Final Results
Flomerics Group PLC
04 March 2005
IMMEDIATE RELEASE 4 March 2005
Preliminary results for Flomerics
Encouraging Progress
Flomerics Group PLC, supplier of analysis software to the telecommunications,
semiconductor and computer industries, and other sectors of the electronics
industries, announces its results for the year ended 31 December 2004.
Key Points
• Turnover flat at £10.2m, but at constant rates of exchange up 7%
• Profit Before Tax up 47% to £671,000 (2003 : £455,000)
• Basic Earnings per Share up 41% at 3.88p (2003 : 2.75p)
• Dividend increased by 10% to 1.1p per share (2003: 1p)
• Strong cash position with a balance of £3.3m (2003 : £2.5m)
• Revenues from FLO/EMC up 46% (at constant rates)
• Growth in Asia Pacific revenues of 28% (at constant rates)
• FLO/PCB launched and well received
Commenting on the results and prospects, David Mann, the Chairman, said:
"Flomerics has demonstrated that it is ready to advance again. With the
strengthened management team, an impressive array of market-leading products and
a global presence, the directors believe that Company is well placed to seize
opportunities for growth in revenue and for these to lead to a steady
improvement in profit margin."
For further information please contact:
Flomerics:
David Mann, Chairman 020 8941 8810
David Tatchell, Chief Executive
Chris Ogle, Finance Director
Buchanan Communications:
Tim Thompson / Nicola Cronk 020 7466 5000
Chairman's Statement
Results
I am very pleased to report a positive set of results for the Company with good
progress in all areas. Turnover for the year was flat compared to 2003 at £10.2
million, but at constant rates of exchange, turnover was up by 7% compared to a
10% contraction in 2003. Profit before tax has increased by 47% to £671,000,
resulting in a significant improvement in the pre-tax profit margin from 4% to
over 6% and an increase in earnings per share of 41%. The total of the Group's
cash balances has strengthened to £3.3 million. The board is recommending a
dividend of 1.1 p per share, an increase of 10%.
The comparisons made with the prior year below and in the Chief Executive's
Review are all at constant rates of exchange. On this basis revenue from each of
the Company's products was greater than in 2003.
It is particularly encouraging that revenue from the flagship product, FLOTHERM,
grew by 2% compared to an 8% contraction in the previous year. The Company is
benefiting from the recovery that is taking place in the electronics sector and
FLOTHERM has retained a strong competitive position.
It is also encouraging that there was significant growth of 46% in revenue from
FLO/EMC. Whilst this is still a small part of the business (7% of total
revenues), the product has a key position in the strategy for broadening the
range of the Company's offerings.
FLO/PCB was released during the year and is another important part of the
Company's toolset. The product has been well received and we expect good growth
in 2005.
In the regions, Asia Pacific performed particularly well with growth of 28%, and
revenues from Europe increased by 9%. Revenues from the US were 1% down on 2003,
reflecting the fact that some customers have moved their design work from the US
to Asia Pacific.
Personnel
All members of the Flomerics team have my sincere thanks for the hard work and
dedication that has enabled the Company to post these results. I particularly
appreciate the leadership from David Tatchell and the management team, which has
enabled the Company to come through a challenging period with confidence and a
strong sense of direction.
Earlier this year Gary Carter was appointed to the board as Chief Operating
Officer. Gary has an impressive track record in the field of analysis software.
The intention is that David Tatchell, one of the founders of the Company, will
hand over the role of CEO to Gary by mid-2006.
Outlook
After some difficult years during which the Company was able to maintain
profitability, Flomerics has demonstrated that it is ready to advance again.
With the strengthened management team, an impressive array of market-leading
products and a global presence, the directors believe that the Company is well
placed to seize opportunities for growth in revenue and for these to lead to a
steady improvement in profit margin.
David Mann
Chairman
4 March 2005
CHIEF EXECUTIVE'S REVIEW
A RECAP - FLOMERICS' STRATEGY FOR GROWTH
Over the years, Flomerics has been successful in establishing a strong,
market-leading position as the supplier of analysis software for the thermal
design/cooling of electronic equipment - to the extent that manufacturers of
virtually all types of electronics equipment are now utilising our FLOTHERM
software as a key component of their product design process.
