RNS No 3865e
NETWORK TECHNOLOGY PLC
1st December 1998
NETWORK TECHNOLOGY PLC
Preliminary Results for the Year ended 30th September 1998
Network Technology, which designs, manufactures and markets
technologies for computer network and Internet applications,
announces preliminary results for the year ended 30th
September 1998.
* Turnover increased to #18.2m (1997: #16.8m).
* As indicated in the third and fourth quarter trading
statements, the results have been affected by the
economic downturn in the Far East with a slowdown in
demand for traditional printserver products from the
Group's Japanese Customers.
* Change in accounting policy in relation to R&D
expenditure. All R&D expenditure to be written off in
the year in which it is incurred.
* Pre-tax profits of #1.01m (1997 restated: #3.29m)
reflect both factors. Had the accounting policies
remained unchanged, pre-tax profits of #2.3m would have
been achieved (1997: #4.2m).
* Recommended final dividend of 0.55p net per ordinary
share making 1.10p net for the year (1997: 1.25p).
* Net cash of #2.41m at the year end.
* New product development has progressed well. The new
Data Storage System is now being shipped and a number of
the leading computer network OEM's have expressed
interest.
* Further new products coming to market with good customer
feedback.
* Graham Woodhead, Chairman said: "We are confident that
our new technologies will make strong progress in their
respective markets and form the backbone of the future
progress of the Group as they start to make a positive
contribution to the Group's profitability. We continue
to look for opportunities to use our skills base to
develop niche products to complement our existing range."
* Klaus Bollmann, Chief Executive added: "I am confident
that with the strategy we have in place and the new
products that are now coming to market, we are well
placed to return to a growth situation."
For further information:
Lulu Bridges
Graham Woodhead, Chairman Tavistock Communications
Klaus Bollmann, Chief Executive Tel: 0171 600 2288
Paul Cottrell, Finance Director
Network Technology PLC Mike Styles
Tel: 01444 870 408 Credit Lyonnais Securities
Tel: 0171 588 4000
Chairman's Statement
Results
During the second half of the year, like many other companies,
we have been affected by the downturn of the Asian economies
and in particular a slowdown in orders from our Japanese
customers, historically our largest market. We highlighted
this trend in both our third and fourth quarter trading
statements, when we revised our expectations for the year.
The Group must remain at the forefront of its technologies and
the R&D expenditure is an essential element of the Group's
future development. In relation to this expenditure, the
Board has taken the decision to adopt a more prudent
accounting policy. All R&D expenditure will now be fully
expensed as incurred. This has had an effect on the results
for the year to 30th September 1998. The Group must remain
at the forefront of its technologies and the R&D expenditure
is an essential element of the Group's future development.
The results for the year ended 30th September 1997 have been
restated to reflect this change in policy.
Turnover increased during the year to #18,203,000 (1997:
#16,841,000) principally due to the successful integration of
JRL Systems and Nextus which were acquired during the previous
financial year and the acquisition of Bits per Second in
November 1997.
However, pre-tax profits decreased from #3.29m (as restated)
to #1.01m, reflecting the impact of the downturn in demand for
our printserver products from our Japanese customers and the
change in accounting policy. The profit before tax for the
year under the previous accounting policy would have been
#2.3m (1997: #4.2m). R&D expenditure for the year under the
new policy was #2.6m (1997: #1.9m).
These figures also reflect an exceptional charge of #182,000
relating to an aborted acquisition during the year.
With an increased tax charge, earnings per share were 1.03p
(1997 restated: 6.82p). The Directors are recommending a
final dividend of 0.55p net per ordinary share, which together
with the interim dividend of 0.55p net makes a total for the
year of 1.10p net (1997: 1.25p). The dividend, if approved,
will be paid on 1st March 1999 to shareholders on the register
as at 11th December 1998.
The net cash position at the year end was #2.41m.
Operations
Our performance for the second half of the year has been
severely affected by the downturn in the Far East markets,
with sales of our printserver products to our Japanese
customers being only 58% of the level achieved for the similar
period last year.
