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RNS Number:7940M First Technology PLC 26 June 2003 26 June 2003 Preliminary Results for the year ended 30 April 2003 ROBUST PERFORMANCE IN A DIFFICULT YEAR * Against the backdrop of continued global economic and political uncertainty, the Group has produced a robust performance in a difficult year * Gas sensing turnover increased by 5% year-on-year to #25.5 million, helped by a strong performance from the sale of industrial sensor safety applications * Safety and Analysis Division had a record year with turnover increasing by 24% in US Dollar terms * In Automotive and Special Products there were some significant gains in key product areas * Over 6% of turnover continues to be spent on Research and Development * Final dividend increased to 6.1p per share (2002: 5.8p per share) making a total dividend for the year of 9.5p per share (2002: 9.0p per share), up 5.6% * Total Group turnover was #127.6 million (2002: #137.0 million) * Strong cash generation with net cash of #0.1 million at the year end (2002 net debt: #12.3 million) * Gross margin improved to 40.8% (2002: 39.9%) and operating margin* maintained above 20% * Profit before tax* was #25.5 million (2002: #28.7 million) * Adverse currency movements on translation reduced turnover by #4.1 million and operating profit by #1.1 million John Shepherd, Chief Executive, commented: "I am very pleased to have joined First Technology at this stage in the company's evolution. It is my intention to build on the company's 20-year legacy of profitable growth through continued investment in quality acquisitions and advanced technologies to create the high quality products our customers demand. This is still the key to delivering consistently high returns to our shareholders and fuelling the future growth of the Group." Fred Westlake, Chairman, commented: "Compared to our peer group, we continue to enjoy healthy profit margins, strong cash generation and a high return on capital employed. Our search for suitable acquisitions, for which we are well placed, continues. The Board believes that our clear focus, established strategy and new product pipeline means we are well-positioned to benefit when our markets improve." *Before exceptional reorganisation and integration costs and goodwill items For further information, please contact: John Shepherd, Chief Executive Lulu Bridges Oliver Burns, Finance Director Justin Griffiths First Technology PLC Tavistock Communications Tel: 020 7600 2288 Tel: 020 7600 2288 High resolution photographs are available to the media free of charge at www.newscast.co.uk (+44 (0)20 7608 1000) CHAIRMAN'S STATEMENT My interim statement was made against a backdrop of global economic and political uncertainty. However, I did allude to the comforting facts that a significant proportion of our products were sold into legislated markets and that we enjoyed strong international market positions in the increasingly important sectors of safety and the environment. I am pleased to say that such factors, along with strong management control, have resulted in a robust performance in a difficult year; it is particularly pleasing to note that, once again, our operating margin in relation to on-going items was above 20% and we ended the year debt free. Profit before tax on the same basis was #25.5 million (2002: #28.7 million) and headline earnings per share was 27.2 pence per share (2002: 30.0 pence). I do not include in "on-going items" the exceptional reorganisation and integration costs or goodwill items. Approximately half of our sales are in the US, where the sluggishness of that market linked to a significant weakening of the US dollar during the year, had a negative effect on our overall performance. The effect of adverse currency movements on the translation of the results of our overseas operations was to reduce the turnover figure by #4.1 million and to lower the operating profit figure by #1.1 million. Added to which, the lead up to the Iraqi war and the war itself, coming as they did in our normally strong last quarter, had a dampening effect on demand. Cash Flow Once again, the business proved to be resilient, especially in its cash generating abilities. After capital expenditure and acquisition payments of #6.8 million and the payment of #6.9 million in dividends, the Group had net cash of #0.1 million at the year end compared with a net debt figure of #12.3 million at the previous year end. Dividends Given the continuing strong cash generation of the business, your Board has decided to recommend an increase in the final divided to 6.1 pence per share (2002: 5.8 pence) bringing the total dividend for the year to 9.5 pence per share (2002: 9.0 pence), an increase of 5.6% which is covered 2.8 times by headline earnings (i.e. profit after tax excluding goodwill items and exceptional costs). If approved, the final dividend will be paid on 7th October 2003 to shareholders on the register at the close of business on 5th September 2003. Board Changes On 10th March 2003, John Shepherd joined the Board as Chief Executive having previously been with Smiths Group plc, where his last position was as Managing Director of Smiths Detection. John brings considerable experience in the building and management of profitable international technology based businesses. I have no doubt our business will gain considerably from his leadership. For more information on John and his appointment and my own position going forward I would refer you to our company announcement of 18th February 2003, a copy of which is posted on our website. Corporate Governance First Technology has always been committed to high ethical standards and takes pride in its open dialogue with investors, employees and customers. The Board accepts the principles embodied in the Combined Code introduced in June 1998 and makes every effort to apply them, taking into account the size of the business. Your Board has discussed the recent draft recommendations of the Higgs and Smith reports. Whilst we are committed to proper corporate governance, we are concerned that some of the recommendations may be inappropriate for smaller companies such as ours, leading to excessive added costs without providing any substantive improvements in corporate governance. Modifications have been mooted and it is to be hoped that the final document meets the concerns that many companies have expressed. We have always linked the remuneration of our Executives to the profitability of the business. Consequently no bonuses are being