9th June 2016

 

Elektron Technology plc

 

Preliminary Statement for the Year Ended 31 January 2016

 

Elektron Technology plc ("Elektron" or "The Group" or "We") announces its preliminary audited results for the year ended 31 January 2016

 

 Group highlights

 

·    Group operating profits are up 80% to £0.9m (2015: £0.5m) on reduced revenues of £43.3m (2015: £44.4m)

·    Profit before tax: £0.8m (2015: £0.2m)

·    Underlying operating profits (before non-recurring or special items) from Connectivity and Instrumentation, Monitoring and Control (IMC) up 42% to £3.4m (2015: £2.4m)

·    Checkit start-up losses increased to £2.2m (2015: £0.7m)

·    Net debt reduced by £1.1m to £1.6m (2015: £2.7m)

·    The Group successfully balanced its investment in new product development (particularly Checkit) with the incoming cash flow from its established businesses as targeted

·    A further £1.5m of capitalised development costs invested in Checkit in the year

·    Checkit launched its work management system in October 2015

·    Agar business sold after the year end for £2.0m cash proceeds and a further £0.3m deferred amount

 

 

 

John Wilson, Chief Executive of Elektron, said:

 

"These results, together with the recently announced disposal, demonstrate the further progress we have made. We have continued to improve current business performance, allowing investment to establish a high growth portfolio of brands for the longer term.

 

"We remain focused on key new product development programmes, in particular relating to the Checkit brand and where possible, realising value from our current portfolio.  The Board is confident that this strategy will deliver improved shareholder value in the longer term."

 

Enquiries:

 

Elektron Technology  www.elektron-technology.com	+44 (0) 1223 371 000
John Wilson - Chief Executive Officer
Andy Weatherstone - Chief Financial Officer
finnCap	+44 (0)20 7220 0500
Ed Frisby / Scott Mathieson - Corporate Finance
Malar Velaigam  - Corporate Broking

 

 

 

 

 

 

Chairman's Statement

 

The performance of the Group continues to show a marked improvement, demonstrating the successful implementation of the Group's strategy, which is to prioritise investment in businesses that are capable of achieving significant growth over the medium term whilst ensuring that the cash flow from lower-growth established businesses is maximised. Historically the Group has struggled to show growth from its established businesses which operate in mature markets. Detailed commentary on our financial performance is contained in the financial review.

 

Our stated objective last year and in the current year was to invest substantially all our cash flow into developing and marketing promising new products, particularly Checkit.

 

We conceive, design and market innovative engineered products and services for businesses that connect, monitor and control. We have a multi-skilled team of engineers and software and product line specialists based in Cambridge focused on the opportunities created by global trends in the following areas:

 

Ø new waves of "aware" business applications: Checkit;

Ø demand for ubiquitous power and data: Bulgin;

Ø ophthalmic instrumentation targeted at conditions caused by ageing: Elektron Technology Ophthalmic; and

Ø growth in high precision manufacturing: Queensgate.

 

In addition, Elektron owns a portfolio of seven brands that are being managed for cash flow. Several of these operate in static or declining markets necessitating close attention to costs and total value contribution to the Group.

 

Subsequent to year end we successfully completed the disposal of Agar for initial proceeds of £2.0m and potential deferred proceeds of £0.3m. Further details are contained in the announcement made to the AIM market of the London Stock Exchange on 23^rd May 2016.

 

The disposal recognises the value of this business to the Group; however, it will initially be earnings dilutive, although we will seek to reduce this dilution through strict cost management. The disposal simplifies the Group structure and will allow management to concentrate on the remaining higher margin businesses and those capable of substantial growth.

 

Also, subsequent to year end we learned that the appeal in the High Court against the judgement in our favour in relation to the Bridge derivative action has been dismissed. This case has been an enormous distraction and has diverted much management time that could have been devoted to the Group.

 

People

 

The Group continued to hire experienced professionals, particularly for its growth businesses, during the year. At the same time it has been necessary to reduce staffing levels at those businesses that are not growing.  Elektron values its people and recognises the need to look after them, especially at those times when the Group's plans have meant disruption for some. The commitment of Elektron's people throughout the world, in what remains a challenging environment internally and externally, has once again been remarkable and deserves recognition.

