumer products based in New Jersey, USA. The BusinessInterests comprise the stock, design rights and global distribution rights forthe industrial pressure sensor product range. Revenue from these productstotalled £0.7 million, £0.6 million and £1.3 million for the six months ended 31December 2004, 2003 and the year ended 30 June 2004, respectively. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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