Embargoed for release: 7:00 a.m. 11 June 2009

ELEKTRON PLC

Preliminary unaudited results for the year ended 31st January 2009

Elektron PLC ("Elektron"), the AIM quoted engineered components company, announces its preliminary results for the year ended 31st January 2009.

Keith Daley, Chairman of Elektron commented, "We have confronted the recession head on in order to ensure that the group remains profitable and are now ready to move forward once more. There remain many challenges ahead but we are excited by the opportunities that face us." 

For further information please contact:

Chairman's Statement

We are proud to report that the Elektron Group is in good shape even though every one of our subsidiaries is affected by the current recession. Although profits are down and we have had to bear significant restructuring costs in order to reduce the cost base, there are many initiatives in hand that will, we believe, return the Group to growth. 

I am particularly pleased to announce that the Board has been able to recommend an increased dividend, which is accompanied by a scrip alternative. This is a sign of confidence in the business. 

In previous years the accent has been on cost cutting by off shoring production to low cost areas such as China and Tunisia. Elektron will continue to strive to be the lowest cost producer in its markets but cost cutting on its own is not enough. 

Innovation

The major focus in the current year will be on Innovation. Elektron has started to implement an Innovation Project, drawing on talent already available within the Group, with a view to achieving substantial growth and greatly enhancing shareholder value. The Group is budgeting £1.4 million in technical spend in the current financial year and we are determined that as much of this as possible will be used to develop new products for growing markets rather than simply maintaining the existing product range.

Broadening our sales reach

The Elektron Group sells its products in all major countries of the world. Nevertheless there are many areas in which our sales are low in comparison to the size of the economies of the countries concerned.

Each division is currently systematically analysing the geographical markets available for its products and aligning selling resource accordingly. Priority is being given to high growth markets (e.g. China and Brazil) and deep markets (e.g. USA). Elektron Components Division ("ECD") has relied on a relatively passive sales approach through distribution houses, particularly in relation to the Bulgin brand. We are revisiting this traditional approach; in particular ECD is placing emphasis on sales to Original Equipment Manufacturers by providing bespoke design solutions.

Training and Mentoring

In order to help drive growth the Board decided to set up a Management Development Programme under which it would identify those individuals who have the greatest potential to assist the Group in its growth objective. The first three candidates have been selected. They are:

John Wilson (Technical Director of Elektron Components Division and Group Technology Adviser; 1st Class degree in Mechanical Engineering from Durham University);

Mark Graves (Technical Manager of Elektron Instruments Division; Double 1st Class degree in Electronic Materials Engineering from Oxford University); and

Allen Zhao (Sales Manager of Elektron Components Division, China; Bachelor of Electrical Engineering from Nantong University). 

These appointees will benefit from a personalised training programme and mentoring by the Main Board of Elektron. In addition to the above we employ many talented people who have worked hard for the success of the Group in difficult times. They too will be offered opportunities for training in appropriate cases.

Outlook

Without doubt, we shall continue to face challenging times in the current financial year. Whilst we are no longer seeing dramatic declines in our business, improvements in sales in some areas are counterbalanced by declines elsewhere. We believe that we have probably seen an end to destocking but it is debatable whether underlying demand has improved. We therefore intend to take a greater share of available markets in order to grow.

We have been able to identify further cost savings that will improve profitability but will also involve further restructuring costs in the current year.

We continue to evaluate a number of potential acquisition targets in all divisions. 

I am pleased to announce that the Group traded profitably (at the operating level before restructuring costs) in the first quarter of the financial year and we currently expect to be profitable for the year on the same basis.

The Directors are confident that the Group is well positioned to create exceptional long-term shareholder value.

Keith Daley

Chairman

Operational review 

Elektron Components Division ('ECD') Sales £21.3m and operating profit £1.6m

ECD comprises two brands: Bulgin, which operates in the industrial sector selling connectivity and sealed products for harsh environments and Arcolectric, which offers switching and indicator solutions primarily for consumer and commercial applications. The division will shortly take over from Elektron Instruments Division Sifam brand control knobs and meters.

We design, manufacture and market products and solutions for customers in diverse industries ranging from industrial communications, marine and water treatment, to white goods, small consumer appliances and products used within the food preparation sector. Our global reach extends to all continents, with organizations in Europe, America, Asia/Pacific and North Africa, and an extensive sales channel network in 125 countries.

Despite the challenges presented at the close of 2008 sales were in line with internal expectations.

We have completed the project to relocate most remaining UK based manufacturing offshore. The new moulding shop and automatic assembly plant are established and running in China. The UK divisional footprint has reduced by 60%. These initiatives are yielding the expected cost savings.

We managed to offset the high cost of materials through pricing adjustments, and the pressure on the top line by the ability to strip out further costs quickly. Towards the end of the year we made further mitigating gains from corresponding swings in the currency markets. 