You will be aware from my previous statements, that the Board
has been making every effort to reduce the Group's dependence
upon these products, in anticipation of such a downturn. I am
pleased to report that we have maintained our position as the
market leader and are continuing our close relationships with
our Japanese customers so that we are well positioned to
capitalise on our high quality reputation when the Far Eastern
markets inevitably begin to recover.
Over the last two years we have taken significant steps to
develop new technologies to expand our product range within
our niche areas of computer network and Internet technology.
Our most significant development is HBM's patented Network
Data Storage System, a CD-ROM based archive system that is
readily adaptable to suit any size of business and which
dramatically reduces the storage space required by traditional
archiving systems. Bits per Second, our software subsidiary
has developed the HSM (Hierarchical Storage Management) System
Software, which is being sold in conjunction with the Data
Storage System, but may also be sold as generic software.
A number of the leading computer network OEM's have expressed
interest in the system and I hope to be able to report further
progress in my trading statement for the first quarter of the
year. In the meantime, the first deliveries of the system,
branded as Ringdale, were made in September 1998 and the
positive reaction we have received from customers is most
encouraging. The data storage market is estimated to be worth
$16 billion (source: IDC) and we are confident that our
system provides an effective solution to the ever increasing
demands of data storage.
At JRL we have further strengthened the management team and
turnover is now improving steadily. We have developed the new
Touch Operator Panel, which is a full colour LCD touch panel
display to enhance our range of plotters. The device, which
is now in full production, will also be offered to OEM
customers in Japan, Europe and the USA. We believe that this
technology will be easily adaptable for other uses such as
photocopiers and printers. The Board is optimistic about the
prospects for JRL which combines controller, network and
operator panel technologies for wide format plotters world-
wide.
Our semiconductor subsidiary AB-Semicon has completed the
development of its AB180-20 microprocessor chip. The chip,
which is now in production, will be integrated into all our
future printserver products. The chip's performance has
exceeded our expectations and should enhance the performance
of our range of printserver products well into the next
Millennium. The chip, which may also have applications within
the mobile telecoms and automotive markets, also gives us cost
benefits for our range of products.
I made reference earlier in my statement to the exceptional
costs associated with an aborted acquisition. It was our hope
to acquire a well known brand within the networking products
industry in order to improve the distribution channel for the
technologies being developed by HBM, JRL and Bits per Second
and those technologies that are currently only exploited
through our OEM customers. Since the acquisition was aborted,
significant effort has been made to enhance the Ringdale brand
name and as a result the German and US offices, which were
started as franchises, were acquired in full at the end of
September 1998.
Research and development
During the year we invested some #2.6m in R&D, with the
majority being invested in the development of our Data Storage
System. As mentioned earlier in my statement, we have decided
to adopt a more prudent policy with regard to R&D with all
expenditure being written-off in the year in which it is
incurred.
Outlook
Although there is little sign at present of the Far East
markets recovering, by maintaining our presence with our
traditional customers we are optimistic that we will benefit
from any economic improvements.
We are confident that our new technologies will make strong
progress in their respective markets and form the backbone of
the future progress of the Group as they start to make a
positive contribution to the Group's profitability. We
continue to look for opportunities to use our skills base to
develop niche products to complement our existing range.
Graham Woodhead
Chairman
1st December 1998
Chief Executives Review
The year to 30th September 1998 has proved difficult for the
Group with the decline in the market in Japan for our
printserver products. Sales for these products have reduced
with the deterioration of the Far East economies, but as
market leader we have maintained our share of this market.
As I indicated in last year's report, our strategy has been to
address our dependence upon our traditional markets with the
development of new product lines. We are confident that these
advanced new product lines will help to compensate for the
downturn in the market for our traditional printserver
products and enable the Group to return to a position of
growth over the coming years.
HBM
During the year we have invested in our manufacturing
capability for our new products whilst introducing cost
efficiencies for our existing high volume products.
