Final Results

RNS Number : 4815F

Elektron Technology PLC

18 May 2017

 

18 May 2017

Elektron Technology plc

Final results for the Year Ended 31 January 2017

Elektron Technology plc ("Elektron" or "The Group" or "We") announces its final audited results for the year ended 31 January 2017

 Group highlights

·      A year of streamlining with three disposals generating £2.9m, with a further disposal generating £0.3m shortly after the year end.

·      Net cash at year end of £1.0m (2016: net debt of £1.6m).

·      Torquay factory to close with operations moving to an existing factory in West Molesey.

·      Revenues from continuing operations of £32.7m (2016: £34.1m).

·      Bulgin net margin improved on sales of £24.1m, in difficult trading conditions immediately post-Brexit with underlying¹ operating profits of £3.7m (2016: £25.8m and £3.8m respectively). Management focus is now on growing sales in this historically low growth business whilst maintaining margins.

·      Checkit sales of £0.3m and start-up underlying¹ operating loss of £3.5m (2016: £0.2m and £2.2m loss respectively). Management focus is on converting the significant opportunities that face this business.

·      Instrumentation, Monitoring and Control (IMC) sales (from continuing operations) of £8.3m and underlying¹ operating loss of £1.0m (2016: £8.1m and £1.4m loss respectively). Management focus is on eliminating losses following sale of non-core businesses in prior and current year and further organic sales growth.

·      Operating loss from continuing operations of £1.6m (after making provisions of £0.8m for the closure of the Torquay site) (2016 profit: £0.2m).

·      Ex-Checkit operating profit of £1.9m (2016: £2.4m).

·      Profits from and arising on sale of discontinued operations of £0.8m (2016: £0.7m).

·      Loss for the period attributable to shareholders of £0.1m (2016: profit of £0.6m).

·      Expenditure on new product development and streamlining is expected to peak in current year.

·      Bulgin, the Group's main profit generator has made a promising start to the new financial year with orders ahead of last year. Other businesses are performing in line with management's expectations.

1 Before non-recurring or special items. Further details in Note 3 and 6

John Wilson, Chief Executive Officer of Elektron, said:

"The Group has taken further steps during the year to focus its portfolio of businesses on those capable of delivering sustained future growth, realising £2.9m from disposals as a result.  Bulgin has made a promising start to the new financial year which should underpin the continued investment in new product development, that the Board believes will deliver growth in the medium term."

Enquiries:

Elektron Technology  www.elektron-technology.com	[phone]
John Wilson - Chief Executive Officer
Andy Weatherstone - Chief Financial Officer
finnCap	[phone]
Ed Frisby / Scott Mathieson - Corporate Finance
Abigail Wayne  - Corporate Broking

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 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:

- Demand for ubiquitous power and data: Bulgin

- New waves of "aware" business applications: Checkit

- The effect of ageing on sight: Elektron Eye Technology

- Quality testing and inspection instruments: Sheen

- Growth in high precision manufacture: Queensgate

2017 review

Overview

Group revenue from continuing operations was approximately £32.7m compared with £34.1m for the previous year. Trading in the second half of the year on continuing operations showed some recovery from the slowdown in the first half driven by difficult trading conditions as a result of the Brexit vote, with a marginal increase over the second half of the prior year. Underlying trading performance from continuing operations benefited from the improved mix of sales and further cost savings to offset the impact on gross profit of the overall fall of £1.4m in sales when compared to the previous financial year. Overall underlying¹ operating performance showed a loss of £0.8m (2016: profit of £0.2m) principally due to planned increase in investment in Checkit sales and marketing over the prior year.

As announced on 8 December 2016, the Group will close the majority of its Torquay operations in August 2017 at a cost of approximately £0.8m for which the Group has made provision at 31 January 2017, resulting in operating loss of £1.6m (2016: profit £0.2m).

The result for the period included £0.8m from discontinued operations (Qados, Agar, Carnation Designs, Wallace Instruments and Digitron) (2016: £0.7m) giving a loss after tax attributable to shareholders of £0.1m (2016: profit of £0.6m).

The balance sheet remains strong with net cash at year end of £1.0m (2016: net debt of £1.6m). Of note were fixed assets (including capitalised new product development) which showed reduction from £8.8m to £6.3m as a result of a reduction in capitalisation of new NPD. £3.2m was charged in respect of depreciation and amortisation. In addition the Group recognised deferred tax assets of £0.9m.

Group strategy

The Group is simplifying its operations in order to enable management to focus solely on those businesses which the Board believes offer potential for sales and margin growth. Subsequent to the year end, the sale of Digitron was announced and discussions regarding the disposal of Titman Tip Tools are in progress. The Board is targeting growth in sales across each of the remaining businesses. The Group plans to continue its new product development programme and will invest in excess of the cash generated from its operations in FY18 in order to grow and maintain the momentum in Bulgin, Checkit and smaller businesses and in completing the site consolidation. Expenditure on new product development and streamlining is expected to peak in the current year.

