28th Jun 2007 07:01
Elektron PLC28 June 2007 Embargoed for release: 7:00 a.m. 28 June 2007 ELEKTRON PLC Preliminary unaudited results for the year ended 31st January 2007 Elektron PLC ("Elektron"), the AIM quoted Engineered Components Companyannounces its preliminary results for the year ended 31st January 2007. Key Points: • Sales up 16% to £26 million following acquisition of Howle Holdings Plc • Annualised sales from continuing operations of circa £30 million, treble that of four years ago. • Operating profit before exceptional items £1,874,000 (2006: £1,791,000 as restated for the effects of IFRS 2 'share- based payments') • Exceptional items £1,279,000 (2006: £31,000) mainly incurred in relocation of Bulgin operations to Tunisia • Profit on ordinary activities before taxation £513,000 (2006: £1,744,000) • Proposed final dividend up 14% to 0.4p per share • Basic earnings per share 0.5p (2006: 1.63p) • Basic earnings per share before exceptional and discontinued items 1.73p (2006: 1.65p) For further information please contact: Adrian Girling Roland CornishExecutive Chairman ChairmanElektron PLC Beaumont Cornish LimitedTel: 01708 336309 Tel: 020 7628 3396 Chairman's Statement Last year was extremely challenging but we met the targets we set ourselves. We finalised the offshore transfer of Bulgin production to our plant in Tunisia.After decades of production in Barking the factory closed its doors for the lasttime in March of this year with all costs fully provided in these accounts. Notso long ago over 300 people were employed by Bulgin in the UK and this numberhas now reduced by 90% with sales, marketing, technical and administrationfunctions moving to new offices in Romford and warehousing to Arcolectric'spremises in Surrey. £1,249,000 has been incurred this year and is included as anexceptional item in the Group Income Statement. As might be expected, the project has not been without its difficulties as wesought to replicate the knowledge base held by many long-term employees with newworkers in Tunisia. Customer service was adversely affected for a while but isbeginning to return to more acceptable levels. We now employ 500 staff in Tunisia assembling both Bulgin and Arcolectricbranded products and the Bulgin brand continues to perform strongly. Arcolectric was unable to reproduce the results of the very successful previousyears since its acquisition in 2003. In particular metal price increasesadversely affected margins, as did the weak US Dollar. In the competitivemarkets served it was only possible to pass on a small amount of the additionalcosts to customers. During the year we acquired the entire share capital of Howle Holdings Plc, aquoted company principally manufacturing tungsten carbide components for a totalconsideration, including costs, of £3.1m. In its last published interim resultsas at 31 March 2006 Howle reported net assets of £5.6m. Since acquisition, fourof its five freehold properties have been sold, as has the business of anon-core operating subsidiary, generating gross funds of £4.6m of which £2m hasbeen used to repay associated borrowings. Following the acquisition Groupcontinuing sales are running at an annual level of around £30 million which isabout three times the level of four years ago. A fair value review of the assets of Howle has resulted in the net assets beingrevalued to £3.1m at the date of acquisition. Further non-core assets of Howleare earmarked for disposal. In the three months from 1 November 2006, the continuing operations of Howleproduced an operating profit of £168,000. The core activities of Howle Carbidesand Titman Tip Tools have started satisfactorily this year but with signs ofbetter things as sales initiatives begin to impact. Investment in new plant isunderway to improve productivity and allow Carbides to attract new customers forhigher specification products. Results Turnover on continuing operations increased to £26,010,000 (2006: £22,467,000). Gross margins were 36% (2006: 37.5%) as the savings from offshoring Bulginmanufacturing were countered by increased metal prices and adverse foreignexchange movements. Operating profit margins, before exceptional items, were 7% compared with 8% theprevious year largely as a result of losses on currency translation totalling£220,000 compared with a profit the previous year of £71,000. Profits on ordinary activities before taxation were £513,000 (2006: £1,744,000)after exceptional costs of £1,249,000 incurred in relation to the offshoretransfer of Bulgin production to our plant in Tunisia and £30,000 of abortedacquisition costs. Balance sheet & cashflow The purchase of Howle by cash and shares has increased the net assets of theGroup but also resulted in an increase in borrowings. Net debt as at 31 January2007 was £5.6 million, which reduced considerably after the year-end followinggross receipts of £4.6 million in relation to the sale of the properties andbusiness referred to above. In accordance with IFRS, the balance sheet discloses assets and associatedliabilities held for sale. This includes the operations of Richard Lloyd Limitedand NPE-Innotek Limited, both subsidiaries of Howle, together with the freeholdproperty from which NPE operated. The operations and certain assets of NPE were sold in March 2007 for a totalconsideration of £180,000. The sale of the freehold property and of RichardLloyd Limited are currently under negotiation and are not expected to have a material impact on the results of the Group in the current year. Capital expenditure of £446,000 was paid from cash reserves rather than bytaking on asset finance