The design team's achievements this year have been
significant, with the successful development of our NetAudio.
Player and the IP Router. These products and the addition of
e-mail capability for all our printserver devices should
enhance our ability to supply leading edge technology to our
existing OEM customers.
The manufacturing line for our Data Storage System was
completed towards the end of the year. This was the largest
multi-disciplined development that the Group has ever engaged
in and we are very pleased to have brought the product to the
market in such a short time. Due to Software Quality
Assurance issues, the project was delayed by two months and so
did not contribute positively to this year's results.
However, deliveries of the system have now commenced and I am
confident that it will make a positive contribution in the
current year.
N&R Circuits
This was another profitable year for N&R Circuits, which
produces printed circuit boards for integration into the
Group's products, despite a severe fire in the processing area
of the plant in West Sussex. I would like to commend the
management and staff for their hard work and stamina which
enabled us to re-establish the plant in a very short period of
time. N&R is fully operational again and set for continued
growth.
JRL & Nextus
During the year, we enhanced the manufacturing capability for
JRL to manufacture the new LCD touch panel display and the new
plotter controller which is due to begin production in early
December. It is our intention to re-organise Nextus and JRL
in a similar way to the UK operations, which will result in
one company combining the marketing, design and manufacturing
and another - Ringdale - undertaking the channel sales. The
staff and management have shown enormous commitment to this
proposal.
Bits per Second
Bits per Second, our software development subsidiary,
continues to develop application software for the storage
system and has successfully completed the HSM Server and
Backup and Retrieval Software. Some of this development will
be able to be sold as generic back up software. However, our
success in this will depend upon our ability to recruit
sufficient product managers while the window of opportunity
lasts.
Ringdale
Ringdale has performed well and we are pleased with the
success we have achieved in building Ringdale as a brand.
As part of our continued commitment to Ringdale, at the end of
September 1998, we acquired control of Ringdale Inc, USA and
Ringdale GmbH, Germany, which was satisfied by the issue of
new ordinary shares in Network Technology.
With full control of the Ringdale brand we are well positioned
to build the brand further. To do this effectively we will
market some of our new technology in the form of unique and
popular products under the Ringdale brand.
AB-Semicon
AB-Semicon has successfully completed its AB-1 microprocessor
core, despite some technical difficulties from our suppliers.
All our new products are now using the AB180-20 microprocessor
chip which uses the AB-I core, a unique processor architecture
developed by our design team.
Initially, the AB180-20 chip will be used in-house within our
embedded network interface cards. Ultimately, it will be
marketed for other applications within the networking sector
and initial market feedback has been encouraging.
We are pleased that we have successfully developed a PCI chip
that can be used in our printserver range and at a lower cost
than the traditional add-on card. The first successful
designs have been shipped in the form of an HP EIO-FL Fibre
Optics Ethernet Network Printer Interface.
The Management Team
We have brought together a strong team of people in both the
USA and UK. We are aware that in order to attract and retain
the right calibre of people we need to incentivise them by
participating in the Group's growth. We will therefore be
seeking to extend the current employee share option scheme at
the Annual General Meeting to bring it in line with
international practices.
Future Prospects
I am confident that with the strategy we have in place and the
new products that are now coming to market, we are well placed
to return to a growth situation.
The Data Storage System, software and hardware products are
all at the leading edge of technology. Our ability to deploy
our products in their respective markets continues to improve,
as Ringdale UK shows, and we will endeavour to repeat this in
our overseas Ringdale companies in the US, Germany and Japan.
We start the new financial year optimistic that we can return
the Group to a position of growth, despite the fact that the
Far East economies continue to be depressed.
