15 September 2011

 

ELEKTRON TECHNOLOGY PLC

("Elektron" or "the Group")

 

Interim Results

 

Elektron Technology plc (AIM: EKT), the global technology based provider of engineered solutions, is pleased to announce its interim results for the six months ended 31 July 2011.

 

 

Highlights

 

•   Sales up 67% to £34.4 million (H1 2010: £20.6 million)

 

•   EBIT (pre non-recurring and special items) up 36% to £3.5 million (H1 2010: £2.6 million)

 

•   Non-recurring and special items of £0.6 million largely relating to further streamlining of the business, amortisation of intangibles plus abortive acquisition costs

 

•   Underlying earnings per share up 6% to 2.38p (2010: 2.25p*)

 

•   Interim dividend up 8% to 0.27p (2010: 0.25p) payable on 14 December 2011

 

•   The Group has a strong order book and raw material price increases have generally been successfully passed on

 

*Note re taxation: Reported eps for the first half of 2010/11 were 2.42p after a tax credit of 1.1%. However the tax rate on underlying earnings for full year 2010/11 was 19.2% following the utilisation during the year of certain tax losses brought forward. Underlying eps have been calculated on profits adjusted for non-recurring and special items, using the full year tax rate of 19.2% in 2010/11 and an estimated tax rate of 24% for 2011/12.

 

 

Keith Daley, Chairman of Elektron Technology plc commented: "The Group has enjoyed another strong six month period, continuing the trend of the past two years. Sales have improved strongly, largely as a result of the Hartest acquisition, and favourable changes in the sales mix have helped increase gross margins.

 

"Current indicators show a relatively favourable picture. Price increases have generally allowed the Group to claw back increases in raw material costs and the Group has a strong order book, although this typically gives only 8 weeks' visibility of sales at any time.  Orders for the brands with mature products and businesses have generally trended flat to slightly lower and sales to the public sector have been weak. However, we are pleased to report that these factors have so far been more than counterbalanced by growth in the brands with newer products such as Carnation and Henson and by expansion into overseas territories.

 

"The Group continues to invest in key areas of the business to enable it to grow to the next level."

 

 

 

For further information:

 

Elektron Technology plc	Tel. +44 (0) 1708 336 300
Keith Daley - Chairman
finnCap	Tel. +44 (0)20 7600 1658
Ed Frisby/ Rose Herbert - Corporate Finance
Simon Starr - Corporate Broking
Threadneedle Communications	Tel. +44 (0)20 7653 9850
Josh Royston
Hilary Millar

 

Chairman's and Chief Executive's statement

INVESTING IN INNOVATION AND GROWTH

Elektron Technology plc (www.elektron-technology.com - 'Elektron' or 'the Group') is a global group, managing, exploiting and developing technologies within the fast moving engineered products sector in business to business markets. Its mission is to deliver a highly competitive return to shareholders by creating innovative solutions for its customers. It owns a diverse portfolio of brands in the electro-component and instrumentation markets with potential for significant growth. The Group operates worldwide and employs 1,200 people, two thirds of whom are based outside the UK.

The Group has enjoyed another successful six months continuing the trend of the past two years. Sales increased by 67% largely as a result of the acquisition of Hartest which joined the Group on 1 September 2010.

Favourable changes in sales mix, together with price increases to pass on commodity costs, have delivered higher gross margins at 41.2%, compared with 40.6% in the comparable period last year.  Operating margins reduced from 12.4% to 10.1%, mainly as a result of increased expenditure on R&D, sales, marketing, HR and IT. The Group is investing heavily in these areas to enable it to grow to the next level. It remains a key target to achieve 15% operating margins.

During the period the Group incurred non-recurring and special items of £595,000 largely relating to further streamlining of the business, amortisation of acquisition intangibles plus abortive acquisition costs. Most of the costs relate to the UK where there is a need to rationalise the sometimes complex structure that has been built up through the acquisition of numerous companies that have themselves acquired businesses in the past. The abortive acquisition costs relate to a large but ultimately unsuccessful transaction. The directors were determined not to overpay.

In the first half of 2010/11 the Group benefited from a small tax credit as a result of the utilisation of tax losses brought forward. The period under review saw an estimated charge of 24% on underlying earnings (2010/11 full year: 19.2%).

£1.5m of cash was generated from operations in the period, despite a seasonal outflow of working capital. With £1.2m invested in fixed assets, net debt has been reduced to £4.0m, leaving the Group's gearing ratio below 25%.

