27 May 2011

 

 

Sarantel Group PLC

 

Interim results for the six months to 31 March 2011 

 

Sarantel Group PLC, (AIM: SLG, "Sarantel" or the Group), a leading manufacturer of high-performance, miniature antennas for mobile and wireless devices, announces unaudited interim results for the six month period ended 31 March 2011.

 

Highlights:

 

·      Revenues of £1.0m (H1 2010: £1.4m)

·      Global Positioning Systems ("GPS") revenues up 1% despite lack of orders from Group's largest GPS customer

·      Revenues from military applications increased 26%

·      Development revenues increased 186%

·      Major development contract awarded by leading tactical radio supplier for rugged GPS antenna

·      Cash balance of £0.4m with an additional £0.17m tax credit received after the half-year end

 

 

Geoff Shingles, Chairman, said:

 

"We are making good progress despite setbacks in sales resulting from two of our largest customers experiencing internal technical issues earlier this year. We are continuing to diversify our client base and have won a major contract to supply rugged GPS antennas to a leading US military tactical radio supplier.

 

"The value of Sarantel's antenna technology is becoming clear as customers demand increased performance and GPS functionality proliferates into a broad range of applications."

 

 

Enquiries

 

Sarantel Group PLC	01933 670 560
David Wither, Chief Executive Officer
Nicola Malyon, Finance Director
Seymour Pierce	020 7107 8000
John Cowie/Freddy Crossley, Nominated Adviser David Banks/Paul Jewell, Corporate Broking
College Hill	020 7457 2020
Kay Larsen/Rozi Morris

 

 

About Sarantel www.sarantel.com

 

Sarantel is a leader in the design of high-performance miniature antennas for portable wireless applications. Sarantel's revolutionary ceramic filtering antennas offer dramatically improved performance over existing antenna designs, resulting in a clearer signal, better range and a 90 per cent reduction in the amount of signal radiation absorbed by the body. Because of their smaller size and higher capabilities, Sarantel's antennas enable manufacturers to create innovative wireless products for the GPS, Satellite Radio and Satellite phone markets.

 

 

Interim Results

 

In the six months to 31 March 2011, Group revenues were £1.0 million (H1 2010: £1.4m), with GPS revenues growing 1% by value and 3% by unit volume. Revenues from high-value military and satellite data applications were lower than in 2010 due to one of the Group's larger customers sourcing a second supplier for their iridium satellite antenna.   

 

Gross margins of 30% (H1 2010: 34%) reflect the proportion of lower-margin GPS products in the revenue mix. 

 

The Group continued to manage its cost base effectively, with operating costs falling by 1.3% to £1.97 million. 

 

The Group's loss before depreciation, interest and tax was £1.3m (H1 2010:  £1.0m).

 

At £0.8m, operating cash outflow was lower than in 2010 (H1 2010: £0.9m) with ongoing cost savings expected through the recent reorganisation.

 

The Group's cash balance of £0.4m was lower than expected due to the impact on revenues as two of our largest customers experienced internal technical issues which delayed orders in the first half. As a result of this, further funding is now required and the Group is currently seeking funding to take the Group through to cash breakeven and profitability.

 

 

Development of Sarantel's Markets

 

Sarantel designs and manufactures high-performance antennas for a wide number of applications. For the past few years, Sarantel has been focusing its sales efforts on consumer GPS, military GPS and communications and mobile satellite services.

 

GPS usage continues to proliferate across a wide range of applications as the total cost of GPS functionality continues to fall. In consumer markets, location based applications for smartphones such as Layar and Foursquare are increasingly influencing consumer behaviour. Applications which require real time location content are among the most popular and rapidly growing on the Apple iTunes and the Android marketplace.

 

The addition of location status to Facebook and other social networking platforms indicates that the pace of new location-sensitive applications is accelerating. Additionally, Google's acquisition of AdMob and Apple's acquisition of Quattro Wireless demonstrate the level of investment that market leaders are making in location-based advertising or "GeoMarketing". The mobile services consultancy Berg Insight forecasts the global mobile advertising market to grow at a compound annual growth rate of 43% to €8.7 billion in 2014.

 

All of these market drivers are encouraging consumers to use the GPS functionality on their mobile devices, and this increased usage is highlighting GPS performance problems that are directly addressed by Sarantel's technology.

 

High-volume GPS products

 

The trend of integrating GPS into digital cameras for "geotagging" photographs is accelerating.  Sarantel recently hired a Japanese salesperson to facilitate the direct conversations it is already having with a number of major camera and wireless module manufacturers about using Sarantel technology in high volume consumer camera models. Sarantel's antenna technology offers clear advantages over incumbent antennas, where poor performance and integration problems have produced frustrating results for consumers who use GPS functionality.  