 

 

Outlook

 

The Group is currently performing in line with the Board's expectations at  lower sales levels than the comparable period for last year, which saw a number of atypical stocking orders from distributors in Connectivity as a result of the implementation of the final stage of the distributor consolidation strategy. As a result, the Board anticipates that the trading performance in the first half for the businesses, excluding Checkit will be at a lower level to last year, notwithstanding an improved sales mix of higher margin product sales and further efficiency gains. As planned, the Group is increasing its investment in Checkit, with added spend in sales and marketing to promote the work management system and preparatory marketing of  the automated monitoring system which is due for launch in the second half of the year, together with  further investment in production and other support areas.

  

Chief Executive Officer's statement

 

This report outlines the strategies being followed in each of the Group's business segments. Detailed commentary on our financial performance is contained in the financial review.

 

Summaries of the strategies for individual brands are set out below.

 

We categorise markets according to growth characteristics. We do not detail this categorisation by brand and product for commercial reasons.

 

Sales in markets categorised as:	2016 £m	2015 £m	% change
High growth	3.2	2.3	39%
Static/lower growth	29.2	29.3	-
Declining	10.9	12.8	(15%)
Total	43.3	44.4	(2%)

 

 

Connectivity sales: £25.8m (2015: £25.8m), underlying operating profit: £3.8m (2015: £2.9m), gross capitalised development costs to date: £1.1m (2015: £1.0m)

 

Connectivity comprises two complementary product families:  Bulgin and Arcolectric. 

 

Arcolectric manufactures switches and indicator lights for white goods and light industry markets and operates in a highly commoditised, cost sensitive product environment with significant low cost competitor activity.  Our strategy in this segment is to foster key original equipment manufacturers (OEM) relationships with a view to increasing our average selling price through offering value added solutions.  Operating in a declining market, with limited ability to differentiate standard products, continues to result in eroding revenues in all three geographical regions (APAC, EMEA and the Americas), although this is beginning to show signs of plateauing.

 

Conversely, Bulgin, a manufacturer of niche, ruggedised products used in harsh environments where a high level of ingress protection (IP) is required, operates in a low growth, more cost-insensitive market.  Market launches of substantial newly developed products, combined with iterative product development and bespoke solutions, continued Bulgin's sustained year-on-year growth, mostly offsetting the revenue declines experienced by Arcolectric.  During the year Bulgin expanded its Buccaneer® range of environmentally sealed power and data connectors with the introduction of the new Buccaneer 4000 series. Building on the success of the Buccaneer 6000 and 7000 Series of quick-locking connectors, the 4000 series provides the same twist-lock coupling and "fit and forget" connectivity in a more compact format, making it easier for product engineers to integrate into their system designs.

 

Four years ago we implemented a strategy to increase Bulgin revenues through closer working relationships with an optimised, global distribution network.  Over the period, we reduced the number of distributors by almost 75% (274 down to 75).  As well as attracting increased mindshare from our channel partners, due to increasing sales levels, this has enabled a reduction in overhead as a result of a significantly reduced number of transactions and we have worked hard to drive efficiency through our manufacturing operation. A decision to implement a planned build of inventory of our most popular products has helped improve both production efficiency and service levels to our partners.

 

The net result for Connectivity is a further increase in operating profit before non-recurring or special items of over 31%, compared with the prior year, on static combined sales.

 

Substantially all Bulgin sales are now through our global, regional and national channel partners.  During the financial year, despite high levels of destocking in the distribution channel due to economic conditions, Bulgin sales grew in both EMEA and the Americas, the latter now accounting for over 24% of Bulgin sales.

 

IMC sales: £17.3m (2015:£18.4m), underlying operating loss: £0.4m (2015: £0.5m), gross capitalised development to date: £2.6m (2015: £2.3m)

 

The IMC segment contains a number of small businesses that are managed as a portfolio. These include established brands in low growth or declining markets and businesses with high growth potential.  Although in aggregate the segment returned an operating loss, there was a wide divergence between individual businesses with most of the losses being made by Queensgate, which is investing heavily in new products, but turnover grew by 61% over the prior year.

 

During the year the portfolio consisted of the following:

 

Ø Agar (distribution of microscopy consumables): flat sales and sold since the year end.

 

Ø Agar Medical, formerly Qados (distribution of medical consumables): much of this business has been discontinued in view of its poor profitability. The remainder has been absorbed by other IMC businesses following the sale of Agar.

 

Ø Carnation (power management for specialised vehicles): limited investment in a new generation of product. Steady turnover.