Our reconfiguring of the US sales network has been designed to capitalise on the US trend in being early adopters of emerging technologies. Strengthening of our field applications resources has resulted in a number of exciting opportunities to partner blue chip OEMs in the development of value added solutions.

We have enhanced our Central and South American selling force. Stocking agreements were signed with four new distributors in Brazil. Our China sales resources have been refreshed and reinforced with renewed focus on developing partnerships with large OEMs delivering innovative solutions with enabling technologies. We shall be helped by the new Wholly Owned Foreign Enterprise (WOFE) legal structure that has been set up in China. This will enable us to sell directly to indigenous manufacturers, opening up this vast market.  In anticipation of the downward pressure on prices in commodity class products, we continue our focus on new products and the development of partnerships with large and key OEMs, to develop engineering opportunities for custom products.

Our wireless portfolio continues to grow, with the introduction of a range of sealed antenna and Bluetooth solutions. We have developed concepts for the emerging alternative, sustainable and renewable energy markets with solar energy, and electric vehicles being of particular focus.

We are also working to exploit our expertise in harsh environments and will imminently launch products designed for the intrinsic safety market place, where margins are highly attractive. 

Elektron Hard Metals Division ('HMD') Sales £7.3m and operating loss £0.3m

HMD comprises two brands: Howle which produces specialised items for industries requiring hard metal components and Titman, a producer of router cutters for the woodworking industry. Towards the end of the financial year HMD management was strengthened by the appointment of new Managing and Operations Directors.

HMD suffered a downturn in demand during the financial year which worsened as the year progressed and current trading continues to be difficult. It operates in areas which traditionally lag the business cycle. Nevertheless it continued to invest in modern machinery at Howle in order to improve productivity. This will allow the Company to take full advantage of the upturn when it arrives.

Around £1 million was invested in new equipment. Howle had operated on two sites for many years and during the year it was decided to consolidate operations at Princes Risborough which will improve efficiency.

It is a strategic aim of Howle to focus on larger value added contracts and it had some success in increasing its market share of business placed by the larger oil and gas service companies. The division continues to make technological advances in its chosen sectors of oil and gas exploration, cutting tip technology and mechanical seal development using modern CNC technology and advanced materials technology to facilitate competitive advantages for customers. 

In order to increase innovation within the division contacts are being made with some of the leading UK universities. A project to streamline manufacturing processes will enable Howle to improve on levels of service to customers. 

Howle has initiated a rebranding exercise. It will shortly change its name to Total Carbide. The new name emphasises the focus on providing a total solution to engineering problems involving wear parts, incorporating design, alloy preparation and manufacture.

Titman Tools continues to be a market leader in the high-end wood routing industry. It has traditionally concentrated on the UK and German markets. Management has plans to move the business into new markets and products.

Elektron Instruments Division ('EID') Sales £7.0m and operating profit £0.2 m

EID comprises three brands: Digitron temperature and pressure measuring devices, Queensgate the nano-measurement specialist and Sifam control knobs and meters. The Sifam brand will be transferred to ECD during the current financial year allowing EID to concentrate on Digitron and Queensgate which offer greater potential for growth.

The recession began to affect order intake from November and orders have been weaker since that time. Further action to reduce costs has been taken.

The off-shoring of knobs production is running to schedule and will lead to improving margins as the year progresses. We will begin the same process with our analogue panel meters later this year which will have a further beneficial effect when completed in 2010.

We have accelerated our efforts to improve performance outside the UK and have targeted the Middle East and South East Asia as the first step in this programme. Our new head of development is now well established and we are seeing significant benefits in our product development programme as well as exciting new ideas for the future and improved contacts with universities. Several new products will launch this summer and autumn fully modernising our existing range. Announcements will be made as appropriate.

The increased management and development focus on Digitron will put us in a strong position to benefit from the rapid growth in applications for wireless sensors and associated data management as well as in extending our range of hand held instrumentation. We will increase our exploration of new applications for Queensgate technologies notably by construction of nanometric sensors in new high technology materials offering faster response times.

Group Financial Results

Results for the year

The year under review has been challenging as a result of the economic turmoil, but overall Group sales were slightly up on the previous year (which included six months sales from Elektron Instruments acquired in August 2007) to £35.6 million (2008: £34.9 million). On a like-for-like basis we have experienced a sales decrease of 9%.

The gross margin was 32% compared with 35% in the previous year. This is anticipated to improve as a result of switch production moving to China during the year. Operating profits were £1.1 million (2008: £2.1 million). Currency movements resulted in exchange gains of £0.47 million compared with exchange losses of £0.15 million in the previous year.