 

A number of camera manufacturers are already beginning to work on their second generation of GPS enabled cameras and there is broad acknowledgement that Sarantel's technology directly addresses the performance problems occurring with GPS cameras currently on the market. If the Group establishes a foothold in the high volume camera market, the economies of scale gained will help to lower the barriers to entry for mobile phone customers as well.

 

In the high-volume mobile phone market, consumers are increasingly aware of the poor performance of GPS-enabled mobile phones and this is driving mobile handset manufacturers to focus on improving the user's GPS experience.

 

Military applications

 

Applications for GPS in the military market continue to grow, especially in the United States and the UK.  Military customers are performance focused, require higher levels of integration and are less cost sensitive than consumer customers so these applications provide a very exciting near to medium term growth opportunity as expenditure continues on tracking, tagging and locating applications for which Sarantel's antenna technology has unique advantages.

 

Mobile satellite services ("MSS")

 

The MSS market is dynamic and provides additional opportunities for revenue growth, with key players such as Inmarsat, Iridium and Globalstar all continuing to invest in growing applications for their services. Companies in this market are key target customers for Sarantel's technology and the Group has already demonstrated commercial success with its technology in the NAL Shout Nano. 

 

 

Business Review

 

Consumer GPS

 

Sarantel experienced a significant sales setback in the first half when its largest GPS customer failed to place production orders because of a technical problem with their best selling product. This problem was not related to Sarantel's technology but negatively impacted GPS revenues. Despite this setback, GPS revenues grew 1% and the company continued to expand its customer base. Sarantel is currently tracking more than 200 different sales opportunities across a very broad range of GPS applications which the board believes will drive significant revenue growth over the next two to three years.

 

Military

 

Revenues for the company's rugged L1/L2 GPS antenna were delayed following a customer's technical problem which was unrelated to Sarantel's antenna. This problem has now been fixed and orders have been placed, with deliveries scheduled in the second half. Revenues from this product are difficult to predict as the US Government's budget restraints caused our customer to re-schedule orders on two occasions. 

 

However, Sarantel's momentum in this market is growing and the board believes that consistent revenues from this important market will come through and drive significant revenue growth in time. As evidence of this growing momentum, Sarantel won a significant contract to develop a rugged GPS antenna for the world's leading supplier of tactical radio systems. This customer already uses Sarantel's second generation GPS antenna and has now worked with Sarantel to develop a solution for installing it into a rugged housing. This improved design, which will be produced by Sarantel will help to increase the value-added content and significantly increase its revenues and profits.

 

During the period, the Group also received funding from the US military and from a major supplier to the US Department of Defense to develop a number of new antenna products.

 

Mobile satellite services

 

Sarantel also received funding from a military contractor to develop an antenna for Globalstar. This antenna will add to a growing portfolio of products which have been developed to address the exciting military and commercial opportunities within the rapidly developing satellite services sector.

 

 

Outsourced Manufacturing

 

The Group successfully executed on its plan to outsource its assembly, test and supply chain processes to Elcoteq. The manufacturing line was transferred during October and production resumed in November. The company has already experienced significant improvements in product quality levels and operational efficiency. The initiative is expected to generate annual production savings of approximately £0.5m.

 

Outsourcing has simplified day-to-day operations by reducing the number of direct suppliers to the Group's remaining operations. Sarantel also benefits from Elcoteq's sourcing capabilities to reduce costs and from its design-for-manufacturing experience, which will be critical as the company develops its next generation, lower cost antenna solutions.

 

 

Outlook

 

The Group is working to diversify its customer base and revenue streams and is making solid progress. The Board remains optimistic about the future of Sarantel's technology and is currently seeking further funding to provide sufficient finance for working capital and to capitalise on future opportunities.

 

 

Unaudited Consolidated statement OF COMPREHENSIVE INCOME

for the six months ended 31 March 2011

 

	Note	Six months to 31 March  2011	Six months to 31 March  2010	12 months to 30 September 2010
		£'000	£'000	£'000
Revenue	2	1,030	1,387	2,889
Cost of sales		721	911	1,840
Gross profit		309	476	1,049
Research and development costs		603	613	1,258
Selling and distribution costs		288	273	527
Administration costs		1,082	1,113	2,163
Total operating costs		1,973	1,999	3,948
Operating loss		(1,664)	(1,523)	(2,899)
Operating loss before depreciation and  amortisation		(1,259)	(997)	(1,854)
Depreciation and amortisation		(405)	(526)	(1,045)
Finance and other income		4	37	12
Finance and other costs		(31)	(32)	(78)
Loss before tax		(1,691)	(1,518)	(2,965)
Tax	3	66	147	227
Loss for the period		(1,625)	(1,371)	(2,738)
Other comprehensive income		-	-	-
Total comprehensive loss for the period		(1,625)	(1,371)	(2,738)
Basic and diluted loss per share	4	(0.4)p	(0.5)p	(1.0)p

 

 

All of the activities of the Group are classed as continuing.