and cash of £906,000 was expended on the transfer ofoperations to Tunisia. Earnings per share, dividends and purchase of own shares Earnings per share, after taking account of the effects of IFRS 2 'share-basedpayments' were: •Basic and diluted from continuing operations 0.61p (2006: 1.63p) •Basic and diluted including discontinued operations 0.50p (2006: 1.63p) •Basic and diluted from continuing operations excluding exceptional items 1.73p (2006: 1.65p) The Board is proposing a final dividend of 0.40p per share (2006: 0.35p) payableon 7th September 2007. This represents an increase of 14.3% and reflects theBoard's confidence in the business. The Board will also look for opportunities to purchase the Company's shares onmarket subject to funds not being required elsewhere. Future strategy As the Group grows it is important to ensure that an appropriate managementstructure is put in place to take account of the increasing size of thebusiness. In addition, we will soon commence the process of moving away from thedifferent legacy IT systems associated with each brand to one up-to-datemanufacturing and reporting system. These will be a focus of the Board over thenext 12 months. Elektron is a manufacturer operating in highly competitive markets andcontinuing emphasis will be placed on reducing costs. We continue to develop innovative new products to achieve organic growth withgood margins to offset margin erosions from an increasingly competitive worldmarket for our traditional products. For example, we are now successfullypromoting intelligent indicators and temperature logging devices through theestablished distribution channels of our strong Arcolectric brand. Whilst it is important that the Board concentrates its immediate efforts inmaximising the potential of its existing brands it will continue to be active insearching for and assessing suitable acquisition targets. The Board recognisesthat Elektron is currently too small to be of interest to many investors.Consequently the Board's strategy is to continue to grow Elektron principally byacquisition with a medium term target of achieving sales of £100 million. Outlook The current year has started satisfactorily with incoming orders similar to thatof last year. However, the strength of the US dollar and high metal prices continue to depressmargins in Arcolectric's North American and European export markets. The Bulginbrand continues to perform well and Howle Carbides sales are showing somegrowth. The last few years have been exceptionally profitable for manufacturers of alltypes and your Board believes that this state of affairs cannot last forever. Aharsher business environment will however offer more opportunities foracquisitive companies as businesses get into difficulties. Elektron is a lowcost manufacturer and is conservatively financed and the Board believes that itis well placed to take advantage of such opportunities as they arise. Adrian GirlingExecutive Chairman Group Income StatementPreliminary Unaudited Results to 31 January 2007 Year to Year to 31 January 31 January 2007 2006 Unaudited Audited As restated £'000 £'000 Revenue from continuing operations 26,010 22,467Cost of sales (16,662) (14,041) --------- ---------Gross profit 9,348 8,426Net operating expenses (including exceptional (8,753) (6,666)items) --------- --------- ----------------------------- --------- ---------Operating profit before exceptional items 1,874 1,791Exceptional items (1,279) (31)----------------------------- --------- --------- Operating profit from continuing operations 595 1,760 Finance costs (82) (16) --------- ---------Profit on ordinary activities before taxation 513 1,744 Taxation on profit on ordinary activities (21) (477) --------- --------- Profit after taxation from continuing 492 1,267operations Loss after taxation from discontinued (85) -operations --------- --------- Profit attributable to shareholders 407 1,267 --------- --------- Earnings per share - basic 0.50p 1.63p - diluted 0.50p 1.63p --------- ---------Earnings per share continuing 0.61p 1.63poperations - basic 0.61p 1.63p - diluted --------- --------- Group Balance Sheet Preliminary Unaudited Results at 31 January 2007 31 January 31 January 2007 2006 Unaudited Audited £'000 £'000Assets As restatedNon-current assetsProperty, plant and equipment 3,683 2,165Deferred tax - 89 --------- --------- 3,683 2,254 --------- ---------Current assetsInventories 4,974 3,266Trade receivables 5,567 3,979Other current assets 4,939 606Cash and cash equivalents 858 1,714 --------- --------- 16,338 9,565Non-current assets held for sale 1,253 - --------- ---------Total current assets 17,591 9,565 --------- --------- Total assets 21,274 11,819 --------- --------- Equity and liabilitiesEquity attributable to equity holders of theparentCalled - up share capital 4,336 3,954Share premium 244 244Merger reserve 1,047 -Capital redemption reserve 106 67Other reserves 54 88Retained earnings 2,214 2,213 --------- ---------Total equity 8,001 6,566 --------- --------- Non-current liabilitiesLong-term borrowings 286 -Long-term provisions 251 357 --------- ---------Total non-current liabilities 537 357 --------- --------- Current liabilitiesTrade and other payables 4,609 2,869Short-term borrowings 5,385 758Current portion of long-term borrowings 225 513Current tax payable 895 678Short-term provisions 563 78 --------- --------- 11,677 4,896Liabilities associated with non-current assetsheld for sale 1,059 - --------- ---------Total current liabilities 12,736 4,896 --------- --------- Total liabilities 13,273 5,253 --------- --------- Total equity and