Elektron Technology plc
Final results for the Year Ended 31 January 2018
Elektron Technology plc ("Elektron" or "The Group") announces its final audited results for the year ended 31 January 2018
GROUP HIGHLIGHTS
Ø Five-year streamlining programme completed shortly after year end allowing management to focus on the three remaining businesses offering growth potential: Bulgin, Checkit and Elektron Eye Technology (EET).
Ø Three disposals completed in the year generating £1.9m in cash, with the disposal of Queensgate Nano generating an additional £0.8m in cash proceeds shortly after the year end.
Ø Net cash at year end of £5.2m (2017: £1.0m).
Ø Group revenues from continuing operations £29.8m (2017: £26.8m), an increase of 11.2%.
Ø Operating profit from continuing operations £2.6m (2017: loss £0.6m).
Ø Strengthened balance sheet. The Board's policy is to amortise Checkit intangibles over a short period. Depreciation and amortisation on continuing operations in the year was £2.5 million (2017: £1.9 million).
Ø The Group continues to invest a substantial proportion of Bulgin operating cash flow into Checkit in view of the outstanding opportunities that business offers. EET is a smaller scale business with growth potential and a limited need for investment. Bulgin's strategy ensures minimal capital requirement with high Return on Capital Employed (ROCE).
INDIVIDUAL BUSINESS HIGHLIGHTS
Ø Bulgin
o Sales of £27.3m with operating profits of £7.2m (2017: £24.1m and £3.3m respectively).
o Management focus is on growing sales in this historically low growth business whilst maintaining class-leading margins.
o Revenue increased by 13.3%.
o Operating margins increased to 26.4% (2017: 13.7%).
o Increased revenue being generated through distribution further enhanced with the agreement with Arrow Electronics Inc, signed post year end in March 2018.
o Despite record H2 FY18 sales, Bulgin currently has a record order book which is expected to translate into a strong first half sales performance.
o The Board's visibility does not extend beyond the first half and so remains cautious on second half performance due to potential economic uncertainty.
Ø Checkit
o Sales of £0.5m and operating loss of £4.4m (2017: £0.3m and £3.5m loss respectively).
o Increase in loss as a result of increased amortisation of capitalised development expenditure.
o Annual cash burn reduced by £0.8m to £3.4m (2017: £4.2m).
o Management focus is on converting the significant opportunities that face this business.
o As announced on 10 April 2018, Checkit's contracted annualised recurring revenue (ARR) exceeds £1m.
o The Board now considers that Checkit has exited the start-up phase of its development and has entered its scale-up phase.
o USA launch planned for second half of current year.
Ø EET
o Sales of £2.0m and operating loss of £0.2m (2017: £2.4m and £0.4m respectively
o Purchase of IP relating to Henson and MPSII devices for £0.4m.
o Management focus is on increasing the number of distributors globally from a current low base.
o Strong start to new financial year with much improved distribution strategy delivering record current order book.
John Wilson, Chief Executive Officer of Elektron, said:
'The Group has recently completed its streamlining, which has raised £1.9m from disposal proceeds in FY18, and will allow it to concentrate on its three remaining businesses. Bulgin experienced record demand in the year, more than doubling its operating profit. Checkit is building momentum with annualised recurring revenue recently exceeding £1m and EET has been restructured with a distribution led focus and early signs are encouraging. The Group will continue its investment in growth opportunities, in particular with Checkit.'
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Elektron Technology plc |
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+44 (0) 1223 371 000 |
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www.elektron-technology.com |
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John Wilson (Chief Executive Officer) |
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Andrew Weatherstone (Chief Financial Officer & Company Secretary) |
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N+1 Singer (Nominated Adviser & Broker) |
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Shaun Dobson / Jen Boorer (Corporate Finance) |
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+44 (0) 20 7496 3000 |
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Michael Taylor (Corporate Broking) |
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The information communicated in this announcement is inside information for the purposes of Article 7 of Regulation 596/2014.
Notes to Editors:
Elektron conceives, designs and markets innovative products and services for business that connect, monitor and control. We have a multi skilled team of engineers, software and product line specialists based in Cambridge focused on the opportunities created by global growth in the following areas:
- Demand for ubiquitous power and data: Bulgin
- Real-time operations management using Internet of Things (IoT) technology: Checkit
- Screening for the effects of ageing on sight: Elektron Eye Technology
2018 review
Overview
During the year the Group finalised its "shrink to grow" streamlining programme which was completed a few weeks after year end with the disposal of Queensgate Nano. This was a hugely important milestone.
This programme has lasted 5 years starting with the sale of ASL and ending with the sale of Queensgate Nano. The period saw the disposal or closure of twelve businesses and the reduction in the number of sites in the UK and overseas from twelve to four. During that time low margin business was rationalised and the turnover of the Group reduced from £63m in 2011/12 to around £30m in 2017/18. Following the simplification of the Group, management is able to concentrate on scaling the three remaining businesses namely, Bulgin, Checkit and EET.
The Board is most grateful for the support of our employees and our major shareholders throughout this period. This has allowed it to take a longer term strategic approach in sometimes difficult circumstances.
In April 2018 Checkit passed its own important milestone of £1 million contracted annualised recurring revenue. As a result, the Board considers that Checkit has exited its start-up phase and has entered its scale-up phase. The organisation has been restructured with the executive team spending an increasing amount of time on the detailed management of this business.
The Group continues to invest a substantial proportion of Bulgin operating cash flow into Checkit in view of the outstanding opportunities it offers. EET's growth potential is smaller scale and it has a limited need for further investment.
Individual commentary on the three businesses follows.
BULGIN
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2018 £m |
2017 £m |
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Sales |
27.3 |
24.1 |
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Operating profit |
7.2 |
3.3 |
Historically, Bulgin has been described as a "designer and manufacturer" of products. Whilst this holds true to an extent, its value proposition to its customers and end users reaches significantly beyond this, which is strikingly encapsulated by its financial performance - a net operating margin of over 26% and a ROCE significantly in excess of 100% with a gross margin for the year of 50%, 7% higher than the prior year.
