Preliminary Results

Elektron PLC 28 June 2007 Embargoed for release: 7:00 a.m. 28 June 2007 ELEKTRON PLC Preliminary unaudited results for the year ended 31st January 2007 Elektron PLC ('Elektron'), the AIM quoted Engineered Components Company announces its preliminary results for the year ended 31st January 2007. Key Points: • Sales up 16% to £26 million following acquisition of Howle Holdings Plc • Annualised sales from continuing operations of circa £30 million, treble that of four years ago. • Operating profit before exceptional items £1,874,000 (2006: £1,791,000 as restated for the effects of IFRS 2 'share- based payments') • Exceptional items £1,279,000 (2006: £31,000) mainly incurred in relocation of Bulgin operations to Tunisia • Profit on ordinary activities before taxation £513,000 (2006: £1,744,000) • Proposed final dividend up 14% to 0.4p per share • Basic earnings per share 0.5p (2006: 1.63p) • Basic earnings per share before exceptional and discontinued items 1.73p (2006: 1.65p) For further information please contact: Adrian Girling Roland Cornish Executive Chairman Chairman Elektron PLC Beaumont Cornish Limited Tel: 01708 336309 Tel: 020 7628 3396 Chairman's Statement Last year was extremely challenging but we met the targets we set ourselves. We finalised the offshore transfer of Bulgin production to our plant in Tunisia. After decades of production in Barking the factory closed its doors for the last time in March of this year with all costs fully provided in these accounts. Not so long ago over 300 people were employed by Bulgin in the UK and this number has now reduced by 90% with sales, marketing, technical and administration functions moving to new offices in Romford and warehousing to Arcolectric's premises in Surrey. £1,249,000 has been incurred this year and is included as an exceptional item in the Group Income Statement. As might be expected, the project has not been without its difficulties as we sought to replicate the knowledge base held by many long-term employees with new workers in Tunisia. Customer service was adversely affected for a while but is beginning to return to more acceptable levels. We now employ 500 staff in Tunisia assembling both Bulgin and Arcolectric branded products and the Bulgin brand continues to perform strongly. Arcolectric was unable to reproduce the results of the very successful previous years since its acquisition in 2003. In particular metal price increases adversely affected margins, as did the weak US Dollar. In the competitive markets served it was only possible to pass on a small amount of the additional costs to customers. During the year we acquired the entire share capital of Howle Holdings Plc, a quoted company principally manufacturing tungsten carbide components for a total consideration, including costs, of £3.1m. In its last published interim results as at 31 March 2006 Howle reported net assets of £5.6m. Since acquisition, four of its five freehold properties have been sold, as has the business of a non-core operating subsidiary, generating gross funds of £4.6m of which £2m has been used to repay associated borrowings. Following the acquisition Group continuing sales are running at an annual level of around £30 million which is about three times the level of four years ago. A fair value review of the assets of Howle has resulted in the net assets being revalued to £3.1m at the date of acquisition. Further non-core assets of Howle are earmarked for disposal. In the three months from 1 November 2006, the continuing operations of Howle produced an operating profit of £168,000. The core activities of Howle Carbides and Titman Tip Tools have started satisfactorily this year but with signs of better things as sales initiatives begin to impact. Investment in new plant is underway to improve productivity and allow Carbides to attract new customers for higher specification products. Results Turnover on continuing operations increased to £26,010,000 (2006: £22,467,000). Gross margins were 36% (2006: 37.5%) as the savings from offshoring Bulgin manufacturing were countered by increased metal prices and adverse foreign exchange movements. Operating profit margins, before exceptional items, were 7% compared with 8% the previous year largely as a result of losses on currency translation totalling £220,000 compared with a profit the previous year of £71,000. Profits on ordinary activities before taxation were £513,000 (2006: £1,744,000) after exceptional costs of £1,249,000 incurred in relation to the offshore transfer of Bulgin production to our plant in Tunisia and £30,000 of aborted acquisition costs. Balance sheet & cashflow The purchase of Howle by cash and shares has increased the net assets of the Group but also resulted in an increase in borrowings. Net debt as at 31 January 2007 was £5.6 million, which reduced considerably after the year-end following gross receipts of £4.6 million in relation to the sale of the properties and business referred to above. In accordance with IFRS, the balance sheet discloses assets and associated liabilities held for sale. This includes the operations of Richard Lloyd Limited and NPE-Innotek Limited, both subsidiaries of Howle, together with the freehold property from which NPE operated. The operations and certain assets of NPE were sold in March 2007 for a total consideration of £180,000. The sale of the freehold property and of Richard Lloyd Limited are currently under negotiation and are not expected to have a material impact on the results of the Group in the current year. Capital expenditure of £446,000 was paid from cash reserves rather than by taking on asset finance