Final Results

RNS Number : 4899Q

Feedback PLC

07 November 2012

7 November 2012

Feedback plc

("Feedback" or "the Company")

Final Results for the year ended 31 May 2012

Chairman's Statement

2012 was a difficult year for everyone at Feedback plc as tough market conditions further exposed the Group's long-term weaknesses.

The structure and costs of Feedback were those of a larger Group. Without sustained growth reversing the more than 40% decline in revenues over the past few years, the business was not sustainable.

The Group's strategy, since my appointment, had been for a sales led turnaround whilst investing in new products and pushing through measures to improve operational effectiveness, all the time working within the harsh constraints of the Group's working capital requirements.

Results

The financial year started well. Half-year results showed what looked like clear indications of a recovery. Turnover to November 2011 was up 13% with the Group running at breakeven on a like-for-like basis. The multi-year implementation of an expensive new ERP system was finally completed and immediately delivered on its long-anticipated promise of enabling faster order-to-ship times and real-time management of inventory. Two loss-making product ranges were eliminated, the operational structure was simplified somewhat to reduce cost, and we started Feedback Black Box (Black Box) as a new product incubator with a promising first customer.

The cost of restructuring the Group, of following through on a number of long-term investment decisions, the impact of margins being squeezed from customers and suppliers, and the simple demands of growth, all created an increased need for working capital that was forecast to be on-going. Funds were raised from new and existing shareholders, including every member of the Board, in October 2011.

Despite the encouraging start, results for the full year, including for Feedback Instruments Limited and Feedback Inc (Feedback Instruments) up to its disposal on 23 May 2012 and allowing for the effects of its sale, are extremely disappointing.

Turnover of £7.0 million was up 11.7% from £6.3 million in the previous year. Reported loss on all activities was £1.8 million (2011: loss of £831,000) reflecting operating losses of £414,000 (2011: loss of £831,000), loss of £802,000 (2011: nil) on the sale of Feedback Instruments, £293,000 (2011: nil) write-off of intercompany debt, and an impairment of £274,000 (2011: nil) relating to property. The loss after taxation was £1.82 million (2011: £862,000).

Revenue for Feedback Instruments up to the date of its disposal grew 8% to £4.9 million, up from £4.5 million in 2011, despite extremely low order volumes for most of the second half of the year. This growth was well below management's expectations with export sales particularly disappointing. Feedback Instruments had an operating profit of £311,000 (2011: £466,000 loss) due in part to the write-back of £260,000 (2011: nil) legacy stock provisions.

The financial challenge facing Feedback Instruments that led to its disposal was funding the working capital demands of the long lead-time between receipt of order and receipt of payment and the overhead needed to maintain the minimum level workforce during the months of lean trading.

For Feedback Data, revenues of £1.9 million represent a 12% growth on the £1.7 million performance in 2011. However, losses worsened to £294,000 (2011: £23,000) largely due to the cost of restructuring the sales team and the increased investment necessary to finish two product development projects started in prior years.

The increases in revenue in both operating companies occurred in the first half of the year.

As we moved into the second half of the year, all parts of the Group suffered poor levels of sales. Feedback Instruments in particular experienced several consecutive months of extremely weak order intake that fell well below management's even short-term forecasts.

The engine of the Group had long been Feedback Instruments' export sales. When these dried to a trickle, predominantly due to the lack of product investment in prior years, the prospect of a sales led recovery evaporated and the Board then determined that to turnaround the entire Group would be impossible.

After a thorough review in early 2012 the Board concluded that given its cash burn, its weakness in terms of the age of its existing products, and the length of time needed for any new products to be developed and marketed effectively in the education sector, returning Feedback Instruments to positive cash flow and profitability would take more time and cash resources than the Group possessed or had access to.

Accordingly, and with a heavy heart given its position as the foundation stone of the Group in 1958 and the presence still on the Board of one of the founders, the decision was taken to dispose of Feedback's education business. In a difficult and, due to the lack of viable offers received, in the end distressed transaction, Feedback Instruments was sold to a subsidiary of LD Didactic GmbH for a nominal consideration in respect of the shares and a repayment of £260,000 of the Group's indebtedness.

Losses in Feedback Data (Data) also increased in the year under review; the result of its own ageing product range, postponed projects, and further restructuring costs.

The Group undertook a series of actions to preserve and maximise value for shareholders. Data was restructured to reduce headcount; hardware development, production and certain customer support functions were outsourced. The Board has determined that the Group's headquarters in Crowborough, which long-standing shareholders will remember was sold in 2007 and bought back in 2008, is now surplus to requirements and is in the process of being sold.

Notwithstanding the challenges of the current economic environment, shareholders should be aware that the single factor most responsible for the decline in the Group's long-term performance is the lack of priority given, over many years, to new product development.