 

Ø Digitron (temperature and pressure related instrumentation): slightly declining sales.

 

Ø Elektron Technology Ophthalmic (screening products for the two leading causes of irreversible blindness): investment in sales channels to lay the foundations for a further substantial increase in sales.

 

Ø Queensgate (nanopositioning systems): substantial investment in new products; substantial growth from a low base.

 

Ø Sheen (instrumentation for the paint and allied industries): investment in value engineering, improving process and compliance systems; slight decline in sales.

 

Ø Titman (router cutter manufacturer): investment in plant and machinery; slight decline in sales.

 

Ø Wallace (instrumentation for rubber industry): investment in improving process and compliance systems; substantial decline in sales caused by industry conditions.

 

Checkit sales: £0.2m (2015: £0.2m), underlying operating loss: £2.2m (2015:£0.7m), gross capitalised development costs to date: £2.8m (2015:£1.3m)

 

Our investment in Checkit is aimed at building substantial recurring revenues over time by delivering a range of products that remove the inefficiencies and limitations represented by manual, paper-based processes in businesses.  Our focus is on industries such as food, healthcare and facilities management where activities performed by large numbers of front-line staff are still frequently recorded using pen and paper.  Checkit introduces smart automation and easy to use apps to these businesses.  The results are reduced costs, improved service levels and reduced business risk.

Checkit represents a new breed of business application that uses cloud computing and Internet of Things technologies to provide a cost effective, easy-to-use and affordable solution as a service that is leading the development of this new market.

In October 2015 we launched Checkit Work Management - a replacement for checklists based on smart handheld devices.  We have delayed the release of the second key part of the product - automated monitoring - to allow us to spend the first half of 2016 finalising its design and testing.  This technology will provide a wireless sensor network to automate the collection and tracking of key operational data such as temperature.

Checkit is now live with 78 customers, and is developing major opportunities with a number of blue-chip organisations in the following applications:

·    food service and retail, to manage health and hygiene checks, quality and operational efficiency;

·    facilities management, to manage services delivery and SLA (service level agreement)  reporting; and

·    health, to manage delivery of "hotel services" to patients.

Food hygiene is a key application for Checkit, with over 500,000 premises in the UK alone inspected for food safety.  It is also increasingly important to customers - our recent research shows that the impact of being implicated in a food hygiene incident can be catastrophic for the survival of any restaurant business, with 75% of consumers saying they would refuse to return under the current ownership.  To support the development of our proposition in this area we have created a pioneering Primary Authority Partnership with Cambridge City Council, providing legally enforceable support for the use of Checkit that is applicable across the UK.

 

 

 

 

 

Financial review

 

Further progress was made during the year with operating profits from the Group's Connectivity and IMC businesses increasing to £3.4m, up 42% from the previous year, enabling £3.4m to be invested in the development of Checkit and used to reduce the level of net borrowings by £1.1m to £1.6m.

 

Group revenue for the year decreased by 2.5% to £43.3m (2015: £44.4m), following the pattern of the previous year. Checkit, as a start-up operation, contributed £0.2m (2015: £0.2m) of Group revenue.

 

The continued implementation of our improvement plans, focusing on margin improvement through selective price increases, product rationalisation and cost reductions, led to a significant improvement in underlying operating profits (before non-recurring or special items) from businesses, excluding Checkit, from £2.4m in the previous year to £3.4m this year, an increase of 42%.

 

After Checkit's increased start-up losses of £2.2m (2015: £0.7m), underlying Group operating profit was £1.2m (2015: £1.7m).

 

Group EBITDA ("Earnings before interest, taxation, depreciation and amortisation") has been maintained at £3.7m (2015: £3.6m) and provides a useful measure of the Group's cash generation from its operations.

 

As expected, none of the non-recurring or special items were cash items (2015: £0.8m), leaving £0.3m (2015:£0.4m) of non-cash items relating to amortisation of acquisition intangible assets and share-based incentive charges, which results in an overall profit before tax from continuing operations of £0.8m (2015: £0.2m).

 

Segmental performance

 

Connectivity

	2016 £m	2015 £m
Revenue	25.8	25.8
Underlying operating profit	3.8	2.9
EBITDA	4.8	3.6

 

Underlying operating profits grew by £0.9m (31%) over the previous year in spite of a flat revenue performance.

