RNS Number:7870S
Advanced Power Components PLC
03 December 2003
ADVANCED POWER COMPONENTS PLC
PRELIMINARY RESULTS FOR THE YEAR ENDED 31 AUGUST 2003
Advanced Power Components plc ("the Company" or "APC") is a specialist
distributor of electronic components sold via its three divisions "Hi-Rel",
"SBM" and "Go!"
APC's Hi-Rel Division distributes a variety of specialist electronic components
into applications where component reliability is of paramount importance.
APC's SBM Division represents and distributes for manufacturers of relatively
specialist electronic components addressing a commercial and industrial customer
base.
APC's Go! Division provides a kitting and materials management service to
companies wanting to outsource non core activities, offering services ranging
from material procurement to full production management.
Enquiries:
Mark Robinson, Managing Director 01634 290 588
CHAIRMAN'S STATEMENT
I have pleasure in presenting the full year report of Advanced Power Components
plc for the year ended 31st August 2003.
The year was one of significant progress for the Group, despite the difficult
market conditions that prevailed throughout the period. The sale of our
Communications Products activities to Bel Fuse Inc not only secured the future
of the Group but also served to improve significantly our balance sheet,
allowing us to invest in future growth via the acquisition of Silver Birch
Marketing Limited (SBM) and Go! Technology Limited (Go!).
Our results for the year, which include four months trading of the
Communications Products business, from September to December 2002, show a loss
before tax of #552,000, improved from a loss of #1,484,000 in the previous year.
Turnover was #4,409,000, compared with #6,312,000 last year.
The acquisitions and our own reorganisation will yield some efficiency savings
but, most importantly, they have significantly enlarged our target market,
providing greater scope for future profitable expansion.
Additionally we have taken steps to retain our key personnel who will contribute
significantly to our future success, with the introduction of a new share option
scheme, designed to offer an incentive for all employees to continue to strive
for the success of the Group.
We are confident about the prospects for all three of our business activities.
In each we are recruiting additional personnel and, in the case of distribution,
significant investment is being aimed at securing new distribution and
representation agreements. All three are generating new opportunities for
expansion and we have signed a number of new agreements to expand our product
portfolio. Whilst there will be a limited positive impact on sales and
profitability during the current financial year, we anticipate a significant
positive impact in subsequent years.
Following the restructuring of the Group, your board is proposing that the
deficit on our profit and loss account is eliminated by a reduction of the share
capital of the Company. Such a share capital reduction, which in this instance
will involve reducing the Company's share premium account, requires not only the
consent of the Company's shareholders in a general meeting but also the
confirmation of the High Court in England and Wales. Provided such approvals are
forthcoming, this process will facilitate the earlier payment of dividends by
the Company out of profits earned after the date on which the share capital
reduction takes effect than would otherwise be possible. Further details of the
share capital reduction are set out in the Report of the Directors.
In summary, your Board has taken action to secure the Group's future and is now
in the process of implementing the strategy to generate future, profitable
growth.
Once again, I should like to express the appreciation of your Board for the
continued support of shareholders and employees during another difficult year
and urge everyone to look to the future with a renewed sense of optimism.
R. F. Thorne, O. B. E.
Chairman
3 December 2003
OPERATIONAL AND FINANCIAL REVIEW
Financial results
Group turnover for the financial year was #4,409,000, compared with #6,312,000
in 2002, resulting in a net loss before tax of #552,000 compared with #1,484,000
last year. This result was after crediting a profit of #237,000 arising from the
sale of our Communications Products business in January 2003, a transaction
described in more detail later in this report.
The start of the financial year was dominated by the continuing difficult market
conditions in the telecommunications industry, together with depressed margins
in Asia, the main focus of the Group's Communications Products activities. This
led to significant losses in the four months prior to the sale of the business.
Our electronic component distribution activities experienced variable trading
during the year, however the divestment of the Communications Products business
enabled the distribution activities to receive a greater share of management
focus and the additional resources which had been lacking in recent years. As
well as reinforcing the Group's high-reliability military and aerospace
component business, the first steps were taken towards a policy of broadening
the Group's reach into commercial electronic components. To assist with the
attainment of this objective, with effect from 1 August 2003 the Company
purchased two companies trading from the same site in Cambridgeshire, Silver
Birch Marketing Limited (SBM) and Go! Technology Limited (Go!), both of which
are involved in commercial electronic components. The transaction is described
in more detail later in this report.
