20th Feb 2007 07:03
Polaron PLC20 February 2007 20 February 2007 Polaron plc Interim results Introduction------------ Since the sale of our Nanotechnology business in April 2006, Polaron hasoperated in three business areas, namely; Products (Lighting Controls andPrecision Components), Systems (Building Management and Audio Visual) andDistribution (Home Install & Entertainment). Overall, Polaron has traded at anequivalent level to the same period last year. However, the turnover mix haschanged, with increases in the Lighting Controls and Distribution businessesbeing offset by decreases in the Precision Components and Audio Visualbusinesses. This has resulted in a lower gross margin and therefore a loweroverall adjusted profit before tax for the six months ended 31 December 2006. In September 2006, the Board announced that it was reviewing strategic optionsfor Polaron as a whole, which could include its sale. As has been announcedseparately today, a recommended cash offer for the entire share capital of thecompany has been made by a subsidiary of Cooper Industries, Ltd. at a price of95 pence per share. Operational Overview ------------------- Turnover for the six months ended 31 December 2006 ("2006/7") was £11.13 millioncompared with £11.17 million for the six months ended 31 December 2005 ("2005/6"). Whilst there has been solid growth in the Lighting Controls business, both in terms of the turnover level and forward orders, this has been entirely offset by a decrease in turnover and forward orders in the Precision Components business. Going forward we would not expect a return to previous turnover levels enjoyed by the Precision Components business due to the completion of all scheduled orders relating to the London Underground refurbishment programme. In December 2006, the Lighting Controls business won a contract in Dubai, worthDh10.7 million (£1.5 million), to supply lighting control and dimming equipment. Overall, the Systems business has performed in line with expectations. The AudioVisual business has now been consolidated within the Building Managementbusiness (DMS Controls) and both now operate from our headquarters in Watford.The prior period included a one off contract to upgrade a machine tool spindledrive, which if excluded from the prior period's revenue, shows that trading hasbeen flat in the current period. The Distribution businesses have performed well, the majority of the increasebeing due to the resumption of manufacturing and sales of the Lightprocessorbrand of entertainment dimmers. Sales of bathroom TVs continue to grow, althoughthere is continued downward pressure on gross margins. Financial Review---------------- Turnover from continuing operations was £11.13 million compared with £11.17million in 2005/6 and comprised: 2006/7 2005/6 % Growth £'million £'millionProducts - Lighting Controls 9 4.28 3.92Products - Precision Components (23) 1.21 1.57Distribution 18 1.37 1.16Systems (6) 4.27 4.52 -------- -------- - 11.13 11.17 ======== ======== Revenue from Lighting Controls grew by 9 per cent., driven by strong demand forthe Architectural lighting products. Revenue from Precision Components decreasedby 23 per cent., due to the completion of the scheduled orders relating to theLondon Underground refurbishment programme. Systems revenue fell by 6 per cent., due to a one off contract in the priorperiod. The Distribution revenue grew by 18 per cent., due to growth in theLightprocessor brand of entertainment dimmers and Home Install products. Gross profit in 2006/7 was £4.27 million compared with £4.58 million in 2005/6,due to a decrease in gross margin, which fell from 41 per cent. in 2005/6 to 38per cent. in 2006/7. This decrease in gross margin is primarily due to a changein sales mix, with the higher margin Precision Components revenue being replacedwith lower margin revenue from Lighting Controls. Distribution costs were £1.07 million in 2006/7 compared with £0.93 million in2005/6, the increase being due to an investment in the Lighting Controls' salesteam. The 2005/6 costs included £0.15 million in respect of the