 

Although we experienced some impact from destocking by our major distribution partners, Bulgin revenues grew 9% over the prior year as the Group benefited from the optimised distribution channel, with the direct sales force focusing its attention on managing key OEM accounts and channel partners. In contrast, Arcolectric revenues continued to contract, albeit at a slower rate of 11% compared to 15% in the previous year, with falls experienced across all of the main regions which we serve due to our decision not to compete in a market where price is the key differentiator.

 

Margins continue to improve due to a number of factors including targeting growth of higher value added sales in Bulgin, the continued improvement in manufacturing efficiency in both the UK and Tunisian manufacturing operations and a drive to reduce the cost of our key raw materials and components together with reduced supply costs.

 

Over the last three years we have sought to strengthen the local management in Tunisia and have coupled this with a planned programme of investing in the factory and upgrading tooling and equipment.  This has resulted in continued improvement in levels of efficiency and reduced levels of material waste. This is a strategy for the long term and we expect further gains in performance in the coming year in part to offset local wage inflation, which has been running at an annual rate of 7% over the past three years.

 

The autonomy of the Tunisian operations has meant that there has been little impact from the UK government's recommended travel restriction for UK nationals.  The Group has reviewed its insurance arrangements, including political risk cover, in respect of its Tunisian operations to ensure they remain appropriate in the aftermath of the terror attacks.

 

 

 

 

 

IMC

 

	2016 £m	2015 £m
Revenue	17.3	18.4
Underlying operating loss	(0.4)	(0.5)
EBITDA	0.8	0.5

 

 

The performance of the IMC portfolio of brands was mixed. The Group continues to experience declines in demand from some of its more mature brands and this has outstripped the improvement achieved from the growth brands in which the Group is investing.

 

IMC brands are small in size and highly operationally geared with small changes in sales having a marked effect on overall performance. As with Connectivity there is a focus on reducing costs wherever possible but this is made more difficult given the size and lack of synergy between some of the brands. Nevertheless, losses were narrowed on revenues which were 6% lower than the previous year.

 

The Group achieved increased sales in its growth brands, Ophthalmic and Queensgate, of 19% and 61% respectively due to the new product launches in recent years. The Group is continuing to invest in these brands and upgrades and additional products are expected during the current financial year.

 

Wallace experienced a significant decline in demand following the weakening of rubber prices, resulting in a fall of 44% of equipment sales and further falls in equipment service revenues. No recovery is expected in the near future. Agar, Sheen, Titman and Digitron experienced falls in demand ranging from 5% to 10%, with Carnation consolidating on its much improved performance from last year on slightly higher improved sales.

 

The Group is committed to maximising shareholder value from these brands in both the short and medium term. The steps taken include the downscaling of its Qados business followed by the sale of the Agar business since the year end, which has realised value of up to £2.3m. The Group's immediate focus is to reduce costs to offset the lost contribution from these businesses, whilst maintaining investment in its growth brands.

 

Checkit

 

	2016 £m	2015 £m
Revenue	0.2	0.2
Underlying operating loss	(2.2)	(0.7)
EBITDA	(1.9)	(0.5)

 

Checkit remains in its start-up phase and the losses for the year represent costs incurred to support the development of the brand. Revenues represent sales principally from earlier prototype systems. Following the launch of its Work Management Service, the Group has ramped up investment in sales and marketing to promote the new product. There was also investment in improving manufacturing capability. The Group also fully amortised the remaining capitalised development costs relating to earlier prototype systems.

 

Capitalised product development on the work management and automated monitoring projects amounted to £1.5m during the year, over double that of the previous year. The total cash absorbed by Checkit in the year amounted to £3.4m.

 

Checkit is expected to remain loss making whilst the revenue stream and associated margin increase over the medium term, and a further cash investment of £4m is planned for the current year. Initial reaction from large customers has been extremely positive.

 

New product development (NPD)

 

Elektron spent £3.5m on NPD and sustaining engineering in the financial year (2015: £2.1m). Of this, £1.9m was capitalised (2015: £1.1m), mainly focused on Checkit, although the development of a new range of Bulgin connectors - the 4000 Series - was also completed and launched during the year. In the current year the principal focus will continue to be on completing the automated monitoring product release for Checkit and developing further enhancements to the Queensgate product range.

 

The net book value of capitalised NPD is as follows:

 

	2016 £m	2015 £m
Bulgin	0.7	0.7
Queensgate	0.8	1.2
Ophthalmic	0.4	0.4
Subtotal	1.9	2.3
Checkit	2.4	1.2
Total	4.3	3.5

 

The Board has undertaken a detailed review of the business plans, including a sensitivity analysis, supporting the justification of the carrying value of its NPD investment.