In the education sector, product development is generally accepted to be a long-term strategy. The Group's education customers are reluctant to consider new products until they are available on the market, and the sales cycle is upwards of two years due to the necessary time required to incorporate new equipment into curricular activities. However, even in this context, Feedback Instruments generating approximately 90% of revenues from products developed more than 10 years ago shows a clear picture of a company resting too long on past glories.

The pace of product development in the Group has been, in the eyes of our customers and when compared with our competitors, extremely disappointing. Feedback's development teams, working with the evolving demands of the market place and rapidly changing technologies, were left behind by the quicker cycle times of larger and faster manufacturers who have bigger development budgets.

None of this is to say that Feedback products are not excellent pieces of engineering. They are. Indeed, the Company has built a strong reputation for designing and building robust products that continue to provide value even after many years in the field.

Developing new products is always a risk-based activity. However, for too many years the operating companies failed to make enough wise choices - leaving decisions in the hands of engineers, and not listening to end users or feeling the pulse of the market - which left customers looking elsewhere for the innovation that would drive their own growth.

Given the time needed to develop new products for our established markets, Feedback Black Box Company (Black Box) was an attempt to leverage Feedback's engineering reputation and inject urgency and revenue into the Group with a completely outsourced business model. But with start-up revenues of only £186,000 (2011: nil) and losses of £128,000 (2011: nil), despite much promise, Black Box was closed as part of the cost cutting programme immediately after the sale of Feedback Instruments.

People

In October 2011, David Marks left the Company after giving over 30 years' service in all parts of the business. He joined the main Board in 2009 after spending time as Managing Director of Feedback Instruments Limited, and more latterly held the role of Group Operations Director.

We have recently also seen the departure, on health grounds, of David Barton. David worked tirelessly for the Company from his appointment as a non-executive director in 2007 until his withdrawal in October 2012.

I would like to thank the two Davids and all my other colleagues across the Group's operations for their commitment and hard work during what continues to be an extremely difficult year.

Outlook

After 54 years in operation, 2012 has been Feedback's annus horribilis and this has forced a complete re-evaluation of the business.

With the distressed sale of Feedback Instruments, Feedback is left with annual revenues of approximately £2 million. These revenues are predominantly derived from low-growth products which are sold into a competitive market. The cost base of the remaining business is difficult to bare and the potential for organic growth is limited. The Group's continued poor performance has resulted in it relying on its banking and other loan facilities and has meant a significant amount of management time has been focused on cash management.

In such a challenging environment the Board continue to consider all viable strategic opportunities to maximise value for shareholders, including the potential disposal of the remaining operating businesses.

In the meantime, the Group is seeking to minimise its cash burn from on-going operations.

Nick Shepheard

Chairman

Consolidated Statement of Comprehensive Income

for the year ended 31 May 2012

	Notes	2012	2012	2012	2011
		£000	£000	£000	£000
		Continuing	Discontinued	Total

REVENUE	3	2,111	4,935	7,046	6,308

Cost of sales		(1,290)	(3,308)	(4,598)	(3,969)

GROSS PROFIT		821	1,627	2,448	2,339

Other operating expenses	4	(1,522)	(1,340)	(2,862)	(3,170)

OPERATING LOSS		(701)	287	(414)	(831)

Losses on disposal of discontinued operations		-	(1,369)	(1,369)	-
Net finance expense		(13)	-	(13)	(9)

Loss on ordinary activities before taxation		(714)	(1,082)	(1,796)	(840)

Tax charge		(29)	6	(23)	(22)

Loss for the year attributable to the equity shareholders of the Company		(743)	(1,076)	(1,819)	(862)

Other comprehensive income/(expense)
Translation differences on overseas operations				10	(36)

Total comprehensive expense for the year				(1,809)	(898)


LOSS PER SHARE (pence)

Basic and diluted	5	(0.60)	(0.87)	(1.47)	(0.79)

Consolidated Statement of Changes in Equity

for the year ended 31 May 2012

	Share	Share	Capital	Retained	Translation
	Capital	Premium	Reserve	Earnings	Reserve	Total
	£000	£000	£000	£000	£000	£000

At 1 June 2010	273	633	300	2,519	(178)	3,547

Total comprehensive expense for the year	-	-	-	(862)	(36)	(898)

At 31 May 2011	273	633	300	1,657	(214)	2,649

New shares issued	54	218	-	-	-	272
Total comprehensive expense for the year	-	-	-	(1,819)	10	(1,809)