paid to my Executive Director colleagues or myself in respect of the year being reported. Environmental Management In my last interim statement I spoke of the strong belief of the Board that sound environmental policy contributes to our competitive strength and is to the benefit of all stakeholders. At that time, five of our eight major operating sites had achieved certification of the internationally recognised environmental management standard, ISO 14001. I now am pleased to report that the remaining three sites also achieved certification in the second half of the year. Outlook We remain firmly committed to our strategy of creating and supporting innovative products and services in our chosen global markets of safety and the environment. Our never-ending effort to reduce costs led to increased production in the Dominican Republic and component sourcing in the Far East. These are trends which will continue. All the signs are that the various factors which are currently having an adverse effect on global economic activity will be with us for some time to come. This makes it difficult to forecast revenue and profitability in the near term. Compared to our peer group, we continue to enjoy healthy profit margins, strong cash generation and a high return on capital employed. Our search for suitable acquisitions, for which we are well placed, continues. Your Board believes that our clear focus, established strategy and new product pipeline means we are well positioned to benefit when our markets improve. Fred Westlake Chairman CHIEF EXECUTIVE'S STATEMENT Since joining the Company on 10th March, I have been very positively impressed by the strategy, operations, people and products of First Technology. I am confident that the inherent strengths of our technology base, manufacturing process knowledge and workforce commitment give us the ability to build on the resilience of the business and resume profit growth. MARKETS The automotive market worldwide has gone through another difficult period in the last twelve months. In North America, the major US manufacturers influenced the market with a series of customer incentives which helped to increase vehicle production by 2.1% from fiscal year 2002 and thereby had a positive influence on our shipments. Similar incentives have not been evident in Europe where car production decreased 0.3% from last year. Despite the incentives, North American inventories at Ford, GM and Daimler Chrysler increased to a level of over 70 days - up from about 60 days a year ago. Intense price pressures from customers and the trend to further integration of sensor functions continue. The Gas Sensing market continues to grow and demand for our products remains strong, especially in the petrochemicals, mining and automotive emissions segments. We are also capitalising on some opportunities to sell our products into adjacent markets such as domestic boiler flue gas monitoring. We have made significant further inroads into the fast growing Chinese market. The automotive Safety and Analysis market has also been buoyant this year. All three of the major markets (Japan, Europe and the US) have seen year-on-year growth. The drivers were increases in Side Impact Dummy (SID) crash testing, consumer vehicle rating programmes and further regulatory standard upgrades. NEW TECHNOLOGY One of the hallmarks of First Technology is our track record of successful investment in new technologies which result in the innovative new products demanded by our customers. Over the last year we have continued to invest significant resources in new technology development to a value of #8 million or more than 6% of turnover. In addition, our search for the best available technologies has led us to collaborate with QinetiQ in the UK - the science and technology powerhouse recently formed from the British Government defence research establishments. In automotive, this continued collaboration has led to the joint development of a Passive Occupant Sensing Infrared Camera (POSIC) which has been very positively received by customers as a potential low cost solution to the regulated requirement in the US scheduled for implementation in 2006 for detecting the size and position of passengers. Encouraging feedback has been received from Original Equipment Manufacturers ("OEM's") and in-car trials are planned in collaboration with customers later this year. This patented technology still requires further development and field-testing but it is one we are becoming increasingly optimistic about in regard to future potential. Another co-development effort with QinetiQ involves a very low cost battery-less in-tyre air pressure sensor. Although this market is already crowded with a number of players and technologies, we are investigating supplying a low cost component to an existing system supplier in a partnership arrangement. This route to market would provide a quicker, simpler method that should allow us to evaluate the potential of this technology with a small investment. In our optical encoder group we have been disappointed in the last year or two with some delays of promised programmes as sophisticated steering systems get pushed out by cost sensitive OEM's and delays in 42V architecture. However, we have continued to work on refinements and validations of our steering sensors and are now seeing renewed activity as the benefits of the more advanced steering systems seem to be getting the attention of the OEM's. We have recently invested in upgrading the technology used in our condensation sensor to sense rain as well. We are now developing a multi function sensor with the condensation and rain features combined with our well recognised solar/ twilight/tunnel sensing abilities to provide the market with a sensor that should provide a very cost effective product to the OEM's. During the period we have also continued our collaboration with the Swatch Group in Switzerland on the development of a gyroscope for inclusion in advanced vehicle dynamic sensing systems and we plan to demonstrate this to customers shortly. The investment in gas sensing continues to pay dividends, with 24% of 2002/3 sales coming from products launched in the last two years. Key new products include the new MICROceLTM range of small sensors. The first of these postage stamp-sized sensors, the MICROpeLTM catalytic bead device, was launched in May 2003. A number of industrial safety instrumentation manufacturers are currently designing this sensor and its family members into new instruments for launch in 2003 and 