 

People and employment costs

 

The Group continues to invest in its NPD programme and, as a consequence, employment and contractor costs in technical and engineering have risen in the current year by approximately £1.0m. Headcount reduced elsewhere as part of our efficiency plans to offset wage inflation and incentive payments. Overall the total wage cost for the year was £15.1m (2015: £14.1m) with an average number of employees of 1020 (2015: 1050), of which 721 (2015: 754) were employed in Tunisia.

 

Net finance costs

 

Interest costs on borrowing decreased by £0.2m to £0.1m (2015: £0.3m), reflecting the decrease in the average level of net debt from £4.8m in 2015 to £1.5m in 2016, representing an effective interest rate of 6.0% (2015: 6.1%).

 

Taxation

 

The Group continues to not recognise any deferred tax in respect of UK trading losses or other timing differences as the Board remains of the view that the restructuring of the Group, the continued investment in NPD and the launch of Checkit will result in minimal taxable profits in the foreseeable future.

 

At 31 January 2016 the Group had estimated unused trading losses in excess of £4.9m (2015: £5.0m) to offset against future UK profits. The tax charge in the year of £0.2m (2015: £Nil) is in respect of profits earned overseas.

 

Earnings per share

 

The average number of ordinary shares in issue during the year was 171.0m (excluding shares held by the Employee Benefit Trust). Basic earnings per share in respect of continuing operations before non-recurring or special items were 0.5 pence (2015: 1.0 pence).

 

After taking into account non-recurring or special items the Group recorded earnings per share on continuing operations of 0.4 pence (2015: 0.1 pence).

 

Cash flow and net debt

 

The Group generated cash of £4.1m (2015: £4.9m) from operations before non-recurring or special items, of which £0.3m (2015: £1.4m) was from a reduction in working capital. Reductions in working capital were more modest given the need to build up inventory of Checkit products and the strategic decision to increase Connectivity finished products to improve service levels to customers. In spite of some improvement, inventory levels in a number of other brands remain too high and a major focus of the current year is to reduce these through better management of procurement and alterations to production planning.

 

Total capital investment in the year was a net £2.6m (2015: £1.5m), representing 104% (2015: 84%) of depreciation and amortisation.

 

Overall net cash generated of £1.1m reduced net borrowing to £1.6m.

 

Bank facilities, covenants and going concern

 

At 31 January 2016 the Group had available facilities of £5.4m which include a revolving credit facility of £2.0m, available invoice finance facilities of £3.0m (which could increase up to £5.0m depending on sales levels) and leasing facilities of £0.3m, together with a bank overdraft of £0.1m. At 31 January 2016 available headroom on these facilities amounted to £3.5m.

 

The Group successfully agreed a two-year extension to its revolving credit facility in April 2016 at a level of £2.1m, reducing by £0.28m per quarter.

 

The Directors have prepared and reviewed forecasts and projections for a period of not less than twelve months from the date of this announcement.  These are based upon detailed assumptions, in particular with regard to key risks and uncertainties together with the level of borrowings and other facilities made available to the Group. The Board also takes account of reasonably possible changes in trading performance to determine whether the Group should be able to operate within its current level of facilities.

 

In the event, should actual performance fall below the current forecast levels in this period, the Group has a number of mitigating factors available to it and the Board has the necessary monitoring and controls in place in order to be able to put the required actions in place if it sees a need to do so.

 

The Directors have, at the time of approving the financial statements and after taking into account the factors noted above, concluded that the Group has adequate financial resources to continue in operational existence for the foreseeable future. For this reason the Directors continue to adopt the going concern basis.

 

Dividends

 

Having considered the resources needed to invest in new product development, the Board believes that it is in the Group's best interests not to pay a dividend for the year.

 

Potential litigation - update

Mr Bridge's application for permission to appeal against the judgement His Honour Judge Hodge QC made on 17 June 2015 in respect of his application to pursue a derivative action against certain Directors of the Company  was dismissed by Lord Justice Kitchin at the hearing on 20 April 2016.  Lord Justice Kitchin came to the firm conclusion that Mr Bridge's appeal would not have a real prospect of success on any of the grounds put forward. There is no further route of appeal available to Mr Bridge.