As we stated in last year's report, further cost-saving measures were undertaken
in the autumn of 2002, including a small number of redundancies in October. The
sale of Communications Products further reduced the need for support expenditure
and enabled the Group to assign the leases of two of its four office buildings.
As a result of these measures, there was a further decrease in the Group's
overheads, from #2,891,000 in 2002 to #1,878,000 this year.
The basic loss per share was 2.0p in 2003, compared with a loss of 5.0p last
year, taking into account the issue of 1,250,001 shares in part consideration
for the purchase of SBM and Go!
Sale of Communications Products business.
Poor visibility in the Group's telecommunications markets continued into the
start of the financial year under review and a review by the Board concluded
that it was not in the best interests of shareholders for the Group to continue
operating in such an uncertain environment, with the attendant risks involved.
On 2 January 2003 the Group sold its Communications Products business to
subsidiaries of Bel Fuse Inc, a Group incorporated in the United States of
America. The value of net assets attributable to the business sold amounted to
approximately #2,913,000. The consideration for the sale amounted to a cash
payment of US Dollars 5,500,000 (approximately #3,452,000) which was received on
23 December 2002. After legal expenses and reorganisation costs of #302,000 have
been taken into account, the sale of the business has realised a profit of
approximately #237,000, which has been credited to the profit and loss account.
In addition the Group is entitled to receive a deferred consideration on sales
of relevant products by Bel Fuse in the two years commencing 1 January 2003.
This consideration amounts to 5 per cent of relevant sales in excess of US
Dollars 5,000,000 in each of those two years. No deferred consideration has been
accrued in these accounts in respect of the sale.
Acquisitions
As part of its strategy of diversifying into commercial product markets, with
effect from 1 August 2003 the Company purchased the entire share capital and
business of two companies trading from the same site in Buckden, Cambridgeshire.
Silver Birch Marketing Limited is a manufacturers' representative and
distributor for a number of ranges of displays, proximity access and other
commercial and industrial products. Go! Technology Limited provides a component
sourcing and kitting service, primarily to the audio industry.
The purchase consideration for the two companies totalled #377,375 and was
satisfied partly in cash, totalling #180,500, and partly by the issue of
1,250,001 shares, valued at #196,875. The legal expenses amounted to #77,236. In
addition, contingent consideration of approximately #50,000 is payable based on
attainment of performance conditions. The acquisition method of accounting has
been used and the results of the two companies for the month of August have been
included in the consolidated results of the Group.
From the date of acquisition until 31 August 2003 SBM and Go! continued to trade
as Limited Companies. On 31 August 2003 the trade and assets of both SBM and Go!
were transferred to their parent company, APC, and from that date SBM and Go!
have traded as divisions of APC.
Funding and Cash flow
The Group's cash inflow for the year, before management of liquid resources and
financing, was #2,804,000 compared with an outflow of #312,000 last year. The
major factor influencing the Group's cash position in the year was the sale of
the Communications Products business in January 2003, for a cash consideration
equivalent to #3,452,000, resulting in net proceeds of #3,150,000 after legal
and reorganisation costs. In addition there was a significantly reduced working
capital requirement, lower overheads, no dividend payments and few requirements
for capital expenditure. Conversely the Group took the decision early in the
financial year to re-invest in resources to boost its existing component
distribution activities, as well as moving into wider markets, as described
elsewhere in this report.
As reported above, the acquisition of Silver Birch Marketing Limited and Go!
Technology Limited in August 2003 involved a cash outlay of #258,000 including
legal expenses. The remainder of the consideration was satisfied by the issue of
1,250,001 Ordinary Shares, comprising approximately five per cent of the Group's
issued share capital at that time. In the Group's financial statements this
consideration has been valued using a price of 15.75p, the mid-market price
ruling at the close of business on 31 July 2003, the day before contracts were
signed.
