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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Elektron Technology Plc | LSE:EKT | London | Ordinary Share | GB00B0C5RG72 | ORD 5P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 53.50 | 53.00 | 54.00 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From Apr 2019 to Apr 2024
TIDMEKT
RNS Number : 8850B
Elektron Technology PLC
12 June 2019
Elektron Technology plc
Preliminary results for the Year Ended 31 January 2019
Elektron Technology plc ("Elektron" or "The Group") announces its unaudited preliminary results for the year ended 31 January 2019.
GROUP HIGHLIGHTS
-- Group revenues from continuing operations of GBP33.7m (2018: GBP29.8m), an increase of 13.1%, with growth in all three businesses
-- Operating profit from continuing operations of GBP4.6m, up 77% (2018: GBP2.6m).
-- EBITDA(Earnings before interest, taxation, depreciation and amortisation) on continuing operations of GBP6.8m, up 33% (2018: GBP5.1m)
-- Queensgate Nano was disposed of during the year for GBP1.4m. The consideration was split between an initial GBP0.8m for the trade and assets and a further GBP0.6m generated from earn out payments, of which GBP0.4m was received before the year end and GBP0.2m shortly after the year end.
-- Net cash at year end of GBP10.1m (2018: GBP5.2m).
-- The Group continued with its strategy of investing a substantial proportion of Bulgin operating cash flow into Checkit in view of the outstanding opportunities which the Board believed that the business offers.
-- Acquisition post year end of Next Control Systems for a net consideration of GBP8.8m, satisfied wholly in cash, which provides an opportunity to accelerate the scaling of Checkit.
INDIVIDUAL BUSINESS HIGHLIGHTS
Bulgin
-- Sales of GBP30.1m, up 10.3%, with operating profits of GBP9.0m, up 25% (2018: GBP27.3m and GBP7.2m respectively).
-- Focus on continuing sales growth whilst maintaining class-leading margins. This has resulted in a sales increase of c.10% and net operating margins increasing to 30% with over 300% ROCE (Return on capital employed).
-- Bulgin has made a strong start to the new financial year with sales in the first quarter nearly 20% ahead of the same period last year. Whilst growth rates are expected to moderate towards market growth rates during the second quarter Bulgin sales are expected to be well ahead at the half year. Bulgin visibility now extends to around 12 weeks and whilst management are cautious of macro-economic conditions, it is expected that Bulgin will continue to trade ahead of previous expectations.
Checkit
-- Sales of GBP1.0m, a 100% increase over the previous year with operating loss of GBP4.5m which is within budget (2018: GBP0.5m and GBP4.4m loss respectively).
-- There is a strong pipeline of opportunities and management is focused on converting these into revenues Greater emphasis is being placed on developing non-food markets and building the US infrastructure to drive adoption.
-- Integration of Next Control Systems is a key priority, with initial focus on leveraging the cross selling opportunities the acquisition presents.
Elektron Eye Technology
-- Sales of GBP2.6m, up 30% and return to profitability with operating profit of GBP0.1m (2018: GBP2.0m and loss of GBP0.2m respectively).
-- Management focus is on increasing distribution sales, with emphasis on USA and Europe.
-- Considered non-core to the longer term Group strategy, the business is currently being marketed for sale.
John Wilson, Chief Executive Officer of Elektron, said:
"The Group's trading performance in FY19 was exceptional and we have made strong operational and financial progress during the year. Bulgin delivered record profitability, Checkit sales accelerated to plan and EET returned to profitability. We have worked hard to establish the foundation for continued growth in current and future years and hence look to the future with optimism."
Keith Daley, Executive Chair of Elektron Technology said:
"The recent acquisition of Next Control Systems significantly enhances the market opportunity for Checkit. Next Control Systems adds new capabilities and services and brings immediate scale to the business. We look forward to realising the many opportunities offered by the combination of Checkit and Next Control Systems."
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Keith Daley (Executive Chairman)
John Wilson (Chief Executive Officer)
Andrew Weatherstone (Chief Financial Officer
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The information communicated in this announcement is inside information for the purposes of Article 7 of Regulation 596/2014.
OVERVIEW
Elektron Technology group performance further improved in 2018/19:
GBPm 2018/9 2017/8 Change
Group Sales 33.7 29.8 +13%
------- ------- -------
EBITDA 6.8 5.1 +33%
------- ------- -------
Operating Profit 4.6 2.6 +77%
------- ------- -------
Cash 10.1 5.2 +94%
------- ------- -------
Technical spend expensed 1.3 1.5 -13%
------- ------- -------
Technical spend capitalised 1.5 1.1 +36%
------- ------- -------
TOTAL Technical spend 2.8 2.6 +8%
------- ------- -------
During the year the year the Group disposed of its Queensgate Nano business, resulting in the following portfolio of businesses:
-- Bulgin - a highly cash-generative leading provider of engineered solutions
-- Checkit - a real-time operations-management, Internet-of-Things (IoT) software application using smart sensors and cloud analytics, with high-growth potential
-- Elektron Eye Technology ("EET") - a developer of ophthalmic instruments
Group strategy: To invest in technologies that accelerate the fourth industrial revolution
The Board's strategy is to:
-- Maximise shareholder value based on the many opportunities that Bulgin's best-in-class process and performance present, whilst continuing to transform Bulgin from a manufacturer of components to a leading provider of engineered solutions. Bulgin is a world class business with exceptional cash generation characteristics and good growth prospects due to increasing demand for smart components across a wide range of industries (including agriculture, automotive, energy, industrial and marine) where "Industry 4.0" digital transformation is accelerating.