Five businesses have been prioritised for investment, namely:

·      Bulgin - a designer and manufacturer of connectors, switches and bespoke applications that is currently the major profit and cash generator within the Group.

·      Checkit - a potentially high growth recurring revenue business that transforms operational processes for companies, moving them from pen and paper to the cloud. This business is currently the major focus for investment.

Plus three niche businesses forming the IMC segment:

·      Elektron Eye Technology - a designer of instrumentation for visual field and macular pigment screening to the ophthalmological, optometry and associated industry sectors.

·      Queensgate - a designer of nanopositioning systems used in microscopy, metrology, semiconductor and hard disc manufacturing as well as "Big Science" and space applications.

·      Sheen - a well-established materials testing equipment supplier primarily in the paint, coating and automotive markets.

All these businesses have developed five-year business plans including new product development roadmaps.

Bulgin

	2017	2016
	£m	£m
Sales	24.1	25.8
Underlying operating profit1	3.7	3.8
Operating profit	3.3	3.8

1. Before non-recurring or special items

Bulgin's product range includes ruggedised products used in harsh environments where a high level of ingress protection is required. Market launches of substantial newly developed products, combined with iterative product development and bespoke solutions are key to Bulgin's strategic offering. This focus has resulted in the high margin circular connector ranges now generating approximately 50% of Bulgin revenues. Conversely, the commoditised, low margin switch business has declined to approximately 35% of Bulgin turnover. Five years ago this was in excess of 50%. This has been driven through Bulgin's continuous simplification programme. It has dramatically reduced the number of switch product variants on offer and price increases have been implemented to protect margins where possible.

Having identified future growth potential in the data and telecoms market, Bulgin has begun to develop optical fibre connector technology. When coupled with Bulgin's speciality of harsh environment connectivity, this product area is well aligned for high margin growth. Bulgin's product roadmap will address markets for other growth areas and differentiate its offering.

Alongside a broad product offering sold predominantly through distribution, Bulgin seeks to offer bespoke solutions to OEM customers. Bulgin's value proposition is to understand the customer's connection needs and develop a solution that meets performance and cost objectives. By doing this, Bulgin can become further integrated with customers, which in turn lays the foundation for solid, long-term relationships. The benefit to Bulgin through adopting this strategy is "print position", in which the customer has a sole source supplier, as the IP is owned by Bulgin.

During the year the Connectivity business adopted the name "Bulgin" for its entire portfolio of products, including Arcolectric switches. This strategic "merger" will further broaden the range of components and value-added solutions available to customers, as well as increase customer recognition.

Bulgin experienced a weakness in demand at the end of H1 as its channel partners responded to the economic conditions following the Brexit vote. This weakness continued in early Q3 but demand returned to normal levels thereafter. As a result of the significant depreciation of GBP, following the Brexit vote, Bulgin immediately increased prices, on average 5%, to offset the significantly higher input prices denominated in USD.

Investment in marketing and data analysis tools has provided Bulgin with comprehensive insight into the end users of its products through advanced point-of-sale ("POS") information provided by the distribution channel. During the year, whilst turnover declined 7% over prior year due to uncertainty leading to distributor destocking, the number of end users increased from c.70,000 to c.75,000, with a corresponding increase in the value of product sold by its distribution partners.

The Buccaneer® 4000 series range was successfully rolled out during the year, with all major global distribution partners purchasing stocking packages to satisfy regional demand. The 4000 series provides the same twist lock coupling and "fit and forget" connectivity as the successful 6000 and 7000 series, in a more compact format, making it easier for product engineers to integrate into their system designs.

In the early part of the current financial year, Bulgin launched its new M-Series connector range. In the US a six-month exclusivity agreement was signed with a major distributor upon placement of a stocking order in excess of $250,000. Bulgin will be launching further new products throughout the course of the year.

Checkit

	2017	2016
	£m	£m
Sales	0.3	0.2
Underlying operating loss1	(3.5)	(2.2)

1. Before non-recurring or special items

Checkit is building a new, recurring revenue-based business within Elektron that offers the potential for significant growth in coming years. Checkit's services transform the performance of common operational processes in global industries, moving them from pen and paper to the cloud. It helps businesses where critical, laborious tasks and measurements are essential for managing safety and quality, but are performed and recorded manually in almost all cases - wasting cost, placing revenues and growth at risk and denying managers visibility.

Its initial focus is on food service and related businesses (facilities management, healthcare, biotech and food manufacture).

This transformation is brought within reach by innovating and using Internet of Things and mobile technologies. Previous generations of solutions have suffered from excessive costs and complexity of implementation. Checkit's market-leading product set changes this, using wireless sensors to track storage and environmental conditions, smart handheld checklists to guide and control human checks and a cloud platform to provide management, storage and control. Hardware and software are delivered seamlessly as a service on a subscription basis.