Our strategy has been to leverage this unique market position by broadening our
product range, to address complementary problems in the "physical design of
electronics", and thereby to open up new growth opportunities alongside the
maturing FLOTHERM market. Most significantly, FLO/EMC addresses the need to
improve the electromagnetics shielding of electronics equipment, by analysing
the emissions from the equipment. And FLO/PCB is targeted at electronics
designers, who increasingly need access to a first-level thermal-analysis tool
to improve circuit board layout, and to communicate effectively with the
mainstream thermal design team using FLOTHERM.
These products - the established FLOTHERM product, plus the newer complementary
products FLO/EMC and FLO/PCB - do, we believe, provide significant growth
opportunities, all in the physical design of electronics. Beyond this, we see
additional opportunities in other markets from the Micro-Stripes and FLOVENT
products. Micro-Stripes provides high-frequency electromagnetics analysis for
antenna and microwave equipment design - and FLOVENT analyses heating and
ventilation for the building services industry. These products benefit from
strong synergies - in technology and software - with (respectively) FLO/EMC and
FLOTHERM. They therefore enable us to address these additional markets in a cost
effective manner.
To recap - Flomerics' current business strategy can therefore be summarised as:
• Ensuring that FLOTHERM returns to growth as the electronics industries
recover;
• Leveraging the FLOTHERM market position by introducing new products
(FLO/EMC and FLO/PCB) alongside it, addressing the broader needs of "physical
design of electronics";
• And exploiting cost-effective opportunities in additional markets from
products (Micro-Stripes and FLOVENT) with strong synergy with the core
products.
PROGRESS IN 2004
As highlighted elsewhere, it is pleasing to be able to report, after a difficult
period, a number of positive trends in Flomerics' business in 2004, which
advance this strategy.
Firstly, as the recovery in the electronics industries has taken root, we have
seen a return to some level of growth in FLOTHERM. On a like for like basis
(that is, without currency variations) FLOTHERM has grown by 2% over 2004,
following two years of contraction.
Secondly, good progress has been made with broadening our range of products in
the physical design of electronics. FLO/EMC is beginning to become established
in the market, as is demonstrated by the strong growth in 2004 (46%). Alongside
this, the new FLO/PCB product, released in March 2004, is making headway, and is
becoming established in a number of major accounts.
And thirdly, both Micro-Stripes and FLOVENT have benefited from a re-focussing
of resources during 2004. Micro-Stripes has been particularly successful,
showing strong growth (20%). This was mainly achieved in Japan and Europe - for
2005 we have also added dedicated resources in the US, and anticipate good
growth from this market. And FLOVENT showed 5% growth over 2003, reversing the
trends of prior years.
LOOKING FORWARD
We are now building on these successes in a number of ways.
In order to maintain the growth momentum we need to add and refocus resources,
carefully targeted on market and products needs. This means additional sales and
support resources in key emerging territories (during 2004 we added a new Sales
Office in India, and expanded the operation in China) - and adding
electromagnetics technical expertise within our existing infrastructure, to
support and drive the growth in FLO/EMC and Micro-Stripes.
In addition, during 2004 we have established an Offshore Development Centre in
India (in Bangalore, co-located with the India Sales Office). This is already
making a significant contribution to our product development program. By taking
responsibility for product quality assurance and testing, and certain specific
aspects of development, it is enabling us to accelerate product development in a
cost effective manner.
And - perhaps most importantly - we are re-positioning Flomerics and its
products in a fairly crucial way. In order to address the increasing
complexities of current and future electronics equipment, our customers are
increasingly needing to move beyond "point solutions" addressing particular
design issues in isolation, to "integrated solutions" which operate efficiently
together, and promote effective communication and team work.
We have always seen FLOTHERM, FLO/EMC and FLO/PCB as a suite of integrated
products, together addressing the primary design needs in the physical design of
electronics. The integration is reflected particularly in the common user
interfaces, and the sharing of data and design models between the products. A
number of customers are already taking advantage of this integration - and we
are beginning to market the product suite as (rather than individual products)
an "Integrated Analysis Environment" for the physical design of electronics.
This repositioning of Flomerics and its products represents an important
evolution in our business approach. It provides the opportunity for us to market
and sell our multi-product suite effectively, to build higher-level
relationships with our customers, and to build greater barriers to competition.
We are therefore devoting significant efforts to re-orienting the business
(sales, marketing, engineering, and product) to this new business model. And we
are seeing the first successes in (for example) Philips and Ericsson in Europe,
and Cisco, Intel and Tellabs in the US.