-- Develop Checkit's capabilities to become a global leader in the potentially huge market of real-time operations management. Checkit strategy comprises:
o New product development
o Entry into potentially lucrative geographic markets such as the US, where Checkit was launched in the year
o Expansion into new vertical sectors (beyond food & beverage).
-- The EET business is non-core and the Group will look to sell in due course.
Organic growth will be supplemented by acquisitions where suitable opportunities arise. In May 2019, the Group purchased Next Control Systems, which improves productivity and profitability for clients in sectors including healthcare, life sciences, building and energy-management systems ("BEMS"). Next will be combined with Checkit to help client organisations run better, by connecting data, things and people.
SUMMARY OF OPERATING BUSINESSES
Bulgin: transformation to a leading provider of engineered solutions
GBPm 2018/9 2017/8 Change
Sales 30.1 27.3 +10.3%
------- ------- -------
EBITDA 9.4 7.9 +19.0%
------- ------- -------
Operating Profit 9.0 7.2 +25.0%
------- ------- -------
FY19: Bulgin continues to grow demonstrating:
-- Sustained double-digit revenue growth. -- Underlying net margin of 30%. -- ROCE of 300%.
The headline financials of Bulgin illustrate the progress made in transforming the business from a manufacturer of components to a leading provider of engineered solutions. Orders and sales for the period were both at record levels of GBP32m and GBP30.1m respectively and c10% ahead of prior year, benefiting from distribution sales growth, end user growth and new product introductions. Following the distribution agreement with Arrow Electronics, in Q1 2018, stocking orders of GBP630k were received during the year which has further increased Bulgin's access to end users.
As previously outlined, Bulgin's transformation has been driven by a multi-faceted three stage strategy over a 6 year period:
-- Simplification of the overall product offering including SKU (stock keeping unit) rationalisation, transition of small direct accounts to distribution and rationalisation of the distribution channel
-- Optimisation of sales and development for market requirements by focusing sales resource on the entire Bulgin product range, initiating co-marketing campaigns with distributors and aligning new product development programmes with technology and market trends
-- Growth of higher margin product lines
With the first two phases predominantly complete during FY17, the second year of the "Growth" strategy delivered, as expected, further revenue growth, very high margins and ROCE for a manufacturing based business. This has been achieved through relentless management focus on three areas:
1. Highly-efficient, high-yield new-product development (NPD)
During FY19, Bulgin launched nine new products encompassing ruggedised switches, connectors, fibre connectors and ruggedised sensors. Bulgin invests approximately 1% of revenue on NPD, yet approximately 10% of sales in FY19 were derived from products launched within the last 3 years.
2. Channel reach
The number of discrete end users buying Bulgin product through distribution increased by 14% from c81,000 in FY18 to over 92,000 in FY19. The opportunity offered by direct access, via our distributors, to these customers presents a tremendous growth opportunity as these accounts are penetrated more deeply and Bulgin's product offering continues to grow.
3. Distributor management and support
Over 90% of Bulgin sales are now through distribution. Bulgin continues to utilise data analytics to manage distributors to ensure that:
o Distributors hold appropriate levels of inventory to support current and future customer demand across all geographies
o Distributors are incentivised, through margin attainment, to push Bulgin products and related initiatives
o End users/customers are provided with technical support and marketing collateral
Capitalising on "Industry 4.0" market opportunity
Bulgin is well placed to capitalise on the growth in ruggedised fibre and sensor markets (c15% market CAGR) driven by Industry 4.0 - the fourth industrial revolution - leveraging the adoption of computers and automation through enhancement with smart and autonomous systems fuelled by data and machine learning. Bulgin began investment in this area through development and launch of its M-series connector ranges (automation connectors) in FY18, generating in excess of GBP1.2m of sales to date. This has been followed by the launch of the smallest footprint field terminable fibre connector (4000 series) launched in FY19 that realised cGBP220k of sales immediately post-launch, and the launch of a ruggedised photo-electric sensor (for packaging lines) at the year end.
Outlook: Bulgin's "design-in" philosophy and NPD strategy positions the business for sustainable growth and attractive margins
An estimated 60% of Bulgin's product offering and over 90% of Bulgin's connector sales are "designed-in" to system applications. This works to create an economic moat around the business, enabling strong margin evolution through barriers to entry and ensuring stickiness of revenue. This focus, coupled with strategic product launches (8 planned for FY20), continued strong channel management, in conjunction with the sheer quantity and global scale of end-users (more than 92,000 buying Bulgin product through distribution), demonstrates why Bulgin is well placed to deliver sustainable growth with continued high margins.
Checkit: Delivering on the vision of real-time operations management
GBPm FY19 FY18 Change
Sales 1.0 0.5 100%
------ ------ -------
LBITDA (2.8) (2.7) (4%)
------ ------ -------
Operating Loss (4.5) (4.4) (2%)
------ ------ -------
What is the vision of real-time operations management?
Checkit's vision of real-time operations management is a future where organisations get the best from their data, things and people by easily connecting them into collaborative, process-based networks that adapt and react in real time. We are particularly excited by the "people" aspect of operations management and the opportunity of harnessing the social network in the workplace to get things done.