As previously reported in the RNS announcement made on 18 June 2015, at the hearing on 17 June 2015 His Honour Judge Hodge QC also ordered Mr Bridge to pay the costs of both the Company and the Directors.  Enforcement of those costs was stayed pending the outcome of Mr Bridge's application for permission to appeal to the Court of Appeal. That application was dismissed on 20 April 2016, with the result that the stay on enforcement has been lifted. The Company is therefore now taking steps to recover the costs that it has incurred in relation to this matter.

Post balance sheet event

Subsequent to the year end, the Group completed the disposal of its wholly owned subsidiary undertaking, Agar Scientific Limited (which traded as a brand within the IMC segment of the Group) for total initial proceeds of £2.0m and potential deferred proceeds of £0.3m. The deferred consideration of £0.3m is subject to adjustment for levels of working capital at completion and is repayable in monthly instalments of £10,000, commencing 30 June 2016. The disposal will be initially earnings dilutive, although the Group will seek to reduce this dilution through strict cost management. The disposal is part of the Group rationalisation of its portfolio and will allow management to concentrate on the remaining higher margin businesses and those capable of substantial growth.

Consolidated statement of comprehensive income

year ended 31 January 2016

 

	Notes	2016 £m	2015 £m
Revenue	2	43.3	44.4
Cost of sales		(27.2)	(28.6)
Gross profit		16.1	15.8
Operating expenses
Operating expenses (excluding non-recurring or special items)		(14.9)	(14.1)
Operating profit before non-recurring or special items		1.2	1.7
Non-recurring or special items	3	(0.3)	(1.2)
Total operating expenses		(15.2)	(15.3)
Operating profit		0.9	0.5
Finance costs		(0.1)	(0.3)
Profit before taxation		0.8	0.2
Taxation		(0.2)	-
Profit for the period		0.6	0.2
Other comprehensive expense
Items that may be reclassified subsequently to profit or loss
Exchange differences on translation of foreign operations		-	(0.2)
Total comprehensive income/(expense) for the financial year attributable to equity shareholders		0.6	-
Earnings per share from continuing operations
Basic and diluted EPS	4	0.4p	0.1p
Adjusted and diluted adjusted EPS1	4	0.5p	1.0p

1     Before non-recurring and special items.

 

Consolidated balance sheet

as at 31 January 2016

 

		2016 £m	2015 £m
Assets
Non-current assets
Capitalised R&D		4.3	3.5
Other intangible assets		1.8	2.3
Property, plant and equipment		2.7	2.8
Total non-current assets		8.8	8.6
Current assets
Inventories		5.7	5.4
Trade and other receivables		6.9	6.8
Cash and cash equivalents		0.6	0.6
Total current assets		13.2	12.8
Total assets		22.0	21.4
Current liabilities
Trade and other payables		7.2	6.8
Borrowings		1.9	1.0
Current portion of long-term borrowings		0.3	1.3
Current Tax payable		0.2	-
Provisions		0.5	0.2
Total current liabilities		10.1	9.3
Non-current liabilities
Long-term borrowings		-	1.0
Long-term provisions		0.3	0.2
Total non-current liabilities		0.3	1.2
Total liabilities		10.4	10.5
Net assets		11.6	10.9
Equity attributable to the owners of the Company
Called up share capital		9.3	9.3
Share premium		5.4	5.4
Merger reserve		1.1	1.1
Capital redemption reserve		0.2	0.2
Own shares		(3.5)	(3.5)
Other reserves		0.8	0.7
Translation reserve		(0.8)	(0.8)
Retained earnings		(0.9)	(1.5)
Total equity		11.6	10.9

 

Consolidated statement of changes in equity

year ended 31 January 2016

 

 

	Share capital £m	Share premium £m	Merger reserve £m	Capital redemption reserve £m	Own shares[1] £m	Other reserves £m	Translation reserve £m	Retained earnings £m	Total £m
At 1 February 2014	6.0	5.4	1.1	0.2	(3.5)	0.5	(0.6)	(1.7)	7.4
Profit for the period	-	-	-	-	-	-	-	0.2	0.2
Other comprehensive income	-	-	-	-	-	-	(0.2)	-	(0.2)
Total comprehensive (expense)/income for the year	-	-	-	-	-	-	(0.2)	0.2	-
Share issue	3.3	-	-	-	-	-	-	-	3.3
Credit to equity for share-based payments	-	-	-	-	-	0.2	-	-	0.2
At 31 January 2015	9.3	5.4	1.1	0.2	(3.5)	0.7	(0.8)	(1.5)	10.9
Profit for the period	-	-	-	-	-	-	-	0.6	0.6
Total comprehensive income for the year	-	-	-	-	-	-	-	0.6	0.6
Credit to equity for share-based payments	-	-	-	-	-	0.1	-	-	0.1
At 31 January 2016	9.3	5.4	1.1	0.2	(3.5)	0.8	(0.8)	(0.9)	11.6