At 31 May 2012	327	851	300	(162)	(204)	1,112

Consolidated Balance Sheet

at 31 May 2012

		2012		2011
	Notes	£000	£000	£000	£000
ASSETS
Non-current assets
Held for sale			1,050		-
Property, plant and equipment	6		73		1,505
Intangible assets	7		330		732
Deferred tax asset			-		134

			1,453		2,371
Current assets
Inventories	8	316		1,030
Trade receivables		343		930
Other receivables		160		233
Cash and cash equivalents		-		9

			819		2,202

Total assets			2,272		4,573

LIABILITIES
Non-current liabilities
Deferred tax liabilities			86		198

Current liabilities
Trade payables		228		909
Other payables	9	688		817
Bank borrowings		158		-

			1,074		1,726

Total liabilities			1,160		1,924

TOTAL NET ASSETS			1,112		2,649

EQUITY
Capital and reserves attributable to the Company's equity shareholders
Called up share capital			327		273
Share premium account			851		633
Capital reserve			300		300
Retained earnings			(366)		1,443

TOTAL EQUITY			1,112		2,649

Consolidated Cash Flow Statement

for the year ended 31 May 2012

	2012		2011
	£000	£000	£000	£000

Cash flows from operating activities
Loss before tax		(1,796)		(818)
Adjustments for:
Loss on disposal of subsidiary	802		-
Impairment provision against property	274		-
Net finance expenditure	13		-
Depreciation and amortisation	508		565
Foreign exchange difference	(10)		(36)
Decrease in inventories	(310)		270
Decrease in trade receivables	212		956
Decrease/(increase) in other receivables	42		(8)
Decrease in trade payables	(286)		(357)
Decrease in other payables	434		(111)

		1,679		1,279

Net cash generated in operating activities		(117)		461

Cash flows from investing activities
Purchase of tangible fixed assets	(51)		(98)
Purchase of intangible assets	(258)		(370)

Net cash used in investing activities		(309)		(468)

Cash flows from financing activities
Interest paid	(13)		(9)
Proceeds of share issue	272		-

Net cash used from financing activities		259		(9)

Net decrease in cash and cash equivalents		(167)		(16)
Cash and cash equivalents at beginning of year		9		25

Cash and cash equivalents at end of year		(158)		9

1. ACCOUNTING POLICIES

Basis of preparation

These financial statements have been prepared in accordance with those IFRS standards and IFRIC interpretations issued and effective or issued and early adopted as at the time of preparing these statements (October 2012). The accounting policies have been consistently applied to all the years presented.

These consolidated financial statements have been prepared under the historical cost convention.

During the period the Group disposed of its Feedback Instruments Limited and Feedback Inc subsidiaries and is in negotiations to dispose of its property (held by Brickshield Limited). For these reasons the results of these subsidiaries have been disclosed as discontinued.

The financial information set out above does not comprise the Company's statutory accounts for the periods ended 31 May 2012 or 31 May 2011. Statutory accounts for 31 May 2011 have been delivered to the Registrar of Companies and those for 31 May 2012 will be delivered following the Company's Annual General Meeting. The auditors have reported on those accounts; their report was unqualified and did not contain statements under section 498(2) or (3) of the Companies Act 2006 in respect of the accounts for 2012 or for 2011.

2. GOING CONCERN

As highlighted in the Chairman's statement, the cost base of the Group's remaining business is difficult to bare and the potential for organic growth is limited. The Group is reliant on its banking and other loan facilities and a significant amount of management time is focused on cash management. The Board continue to consider all viable strategic opportunities to maximise value for shareholders including the disposal of the remaining operating businesses. In the meantime, the Group is seeking to minimise its cash burn from on-going operations.

The current situation and outlook cast significant doubt on the Group's ability to continue as a going concern. Based on current plans however, the Directors consider that the Group is a going concern and have prepared the Group financial statements on a going concern basis. The financial statements therefore do not include any adjustments that would result if the Group was unable to continue as a going concern. In the event the Group ceased to be a going concern, the adjustments would include writing down the carrying value of assets, including intangible assets and inventories, to their recoverable amount and providing for any further liabilities that might arise.

3. SEGMENTAL REPORTING

The directors have determined the operating segments based on the management reports that are used to make strategic decisions. The Group's business is analysed below between the Feedback Instruments segment and the Data segment. The Feedback Instruments segment primarily relates to the former subsidiary companies Feedback Instruments Limited and Feedback Incorporated which were disposed of in the year. The Data segment relates to the subsidiary company Feedback Data Limited. Details of these companies are included in the Directors' Report.

On 23 May 2012 the Group disposed of its Feedback Instruments business. For this reason the results shown below disclose the results of the Feedback Instruments business for the period to 23 May 2012.