APPOINTMENT OF NEW CHIEF OPERATING OFFICER
Earlier this year we announced the appointment of Gary Carter as Chief Operating
Officer. Gary joins us from ANSYS, Inc., a major US-based Computer Aided
Engineering (CAE) Company, where he was Managing Director and Vice President of
European Sales.
Gary brings experience of building and managing a CAE software business several
times the size of Flomerics, and of leading a major, successful, international
sales operation. In particular, his prior experiences in building corporate
level relationships with major customers will be invaluable in implementing our
"Integrated Analysis Environment" strategy.
I am therefore delighted that Gary has joined Flomerics, and I am confident that
he will play a major part in enabling Flomerics to realise its exciting growth
opportunities.
David Tatchell
Chief Executive
4 March 2005
OPERATING AND FINANCIAL REVIEW
Overview
Turnover for the year was maintained at its 2003 level at £10.2 million. Profit
before tax has increased by 47% to £671,000 and cash balances have strengthened
to £3.3 million.
Turnover
Approximately 50% of the Group's revenues are received in dollars and this has
had a significant negative impact on the turnover figure in 2004. The effect on
turnover of reporting this at the average rate of exchange for the year of 1.83
compared to 1.64 last year is over £600,000. At constant rates of exchange
turnover has increased by 7%, compared to contraction of 10% in 2003.
The comparisons made below by region and by product are all at constant rates of
exchange.
The area showing most growth was Asia Pacific with over 28%. This region now
accounts for over 20% of total revenues - compared to 17% in 2003. China
performed particularly well, with growth in excess of 100% and is now proving to
be a very successful operation. The improved economy in Japan and more focus on
Micro-Stripes enabled this territory to increase revenues by 34%.
Europe also showed good growth (9%), particularly in Germany and France,
although some of this can be attributed to multi-year licences.
Revenues from the US have stabilised (99% of 2003) following contraction in the
previous two years. The US is our biggest region but now accounts for 42% of
turnover compared to 48% in 2003. We have seen some evidence of our customers
moving their design work, along with the manufacturing, to Asia Pacific and
this is reflected in our sales.
Revenues increased from all of the Group's products compared to 2003. 2004 was
the first full year for the merged product of FLO/EMC and it performed well with
growth of 46%. FLOTHERM, which still accounts for 75% of total revenue, showed
a small amount of growth (2%) but this follows two years of contraction.
Revenues for Micro-Stripes and FLOVENT increased over 2003 by 20% and 5%
respectively.
Most of the Group's revenues, 73%, are derived from licences but maintenance
revenue is becoming increasingly important and in 2004 accounted for 15% of
total revenues (2003:13%), an increase of 20%. The balance comes from training,
consultancy and the Group's magazine - "Electronics Cooling." Recurring revenues
(i.e. licence renewals and maintenance revenue) accounted for 56% of total
revenues (2003: 58%). Revenue from new licences increased by 13% compared to
2003 and represented 33% of total revenues. This is encouraging and is strong
evidence of a recovery following a period of contracting revenues from new
licences. There was a significant increase in revenues coming from perpetual
licences and in 2004 they accounted for 18% of total revenues, compared to 13%
in 2003. This is largely due to the increase in business coming from Asia
Pacific where perpetual licences are more the norm.
Operating Expenses
Total operating costs were down 2%. Cost of sales were down by 22% to £201,000
due to lower royalties being paid to third party licensors. Research and
development costs are down 4% compared to 2003 and at £2,271,000 represent 22%
of turnover compared to 23% in 2003. Other costs were flat compared to last
year.
Staff related costs are the Group's biggest expense, and represent 58% of
turnover. In 2004 total staff costs increased by 1%. The average number of
employees was down slightly at 117 compared to 120 in 2003. Staff numbers have
come down in the US in line with the reduced turnover but have increased in
China, where we now have 5 employees and in India where we have 11.
Other Income, Tax and Earnings per Share
Other operating income represents rent received and is up 63% at £75,000 due to
a full year's rent being received on the Group's freehold property in Hampton
court. Interest received has also increased by 54% to £71,000 due to higher cash
balances.
The net result is an increase in profit before tax of 47% to £671k. This
represents an improvement in the pre-tax margin from 4.5% to 6.6%.