Checkit's current focus is on bringing digitisation to groups of workers who are mobile (not desk based) and typically have practical, hands-on roles in service and sales roles. These workers must perform many routine activities - some scheduled, some ad-hoc - as part of their duties. The success of the business depends on how well and consistently these routine activities are performed, and how timely and effectively any problems are identified, addressed and learned from.
The potential is vast. Use cases exist across many vertical industries and across organisations of all sizes. While some processes are enabled by configuring and customising core business systems such as ERP, many are too varied and specific to be managed in this way. In response, Checkit has developed a platform that exploits cloud, mobile and Internet-of-Things (IoT) technologies to provide:
Work Management: Intuitive, easy to use checklist applications for teams of busy, mobile users that are more than just simple tick boxes. Checkit applications provide guided remediation for users through steps and responses to inputs ("if this happens, do this") and can pull in data from the real world (e.g. temperature readings)
Automated Monitoring: sensors and monitoring that can replace routine measurements and checks, freeing up users for more productive tasks, and
Operational Insights: data analytics and reporting that monitor the health of processes and identify opportunities for improvement or correction
The acquisition of Next takes Checkit beyond monitoring and brings valuable domain knowledge of control systems.
Crucially, Checkit can be set up and customised without any software development or complex technical work or complex system integration. A business user can create and deploy a checklist or set up rules for monitoring in minutes. Checkit, its partners and customers can set up networks of users, processes and sensors to match a specific business needs for any scale of requirement.
A selection of advances in the product in the financial year is given below:
By With Through Customers
Making Checkit Checkit Operational customisable obtain the information
more powerful Insight business-intelligence that matters for
(BI) capability with their business
set of key-performance
indicators (KPIs) supported
by Checkit's consulting
service
----------------------------- ------------------------------- ----------------------------
Work-Management document downloads obtain the correct
upgrades and configurable escalation information and
alerts and date checks direct it to the
correct person
at the correct
time to take the
right action
----------------------------- ------------------------------- ----------------------------
Targeted early capability to target permit early access
releases early releases of Checkit to feature requests,
App and Checkit Automated improving customer
Monitoring to customer experience and
segments loyalty
----------------------------- ------------------------------- ----------------------------
Checkit Cloud-platform improved scalability permit deployment
upgrades of the platform of more endpoints
across more sites
more quickly
----------------------------- ------------------------------- ----------------------------
Hardware upgrades broadened range of can solve more
hot-hold sensors | monitoring challenges
improved range of hubs | gain increased
and repeaters flexibility for
their installations
----------------------------- ------------------------------- ----------------------------
Making Checkit Features and Edition capability to target receive the features
easier to use releases and bundle features they need for the
for different customer business problems
segments they need to solve
----------------------------- ------------------------------- ----------------------------
Internationalisation general international gain assurance
support in the Checkit that Checkit will
platform software and work in their local
US-specific Federal environment
Communications Commission
(FCC) hardware-certification
program approvals
----------------------------- ------------------------------- ----------------------------
Giving customers Checkit App availability on a range can bring-your-own
more choice of Android mobile devices device (BYOD)
----------------------------- ------------------------------- ----------------------------
Offering location-based Checkit Checkpoint location-based enforcement improve assurance
task checks capability (scan-triggered, of a task sequence that a task has
e.g. QR codes) through a building been completed
at the correct
time by the correct
person, in the
correct place
----------------------------- ------------------------------- ----------------------------
Improving verifiability Checkit Checks sharing confirmations build brand trust
and shareability (photo capture) and best practices with their own
of tasks across teams customers by demonstrating
that tasks have
been completed
(sequentially)
to quality and
service-level standards
----------------------------- ------------------------------- ----------------------------
FY19: Checkit scales up its operations
Performance for the year was in line with the Board's expectations with revenue up 100% compared to the prior year and losses of GBP4.5m (2018: GBP4.4m). Cash expenditure was GBP4.1m (2018: GBP3.4m) which includes capitalised development costs of GBP1.3m (2018: GBP0.7m). The ongoing cash spend was driven by investment in sales and product development as well as initial start-up costs in the US. Sales and Marketing expenses were GBP1.5m (2018: GBP1.1m) an increase of 36%.
Contracted recurring revenues for the year represented 88% of sales with the remainder representing one-off sales of consultancy, services and hardware.
FY19 saw strong orders in the first half, with a softening in the second half related to the UK food-service market (the initial focus for Checkit). In response, the Board has taken the following steps to target additional markets and verticals and develop new product capabilities along a number of dimensions:
Elektron continues to invest significantly in Checkit product development to lead the market
The Group continued to invest heavily in Checkit's new product development (NPD) and sustaining engineering spending: GBP1.9m last year (2018: GBP1.4m), a 36% increase.
Adjusting the Checkit offering in existing customer industries
In FY19 Checkit launched a Compliance Consultancy Service offering for food safety and health and safety (H&S), providing a one-stop service, based on our technology. The result is an offering aimed at SMEs that is more responsive and efficient than traditional modes of delivery.
Bringing Checkit to new sectors
Checkit is expanding its focus in three phases by:
o Entering adjacent business sectors that include food sales but also have significant other operational challenges. These include leisure and hospitality business (theme parks, resorts, bowling alleys etc), healthcare (patient services, facilities) and retailers.
o Exploring applications in new verticals including pharma and professional services.
o Evaluating the elements of generic / horizontal business processes such as HR and audit.
