Embargoed for release: 7:00 a.m. 12 June 2008

ELEKTRON PLC

Preliminary unaudited results for the year ended 31st January 2008

Elektron PLC ("Elektron"), the AIM quoted engineered components company announces its preliminary results for the year ended 31st January 2008.

Key Points:

•  Sales up 34% to £35 million following acquisition of Sifam Instruments Limited

•  Operating profit on continuing operations, before exceptional items and negative goodwill, up
   14% to £2.14 million (2007: £1.87 million)

•  Exceptional costs of £1.05 million (2007: £1.28 million) incurred mainly in relocating
   manufacturing off-shore 

•  Negative goodwill of £1.16 million arising on the purchase of Sifam Instruments Limited

•  Profit before taxation from continuing operations up 282% to £1.95 million (2007: £0.51
   million)

•  Proposed final dividend up 12.5% to 0.45p per share 

•  Basic earnings per share up 452% to 2.76p (2007: 0.50p)

•  Earnings per share from continuing operations before goodwill, exceptional and discontinued
   items 2.48p (2007: 1.73p)

•  Tangible net assets per share up nine-fold over the last 5 years to 11.7p

•  Net gearing of 15% at 31 January 2008 (2007: 70%)

Keith Daley, Chairman of Elektron commented, "These are excellent results, especially given the fact that they were achieved during a period of intense commodity price inflation. The current year will be more challenging but we believe that economic turbulence will provide further opportunities for growth through acquisition." 

For further information please contact:

Chief Executive Officer's Statement

Overview

I am pleased to report continued improvement in the Group's financial results, details of which are given below.

The Group has continued its development and following the purchase of Sifam Instruments Limited in August last year it now consists of three divisions; Elektron Components, Hard Metal Components and Instrumentation. 

The acquisition of Sifam has resulted in negative goodwill (i.e. addition to Group net assets) of £1.16 million and in the six months post acquisition Sifam has produced operating profits of £0.07 million. A new managing director has been appointed and annual operating costs reduced by almost £0.4 million, some of which will be reinvested to bolster the engineering team and increase new product development to reverse a sales decline over recent years. Plans are in the process of being formulated for off-shoring manufacture of its traditional products serving mature markets.

2006/7 saw the move of connector production from the UK to our facility in Tunisia and the first half of 2007/8 saw the bedding down of production and the restoration of customer service to better levels than those experienced pre-move. We also started the necessary planning to relocate the remaining UK based switch production to our facilities in China. This process will continue throughout 2008/9 at an estimated remaining expense of £0.8 million.

Hard Metal Components had a reasonable year but cobalt prices and a market slowdown have accelerated the need to look for off-shore cost savings, again with projects currently under way.

The introduction of a new Group IT system is approaching contract stage. We anticipate the project completing towards the end of the next financial year at a total cost of £0.9 million. 

Group Financials

Turnover on continuing operations increased to £34.9 million (2007: £26.0 million). Gross margin was 35% compared with 36% the previous year.

The operating profit margin of £2.14 million, before exceptional items, was 6.1% compared with 7.2% the previous year and largely reflects the drop in gross margin.

Currency movements resulted in exchange losses of £0.15 million compared with a loss the previous year of £0.22 million.

Profit before taxation from continuing operations was £1.95 million (2007: £0.51 million) after exceptional costs of £1.05 million, loss on disposal of discontinued operations £0.12m and negative goodwill of £1.16 million.

Exceptional costs included £0.77 million redundancy and restructuring costs for transferring switch manufacture to China, £0.14 million restructuring costs in Sifam, £0.07 million restructuring costs in the hard metals division and £0.07 million of abortive acquisition costs.

Net assets of the Group have reached £10.2 million (2007: £8.0 million) with net debt as at 31 January 2008 of £1.55 million compared to £5.60m the previous year. Net gearing has reduced from 70% to 15%.

The Group generated £3.4 million of cash from trading of which £1.4 million was absorbed in working capital increases, £1.1 million was expended in eliminating pension deficits, £0.7 million in payment of restructuring costs and £0.4 million in tax and interest payments leaving a cash outflow from operating activities of £0.2 million.

£7.2 million was raised through the sale and leaseback of freehold properties of which £3 million was used to repay borrowings, £1.9 million used to acquire Sifam Instruments Limited, £0.7 million used to purchase plant and machinery, £0.3 million paid in dividends resulting in an overall increase in cash in the year of £1.1 million.

The tax credit of £0.52 million arises from a combination of factors, the majority of which are one-off and include the utilisation of capital losses not previously recognised as a deferred tax asset and non-taxable negative goodwill arising on consolidation. Stripping out these would give an underlying tax charge for the current year of £0.08 million, which reflects this year's earnings arising principally from off-shore operations.