After taking into account all of the above factors, the year showed an overall
cash improvement of #2,709,000 (after exchange movements), compared to #115,000
in 2002. The cash proceeds from the sale of the Communications Products business
enabled the Group to extinguish its bank borrowing, #598,000 at the previous
year-end, and to pay off the remaining balance on its finance lease. The Group
ended the year with positive cash balances of #2,130,000, providing a sound
platform to invest in developing its new businesses.
Capital expenditure
Capital expenditure during the year was further reduced, amounting to #28,000 in
2003, compared with #51,000 last year.
Taxation
There is no corporation tax charge for the year under review, since the result
for the year is again expected to generate a loss for tax purposes. As last
year, the loss is increased by the Group's eligibility to benefit from enhanced
research and development allowances that allow a corporation tax deduction of
150 per cent on qualifying R&D expenditure.
It is anticipated that the losses generated in the year will be sufficient to
offset the chargeable gain arising on the sale of Communications Products.
Stock Exchange Listing
Since its flotation in 1996 the Group's shares had been listed on the Official
List of the UK Listing Authority (UKLA). However, the listing of the Group's
shares was transferred from the Official List to the Alternative Investment
market (AIM) on 12 November 2002. This followed the Board's decision that the
Group's shares would more appropriately be listed on AIM, since that market is
more cost efficient for a Group the size of APC.
Share options
Last year we reported our concern that the value of options granted to staff
over the years since flotation had been negated by the continued erosion in the
Group's share price. We therefore undertook a review into ways of restoring this
necessary incentive, as a result of which a new scheme, the 2003 Employee Share
Option Scheme, was approved by the Board in June 2003. This new scheme, based on
the Government's Enterprise Management Incentive ("EMI"), provides for options
to be exercisable at a fixed price of 2p, if certain performance conditions are
met. The conditions are linked to the Group's growth in earnings per share at
the pre-tax level.
The first options under the new scheme were granted to APC employees in July
2003. Since the financial year-end, on 30 September 2003, a second set of
options has been issued, to employees of SBM and Go!, and to the Directors of
APC.
In addition to the options granted under the 2003 Employee Share Option Scheme,
the Board has also approved, on 30 September 2003, the grant of options to our
non-executive Directors, Rex Thorne and Tim Ford. Each of these Directors
provides valuable insight and guidance on our strategies for growing our
business, over and above their corporate governance responsibilities, and the
Board considers that such awards are an appropriate incentive in this context.
Research & Development
Owing to the disposal of the Communications Products business in January 2003,
the Group's expenditure on research and development declined significantly in
2003, amounting to #194,000 compared with #733,000 last year. This was charged
directly to the profit and loss account.
Outlook
During the last few years, the fundamental changes in the markets that we
address have affected the Group in many ways. Not only has the structure of the
Group changed significantly, but culturally we have developed, and demonstrated,
the ability to drive and embrace change and now look forward to future
challenges with eager anticipation.
In our last annual report, released in January 2003, we expressed the intention
to develop sales of new product lines that offer a route into wider markets than
those already addressed. The foundation for this has been achieved with the
acquisitions of Silver Birch Marketing Limited (SBM) and Go! Technology Limited
(Go!).
The acquisitions, made with effect from 1 August 2003, provide the Group with a
total of three revenue-generating activities, which are being individually
branded to create their own identities in their particular markets.
* "APC-Hi-Rel" is the re-branding of APC's traditional distribution
business selling specialist electronic components into applications where
component reliability is of paramount importance.
* "APC-SBM" is also a distributor of electronic components but is
focussed on selling to a commercial and industrial customer base.
* APC-Go!" provides a kitting and materials management service to
companies wanting to outsource non-core activities, offering services ranging
from material procurement to full production management. Our EMS activities
will in future form part of the Go! service offering.
Our past success has been achieved with a keen focus on our target customers and
markets and this philosophy is shared by the organisations that we have
acquired. We will retain dedicated sales teams operating in each part of our
business to ensure that our sales focus is not diluted. Each of the businesses
will maintain its own marketing identity within the overall APC organisation.
Following the acquisitions, our resources are concentrated on our key competency
of component supply and distribution. This reorganisation is now largely
complete and we are concentrating on implementing a number of strategies at all
levels to develop the business further.
In summary, despite a difficult few years, we have the organisation in place,
and the market position, to capitalise on the opportunities which are already
being developed and which will in turn significantly enhance the future
performance of the Group.