1     The Treasury shares are held by the Elektron Technology 2012 EBT.

 

Consolidated statement of cash flows

year ended 31 January 2016

 

	Notes	2016 £m	2015 £m
Net cash inflow from operating activities	5	3.8	3.5
Investing activities
Purchase of property, plant and equipment		(0.8)	(0.5)
Purchase of other intangible assets		(2.1)	(1.1)
Proceeds from the sale of property, plant and equipment		0.2	0.1
Net cash used in investing activities		(2.7)	(1.5)
Financing activities
Proceeds from ordinary share issue		-	3.3
Decrease in bank loans		(0.9)	(5.2)
Payment of hire purchase and finance liabilities		(0.2)	(0.3)
Net cash used in financing activities		(1.1)	(2.2)
Net  increase/(decrease) in cash and cash equivalents		-	(0.2)
Cash and cash equivalents at the beginning of the period		0.6	0.8
Cash and cash equivalents at the end of the period		0.6	0.6

 

Notes to the audited consolidated accounts for the year ended 31 January 2016

 

1. Basis of Preparation 

While the financial information included in this audited preliminary announcement has been prepared in accordance with the recognition and measurement criteria of International Financial Reporting Standards (IFRSs), this announcement does not itself contain sufficient information to comply with IFRSs. The Group will publish full financial statements that comply with IFRS.

The preliminary statement of results was approved by the Board on 8 June 2016. The financial information presented in this preliminary statement does not constitute the company's statutory accounts for the years ended 31 January 2016 or 2015, but is derived from those accounts. Statutory accounts for 2015 have been delivered to the Registrar of Companies and those for 2016 will be delivered following the company's annual general meeting. The auditors have reported on those accounts: their reports were unqualified, did not draw attention to any matters by way of emphasis and did not contain statements under s498(2) or (3) of the Companies Act 2006.

 

2. Segmental reporting

The Group has continued to adopt the provisions of IFRS 8 "Operating Segments" and historically shown summary information in respect of these segments. This segmentation is consistent with internal reports to the chief operating decision maker for use in assessing business performance and allocating Group resources. The chief operating decision maker is the Chief Executive of the Group. The activity of each segment is explained in the Review of performance and strategic update.

 

Segment revenues and results of continuing operations	Segment revenue			Operating profit/(loss) before non-recurring or special items			Operating profit/(loss)
	2016 £m	2015 £m		2016 £m	2015 £m		2016 £m	2015 £m
Connectivity	25.8	25.8		3.8	2.9		3.6	2.2
Instrumentation, Monitoring and Control (IMC)	17.3	18.4		(0.4)	(0.5)		(0.5)	(1.0)
Total Connectivity and IMC	43.1	44.2		3.4	2.4		3.1	1.2
Checkit	0.2	0.2		(2.2)	(0.7)		(2.2)	(0.7)
Total	43.3	44.4		1.2	1.7		0.9	0.5
Finance costs (net)							(0.1)	(0.3)
Profit before tax							0.8	0.2

 

Revenue reported above represents revenue generated from external customers.

 

Segment profit represents the profit earned by each segment, including a share of central administration costs, which is allocated on the basis of actual use or pro rata to sales. This is the measure reported to the chief operating decision maker for the purposes of resource allocation and assessment of segment performance.