Underlying earnings per share increased by 6% from 2.25p to 2.38p.  At constant tax rates, the increase would have been 12%.

The Board is pleased to declare an interim dividend of 0.27p (2010: 0.25p) that will be paid on 14 December 2011 to holders on the register as at 23 September 2011. As previously, a scrip dividend alternative is being offered to shareholders.

As a result of the Group's profitability, both interest and dividend cover remain very strong.

REGIONAL SALES PERFORMANCE

		H1 2011/12			H1 2010/11			Full Year 2010/11
		£'000			£'000			£'000
United Kingdom		14,967	44%		8,354	41%		21,321	43%
Rest of Europe, Middle East & Africa		8,259	24%		5,614	27%		13,014	26%
Asia Pacific		7,338	21%		3,286	16%		9,148	18%
Americas		3,853	11%		3,365	16%		6,557	13%
Total		34,417	100%		20,619	100%		50,040	100%

UK

We continue to invest in our people and infrastructure while maintaining a focus on the streamlining of processes leading to economies of scale and much improved financial information.

During the course of H1 we opened our new R&D Technology Centre in Cambridge, bringing together our New Product Development ("NPD") capability and focusing on the generation of technology platforms.  A recruitment drive in the Cambridge area to increase our R&D team is currently underway. We have instituted a robust process for evaluating NPD proposals and have already identified a number of large scale innovation projects which show great potential.

We are reviewing our UK footprint which has grown as a result of numerous acquisitions. We currently operate from 10 sites. The review includes a proposal for a centre for High Tech manufacturing based in the UK. Should this proposal proceed, future UK investment in manufacturing will be concentrated in one location. 

As previously announced our Romford office will close during H2. We are also examining the growth and profit potential of all our brands. Those that do not show the necessary potential will be offered for sale.

Also in H1 we completed the second phase of the Group's new ERP computer system which went live on the first trading day of H2. This project now covers approximately 50% of the Group's operations and when complete will replace numerous non compatible systems. Once fully operational, the suite of options available to users will dramatically enhance their ability to monitor and control the business.

EMEA (excluding UK)

There is considerable potential for the Group's products in the main economies of Germany, France and Italy as well as the emerging economies in Europe. Two years ago there was little focus on continental Europe. We now have 10 sales people actively operating in this important market, with a particular emphasis on Germany. All new sales recruits are expected to be fluent in at least one other language besides English.

The focus in the period has been on rationalising and expanding our distributor network and identifying the larger opportunities provided by original equipment manufacturers (OEM's) to whom we are able to offer customised solutions for a given application.

APAC

Our business in the APAC region was enhanced by the addition of Tinsley India as a result of the acquisition of Hartest. This brand continues to perform strongly.

A complete top-down restructure of our activities in the region began towards the end of H1. Subsequent to the restructure, new business opportunities have increased by over £3 million.  A new commercial strategy is being implemented which will increase the image and awareness of Elektron across APAC, making the launch of brands in the region easier and more cost effective.

Americas

The Americas continue to generate significant opportunities for Bulgin and Arcolectric. The pipeline of opportunities and order book stand at record levels.  Our hybrid sales model, through direct, manufacturer's representatives and distribution has resulted in comprehensive North American sales coverage with the equivalent of more than 350 sales people actively creating demand for Elektron solutions.

As we move into the second half of the year, we are optimistic that several of our larger opportunities will close and as a result make this a breakthrough year for the region. Carnation Genisys and Henson were introduced to the US market during H1 with early indications of promise.

Strategy and Outlook

As mentioned above we shall continue both to invest in our people and to streamline our UK organisation. We shall continue to expand and invest in our geographical coverage of existing brands with particular emphasis on the opportunities offered by the Carnation Genisys brand and the APAC region.

H2 will see the introduction of our newest range of connectors which will dramatically increase our addressable market. The Group is increasing its web presence via e-commerce as well as a suite of websites in various languages.

Current indicators show a relatively favourable picture. Price increases have generally allowed the Group to claw back increases in raw material costs and the Group has a strong order book, although this typically gives only 8 weeks' visibility of sales at any time.  Orders for the brands with mature products and businesses have generally trended flat to slightly lower and sales to the public sector have been weak. However, we are pleased to report that these factors have so far been more than counterbalanced by growth in the brands with newer products such as Carnation and Henson and by expansion into overseas territories.

 

 

Keith Daley                                                                                          John Wilson

Chairman                                                                                              Chief Executive Officer