liabilities 21,274 11,819 --------- --------- Group Cash Flow Statement Preliminary Unaudited Results to 31 January 2007 31 January 31 January 2007 2006 Unaudited Audited £'000 £'000 As restatedCash flows from operating activitiesProfit before taxation (continuing activities) 513 1,744Loss before taxation (discontinued activities) (104) - -------- --------Profit before taxation 409 1,744Adjustments for:Depreciation 1,020 902Loss/(profit) on disposal of fixed assets 57 (19)Goodwill impairment (5) -Interest expense 135 16 -------- --------Operating profit before working capital 1,616 2,643changesDecrease/(increase) in trade and other 113 (748)receivablesIncrease in inventories (14) (236)Increase in trade payables 17 243Other non-cash movements 363 (266) -------- --------Cash generated from operations 2,095 1,636Interest paid (184) (81)Taxation paid (457) (814) -------- --------Net cash inflow from continuing operations 1,553 741Net cash outflow from discontinued operations (99) - -------- --------Net cash inflow from operating activities 1,454 741(total) Cash flows from investing activitiesSale of subsidiaries 100 150Acquisition of subsidiaries (1,655) -Purchase of property, plant and equipment (610) (546)Proceeds of sale of property, plant and 4 28equipmentInterest received 49 66 -------- --------Net cash used in investing activities (2,112) (302) -------- -------- Cash flows from financing activitiesIssue of shares - 200Purchase of own shares (132) (205)Movement in respect of long term borrowings (2,224) -Movement in short term borrowings 2,906 529New capital leases 164 -Payment of hire purchase and finance (638) (589)liabilitiesDividends paid (274) (241) -------- --------Net cash used in financing activities (198) (306) -------- -------- Net (decrease)/increase in cash and cash (856) 133equivalentsCash and cash equivalents at the beginning of 1,714 1,581period -------- --------Cash and cash equivalents at the end of period 858 1,714 -------- -------- Group statement of changes in equity Preliminary Unaudited Results to 31 January 2007 Share Share Merger Capital Other Retained Total Capital Premium Reserve Redemption reserves earnings £'000 Reserve £'000 £'000 £'000 £'000 £'000 £'000At 31 January2006 3,954 244 - 67 44 2,244 6,553Changes inaccountingpolicy - - - - 44 (31) 13 ------- ------- ------- --------- -------- -------- -------Restatedbalance 3,954 244 - 67 88 2,213 6,566 Transfer fromprofit andloss account 27 407 434Exchange differencesDividends paid (274) (274)Sharespurchased (39) 39 (132) (132)Shares issued 421 1,047 1,468Exchangedifferences (61) (61)dividends ------- ------- ------- --------- -------- -------- -------At 31 January2007 4,336 244 1,047 106 54 2,214 8,001 ------- ------- ------- --------- -------- -------- ------- Notes to the Preliminary Unaudited Results to 31 January 2007 1. Accounting Policies The financial information has been prepared on the basis of InternationalFinancial Reporting Standards (IFRS). This preliminary statement is the firstannual consolidated financial report prepared in accordance with IFRS. Fulldetails of accounting policies will be included in the Annual Report for theyear ended 31 January 2007. These are not expected to be materially differentfrom those set out in the Group's statutory accounts for the year ended 31January 2006 with the exception of the policy in relation to share-basedpayments. The Group has implemented the requirements of Financial Reporting Standard 20(IFRS 2) 'Share-based payment' in the 2007 Annual Report with the comparativefigures being restated. This change in accounting policy has resulted in apre-tax charge of £27,000 for the year ended 31 January 2007 (2006; £27,000). In accordance with FRS 20 (IFRS 2) 'Share-based payment', the Group reflects theeconomic cost of awarding shares and share options to employees by recording anexpense in the income statement equal to the fair value of the benefit awarded,fair value being estimated by an independent third party using a proprietarybinomial probability valuation model. The expense is recognised in the incomestatement over the vesting period of the award. Fixed annual charges are apportioned to the interim period on the basis of timeelapsed. Other expenses are accrued in accordance with the same principles usedin the preparation of the annual accounts. 2. Other information The financial information in respect of the year ended 31 January 2007 set outin this statement has been extracted from the statutory financial statementswhich have not yet been audited but are not expected to differ materially fromthe information given in this statement. The financial information in this statement does not constitute statutoryaccounts. The financial information in respect of the year ended 31 January 2006has been extracted from the statutory accounts, as adjusted for IFRS, which havebeen filed with the Registrar of Companies. The auditors' report on thoseaccounts was unqualified and did not contain any statement under Section 237 ofthe Companies Act 1985. Audited financial statements will be sent to shareholders towards the end ofJuly 2007. Copies of this announcement are available free of charge from theCompany's registered office at Melville Court, Spilsby Road, Romford, Essex RM38SB for a period of one month from the date hereof and copies of the auditedfinancial statements will be so available for at least 14 days from date ofpublication. The Annual General Meeting will be held at 3 pm on 4th September at MelvilleCourt, Splisby Road, Romford, Essex, RM3 8SB. 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