 

 

Unaudited Consolidated balance sheet

as at 31 March 2011

 

	Note	As at 31 March  2011	As at 31 March  2010	As at 30 September 2010
		£'000	£'000	£'000
Assets
Non-current assets
Intangible assets		1,617	1,574	1,601
Property, plant and equipment		480	1,001	677
Total non-current assets		2,097	2,575	2,278
Current assets
Inventories		269	189	308
Trade and other receivables		651	641	821
Current tax		278	379	160
Cash and cash equivalents		431	1,625	629
Total current assets		1,629	2,834	1,918
Total assets		3,726	5,409	4,196
Current liabilities
Trade and other payables		1,055	877	831
Amounts due under finance leases and HP agreements		126	198	211
Amounts due under invoice financing facility		156	64	299
Total current liabilities		1,337	1,139	1,341
Non-current liabilities
Amounts due under finance leases and HP agreements		-	243	134
Total liabilities		1,337	1,382	1,475
Equity
Share capital	5,6	10,889	9,789	9,789
Share premium		17,388	17,234	17,234
Share scheme reserve		708	608	669
Warrant reserve		76	76	76
Merger reserve		13,390	13,390	13,390
Retained loss		(40,062)	(37,070)	(38,437)
Total equity		2,389	4,027	2,721
Total liabilities and equity		3,726	5,409	4,196

 

 

Unaudited CONSOLIDATED CASH FLOW STATEMENT

for the six months ended 31 March 2011

 

	Six months to 31 March  2011	Six months to 31 March  2010	12 months to 30 September  2010
	£'000	£'000	£'000
Operating activities
Loss before tax	(1,691)	(1,518)	(2,965)
Adjustment for non cash items:
Depreciation and amortisation	382	493	970
Depreciation absorbed to cost of sales	23	33	75
Investment revenue	(2)	(5)	(12)
Finance costs	19	30	54
Change in fair value of derivative financial instruments	-	28	-
Share based payments	39	109	169
Decrease/(increase) in inventories	39	36	(83)
Decrease/(increase) in trade and other receivables	118	(222)	(365)
Increase in trade and other payables	224	127	108
Taxation received	-	-	262
Net cash  outflow from operating activities	(849)	(889)	(1,787)
Investing activities
Interest receivable and similar income	2	5	12
Payments to acquire intangible assets	(129)	(204)	(339)
Payments to acquire property, plant and equipment	(95)	(38)	(125)
Net cash used in investing activities	(222)	(237)	(452)
Cash outflow before financing	(1,072)	(1,126)	(2,239)
Financing activities
Finance lease interest paid	(19)	(31)	(54)
Issue of shares	1,375	2,250	2,250
Expenses paid in connection with issue of shares	(121)	(181)	(181)
Capital element of finance lease rentals	(219)	(90)	(185)
Net cash inflow from financing activities	1,016	1,948	1,830
Net (decrease)/increase in cash and cash equivalents	(55)	822	(409)
Cash and cash equivalents at start of period	330	739	739
Cash and cash equivalents at end of period	275	1,561	330

 

Analysis

Cash and cash equivalents	431	1,625	629
Amounts due under invoice financing facility	(156)	(64)	(299)
Net cash and cash equivalents	275	1,561	330

 

 

unaudited CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

for the six months to 31 March 2011

 

	Share capital	Share premium	Share scheme reserve	Warrant reserve	Merger reserve		Retained earnings		Total  equity
	£'000	£'000	£'000	£'000	£'000		£'000		£'000
For the six months to 31 March 2011
At 1 October 2010	9,789	17,234	669	76	13,390		(38,437)		2,721
Loss after tax	-	-	-	-	-		(1,625)		(1,625)
Total comprehensive income for the period	-	-	-	-	-		(1,625)		(1,625)
Shares issued	1,100	275	-	-	-		-		1,375
Cost of share issue	-	(121)	-	-	-		-		(121)
Share based payments	-	-	39	-	-		-		39
Transactions with owners	1,100	154	39	-	-		-		1,293
At 31 March 2011	10,889	17,388	708	76	13,390		(40,062)		2,389
For the six months to 31 March 2010
At 1 October 2009	8,789	16,165	500	76	13,390		(35,699)		3,221
Loss after tax	-	-	-	-	-		(1,371)		(1,371)
Total comprehensive income for the period	-	-	-	-	-		(1,371)		(1,371)
Shares issued	1,000	1,250	-	-	-		-		2,250
Cost of share issue	-	(181)	-	-	-		-		(181)
Share based payments	-	-	108	-	-		-		108
Transactions with owners	1,000	1,069	108	-	-		-		2,177
At 31 March 2010	9,789	17,234	608	76	13,390		(37,070)		4,027
For the 12 months to 30 September 2010
At 1 October 2009	8,789	16,165	500	76	13,390		(35,699)		3,221
Loss after tax	-	-	-	-	-		(2,738)		(2,738)
Total comprehensive income for year	-	-	-	-	-	(2,738)		(2,738)
Shares issued	1,000	1,250	-	-	-	-		2,250
Cost of share issue	-	(181)	-	-	-	-		(181)
Share based payments	-	-	169	-	-	-		169
Transactions with owners	1,000	1,069	169	-	-	-		2,238
At 30 September 2010	9,789	17,234	669	76	13,390		(38,437)		2,721