This transformation has been generated from a five year multi-pronged strategy to simplify and optimise the business whilst increasing margins and, ultimately, generating organic growth. With the former substantively complete, the focus of the management team is on sales growth whilst maintaining class-leading margins and unparalleled ROCE for a manufacturing business.
Record demand (£29.3m orders in the year) was driven by significant distributor initiatives and the launch of new products. This demand has continued through Q1 of the current financial year.
The simplification and optimisation of strategic elements have contributed to a more than five-fold percentage increase in underlying net margin since 2013, whilst broadly holding a flat revenue line. This included the adoption and implementation of innovative and counter intuitive strategies, to position the business for growth and increase margins and ROCE, as follows:
a) Rationalisation of thousands of low margin stock keeping units (SKUs).
Benefits: Simplification of business and reduced capital requirements.
b) Transition of high proportion of direct accounts to distributor management.
Benefits: Lower number of transactions, increased order value, reduced requirement for customer service contact, inventory holding in the channel and customer access to product next day.
c) Reduction in the number of transacting distributors.
Benefits: Greater mindshare from fewer distributors, elimination of "back-to-back" distributor order entries and increased order values.
d) Requirement for distributors to report point of sale (POS) data and inventory levels.
Benefits: Determining and managing distributor stock turns and utilisation of data analytics to maximise global channel inventory levels.
e) Significant increase in percentage of revenue generated through distribution sales.
Benefits: Greater mindshare and ability to leverage the global reach and salesforce of distribution partners.
f) Incentivisation of sales and distribution partners to lead with niche, higher margin products.
Benefits: Reduced competition and shortened sales cycle, increased margins and willingness to hold higher inventory levels.
With a culture of continuous improvement, further opportunities for operational efficiencies have been identified with a view to implementing in the current financial year.
As disclosed in the Interim Report, Bulgin now has inventory held through its network of distribution partners, on all six inhabited continents. The recently announced global partnership agreement with Arrow Electronics Inc, the world's largest electronic component distributor, provides deeper coverage across the widest possible range of products.
Bulgin has begun its final phase of transformation, growth, to which there are three key strands:
i) Increase number of end users purchasing through distributors (currently c80,000) and average sales value through leveraging the expanded global reach of the distribution network.
ii) Modular product strategy resulting in low cost development and reduced time to market.
iii) Ability to differentiate from competitors through utilisation of data analytics to predict technology trends and new product requirements, resulting in large stocking orders.
Bulgin's first rewireable fibre connector was launched on time at the end of April 2018, significantly increasing its accessible market and underpinning its growth opportunity
Checkit
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2018 £m |
2017 £m |
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Sales |
0.5 |
0.3 |
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Operating loss |
(4.4) |
(3.5) |
Checkit provides a real-time operational management platform for business. It is an Internet of Things (IoT) software application that has benefited from the Group's experience in instrumentation. It has particular application in the service industry, where large numbers of people are employed across several locations. Many participants in this industry struggle with operational improvement at scale and Checkit provides an economical solution that can be easily tailored to individual company needs. There are significant opportunities for Checkit within the service industry, where participants are looking for solutions to industry wide stresses as a result of weak demand and rising costs. Examples of sectors currently targeted are restaurant chains, food safety regulatory bodies, facilities management, retail and health.
The proposition for clients is that Checkit can improve:
Revenue - by providing the ability to deliver consistent and great service.
Productivity/cost reduction - by providing good quality real time information and the tools to manage a more efficient workforce.
Risk mitigation - by prompting corrective actions, where processes are not followed, in accordance with company and any applicable regulatory protocols.
To date sales and marketing effort has been concentrated in the UK but plans to enter the US in 2018 are progressing. However, the Board estimates the global opportunity for Checkit to be in the region of $1.5 billion alone for the multi-branch restaurant and facilities management sectors combined.
There are three elements to the Checkit system:
i) Work Management (WM) via handheld devices that guide employees to "do the right thing" and record when tasks are completed.
ii) Automated Monitoring (AM), which takes the human element out of some monitoring tasks altogether.
iii) Operational Insight (OI), which takes the data from WM and AM and allows management to analyse data by using a business intelligence tool such as Microsoft Power BI.
Checkit continues to invest in product development in order to enhance its offering. A particular focus is scalability to ensure the successful extension of locations covered from several hundred to many thousands.
The system is priced on a Software as a Service (SaaS) model and is billed monthly, quarterly or annually. The subscription is designed to include all hardware, software and support. The Board currently regards total contracted annualised recurring revenue (ARR) to be the most important KPI for this business. In April 2018 contracted ARR exceeded £1.0m (April 2017: £0.3m). Following the passing of the £1m milestone, the Board considers that Checkit has moved from start-up to its scale-up phase
EET
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2018 £m |
2017 £m |
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Sales |
2.0 |
2.4 |
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Operating loss |
(0.2) |
(0.4) |
Elektron Eye Technology is a designer of ophthalmic screening instrumentation.
During the year EET saw a decline in sales as a result of distributor overstocking. Management changes were made at EET following a poor start to H1 and a review of the business took place. The review led to the business deciding to terminate a significant exclusive US based distributorship which adversely affected sales in the year. This should lead to greater opportunity in future years. New management is working to professionalise sales and marketing with the aim of expanding the distribution channel globally from its current low base. The early signs are encouraging with a record order book.
During the year EET purchased for a total £420,000 the intellectual property of both of its main instruments, which in aggregate account for around 90% of its sales: The Henson 9000 visual field screener and the MPS II macular pigment screener. Previously the devices were manufactured under licence arrangements. As a result of the two transactions, EET owns all IP related to its product portfolio.
The two instruments address age-related macular degeneration (AMD) and glaucoma, respectively, two of the most common ocular diseases threatening the eye health of the ageing global populace. It is estimated that by 2020 there will be 196m AMD sufferers and 80m glaucoma sufferers worldwide.