Taking Checkit beyond the UK
In FY19 Checkit launched in the US, completing first sales in this new market and running pilot deployments in multi-site businesses. The initial launch focused on the proven customer industry of food service, especially in relation to managing operational processes across a number of distributed sites. This market remains buoyant and the initial response has been positive. To support this launch, Checkit internationalised its product.
Serving small businesses as well as enterprises
The millions of small businesses represent a further opportunity but building revenues in this segment will take time. The key to success is to minimise the effort and cost of adoption and in this regard the app and extending self -service options are key.
Deepening Checkit's distinctive capabilities
Checkit is differentiated from its competitors by its ability to manage, guide and act on events in real time. We are expecting this to take another leap forward during this year. We are developing a market-leading capability that will make structured work done using Checkit truly collaborative. The potential to improve work allocation in distributed teams is enormous.
Building the organisation to scale
As we scale up Checkit, our operational and support capability is crucial. To drive the development of this aspect of our business we have appointed a Director of Customer Success to manage customers through their life with Checkit. The Customer Success team is focused on:
o Delivering successful pilots and trials
o Providing cost-effective, scalable education and training
o Providing industry-specific advice and knowledge
o Field engineering and installation
o Online and phone customer support
Scaling Checkit operations into FY20: Acquisition of Next Control Systems to create a global leader in real-time operations management
In line with its strategy the Group had been looking for a suitable acquisition to accelerate the growth of Checkit. In May 2019 the Group announced that it had acquired Next Control Systems Limited ("Next"), for a cash consideration of GBP10.5m (inclusive of GBP1.7m of cash in Next as at the date of completion). The price represents a multiple of 6.6X 2018 EBITDA and the deal is expected to be earnings accretive for Elektron in the current year.
This is a transformational deal for Checkit, immediately adding scale (by increasing turnover eight-fold) and one which the Board believes will significantly accelerate the path to profitability, with significant opportunities for further sales growth by:
Offering opportunities to cross sell Checkit's Work Management product to Next's customer base
-- Diversifying that customer base and extending the offering across additional sectors alongside the food service sector (which was previously the primary focus in Checkit)
-- Enhancing Checkit's existing range of sensors -- Bringing domain knowledge of the BEMS market -- Improving operational capability -- Leveraging Next sales capabilities to improve Checkit organic growth in the UK and overseas
Next is an excellent strategic fit for Checkit, providing technology and software that enables management teams to monitor, control and optimise business processes. Through its Tutela brand (www.tutelamedical.com), Next is a leader in high-end service based temperature monitoring for healthcare and life sciences within the UK. In addition, through its Next and Axon brands (www.nextcontrols.com; www.axon.eco) it provides data related Building Energy Management System ("BEMS") services. For example, Next has a major relationship with a leading UK retailer covering smart building and plant technologies in which Checkit has limited pipeline and hopes to expand and consolidate the relationship further through its other offerings. Next will be combined with Checkit to create a global leader in the field of real-time operations management.
Elektron Eye Technology: sustained focus on distribution-channel expansion
GBPm FY19 FY18 Change
Sales 2.6 2.0 30%
----- ------ -------
EBITDA 0.2 (0.1) +0.3m
----- ------ -------
Operating Profit 0.1 (0.2) +0.3m
----- ------ -------
As a result of sustaining its focus on distribution channel expansion, EET sales grew 30% in FY19 delivering an operating profit of GBP0.1m compared with an operating loss of GBP(0.2)m in FY18. EET delivered H2 sales of GBP1.3m, matching H1 performance. As mentioned above this business is non-core and the Group is looking to sell the business.
People: Group commitment to continuously improve capabilities
The Board would like to express its sincere thanks for the hard work by our people across the Group during the year. The Board recognises the initiative, skill, drive and loyalty of its staff. As the Group deepens its Industry 4.0 presence, and relies on IoT and Cloud expertise to deliver client solutions, talent management becomes progressively more important.
The Group is committed to learn from, continuously improve and productise capabilities within the Group. Inputs to this process come from customers, from sales and partner engagements and our own experience of employing Checkit in our own internal processes (in facilities management, HR tasks and our own customer engagement management processes).
The Group has moved away from its matrix management structure and is expected to complete this process in the current financial year. Each business will be contained within its own company and will be managed separately.
Outlook: momentum in core businesses maintains positive Group outlook for short-, medium- and long-term
As announced in the Group's trading statement on 15 May 2019, the strong sales growth experienced by Bulgin throughout FY19 last year continued in the first quarter of FY20 with year-on-year sales growing 20%. Whilst, as expected, there has been some moderation of this growth in the second quarter of FY20, Bulgin is expected to deliver first half sales well ahead of the comparable period last year and for the full year. Bulgin visibility now extends to around 12 weeks and whilst management are cautious of macro-economic conditions, it is expected that Bulgin will continue to trade ahead of previous expectations.
Checkit saw sales grow in the first quarter of FY20 over the comparable period last year by 49%. It was, however, impacted by customer trading problems in its original target market, the food service industry. We are now seeing an increasing number of enquiries for non-food applications. Checkit's transformational acquisition of Next enables an acceleration of the move into adjacent verticals with scale, accelerating the route to profitability. The Board is excited about the potential of the combined business. Management is focused on ensuring the two businesses are successfully integrated which will lay the foundations for strong future growth.
EET sales fell 11% during the first quarter of FY20; however EET had been up against very strong sales growth of 76% in the comparable period. As stated in the Group Strategy section (above) this small subsidiary is non-core and the Group will look to sell in due course.