2004, to exploit the reduced size and weight offered by this family of devices. Other new sensors entering the market place include a module for insertion into boiler flues to detect abnormal and unsafe oxygen and carbon monoxide levels, using our exclusive solid state sensing technology. The US alone manufactures about 3.3 million domestic boilers per year and detecting toxic carbon monoxide leakage at its source is important when many of these systems heat and circulate air from the boiler around the house. A leading US boiler manufacturing partner is currently evaluating the device and we hope to see the first significant sales for this application in 2004. We are also investing in the development of biosensors to detect hazardous airborne substances in industrial environments. Areas of opportunity include industrial processes using potentially harmful enzymes, such as in the baking industry and the manufacture of washing powders, as well as industrial airborne products from mould in air ducts and concealed in structural panelling (an increasingly common problem in buildings, especially in North America). We have teamed up with and taken an equity stake in a UK based biotechnology company to develop and evolve its established technology into sensors specifically for industrial applications. The first product for launch in 2004 will be a sensor for subtilisin, an enzyme which is hazardous to workers engaged in the manufacture of 'biological' detergents. In Safety and Analysis, new product development remains an important focus in order to keep pace with constantly changing crash environment methods and procedures. Key developments in the last year include the iDummyTM which redefines the concept of a dummy. iDummyTM changes the product to an integrated, intelligent dummy with in-dummy data acquisition, sensors, cabling and network with no umbilical cord and no additional mass. WorldSID (a side impact dummy) is the first dummy to include the iDummyTM capabilities. Demand for new dummy sensors is increasing and to meet this demand we are actively developing several new products. OPERATIONS Gas Sensing The Gas Sensing division had another strong year, with sales increasing by 5% year-on-year to #25.5 million. During 2002/03 the US Dollar weakened significantly and, as approximately half of the sales are in that currency, there was significant erosion of the Sterling value of sales. At comparable exchange rates, total sales grew by 7%. The growth was helped by a very strong performance from the sale of sensors for industrial safety applications, with these sales increasing by 11% during the year. This increase arose from internal organic growth in the regulated and legislated industrial safety markets, combined with taking market share from direct and vertically-integrated competitors. Demand from the major markets in this segment remained strong throughout the year, particularly from the petrochemical, mining and municipal areas, and sales of catalytic bead combustible gas sensors (pellistors) increased by 31%. Rapidly growing sales of our IRidium(R) infrared sensor module family also helped sustain growth. Over 2,000 modules were sold to a number of vehicle exhaust gas analyser manufacturers in 2002/03. The portable analyser incorporating IRidium(R) 100 manufactured by OTC, a subsidiary of the US SPX Corporation, has been particularly successful. During the year, several other analyser manufacturers in the US, Europe and the Far East completed the design of the unit into their new products. Thus, sales of this sensor module are expected to continue growing as these new analysers are launched. Sales of the nitric oxide automotive exhaust gas sensor for the US regulated market continued to dominate this small, but significant, niche in 2002/03. China continues to be an exciting area of growth for our safety, flue-gas emissions and automotive sensors. Total sales to the Far East in 2002/03 increased by 44%. The lower-specification IRidium(R) 50 infrared sensor module was launched successfully at a major trade show in China and achieved its first sales there during the year. There is now a number of very promising prospects currently sampling the device for incorporation into locally manufactured analysers. Many Chinese cities have extensive pollution problems, exacerbated by the growing number of cars used as the middle-class becomes more prosperous and the Chinese authorities seem determined to reduce city pollution by 2008 (when they host the Olympic Games). Much of the enforcement of the existing emissions regulations is done by local police forces, equipped with portable exhaust analysers, and the IRidium(R) 50 will serve this market very well. We are continuing to focus significant sales and marketing resources on China and the Far East and anticipate sustained strong growth in 2003/04 and beyond. Other Manufacturing Automotive and Special Products In Automotive and Special Products we made some significant gains in key product areas. In US Dollar terms, the solar/twilight sensor business at Ford was up by 30%, tunnel/twilight sensor business was up 70% overall and our 4-Zone solar sensor business increased 35% at Daimler Chrysler. These gains have been offset somewhat by continued intense price pressure. We have continued to make significant investments in new product development in order to offset the reducing sales of one of our original and most profitable products - the Fuel Cut Off (FCO) switch. The rate of reduction in FCO sales is partly dependent on how quickly the function is taken up by the airbag sensors and is, therefore, difficult to forecast. Excluding last year's one-off cooling fan project for Ford, overall electromechanical product sales increased by 10% in US Dollar terms, with sales of our circuit protection devices for domestic heating systems performing particularly well showing a 32% increase overall from last year. The market for our communications ceramic products continues to be depressed and any turn around from this three year decline is difficult to predict. However, there was a small increase in sales over prior year in the second half. The other ceramic based products - Supplemental Vehicle Heaters - have fared much better with shipments more than doubling from the prior year. Prospects for this product range are good. We have added further impetus to reducing our cost of operations during the year and have focussed on three primary tasks: * Further reduction of FCO costs * Improvement of margins and cash flow * Speeding up