CHECKIT PLC — Interim / Quarterly Report 2016

Sep 10, 2015

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RNS Number : 6026Y

Elektron Technology PLC

10 September 2015

10 September 2015

Elektron Technology plc

Half year results for the six months ended 31 July 2015

Elektron Technology plc (AIM: EKT, "Elektron" or the "Group"), the global technology group, has published its results for the six months ended 31 July 2015 ("H1 FY16").

Performance

·    Revenue: £22.0m (H1 FY15: £22.1m)

·    Underlying operating profit* from established businesses (excluding Checkit) £1.4m (H1 FY15 £0.9m), a 56% improvement

·    Checkit net expensed start-up costs: £0.8m (H1 FY15: £0.3m)

·    Underlying operating profit*: £0.6m (H1 FY15: £0.6m), unchanged

·    Operating profit: £0.4m (H1 FY15: Loss £0.4m), an improvement of £0.8m

·    Profit before tax: £0.3m (H1 FY15: Loss £0.6m), an improvement of £0.9m

Financing

·    Further reduction in net debt: £2.1m (31 July 2014: £4.7m, 31 January 2015: £2.7m) as a result of improved operational performance and working capital management

New Products

·    £1.0m (H1 FY15: £0.4m) invested in R&D in the first half primarily relating to Checkit and Bulgin

·    Full launch of Checkit on track in H2 following positive market feedback from v1 prototype

* before non-recurring and special items

John Wilson, Chief Executive of Elektron, said:

"The Group continues to improve underlying profitability from its established businesses whilst investing in new products for high growth and very large markets. 

With a further reduction in debt and the imminent launch of the Group's flagship product, I have every reason for optimism."

For further information:

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

Notes to Editors

Elektron conceives, designs and markets innovative engineered products and services for businesses 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 trends in the following areas:

--      New waves of "aware" business applications: Checkit

--      Demand for ubiquitous power and data: Bulgin

--      Growth in high precision manufacture: Queensgate

In addition, Elektron owns a portfolio of well-established products and brands that provide cash flow as well as customer access and feedback. 

Overview

The results for the first six months of the year show further progress in delivering a substantial improvement in underlying operating profit from the Group's established businesses (excluding Checkit). On similar revenues, this improvement has been achieved through further operational efficiency, cost controls and overhead improvements, principally in the Group's Connectivity business.

This improved performance has enabled the Group to continue to invest significantly in its new product offering, using operating cash flow, to establish future growth.

Underlying operating profit from the Group's established businesses (excluding Checkit) increased by 56% to £1.4m (H1 FY15: £0.9m) on similar revenues of £21.9m (H1 FY15: £22.0m). Further information on segmental performance is set out in note 2. In addition, the Group generated £0.1m of revenues (H1 FY15: £0.1m) and expensed £0.9m of pre-launch setup and marketing costs in the first half (H1 FY15: £0.4m) in respect of Checkit. Underlying Group operating profit was unchanged at £0.6m (H1 FY15: £0.6m).

With the elimination of all cash exceptional operating costs (H1 FY15: £0.8m), profit before tax increased to £0.3m (H1 FY15: £0.6m loss), an improvement of £0.9m.

Net debt fell to £2.1m (31 July 2014: £4.7m, 31 January 2015: £2.7m), with cash generated from operations of £2.1m (H1 FY15: £1.0m) amounting to 150% of the Group's investment of £1.4m (H1 FY15: £0.5m) in R&D and capital expenditure in the period.

Dividend

The Board does not propose an interim dividend (H1 FY15: £Nil) in order to conserve cash for the significant investment opportunities that we face.

Board changes

The Company has also today announced, under a separate announcement, a number of changes to its Board.