discontinuedoperations. Total administrative expenses in 2006/7, compared with 2005/6, are shown below: 2006/7 2005/6 £'million £'millionIn respect of continuing operations Research and development costs 0.25 0.26 Goodwill amortisation 0.41 0.37 Depreciation and other amortisation 0.20 0.16 Exceptional items 0.04 - Other administrative expenses 1.97 1.83In respect of discontinued operations - 1.16 --------- ---------Total administrative expenses 2.87 3.78 ========= ========= Depreciation and other amortisation increased from £0.16 million in 2005/6 to£0.20 million in 2006/7, due to the effects of higher levels of capitalexpenditure in the prior year and a shortened depreciation period for certainassets. Exceptional costs in 2006/7 amounted to £0.04 million and relate to the costsincurred in the period in respect of the recommended cash offer announced today. The loss on disposal in 2005/6 relates to FastTrak, which was sold in September2005. Interest payable and similar charges decreased from £0.14 million in 2005/6 to£0.09 million in 2006/7, mainly due to a reduction in the interest charge inrespect of the deferred consideration payable for the acquisition of DMSControls Limited. The tax charge increased from £0.12 million in 2005/6 to £0.19 million in 2006/7, due to higher levels of taxable profits following the disposal of the lossmaking business in the prior financial year. The profit before taxation, goodwill amortisation and exceptional items (EBETA)from continuing operations decreased from £1.01 million in 2005/6 to £0.70million in 2006/7. Cash outflow from operations was £0.48 million in 2006/7, compared with aninflow of £0.26 million, mainly due to an increase in net working capital. Cashoutflow from acquisitions and capital expenditure amounted to £nil and £0.14million, compared with £0.78 million and £0.42 million in 2005/6, respectively.Dividends paid in the period were £0.13 million, the same as in 2005/6. Thecapital element of finance lease payments amounted to £0.09 million, comparedwith £0.16 million in the prior period. Overall net cash outflow in the periodwas £0.92 million, compared with £1.45 million in 2005/6. At 31 December 2006, net debt was £2.34 million, compared with net debt of £2.06million at 30 June 2006. The increase in net debt was primarily due to net cashoutflow of £0.92 million and new finance leases of £0.05 million, partiallyoffset by a reduction in shares to be issued as future consideration of £0.60million and finance lease payments of £0.09 million. Earnings per share in 2006/7 was 0.5p, compared with a loss of 1.9p in 2005/6.The earnings per share from continuing operations in 2005/6 was 2.1p. Theadjusted earnings per share, which excludes goodwill amortisation andexceptional items, was 3.5p, compared with 4.8p in 2005/6. No interim dividend is being proposed. Outlook------- Polaron is near to completing its transition to focus solely on products andsystems used in Intelligent buildings. The highest potential growth area lies inthe architectural and entertainment lighting businesses, iLight, Zero88 andLightprocessor. In the markets we currently serve, the products are wellreceived and market share is being taken against our major competitors. However,in order to grow further, there needs to be significant investment in bothoperational infrastructure in the form of offices in various overseas countriesand new products. The scale of this investment is, in the view of the Board,beyond the resources available to us and as such led us to consider variousstrategic options that have ultimately led to the recommended cash offer beingannounced today. I would like to take this opportunity to thank all the staff at Polaron fortheir hard work and commitment. Joe StelzerChief Executive Officer20th February 2007 CONSOLIDATED PROFIT AND LOSS ACCOUNT for the six months ended 31 December 2006 Unaudited Unaudited Audited 6 months 6 months Year to to to 31 December 31 December 30 June 2006 2005 2006 Notes £'000 £'000 £'000TurnoverContinuing operations 11,130 11,174 22,376Discontinued operations - 911 1,346 --------- ---------- --------- 2 