As at the date of issue of this report sales and orders were significantly higher than the prior year which as mentioned above was affected by destocking. If present trends were to continue EET would see an improved performance over last year. However, visibility does not extend beyond eight weeks.
EET is not currently proposing any significant new product development in the current year although product enhancements are planned.
EET continues to focus on increasing its accessible market through achieving registration and approval in new countries, such as China and Brazil.
OUTLOOK
Further distributor programmes in Bulgin have resulted in a record Q1 order intake.
Following record sales in the second half of last year, Bulgin's performance is expected to remain resilient as the current order book will translate to a strong first half sales performance. However, the Board's visibility does not extend beyond the first half and is cautious around the potential global economic uncertainty in the second half.
Both Checkit and EET are currently showing encouraging increases in their business over prior year.
The Board will continue to ensure that a proper balance is struck between the cash generated by Bulgin and that absorbed by the continuing investment in Checkit.
Keith Daley
Executive Chairman
John Wilson
Chief Executive Officer
2 May 2018
Financial review
Introduction
The financial results for 2018 reflect a year of strong organic growth in Bulgin, a growing momentum in Checkit and further progress with the Group's rationalisation process, which was completed shortly after the year end.
Continuing operations
Group revenue from continuing operations for the year increased by 11% to £29.8m (2017: £26.8m). Excluding the positive impact of £0.5m foreign currency the net increase in revenue was 9%. This was principally as a result of a 13% increase (11% excluding foreign currency) in Bulgin due to the planned significant initiatives with its key distributors.
Checkit revenue saw an increase of £0.2m (67%), to £0.5m (2017: £0.3m). A key leading measure of the adoption of Checkit is the run rate of contracted ARR, which at 31 January 2018 was £780,000, an increase of 225% or £540,000 over the previous year. As announced on 10 April 2018 ARR had increased to £1m since the year end.
EET sales fell by £0.4m to £2.0m (2017: £2.4m) as a result of distributor over stocking in the prior year. Following changes in management and the termination of a significant exclusive US based distributorship, sales are beginning to recover with the expansion of the distributor base.
Group earnings before interest, taxation, depreciation and amortisation (EBITDA) increased by £3.8m to £5.1m (2017: £1.3m) and is further analysed below together with cash generated/(used) after capital expenditure by the continuing businesses.
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2018 |
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2017 |
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Operating profit/(loss) |
EBITDA |
Capital expenditure, including IP purchase |
Cash generated/ (used) before working capital |
Operating profit/(loss) |
EBITDA |
Capital expenditure |
Cash generated/ (used) before working capital |
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£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
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Bulgin |
7.2 |
7.9 |
(0.4) |
7.5 |
3.3 |
4.3 |
(0.3) |
4.0 |
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Checkit |
(4.4) |
(2.7) |
(0.7) |
(3.4) |
(3.5) |
(2.8) |
(1.4) |
(4.2) |
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EET |
(0.2) |
(0.1) |
(0.7) |
(0.8) |
(0.4) |
(0.2) |
- |
(0.2) |
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2.6 |
5.1 |
(1.8) |
3.3 |
(0.6) |
1.3 |
(1.7) |
(0.4) |
Bulgin's significant increase in cash generation is as a result of high margin customer development, improved mix, improved selling prices and operational gearing. The Group, which has its main Bulgin manufacturing and assembly site in Tunisia, was able to take benefit of the devaluation of the Tunisian Dinar which helped reduce operating costs. Capital expenditure was largely focussed on general investment in its operational plants in the UK and Tunisia.
Checkit's operating loss increased by 26%, as a result of changing the amortisation rate on capitalised development expenditure to three years from four previously. Overall, Checkit's annual cash burn reduced by £0.8m to £3.4m (2017: £4.2m).
The group benefits from reduced tax payments as a result of Checkit's losses helping to shelter UK taxable profits earned elsewhere.
The Group expects to see increased expenditure in Checkit in the current year as it gears up to enter the US market. This will require both investment in marketing and product development.
The fall in sales in EET had a more pronounced effect on its overall performance due to its high fixed cost base. Investment in both product development (£0.2m) and purchase of the intellectual property (£0.4m) should lead to improved margins and value in the medium term.
Group operating profits before non-recurring or special items were £2.5m (2017: £0.2m).The Group successfully implemented the closure of its site in Torquay on time and under budget due to earlier unplanned voluntary staff departures. This resulted in a credit of £0.1m to non-recurring items which included a related £0.8m charge in the previous year.
The resultant Group operating profit amounted to £2.6m compared to a loss of £0.6m in the previous year.
Discontinued operations
Discontinued operations generated a loss after taxation of £0.1m (2017: £nil), after profits realised from their disposal of £0.6m (2017: £0.7m).
Queensgate Nano, which was sold shortly after year end in February 2018, has been treated as a discontinued operation and its results classified accordingly. In addition, its assets have been reclassified as assets held for sale.
Following completion of the rationalisation process there remains central overhead and previously shared costs which will be reduced during the current year.
Cash received from disposals made in the year was £1.9m and in addition £0.1m of deferred consideration was received from the sale of Agar made in 2016, leaving £0.2m to be received.
Product development
Elektron spent £2.9m on product development and sustaining engineering in the financial year in respect of continuing operations (2017: £3.2m). Of this, £1.1m was capitalised (2017: £1.6m), mainly focused on Checkit.
The Board has undertaken a detailed review of the business plans, including a sensitivity analysis, supporting the justification for the carrying value of its product development investment. However, given a review of the product road map in respect of Checkit, the Board has deemed that a three year amortisation period be more appropriate in respect of capitalised development costs (2017: 4 years).
Taxation
The Group has moved into a position where it will be paying tax in the UK in respect of 2018. 2018 is also the last year in which the Group will enjoy a taxation holiday in Tunisia and will give rise to an approximate charge of £0.1m in the future. The current corporate tax charge in the year is £0.5m for continuing operations (2017: £0.4m) of which £0.1m (2017: £0.2m) is in respect of profits earned overseas. Including deferred tax movements the total charge is £0.8m (2017: credit £0.5m).