Strategic progress and innovation

The Group continues to invest in New Product Development (NPD) activities in three specific primary areas, with significant launches planned for the second half of this financial year:

Checkit - Elektron's first offering in the Internet of Things (IoT) market, a digitised Hazard Analysis and Critical Control Point (HACCP) food safety monitoring system with substantial global sales potential.  The full launch of Checkit is due during the second half of the financial year - a culmination of development work over the last two years following the v1 prototype, which was launched in 2013 to determine market requirements and potential demand.

Bulgin - a leader in harsh environment inter-connectivity.  The 4000 series range of quick-connect Bulgin connectors is due for launch in early 2016.

Queensgate - ranges of nano-positioning devices, incorporating Elektron's proprietary Dual Sensor Technology.  Following the re-establishment of its capabilities, a significant order has been received from a major OEM in the first half of the financial year with the majority to be delivered during the third quarter.

In addition to the above, and most importantly, the Group continues its critical project to refresh segments of its mature product ranges through value engineering, iterative product development.

The Group's revenue classed according to growth characteristics, estimated by the Board, is as follows:

Revenue in markets categorised as:	H1 FY16 £m	H1 FY15 £m	Change %
Higher growth	1.2	1.0	+20.0%
Static/lower growth	15.8	15.1	+4.6%
Declining	5.0	6.0	-17.0%
TOTAL	22.0	22.1	-0.5%

Whilst the Group continues to experience a reduction in demand for its products sold into declining markets, the focus on development of products in higher growth and very large markets is working to increasingly offset this decline.

Current trading & outlook

The underlying operating performance of the Group continues to show a marked improvement, demonstrating the successful implementation of the Group's strategy.

Despite some destocking by a number of large distributors, the Group's year-to-date trading performance continues to be broadly in line with the Board's expectations.

The forthcoming planned launches of Checkit and the Bulgin 4000 series in the second half of the financial year will provide a further platform for organic growth in the medium term.  The Group continues to expect erosion of demand for some of the legacy product ranges but, as demonstrated, this is increasingly offset by growth from our new product offering.

Consolidated statement of comprehensive income

unaudited interim results to 31 July 2015

	Unaudited	Unaudited	Audited
	Half year to	Half year to	Year to
	31 July 2015	31 July 2014	31 January 2015
	£m	£m	£m
Revenue (see Note 2)	22.0	22.1	44.4
Cost of sales	(13.9)	(14.6)	(28.6)
Gross profit	8.1	7.5	15.8
Operating expenses
Net operating expenses (excluding non-recurring or special items)	(7.5)	(6.9)	(14.1)
Operating profit before non-recurring or special items	0.6	0.6	1.7
Non-recurring or special items (see Note 3)	(0.2)	(1.0)	(1.2)
Total operating expenses	(7.7)	(7.9)	(15.3)
Operating profit/(loss)	0.4	(0.4)	0.5
Finance costs	(0.1)	(0.2)	(0.3)
Profit/(loss) before taxation	0.3	(0.6)	0.2
Taxation (see Note 4)	-	-	-
Profit/(loss) for the period attributable to equity shareholders	0.3	(0.6)	0.2
Other comprehensive expense
Currency translation differences on foreign currency net investments	(0.3)	(0.2)	(0.2)
Total other comprehensive expense	(0.3)	(0.2)	(0.2)
Total comprehensive income for the period attributable
to equity shareholders	-	(0.8)	-
Earnings/(loss) per share from Continuing Operations (see Note 5)
- Basic and Diluted EPS	0.2p	(0.5)p	0.1p
- Adjusted and Diluted adjusted EPS	0.3p	0.3p	1.0p

The accompanying notes form an integral part of this consolidated interim financial information.