11,130 12,085 23,722Cost of sales 6,857 7,187 14,021 --------- ---------- ---------Gross profitContinuing operations 4,273 4,584 9,309Discontinued operations - 314 392 --------- ---------- --------- 4,273 4,898 9,701 Distribution costs 1,069 1,084 1,922 Administrative expenses Research and development costs 245 312 580 Goodwill amortisation 407 508 967 Exceptional items 11 42 - - Other administrative expenses 2,177 2,957 6,160Total administrative expenses 2,871 3,777 7,707Other operating (expense)/income (4) 3 2 ---------- ---------- ---------Group operating profitContinuing operations 329 751 1,149Discontinued operations - (711) (1,075) ---------- ---------- --------- 329 40 74Loss on disposal of businesses - (58) (496) ---------- ---------- ---------Profit/(loss) on ordinary 329 (18) (422)activities before interest andtaxationInterest receivable and similar income 18 13 28Interest payable and similar charges (92) (135) (296) ---------- ---------- ----------Profit/(loss) on ordinary 2 255 (140) (690)activities before taxationTaxation on profit/(loss) on 9 186 123 169ordinary activities ---------- ---------- ----------Profit/(loss) for the financial 69 (263) (859)period/year ---------- ---------- ---------- Earnings/(loss) per share - pence 3From continuing and discontinued 0.5 (1.9) (6.2)operations - basicFrom continuing and discontinued 0.4 (1.9) (6.2)operations - dilutedFrom continuing operations - 0.5 2.1 3.2basicFrom continuing operations - 0.4 1.9 3.0diluted CONSOLIDATED BALANCE SHEETat 31 December 2006 Unaudited Unaudited Audited 31 December 31 December 30 June 2006 2005 2006 Notes £'000 £'000 £'000Fixed Assets Intangible assets 4,176 7,025 4,533 Tangible assets 2,968 3,054 2,987 Fixed asset investments 1,250 11 1,250 ---------- ---------- ---------- 8,394 10,090 8,770Current Assets Stocks 2,717 2,530 2,272 Debtors 5,182 4,730 4,991 Cash at bank and in hand 7 37 - 33 ---------- ---------- ---------- 7,936 7,260 7,296 Creditors: amounts falling due 5 5,902 6,932 6,137within one year ---------- ---------- ---------- Net current assets 2,034 328 1,159 ---------- ---------- ---------- Total assets less current 10,428 10,418 9,929liabilities Creditors: amounts falling due 6 813 1,491 885after more than one year Provision for liabilities and 112 151 127charges ---------- ---------- ---------- 925 1,642 1,012 ---------- ---------- ---------- 9,503 8,776 8,917 ========== ========== ========== Capital and Reserves Called up share capital 1,564 1,394 1,475 Share premium account 4,067 4,067 4,067 Revaluation reserve 1,465 1,465 1,465 Other reserves 1,779 500 1,219 Profit and loss account 628 1,350 691 ---------- ---------- ----------Shareholders' funds (equity) 10 9,503 8,776 8,917 ========== ========== ========== CONSOLIDATED CASH FLOW STATEMENTfor the six months ended 31 December 2006 Unaudited Unaudited Audited 6 months 6 months Year to to to 31 December 31 December 30 June 2006 2005 2006 Notes £'000 £'000 £'000 Net cash (outflow)/inflow from 4 (484) 262 877operating activities Net cash outflow from returns oninvestments and servicing of finance Interest received 6 13 20 Interest paid: finance leases (8) (16) (29) Interest paid: other (54) (61) (145) --------- --------- -------- (56) (64) (154) Taxation Corporation tax paid (15) (164) (377) Capital expenditure and financialinvestment Payments to acquire tangible (150) (242) (252) fixed assets Payments to acquire intangible - (181) (190) fixed assets Proceeds from disposal of 10 - 4 tangible assets --------- --------- --------Net cash outflow from capital (140) (423) (438)expenditure and financialinvestment Acquisitions and disposals Purchase of interests in - (742) (1,418) subsidiary companies Net cash acquired with subsidiary - - 528 companies Payment of deferred purchase - - (25) consideration Disposal of interests in - (36) 546 subsidiary companies --------- --------- --------Net cash outflow from acquisitions - (778) (369)and disposals Equity dividend paid (133) (125) (188) --------- --------- --------Cash outflow before financing (828) (1,292) (649) Financing New loans - - 200 Capital element of finance leases (91) (158) (198) repaid -------- -------- --------Net cash (outflow)/inflow from (91) (158) 2financing -------- -------- --------Decrease in cash 7,8 (919) (1,450) (647) ======== ======== ======== NOTES TO THE INTERIM FINANCIAL STATEMENTfor the six months ended 31 December 2006 1 Basis of preparation The financial information contained in this interim report does not constitute statutory accounts within the meaning of section 240 Companies Act 1985. The interim results have been prepared using accounting policies consistent with those used in the preparation of the Annual Report and Accounts for the year ended 30 June 2006. Those accounts have been filed with the Registrar of Companies and received an unqualified audit report which did not contain a statement under section 237(2) or (3) Companies Act 1985. Acquisitions The results of DMS Controls Limited, which was acquired in the year ended 30 June 2006, have been recategorised as part of continuing operations and are included in the Controls business segment. Disposals On 21 September 2005, the Company sold its software republishing business, FastTrak Software and the results of this business for the six months ended 31 December 2005 have been presented as a discontinued operation. On 31 March 2006, the Company sold its vacuum chamber business ("CVT"). On 11 April 2006 the Company sold its Nanotechnology business ("ONS"). As a result of these disposals the results of CVT and ONS for the six months ended 31 December 2005 and for the year ended 30 June 2006 have been presented as a discontinued operation. The results of ONS for the six months ended 31 December 2005 have been recategorised as a discontinued operation. CVT and ONS comprise the Nanotechnology business segment. 2 Segmental analysis by class of business Unaudited Unaudited Audited 6 months to 6 months to Year to 31 December 31 December 30 June 2006 2005 2006 £'000 £'000 £'000TurnoverControls 11,130 11,174 22,376Nanotechnology - discontinued - 710 1,145operationSoftware republishing - - 201 201discontinued operation --------- --------- --------- 11,130 12,085 23,722 ========= ========= =========Operating profit, excludinggoodwill amortisation Controls 736 1,126 1,916Nanotechnology - discontinued - (620) (917)operationSoftware republishing - - 42 42discontinued operation --------- --------- --------- 736 548 1,041 ========= ========= ========= 3 Earnings per share Unaudited Unaudited Audited 6 months to 6 months to Year to 31 December 31 December 30 June 2006 2005 2006 £'000 £'000 £'000 Weighted average number of sharesBasic 14,864,302 13,860,639 13,902,896Diluted 15,586,341 15,190,239 14,734,266 Earnings/(loss) (£'000)Basic and diluted 69 (263) (859)Loss for the period/year from - 769 1,571discontinued operationsNet interest expense attributable - 3 6to discontinued operationsTaxation attributable to - (213) (278)discontinued operations --------- --------- ---------Earnings from continuing operations 69 296 440 Goodwill amortisation 407 375 767Exceptional costs, net of tax where 42 - -applicable --------- --------- ---------Adjusted earnings from continuing 518 671 1,207operations ========= ========= ========= Earnings/(loss) per share - penceFrom continuing and discontinued 0.5 (1.9) (6.2)operations - basicFrom continuing and discontinued 0.4 (1.9) (6.2)operations - dilutedFrom continuing operations - basic 0.5 2.1 3.2From continuing operations - 0.4 1.9 3.0dilutedFrom adjusted continuing operations 3.5 4.8 8.7- basic 4 Reconciliation of operating profit to net cash inflow from operating activities Unaudited Unaudited Audited 6 months to 6 months to Year to 31 December 31 December 30 June 2006 2005 2006 £'000 £'000 £'000 Operating profit 341 40 74Amortisation of intangible fixed 411 591 1,088assetsDepreciation of tangible fixed 204 178 408assetsLoss/(profit) on disposal of fixed 4 (3) 10assetsIncrease in stocks (445) (372) (675)(Increase)/decrease in debtors (180) 182 (206)(Decrease)/increase in creditors (819) (356) 178Other non cash items - 2 - --------- --------- ---------Net cash (outflow)/ inflow from (484) 262 