Exceptional costs

Exceptional costs of £3.2 million (2008: £1.0 million) were incurred in the year. The parent company incurred £0.2 million in restructuring costs. ECD has reduced headcount from almost 1,000 in January 2008 to just over 700 following the completion of manufacturing transfer to China and response to trading conditions. This has resulted in an exceptional charge of £0.9 million but a significantly reduced cost base.

The Hard Metals Division has closed its Tenbury Wells facility and consolidated it into the Tungsten Carbide operation at Princes Risborough in order to save costs. During the year the workforce has been reduced by almost 30%. These actions have resulted in an exceptional charge of £0.8 million and a significantly reduced cost base.

The Instrumentation Division closed its Bracknell office and has consolidated its Queensgate unit at Torquay. During the year the UK workforce has been reduced by 20% to 113 people. These actions have resulted in an exceptional charge of £0.4 million but a significantly reduced cost base.

Since the purchase of our 23% stake in Hartest Holdings Plc (an AIM quoted instrumentation group) economic conditions have led to a lower valuation being placed on the Company. We have therefore written down the value of the stake in our accounts at year-end to reflect its market value, which has resulted in an exceptional charge of £0.9 million.

Taxation

The tax credit of £233,000 represents an average tax rate of 10% and is due mainly to the non-allowable write-down of the Hartest Investment and unrecognised deferred tax assets. 

Earnings/(Loss) per share

Earnings per share metrics, after taking account of the effects of IFRS2 "share-based payments" were:

• basic loss from continuing operations of 2.36p and diluted of 2.36p; and

• basic earnings of 0.61p and diluted of 0.61p excluding exceptional items

 Information Systems

The replacement of the Group's legacy systems is continuing with the Hard Metals Division expected to go live this year. This project, when complete, will greatly enhance management productivity and reporting systems.

Dividends

The Board is proposing a final dividend of 0.46p per share (2008: 0.45p) payable on 11 August 2009 to shareholders on the register at 19 June 2009. The Board is proposing a scrip issue alternative and full details are to be contained in the documentation convening the Annual General Meeting.

Cash and facilities

The Group generated £4.0 million of cash from trading of which £1.5 million came from working capital decreases. It paid £2.2 million in restructuring and other exceptional costs, £1.4 million for its investment in Hartest, £1.0 million (net of finance) to purchase plant and machinery and £0.6 million in dividends and share repurchases resulting in £1.2 million utilised net in the year.

Current banking headroom (comprising cash balances plus undrawn invoice discounting facilities but excluding acquisition facilities subject to preconditions) amounted to £2.2 million.

The Group's facilities consist principally of invoice discounting arrangements, acquisition facilities and lease facilities with its bankers HSBC. These facilities are terminable in the event of default and in the case of the discounting facilities, by three months written notice.

The Group meets its day-to-day working capital requirements through the invoice discounting facilities. The Group's forecasts and projections, taking account of reasonably possible changes in trading performance, show that the Group should be able to operate within the level and terms of its current facilities. The Group has held discussions with its bankers and no matters have been drawn to its attention to suggest that continuation of invoice discounting facilities will not be forthcoming on acceptable terms.

Balance Sheet

Net assets of the Group are £7.9 million (2008: £10.2 million) with net debt at 31 January 2009 of £3.3 million compared to £1.6 million the previous year. Net gearing has increased from 15% to 41%.

Notes to the Preliminary Unaudited Results to 31 January 2009

1.  Accounting Policies

The financial information has been prepared on the basis of International Financial Reporting Standards (IFRS) as adopted by the European Union. Full details of accounting policies will be included in the Annual Report for the year ended 31 January 2009. These are not expected to be materially different from those set out in the Group's statutory accounts for the year ended 31 January 2008.

2.  Other information

The financial information in respect of the year ended 31 January 2009 set out in this statement has been extracted from the statutory financial statements which have not yet been audited but are not expected to differ materially from the information given in this statement.

The financial information in this statement does not constitute statutory accounts. The financial information in respect of the year ended 31 January 2008 has been extracted from the statutory accounts which have been filed with the Registrar of Companies. The auditors' report on those accounts was unqualified and did not contain any statement under Section 237 of the Companies Act 1985.

Audited financial statements will be sent to shareholders at the start of July 2009 and will be available to download from the Company's website at www.elektronplc.com. Copies of this announcement are available free of charge from the Company's registered office at Melville Court, Spilsby Road, Romford, Essex RM3 8SB for a period of one month from the date hereof and copies of the audited financial statements will be so available for at least 14 days from date of publication.

The Annual General Meeting will be held at 3 pm on 29 July 2009 at Melville Court, Splisby Road, Romford, Essex, RM3 8SB.

3.  Dividend/scrip alternative

The dividend and scrip alternative, if approved at the AGM, will be paid on 11 August to shareholders on the register at 19 June.