Klaus Bollmann
Chief Executive
1st December 1998
Group Profit & Loss Account
Year to Year to
30.9.98 30.9.97
(Restated)
#'000 #'000
Turnover
Existing operations 17,901 16,841
Acquisitions 302 -
-------- --------
Continuing operations 18,203 16,841
Cost of sales (8,762) (7,654)
-------- --------
Gross profit 9,441 9,187
Operating expenses before
exceptional item (8,348) (5,890)
Exceptional item - abortive
acquisition costs (182) -
-------- --------
Group operating profit 911 3,297
Share of losses of associated
undertakings (41) -
-------- --------
Total operating profit 870 3,297
Interest receivable and similar income 200 44
Interest payable and similar charges (58) (50)
-------- --------
Profit on ordinary activities
before taxation 1,012 3,291
Tax on profit on ordinary activities (642) (1,093)
-------- --------
Profit on ordinary activities
after taxation 370 2,198
Equity dividends (396) (429)
-------- --------
Retained profit for the financial year (26) 1,769
======== ========
Earnings per ordinary share 1.03p 6.82p
-------- --------
Group Balance Sheet
As at As at
30.9.98 30.9.97
(Restated)
#'000 #'000 #'000 #'000
Fixed assets
Intangible assets - -
Tangible assets 3,726 3,138
Investments 322 230
------- -------
4,048 3,368
Current assets
Stocks 4,376 3,899
Debtors 3,426 5,093
Cash at bank and in hand 2,410 3,312
------- -------
10,212 12,304
Creditors
Amounts falling due within
one year (4,231) (4,473)
------- -------
Net current assets 5,981 7,831
------- -------
Total assets less current
liabilities 10,029 11,199
Creditors: amounts falling due
after more than one year (89) (220)
Provisions for liabilities
and charges - (46)
------- -------
Net assets 9,940 10,933
======= =======
Capital and reserves
Called up share capital 3,588 3,575
Share premium account 7,975 8,043
Capital redemption reserve 12 12
Profit and loss account (1,635) (697)
------- -------
Equity shareholders' funds 9,940 10,933
======= =======
Group Cash Flow Statement
Year to Year to
30.9.98 30.9.97
(Restated)
#'000 #'000 #'000 #'000
Net cash inflow from operating
activities 2,625 1,338
Returns on investments and
servicing of finance
Interest received 200 44
Interest paid (36) (32)
Interest element of hire
purchase payment (22) (18)
------- -------
Net cash inflow/(outflow) from
returns on investments and
servicing of finance 142 (6)
Taxation
Corporation tax and overseas
tax paid (1,156) (1,145)
Capital expenditure & financial
investment
Payments to acquire tangible
fixed assets (1,443) (1,250)
Receipts from sales of fixed
assets 13 17
Other investments (131) (230)
------- -------
Net cash outflow for capital
expenditure and financial investment (1,561) (1,463)
Acquisitions
Payments to acquire
subsidiary undertakings (286) (1,329)
Equity dividends paid (466) (316)
------- -------
Cash outflow before use of liquid
resources & financing (702) (2,921)
Issue of share capital 0 5,500
Expenses set against share
premium account (68) (993)
Decrease in debt (132) (41)
------- -------
Net cash (outflow)/inflow
from financing (200) 4,466
------- -------
(Decrease)/Increase in cash
in the period (902) 1,545
======= =======
Notes
1. The financial information set out in these pages does not
constitute the Company's statutory accounts for the years
ended 30 September 1997 or 1998 but is derived from those
accounts. The results for the year ended 30 September
1997, as shown in this statement, have been restated
following the change in accounting policy described in
the Chairman's statement and do not constitute statutory
accounts within the meaning of section 240 of the
Companies Act 1985, but have been derived from the
statutory accounts for the year ended 30 September 1997
which have been filed with the Registrar of Companies.
Statutory accounts for 1998 will be filed following the
Company's Annual General Meeting. The auditors have
reported on the accounts for 1997 and 1998; their reports
were unqualified and did not contain a statement under
section 237 (2) or (3) of the Companies Act 1985.
2. The Annual General Meeting will be held on 1 February
1999 at 12.00 noon at the Brighton Thistle Hotel, Kings
Road, Brighton, East Sussex.
END
FR AASWKWVKURRA
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