Consolidated balance sheet

at 31 July 2015

		Unaudited	Unaudited	Audited
		31 July 2015	31 July 2014	31 January 2015
		£m	£m	£m
Assets
Non-current assets
Capitalised R&D		4.2	3.3	3.5
Other intangible assets		2.0	2.5	2.3
Property, plant and equipment		2.7	2.9	2.8
Total non-current assets		8.9	8.7	8.6
Current assets
Inventories		5.1	5.6	5.4
Trade and other receivables		6.6	7.8	6.8
Cash and cash equivalents		0.5	0.7	0.6
Total current assets		12.2	14.1	12.8
Total assets		21.1	22.8	21.4
Current liabilities
Trade and other payables		7.0	7.1	6.8
Borrowings		1.2	1.0	1.0
Current portion of long-term borrowings		1.2	1.5	1.3
Provisions		0.1	0.2	0.2
Current Tax payable		0.1	-	-
Total current liabilities		9.6	9.8	9.3
Non-current liabilities
Long-term borrowings		0.2	2.9	1.0
Long-term provisions		0.3	0.1	0.2
Total non-current liabilities		0.5	3.0	1.2
Total liabilities		10.1	12.8	10.5
Net assets		11.0	10.0	10.9
Equity attributable to equity holders of the parent
Called-up share capital		9.3	9.3	9.3
Share premium		5.4	5.4	5.4
Merger reserve		1.1	1.1	1.1
Capital redemption reserve		0.2	0.2	0.2
Own shares		(3.5)	(3.5)	(3.5)
Other reserves		0.8	0.6	0.7
Translation reserve		(1.1)	(0.8)	(0.8)
Retained earnings		(1.2)	(2.3)	(1.5)
Total equity		11.0	10.0	10.9

The accompanying notes form an integral part of this consolidated interim financial information.

Consolidated statement of changes in equity

unaudited interim results to 31 July 2015

				Capital
	Share	Share	Merger	redemption	Own	Other	Translation	Retained
	capital	premium	reserve	reserve	shares	reserves	reserve	earnings	Total
	£m	£m	£m	£m	£m	£m	£m	£m	£m
At 1 February 2014	6.0	5.4	1.1	0.2	(3.5)	0.5	(0.6)	(1.7)	7.4
Loss for the period	-	-	-	-	-	-	-	(0.6)	(0.6)
Currency translation
differences on foreign
currency net investments	-	-	-	-	-	-	(0.2)	-	(0.2)
Total comprehensive
income for the period	-	-	-	-	-	-	(0.2)	(0.6)	(0.8)
Share issue	3.3	-	-	-	-	-	-	-	3.3
Credit in respect of share
based payments	-	-	-	-	-	0.1	-	-	0.1
At 31 July 2014	9.3	5.4	1.1	0.2	(3.5)	0.6	(0.8)	(2.3)	10.0
Profit for the period	-	-	-	-	-	-	-	0.8	0.8
Currency translation
differences on foreign
currency net investments	-	-	-	-	-	-	-	-	-
Total comprehensive
income for the period	-	-	-	-	-	-	-	0.8	0.8
Credit in respect of share
based payments	-	-	-	-	-	0.1	-	-	0.1
At 1 February 2015	9.3	5.4	1.1	0.2	(3.5)	0.7	(0.8)	(1.5)	10.9
Profit for the period	-	-	-	-	-	-	-	0.3	0.3
Currency translation
differences on foreign
currency net investments	-	-	-	-	-	-	(0.3)	-	(0.3)
Total comprehensive
income for the period	-	-	-	-	-	-	(0.3)	0.3	-
Credit in respect of share
based payments	-	-	-	-	-	0.1	-	-	0.1
At 31 July 2015	9.3	5.4	1.1	0.2	(3.5)	0.8	(1.1)	(1.2)	11.0

The Treasury shares are held by the Elektron Technology 2012 Employee Benefit Trust.

The accompanying notes form an integral part of this consolidated interim financial information.