The impact of Checkit on customer businesses is compelling. Its product architecture and pricing make adoption affordable and low risk, and projects deliver rapid, low risk payback from increased operating efficiency, plus improved compliance and protection of revenues.

Checkit estimates that in the UK and USA alone there are 3.5 million operating sites that are candidates for its solutions, and that the market is potentially worth £1.2 billion per annum as adoption takes off. Checkit is ideally placed to take advantage of this major move from paper to automation and IT support for workers.

During 2016 Checkit completed the launch of its next generation platform with the launch of Automated Monitoring. This provides wireless monitoring of temperature and humidity as well as monitoring door status, providing customers with the confidence that goods are being stored in compliant, safe conditions and that plants are operating correctly. It also saves considerable time every day when compared to performing and recording manual checks.

Checkit leads its competitors because of its combination of:

·      Seamless integration of Work Management (checklist execution using apps and robust handhelds - launched in 2015) and the new Automated Monitoring in a single product set.

·      A completely cloud-based architecture, meaning no server or software to install or manage and providing instant linkage across sites and accessibility from any browser.

·      As a connected service this also means that Checkit can be managed and supported remotely and is continually updated and upgraded with no effort from customers.

·      A simple and powerful checklist-building engine providing a powerful point-and-click environment to build almost any checklist workflow in your browser that can be deployed to any site or region.

·      Approved checklist content for food businesses - Checkit has led the way by working with local government and the Food Standards Agency to develop off the shelf, approved checks for smaller food businesses backed up by approved advice services.

·      Ease of use for operators - Checkit's simple, intuitive user interface means our customers' staff need almost no training to get up and running.

All these capabilities are delivered as a service that encompasses hardware, software, calibration, maintenance and customer care with a simple, affordable pricing approach. A typical small restaurant solution would pay for itself if 20 minutes' work per day were saved. This could be easily achieved in terms of fridge checks alone.

During financial year 2018 ("FY18") Checkit will increase the range of sensors it provides and release features that allow customers to perform more sophisticated checks and realise the potential of the data they are gathering to deliver insights and better decision making in their businesses.

Entering the new financial year, Checkit has passed 100 customers, with its sensors now collecting 1.5 million readings a week. Checkit revenues showed an increase from £0.2m to £0.3m during this year.

In terms of enterprise customers, Checkit is working with a number of potentially large users of the service. It recently obtained favoured supplier status with a multinational facilities management company that views the systems as giving it a competitive advantage when pitching to new clients as well as delivering increased value and better managing compliance. Additionally Checkit is working actively on trials and evaluations with quick service and catering businesses of significant scale.

In parallel with developing major, long sales cycle accounts, Checkit is also focused on small chains and large single-site opportunities.

The loss represents continuing investment in sales and marketing of the product as well as in customer service and support. A further £1.4m of investment in product development was capitalised. The key launches to the market as a result were:

·      Checkit Automated Monitoring - a fully cloud-based wireless sensing solution.

·      Checkit Solo - a market first small business offering that provides pre-built food safety checks that can be sold online using remote demonstration techniques.

The focus for 2017/18 is the expansion of the customer base through:

·      continuing direct sales to enterprise and mid-market businesses, building on the momentum built with these businesses in the prior year;

·      expanding the sales of the Solo product for SMEs through increased web, email and advertising-based marketing; and

·      leveraging the networks of consulting partners who can use Checkit to provide new levels of service to their clients.

Looking further ahead, Checkit has noted the commitment of the Food Standards Agency to pilot new, more efficient inspection regimes and its recognition that there is a "major opportunity to use technology to fundamentally change the way we regulate the food industry". Checkit is ideally placed to capitalise on this major shift.

 

IMC

	2017	2016
	£m	£m
Sales	8.3	8.1
Underlying operating loss1	(1.0)	(1.4)
Operating loss	(1.4)	(1.4)

1. Before non-recurring or special items

The following four businesses are aggregated within the IMC segment. Data relating to individual businesses is not disclosed separately.

Elektron Eye Technology

Elektron Eye Technology (EET) designs instrumentation for visual field and macular pigment screening, marketing to the ophthalmological, optometry and associated industry sectors.

EET revenue increased by 10% over the prior year as a result of increased sales of Henson 9000 Perimeters. Growth was further realised via the strategy of selling macular pigment screeners as an enabler for eye health products, which gained traction during the year.

EET will continue to increase sales of perimeters via channel partners globally, with a programme of hardware and software upgrades that will increase the functionality of the device and improve user experience. EET will also increase sales of macular pigment screeners by using close ties with eye health supplement manufacturers. EET will be evaluating products to complement its range of devices to screen for diseases of the posterior segment of the eye.

