RNS Number:8436S
Deltron Electronics PLC
04 December 2003
4 December 2003
DELTRON ELECTRONICS plc
PRELIMINARY RESULTS
Financial Highlights:
* Turnover #64.0M (2002: #65.5M)
* 2% organic growth in second six months compared to first half
* Gross margin in second half improved to 32% against 31.3% in first
six months
* Profit before interest, tax, operating exceptional items and
goodwill amortisation #1.7M (2002: #2.7M) in line with expectations
* Net debt reduced by #1.6M from 31 March 2003 to #14.1M
* Final dividend 1.17p making total of 1.755p for the year
Business Highlights:
* Placing and Open Offer, after year-end, raises #6.4M net of expenses
at 60p - a 2.5% discount to prevailing share price
* Recent franchise wins include: Harwin, Alps, Littelfuse, Toko, Rafi
and Grayhill
Paul Gourmand, Chairman, Deltron, commented:
"The range of products in our portfolio and the volume of product carried
combined with our strong pan-European presence have contributed to Deltron
becoming a leader in the supply and distribution of electromechanical components
in Europe. With proceeds from our recent fund raising and a tight control on our
cost base when the upturn comes we will maximise the benefit from our strong
operational gearing."
For further information please contact
Deltron Electronics plc Tel: 01638 561156
Christopher Sawyer, Derek O'Neill
Buchanan Communications Tel: 020 7466 5000
Tim Anderson/Mary-Jane Johnson
CHAIRMAN'S STATEMENT
Deltron has continued to win market share in a year in which once again tough
market conditions have prevailed. Restructuring has made the Group lean and
efficient without a reduction in the quality of customer service which continues
to be one of our great strengths, founded as it is on our design-in approach.
The improvement in the second quarter which we reported in our Interim Results
unfortunately did not continue during the second six months. Despite this, a
rising market share enabled the Group to hold turnover at almost the same level
as last year.
Gross margins improved in the second half to 32% from 31.3% in the first six
months, stock turnover reached six times, which is twice the industry average
and the order book was maintained at 2.5 months. Continual investment in
electronic trading, business systems and the Group's IT platform have all made
significant contributions to maintaining this high level of efficiency.
The #6.4m, net of expenses, Placing and Open Offer approved at the EGM on 25
November 2003 has strengthened our balance sheet, this together with additional
unutilised borrowing facilities of #4.1m as at the year end, mean that Deltron
has #10.5m to respond to market opportunities as they arise. The funds will
assist the Group in accelerating its organic growth, including the further
development of our franchise network together with supporting working capital
requirements when the market recovery comes. The Directors were encouraged by
the support from new and existing shareholders, which we believe points to a
confidence in Deltron's prospects.
Since the year-end the Group have agreed new term and revolving banking
facilities which carry through to 2008 and 2010.
Financial Performance
Turnover slipped marginally to #64.0m from #65.5m, continuing the decline seen
in the previous year. This is against a market background which has seen volumes
decline in the electromechanical components market by approximately 30% over the
last three years. As in previous years, Deltron continues to win a substantial
increase in its market share.
Whilst the loss after taxation for the year was #1.4m the gross margins
improvement in the second half is an excellent achievement resulting in 31.7%
for the full year, this was down on last year's 32.5%. As a result operating
profit before goodwill amortisation and exceptional items decreased to #1.7m
from #2.7m. Interest incurred in the year was #1.2m down from #1.3m in the
previous year. Operating exceptional items incurred as the business reorganises
to reduce future costs were #1.2m. Goodwill amortisation for the period was
#0.9m.
The steady reduction in net debt continued with a fall of #0.7m during the year
to #14.0m at the year-end. Following the post-year end fund raising net debt,
being total debt less cash, has reduced to circa #7.6m, substantially
strengthening Deltron's balance sheet.
Dividend
The Board recommends a final dividend of 1.17p (2002: 1.17p) to be paid on 27
February 2004 to shareholders on the register on 30 January 2004. This brings
the total for the year to 1.755p (2002: 1.755p). The recommendation reflects the
current performance of the Group, set against the improving balance sheet and
the prospects for Deltron in 2003/2004
The 11,620,572 new Ordinary Shares issued 26 November 2003, will not rank for
the final dividend above. The new Ordinary Shares will rank pari passu in all
respects will all the other shares from 31 January 2004.
Board Changes
David Weir FCA became a non-Executive Director in September 2003 and serves on
both the remuneration and audit committees. David was chief executive from 1993
to 1999 of Caird Group plc and is now a non-executive director of various
companies including Dee Valley Group plc.
David Weir takes over from Sir Ivor Cohen who retires from Deltron at the end of
the year. Over his many years with Deltron, Sir Ivor's advice and encouragement
have been invaluable. His wisdom, wit and good humour will be long appreciated.
On behalf of all the Board, I would like to thank Sir Ivor for his loyal and
valued service with Deltron.
Prospects
Recent macro economic indicators for Europe at last show a recovery. It is too
early to say that this heralds an immediate upturn in our markets. However, the
rate of decline has slowed and the willingness of customers to enter into long
term contracts are all encouraging signs.
The range of products in our portfolio and the volume of product carried
combined with our strong pan-European presence have contributed to Deltron
becoming a leader in the supply and distribution of electromechanical components
in Europe. We will continue to keep a tight control on our cost base so that
when the upturn comes we will maximise the benefit from our strong operational
gearing.
I would like to thank all our employees for a strong performance during another
tough period. This is a people business and their contribution is appreciated
and is the key to our future.
P R Gourmand
Chairman
3 December 2003
OPERATIONAL REVIEW
The Group is a pan-European specialist distributor of electromechanical
components and solutions. These components include switches, connectors,
audible alarms and magnetics. The Group is also a manufacturer of
electromechanical components, sub-assemblies and related tools/production aids.
These products and sub-assemblies include electromagnetic compatibility ("EMC")
filters, a variety of connectors and other interconnect devices.
Deltron is a balanced business in terms of operations and customers. No customer
currently represents more than 3.5% of the Group's turnover and no supplier
represents more than 15.5% of the Group's cost of sales. We operate in 13
countries from Ireland to Hungary, which gives Deltron coverage of over 80% of
the European electromechanical components market. Importantly, our market
penetration has led to some manufacturers appointing Deltron as their sole
pan-European distributor.
We are able to provide pan-European coverage as a result of six acquisitions in
2001. Over the last two years we have set about maximising the efficiency of the
expanded Group. The rationalisation which is reflected in the exceptional item
in these results includes the consolidation of UK manufacturing from two sites
into one purpose-built site in Scunthorpe and the closing of a regional office,
resulting in reduced costs and improved efficiency. Headcount has also been
reduced from a peak of 515 employees in 2001, to approximately 380 at present.
Deltron has also increased its market position across Europe over the last two
years by extending franchises held in one or two countries to other countries
and in some instances across our whole network.
Recent franchise wins for the Group include:
Harwin plc, Alps Electric Co, Ltd., Littelfuse Inc, TOKO UK Ltd, RAFI GmbH & Co,
Grayhill Inc.
The Board believes that Deltron's success in obtaining these new franchises has,
in large part, been due to our ability to offer European coverage whilst
providing a local service satisfying local needs.
The Company is engaged in negotiations to get new franchises for the Group and
we are confident we will progressively add to our list of products over the
coming year.
Design-in remains a key strength of the Group. Representatives from Deltron help
customers select and incorporate the most suitable component into the design
during product development. We concentrate on markets where the Group's depth of
product knowledge and customer understanding combined with our reputation for
supplying specialist components for customised service give us a competitive
edge.
Over the last year we have steadily expanded our product offering adding to a
range, which has been built up over several years. We believe the
differentiation from our competitors in Europe is the range of emech components
we carry combined with our design-led, consultative sales process.
It is this offering which attracts our wide range of customers who produce
equipment from medical systems to aeroplanes and motorcars, from telecoms
equipment and computers to electronic point of sale equipment and automatic cash
dispensers, and from professional broadcasting equipment to factory automation.
Outlook
We have integrated the acquired companies, rationalised the resultant structure
and now have a lean and hungry business capable of dealing with an increase in
throughput with little or no increase in cost. In other words, Deltron is highly
operationally geared.
Our fund raising since the year-end has greatly strengthened our ability to
capitalise on the opportunities, which will arise when the upturn finally takes
hold. There are many indicators, which give the Board hope that the cycle may
have turned. We know that the decline has slowed and that customers are gaining
in confidence.
The Board of Deltron, whilst recognising the decline in sales over the last
three years has considerably slowed, have positioned the company so that it is
not reliant upon recovery. We have structured the business to maximise the
return from an upturn while optimising the performance in current conditions. We
expect to continue to increase market share and to expand our franchise base.
Whatever the outlook, Deltron will make the most of it.
C J Sawyer
Group Chief Executive
3 December 2003
FINANCIAL REVIEW
The implementation of operational efficiencies and expanding the number of
product franchises during the last 12 months combined with the post year end
placing and open offer means the Deltron group is well placed for a recovery in
the market.
Revenue for the year was #64.0m, down 2.2% from the #65.5m in 2002, a credible
performance given the market conditions. We advised at the time of our Interim
results announcement in June 2003 that revenue for the 6 months to March 2003
was 2.8% down on the corresponding period last year against a 15% drop in 2002.
It is pleasing to report that the decline for the last six months to September
2003 has shown further easing with a decline of 1.8% on the corresponding period
last year. Therefore whilst talk of a turnaround is early we do appear to be at
the bottom of the market cycle.
The margins in the first six months of the year were 31.3% compared with 32.5%
in the previous year. The margin in the second half has been increased to 32.0%
giving 31.7% for the full year.
Operating expenses, before Goodwill and Operating Exceptional items, were
#18.7m, this is in line with last year. However, as a proportion of sales,
overheads are 29.0%- up from 28.4% in the previous year because of the decline
in sales.
Interest costs in 2003 were 10% lower than the previous year reflecting the
lower level of borrowings. Net debt at 30 September 2003 is down #1.6m since the
interims as shown in the table below. The Group's gearing at the year-end was
112% and interest cover was 1.5 times. The recent share placing has subsequently
reduced gearing to 40%.
#'000 2003 2002
Opening Net Debt 14,747 15,163
Net Debt at Interim - 31 March 15,650 16,335
Net Debt at year end - 30 September 14,070 14,747
Net debt post placing* 7,700
Net Interest Cost 1,153 1,275
* Proforma figure using closing net debt of #14.1m less #6.4m net proceeds from
the placing and open offer approved at the EGM of 25 November 2003.
Profit before interest, tax, goodwill amortisation and exceptionals was #1.7m
against #2.7m in 2002 because of the fall in revenues and the lower Gross Margin
in the first half, which was partially restored in the second half.
The Group's effective tax rate for the year (based on profit before tax and
amortisation of goodwill) was 17.7% against 23.4% the previous year.
Cashflow
The cash inflow from operating activities continues to be strong with #2.2m for
the year, against #4.7m in 2002. The inflow is lower than last year because of
the lower gross profit and because in 2002 the reduction in stock was #1.9m
greater than this year, reflecting the 15% sales decline suffered in 2002. The
stock reduction is obviously a one-off gain although tight management of working
capital remains one of the Group's key objectives. The Group investment in
working capital is right for this stage of the cycle and we have sufficient
facilities to fund additional investment in stock and financing growth as the
market recovers.
Balance Sheet
Tangible fixed assets reduced in the year by #2.1m to #3.1m, predominantly due
to the sale and leaseback of the UK warehouse premises. The balance sheet shows
net debt of #14.1m compared with #15.7m reported in the interims in March 2003.
Stock turn, debtor days and creditor days continue to be key performance
indicators for the Group. Because of a mix change the debtor and creditor days
as shown below have both reduced, this reflects the Group's success in expanding
the German business where debtor and creditor terms are shorter.
2003 2002
Stock Turn 5.9 Times 5.9 Times
Debtor Days 58 Days 61 Days
Creditor Days 53 Days 61 Days
Despite the reduction in debtor and creditor days the overall investment in
working capital reduced, the cash inflow from working capital in the year was
#0.7m as shown below.