Consolidated statement of cash flows

unaudited interim results to 31 July 2015

	Unaudited	Unaudited	Audited
	Half year to	Half year to	Year to
	31 July 2015	31 July 2014	31 January 2015
	£m	£m	£m
Net cash flows from operating activities
Profit/(loss) before taxation
- From continuing operations	0.3	(0.6)	0.2
Adjustments for:
Depreciation charge	0.4	0.4	0.8
Non-recurring or other special items
- Continuing                                                                            (Including £0.1m Amortisation of intangibles (H1 FY15 0.1m; FY15 £0.2m)	0.2	1.0	1.2
Amortisation of Capitalised R&D and other intangibles	0.5	0.3	0.9
Loss on disposal of fixed assets	0.1	0.1	0.1
Interest payable	0.1	0.2	0.3
Operating cash flow before working capital changes
and non-recurring or special items	1.6	1.4	3.5
Decrease in trade and other receivables	0.2	1.7	2.7
Decrease in inventories	0.3	0.6	0.8
Increase/(Decrease) in trade payables	0.2	(1.8)	(2.1)
Payments for non-recurring and other special items	(0.1)	(0.8)	(1.1)
Other non-cash movements	(0.1)	(0.1)	-
Cash generated by operations	2.1	1.0	3.8
Interest paid	(0.1)	(0.2)	(0.3)
Net cash inflow/(outflow)from operating activities	2.0	0.8	3.5
Investing activities
Purchase of property, plant and equipment	(0.4)	(0.1)	(0.5)
Capitalisation of R&D costs	(1.0)	(0.4)	(1.1)
Disposal of business	-	-	0.1
Net cash used in investing activities	(1.4)	(0.5)	(1.5)
Cash flows from financing activities
Decrease in bank loans	(0.7)	(3.3)	(5.2)
Payment of hire purchase and finance liabilities	-	(0.1)	(0.3)
Proceeds from share issue	-	3.3	3.3
Expenses on share issue	-	(0.3)	-
Net cash used in financing activities	(0.7)	(0.4)	(2.2)
Net decrease in cash and cash equivalents	(0.1)	(0.1)	(0.2)
Cash and cash equivalents at the beginning of period	0.6	0.8	0.8
Cash and cash equivalents at the end of period	0.5	0.7	0.6

The accompanying notes form an integral part of this consolidated interim financial information

Notes to the unaudited interim results

to 31 July 2015

1. Accounting policies

The interim 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 are included in the Annual Report for the year ended 31 January 2015. Fixed annual charges are apportioned to the interim period on the basis of time elapsed. Other expenses are accrued in accordance with the same principles used in the preparation of the annual accounts.

The Group has not applied IAS 34, Interim Financial Reporting, which is not mandatory for UK AIM Groups, in the preparation of these interim financial statements.

2. Segmental reporting

	Half year to	Half year to	Year to
Geographic	31 July 2015	31 July 2014	31 January 2015
£m	£m	£m
United Kingdom	9.8	9.7	19.3
Rest of Europe, Middle East & Africa	6.1	6.2	12.3
Asia Pacific	2.2	2.5	5.1
Americas	3.9	3.7	7.7
Total	22.0	22.1	44.4
	Half year to	Half year to	Year to
Product segment	31 July 2015	31 July 2014	31 January 2015
£m	£m	£m
Connectivity	13.3	13.1	25.8
Instrumentation, Monitoring & Control	8.6	8.9	18.4
Total Connectivity and IMC	21.9	22.0	44.2
Checkit	0.1	0.1	0.2
Total	22.0	22.1	44.4

Operating profit/(loss) before non-recurring or special items

	Half year to	Half year to	Year to
Product segment	31 July 2015	31 July 2014	31 January 2015
£m	£m	£m
Connectivity	2.2	1.4	2.9
Instrumentation, Monitoring & Control	(0.8)	(0.5)	(0.5)
Total Connectivity and IMC	1.4	0.9	2.4
Checkit	(0.8)	(0.3)	(0.7)
Total	0.6	0.6	1.7

Operating profit/(loss)

	Half year to	Half year to	Year to
Product segment	31 July 2015	31 July 2014	31 January 2015
£m	£m	£m
Connectivity	2.1	0.8	2.2
Instrumentation, Monitoring & Control	(0.9)	(0.9)	(1.0)
Total Connectivity and IMC	1.2	(0.1)	1.2
Checkit	(0.8)	(0.3)	(0.7)
Total	0.4	(0.4)	0.5

3. Non-recurring or special items

Non-recurring or special items are disclosed separately to improve visibility of underlying business performance. Management has defined such items as restructuring and site closure costs, acquisition costs, amortisation of acquired intangible assets, share-based payments and non-recurring items incurred outside the normal course of business.

	Half year to	Half year to	Year to
	31 July 2015	31 July 2014	31 January 2015
	£m	£m	£m
Cash items    Strategic review and banking advisory costs	-	0.5	0.8
Share issue costs	-	0.3	-
Non-Cash items    IFRS 2 charge	0.1	0.1	0.2
Amortisation of acquired intangible assets	0.1	0.1	0.2
Total	0.2	1.0	1.2

4. Taxation

The tax credit/(charge) on profit/( loss) from continuing operations before taxation has been estimated at a rate of nil (July 2014: nil, January 2015: nil).

5. Earnings/(loss) per share

The calculation of the basic, adjusted and diluted earnings per share is based on the following data:

Earnings/(loss)

Earnings/(loss) from Continuing Operations	31 July 2015	31 July 2014	31 January 2015
£m	£m	£m
Earnings/(loss) for the purposes of the basic earnings/(loss) per share	0.3
being net profit/(loss) attributable to the owners of the Company	(0.6)	0.2
Adjustment in respect of non-recurring or special items	0.2
net of taxation of nil (July 2014: nil, January 2015 : nil)	1.0	1.2
Earnings for the purposes of adjusted earnings per share	0.5	0.4	1.4
	31 July 2015	31 July 2014	31 January 2015
Weighted average number of ordinary shares for the purposes	167,604,133
of basic earnings per share	115,498,780	140,221,240
Effect of dilutive potential ordinary shares: Share options	-	-	-
Weighted average number of ordinary shares for the purposes	167,604,133
of diluted earnings per share	115,498,780	140,221,240
(Loss)/earnings per share
	31 July 2015	31 July 2014	31 January 2015
From Continuing Operations
Basic and Diluted EPS	0.2p	(0.5)p	0.1p
Adjusted and Diluted adjusted EPS	0.3p	0.3p	1.0p

6. Cautionary Statement

This interim financial information has been prepared only for the shareholders of Elektron as a whole and its sole purpose and use is to assist shareholders to exercise their governance rights. Elektron and its directors and employees are not responsible for any other purpose or use or to any other person in relation to this report.

The report contains indications of likely future developments and other forward-looking statements that are subject to risk factors associated with, among other things, the economic and business circumstances occurring from time to time in the countries, sectors and business segments in which the Group operates. Key risks and their mitigation have not changed materially in the period from those disclosed on pages 11 to 14 of the annual financial statements for the year ended 31 January 2015.

These and other factors could adversely affect the Group's results, strategy and prospects. Forward-looking statements involve risks, uncertainties and assumptions. They relate to events and/or depend on circumstances in the future which could cause actual results and outcomes to differ materially from those currently anticipated. No obligation is assumed to update any forward looking statements, whether as a result of new information, future events or otherwise.

7. Other information

The financial information in this statement does not constitute statutory accounts within the meaning of section 434 of the Companies Act 2006. The financial information in respect of the year ended 31 January 2015 has been extracted from the statutory accounts, which have been filed with the Registrar of Companies. The auditor's report on those accounts was unqualified and did not contain a statement under Section 498(2) or 498(3) of the Companies Act 2006.

Copies of the interim results are available to download from the Group's website www.elektron-technology.com.

This information is provided by RNS

The company news service from the London Stock Exchange

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