Earnings per share metrics, after taking account of the effects of IFRS 2 'share-based payments' were:

• Basic of 2.48p and diluted of 2.47p from continuing operations excluding exceptional items and negative goodwill (2007: basic and diluted of 1.73p)

   

• Basic of 2.76p and diluted of 2.75p (2007: basic and diluted of 0.50p)

• Basic of 2.85p and diluted of 2.83p on continuing operations (2007: basic and diluted of 0.61p) 

The Board is proposing a final dividend of 0.45p per share (2007: 0.40p) payable on 5th August 2008 to

shareholders on the register at 11th July 2008. This represents an increase of 12.5% and reflects the

Board's confidence in the business.

The Board will also look for opportunities to purchase the Company's shares on market subject to funds not being required elsewhere.

Elektron Components Division (Sales £22.9 million, operating profits £2.01 million)

Elektron Components Limited ("ECL") comprises two brands, Bulgin, which operates in the industrial sector selling connectivity and sealed products for harsh environments, and Arcolectric, which offers switching and indicator solutions primarily for the consumer products market.

ECL manufactures nearly 100 million products per annum, for customers in industries ranging from industrial communications, marine and water treatment, to white goods, small consumer appliances, and products used within the food preparation sector.

Its global reach extends to all continents, with operations in Europe, America, Asia and North Africa, and an extensive sales channel network in 125 countries.

We reconfigured our US selling organisation and network, to better reflect our business strategy, and we began to realise the positive effects of this activity towards the end of the year.

As fiscal 2007/8 drew to a close, we combined the previously autonomous business units, of Arcolectric and Bulgin Components, into one legal entity. This structure better reflects the interdependence of the brands' manufacturing functions, and there are benefits from leveraging the selling channels across both brands, improving our penetration in certain markets.  

This initiative included the formation of a new management team, and we drew experienced members from the existing businesses enhanced with externally sourced talent.  

The ECL performance reflected both the benefits of a complete year of off-shore manufacture and the disadvantage of increasing commodity prices. Sales revenues of £22.9 million were down from £24.1 million the previous year, the weakness being in switches as the white-goods market slowed. Gross margins were up at 36.9% compared with 36.3% in the prior year with connector margins improving by 7% but switch margins declining by 5%.  

2008/9 is proving to be a challenging year. Approximately 30% of our business is directly related to the consumer market and we are experiencing customer caution in the placing of previously enjoyed forward schedules. The volatile raw materials market, and in particular mounting copper prices, will continue to squeeze our margins. We are having some success in offsetting these pressures through pricing adjustments, productivity gains, and a continuing migration to low cost economies. However, the instability in commodity prices and the time lag in achieving offsets, may adversely affect operating margins for our traditional products.

Achievements worthy of note are:

• Our strengthened field applications resources in the US have resulted in a number of exciting opportunities to partner blue chip OEMs in the development of value added solutions.

•  We have appointed new distributors in Brazil and Mexico.

   

• Our Western and Eastern European sales resources have been reinforced, serving to better leverage the established distributor and agency network, again with the renewed focus on developing partnerships with large OEMs delivering innovative solutions with enabling technologies.
  
• We are introducing new concepts for energy efficient products for the consumer appliance sector, including a new patented concept for fridge and cabinet lighting, new wireless products for the connectivity market harnessing the established Bluetooth standards for the industrial sector, and have developed concepts for the emerging alternative and renewable energy markets. We are also working to exploit our expertise in harsh environment applications and the intrinsic safety sector, where margins are highly attractive.
  
• We are continuing to leverage our low cost manufacturing facilities, with the relocation of the remaining UK based Arcolectric production to a brand new facility in China. This new site provides us with sufficient capacity to continue to off-shore additional production as it is acquired by the group. We are also in the process of establishing robust automation capability within the China plant, which enables us to make further productivity gains. This, coupled with the strengthening of our local engineering and skills base, to complement our established selling resources, enhances our ability to compete in a larger section of the indigenous Asian market place.

Hard Metals Division (Sales £8.3 million, operating profits £0.45 million)

In a competitive market the division achieved 9.5% sales growth winning new customers as well as new business from existing customers. Productivity improvements enabled us to achieve this growth without additional personnel.

In spite of the relative strength of the pound sterling we increased selling prices where possible partially offsetting major material price increases. Consequently gross margins for the year remained stable at 31%.

Through investment in new machinery we are achieving steady efficiency improvements, bringing sub-contract work back in-house and winning new business from high added value components that we would previously have not been able to manufacture cost effectively. For instance, with new CNC grinding capability we are taking orders for high precision thread grinding. We have also automated the surface grinding of circular knives allowing us to penetrate this market.

Orders in the first quarter of the new year are significantly below last year as a result of the downturn in the markets we serve. In addition we have seen an unprecedented rise in the cost of cobalt, now twice the price it was one year ago. We are forced to increase the selling prices of components with high cobalt content at the risk of losing this low margin business.  