The Group's tax rate remains low because of the benefit of the Research and
Development tax credits. In 2004 the tax rate was 15%, slightly higher than last
year (11%), which benefited from a repayment of withholding tax.
Basic earnings per share are thus 41% up on last year at 3.88 pence (2003:
2.75pence).
Dividend
The Board is recommending a dividend of 1.1p per share (2003: 1.0p per share).
Subject to approval from shareholders, the dividend will be paid on 6 May 2005
to shareholders on the register at the close of business on 8 April 2005. The
cash effect of this is £161,000.
Financing and Cash Flows
Cash generated from operating activities was £1.1 million (2003: £0.8 million).
After capital expenditure of £302,000 (2003: £196,000), tax refunded of £227,000
(2003: £76,000 paid) and a dividend paid to shareholders of £146,000 (2003:
£146,000) the cash inflow to the Group was £851,000 (2003: £331,000.) The cash
balance has thus increased from £2.5 million to £3.3 million and net funds are
now £2.8 million (2003: £1.9 million). The Group has borrowings of £509,000,
being the mortgage on a freehold property that is being repaid over ten years.
In order to maximise the interest received, the Group compares interest rates
from different banks and deposits are placed for varying terms. £71,000 of bank
interest was received in the year (2003: £46,000).
Because of the international nature of the business there is significant
exposure to exchange rate fluctuations. The UK company receives royalty payments
from the US subsidiary and forward exchange contracts are taken out to partly
hedge the exposure. In addition forward exchange contracts are entered into to
partly hedge the exposure to the Yen from payments that it receives from Japan.
Trade debtors at the and of 2004 were £3.4 million (2003:£3.0 million). Debtor
days, calculated on a count-back basis, have improved from 80 to 72 days.
Accounting Standards
On October 7 2004, the Stock Exchange announced that it intended to mandate that
AIM companies should adopt International Accounting Standards (IAS) from 1
January 2007. It was previously the intention that this would be mandatory from
1 January 2006, whilst voluntary adoption could take place from 1 January 2005.
The Board now intends to adopt IAS with effect from the new date of 1 January
2007.
We have been working with our auditors to understand the implications of the new
standards. Whilst it has been possible to reach some high level conclusions
about the areas likely to be affected, more time is needed to assess the impact
accurately.
With effect from 1 January 2006, in accordance with FRS20, the Group will need
to show the "cost" of share options granted in the profit and loss account.
There is still some debate in the accountancy world about how best to value the
options granted and again the Board is working with its advisors to assess the
effect.
Chris Ogle
Finance Director
4 March 2005
FLOMERICS GROUP PLC
CONSOLIDATED PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED 31 DECEMBER 2004
2004 (Unaudited) 2004 2003* 2003*
£'000 (Unaudited) (Audited) (Audited)
£'000 £'000 £'000
Turnover 10,241 10,221
Cost of sales (201) (259)
_________ _________
Gross profit 10,040 9,962
Administrative expenses
Research and development cost (2,271) (2,365)
Goodwill amortisation (82) (82)
Other (7,096) (7,124)
________ ________
Total administrative expenses (9,449) (9,571)
________ ________
591 391
Other operating income 75 46
________ ________
Operating profit 666 437
Other interest receivable and similar income
Interest payable and similar charges 71 55
(66) (37)
________ ________
Profit on ordinary activities before
taxation (Note 3)
671 455
Tax on profit on ordinary activities (102) (52)
_________ _________
Profit for the financial year 569 403
Dividends (161) (146)
_________ _________
Retained profit for the financial year 408 257
_________ _________
Earnings per share (Note 4) 3.88p 2.75p
Diluted earnings per share (Note 5) 3.85p 2.74p
Earnings per share before amortisation of
goodwill 4.44p 3.31p
* As restated (see Note 6)
FLOMERICS GROUP PLC
CONSOLIDATED BALANCE SHEET
AT 31 DECEMBER 2004
2004 2004 2003 2003
(Unaudited) (Unaudited) (Audited) (Audited)
£'000 £'000 £'000 £'000
Fixed assets
Intangible assets 376 458
Tangible assets 1,658 1,675
_______ _______
2,034 2,133
Current assets
Debtors 3,891 3,835
Cash at bank and in hand 3,314 2,490
_______ _______
7,205 6,325
Creditors: amounts falling due
within one year (3,605) (3,067)
_______ _______
Net current assets 3,600 3,258