The effective rate of tax for 2018 is 29.6% compared to the standard UK rate of 19.2%, largely as a result of adjustments to the prior year recognition of deferred tax assets.
The Group has deferred taxation assets of £0.6m (2017: £0.9m) in respect of timing differences in its largest trading subsidiary which has no unused trading losses to offset against its future UK profits. The Group has other UK losses which can only be carried forward and offset against future profits of that specific entity. These amount to approximately £5.0m. No deferred tax asset has been recognised in respect of these losses.
A tax credit of £0.2m (2017: £0.2m) has been allocated to discontinued operations in respect of losses that can be offset against taxable profits in respect of the Group's continuing operations.
Earnings per share
The average number of ordinary shares in issue during the year was 177.9m (2017: 172.2m) (excluding shares held by the Employee Benefit Trust). Basic profit per share in respect of continuing operations was 1.1p (2017: nil pence). Fully diluted earnings per share were 1.0p (2017:nil pence)
Cash
The Group generated cash of £4.1m (2017: £1.6m) from operations, reflecting the improved trading performance. A reduction in working capital of £0.8m was as a result of being able to convert the strong sales in November and December into cash prior to the year end. This reduction largely offset the spend on the Torquay site closure, including dilapidations, of £0.9m.
Total capital investment in the year was a net £1.9m (2017: £1.9m), representing 70% (2017: 59%) of depreciation and amortisation.
After cash proceeds received from the disposal programme of £2.0m, the overall net cash improved by £4.2m resulting in a net cash position of £5.2m (2017: £1.0m).
Bank facilities, covenants and going concern
The Group terminated its revolving credit facility which was due to expire in April 2018. At 31 January 2018 the Group had available invoice finance facilities of £0.7m (which could increase up to £5.0m depending on sales levels) together with a bank overdraft of £0.1m. At 31 January 2018 available headroom on these facilities was £0.8m. In addition the Group had £5.2m cash in hand.
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 considers possible changes in trading performance to determine whether the Group should be able to operate within its current level of facilities.
In the event, actual performance were to fall below the current forecast levels in this period, the Group has a number of mitigating factors available to it. 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 and marketing with the aim of increasing future shareholder value, the Board believes that it is in the Group's best interests not to pay a dividend for the year.
Andy Weatherstone
Chief Financial Officer
2 May 2018
Consolidated statement of comprehensive income
year ended 31 January 2018 restated
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Notes |
2018 £m |
2017 £m |
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Revenue |
2 |
29.8 |
26.8 |
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Cost of sales |
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(15.0) |
(15.6) |
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Gross profit |
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14.8 |
11.2 |
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Operating expenses |
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Operating expenses (excluding non-recurring or special items1) |
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(12.3) |
(11.0) |
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Operating profit before non-recurring or special items |
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2.5 |
0.2 |
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Non-recurring or special items |
3 |
0.1 |
(0.8) |
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Total operating expenses |
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(12.2) |
(11.8) |
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Operating profit/(loss) |
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2.6 |
(0.6) |
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Finance income |
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0.1 |
- |
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Profit/(loss) before taxation |
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2.7 |
(0.6) |
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Taxation |
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(0.8) |
0.5 |
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Profit/(loss) from continuing operations |
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1.9 |
(0.1) |
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Loss from discontinued operations |
6 |
(0.1) |
- |
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Profit/(loss) for the year attributable to equity shareholders |
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1.8 |
(0.1) |
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Other comprehensive expense |
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Exchange differences on translation of foreign operations |
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(1.1) |
0.4 |
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Total comprehensive income for the financial year attributable to equity shareholders |
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0.7 |
0.3 |
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Earnings per share from continuing operations |
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Basic EPS |
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1.1p |
0.0p |
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Diluted EPS |
5 |
1.0p |
0.0p |
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Earnings per share - from adjusted profits from continuing operations before non-recurring or special items |
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Basic EPS |
5 |
1.0p |
0.3p |
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Diluted EPS |
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1.0p |
0.3p |
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1 See Note 3
Consolidated balance sheet
as at 31 January 2018
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2018 £m |
2017 £m |
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Assets |
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Non-current assets |
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Capitalised development costs |
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2.8 |
3.9 |
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Other intangible assets |
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0.4 |
0.4 |
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Property, plant and equipment |
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1.5 |
2.0 |
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Total non-current assets |
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4.7 |
6.3 |
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Current assets |
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Inventories |
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4.0 |
4.8 |
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Trade and other receivables |
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4.5 |
7.6 |
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Deferred tax asset |
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0.6 |
0.9 |
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Assets held for sale |
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0.8 |
0.3 |
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Cash and cash equivalents |
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5.2 |
2.5 |
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Total current assets |
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15.1 |
16.1 |
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Total assets |
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19.8 |
22.4 |
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Current liabilities |
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Trade and other payables |
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6.2 |
7.0 |
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Borrowings |
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- |
1.5 |
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Current tax payable |
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0.2 |
0.2 |
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Provisions |
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0.2 |
1.0 |
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Total current liabilities |
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6.6 |
9.7 |
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Non-current liabilities |
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Long-term provisions |
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0.3 |
0.5 |
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Total non-current liabilities |
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0.3 |
0.5 |
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Total liabilities |
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6.9 |
10.2 |
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Net assets |
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12.9 |
12.2 |
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Equity attributable to the owners of the Company |
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Called up share capital |
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9.3 |
9.3 |
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Share premium |
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5.4 |
5.4 |
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Merger reserve |
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1.1 |
1.1 |
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Capital redemption reserve |
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0.2 |
0.2 |
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Own shares |
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(1.9) |
(1.9) |
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Other reserves |
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0.8 |
0.8 |
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Translation reserve |
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(1.5) |
(0.4) |
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Retained earnings |
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(0.5) |
(2.3) |
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Total equity |
|
12.9 |
12.2 |
Consolidated statement of changes in equity
year ended 31 January 2018
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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 |
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At 31 January 2016 |
9.3 |
5.4 |
1.1 |
0.2 |
(3.5) |
0.8 |
(0.8) |
(0.9) |
11.6 |
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Loss for the year |
- |
- |
- |
- |
- |
- |
- |
(0.1) |
(0.1) |
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Currency translation differences on foreign currency net investments |
- |
- |
- |
- |
- |
- |
0.4 |
- |
0.4 |
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Total comprehensive |
- |
- |
- |
- |
- |
- |
0.4 |
(0.1) |
0.3 |
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Sale/release of own shares |
- |
- |
- |
- |
1.6 |
- |
- |
(1.3) |
0.3 |
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At 31 January 2017 |
9.3 |
5.4 |
1.1 |
0.2 |
(1.9) |
0.8 |
(0.4) |
(2.3) |
12.2 |
|
Profit for the year |
- |
- |
- |
- |
- |
- |
- |
1.8 |
1.8 |
|
Currency translation differences on foreign currency net investments |
- |
- |
- |
- |
- |
- |
(1.1) |
- |
(1.1) |
|
Total comprehensive |
- |
- |
- |
- |
- |
- |
(1.1) |
1.8 |
0.7 |
|
At 31 January 2018 |
9.3 |
5.4 |
1.1 |
0.2 |
(1.9) |
0.8 |
(1.5) |
(0.5) |
12.9 |
1 The shares held by the Elektron Technology 2012 EBT are treated as treasury shares..
Consolidated statement of cash flows
year ended 31 January 2018
|
|
Notes |
2018 £m |
2017 £m |
|||
|
Net cash inflow from operating activities |
4 |
4.1 |
1.6 |
|||
|
Investing activities |
|
|
|
|||
|
Purchase of property, plant and equipment |
|
(0.4) |
(0.3) |
|||
|
Purchase of other intangible assets |
|
(0.4) |
- |
|
||
|
Investment in product development projects |
|
(1.1) |
(1.6) |
|
||
|
Proceeds from the sale of businesses |
|
2.0 |
2.6 |
|
||
|
Net cash generated by investing activities |
|
0.1 |
0.7 |
|||
|
Financing activities |
|
|
|
|||
|
Proceeds from ordinary share issue |
|
- |
0.3 |
|||
|
Decrease in bank loans |
|
(1.5) |
(0.7) |
|||
|
Net cash used in financing activities |
|
(1.5) |
(0.4) |
|||
|
Net increase in cash and cash equivalents |
|
2.7 |
1.9 |
|||
|
Cash and cash equivalents at the beginning of the year |
|
2.5 |
0.6 |
|||
|
Cash and cash equivalents at the end of the year |
|
5.2 |
2.5 |
|||
Notes to the audited consolidated accounts for the year ended 31 January 2018
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, as adopted by the EU (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 2nd May 2018. The financial information presented in this preliminary statement does not constitute the company's statutory accounts for the years ended 31 January 2018 or 2017, but is derived from those accounts. Statutory accounts for 2017 have been delivered to the Registrar of Companies and those for 2018 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 2018 review.
|
Segment revenues and results of continuing operations |
Segment revenue |
|
Operating profit/(loss) before non-recurring or special items |
|
Operating profit/(loss) |
|||
|
2018 £m |
2017 £m |
|
2018 £m |
2017 £m |
|
2018 £m |
2017 £m |
|
|
Bulgin |
27.3 |
24.1 |
|
7.2 |
3.7 |
|
7.2 |
3.3 |
|
Checkit |
0.5 |
0.3 |
|
(4.4) |
(3.5) |
|
(4.4) |
(3.5) |
|
EET |
2.0 |
2.4 |
|
(0.3) |
- |
|
(0.2) |
(0.4) |
|
Total |
29.8 |
26.8 |
|
2.5 |
0.2 |
|
2.6 |
(0.6) |
|
Finance costs (net) |
|
|
|
|
|
|
0.1 |
- |
|
Profit before tax |
|
|
|
|
|
|
2.7 |
(0.6) |
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 |
2018 £m |
2017 £m |
|
Bulgin |
13.8 |
12.5 |
|
Checkit |
3.6 |
4.1 |
|
EET |
1.6 |
1.0 |
|
Discontinued IMC operations1 |
0.8 |
4.8 |
|
Consolidated assets |
19.8 |
22.4 |
1 Assets held for sale
|
Segment liabilities |
2018 £m |
2017 £m |
|
Bulgin |
6.1 |
6.5 |
|
Checkit |
0.1 |
0.4 |
|
EET |
0.7 |
0.7 |
|
Discontinued IMC operations |
- |
2.6 |
|
Consolidated liabilities |
6.9 |
10.2 |
|
Other segment information |
Depreciation and amortisation 1 |
|
Additions to non-current assets 1 |
||
|
2018 £m |
2017 £m |
|
2018 £m |
2017 £m |
|
|
Bulgin |
0.7 |
1.0 |
|
0.4 |
0.3 |
|
Checkit |
1.7 |
0.7 |
|
0.7 |
1.4 |
|
EET |
0.1 |
0.2 |
|
0.7 |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
2.5 |
1.9 |
|
1.8 |
1.7 |
1 Continuing operations only
Geographical information
The Group considers its operations to be in the following geographical regions:
|
|
Revenue from external customers |
|
Non-current assets |
||||
|
2018 £m |
2017 £m |
|
2018 £m |
2017 £m |
|||
|
United Kingdom |
10.7 |
10.3 |
|
3.9 |
5.4 |
||
|
Rest of Europe, the Middle East and Africa |
8.1 |
6.5 |
|
0.8 |
0.9 |
||
|
Asia-Pacific and China |
2.4 |
2.0 |
|
- |
- |
||
|
Americas |
8.6 |
8.0 |
|
- |
- |
||
|
Total |
29.8 |
26.8 |
|
4.7 |
6.3 |
||
Included within 2017 non-current assets is £0.7m of assets held in the United Kingdom relating to discontinued operations.