The Group's ethos, strong product and development capabilities, expanded market opportunity, increased sales scope and growing customer support resources - together with the acquisition of Next Control Systems - provide a strong platform to continue growth through the current financial year and beyond. Consequently, the Board retains its positive outlook for FY20 and for the medium- to long-term prospects of the Group.
FINANCIAL REVIEW
Introduction
The financial results for FY19 reflect another year of strong organic growth in Bulgin, further progress at Checkit, including the completion of the acquisition of Next Control Systems (see Note 6 for more information) after the year end and a return to profitability of EET.
Continuing operations
Group revenue from continuing operations for the year increased by 13% to GBP33.7m (2018: GBP29.8m). This was principally as a result of a c.10% increase in Bulgin mainly due to the continued focus on improving product mix and margin, helped by the launch of a number of new product ranges.
Checkit revenue doubled to GBP1.0m (2018: GBP0.5m). Recurring revenues made up 88% of Checkit revenue (2018:85%).
EET sales increased by 30% to GBP2.6m (2018: GBP2.0m) as a result of growing the distribution network in Europe for the MPSII product and from strong demand for Henson product through EET's largest UK distributor driven by a number of end user upgrade programmes.
Group EBITDA increased by GBP1.7m (33%) to GBP6.8m (2018: GBP5.1m) and is further analysed below together with cash generated/ (used) after capital expenditure by the continuing businesses.
2019 2018
--------------------------------------------------- -------------------------------------------------
Cash
Capital Cash Capital generated/
expenditure, generated/ expenditure, (used)
including (used) before including before
Operating IP working Operating IP working
profit/(loss) EBITDA purchase capital profit/(loss) EBITDA purchase capital
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------- ------ ------------- ------------- ------------- ------ ------------- -----------
Bulgin 9.0 9.4 (0.8) 8.6 7.2 7.9 (0.4) 7.5
Checkit (4.5) (2.8) (1.3) (4.1) (4.4) (2.7) (0.7) (3.4)
EET 0.1 0.2 (0.1) 0.1 (0.2) (0.1) (0.7) (0.8)
-------- ------------- ------ ------------- ------------- ------------- ------ ------------- -----------
4.6 6.8 (2.2) 4.6 2.6 5.1 (1.8) 3.3
-------- ------------- ------ ------------- ------------- ------------- ------ ------------- -----------
Bulgin
Bulgin's high margin growth and low capital investment model generates significant cash inflows to, fund, in part, the continued investment in Checkit. The Group, which has its main Bulgin manufacturing and assembly site in Tunisia, was able to benefit from the devaluation of the Tunisian Dinar which helped reduce operating costs by GBP0.6m.This contributed to operating margins increasing from 26.3% to 29.9% and EBITDA increasing from 28.9% to 31.2%. Capital expenditure in Bulgin was double that of the previous year due to the upgrade of moulding capacity in Tunisia.
Checkit
Checkit's operating loss was in line with the previous year, although as previously indicated its cash outflow increased by GBP0.7m to GBP4.1m. Additional investment was made in delivering the product development roadmap, sales capabilities and marketing.
EET
The 30% increase in sales enable EET to deliver a small profit and generate a modest amount of cash compared to losses and a significant absorption of cash in the prior year, the latter due to completion of a number of product development features in 2018 to facilitate further growth opportunities.
The resultant Group operating profit amounted to GBP4.6m up 77% compared to a profit of GBP2.6m in the previous year.
Discontinued operations
Discontinued operations in FY19 related solely to Queensgate Nano which generated a profit after taxation of GBP0.3m (2018: loss GBP0.1m), after profits realised from their disposal of GBP0.4 m (2018: GBP0.6m), with an attributable tax expense on disposal of GBP0.1m (2018: nil).
Queensgate Nano was sold on 15 February 2018 for an initial GBP0.8m and a further GBP0.6 earned subsequent to its sale as result of the business achieving certain sales targets, GBP0.4m of which was received in the year and GBP0.2m of which was received shortly after the year end.
A further GBP0.1m deferred consideration was received in respect of the Group's sale of Agar Scientific in 2016, leaving GBP0.1m to be received.
Product development
Elektron spent GBP2.8m on product development and sustaining engineering in the financial year in respect of continuing operations (2018: GBP2.6m).
Of this, GBP1.5m was capitalised (2018: GBP1.1m), mainly focused on Checkit.
The Board has undertaken a detailed review of the business plans, including a sensitivity analysis, supporting the justification for the carrying value of its product development investment and is satisfied with the current valuation on the balance sheet.
Taxation
The Group is tax paying in all of its main jurisdictions in which it has operations.
The current corporate tax charge in the year is GBP0.6m for continuing operations (2018: GBP0.5m) of which GBP0.2m (2018: GBP0.1m) is in respect of profits earned overseas. Including prior year adjustments and deferred tax movements the total charge is GBP0.8m (2018: charge GBP0.8m).
The effective rate of tax for 2019 is 17.3% comparable to the standard UK rate of 19%.
The Group has deferred taxation assets of GBP0.4m (2018: GBP0.6m) in respect of timing differences in its largest trading subsidiary. The Group has other UK losses which can only be carried forward and offset against future profits of that specific entity. These amount to approximately GBP4.1m (2018: GBP4.7m). No deferred tax asset has been recognised in respect of these losses.
The profit on sale of Queensgate Nano resulted in a tax charge of GBP0.1m in respect of discontinued items.