 

 

notes to the Unaudited interim FINANCIAL STATEMENTS

for the six months ended 31 March 2011

 

1          Basis of Preparation

 

These unaudited condensed consolidated interim financial statements of Sarantel Group PLC are for the six months ended 31 March 2011. They do not include all of the information required for full annual financial statements, and should be read in conjunction with the consolidated financial statements of the Group for the year ended 30 September 2010.  The financial information for the year ended 30 September 2010 set out in these interim consolidated financial statements does not constitute statutory accounts as defined in Section 434 of the Companies Act 2006.  The Group's statutory financial statements for the year ended 30 September 2010 have been filed with the Registrar of Companies.  The auditor's report on those financial statements was unqualified and did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.

 

These interim consolidated financial statements have been prepared on the basis of the Group's accounting policies.  These are set out in its Annual Report and Accounts for the year ended 30 September 2010 which is available on the Group's website (www.sarantel.com). 

 

2          Revenue

 

	Six months to 31 March 2011	Six months to 31 March 2010	12 months to 30 September 2010
	Unaudited	Unaudited	Audited
	£'000	£'000	£'000
Sales of antennas	719	1,315	2,739
Sale of Non-Recurring Engineering services (NRE)	206	72	150
Sales of consumables	105	-	-
Total revenue	1,030	1,387	2,889

 

All revenue originates from the UK.

 

 

3          Tax on Loss

 

	Six months to 31 March  2011	Six months to 31 March  2010	12 months to 30 September  2010
	£'000	£'000	£'000
Current tax:
UK corporation tax based on the results for six months to 31 March 2011	(66)	(147)	(227)

The taxation credit arises in respect of research and development expenditure and is subject to agreement with H M Revenue and Customs.

 

A deferred tax asset, calculated using a tax rate of 28%, amounting to approximately £8.2m (2010: £7.5m) arising from taxable trading losses has not been recognised on the grounds that, at the current time, there is insufficient evidence that the asset will be recoverable in the foreseeable future.

 

 

4          Loss per Share

 

The calculation of the basic loss per share is based on the loss attributable to ordinary shareholders divided by the weighted average number of shares in issue during the period as follows: 

 

	Six Months to 31 March  2011	Six Months to 31 March  2010	12 Months to 30 September  2010
	£'000	£'000	£'000
Loss for the period	(1,625)	(1,371)	(2,738)
Weighted average number of shares (thousands)	362,859	256,321	273,636
Basic and diluted loss per share*	(0.4)p	(0.5)p	(1.0)p

 

* The effect of options and warrants are anti-dilutive.

 

 

5          Share Capital

 

	As at  31 March 2011	As at  31 March 2011	As at  31 March 2010	As at  31 March 2010	As at  30 September 2010	As at  30 September 2010
	Number	£'000	Number	£'000	Number	£'000
Allotted, called-up and fully paid:
A ordinary shares of   £0.01 each	399,899,991	3,999	289,899,991	2,899	289,899,991	2,899
B ordinary shares of   £0.01 each	1,036,340	11	1,036,340	11	1,036,340	11
Deferred shares of    £0.09 each	76,435,531	6,879	76,435,531	6,879	76,435,531	6,879
	477,371,862	10,889	367,371,862	9,789	367,371,862	9,789

 

During the period the company issued 110,000,000 A ordinary shares at a price of 1.25 pence per share.

 

 

6          Share Options

 

	As at 31 March 2011	As at 31 March 2011	As at 31 March 2010	As at 31 March 2010	As at 30 September 2010	As at 30 September 2010
	Number	Weighted average exercise price (p)	Number	Weighted average exercise price (p)	Number	Weighted average exercise price (p)
Number of share options brought forward	36,650,744	2.4	27,048,075	4.1	27,048,075	4.1
Options granted	15,867,968	2.5	13,045,000	1.9	32,339,881	2.3
Options lapsed and eliminated	(9,638,815)	1.1	(2,000)	4.7	(22,737,212)	0.4
Number of share options carried forward	42,879,897	1.7	40,091,075	2.2	36,650,744	2.2