Year ended 31 May 2012
	Feedback Instruments	Feedback Data	Other	Total
	£000	£000	£000	£000
Revenue
External	4,935	1,925	186	7,046


Finance expense	-	-	(13)	(13)

Loss before tax	311	(286)	(1,821)	(1,796)


Balance sheet
Assets	-	781	2,524	3,305
Liabilities	-	(602)	(2,138)	(2,740)

	-	179	386	565

Capital expenditure	-	6	33	39


Year ended 31 May 2011
	Feedback Instruments	Feedback Data	Other	Total
	£000	£000	£000	£000
Revenue
External	4,558	1,750	-	6,308


Finance expense	-	-	9	9

Loss before tax	(466)	(23)	(351)	(840)


Balance sheet
Assets	1,359	975	3,329	5,663
Liabilities	(1,096)	(985)	(1,635)	(3,716)

	263	(10)	1,694	1,947

Capital expenditure	6	37	53	96

Reported segments' assets are reconciled to total assets as follows:

	2012	2011
	£000	£000

Segment assets for reportable segments	3,305	5,663

Unallocated:
Inter-company receivables adjustment	(1,223)	(1,541)
Intangible assets	330	732
Investments	(140)	(281)

Total assets per the balance sheet	2,272	4,573

Reported segments' assets are reconciled to total assets as follows:

	2012	2011
	£000	£000

Segment liabilities for reportable segments	2,740	3,716

Inter-company payables adjustment	(1,666)	(1,990)
Deferred tax	86	198

Total liabilities per the balance sheet	1,160	1,924

	External revenue by location of customer		Total assets by location of assets		Capital expenditure by location of assets
	2012	2011	2012	2011	2012	2011
	£000	£000	£000	£000	£000	£000

United Kingdom	3,070	2,820	2,258	4,312	51	95
Rest of Europe	644	879	14	14	-	-
United States of America	445	734	-	247	-	1
Other Americas	498	148	-	-	-	-
Asia	1,040	792	-	-	-	-
Africa	384	192	-	-	-	-
Middle East	965	743	-	-	-	-

Total	7,046	6,308	2,272	4,573	51	96

4. OTHER OPERATING EXPENSES

	2012	2011
	£000	£000

Distribution costs	1,821	1,352
Administrative costs:
Research and development	619	526
Other	422	1,292

	2,862	3,170

5. LOSS PER SHARE

Basic earnings per share is calculated by reference to the loss on ordinary activities after taxation of £1,819,000 (2011: £862,000) and on the weighted average of 123,679,889 (2011: 109,146,746) shares in issue.

6. PROPERTY, PLANT AND EQUIPMENT

	Land and	Plant and	Motor
	buildings	equipment	vehicles	Total
	£000	£000	£000	£000

Cost of valuation
At 31 May 2010	1,441	757	19	2,217
Additions	-	96	-	96
Exchange adjustments	-	2	-	2

At 31 May 2011	1,441	855	19	2,315

Additions	-	51	-	51
Disposal		(504)	(5)	(509)
Reclassification	(1,441)	-	-	(1,441)

At 31 May 2012	-	402	14	416

Depreciation
At 31 May 2010	71	528	15	614
Charge for the year	23	170	1	194
Exchange adjustments	-	2	-	2

At 31 May 2011	94	700	16	810

Charge for the year	24	121	1	146
Disposal	-	(492)	(3)	(495)
Reclassification	(118)	-	-	(118)

At 31 May 2012	-	329	14	343

Net book value
At 31 May 2012	-	73	-	73

At 31 May 2011	1,347	155	3	1,505

7. INTANGIBLE ASSETS

	Development expenditure
		£000
Cost
At 31 May 2010		3,725
Additions		370

At 31 May 2011		4,095
Additions		258
Disposed on sale of subsidiary		(2,236)

At 31 May 2012		2,117

Amortisation
At 31 May 2010		2,992
Charge for the year		371

At 31 May 2011		3,363
Charge for the year		362
Disposed on sale of subsidiary		(1,938)

At 31 May 2012		1,787

Net book value
At 31 May 2012		330

At 31 May 2011		732

8. INVENTORIES


	2012	2011
	£000	£000

Raw materials and consumables	308	432
Work in progress	8	11
Finished goods	-	587

	316	1,030

9. OTHER PAYABLES


	2012	2011
	£000	£000
Amounts falling due within one year
Other payables	124	260
Other taxes and social security	44	102
Accruals and deferred income	520	455

	688	817

10. PUBLICATION OF ANNOUNCEMENT AND REPORT AND ACCOUNTS

A copy of this announcement will be available at the Company's registered office (Park Road, Crowborough, East Sussex TN6 2QR) and on its website - www.fbk.com.

This announcement is not being sent to shareholders. The Annual Report will be posted to shareholders shortly and will be made available on the website.

For further information contact: