RNS No 9012f
DELTRON ELECTRONICS PLC
10 May 1999
Interim results announcement and trading statement
Deltron Electronics plc ("Deltron"), the pan-european specialist distributor
and manufacturer of electromechanical components, announces its interim
results for the period ended 31 March 1999 and issues a trading statement in
respect of the full year ending 30 September 1999.
Interim Results
Interim pre-tax profits substantially lower at #219,000 (1998: #1.4m)
Turnover declined 3.0% to #17.4m (1998: #18.0m)
Interim dividend reduced to 0.5p per share (1998: 1.18p)
Trading statement
Profits for the full year will fall very substantially short of current market
expectations
A profit forecast for the full year will be published shortly
Some increase in activity levels across the business since February
Improving order book for second half
Press enquiries:
Christopher Sawyer 0171 488 1212 (today)
Chief Executive
Edward Tozer 01638 561156
(thereafter)
Finance Director
Tim Anderson/Andy Yeo 0171 466 5000
Buchanan Communications
Deltron Electronics plc
Chairman's Statement
1. Introduction
Deltron has had a difficult first half to 31 March 1999 resulting in the Group
reporting a pre-tax profit of #219,000 (1998: #1.4m) on turnover of #17.4
million (1998: #18.0 million). Earnings per share fell from 4.8p in 1998 to
0.8p for this half year.
A combination of factors has led to Deltron not achieving its budgeted pre-tax
profit level for the six months period ended 31 March 1999. The two principal
factors were a difficult trading environment for the Group's UK operations, in
large part caused by the strength of sterling, and the decision to expand the
infrastructure of the Group in anticipation of further acquisitions.
Traditionally, the major part of Deltron's profitability occurs in the second
half of the financial year and it was our expectation that this would
particularly be the case in relation to this year. Although the Group's order
books have improved in recent months, the uplift in the external trading
environment will not be sufficient to meet management's expectations for
second half performance. As a consequence, pre-tax profits for the full year
to 30 September 1999 will be very substantially below current market
expectations.
In our existing operations, as we highlighted in our preliminary statement in
December, trading in the UK in particular has continued to be tough and
activity levels in the first half were well below expectations. This appears
to be a feature common throughout the industry, elsewhere in the UK and in
Europe. The continuing strength of sterling has also had an adverse impact
on UK trading and has affected the translation of our overseas subsidiaries'
results.
The fall in interim profits was exacerbated by our decision, made last summer,
to expand the infrastructure of the Group in anticipation of further
acquisitions. These acquisitions would have significantly accelerated our
strategic plans for becoming a truly pan-European component distributor as
well as enhancing the short-term profitability of the Group. When it became
apparent that stockmarket conditions precluded the raising of finance for
future acquisitions, the company instigated a restructuring programme to drive
down operating costs to more adequately reflect the current position of the
Group. The total costs of this restructuring programme amounted to #0.383m.
As a result of the announcement on 23 April 1999 that the Chief Executive and
the Finance Director had indicated that they wished to examine the possibility
of making an offer for the Company, Deltron is currently in an offer period
(as defined by the rules of the City Code on Takeovers and Mergers (the
"Code")). As a consequence, the accounting policies and calculations relating
to any profit forecast must be reviewed and reported on by our auditors and
our financial advisers under Rule 28.3 of the Code. In order to keep
shareholders fully informed, such a review is currently being undertaken and
the Board intends to publish a profit forecast for the year ending 30
September 1999 within approximately two weeks.
Although the performance in the first half is disappointing, there has been
some improvement in recent months and the Board's confidence in the long-term
prospects of the European electromechanical components sector has not been
diminished. In order to enable the Group to move forward in line with its
existing strategy, the Board is continuing to explore alternative means of
funding expansion of the Group and of providing enhanced shareholder value.
2. Results for the six months to 31 March 1999
The results for the six months ended 31st March 1999 have been very
disappointing, particularly in manufacturing but also in the distribution
operations.