Earnings per share
The average number of ordinary shares in issue during the year was 177.7m (2018: 177.9m) (excluding shares held by the Employee Benefit Trust that are not included in the calculation). Basic earnings per share in respect of continuing operations were 2.1p (2018: 1.1 pence). Fully diluted earnings per share were 2.0p (2018: 1.0 pence).
Cash
The Group improved its cash generated from operations to GBP5.8m (2018: GBP4.1m), reflecting the improved trading performance offset by GBP0.6m investment in inventory in preparation for a 'no deal' Brexit.
Total capital investment in the year was GBP2.2m (2018: GBP1.9m), representing 95% (2018: 70%) of depreciation and amortisation.
After cash proceeds received from the disposal programme of GBP1.3m, the overall net cash improved by GBP4.9m resulting in a net cash position of GBP10.1m (2018: GBP5.2m).
Bank facilities, covenants and going concern
At 31 January 2019 the Group had available invoice finance facilities of GBP0.7m (which could increase up to GBP5.0m depending on sales levels) together with a bank overdraft of GBP0.1m. At 31 January 2019 available headroom on these facilities was GBP0.8m. In addition the Group had GBP10.1m cash in hand.
Following the year end the Group acquired Next Control Systems for a net GBP8.8m, satisfied wholly in cash. To ensure the Group had adequate working capital facilities in the short term the Group arranged an increase of GBP2.9m in its bank overdraft facility to GBP3m, which by agreement with the Group's bankers can be converted into a committed revolving credit facility.
The Directors have prepared and reviewed forecasts and projections for the enlarged Group for a period of not less than twelve months from the date of this announcement. These are based upon detailed assumptions, in particular with regard to key risks and uncertainties together with the level of borrowings and other facilities made available to the Group. The Board also considers possible changes in trading performance to determine whether the Group should be able to operate within its current level of facilities.
In the event that actual performance were to fall below the current forecast levels in this period the Group has a number of mitigating factors available to it. The Board has the necessary monitoring and controls in place in order to be able to put the required actions in place if it sees a need to do so.
The Directors have, at the time of approving the financial statements and after taking into account the factors noted above, concluded that the Group has adequate financial resources to continue in operational existence for the foreseeable future. For this reason the Directors continue to adopt the going concern basis.
Dividends
Having considered the resources needed to invest in new product development and marketing with the aim of increasing future shareholder value; the Board believes that it is in the Group's best interests not to pay a dividend for the year.
UNAUDITED Consolidated statement of comprehensive income
year ended 31 January 2019
2019 2018
Notes GBPm GBPm
------------------------------------------------- ----- ------ ------
Revenue 2 33.7 29.8
Cost of sales (17.0) (15.0)
------------------------------------------------- ----- ------ ------
Gross profit 16.7 14.8
Operating expenses
------------------------------------------------- ----- ------ ------
Operating expenses (excluding non-recurring
or special items) (12.1) (12.3)
------------------------------------------------- ----- ------ ------
Operating profit before non-recurring or special
items 4.6 2.5
Non-recurring or special items 6 - 0.1
------------------------------------------------- ----- ------ ------
Total operating expenses (12.1) (12.2)
------------------------------------------------- ----- ------ ------
Operating profit 4.6 2.6
Finance income - 0.1
------------------------------------------------- ----- ------ ------
Profit before taxation 4.6 2.7
Taxation 4 (0.8) (0.8)
------------------------------------------------- ----- ------ ------
Profit from continuing operations 3.8 1.9
Profit /(Loss) from discontinued operations 7 0.3 (0.1)
------------------------------------------------- ----- ------ ------
Profit for the year attributable to equity
shareholders 4.1 1.8
------------------------------------------------- ----- ------ ------
Other comprehensive expense
Exchange differences on translation of foreign
operations (0.7) (1.1)
------------------------------------------------- ----- ------ ------
Total comprehensive income for the financial
year attributable to equity shareholders 3.4 0.7
------------------------------------------------- ----- ------ ------
Earnings per share from continuing operations 5
Basic EPS 2.1p 1.1p
Diluted EPS 2.0p 1.0p
------------------------------------------------- ----- ------ ------
UNAUDITED Consolidated balance sheet
as at 31 January 2019
2019 2018
GBPm GBPm
------------------------------------------------- ----- -----
Assets
Non-current assets
Capitalised development costs 2.6 2.8
Other intangible assets 0.3 0.4
Property, plant and equipment 1.7 1.5
Deferred tax asset 0.4 0.6
-------------------------------------------------- ----- -----
Total non-current assets 5.0 5.3
-------------------------------------------------- ----- -----
Current assets
Inventories 4.3 4.0
Trade and other receivables 5.1 5.0
Assets held for sale - 0.8
Cash and cash equivalents 10.1 5.2
-------------------------------------------------- ----- -----
Total current assets 19.5 15.0
-------------------------------------------------- ----- -----
Total assets 24.5 20.3
-------------------------------------------------- ----- -----
Current liabilities
Trade and other payables 6.6 6.2
Borrowings - -
Current tax payable 0.3 0.2
Provisions 1.0 0.7
-------------------------------------------------- ----- -----
Total current liabilities 7.9 7.1
-------------------------------------------------- ----- -----
Non-current liabilities
Long-term provisions 0.3 0.3
-------------------------------------------------- ----- -----
Total non-current liabilities 0.3 0.3
-------------------------------------------------- ----- -----
Total liabilities 8.2 7.4
-------------------------------------------------- ----- -----
Net assets 16.3 12.9
-------------------------------------------------- ----- -----
Equity attributable to the owners of the Company
Called up share capital 9.3 9.3
Share premium 5.4 5.4
Merger reserve 1.1 1.1
Capital redemption reserve 0.2 0.2
Own shares (1.9) (1.9)
Other reserves 0.8 0.8
Translation reserve (2.2) (1.5)
Retained earnings 3.6 (0.5)
-------------------------------------------------- ----- -----
Total equity 16.3 12.9
-------------------------------------------------- ----- -----
UNAUDITED Consolidated statement of changes in equity
year ended 31 January 2019
Capital Own
Share Share Merger redemption Shares([) Other Translation Retained
capital premium reserve reserve (1]) reserves reserve earnings Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------- ------- ------- ------- -------------- -------------- -------------- -------------- -------------- -------------
At 31 January
2017 9.3 5.4 1.1 0.2 (1.9) 0.8 (0.4) (2.3) 12.2
Profit for the
year - - - - - - - 1.8 1.8
Currency
translation
differences
on foreign
currency net
investments - - - - - - (1.1) - (1.1)
-------------- ------- ------- ------- -------------- -------------- -------------- -------------- -------------- -------------
Total
comprehensive
income for
the year - - - - - - (1.1) 1.8 0.7
-------------- ------- ------- ------- -------------- -------------- -------------- -------------- -------------- -------------
At 31 January
2018 9.3 5.4 1.1 0.2 (1.9) 0.8 (1.5) (0.5) 12.9
Profit for the
year - - - - - - - 4.1 4.1
Currency
translation
differences
on foreign
currency net
investments - - - - - - (0.7) - (0.7) -------------- ------- ------- ------- -------------- -------------- -------------- -------------- -------------- ------------- Total comprehensive income for the year - - - - - - (0.7) 4.1 3.4 -------------- ------- ------- ------- -------------- -------------- -------------- -------------- -------------- ------------- At 31 January 2019 9.3 5.4 1.1 0.2 (1.9) 0.8 (2.2) 3.6 16.3 -------------- ------- ------- ------- -------------- -------------- -------------- -------------- -------------- ------------- 1 The shares held by the Elektron Technology 2012 EBT are treated as treasury shares.
UNAUDITED Consolidated statement of cash flows
year ended 31 January 2019
2019 2018
Notes GBPm GBPm
------------------------------------------------------- ----- ----- -----
Net cash inflow from operating activities 3 5.8 4.1
------------------------------------------------------- ----- ----- -----
Investing activities
Purchase of property, plant and equipment (0.7) (0.4)
Purchase of other intangible assets - (0.4)
Investment in product development projects (1.5) (1.1)
Net Proceeds from the sale of businesses 1.3 2.0
------------------------------------------------------- ----- ----- -----
Net cash generated by investing activities (0.9) 0.1
------------------------------------------------------- ----- ----- -----
Financing activities
Decrease in bank loans - (1.5)
------------------------------------------------------- ----- ----- -----
Net cash used in financing activities - (1.5)
------------------------------------------------------- ----- ----- -----
Net increase in cash and cash equivalents 4.9 2.7
Cash and cash equivalents at the beginning of the year 5.2 2.5
------------------------------------------------------- ----- ----- -----
Cash and cash equivalents at the end of the year 10.1 5.2
------------------------------------------------------- ----- ----- -----
1. Basis of Preparation
The unaudited preliminary consolidated financial statements comply with the recognition and measurement criteria of International Financial Reporting Standards (IFRS) as adopted by the European Union and issued by the International Accounting Standards Board (IASB) and with the accounting policies of the Group which were set out on pages 45 to 50 of the 2018 Annual Report and Accounts. With the exception of the implementation of IFRS 9: Financial Instruments and IFRS 15: Revenue from Contracts with Customers, both of which did not result in any material impact of the presentation of the Group's results, no changes have been made to the Group's accounting policies in the year ended 31 January 2019. Whilst the financial information included in this preliminary announcement has been computed in accordance with IFRS, this announcement does not itself contain sufficient information to comply with all IFRS disclosure requirements. The Company's 2019 Annual Report and Accounts will be prepared in compliance with IFRS.
The unaudited preliminary announcement does not constitute a dissemination of the annual financial report and does not therefore need to meet the dissemination requirements for annual financial reports. A separate dissemination announcement in accordance with Disclosure and Transparency Rules (DTR) 6.3 will be made when the annual report and audited financial statements are available on the Company's website.
Statutory Information
The financial information included in this preliminary announcement does not constitute statutory accounts. The statutory accounts for the year ended 31 January 2018 have been delivered to the Registrar of Companies and received an unqualified auditors' report and did not draw attention to any matters by way of emphasis and did not contain statements under s498 (2) or (3) of the Companies Act 2006
The statutory accounts for the year ended 31 January 2019 will be finalised on the basis of the financial information presented by the directors in this unaudited preliminary announcement and will be delivered to the Registrar of Companies following the Company's General Meeting. The audit report for the year ended 31 January 2019 has yet to be signed. The announcement of the preliminary results was approved on behalf of the board of directors on 11 June 2019. While the financial information included in this audited preliminary announcement has been prepared in accordance with the recognition and measurement criteria of International Financial Reporting Standards, as adopted by the EU (IFRSs), this announcement does not itself contain sufficient information to comply with IFRSs. The Group will publish full financial statements that comply with IFRS by the time of the Annual General Meeting.