We are however confident that we have not lost customers to date and helped by the current strength of the Euro we are working hard to win more European business. We have taken quick action to reduce costs whilst striving to maintain the key skills underpinning our future growth plans.

For the medium and longer term we continue our strategy to invest in the machinery to enable us to win more "value added" business. Customers continue to demand greater dimensional accuracy in sintered products and more complexity in ground products. We focus on circular ground products for the oil, gas and other industries where precision quality and speed of delivery are paramount. This strategy will reduce our sensitivity to material price fluctuations and extend our move into niche markets where aggressive pricing is not the major element of supply.  

In parallel we are evaluating the feasibility of moving the manufacture of less complex components off-shore.

Instrumentation Division (Sales £3.7m, operating profits £0.07 million)

Sifam Instruments Limited consists of four product areas being nano-positioning instruments ("Queensgate"), electronic measuring instruments ("Digitron"), meters and precision multi-shot mouldings.

From acquisition in August 2007 to year-end in January 2008 the division returned satisfactory operating profits (before exceptional costs) of £0.07 million on sales of £3.7 million with a gross margin of 32%. 

The progress of the business is dependent upon the design and development of new instrumentation products and cost savings in the traditional areas of meters and mouldings. 

First quarter trading in the year beginning February 2008 was satisfactory. The outlook for the rest of the year is solid in some product areas such as Digitron, but weaker in others. The Queensgate business is very dependent on the semiconductor industry and in particular hard disk drive manufacturers all of which are currently experiencing a down turn.

In the short term we will be developing new temperature monitoring and control technology and new pressure measurement devices which will produce sales and margin improvements next year. Beyond that we will be looking to launch products complementary to our current range, notably in the areas of gas detection and moisture measurement. This should lead to more substantial growth in 2009/10 and beyond.

In order to improve profitability it was felt prudent to undertake a cost reduction exercise which has led to a headcount reduction of 14 effective 31st May 2008. This will give savings of £0.17 million in the current year and £0.28 million in a full year. 

Looking ahead we plan to improve competitiveness by following the dual strategy of moving manufacture of certain products off-shore and developing in house new higher value added technology. Off-shore manufacture of our range of control knobs will allow us to substantially improve margins on current business and enable us to compete for new contracts in market segments previously not accessible to us. To a lesser extent this principle applies across much of the rest of our product range.

Group strategy and Outlook 

Our approach is three pronged:

• Growing the Group both organically by developing new products and markets as well as by acquisition.

• Improving margins by reducing costs and increasing prices where possible.

• Optimising organisational structure by ensuring that appropriate management, engineering, IT and financial resources are in place

It is worthwhile restating what was said in our last annual report:

"The last few years have been exceptionally profitable for manufacturers of all types and your Board believes that this state of affairs cannot last forever. A harsher business environment will however offer more opportunities for acquisitive companies as businesses get into difficulties. Elektron is a low cost manufacturer and is conservatively financed and the Board believes that it is well placed to take advantage of such opportunities as they arise."

We managed a healthy increase in earnings per share in the year just ended but those words remain pertinent today in an even harsher business climate. In the past three months we have seen a downturn in orders across the group. Much of this is as a result of destocking by our customers who are becoming more cautious. If this downturn is sustained however, we would expect to see a significant reduction in our near term profitability whilst continuing to produce operating profits. We shall keep the market informed as appropriate.

The Board remains confident that it is following the correct strategy and relishes the challenges ahead.

Adrian Girling

Chief Executive Officer

Notes to the Preliminary Unaudited Results to 31 January 2008

1. Accounting Policies

The financial information has been prepared on the basis of International Financial Reporting Standards (IFRS) as adopted by the European Union. Full details of accounting policies will be included in the Annual Report for the year ended 31 January 2008. These are not expected to be materially different from those set out in the Group's statutory accounts for the year ended 31 January 2007.

2. Other information

The financial information in respect of the year ended 31 January 2008 set out in this statement has been extracted from the statutory financial statements which have not yet been audited but are not expected to differ materially from the information given in this statement.

The financial information in this statement does not constitute statutory accounts. The financial information in respect of the year ended 31 January 2007 has been extracted from the statutory accounts which have been filed with the Registrar of Companies. The auditors' report on those accounts was unqualified and did not contain any statement under Section 237 of the Companies Act 1985 or under Section 498 of the Companies Act 2006.

Audited financial statements will be sent to shareholders at the end of June 2008. Copies of this announcement are available free of charge from the Company's registered office at Melville Court, Spilsby Road, Romford, Essex RM3 8SB for a period of one month from the date hereof and copies of the audited financial statements will be so available for at least 14 days from date of publication.