introduction of new products During the year we implemented the difficult decision of discontinuing manufacturing at our Farnborough UK facility. This will result in net annual savings of #0.9 million. Despite the tough market conditions and the resultant intense price pressure we have managed to hold, and in many cases increase, the operating margins of our automotive products. We have achieved this through further intensification of our Lean Manufacturing initiatives by dedicating more resources to the never-ending task of eliminating waste and improving the flow in our processes. We have continued to increase production in our Dominican Republic facility which we have recently expanded for the second time in three years. In response to the current US trend of cutting costs and features from vehicles, we continue to aim for the development of products which will be either required on future vehicles or bring additional value for OEM's by combining functionality. Overall, in this division, we dedicate more than 6% of revenue to new product development in order to fuel the growth of the business. New products and applications introduced in the last year include: * Battery Cut Off devices for a dual voltage North American vehicle. * Twilight (Headlight Control) sensor for a US produced Japanese vehicle. * Combination Solar (Climate Control) and Twilight sensor for a US produced Japanese vehicle. * Combined Tunnel and Twilight sensor on Audi A8. * The first Air Quality Sensor commitment from Ferrari who will also take the First Technology solar/twilight and condensation sensors. * A dual zone solar sensor for multiple European customers. * A combined solar twilight sensor for Volvo. All of these products have either recently started shipment or will start in the next eighteen months. Safety and Analysis This division had a record year with sales up 24% in US Dollar terms. All three of the major markets (Japan, Europe and the US) enjoyed year-on-year increases in shipments despite the fact that the overall automotive market remained difficult. Consumer vehicle ratings and safety awareness remain the drivers for this business. Key items which have continued to drive the business forward include EuroNCAP adopting the ES-2 (mid-size male) dummy to rate vehicles in side impact crash tests, the US Insurance Institute for Highway Safety (IIHS) adopting the SIDIIs (small female) to rate vehicles in side impact crash tests and also adopting a new test that represents a sports utility vehicle or truck because of the growing number of truck to car side impact crashes in the US. In the US the government announced plans to upgrade the current side impact standard following the lead of the consumer test programmes. The new ES-2 and SIDIIs dummies are proposed candidates to be used in tests mandated by this standard. The proposed rule will address new injury areas including the head and abdomen. In Europe, regulators are considering upgrading the European side impact standard using our ES-2 dummy. These pending US and European rule changes are positive developments for future sales. During the last year, the WorldSID programme came to fruition with the shipment of 7 pre-production dummies. These dummies represent the second version of this new product and were shipped to most of the world's OEM's. The prototypes will be tested and evaluated during the next several years, after which consumer tests or legislation will drive the extent of additional sales. Sales of the First Technology Safety Systems (FTSS) virtual dummy software, known as the Finite Element Models (FEM), continued to grow for the fourth straight year improving 40% on top of last year's 50% increase in local currency terms. The FEM's are the standard test device to optimise restraint systems in pre-production simulations. Virtual crash tests provide additional test data to evaluate new regulations and restraint designs. Our customers are demanding more complex models which require upgrades to earlier FEM's developed five years ago. This range of products provides a useful aftersales income stream. Another key driver for growth is our continuing push to provide local technical support near our customers in the US, Far East and Europe. Service Centres in Liberty, Ohio, Nagoya, Japan, Heidelberg, Germany and Delft, Netherlands continue to expand our ability to provide full service and repair facilities to meet customer demands. Recent awards to these service centres include a new contract at Honda America located in Ohio. This multi-year contract is the first OEM customer and it is worth $1 million over three years. Toyota awarded FTSS Japan a calibration contract to service dummies and instrumentation, which is worth $300,000. Toyota suppliers are expected to follow Toyota's lead. Renault selected FTSS Germany to service FTSS dummies in a contract also worth $300,000. Within our instrumentation company (HITEC) we have recently secured a large order to supply instrumentation for a torque sensitive power assisted wheelchair which will enter the market this year. This and other medical applications will provide this business with good growth opportunities. Component Distribution (RDI) Trading throughout the period was exceptionally difficult. In common with many other European distribution companies, RDI's business was adversely affected by the downturn in the IT, electronics and telecoms sectors, whilst sales to automotive customers were affected by pricing pressures. Last autumn a reorganisation of the Group's automotive and distribution activities took place which transferred those activities not related to third party component distribution to other parts of the Group and focussed RDI on its core activity. RDI has been slimmed down to 43 staff and is positioned to benefit from the upturn in the market whilst minimising its cash exposure in the interim. I am very pleased to have joined First Technology at this stage of the Company's evolution. Fred Westlake has led the Company for almost 20 years of profitable growth and I take this opportunity to thank him on behalf of the shareholders and employees for making the Company what it is today and, on behalf of Fred, I thank them for the support they have given him and their continued commitment. It is my intention to continue to build on this legacy through continued investment in quality acquisitions and advanced technologies to create the high quality products our customers demand. This is still the key to delivering consistently high returns to our shareholders and fuelling the future growth of the group. John Shepherd Chief Executive FINANCIAL REVIEW Group Performance Total Group turnover of #127.6 million was 7% lower than the prior year figure of #137.0 million. Of this #9.4 million decline, #4.1 million is due to adverse currency translation. Gas Sensing turnover grew by 5% but, because almost half of this segment's revenues is made in US Dollars, the Sterling value of these revenues was adversely affected by the weakness in the US Dollar relative to Sterling. Within Other Manufacturing, sales of crash dummies and related products grew strongly in local currency, especially in the second half of the year. However, last year's turnover for Other Manufacturing included #5.5 million for two product lines that have been discontinued during the year and for which sales of only #0.9 million were recorded in the current year. Sales of the mature fuel cut off product also fell by #2.7 million, in line with expectations. Component Distribution turnover fell by 17% (22% in local currency), which reflects the very poor trading conditions in the telecom and electronics sectors in France. Gross profit fell by #2.6 million to #52.1 million, although the gross margin grew to 40.8% of turnover (2002: 39.9%). Operating expenses before goodwill and exceptional costs increased by 4% to #25.6 million (2002: #24.6 million). Within operating expenses, gains from foreign exchange transactions were #0.7 million lower in the period compared to last year, whilst the Group benefited from a number of small non-recurring items in the prior year which reduced 2002 costs. Despite the difficult trading environment in which we are currently operating, the Board believes that it is vital to continue to invest in new product development. We have therefore continued to spend over 6% of turnover on R&D activities and a number of the current projects are discussed further in the Chief Executive's Review. During the first half year, the Group announced that it was ceasing manufacturing activities at the Farnborough site and reorganising the operations of RDI in Paris. This has involved the transfer of all European logistics for the Automotive and Special Products division from Paris to Farnborough. These actions were successfully completed during the second half-year. Due to the continuing poor trading of the Component Distribution business it was decided to make further cost reductions in Paris in the second half. The total exceptional charge for all of these actions was #1.5 million before tax. The Group expects to achieve annualised savings of at least this amount in future years. Excluding the exceptional costs and goodwill items, the Group operating profit fell by 12% to #26.5 million (2002: #30.1 million). Of this #3.6 million decline, #1.1 million is due to adverse currency translation and a further #0.7 million was due to lower gains on foreign exchange transactions referred to above. The operating margin was 20.8% (2002: 22.0%). Profit before tax (PBT) fell to #10.4 million (2002: #19.7 million), due to lower turnover, increased exceptional items of #1.5 million (2002: #0.3 million) and the goodwill impairment charge of #4.9 million (2002: #nil). PBT, excluding exceptional costs and goodwill items, fell by 11% to #25.5 million (2002: #28.7 million). Interest expenses of #1.0 million (2002: #1.4 million) arose primarily on the balance of borrowings made to finance previous year acquisitions. Interest expenses include the amortisation of up-front facility fees, commitment fees on the undrawn portion of the bank facilities and a charge for the fair valuation of an interest rate swap. The interest charge was covered more than 11 times or, excluding goodwill items, more than 25 times. Tax The tax charge for the year was 19.5% of profit before tax and goodwill items (2002: 21.1%). No tax relief is available on the amortisation of goodwill. The current year charge includes a credit of #0.4 million (2002: #1.0 million) related to prior year items. The underlying tax rate (i.e. excluding the prior year credit) has been reduced to 21.2% (2002: 24.6%) The Group continues to benefit from its operations in lower tax environments and an efficient corporate structure. Earnings Per Share (EPS) and Dividends Basic EPS for the year were 7.6p per share (2002: 18.2p). The basic EPS figure includes non-cash losses of 11.5p per share (2002: 11.5p) related to goodwill amortisation, 6.5p (2002: nil) related to goodwill impairment, and a loss of 1.6p per share (2002: 0.3p) related to exceptional costs, net of tax credit. Our preferred measure of 'Headline EPS' (i.e. excluding goodwill items and exceptional costs, net of tax credit) fell by 9.3% to 27.2p per share (2002: 30.0p). The Board is recommending a final dividend of 6.1p per share (2002: 5.8p), an increase of 5% which, together with the interim dividend already paid of 3.4p per share (2002: 3.2p), will make a total dividend for the year of 9.5p per share (2002: 9.0p), if approved. The dividend is covered 2.8 times by headline earnings (2002: 3.3 times). Goodwill Impairment In accordance with UK Accounting Standard FRS 11, Impairment of Fixed Assets and Goodwill, the directors have reviewed the carrying value of goodwill on the consolidated balance sheet. Given the operating performance of the Component Distribution business in the current year and that the directors do not consider it likely that this business will show any significant improvement within the medium term, it has been decided to write down fully the unamortised goodwill attributed to this business on acquisition, totalling #0.9 million. The directors have also reviewed the solid state gas sensor products acquired with the purchase of Capteur Sensors and Analysers Ltd., three years ago. The development of the market for this product range has taken longer than expected. The directors believe that there are good prospects for solid state products in the future. Since the volumes and timing of these revenues are less predictable in current circumstances, the value of the unamortised portion of goodwill that arose on the acquisition has been reduced by 50% (equivalent to #4.0 million). Balance Sheet Net assets fell by #2.7 million to #160.7 million (2002: #163.4 million), including goodwill of #138.3 million (2002: #151.9 million). The effect of translation rates on net assets was negligible because foreign currency borrowings effectively hedged overseas net assets. Working capital, (excluding corporate income taxes and items related to deferred consideration), was reduced by more than #2 million to #17.5 million and the ratio of working capital to annualised turnover improved to 13.7% from 14.4%. Overall return on capital employed (as measured by PBT before goodwill and exceptional items as a percentage of net tangible assets) exceeded 100%. At the balance sheet date, the Group had net cash of #0.1 million (2002 net debt: #12.3 million). The Group had undrawn committed multi-currency facilities under its revolving credit facility of #33.3 million at year end. Pension Accounting The Group adopted FRS 17 last year. The decline in market values of equities and falling investment returns over the recent past have resulted in deficits arising on both of the Group's defined benefit schemes, but the movement in the deficit arising from actuarial losses is now reflected in the Statement of Total Recognised Gains and Losses, rather than distorting the underlying operating performance of the Group. The deficit on the value of the defined benefit schemes' assets compared to their liabilities has increased during the year by #1.0 million to a figure of #2.9 million, before the associated deferred tax credit. Cash Flow The Group generated #29.8 million (2002: #34.6 million) of net cash inflow from operating activities. Capital investment, excluding the cost of acquisitions, was #5.1 million (2002: #4.1 million). This figure includes a trade investment of #0.5 million. Cash outflows on acquisitions totalled #1.7 million (2002: #4.0 million), all of which comprised deferred payments related to previous years' acquisitions. Other cash demands included dividends of #6.9 million (2002: #6.5 million) and corporate taxes of #4.3 million (2002: #3.3 million). Management of Financial Risk Funding, interest rate, foreign currency and credit risks are the financial risks faced by the Group. The Group operates a central Treasury activity, responsible for all debt and liquidity management, interest rate and foreign exchange requirements. Treasury activity is the responsibility of the Finance Director. Treasury is not a profit centre and does not undertake speculative financial transactions or utilise off balance sheet financing vehicles. Summary Over the past few years, First Technology has considerably broadened its product offerings through investment in both organic growth and carefully targeted acquisitions. As a result, the Group has been able to withstand the current period of economic uncertainty and the maturing of some of our older products. The Group has been a consistent generator of cash; over the past three years, the Group has invested #24 million in R & D for its product range as well as paying over #19 million to shareholders in the form of dividends. Over the same period, net debt of #37 million has been extinguished. Consequently, First Technology has a firm financial basis on which to face future challenges and to deliver growth in shareholder value. Oliver Burns Finance Director NOTE: The average rates used to translate the results of the US, Euroland and Japanese subsidiaries were $1.55/# (2002: $1.43/#), Euro1.54/# (2002: Euro1.63/#), and Yen 188/# (2002: Yen 181/#). FIRST TECHNOLOGY PLC UNAUDITED PRELIMINARY RESULTS ANNOUNCEMENT Group Profit and Loss Account for the year ended 30th April 2003 Note 2003 2002 #'m #'m Turnover 2 127.6 137.0 Cost of sales (75.5) (82.3) -------- -------- Gross profit 52.1 54.7 Operating costs Integration costs - (0.3) Reorganisation costs (1.5) - Goodwill: - amortisation 8 (8.7) (8.7) - impairment 8 (4.9) - Other operating costs 3 (25.6) (24.6) Total operating costs 3 (40.7) (33.6) -------- -------- Operating profit 11.4 21.1 Finance charges (net) 4 (1.0) (1.4) -------- -------- Profit on ordinary activities before taxation 10.4 19.7 Tax on profit on ordinary activities 5 (4.7) (6.0) -------- -------- Profit for the financial year 5.7 13.7 Dividends paid and proposed 6 (7.2) (6.8) -------- -------- Retained (loss)/profit for the financial year (1.5) 6.9 ======== ======== Headline earnings per share 7 27.2p 30.0p Basic earnings per share 7 7.6p 18.2p Diluted basic earnings per share 7 7.6p 18.2p Dividends per share 6 9.5p 9.0p Profit on ordinary activities before taxation, goodwill items, reorganisation and integration costs #25.5m #28.7m All trading activities arise from continuing activities. Group Balance Sheet as at 30th April 2003 Note 2003 2002 #'m #'m Fixed assets Intangible assets 8 138.3 151.9 Tangible assets 16.8 17.8 Investments 0.5 - -------- -------- 155.6 169.7 Current assets Stocks 13.9 11.8 Debtors 24.8 28.9 Cash at bank and in hand 3.8 3.2 -------- -------- 42.5 43.9 Creditors: amounts falling due within one year Bank loans and overdrafts 9 (3.7) (6.7) Other creditors (31.2) (32.6) -------- -------- (34.9) (39.3) -------- -------- -------- -------- Net current assets 7.6 4.6 -------- -------- Total assets less current liabilities 163.2 174.3 -------- -------- Creditors: amounts falling due after more than one year Bank loans 9 - (8.8) Other creditors (0.5) (0.8) -------- -------- (0.5) (9.6) -------- -------- Net assets excluding pension liability 162.7 164.7 Pension liability (2.0) (1.3) -------- -------- Net assets including pension liability 160.7 163.4 ======== ======== Capital and reserves Called up share capital 10 7.5 7.5 Share premium account 48.7 48.7 Merger reserve 69.6 69.6 Profit and loss account 11 34.9 37.6 -------- -------- Equity shareholders' funds 160.7 163.4 ======== ======== Statement of Total Recognised Gains and Losses for the year ended 30th April 2003 2003 2002 #'m #'m Profit for the financial year 5.7 13.7 Foreign currency translation (0.1) (0.6) Actuarial loss recognised in the pension schemes (1.6) (2.7) Deferred tax thereon 0.5 0.8 -------- -------- Total recognised gains and losses relating to the year 4.5 11.2 ======== ======== Group Cash Flow Statement for the year ended 30th April 2003 Note 2003 2002 #'m #'m Net cash inflow from operating activities 29.8 34.6 Returns on investments and servicing of finance 12 (0.7) (1.3) Taxation 12 (4.3) (3.3) Capital expenditure and financial investment 12 (5.1) (4.1) Acquisitions and disposals 12 (1.7) (4.0) Equity dividends paid (6.9) (6.5) -------- -------- Net cash inflow before financing 11.1 15.4 Financing 12 (10.6) (17.2) -------- -------- Increase/(decrease) in cash in the year 0.5 (1.8) ======== ======== Reconciliation of operating profit to net cash inflow from operating activities 2003 2002 #'m #'m Operating profit 11.4 21.1 Depreciation and amortisation charges 18.4 14.1 (Increase)/decrease in stocks (2.5) 1.7 Decrease in debtors 3.1 1.4 Increase/(decrease) in creditors 1.0 (3.1) Loss on disposal of fixed assets - 0.2 Adjustment for pension funding (0.6) (0.6) Exchange differences (1.0) (0.2) -------- -------- Net cash inflow from operating activities 29.8 34.6 ======== ======== Notes to the Unaudited Preliminary Statement for the year ended 30th April 2003 1. The results for the year ended 30th April 2003 are unaudited. The results for the year ended 30th April 2002 as shown in this statement, do not constitute statutory accounts within the meaning of Section 240 of the Companies Act 1985, but have been derived from the full audited financial statements for the year ended 30th April 2002. These have been filed with the Registrar of Companies. The report of the auditors on the financial statements for the year ended 30th April 2002 was unqualified and did not contain a statement under Section 237 (2) or (3) of the Companies Act 1985. Accounting policies are consistent with those applied for the audited financial statements for the year ended 30th April 2002. 2. Segmental information All trading activities arise from continuing operations. (a) Turnover by origin: 2003 2002 #'m #'m UK 43.7 37.7 Europe 19.7 24.8 North America 58.5 68.9 Japan 5.7 5.6 -------- -------- 127.6 137.0 ======== ======== (b) Turnover by activity: 2003 2002 #'m #'m Gas sensing 25.5 24.3 Other manufacturing 93.7 102.7 Component distribution 8.4 10.0 -------- -------- 127.6 137.0 ======== ======== (c) Turnover by destination: 2003 2002 #'m #'m UK 7.4 7.0 Rest of Europe 45.0 44.2 North America 62.0 73.2 Asia 11.2 9.6 South America 0.9 1.6 Other 1.1 1.4 -------- -------- 127.6 137.0 ======== ======== (d) Profit by origin: Year ended 30th April 2003 Operating Reorganisation Goodwill Goodwill Operating profit costs amortisa- impair- profit before tion ment goodwill, and exceptional items #'m #'m #'m #'m #'m UK 11.4 (0.8) (4.9) (4.0) 1.7 Europe 0.9 (0.6) (0.2) (0.9) (0.8) North America 13.1 (0.1) (3.6) - 9.4 Japan 1.1 - - - 1.1 -------- -------- -------- -------- -------- Total 26.5 (1.5) (8.7) (4.9) 11.4 -------- -------- -------- -------- Finance charges (net) (1.0) -------- Profit on ordinary activities before tax 10.4 ======== Year ended 30th April 2002 Operating Integration Goodwill Operating profit costs amortisa- profit before tion goodwill and exceptional items #'m #'m #'m #'m UK 12.7 (0.3) (4.9) 7.5 Europe 1.3 - (0.2) 1.1 North America 15.0 - (3.6) 11.4 Japan 1.1 - - 1.1 -------- -------- -------- -------- Total 30.1 (0.3) (8.7) 21.1 -------- -------- -------- Finance charges (net) (1.4) -------- Profit on ordinary activities before tax 19.7 ======== (e) Profit by activity: Year ended 30th April 2003 Operating Re Goodwill Goodwill Operating profit organisation amortisa- impair- profit before costs tion ment goodwill, and exceptional items #'m #'m #'m #'m #'m Gas sensing 8.5 - (4.9) (4.0) (0.4) Other manufacturing 18.0 (0.8) (3.7) - 13.5 Component distribution - (0.7) (0.1) (0.9) (1.7) -------- -------- -------- -------- -------- Total 26.5 (1.5) (8.7) (4.9) 11.4 -------- -------- -------- -------- Finance charges (net) (1.0) -------- Profit on ordinary activities before tax 10.4 ======== Year ended 30th April 2002 Operating Integration Goodwill Operating profit costs amortisa- profit before tion goodwill and exceptional items #'m #'m #'m #'m Gas sensing 9.4 (0.3) (4.9) 4.2 Other manufacturing 20.0 - (3.7) 16.3 Component distribution 0.7 - (0.1) 0.6 -------- -------- -------- -------- Total 30.1 (0.3) (8.7) 21.1 -------- -------- -------- Finance charges (net) (1.4) -------- Profit on ordinary activities before tax 19.7 ======== (f) Net assets by origin: 2003 2002 #'m #'m UK 11.6 9.1 Europe 3.7 4.0 North America 17.7 20.2 Japan 0.6 1.1 -------- -------- Net operating assets 33.6 34.4 Net cash/(debt) 0.1 (12.3) Taxation (4.7) (4.9) Dividends (4.6) (4.4) Pension scheme liability (2.0) (1.3) Goodwill 138.3 151.9 -------- -------- Net assets 160.7 163.4 ======== ======== (g) Net assets by activity: 2003 2002 #'m #'m Gas sensing 8.7 8.8 Other manufacturing 22.9 22.6 Component distribution 2.0 3.0 -------- -------- Net operating assets 33.6 34.4 Net cash/(debt) 0.1 (12.3) Taxation (4.7) (4.9) Dividends (4.6) (4.4) Pension scheme liability (2.0) (1.3) Goodwill 138.3 151.9 -------- -------- Net assets 160.7 163.4 ======== ======== 3. Operating costs 2003 2002 #'m #'m Distribution costs 5.6 6.1 -------- -------- Administrative expenses: - Other administration costs 20.0 18.5 - Reorganisation and integration costs 1.5 0.3 - Goodwill 13.6 8.7 -------- -------- Total administrative expenses 35.1 27.5 -------- -------- Total operating costs 40.7 33.6 ======== ======== 2003 costs of #1.5 million relate to the restructuring of First Technology Automotive in the UK and the Group's distribution business, Realisations et Diffusion pour l'Industrie (RDI) in France. First Technology Automotive ceased manufacture in the UK from Spring 2003, although it continues to perform R&D engineering activities together with the European logistics function, which was transferred from RDI. Prior year costs of #0.3 million relate to additional costs incurred in completing the integration of Capteur Sensors and Analysers Limited (Capteur), acquired in 2001, with City Technology Limited. 4. Finance charges (net) 2003 2002 #'m #'m Interest payable on bank loans and overdrafts (1.0) (1.6) Interest receivable - 0.1 Other finance income - 0.1 -------- -------- (1.0) (1.4) ======= ======= Included within interest payable is an amount of #0.1 million (2002: #0.1 million) relating to the amortisation of facility fees and #0.1 million (2002: #nil) in respect of the fair value of an interest rate swap (see Note 9). Other finance income comprises the net of the expected return on the pension scheme assets and the interest cost on the pension scheme liabilities. 5. Tax on profit on ordinary activities 2003 2002 #'m #'m Current tax UK corporation tax 2.2 3.0 Foreign tax 2.1 4.4 ------- ------- 4.3 7.4 Adjustment in respect of prior years UK corporation tax (0.6) (1.2) Foreign tax 0.3 (0.7) ------- ------- Total current tax 4.0 5.5 Deferred tax Origination and reversal of timing differences - current year 0.8 (0.4) Origination and reversal of timing differences - prior year (0.1) 0.9 ------- ------- Total deferred tax 0.7 0.5 ------- ------- Total tax on profit on ordinary activities 4.7 6.0 ======= ======= 6. Dividends 2003 2002 #'m #'m Interim dividend - paid 3.4p per share (2002: 3.2p) 2.6 2.4 Final dividend - proposed 6.1p per share (2002: 5.8p) 4.6 4.4 ------- ------- 7.2 6.8 ======= ======= The final dividend is payable on 7th October 2003 to shareholders on the register on 5th September 2003. 