877operating activities ========= ========= ========= 5 Analysis of creditors: amounts falling due within one year Unaudited Unaudited Audited 31 December 31 December 30 June 2006 2005 2006 £'000 £'000 £'000 Bank loans and overdrafts (secured) 1,442 1,254 484Future consideration to be settled 900 - 875in cashShares to be issued as future - 1,362 600considerationTrade creditors 2,074 2,969 2,377Corporation tax 397 355 211Finance leases 125 148 124Other 964 844 1,466 --------- --------- --------- 5,902 6,932 6,137 ========= ========= ========= At 31 December 2006, the future consideration to be settled in cash was in the form of unsecured loan notes. 6 Analysis of creditors: amounts falling due after more than one year Unaudited Unaudited Audited 31 December 31 December 30 June 2006 2005 2006 £'000 £'000 £'000 Bank loans (secured) 665 500 700Finance leases 148 154 185Future consideration to be settled - 837 -in cash --------- --------- --------- 813 1,491 885 ========= ========= ========= 7 Analysis of net debt Audited Unaudited Unaudited Unaudited 1 July Cash flow Other non 31 December cash items 2006 2006 £'000 £'000 £'000 £'000Net cash: Cash at bank and in hand 33 4 - 37 Bank overdrafts (484) (923) - (1,407) --------- (919) Debt due within one year: Bank loans - - (35) (35) Shares to be issued as (600) - 600 - future consideration Finance lease (124) 91 (92) (125)Debt due after more thanone year: Bank loans (700) - 35 (665) Finance Leases (185) - 37 (148) --------- 91 ---------- --------- --------- ---------Net debt (2,060) (828) 545 (2,343) ========== ========== ========= ========= 8 Reconciliation of net cash flow to movement in net debt Unaudited Unaudited Audited 6 months to 6 months to Year to 31 December 31 December 30 June 2006 2005 2006 £'000 £'000 £'000 Decrease in cash (919) (1,450) (647)Cash outflow/(inflow) from changes 91 158 (2)in debt --------- --------- ---------Movement in net debt resulting from (828) (1,292) (649)cash flowsDecrease/(increase) in shares to be 600 (1,290) (528)issued as future considerationInception of new finance leases (55) (56) (463)Finance leases sold with subsidiary - - 360companies --------- --------- ---------Movement in net debt (283) (2,638) (1,280)Opening net debt (2,060) (780) (780) --------- --------- ---------Closing net debt (2,343) (3,418) (2,060) ========= ========= ========= 9 Taxation on profit/(loss) on ordinary activities Unaudited Unaudited Audited 6 months to 6 months to Year to 31 December 31 December 30 June 2006 2005 2006 £'000 £'000 £'000 UK corporation taxCurrent tax on profits for the 215 148 233period/yearAdjustments to prior periods (14) (30) (36) --------- --------- ---------Total current tax 201 118 197Deferred taxOrigination and reversal of timing (15) 5 (28)differences --------- --------- ---------Taxation on profit/(loss) on 186 123 169ordinary activities ========= ========= ========= The taxation charge has been calculated on the estimated effective tax rate forthe year ended 30 June 2007. 10 Reconciliation of movement in shareholders' funds Unaudited Unaudited Audited 6 months to 6 months to Year to 31 December 31 December 30 June 2006 2005 2006 £'000 £'000 £'000 Profit/(loss) for the period/year 69 (263) (859)Dividends paid (133) (125) (188)Shares issued in respect of 650 75 875deferred consideration --------- --------- ---------Net addition/(reduction) to 586 (313) (172)shareholders' fundsOpening shareholders' funds 8,917 9,089 9,089 --------- --------- ---------Closing shareholders' funds 9,503 8,776 8,917 ========= ========= ========= 11 Exceptional Items and Post Balance Sheet Events On 20 February 2007, a recommended cash offer was announced by a subsidiary of Cooper Industries, Ltd to acquire the entire issued share capital of the Company for 95 pence per share, the terms of which are contained in a separate announcement. The exceptional costs in the six months ended 31 December 2006 relate to the costs incurred up to that date in respect of the recommended cash offer. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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