3. Non-recurring or special items
|
|
|
|
|
|
2018 £m |
2017 £m |
|
Non-recurring or special items: |
|
|
|
- restructuring credit/(charge) |
0.1 |
(0.8) |
|
Total non-recurring or special items |
0.1 |
(0.8) |
The restructuring costs relate to the release of an excess prior year provision for the closure of the Group's facility in Torquay, which was announced in December 2016 and completed in August 2017. Details of which are set out below:
|
|
|
2018 |
2017 £m |
|
Tangible Fixed Assets fully written off |
- |
- |
(0.1) |
|
Onerous lease costs |
|
- |
(0.2) |
|
Redundancy costs |
|
0.1 |
(0.3) |
|
Other costs of closure |
|
- |
(0.2) |
|
Total non-recurring or special items |
|
0.1 |
(0.8) |
4. Net cash flows from operating activities
|
|
2018 £m |
2017 £m |
|
Profit/(Loss)before taxation |
|
|
|
- from continuing operations |
2.7 |
(0.6) |
|
- from discontinuing operations |
(0.3) |
(0.2) |
|
Adjustments for: |
|
|
|
Depreciation |
0.5 |
0.6 |
|
Amortisation of development costs and computer software |
2.2 |
2.6 |
|
Gain on the sale of discontinued businesses |
(0.6) |
(0.7) |
|
Finance income |
(0.1) |
- |
|
Operating cash flow before working capital changes |
4.4 |
1.7 |
|
Decrease/(increase) in trade and other receivables |
2.1 |
(0.7) |
|
Increase in inventories |
(0.8) |
(0.1) |
|
(Decrease)/ Increase in trade and other payables |
(0.5) |
0.1 |
|
Operating cash flow after working capital changes |
5.2 |
1.0 |
|
(Decrease) / Increase in provisions |
(1.0) |
0.8 |
|
Cash generated by operations |
4.2 |
1.8 |
|
Tax paid |
(0.2) |
(0.2) |
|
Bank interest overcharge refund |
0.1 |
- |
|
Net cash inflow from operating activities |
4.1 |
1.6 |
5. Earnings per share
Earnings per share (EPS) is the amount of post-tax profit attributable to each share (excluding those held in the Employee Benefit Trust or by the Company). Basic EPS measures are calculated as the Group profit for the year attributable to equity shareholders divided by the weighted average number of shares in issue during the year. Diluted EPS takes into account the dilutive effect of all outstanding share options priced below the market price, in arriving at the number of shares used in its calculation.
Both of these measures are also presented on an adjusted basis, to remove the effects of non-recurring or special items, being items of both income and expense which are sufficiently large, volatile or one-off in nature to assist the reader of the financial statements to get better understanding of the underlying performance of the Group. The note below demonstrates how this calculation has been performed.
|
|
Key |
2018 million |
2017 million |
|
Weighted average number of shares for the purpose of basic earnings per share |
A |
177.9 |
172.2 |
|
Dilutive effect of employee share options |
|
9.2 |
2.7 |
|
Weighted average number of shares for the purpose of diluted earnings per share |
B |
187.1 |
174.9 |
|
|
Key |
£m |
£m |
|
Profit/(Loss) for the year |
|
1.8 |
(0.1) |
|
Loss from discontinued operations, net of tax |
|
0.1 |
- |
|
Continuing profit/(loss) for the year attributable to equity shareholders |
C |
1.9 |
(0.1) |
|
Total non-recurring or special items included in profit before tax |
|
(0.1) |
0.8 |
|
Total non-recurring or special items included in taxation |
|
- |
(0.1) |
|
Earnings for adjusted EPS |
D |
1.8 |
0.6 |
|
|
Key |
2018 |
2017 |
|
EPS measures |
|
|
|
|
Basic continuing EPS |
C/A |
1.1p |
0.0p |
|
Diluted continuing EPS |
C/B |
1.0p |
0.0p |
|
Adjusted EPS measures |
|
|
|
|
Adjusted basic continuing EPS |
D/A |
1.0p |
0.3p |
|
Adjusted diluted continuing EPS |
D/B |
1.0p |
0.3p |
Discontinued earnings per share
Basic and diluted discontinued loss per share was 0.1p (2017: nil pence).
6. Discontinued operations
Discontinued operations in the current year comprise: the Digitron brand, sold on 27 March 2017; Titman Tip Tools Limited, sold on 28 July 2017; Sheen Instruments Limited, sold on 19 October 2017; Elektron Medical, discontinued on 31 January 2018; and the Queensgate Nano brand, sold on 15 February 2018.
Discontinued operations in 2017 comprise the Agar, Carnation and Wallace brands. The prior year balances have been restated in respect of any operations which became discontinued in the course of the current year as set below:
Summary
The loss from discontinued operations comprises:
|
|
2018 £m |
2017 £m |
|
Operating loss |
(0.9) |
(0.9) |
|
Attributable tax |
0.2 |
0.2 |
|
Loss after tax |
(0.7) |
(0.7) |
|
Profit on disposal |
0.6 |
0.7 |
|
Loss from discontinued operations attributable to equity shareholders |
(0.1) |
- |
Elektron Medical
The results of the Elektron Medical discontinued operation, which have been included in the consolidated statement of comprehensive income, were as follows:
|
|
2018 £m |
2017 £m |
|
Revenue |
0.4 |
0.5 |
|
Expenses |
(0.3) |
(0.4) |
|
Operating profit |
0.1 |
0.1 |
|
Attributable tax expense |
- |
- |
|
Gain from discontinued operations attributable to equity shareholders |
0.1 |
0.1 |
During the year, Elektron Medical contributed £0.1m (2017: £0.1m) to the Group's net operating cash flows, paid less than £0.1m (2017: less than £0.1m) in respect of investing and paid less than £0.1m (2017: less than £0.1m) in respect of financing activities.