2003 #m 2002 #m
Change in stock 0.5 2.4
Change in debtors 2.7 2.7
Change in creditors (2.5) (2.8)
Change in working capital 0.7 2.3
D O'Neill
Group Financial Director
3 December 2003
GROUP PROFIT AND LOSS ACCOUNT
for the year ended 30 September
2003 2002
Before 2003 Before 2002
Goodwill Goodwill Goodwill Goodwill
And And And And
Operating Operating Operating Operating
Exceptional Exceptional 2003 Exceptional Items Exceptional 2002
Items Items Total Total Items Total
#000 #000 #000 #000 #000 #000
Sales 64,019 - 64,019 65,496 - 65,496
Cost of Sales (43,742) - (43,742) (44,184) - (44,184)
-----------------------------------------------------------------------------------
Gross profit 20,277 - 20,277 21,312 - 21,312
Operating
Expenses
Selling &
distribution (8,438) - (8,438) (8,384) - (8,384)
Administration (10,314) (2,080) (12,394) (10,351) (2,015) (12,366)
-----------------------------------------------------------------------------------
Operating
Profit/(Loss) 1,525 (2,080) (555) 2,577 (2,015) 562
Profit on sale
of properties 188 - 188 105 - 105
-----------------------------------------------------------------------------------
Profit/(Loss)
on ordinary
activities be
before
interest 1,713 (2,080) (367) 2,682 (2,015) 667
Interest
payable and
similar
charges (1,167) - (1,167) (1,321) - (1,321)
Interest
receivable &
similar income 14 - 14 46 - 46
-----------------------------------------------------------------------------------
Net finance
costs (1,153) - (1,153) (1,275) - (1,275)
-----------------------------------------------------------------------------------
Profit/(Loss)
on ordinary
activities
before
taxation 560 (2,080) (1,520) 1,407 (2,015) (608)
Tax on
(loss)/profit
on ordinary
activities (99) 213 114 (405) 345 (60)
-----------------------------------------------------------------------------------
Profit/(loss)
after taxation 461 (1,867) (1,406) 1,002 (1,670) (668)
-----------------------------------------------------------------------------------
Dividends (517) (515)
------- -------
Loss retained
for the year (1,923) (1,183)
------- -------
Loss per share
- basic and
diluted (4.8p) (2.4p)
------- -------
Adjusted
earnings per
share - basic 1.6p 3.5p
------- -------
All activities derive from continuing operations
GROUP STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
for the year ended 30 September
2003 2002
#000 #000
Loss for the year (1,406) (668)
Exchange adjustments (366) 125
------------------------
Total gains and losses recognised related to the year (1,772) (543)
------------------------
GROUP BALANCE SHEET
As at 30 september
2003 2002
#000 #000
Fixed assets
Intangible assets 14,540 15,608
Tangible assets 3,099 5,157
------------------------
17,639 20,765
Current assets
Stocks 8,065 8,003
Debtors 14,093 15,328
Cash at bank and in hand 1,565 2,389
------------------------
23,723 25,720
Creditors: amounts falling due within one year (19,016) (17,117)
------------------------
Net current assets 4,707 8,603
------------------------
Total assets less current liabilities 22,346 29,368
Creditors: amounts falling due after more than one year (9,380) (13,490)
Provision for liabilities and charges (419) (1,118)
------------------------
Net assets 12,547 14,760
========================
Capital and reserves
Called up share capital 1,471 1,466
Share premium 15,205 15,134
Profit and loss account (4,129) (1,840)
------------------------
Equity shareholders' funds 12,547 14,760
========================
The accounts were approved by the Board of Directors on 3 December 2003 and were
signed on its behalf by:
D O'Neill
Director
GROUP CASH FLOW STATEMENT
For the year ended 30 September
2003 2002
#000 #000
Net cash inflow from operating activities 2,186 4,739
Returns on investment and servicing of finance
Interest received 14 46
Interest paid (1,221) (1,269)
Interest element of finance lease rental payments (24) (34)
------------------------
(1,231) (1,257)
------------------------
Taxation 291 (1,401)
Capital expenditure
Purchase of tangible fixed assets (405) (1,165)
Sale of tangible fixed assets 1,746 622
------------------------
1,341 (543)
------------------------
Acquisitions (769) (750)
Equity dividends paid (517) (731)
------------------------
Cash inflow before financing 1,301 57
Financing (inclusive of #0.1m (2002: #0.7m) from issue of
shares) (3,415) (2,787)
------------------------
Decrease in cash (2,114) (2,730)
========================
Reconciliation of Cash Flow to Movement in Net Debt
2003 2002
#000 #000
Net debt at 1 October (14,747) (15,163)
------------------------
Decrease in cash (2,114) (2,730)
Cash from change in debt and lease financing 3,491 3,488
------------------------
Change in net debt resulting from cash flows 1,377 758
Inception of finance leases - (236)
Amortisation of issue costs (39) (35)
Exchange differences (661) (71)
------------------------
Movement in net debt 677 416
------------------------
Net debt at 30 September (14,070) (14,747)
========================
Notes to the Accounts
1. Financial Information
The financial information set out above does not constitute the company's
statutory accounts for the years ended 30 September 2003 or 2002, but is
derived from those accounts. Statutory accounts for 2002 have been
delivered to the Registrar of companies and those for 2003 will be
delivered following the company's annual general meeting. The auditors have
reported on those accounts; their reports were unqualified and did not
contain statements under s237(2) or (3) Companies Act 1985.