UK Businesses
Roxburgh's results have been seriously impacted by the strength of sterling
and by a generally poor trading environment in the UK for most of the first
half of the interim period. In addition, recent substantial destocking by
customers has led to a significant shortfall in turnover levels. Deltron
Components has also experienced a substantial shortfall in sales as a result
of a number of its largest customers reducing stocks from the levels seen in
the last financial year. At both these companies costs have been reduced
which is expected to improve prospects in the second half of the year.
Roxburgh EMC, our specialist electromechanical components operation, has been
performing well in a difficult market.
Continental European Businesses
EUROiNDustrie (France) has performed slightly below budget in local currency
terms but on conversion to sterling the shortfall is exaggerated.
EUROiNDustrie EMC has made only a small contribution in the period.
Freber (Sweden) has experienced difficult trading conditions. Freber's
largest customer is Ericsson, the dominant force in the electronics industry
in Sweden, whose business has been severely affected by uncertainties
surrounding Ericsson's trading and problems in the Far East. This has had a
knock-on effect on Freber's sales.
On the positive side, we are pleased to report that Conelec (Denmark) has
achieved record results and is performing well ahead of our expectations.
3. Management appointments and cost controls
In the light of the current performance of certain parts of the business, the
Board has taken a variety of actions to strengthen management and also to
control costs. Specifically:
Over the last three months, three new Managing Directors have been appointed
in the UK, France and Sweden; and
Overheads in the UK have been reduced by some #0.63 million on an annualised
basis. The cost of reducing staff numbers is reflected in the exceptional
costs shown in these results. Further investment in senior staff and in sales
management overseas means that overheads in the full year will not show any
overall reduction.
4. Financials
The final payment of #0.78m made in respect of deferred consideration due on
the 1995 acquisition of EUROiNDustrie in France, was satisfied in February
1999 partly by the issue of 240,081 further Deltron shares, together with
FF5.0 million (#0.52m) in cash. A payment of FF4.8 million (#0.51m) in
respect of the acquisition of EUROiNDustrie EMC was also made.
At 31st March, the level of borrowings (net of cash) was #6.4m and the level
of balance sheet gearing was 248 per cent.
5. Dividends
In light of the results achieved in the first half, the company's level of
gearing, anticipated interest cover and the low level of retained earnings,
the Board has decided it would be prudent to reduce the dividend at the
interim stage. As a result, an interim dividend of 0.5p (1998: 1.18p) will be
paid on 16 August 1999 to shareholders on the register at 12 July 1999. The
Board currently intends to pay a final dividend, the level of which will be
reviewed in the light of the full year results.
6. Trading Outlook
The strength of sterling will continue to be a factor in the second half of
the year. There appears to be a trend developing under which the level of
order intake is rising, but it is too early to regard this apparent trend as
firm at this stage. Unfortunately, this improvement and the uplift in the
external trading environment will not be sufficient to meet management's
expectations for second half performance. As a consequence, pre-tax profits
for the full year to 30 September 1999 will be very substantially below
current market expectations.
However, the investment in senior and sales staff and a return to a more
normal seasonal pattern of greater profits being generated in the second half
of the year should be to the benefit of higher long-term levels of
profitability.
The spread of operations across four European countries has been of great
benefit to the Group even during the past few difficult months as it has
reduced our dependence on the most difficult market which was the UK.
7. Future strategy
I believe it is important to put our disappointing results for the half year
in perspective. Deltron has enjoyed successful historic growth over a number
of years and the Board believes that there are considerable opportunities for
Deltron throughout Europe. We continue to maintain the focus of our
activities on the electromechanical sector and we consider that the prospects
for profitable growth for the Group in the medium term remain attractive.
Despite the current setback, the Board remains committed to the development of
Deltron as a European leader in the manufacture and distribution of
electromechanical and passive electronic components.
Finally, a big issue for the Chairman of any small quoted company with growth
ambitions is how to finance this growth given the lack of ability to utilise
the stockmarket at the present time. The Board has explored and continues to
explore a number of options for financing the continuing growth of Deltron.
Deltron has a competitive need to complete its pan-European development. This
requires access to capital to make modest sized but crucial acquisitions.
This issue is at the forefront of the Board's mind and, in particular, is one
of the principal motivating factors behind the recently announced request to
me by the executive management team to examine the possibility of making an
offer for the Company. The Board and the Independent Directors are considering
all available options to fund the necessary development of the business and a
further announcement will be made when appropriate.
P.R.Gourmand
Chairman.
Group Profit and Loss Account (unaudited)
For the six months ended 31 March
Year ended
30
September
Note 1999 1998 1998
#000 #000 #000
Turnover: 17,402 17,955 35,982
Cost of sales: (11,145) (11,370) (22,387)
-------- -------- --------
Gross profit: 6,257 6,585 13,595
Selling and distribution costs (1,862) (1,504) (4,067)
Administrative costs (3,641) (3,429) (5,822)
Exceptional costs 4 (195)
------- ------ ------
Operating profit: 559 1,652 3,706
Interest (340) (248) (534)
------- ------ ------
Profit on ordinary activities before tax 219 1,404 3,172
Taxation 2 (71) (492) (976)
------- ------ ------
Profit on ordinary activities after tax 148 912 2,196
Dividends (97) (224) (675)
------- ------ ------
Profits retained for the financial period 51 688 1,521
------- ------ ------
------- ------ ------
Earnings per share basic 3 0.8 P 4.8 p 11.6 p
Earnings per share diluted 3 0.8 P 4.6 p 11.2 p
Dividend per share 0.5 P 1.18 p 3.56 p
Total Recognised Gains and Losses (unaudited)
for the six months ended 31 March
Year ended
30
September
1999 1998 1998
#000 #000 #000
Profit for the period 148 912 1,521
Exchange differences (76) (265) (95)
----- ----- -----
Total gains and losses recognised during period 72 647 1,426
----- ----- -----
----- ----- -----
Movements in Shareholders' Funds (unaudited)
for the six months ended 31 March
Year ended
30
September
1999 1999 1998
#000 #000 #000
Opening shareholders' funds 2,350 4,948 4,948
Profit for the period 148 912 2,196
Dividends (97) (224) (675)
Share capital issued 252 500 527
Goodwill set off 3 (3,293) (4,551)
Exchange differences (76) (265) (95)
------ ------ ------
Increase/decrease in shareholders'
funds for the period 230 (2,370) (2,598)
------ ------ ------
Closing shareholders' funds 2,580 2,578 2,350
------ ------ ------
------ ------ ------
Group Balance Sheet (unaudited)
as at 31 March
Year ended
30
September
1999 1998 1998
#000 #000 #000
Fixed assets
Tangible assets 4,874 4,696 5,051
----- ----- -----
Current assets
Stocks 4,672 4,340 4,845
Debtors 8,204 8,435 7,523
Cash 2,024 1,839 833
------ ------ ------
14,900 14,614 13,201
Creditors
Amounts falling due within one year (11,936) (10,698) (10,366)
-------- -------- --------
Net current assets 2,964 3,916 2,835
-------- -------- --------
Total assets less current liabilities 7,838 8,612 7,886
Creditors
Amounts falling due after more than one year (4,949) (5,721) (5,230)
Deferred income (309) (313) (306)
------- ------ ------
2,580 2,578 2,350
------- ------ ------
------- ------ ------
Capital and reserves
Called up share capital 966 949 954
Reserves 1,614 1,629 1,396
------ ------ ------
Equity shareholders' funds 2,580 2,578 2,350
------ ------ ------
------ ------ ------
Group Cash Flow Statement (unaudited)
for the six month ended 31 March
Year ended
30
September
1999 1998 1998
Note #000 #000 #000
Cash flow from operating activities 5 383 1,956 4,759
Returns on investment and servicing of finance (304) (254) (539)
Taxation (684) (328) (1,119)
Capital expenditure (297) (171) (544)
Acquisitions 6 (1,025) (3,313) (4,167)
Equity dividend paid (450) (379) (604)
------- ------- -------
Cash flow before financing (2,377) (2,489) (2,214)
Financing (502) (332) (537)
------- ------- -------
Change in cash (2,879) (2,821) (2,751)
------- ------- -------
------- ------- -------
Reconciliation of cash flow to
movement in net debt
Opening net debt (4,141) (1,349) (1,349)
------- ------- -------
Change in cash (2,879) (2,821) (2,751)
Cash flow from change in debt 675 332 563
------- ------- -------
Change in net debt (2,204) (2,489) (2,188)
Acquired with subsidiary (409) (409)
Inception of finance leases (86) (114) (228)
Amortisation of issue costs (3) (15)
Exchange differences 29 (67) 48
------- ------- -------
Movement in net debt (2,261) (3,082) (2,792)
------- ------- -------
Closing net debt (6,402) (4,431) (4,141)
------- ------- -------
------- ------- -------
Review Report by the Auditors to Deltron Electronics plc
We have reviewed the interim financial information for the six months ended 31
March 1999 which is the responsibility of, and has been approved by, the
Directors. Our responsibility is to report on the results of our review.
Our review was carried out having regard to the Bulletin 'Review of Interim
Financial Information', issued by the Auditing Practices Board. This review
consisted principally of applying analytical procedures to the underlying
financial data, assessing whether accounting policies have been consistently
applied, and making enquiries of Group management responsible for financial
and accounting matters. The review was substantially less in scope than an
audit performed in accordance with Auditing Standards and accordingly we do
not express an audit opinion on the interim financial information.
On the basis of our review:
1. in our opinion the interim financial information has been prepared using
accounting policies consistent with those adopted by Deltron Electronics plc
in its financial statements for the year ended 30 September 1998; and
2. we are not aware of any material modifications that should be made to the
interim financial information as presented.
London Morgan Brown & Spofforth
7th May 1999 Chartered Accountants
Registered Auditors
Notes to the Interim Accounts
1. Basis of preparation
The financial information for the year ended 30 September 1998 is derived from
the statutory accounts filed with the Registrar of Companies. The auditors'
report on the statutory accounts was unqualified and did not contain a
statement under Section 237 of the Companies Act 1985. The financial
information for the six months ended 31 March 1999 is unaudited but has been
reviewed by the Auditors.
2. Taxation
The taxation charge is based on the estimated effective rate for the year
ending 30 September 1999.
3. Earnings per share
The calculation of earnings per share, for the half year, is based on profit
attributable to equity shareholders of #148,000 (1998 #912,000) and 19,117,607
(1998 18,968,973) shares being the daily average of the number of shares in
issue during the period. The diluted earnings per share is based on a
weighted average of 19,584,663 (1998: 19,699,633) shares after allowing for
exercise of options.
4. Exceptional costs
These represent redundancy and other related costs resulting from the
reorganisation and restructuring of the UK businesses, primarily in
Manufacturing.
5. Net cash flow from operations
Year ended
30
September
1999 1998 1998
#000 #000 #000
Operating profit 559 1,652 3,706
Release of government grant (14) (7) (14)
Amortisation of issue costs 3 15
Depreciation 384 337 616
(Profit)/loss on disposal of fixed assets 7 (5) (4)
Changes in:
Stocks 121 (328) (268)
Debtors (695) 263 1,578
Creditors 21 41 (870)
----- ----- -----
383 1,956 4,759
----- ----- -----
----- ----- -----
6. Acquisitions
The cashflow shown of #1,025,000 represents the payment of deferred
consideration in respect of the acquisitions of EUROiNDustrie S.A., C & K
Composants S.A. and EUROiNDustrie EMC.
7. Goodwill
To date goodwill has been written off to reserves, in accordance with the then
existing accounting standards, which has produced a negative reserve within
shareholders' funds. We are considering this accounting treatment as required
by Financial Reporting Standard 10 and will prepare the annual accounts in
accordance with the policy adopted as being appropriate.
8. Circulation to shareholders
A copy of the interim report will be sent to all shareholders and will also
available from the Company Secretary, Deltron Electronics plc, Suffolk House,
Fordham Road, Newmarket, Suffolk, CB8 7AA.
END
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