 

Segment assets	2016 £m	2015 £m
Connectivity	10.2	10.4
IMC	9.0	9.8
Total Connectivity and IMC	19.2	20.2
Checkit	2.8	1.2
Consolidated assets	22.0	21.4

 

Segment liabilities	2016 £m	2015 £m
Connectivity	5.8	5.6
IMC	4.4	4.7
Total Connectivity and IMC	10.2	10.3
Checkit	0.2	0.2
Consolidated liabilities	10.4	10.5

 

Other segment information	Depreciation and amortisation			Additions to non-current assets
	2016 £m	2015 £m		2016 £m	2015 £m
Connectivity	1.0	0.7		0.6	0.5
IMC	1.2	1.0		0.5	0.4
Total Connectivity and IMC	2.2	1.7		1.1	0.9
Checkit	0.3	0.2		1.8	0.7
Total	2.5	1.9		2.9	1.6

 

Geographical information

The Group considers its operations to be in the following geographical regions:

 

	Revenue from external customers			Non-current assets
	2016 £m	2015 £m		2016 £m	2015 £m
United Kingdom	18.9	19.3		8.0	7.8
Rest of Europe, the Middle East and Africa	11.9	12.3		0.8	0.8
Asia Pacific and China	4.3	5.1		-	-
Americas	8.2	7.7		-	-
Total	43.3	44.4		8.8	8.6

 

3. Non-recurring or special items

 

	2016 £m	2015 £m
Non-recurring or special items:
- strategic review costs	-	0.8
- IFRS 2 charge	0.1	0.2
- amortisation of acquisition intangible assets	0.2	0.2
Total non-recurring or special items	0.3	1.2

 

4. Earnings per share

The calculation of the basic earnings per share (basic EPS), diluted earnings per share (diluted EPS) and earnings per share before non-recurring or special items (adjusted EPS) is based on the following data. Shares held in treasury are excluded from the number of shares in issue for the purposes of earnings per share calculations. The calculation of the diluted earnings per share is based on the basic earnings per share adjusted to allow for the issue of shares on the assumed conversion of all dilutive options. However, in accordance with IAS 33 "Earnings Per Share", potential ordinary shares are only considered dilutive when their conversion would decrease the profit per share or increase the loss per share from continuing operations attributable to the equity shareholders. As at 31 January 2016 there were 14,099,350 potential ordinary shares which have been disregarded in the calculation of diluted earnings per share as they were considered non-dilutive at this date.

 

Earnings

 

Earnings from continuing operations	2016 £m	2015 £m
Earnings for the purposes of basic and diluted EPS being net profit attributable to the owners of the Company	0.6	0.2
Adjustment in respect of non-recurring or special items net of taxation of £nil (2015: £nil)	0.3	1.2
Earnings for the purposes of adjusted EPS	0.9	1.4

 

 

Number of shares

 

	2016 No.	2015 No.
Weighted average number of ordinary shares for the purposes of basic EPS	171,025,201	140,221,240
Effect of dilutive potential ordinary shares:	-	-
Share options		-
Weighted average number of ordinary shares for the purposes of diluted EPS	171,025,201	140,221,240

 

 

Earnings per share

 

From continuing operations	2016	2015
Basic and diluted EPS	0.4p	0.1p
Adjusted and diluted adjusted EPS	0.5p	1.0p

 

 

5. Net cash flows from operating activities

 

	2016 £m	2015 £m
Profit before taxation
- from continuing operations	0.8	0.2
Adjustments for:
Depreciation	0.7	0.8
Non-recurring or other special items - continuing	0.3	1.2
Amortisation of development costs and computer software	1.8	0.9
Loss on disposal of fixed assets	-	0.1
Interest payable	0.1	0.3
Operating cash flow before working capital changes and non-recurring or special items	3.7	3.5
Decrease in trade and other receivables	0.2	2.7
(Increase)/decrease in inventories	(0.3)	0.8
Increase/(decrease) in trade and other payables	0.4	(2.1)
Payments for non-recurring and other special items	(0.1)	(1.1)
Cash generated by operations	3.9	3.8
Interest paid	(0.1)	(0.3)
Net cash inflow from operating activities	3.8	3.5

 

 

 

Cautionary Statement

This announcement has been prepared for the shareholders of the Company, as a whole and its sole purpose and use is to assist shareholders to exercise their governance rights. The Company and its directors and employees are not responsible for any other purpose or use or to any other person in relation to this announcement and their responsibility to shareholders shall be limited to that which is imposed by statute.

 

This announcement contains indications of likely future developments and other forward-looking statements that are subject to risk factors associated with, among other things, the economic and business circumstances occurring from time to time in the countries, sectors and business segments in which the Group operates. These and other factors could adversely affect the Group's results, strategy and prospects. Forward-looking statements involve risks, uncertainties and assumptions. They relate to events and/or depend on circumstances in the future which could cause actual results and outcomes to differ from those currently expected. No obligation is assumed to update any forward-looking statements, whether as a result of new information, future events or otherwise.