The Annual Report and Accounts will be posted to shareholders during
December 2003. Copies of the Annual Report and Accounts and of this
announcement will be available from the Company's registered office:
Suffolk House, Fordham Road, Newmarket, CB8 7AA
2. Goodwill and exceptional items
Goodwill amortisation is #876,000 (2002: #864,000) relating to goodwill
arising on acquisitions made in 2000 and 2001. The operating exceptional
item in 2003 of #1,204,000 includes the cost of completing the
restructuring of the UK manufacturing business, Deltron Emcon Limited, by
moving from 2 sites to a single purpose built site, the closure of a
regional sales office in the UK distribution business Deltron UK Ltd and
the restructuring of the French manufacturing business Deltron EMC srl.
This was relieved by a tax credit of #213,000. In 2002 there was an
operating exceptional item of #1,151,000 for the initial phase of
restructuring the UK manufacturing business Deltron Emcon Limited and also
the restructuring of parts of the activity of Hawnt Electronics Ltd and
Discomp SA in France which were acquisitions made during 2001. This was
relieved by a tax credit of #345,000.
3. Earnings per share
Earnings per share have been calculated in accordance with Financial
Reporting Standard 14 (FRS14). The calculation of the basic and diluted
loss per share is based on the loss attributable to equity shareholders of
#1,406,000 (2002: loss of #668,000) and 29,415,188 (2002: 28,261,057)
shares being the daily average of the number of shares in issue during the
year. FRS14 requires presentation of diluted EPS when a company could be
called upon to issue shares that would decrease net profit or increase net
loss per share. For a loss making company with outstanding share options,
net loss per share would only be increased by the exercise of
out-of-the-money share options. Since it seems inappropriate to assume that
option holders would act irrationally, no adjustment has been made to
dilute the EPS for out-of-the-money share options and there are no other
diluting future share issues, diluted EPS equals basic EPS.
An adjusted earnings per share value is shown after adding back the
amortisation of goodwill and operating exceptional item, net of taxation of
#1,867,000 (2002: #1,670,000). This has been presented in order to provide
comparability with other companies.
4. Dividends
An interim cash dividend of 0.585p per ordinary share was declared during
the year and paid on 15 August 2003. The directors recommend payment of a
final dividend of 1.17p per ordinary share, to be paid on 27 February 2004
to shareholders on the register on 30 January 2004 with the exception of
11,620,572 new Ordinary Shares issued on 26 November 2003, which will not
rank for the final dividend above. The new Ordinary Shares will rank pari
passu in all respects with all the other shares from 31 January 2004. This
will bring the total dividend for the year to 1.755p per ordinary share.
5. Net cash inflow from operating activities
2003 2002
#000 #000
Operating (loss)/profit (555) 562
Release of government grant (104) (84)
Amortisation of issue costs 39 14
Amortisation of goodwill 876 864
Depreciation 977 1,052
Loss on disposal of fixed assets 23 -
Changes in
Stocks 518 2,374
Debtors 2,671 2,698
Creditors (2,259) (2,741)
-------------------------
2,186 4,739
=========================
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