M. R. Robinson H. F. Edmonds
Managing Director Finance Director
Unaudited Audited
CONSOLIDATED PROFIT AND LOSS ACCOUNT 2003 2003 2002 2002
for the year ended 31 August 2003 #000 #000 #000 #000
Turnover
Continuing operations 3,175 3,814
Acquisitions 90 -
Discontinued operations 1,144 4,409 2,498 6,312
------- -------
Cost of sales (3,335) (4,847)
Gross profit
Continuing operations 798 1,057
Acquisitions 8 -
Discontinued operations 268 408
------- -------- ------- -------
1,074 1,465
Distribution costs (456) (707)
Administrative expenses (1,422) (2,184)
Other income - 6
Operating loss
Continuing operations (498) 180
Acquisitions (33) -
Discontinued operations (273) (1,600)
------- -------- ------- -------
(804) (1,420)
Profit on sale of discontinued 237 -
business operations
Net interest receivable /(payable) 15 (64)
-------- ------- -------
Loss on ordinary activities before (552) (1,484)
taxation
Tax on loss on ordinary activities 52 295
-------- ------- -------
Loss for the financial year (500) (1,189)
Retained (loss)/profit brought (192) 997
forward
-------- ------- -------
Retained loss carried forward (692) (192)
======== ======= =======
Basic loss per share (2.0p) (5.0p)
Diluted loss per share (2.0p) (5.0p)
Notes :
(i) The Group has no recognised gains and losses other than those included in
the profit and loss account.
(ii) There is no difference between the loss as stated in the profit and loss
account and the historical cost loss for the period.
(iii) The loss per share has been calculated based on the number of shares in
issue during the respective periods.
Unaudited Audited
CONSOLIDATED BALANCE SHEET 2003 2002
at 31 August 2003 #000 #000
Fixed assets
Intangible assets 456 -
Tangible assets 170 791
--------- ---------
626 791
--------- ---------
Current assets
Stock 502 2,790
Debtors 1,208 1,604
Cash at bank and in hand 2,130 19
--------- ---------
3,840 4,413
Creditors: Amounts falling due within one year (1,318) (1,749)
--------- ---------
Net current assets 2,522 2,664
--------- ---------
Total assets less current liabilities 3,148 3,455
Creditors : Amounts falling due in more than one year (48) (52)
Provisions for liabilities and charges - -
--------- ---------
Net assets 3,100 3,403
========= =========
Capital and reserves
Called up share capital 522 497
Share premium account 3,270 3,098
Profit and loss account (692) (192)
--------- ---------
Total equity shareholders' funds 3,100 3,403
========= =========
Unaudited Audited
CONSOLIDATED CASH FLOW STATEMENT 2003 2002
for the year ended 31 August 2003 #000 #000
Net cash outflow from operating activities (438) (203)
-------- --------
Returns on investment and servicing of finance :
Interest received 51 4
Interest paid (36) (68)
Net cash inflow/(outflow) from returns on investment
and servicing of finance 15 (64)
-------- --------
Taxation 296 6
Capital expenditure and financial investment :
Net proceeds of sale of discontinued business 3,150 -
Payments to acquire tangible fixed assets (28) (51)
Sale of tangible fixed assets 8 -
Net cash inflow/(outflow) from capital
expenditure
and financial investment -------- --------
3,130 (51)
Acquisitions
Purchase of subsidiary undertakings (258) -
Cash acquired with subsidiary undertakings 59 -
-------- --------
Net cash outflow from acquisitions (199) -
Net cash inflow/(outflow) before management of
liquid resources and financing -------- --------
2,804 (312)
Financing :
Issue of ordinary share capital - 456
Capital element of finance lease repayments (81) (29)
-------- --------
Net cash (outflow)/inflow from financing (81) 427
-------- --------
Increase in net cash 2,723 115
======== ========
Reconciliation of operating loss 2003 2002
to net cash (outflow)/inflow from operating activities #000 #000
Continuing operations
Operating (loss)/profit (531) 180
Adjustment for exchange loss 14 -
Depreciation 72 80
Increase in stocks (5) (50)
Decrease in debtors 15 309
Decrease in creditors (16) (481)
-------- --------
Net cash (outflow)/inflow from continuing operating (451) 38
activities ======== ========
Discontinued operations
Operating loss (273) (1,600)
Depreciation 136 148
Decrease in stocks 52 736
Decrease in debtors 221 552
Decrease in creditors (123) (77)
-------- --------
Net cash inflow/(outflow) from discontinued 13 (241)
operating activities ======== ========
NOTES TO THE ACCOUNTS
1. Turnover and segmental information
The turnover, loss before taxation and net assets are attributable to the one
principal activity of the Group, the design, supply and distribution of
electronic components, which is all based in the UK.