Sheen Instruments
The results of the Sheen Instruments discontinued operation, which have been included in the consolidated statement of comprehensive income, were as follows:
|
|
2018 £m |
2017 £m |
|
Revenue |
1.7 |
2.6 |
|
Expenses |
(1.9) |
(2.4) |
|
(Loss) / profit before tax |
(0.2) |
0.2 |
|
Gain on disposal of discontinued operations |
0.7 |
- |
|
Gain from discontinued operations attributable to equity shareholders |
0.5 |
0.2 |
During the year, Sheen used £0.2m (2017: generated £0.2m) of the Group's net operating cash flows, paid £nil (2017: less than £0.1m) in respect of investing and paid £nil (2017: less than £0.1m) in respect of financing activities.
Expenses of discontinued operations in the year to 31 January 2018 included £nil classified as non-recurring or special items (2017: £nil).
Details of the disposal of Sheen are set out below:
|
|
2018 £m |
|
Property, plant and equipment |
- |
|
Inventories |
0.4 |
|
Trade and other receivables |
0.3 |
|
Trade and other payables |
(0.3) |
|
Assets sold |
0.4 |
|
Net gain on disposal |
0.7 |
|
Total consideration |
1.1 |
|
Satisfied by: |
|
|
Cash and cash equivalents |
1.1 |
|
Total consideration |
1.1 |
Titman Tip Tools
The results of the Titman Tip Tools discontinued operation, which have been included in the consolidated statement of comprehensive income, were as follows:
|
|
2018 £m |
2017 £m |
|
Revenue |
1.0 |
2.0 |
|
Expenses |
(0.9) |
(1.8) |
|
Profit before tax |
0.1 |
0.2 |
|
Loss on disposal of discontinued operations |
(0.1) |
- |
|
Gain from discontinued operations attributable to equity shareholders |
- |
0.2 |
During the year, Titman Tip Tools contributed £0.1m (2017: £0.2m) to the Group's net operating cash flows, paid £nil (2017: less than £0.1m) in respect of investing and paid £nil (2017: less than £0.1m) in respect of financing activities.
Expenses of discontinued operations in the year to 31 January 2018 included £nil classified as non-recurring or special items (2017: £nil).
Details of the disposal of Titman Tip Tools are set out below:
|
|
2018 £m |
|
Property, plant and equipment |
0.1 |
|
Inventories |
0.3 |
|
Trade and other receivables |
0.3 |
|
Trade and other payables |
(0.1) |
|
Assets sold |
0.6 |
|
Net loss on disposal |
(0.1) |
|
Total consideration |
0.5 |
|
Satisfied by: |
|
|
Cash and cash equivalents |
0.5 |
|
Total consideration |
0.5 |
Digitron
The results of the Digitron discontinued operation, which have been included in the consolidated statement of comprehensive income, were as follows:
|
|
2018 £m |
2017 £m |
|
Revenue |
0.3 |
1.4 |
|
Expenses |
(0.3) |
(1.3) |
|
Profit before tax |
- |
0.1 |
|
Gain from discontinued operations attributable to equity shareholders |
- |
0.1 |
During the year, Digitron contributed less than £0.1m (2017: £0.1m) to the Group's net operating cash flows, paid £nil (2017: less than £0.1m) in respect of investing and paid £nil (2017: less than £0.1m) in respect of financing activities.
Expenses of discontinued operations in the year to 31 January 2018 included £nil classified as non-recurring or special items (2017: £nil).
Details of the disposal of Digitron are set out below.
|
2018 £m |
|
|
Inventories |
0.3 |
|
Total assets sold |
0.3 |
|
Net gain on disposal |
- |
|
Total consideration |
0.3 |
|
Satisfied by: |
|
|
Cash or cash equivalents |
0.3 |
Agar
The results of the Agar discontinued operation, which have been included in the consolidated statement of comprehensive income, were as follows:
|
|
2018 £m |
2017 £m |
|
Revenue |
- |
1.1 |
|
Expenses |
- |
(1.1) |
|
Profit before tax |
- |
- |
|
Gain on disposal of discontinued operations |
- |
0.7 |
|
Gain from discontinued operations attributable to equity shareholders |
- |
0.7 |
During the year, Agar contributed £nil (2017: £0.2m) to the Group's net operating cash flows, paid £nil (2017: less than £0.1m) in respect of investing and paid £nil (2017: less than £0.1m) in respect of financing activities.
Expenses of discontinued operations in the year to 31 January 2018 included £nil classified as non-recurring or special items (2017: £Nil).
Details of the disposal of Agar are set out below:
|
|
2017 £m |
|
Property, plant and equipment |
0.4 |
|
Inventories |
0.3 |
|
Trade and other receivables |
0.5 |
|
Trade and other payables |
(0.3) |
|
Assets sold |
0.9 |
|
Acquired intangible assets sold |
0.8 |
|
Net gain on disposal |
0.7 |
|
Total consideration |
2.4 |
|
Satisfied by: |
|
|
Cash and cash equivalents |
2.0 |
|
Deferred consideration |
0.4 |
|
Total consideration |
2.4 |
£0.1m of deferred consideration has been received during the year, leaving an amount of £0.2m outstanding (2017: £0.3m).
Carnation
The results of the Carnation discontinued operation, which have been included in the consolidated statement of comprehensive income, were as follows:
|
|
2018 £m |
2017 £m |
|
Revenue |
- |
0.8 |
|
Expenses |
- |
(0.9) |
|
Loss before tax |
- |
(0.1) |
|
Loss from discontinued operations attributable to equity shareholders |
- |
(0.1) |
During the year, Carnation contributed £nil (2017: £0.1m) to the Group's net operating cash flows, paid £nil (2017: less than £0.1m) in respect of investing and paid £nil (2017: less than £0.1m) in respect of financing activities.
Expenses of discontinued operations in the year to 31 January 2018 included £nil classified as non-recurring or special items (2017: £nil).