7. Earnings per share The weighted average number of shares used to calculate the basic, headline and diluted earnings per share is as follows: 2003 2002 Number Number Weighted average number of shares in issue for basic and headline earnings per share 75,346,990 75,218,455 Dilutive effect of share options 33,340 71,627 ---------- ---------- Weighted average number of shares in issue for diluted earnings per share 75,380,330 75,290,082 ========== ========== The earnings used to calculate the basic, diluted and headline earnings per share are as follows: 2003 2003 2003 2002 2002 2002 Basic Diluted Basic Diluted #'m pence pence #'m pence pence Profit for the financial year 5.7 7.6 7.6 13.7 18.2 18.2 Add back: goodwill items 13.6 18.0 18.0 8.7 11.5 11.5 Add back: exceptional integration and reorganisation costs, net of tax credit 1.2 1.6 1.6 0.2 0.3 0.3 -------- -------- -------- -------- -------- -------- Headline earnings 20.5 27.2 27.2 22.6 30.0 30.0 ======== ======== ======== ======== ======== ======== Headline earnings per share of 27.2p (2002: 30.0p) is considered by the directors to be a more meaningful measurement of financial performance than basic earnings per share, as it excludes goodwill and exceptional items. 8. Intangible fixed assets Goodwill as at 30th April 2003 is analysed as follows: #'m Cost 1st May 2002 and 30th April 2003 173.4 -------- Amortisation 1st May 2002 21.5 Charge for the year 8.7 Impairment losses 4.9 -------- 30th April 2003 35.1 -------- Net book value 30th April 2003 138.3 ======== 30th April 2002 151.9 -------- Goodwill is being amortised over 20 years. Goodwill of #9.6m remains written off against reserves. In accordance with FRS 11 "Impairment of fixed assets and goodwill", the Group regularly monitors the carrying value of its fixed assets. The review performed during the year ended 30th April 2003 resulted in an impairment loss of #0.9 million in relation to RDI's passive electronic component distribution business in France and #4 million in relation to the solid state gas sensing products acquired with Capteur. The discount rate used to evaluate future cash flows from Capteur's solid state activity was 11.5%. 9. Bank loans and overdrafts 2003 2002 #'m #'m Repayable: Within one year 3.7 6.7 Between one and two years - 8.8 ------- ------- Total 3.7 15.5 ======= ======= At 30th April 2003 the Group had an unsecured multi-currency revolving credit facility of US $59 million. On 25th June 2002 the term loan facility of US $18 million existing as at 30th April 2002 was converted into an amortising revolving credit facility. All facilities are repayable on 30th April 2004. As at the year end US $3 million and Sterling #1.8 million were drawn down. The facilities carry interest at 1.1% above LIBOR. In October 2001, the Group entered into an interest rate swap to fix the interest rates on approximately half the drawings under its bank facilities. As a result of the accelerated repayment of debt, the fair value of the obligations under the swap was charged to interest payable in the year ended 30th April 2003 (see Note 4). 10. Share capital Ordinary 10p shares Number #'m 1st May 2002 75,342,292 7.5 Shares issued 7,489 - ---------- ----- 30th April 2003 75,349,781 7.5 ========== ===== The shares issued in the year were in connection with the Group's share option schemes. 11. Profit and loss account 2003 2002 #'m #'m 1st May 2002 37.6 33.2 Retained (loss)/profit for the year (1.5) 6.9 Foreign currency translation (0.1) (0.6) Actuarial loss recognised (1.6) (2.7) Deferred tax on actuarial loss 0.5 0.8 -------- -------- 30th April 2003 34.9 37.6 ======== ======== Foreign currency translation is stated after a related tax credit of #0.4 million (2002: charge of #0.3 million). Included within the profit and loss account reserve is #(2.0) million (2002: # (1.3) million) relating to the pension liability net of deferred tax. 12. Analysis of cashflows 2003 2002 #'m #'m Returns on investments and servicing of finance Interest paid (0.7) (1.4) Interest received - 0.1 ------- ------- Net cash outflow from returns on investments and servicing of finance (0.7) (1.3) ------- ------- Taxation UK corporation tax paid (2.4) (0.1) Overseas tax paid (1.9) (3.2) ------- ------- Taxation paid (4.3) (3.3) ------- ------- Capital expenditure and financial investment Purchase of tangible fixed assets (4.6) (4.1) Purchase of trade investments (0.5) - ------- ------- Net cash outflow from capital expenditure and financial investment (5.1) (4.1) ------- ------- Acquisitions and disposals Acquisition of businesses (see below) (1.7) (4.0) ------- ------- Net cash outflow from acquisitions and disposals (1.7) (4.0) ------- ------- Financing Issue of ordinary shares (net of costs paid) - 0.6 Drawdown/(repayment) of revolving credit facility 1.0 (11.5) Repayment of term loans (11.6) (6.3) ------- ------- Net cash outflow from financing (10.6) (17.2) ------- ------- The cash outflow in the year in respect of the acquisition of businesses relates to deferred consideration due to the vendors of TNO Crash Dummies BV and Ogle TNO Safety Products Limited acquired in September 1999. The cash outflow for the acquisition of businesses in the previous year relates to deferred consideration of which the majority was due to the vendors of Capteur. 13. Analysis and reconciliation of net debt 1st May Cash Non-Cash Exchange 30th April 2002 flow movement movement 2003 #'m #'m #'m #'m #'m Cash at bank and in hand 3.2 0.1 - 0.5 3.8 Overdrafts (0.7) 0.4 - 0.1 (0.2) ------ ------ ------ ------ ------ 2.5 0.5 - 0.6 3.6 Debt due Within 1 year (6.0) 3.8 (1.9) 0.6 (3.5) Debt due After 1 year (8.8) 6.8 1.8 0.2 - ------ ------ ------ ------ ------ Net cash/(debt) (12.3) 11.1 (0.1) 1.4 0.1 ====== ====== ====== ====== ====== 2003 2002 #'m #'m Increase/(decrease) in cash in the year 0.5 (1.8) Cash outflow from decrease in debt 10.6 17.8 ------- ------- Decrease in net debt relating from cashflows 11.1 16.0 Amortisation of facility fees (0.1) (0.1) Translation differences 1.4 0.1 ------- ------- Decrease in net debt in the year 12.4 16.0 Net debt at 1st May (12.3) (28.3) ------- ------- Net cash/(debt) at 30th April 0.1 (12.3) ======= ======= This information is provided by RNS The company news service from the London Stock Exchange END FR EAPKSADXDEFE
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