The Americas represent the largest global market for visual field analysers, with a 29% share; hence Elektron Eye Technology is targeting this area and working to develop relationships with medical equipment distributors in Central and Southern America. In these regions, channel partners have created demand for the EET Henson 9000 Perimeter by promoting test speed and ease of use of the instrument, which has resulted in patients requesting that ophthalmologists carryout their visual field screenings using the EET device rather than that of its competitors.

The patients are thus able to take their tests comfortably and quickly and the doctors can assess more patients in their busy clinics.

EET's MPS II (MPS) Macular Pigment Screener measures macular pigment optical density or MPOD. As low MPOD is a significant risk factor for age-related macular degeneration (AMD), which is the leading cause of vision loss in people over 50, and as high energy blue light and harmful UV light damages macular pigment, EET has worked with manufacturers of lens coatings that filter the harmful UV rays and blue light and, in doing so, protect the macula. The lens manufacturers have used the MPS to measure the efficacy of their lenses in reducing damage to the macula and loss of MPOD and therefore as an enabler to promote sales of their lenses in optical stores.

Queensgate

Products are used in microscopy, metrology, semiconductor and hard disc manufacturing as well as "Big Science" and space applications. It has a range of "off the shelf" products covering a range of applications but specialises in creating tailored offerings for OEMs where positioning performance is critical, such as hard disc testing, semiconductor instrumentation and atomic force microscopy.

Whilst revenues in the year were flat compared to the prior year this does not reflect the progress made by the business with new product development and distribution. Over 60% of the previous year's turnover was represented by one customer whilst this year saw an increased spread of customers.

Development of a multichannel controller for release in the first half of FY18 provides a solution for multi-axis applications such as atomic force microscopy (a very high resolution form of scanning probe microscopy) and laser beam steering applications of interest in aerospace and photonics.

There is already interest in this system which provides a cost-effective solution for applications needing the highest precision while maintaining good dynamic performance.

As Queensgate builds stronger relationships with distribution partners, FY18 is seeing increased business from the Far East, in particular Japan. Over the decades, Queensgate has undertaken various space-borne projects in collaboration with companies working for NASA, JAXA and ESA. These projects included precision capacitance micrometres and this year saw development and delivery of such a prototype sensor system.

Development continued on the next generation positioning systems for incorporation into hard disc testers. The new stage, which will be launched in the current year, can achieve resolutions of half the diameter of a hydrogen atom and speeds of 1,000 cycles per second. This development will reduce the cost of testing and help Queensgate maintain its position as a technology leader.

Queensgate accounted for the majority of losses in the IMC segment for the year in view of its status as a quasi-start-up business as the Group invests to re-establish the brand, with sales progress expected in the current financial year.

Sheen

Sheen Instruments celebrates 70 years as a leading manufacturer of quality appearance, physical and viscosity testing products, used in QA laboratories around the world including the coatings, automotive and packaging industries.

FY18 will see Sheen embark on a three-year new product development programme, which will encompass modernising Sheen's product range. The first of these instruments to be released this year is the new SH9003 colour touch screen, a fully custom programmable abrasion tester.

Also, currently under development is the new series of viscometer instruments.

Sheen viscometer sales are predominantly to the coatings and paint manufacturing industry. However, the new technology will also enable Sheen in the future to gain growth in other markets like pharmaceutical, food and cosmetics manufacturing.

Sheen produced a small loss in the year.

Titman

The Group also owns a small router cutter business, Titman Tip Tools, which is subject to potential sale discussions.

Subsequent to year end the Group has disposed of its Digitron business for £0.3m, which was announced on 27 March 2017.

People

The Group continued to hire experienced professionals, particularly for its growth businesses, during the year. The commitment of Elektron's people in what remains a challenging environment has yet again been remarkable.

An Equality and Diversity Committee is now in place to build and form a culture within Elektron Technology that values difference in the workplace. The Committee will review, develop and provide feedback on policies and help communicate them more effectively across the Company.

A number of actions have been identified, starting with a UK employee survey. Benchmarking the Company against best practice will allow year-on-year improvement. Communicating and recognising where the Company excels will create a more positive and inclusive working environment.

Outlook

The Group has made an encouraging start to the new financial year and is seeing increased orders, over the prior year, at Bulgin, which is currently the main profit and cash generator. Checkit continues its discussions with a number of large users of its services, although the build-up of substantial revenue from this multi-year project is likely to take some time in view of its subscription model and the phasing of the customer adoption process. The three small businesses within IMC are progressing in line with management's expectations.

Keith Daley

Executive Chairman

John Wilson

Chief Executive Officer

17 May 2017

Financial review

Overview

The disposal programme delivered £2.6m (net of deferred consideration) in proceeds resulting in a Group net cash position of £1.0m (2016: £1.6m net borrowings). Group EBITDA (earnings before interest, taxation, depreciation and amortisation) was £2.2m (2016: £2.7m) which reflected the increased investment into marketing and promotion of its growth businesses.