Details of the disposal of Carnation are set out below:
|
|
2017 £m |
|
Inventories |
0.2 |
|
Net gain on disposal |
- |
|
Total consideration |
0.2 |
|
Satisfied by: |
|
|
Cash and cash equivalents |
0.2 |
|
Deferred consideration |
- |
|
Total consideration |
0.2 |
Wallace
The results of the Wallace discontinued operation, which have been included in the consolidated statement of comprehensive income, were as follows:
|
|
2018 £m |
2017 £m |
|
Revenue |
- |
1.2 |
|
Expenses |
- |
(1.1) |
|
Profit before tax |
- |
0.1 |
|
Gain from discontinued operations attributable to equity shareholders |
- |
0.1 |
During the year, Wallace contributed £nil (2017: £0.1m) to the Group's net operating cash flows, paid £nil (2017: less than £0.1m) in respect of investing and paid £nil (2017: less than £0.1m) in respect of financing activities.
Expenses of discontinued operations in the year to 31 January 2018 included £nil classified as non-recurring or special items (2017: £nil).
Details of the disposal of Wallace are set out below:
|
|
2017 £m |
|
Inventories |
0.3 |
|
Net gain on disposal |
- |
|
Total consideration |
0.3 |
|
Satisfied by: |
|
|
Cash and cash equivalents |
0.3 |
|
Total consideration |
0.3 |
Queensgate Nano
The results of the Queensgate Nano discontinued operation, which have been included in the consolidated statement of comprehensive income, were as follows:
|
|
2018 £m |
2017 £m |
|
Revenue |
0.8 |
0.7 |
|
Expenses |
(1.7) |
(2.2) |
|
Loss before tax |
(0.9) |
(1.5) |
|
Attributable tax |
0.2 |
0.2 |
|
Loss from discontinued operations attributable to equity shareholders |
(0.7) |
(1.3) |
During the year, Queensgate Nano used £0.7m (2017: £1.5m) of the Group's net operating cash flows, paid £0.1m (2017: less than £0.1m) in respect of investing and paid less than £0.1m (2017: less than £0.1m) in respect of financing activities.
Expenses of discontinued operations in the year to 31 January 2018 included £nil classified as non-recurring or special items (2017: £nil).
In March 2017, the Group completed the disposal of business and certain assets of the Queensgate Nano brand for proceeds of £0.8m at nil profit. Under the terms of the sale the Group has the right to receive up to a further £0.8m based on Queensgate Nano's sales, revenues achieving certain targets in the 12 months after completion.
7. Post balance sheet events and assets held for sale
Subsequent to the year end the Group completed the disposal of the business and certain assets of the Queensgate Nano business within the IMC segment of the Group for initial proceeds of £0.8m at £nil profit. These assets were reclassified as assets held for resale at 31 January 2018 and amounted to £0.8m. As stated in note 26 above, additional consideration of up to £0.8m is due subject to future revenues of Queensgate Nano.
The disposal is part of the Group's rationalisation of its portfolio and will allow management to concentrate on the remaining higher margin businesses and those capable of substantial growth.
8. Non-GAAP performance measures
A reconciliation of non-GAAP performance measures to reported results is set out below:
i) Profit measures - EBITDA
|
|
2018 Business Ex. Checkit £m |
2018 Checkit £m |
2018 Total £m |
2017 Business Ex. Checkit £m |
2017 Checkit £m |
2017 Total £m |
|
EBITDA |
7.8 |
(2.7) |
5.1 |
4.1 |
(2.8) |
1.3 |
|
Depreciation and amortisation |
(0.8) |
(1.7) |
(2.5) |
(1.2) |
(0.7) |
(1.9) |
|
Reported operating profit/(loss) for the year before non- recurring or special items |
7.0 |
(4.4) |
2.6 |
2.9 |
(3.5) |
(0.6) |
ii) Cash Measures - Cash generated/(used) before working capital
|
|
FY2018 |
|
FY2017 |
|
||||||
|
|
Operating profit/(loss) |
EBITDA |
Capital expenditure, including IP purchase |
Cash generated/ (used) before working capital |
Operating profit/(loss) |
EBITDA |
Capital expenditure |
Cash generated/ (used) before working capital |
||
|
|
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
||
|
Bulgin |
7.2 |
7.9 |
(0.4) |
7.5 |
3.3 |
4.3 |
(0.3) |
4.0 |
||
|
Checkit |
(4.4) |
(2.7) |
(0.7) |
(3.4) |
(3.5) |
(2.8) |
(1.4) |
(4.2) |
||
|
EET |
(0.2) |
(0.1) |
(0.7) |
(0.8) |
(0.4) |
(0.2) |
- |
(0.2) |
||
|
Continuing operations |
2.6 |
5.1 |
(1.8) |
3.3 |
(0.6) |
1.3 |
(1.7) |
(0.4) |
||
|
Discontinued operations |
(0.9) |
(0.7) |
(0.1) |
(0.8) |
(0.9) |
0.4 |
(0.2) |
0.2 |
||
|
|
1.7 |
4.4 |
(1.9) |
2.5 |
(1.5) |
1.7 |
(1.9) |
(0.2) |
||
|
Working capital movement |
|
|
|
0.8 |
|
|
|
(0.7) |
||
|
Movement in provisions |
|
|
|
(1.0) |
|
|
|
0.8 |
||
|
Taxation paid |
|
|
|
(0.2) |
|
|
|
(0.2) |
||
|
Bank interest |
|
|
|
0.1 |
|
|
|
- |
||
|
Sale of businesses |
|
|
|
2.0 |
|
|
|
2.6 |
||
|
Proceeds from ordinary share issue |
|
|
|
- |
|
|
|
0.3 |
||
|
Decrease in bank loans |
|
|
|
(1.5) |
|
|
|
(0.7) |
||
|
Net increase in cash and cash equivalents |
|
|
|
2.7 |
|
|
|
1.9 |
||