An analysis of turnover by geographical destination is given below :
2003 2002
#000 #000
UK 3,318 3,927
North America 84 731
Far East, Europe and other 1,007 1,654
--------- ---------
4,409 6,312
========= =========
2. Taxation
2003 2002
(a) Analysis of credit in period #000 #000
Current tax:
UK Corporation tax at 30% on losses for the current year (38) (155)
Adjustments in respect of prior years (14) (140)
--------- ---------
Total current tax (52) (295)
--------- ---------
Deferred tax:
Release of deferred tax provision - -
--------- ---------
Total deferred tax - -
--------- ---------
Tax credit on loss on ordinary activities (52) (295)
========= =========
The corporation tax rate for the current and previous years is 30 per cent, the
rate ruling throughout the respective periods. As referred to in the Operational
and Financial Review, the result for the current year has created a loss for tax
purposes. To the extent that this loss arises from the Group's research and
development, it will be surrendered in favour of the available research and
development tax credit, resulting in a credit to the profit and loss account.
The balance can be carried forward to offset against taxable profits arising in
future years.
(b) Factors affecting tax charge in period
The tax credit for the period is lower than the standard rate of corporation tax
in the UK (30%). The differences are explained below:
2003 2002
#000 #000
Loss on ordinary activities before tax (552) (1,484)
--------- ---------
Loss on ordinary activities multiplied by the standard
rate of corporation tax (166) (445)
Effects of:
Permanent differences (10) (85)
Adjustments relating to prior year corporation (14) (140)
tax
Current tax losses not utilised 7 212
Tax rate adjustment in respect of losses
surrendered for
research and development tax credit 34 136
Accelerated capital allowances 97 27
--------- ---------
Current tax credit for the period (52) (295)
========= =========
3. Loss per share
The calculation of basic loss per share is based on the loss after taxation for
the period and the weighted average number of shares in issue during the period.
None of the share options give rise to a dilution in the loss per share due to
the losses made in the year.
Reconciliations of the loss and weighted average number of shares used in the
calculations are set out below:
2003 2002
Weighted Weighted
average average
Earnings Number of Per share Earnings Number of Per share
shares amount shares amount
#000 pence #000 pence
Basic and
diluted loss
per share
Loss attributable
to Ordinary
shareholders (500) 24,946,704 (2.0p) (1,189) 23,988,676 (5.0p)
--------- --------- --------- --------- --------- ---------
4. Reconciliation of movements in shareholders' funds
Group Group Company Company
2003 2002 2003 2002
#000 #000 #000 #000
Opening equity shareholders' funds 3,403 4,136 3,403 4,136
Issue of additional shares 197 456 197 456
Loss for the financial year (500) (1,189) (498) (1,189)
-------- -------- -------- --------
Closing equity shareholders' funds 3,100 3,403 3,102 3,403
======== ======== ======== ========
5. The financial information set out in the announcement
does not constitute the Company's statutory accounts for the years ended 31
August 2003. The financial information for the year ended 31 August 2002 is
derived from the statutory accounts for that year which have been delivered to
the Registrar of Companies. The auditors reported on those accounts: their
report was unqualified and did not contain a statement under s237(2) or (3)
Companies Act 1985. The statutory accounts for the year ended 31 August 2003
will be finalised on the basis of the financial information presented by the
Directors in this preliminary announcement and will be delivered to the
Registrar of Companies following the Company's Annual General Meeting.
6. Copies of this preliminary statement may be obtained from
the Company Secretary, Advanced Power Components plc, 47 Riverside, Medway City
Estate, Rochester, Kent ME2 4DP.
This information is provided by RNS
The company news service from the London Stock Exchange
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