Group revenue from continuing operations for the year decreased by 4% to £32.7m (2016: £34.1m), principally as a result of reduced demand experienced in Bulgin in the first half of the year due to Brexit. Checkit, as a start-up operation, contributed £0.3m (2016: £0.2m) of Group revenue.

The continued focus on operational margin improvement helped offset the impact of the reduced level of sales on operating profits from businesses, excluding Checkit.

After Checkit's increased start-up losses of £3.5m (2016: £2.2m), underlying Group operating loss was £0.8m (2016: profit of £0.2m).

As part of the Group's brand rationalisation strategy, it has also reviewed the sites from which it operates. The China office was closed during the year and the closure of its Torquay site was also announced. Post-year end the Group has also taken the decision to close its Singapore sales office and also to relocate all of its IT and finance teams from Stansted to Cambridge. The Group has made a restructuring charge of £0.8m in respect of its Torquay site closure, most of which will be spent in the first half of the new financial year. It is expected that savings from this site closure will offset the lost contribution resulting from the brand rationalisation and generate a net £0.3m improvement to underlying operating profits over a full year.

Overall operating losses from continuing operations amounted to £1.6m (2016 profit: £0.2m).

Discontinued operations contributed £0.8m (2016: £0.7m), £0.7m of which related to the profits realised from their disposal.

New product development (NPD)

Elektron spent £3.2m on NPD and sustaining engineering in the financial year (2016: £2.9m).

Of this, £1.6m was capitalised (2016: £1.9m), mainly focused on Checkit and Queensgate. The net book value of capitalised NPD is as follows:

	2017	2016
	£m	£m
Bulgin	0.1	0.7
Queensgate	0.4	0.8
EET	0.3	0.4
Subtotal	0.8	1.9
Checkit	3.1	2.4
Total	3.9	4.3

The Board has undertaken a detailed review of the business plans, including a sensitivity analysis, supporting the justification of the carrying value of its NPD investment.

Taxation

Following a restructuring of the legal entities within the Group and a review of future profitability,

the Group has recognised deferred taxation assets of £0.9m in respect of timing differences in respect of its largest trading subsidiary. At 31 January 2017 the Group had estimated unused trading losses in excess of £3.0m (2016: £4.5m) to offset against future UK profits. The current tax charge in the year of £0.2m (2016: £0.2m) is in respect of profits earned overseas.

(Loss)/earnings per share

The average number of ordinary shares in issue during the year was 172.2 million (2016: 171.0 million) (excluding shares held by the Employee Benefit Trust). Basic loss per share in respect of continuing operations before non-recurring or special items were 0.1 pence (2016: 0.1 pence).

After taking into account non-recurring or special items to the financial statements (see Note 4) the Group recorded a loss per share on continuing operations of 0.5 pence (2016: 0.1 pence).

Cash flow and net debt

The Group generated cash of £1.6m (2016: £3.8m) from operations.  This reduction in cash generated was due mainly to investment in Checkit start-up costs. In addition, working capital of £0.7m was absorbed due to higher sales in the latter part of the year (2016: £0.2m reduction).

Total capital investment in the year was a net £1.9m (2016: £2.7m), representing 59% (2016: 104%) of depreciation and amortisation.

After cash proceeds received from the disposal programme of £2.6m, the overall net debt was reduced by £2.6m resulting in a net cash position of £1.0m (2016: £1.6m net borrowings).

Bank facilities, covenants and going concern

At 31 January 2017 the Group had available facilities of £3.6m which include a revolving credit facility of £1.2m, available invoice finance facilities of £2.2m (which could increase up to £5.0m depending on sales levels) and leasing facilities of £0.1m, together with a bank overdraft of £0.1m. At 31 January 2017 available headroom on these facilities was £2.1m. In addition the Group had £2.5m 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, should actual performance fall below the current forecast levels in this period, the Group has a number of mitigating factors available to it and 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 and to implement its restructuring programme, 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

17 May 2017

Consolidated statement of comprehensive income

year ended 31 January 2017

	Notes	2017 £m	Re-stated3 2016 £m
Revenue	2	32.7	34.1
Cost of sales		(19.9)	(21.6)
Gross profit		12.8	12.5
Operating expenses
Operating expenses (excluding non-recurring or special items1)		(13.6)	(12.3)
Operating profit before non-recurring or special items		(0.8)	0.2
Non-recurring or special items	3	(0.8)	-
Total operating expenses		(14.4)	(12.3)
Operating (loss)/profit		(1.6)	0.2
Finance costs		-	(0.1)
(Loss)/profit before taxation		(1.6)	0.1
Taxation	7	0.7	(0.2)
Loss from continuing operations		(0.9)	(0.1)
Profit from discontinued operations	8	0.8	0.7
(Loss)/profit for the  period attributable to equity shareholders		(0.1)	0.6
Other comprehensive expense
Items that may be reclassified subsequently to profit or loss
Exchange differences on translation of foreign operations		0.4	-
Total comprehensive income for the financial year attributable to equity shareholders		0.3	0.6
EPS measures - from continuing operations
Basic and diluted EPS	4	(0.5p)	(0.1p)
Adjusted EPS measures - from adjusted profits from continuing operations2
Basic and diluted EPS	4	(0.1p)	(0.1p)

1 See Note 3 to financial statements for definition.

2 Before non-recurring and special items.

3 See Note 8.

Consolidated balance sheet

as at 31 January 2017

		2017 £m	2016 £m
Assets
Non-current assets
Capitalised development costs		3.9	4.3
Other intangible assets		0.4	1.8
Property, plant and equipment		2.0	2.7
Total non-current assets		6.3	8.8
Current assets
Inventories		4.8	5.7
Trade and other receivables		7.6	6.9
Deferred tax asset		0.9	-
Assets held for resale		0.3	-
Cash and cash equivalents		2.5	0.6
Total current assets		16.1	13.2
Total assets		22.4	22.0
Current liabilities
Trade and other payables		7.0	7.2
Borrowings		1.5	2.2
Current Tax payable		0.2	0.2
Provisions		1.0	0.5
Total current liabilities		9.7	10.1
Non-current liabilities
Long-term provisions		0.5	0.3
Total non-current liabilities		0.5	0.3
Total liabilities		10.2	10.4
Net assets		12.2	11.6
Equity attributable to the owners of the Company
Called up share capital		9.3	9.3
Share premium		5.4	5.4
Merger reserve		1.1	1.1
Capital redemption reserve		0.2	0.2
Own shares		(1.9)	(3.5)
Other reserves		0.8	0.8
Translation reserve		(0.4)	(0.8)
Retained earnings		(2.3)	(0.9)
Total equity		12.2	11.6

Consolidated statement of changes in equity

Year ended 31 January 2017

	Share capital £m	Share premium £m	Merger reserve £m	Capital redemption reserve £m	Own shares1 £m	Other reserves £m	Translation reserve £m	Retained earnings £m	Total £m
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 year	-	-	-	-	-	-	-	0.6	0.6
Total comprehensive income for the year	-	-	-	-	-	-	-	0.6	0.6
Credit to equity for share-based payments	-	-	-	-	-	0.1	-	-	0.1
At 31 January 2016	9.3	5.4	1.1	0.2	(3.5)	0.8	(0.8)	(0.9)	11.6
Loss for the year	-	-	-	-	-	-	-	(0.1)	(0.1)
Currency translation differences on foreign currency net investments	-	-	-	-	-	-	0.4	-	0.4
Total comprehensive income for the year	-	-	-	-	-	-	0.4	(0.1)	0.3
Sale/release of own shares	-	-	-	-	1.6	-	-	(1.3)	0.3
At 31 January 2017	9.3	5.4	1.1	0.2	(1.9)	0.8	(0.4)	(2.3)	12.2

1     The Treasury shares are held by the Elektron Technology 2012 EBT.

Consolidated statement of cash flows

year ended 31 January 2017

	Notes	2017 £m	2016 £m
Net cash inflow from operating activities	5	1.6	3.8
Investing activities
Purchase of property, plant and equipment		(0.3)	(0.8)
Purchase of other intangible assets		(1.6)	(2.1)
Proceeds from the sale of property, plant and equipment		-	0.2
Proceeds from the sale of businesses		2.6	-
Net cash used in investing activities		0.7	(2.7)
Financing activities
Sale of own shares		0.3	-
Repayment of bank loans		(0.7)	(0.9)
Payment of hire purchase and finance liabilities		-	(0.2)
Net cash used in financing activities		(0.4)	(1.1)
Net  increase in cash and cash equivalents		1.9	-
Cash and cash equivalents at the beginning of the year		0.6	0.6
Cash and cash equivalents at the end of the year		2.5	0.6

Notes to the audited consolidated accounts for the year ended 31 January 2017

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 17th May 2017. The financial information presented in this preliminary statement does not constitute the company's statutory accounts for the years ended 31 January 2017 or 2016, but is derived from those accounts. Statutory accounts for 2016 have been delivered to the Registrar of Companies and those for 2017 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 2017 Review of performance and strategic update.