and cash of £906,000 was expended on the transfer of operations to Tunisia. Earnings per share, dividends and purchase of own shares Earnings per share, after taking account of the effects of IFRS 2 'share-based payments' were: •Basic and diluted from continuing operations 0.61p (2006: 1.63p) •Basic and diluted including discontinued operations 0.50p (2006: 1.63p) •Basic and diluted from continuing operations excluding exceptional items 1.73p (2006: 1.65p) The Board is proposing a final dividend of 0.40p per share (2006: 0.35p) payable on 7th September 2007. This represents an increase of 14.3% and reflects the Board's confidence in the business. The Board will also look for opportunities to purchase the Company's shares on market subject to funds not being required elsewhere. Future strategy As the Group grows it is important to ensure that an appropriate management structure is put in place to take account of the increasing size of the business. In addition, we will soon commence the process of moving away from the different legacy IT systems associated with each brand to one up-to-date manufacturing and reporting system. These will be a focus of the Board over the next 12 months. Elektron is a manufacturer operating in highly competitive markets and continuing emphasis will be placed on reducing costs. We continue to develop innovative new products to achieve organic growth with good margins to offset margin erosions from an increasingly competitive world market for our traditional products. For example, we are now successfully promoting intelligent indicators and temperature logging devices through the established distribution channels of our strong Arcolectric brand. Whilst it is important that the Board concentrates its immediate efforts in maximising the potential of its existing brands it will continue to be active in searching for and assessing suitable acquisition targets. The Board recognises that Elektron is currently too small to be of interest to many investors. Consequently the Board's strategy is to continue to grow Elektron principally by acquisition with a medium term target of achieving sales of £100 million. Outlook The current year has started satisfactorily with incoming orders similar to that of last year. However, the strength of the US dollar and high metal prices continue to depress margins in Arcolectric's North American and European export markets. The Bulgin brand continues to perform well and Howle Carbides sales are showing some growth. The last few years have been exceptionally profitable for manufacturers of all types and your Board believes that this state of affairs cannot last forever. A harsher business environment will however offer more opportunities for acquisitive companies as businesses get into difficulties. Elektron is a low cost manufacturer and is conservatively financed and the Board believes that it is well placed to take advantage of such opportunities as they arise. Adrian Girling Executive Chairman Group Income Statement Preliminary Unaudited Results to 31 January 2007 Year to Year to 31 January 31 January 2007 2006 Unaudited Audited As restated £'000 £'000 Revenue from continuing operations 26,010 22,467 Cost of sales (16,662) (14,041) --------- --------- Gross profit 9,348 8,426 Net operating expenses (including exceptional (8,753) (6,666) items) --------- --------- ----------------------------- --------- --------- Operating profit before exceptional items 1,874 1,791 Exceptional items (1,279) (31) ----------------------------- --------- --------- Operating profit from continuing operations 595 1,760 Finance costs (82) (16) --------- --------- Profit on ordinary activities before taxation 513 1,744 Taxation on profit on ordinary activities (21) (477) --------- --------- Profit after taxation from continuing 492 1,267 operations Loss after taxation from discontinued (85) - operations --------- --------- Profit attributable to shareholders 407 1,267 --------- --------- Earnings per share - basic 0.50p 1.63p - diluted 0.50p 1.63p --------- --------- Earnings per share continuing 0.61p 1.63p operations - basic 0.61p 1.63p - diluted --------- --------- Group Balance Sheet Preliminary Unaudited Results at 31 January 2007 31 January 31 January 2007 2006 Unaudited Audited £'000 £'000 Assets As restated Non-current assets Property, plant and equipment 3,683 2,165 Deferred tax - 89 --------- --------- 3,683 2,254 --------- --------- Current assets Inventories 4,974 3,266 Trade receivables 5,567 3,979 Other current assets 4,939 606 Cash and cash equivalents 858 1,714 --------- --------- 16,338 9,565 Non-current assets held for sale 1,253 - --------- --------- Total current assets 17,591 9,565 --------- --------- Total assets 21,274 11,819 --------- --------- Equity and liabilities Equity attributable to equity holders of the parent Called - up share capital 4,336 3,954 Share premium 244 244 Merger reserve 1,047 - Capital redemption reserve 106 67 Other reserves 54 88 Retained earnings 2,214 2,213 --------- --------- Total equity 8,001 6,566 --------- --------- Non-current liabilities Long-term borrowings 286 - Long-term provisions 251 357 --------- --------- Total non-current liabilities 537 357 --------- --------- Current liabilities Trade and other payables 4,609 2,869 Short-term borrowings 5,385 758 Current portion of long-term borrowings 225 513 Current tax payable 895 678 Short-term provisions 563 78 --------- --------- 11,677 4,896 Liabilities associated with non-current assets held for sale 1,059 - --------- --------- Total current liabilities 12,736 4,896 --------- --------- Total liabilities 13,273 5,253 --------- --------- Total