_______ _______
Total assets less current 5,634 5,391
liabilities
Creditors: amounts falling due after
more than one year (446) (506)
________ ________
Net assets (Note 3) 5,188 4,885
_______ _______
Capital and reserves
Called up share capital 146 146
Share premium account 1,602 1,602
Merger reserve 759 759
Profit and loss account 2,681 2,378
________ ________
Equity shareholders' funds 5,188 4,885
_______ _______
FLOMERICS GROUP PLC
SUMMARY CONSOLIDATED CASH FLOW STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2004
2004 2003*
(Unaudited) (Audited)
£'000 £'000
Operating Activities
Operating profit 666 437
Depreciation and amortisation charges 395 505
Loss on disposal of fixed assets - 1
Exchange differences (72) (70)
(Increase) / decrease in debtors (375) 381
Increase / (decrease) in creditors 513 (419)
Net cash inflow from operating activities 1,127 835
Net cash inflow from returns on
investment and servicing of finance 5 18
Tax received / (paid) 227 (76)
Net cash outflow from capital expenditure (302) (196)
Equity dividend paid (146) (146)
________ ________
Net cash inflow before financing 911 435
Net cash outflow from financing (60) (104)
________ ________
Increase in cash in the year 851 331
________ ________
RECONCILIATION OF NET CASH FLOW TO MOVEMENT
IN NET FUNDS
Increase in cash in period 851 331
Cash outflow from decrease in debt and lease
financing 60 104
Foreign exchange differences (27) -
Movement in net funds in the year 884 435
Net funds at 1 January 1,921 1,486
Net funds at 31 December 2,805 1,921
* As restated (see Note 6)
Notes:
1. The Group recognised unrealised losses on translation of foreign
currency net investments of £105,000 (2003: £75,000) in the year, which were
taken to reserves and are not included in the profits above.
2. The financial information shown for the years ended 31 December 2004
and 2003 set out above does not constitute statutory accounts but is derived
from those accounts. The results have been prepared using accounting policies
consistent with those used in the preparation of the statutory accounts. The
financial information contained in this announcement does not constitute
statutory accounts within the meaning of Section 240 of the Companies Act 1985.
The financial information for the year ended 31 December 2003 has been
extracted from the statutory accounts for that year which have been filed with
the Registrar of Companies and which contain an unqualified audit report. The
financial information for the year ended 31 December 2004 has been extracted
from the draft statutory accounts for that year upon which the auditors have yet
to report. Copies of this announcement are available at the registered offices
of the Company (81 Bridge Road, Hampton Court, Surrey, KT8 9HH) and at the
offices of the company's nominated advisors, Teather & Greenwood Ltd. (Beaufort
House, 15 St Boltolph Street, London EC3A 7QR) for a period of 14 days from the
date hereof.
3. The Group's turnover and profit before tax for each geographic area of
operation is:
Turnover Profit Before Taxation
2004 2003 2004 2003
£'000 £'000 £'000 £'000
United States of America 4,291 4,864 261 153
Europe 3,899 3,650 (532) (556)
Asia Pacific 2,051 1,707 942 858
_______ _______ _______ _______
10,241 10,221 671 455
_______ _______ _______ _______
The loss in Europe is after central costs including research and development.
The net assets attributable to each geographic area are:
2004 2003
£'000 £'000
United States of America 759 553
Europe 4,391 4,358
Asia Pacific 38 (26)
_______ _______
5,188 4,885
_______ _______
4. The earnings per share figure for 2004 has been calculated based on the
profit on ordinary activities after taxation and the weighted average number of
shares in issue of 14,646,580 (2003: 14,646,580 ).
5. In accordance with FRS14 issued in October 1998 the fully diluted
earnings per share were 3.85 pence per share (2003: 2.74p). The diluted number
of shares was 14,791,000 (2003: 14,724,000)
6. Previously, rental income was classified within other interest
receivable and similar income. This year the directors believe that it is more
accurate to reflect rental income as other operating income. The effect of this
is to increase operating profit by £75,000 (2003: £46,000). There is no overall
impact upon retained profits.
7. The AGM will be held at 10.30 am on 27 April 2005 at the registered
office of the company (81 Bridge Road, Hampton Court, Surrey, KT8 9HH).
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