Segment revenues and results of continuing operations	Segment revenue			Operating profit/(loss) before non-recurring or special items			Operating profit/(loss)
	2017 £m	2016 m		2017 £m	2016 £m		2017 £m	2016 £m
Bulgin	24.1	25.8		3.7	3.8		3.3	3.8
Checkit	0.3	0.2		(3.5)	(2.2)		(3.5)	(2.2)
Instrumentation, Monitoring and Control (IMC)	8.3	8.1		(1.0)	(1.4)		(1.4)	(1.4)
Total	32.7	34.1		(0.8)	0.2		(1.6)	0.2
Finance costs (net)							-	(0.1)
(Loss)/profit before tax							(1.6)	0.1

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	2017 £m	2016 £m
Bulgin	12.5	10.2
Checkit	4.1	2.8
IMC	5.8	9.0
Consolidated assets	22.4	22.0

Segment liabilities	2017 £m	2016 £m
Bulgin	6.5	5.8
Checkit	0.4	0.2
IMC	3.3	4.4
Consolidated liabilities	10.2	10.4

Other segment information	Depreciation and amortisation1			Additions to non-current assets
	2017 £m	2016 £m		2017 £m	2016 £m
Bulgin	1.0	1.0		0.3	0.6
Checkit	0.7	0.3		1.4	1.8
IMC	1.3	1.2		0.2	0.5
Total	3.0	2.5		1.9	2.9

1 Depreciation and amortisation on continuing operations only.

Geographical information

The Group considers its operations to be in the following geographical regions:

	Revenue from external customers			Non-current assets
	2017 £m	2016 £m		2017 £m	2016 £m
United Kingdom	11.0	13.4		5.4	8.0
Rest of Europe, the Middle East and Africa	9.5	9.4		0.9	0.8
Asia Pacific and China	3.7	4.1		-	-
Americas	8.5	7.2		-	-
Total	32.7	34.1		6.3	8.8

3. Non-recurring or special items

		Restated
	2017 £m	2016 £m
Non-recurring or special items:
- restructuring charge	0.8	-
- IFRS 2 charge	-	-
- amortisation of acquired intangible assets	-	-
Total non-recurring or special items	0.8	-

From 2017, management have taken the view that IFRS2 charges and amortisation of acquired intangible assets are not non-recurring or special items, therefore they have been excluded from both periods in the above table.

The restructuring costs relate to the closure of the Group's facility in Torquay, which was announced in December 2016. The charge comprises:

		2017 £m
Onerous lease costs		0.2
Redundancy costs		0.3
Other costs of closure		0.3
Total non-recurring or special items		0.8

4. (Loss)/earnings per share

(Loss)/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	2017 million	2016 million
Weighted average number of shares for the purpose of basic earnings per share	A	172.2	171.0
Dilutive effect of employee share options		0.6	-
Weighted average number of shares for the purpose of diluted earnings per share	B	172.8	171.0

 

	Key		2017 £m	2016 £m
Loss for the year			(0.1)	0.6
Profits from discontinued operations, net of tax			(0.8)	(0.7)
Continuing loss for the year attributable to equity shareholders	C		(0.9)	(0.1)
Total non-recurring or special items included in profit before tax			0.8	-
Total non-recurring or special items included in taxation			(0.1)	-
(loss)/Earnings for adjusted EPS	D		(0.2)	(0.1)

	Key	2017 pence	2016 pence
EPS measures
Basic continuing EPS	C/A	(0.5p)	(0.1p)
Diluted continuing EPS	C/B	(0.5p)	(0.1p)
Adjusted EPS measures
Adjusted basic continuing EPS	D/A	(0.1p)	(0.1p)
Adjusted diluted continuing EPS	D/B	(0.1p)	(0.1p)

Discontinued earnings per share

Basic and diluted discontinued earnings per share were 0.5p (2016:0.4p)

5. Net cash flows from operating activities

	2017 £m	2016 £m
(Loss)/profit before taxation
- from continuing operations	(1.6)	0.1
- from discontinued operations	0.8	0.7
Adjustments for:
Depreciation	0.6	0.7
Non-recurring or other special items - continuing	0.8	-
Amortisation of development costs and computer software	2.6	2.0
Gain on the sale of discontinued businesses	(0.7)	-
IFRS 2 charges	-	0.1
Interest payable	-	0.1
Operating cash flow before working capital changes and non-recurring or special items	2.5	3.7
(Increase)/decrease in trade and other receivables	(0.7)	0.2
Increase in inventories	(0.1)	(0.3)
Increase in trade and other payables	0.1	0.4
Payments for non-recurring or special items	-	(0.1)
Cash generated by operations	1.8	3.9
Tax paid	(0.2)	-
Interest paid	-	(0.1)
Net cash inflow from operating activities	1.6	3.8

6. Non-GAAP performance measures

A reconciliation of non-GAAP performance measures to reported results is set out below:

	2017	2017	2017	2016	2016	2016
	Businesses Ex-Checkit	Checkit	Total	Businesses Ex-Checkit	Checkit	Total
	£m	£m	£m	£m	£m	£m
Earnings before interest, taxation, depreciation and amortisation ('EBITDA')	5.0	(2.8)	2.2	4.6	(1.9)	2.7
Depreciation and amortisation	(2.3)	(0.7)	(3.0)	(2.2)	(0.3)	(2.5)
Underlying operating profit	2.7	(3.5)	(0.8)	2.4	(2.2)	0.2
Non recurring or special items (note 3)	(0.8)	-	(0.8)	-	-	-
Reported operating (loss)/profit for the year	1.9	(3.5)	(1.6)	2.4	(2.2)	0.2

7. Taxation

The tax credit on (loss)/profit from continuing operations before taxation is £0.7m (2016 charge: £0.2m).