equity and liabilities 21,274 11,819 --------- --------- Group Cash Flow Statement Preliminary Unaudited Results to 31 January 2007 31 January 31 January 2007 2006 Unaudited Audited £'000 £'000 As restated Cash flows from operating activities Profit before taxation (continuing activities) 513 1,744 Loss before taxation (discontinued activities) (104) - -------- -------- Profit before taxation 409 1,744 Adjustments for: Depreciation 1,020 902 Loss/(profit) on disposal of fixed assets 57 (19) Goodwill impairment (5) - Interest expense 135 16 -------- -------- Operating profit before working capital 1,616 2,643 changes Decrease/(increase) in trade and other 113 (748) receivables Increase in inventories (14) (236) Increase in trade payables 17 243 Other non-cash movements 363 (266) -------- -------- Cash generated from operations 2,095 1,636 Interest paid (184) (81) Taxation paid (457) (814) -------- -------- Net cash inflow from continuing operations 1,553 741 Net cash outflow from discontinued operations (99) - -------- -------- Net cash inflow from operating activities 1,454 741 (total) Cash flows from investing activities Sale of subsidiaries 100 150 Acquisition of subsidiaries (1,655) - Purchase of property, plant and equipment (610) (546) Proceeds of sale of property, plant and 4 28 equipment Interest received 49 66 -------- -------- Net cash used in investing activities (2,112) (302) -------- -------- Cash flows from financing activities Issue of shares - 200 Purchase of own shares (132) (205) Movement in respect of long term borrowings (2,224) - Movement in short term borrowings 2,906 529 New capital leases 164 - Payment of hire purchase and finance (638) (589) liabilities Dividends paid (274) (241) -------- -------- Net cash used in financing activities (198) (306) -------- -------- Net (decrease)/increase in cash and cash (856) 133 equivalents Cash and cash equivalents at the beginning of 1,714 1,581 period -------- -------- Cash and cash equivalents at the end of period 858 1,714 -------- -------- Group statement of changes in equity Preliminary Unaudited Results to 31 January 2007 Share Share Merger Capital Other Retained Total Capital Premium Reserve Redemption reserves earnings £'000 Reserve £'000 £'000 £'000 £'000 £'000 £'000 At 31 January 2006 3,954 244 - 67 44 2,244 6,553 Changes in accounting policy - - - - 44 (31) 13 ------- ------- ------- --------- -------- -------- ------- Restated balance 3,954 244 - 67 88 2,213 6,566 Transfer from profit and loss account 27 407 434 Exchange differences Dividends paid (274) (274) Shares purchased (39) 39 (132) (132) Shares issued 421 1,047 1,468 Exchange differences (61) (61) dividends ------- ------- ------- --------- -------- -------- ------- At 31 January 2007 4,336 244 1,047 106 54 2,214 8,001 ------- ------- ------- --------- -------- -------- ------- Notes to the Preliminary Unaudited Results to 31 January 2007 1. Accounting Policies The financial information has been prepared on the basis of International Financial Reporting Standards (IFRS). This preliminary statement is the first annual consolidated financial report prepared in accordance with IFRS. Full details of accounting policies will be included in the Annual Report for the year ended 31 January 2007. These are not expected to be materially different from those set out in the Group's statutory accounts for the year ended 31 January 2006 with the exception of the policy in relation to share-based payments. The Group has implemented the requirements of Financial Reporting Standard 20 (IFRS 2) 'Share-based payment' in the 2007 Annual Report with the comparative figures being restated. This change in accounting policy has resulted in a pre-tax charge of £27,000 for the year ended 31 January 2007 (2006; £27,000). In accordance with FRS 20 (IFRS 2) 'Share-based payment', the Group reflects the economic cost of awarding shares and share options to employees by recording an expense in the income statement equal to the fair value of the benefit awarded, fair value being estimated by an independent third party using a proprietary binomial probability valuation model. The expense is recognised in the income statement over the vesting period of the award. 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. 2. Other information The financial information in respect of the year ended 31 January 2007 set out in this statement has been extracted from the statutory financial statements which have not yet been audited but are not expected to differ materially from the information given in this statement. The financial information in this statement does not constitute statutory accounts. The financial information in respect of the year ended 31 January 2006 has been extracted from the statutory accounts, as adjusted for IFRS, which have been filed with the Registrar of Companies. The auditors' report on those accounts was unqualified and did not contain any statement under Section 237 of the Companies Act 1985. Audited financial statements will be sent to shareholders towards the end of July 2007. Copies of this announcement are available free of charge from the Company's registered office at Melville Court, Spilsby Road, Romford, Essex RM3 8SB for a period of one month from the date hereof and copies of the audited financial statements will be so available for at least 14 days from date of publication. The Annual General Meeting will be held at 3 pm on 4th September at Melville Court, Splisby Road, Romford, Essex, RM3 8SB. This information is provided by RNS The company news service from the London Stock Exchange

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