A deferred tax asset has been recognised in the current year of £0.9m (2016: £nil).

During the year the Group undertook a restructuring of the legal entity structure which has resulted in deferred tax assets being recognised for previously unrecognised losses based on future forecasted profitability under the new structure.

8. Discontinued operations

Discontinued operations in the current year comprise: the Qados brand (closed at the end of the previous financial year), the Agar brand sold on 20 May 2016, the Carnation brand sold on 30 September 2016, the Wallace brand sold on 5 December 2016 and the Digitron brand sold on 27 March 2017.

The prior year balances have been restated in respect of any operations which became discontinued in the course of the current year as set out below:

Qados

The results of the Qados discontinued operation, which have been included in the consolidated statement of comprehensive income, were as follows:

	2017	2016
	£m	£m
Revenue	-	1.6
Expenses	-	(1.3)
Profit before tax	-	0.3
Attributable tax expense	-	-
Gain from discontinued operations attributable to equity shareholders	-	0.3

During the year, Qados contributed £Nil (2016: £0.3m) to the Group's net operating cash flows, paid less than £0.1m (2016: less than £0.1m) in respect of investing and paid less than £0.1m (2016: less than £0.1m) in respect of financing activities.

Agar

The results of the Agar discontinued operation, which have been included in the consolidated statement of comprehensive income, were as follows:

	2017	2016
	£m	£m
Revenue	1.1	3.4
Expenses (including £0.2m charge in respect of amortisation of acquired intangible)	(1.1)	(3.3)
Profit before tax	-	0.1
Gain on disposal of discontinued operations	0.7	-
Gain from discontinued operations attributable to equity shareholders	0.7	0.1

During the year, Agar contributed £0.2m (2016: £0.3m) to the Group's net operating cash flows, paid less than £0.1m (2016: less than £0.1m) in respect of investing and paid less than £0.1m (2016: less than £0.1m) in respect of financing activities.

Expenses of discontinued operations in the year to 31 January 2017 included £Nil classified as non-recurring or special items (2016: £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 asset 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.

Carnation

The results of the Carnation discontinued operation, which have been included in the consolidated statement of comprehensive income, were as follows:

	2017	2016
	£m	£m
Revenue	0.8	1.8
Expenses	(0.9)	(1.6)
(Loss)/profit before tax	(0.1)	0.2
(Loss)/Gain from discontinued operations attributable to equity shareholders	(0.1)	0.2

During the year, Carnation contributed £0.1m (2016: £0.4m) to the Group's net operating cash flows, paid less than £0.1m (2016: less than £0.1m) in respect of investing and paid less than £0.1m (2016: less than £0.1m) in respect of financing activities.

Expenses of discontinued operations in the year to 31 January 2017 included £Nil classified as non-recurring or special items (2016: £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:

	2017	2016
	£m	£m
Revenue	1.2	1.0
Expenses	(1.1)	(1.0)
Profit before tax	0.1	-
Gain from discontinued operations attributable to equity shareholders	0.1	-

During the year, Wallace contributed £0.1m (2016: £Nil) to the Group's net operating cash flows, paid less than £0.1m (2016: less than £0.1m) in respect of investing and paid less than £0.1m (2016: less than £0.1m) in respect of financing activities.

Expenses of discontinued operations in the year to 31 January 2017 included £Nil classified as non-recurring or special items (2016: £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

Digitron

The results of the Digitron discontinued operation, which have been included in the consolidated statement of comprehensive income, were as follows:

	2017	2016
	£m	£m
Revenue	1.4	1.3
Expenses	(1.3)	(1.2)
Profit before tax	0.1	0.1
Gain from discontinued operations attributable to equity shareholders	0.1	0.1

During the year, Digitron contributed £0.1m (2016: £0.1m) to the Group's net operating cash flows, paid less than £0.1m (2016: less than £0.1m) in respect of investing and paid less than £0.1m (2016: less than £0.1m) in respect of financing activities.

Expenses of discontinued operations in the year to 31 January 2017 included £Nil classified as non-recurring or special items (2016: £Nil).

In March 2017, the Group completed the disposal of business and certain assets of the Digitron brand for proceeds of £0.3m at nil profit.

Cautionary Statement

This announcement has been prepared for the shareholders of the Company, as a whole and its sole purpose and use is to assist shareholders to exercise their governance rights. The Company and its directors and employees are not responsible for any other purpose or use or to any other person in relation to this announcement and their responsibility to shareholders shall be limited to that which is imposed by statute.

This announcement 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. 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 from those currently expected. No obligation is assumed to update any forward-looking statements, whether as a result of new information, future events or otherwise.

 

END

 

 

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