2. Segmental reporting
The Group has continued to adopt the provisions of IFRS 8 "Operating Segments" and historically shown summary information in respect of these segments. This segmentation is consistent with internal reports to the chief operating decision maker for use in assessing business performance and allocating Group resources. The chief operating decision maker is the Chief Executive of the Group. The activity of each segment is explained in the 2019 review.
Operating profit/(loss)
before non-recurring
or special
Segment revenue items Operating profit/(loss)
----------------- ------------------------- -------------------------
Segment revenues and results of 2019 2018 2019 2018 2019 2018
continuing operations GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------------- -------- ------- ------------ ----------- ------------ -----------
Bulgin 30.1 27.3 9.0 7.2 9.0 7.2
Checkit 1.0 0.5 (4.5) (4.4) (4.5) (4.4)
EET 2.6 2.0 0.1 (0.3) 0.1 (0.2)
-------------------------------- -------- ------- ------------ ----------- ------------ -----------
Total 33.7 29.8 4.6 2.5 4.6 2.6
-------------------------------- -------- ------- ------------ ----------- ------------ -----------
Finance costs (net) - 0.1
------------ -----------
Profit before tax 4.6 2.7
-------------------------------- -------- ------- ------------ ----------- ------------ -----------
Revenue reported above represents revenue generated from external customers.
Segment profit represents the profit earned by each segment, including a share of central administration costs, which is allocated on the basis of actual use or pro rata to sales. This is the measure reported to the chief operating decision maker for the purposes of resource allocation and assessment of segment performance.
2019 2018
Segment assets GBPm GBPm
--------------------- ----- -----
Bulgin 18.9 14.3
Checkit 3.9 3.6
EET 1.7 1.6
Queensgate Nano([1]) - 0.8
--------------------- ----- -----
Consolidated assets 24.5 20.3
--------------------- ----- -----
1 Assets held for sale.
2019 2018
Segment liabilities GBPm GBPm
------------------------- ----- -----
Bulgin 6.8 6.6
Checkit 1.0 0.1
EET 0.4 0.7
------------------------- ----- -----
Consolidated liabilities 8.2 7.4
------------------------- ----- -----
Additions to
Depreciation non-current
and amortisation(1) assets(1)
---------------------- --------------
2019 2018 2019 2018
Other segment information GBPm GBPm GBPm GBPm
-------------------------- ---------- ---------- ------ ------
Bulgin 0.4 0.7 0.8 0.4
Checkit 1.7 1.7 1.3 0.7
EET 0.1 0.1 0.1 0.7
-------------------------- ---------- ---------- ------ ------
Total 2.2 2.5 2.2 1.8
-------------------------- ---------- ---------- ------ ------
1 Continuing operations only.
Geographical information
The Group considers its operations to be in the following geographical regions:
Revenue from Non-current
external customers assets
--------------------- -------------
2019 2018 2019 2018
GBPm GBPm GBPm GBPm
------------------------------------------- ---------- --------- ------ -----
United Kingdom 12.3 10.7 3.6 3.9
Rest of Europe, the Middle East and Africa 9.7 8.1 1.0 0.8
Asia-Pacific and China 2.3 2.4 - -
The Americas 9.4 8.6 - -
------------------------------------------- ---------- --------- ------ -----
Total 33.7 29.8 4.6 4.7
------------------------------------------- ---------- --------- ------ -----
3. Net cash flows from operating activities
2019 2018
Note GBPm GBPm
-------------------------------------------------------- ----- ----- -----
Profit/(loss) before taxation
- from continuing operations 4.6 2.7
- from discontinuing operations 0.4 (0.3)
Adjustments for:
Depreciation 0.4 0.5
Amortisation of development costs and computer software 1.8 2.2
Gain on the sale of discontinued businesses (0.4) (0.6)
Finance income - (0.1)
--------------------------------------------------------------- ----- -----
Operating cash flow before working capital changes 6.8 4.4
(Increase)/decrease in trade and other receivables (0.2) 2.1
Increase in inventories (0.6) (0.8)
Increase in trade and other payables - (0.5)
--------------------------------------------------------------- ----- -----
Operating cash flow after working capital changes 6.0 5.2
Increase/(decrease) in provisions 0.3 (1.0)
--------------------------------------------------------------- ----- -----
Cash generated by operations 6.3 4.2
Tax paid (0.5) (0.2)
Bank interest overcharge refund - 0.1
--------------------------------------------------------------- ----- -----
Net cash inflow from operating activities 5.8 4.1
--------------------------------------------------------------- ----- -----
4. Taxation
(a) Analysis of tax charge for the year - continuing operations
2019 2018
GBPm GBPm
------------------------------------------------------- ----- -----
Current taxation:
UK corporation tax charge on profit for the year 0.5 0.4
Overseas corporation tax charge on profit for the year 0.2 0.1
Overprovision for prior year - UK (0.1) -
------------------------------------------------------- ----- -----
Total current taxation 0.6 0.5
------------------------------------------------------- ----- -----
Deferred tax:
Deferred tax as capitalised development costs - (0.1)
Origination and reversal of temporary differences 0.2 0.2
Under provision in respect of prior years - 0.2
------------------------------------------------------- ----- -----
Total deferred taxation 0.2 0.3
------------------------------------------------------- ----- -----
Tax charge on continuing operations 0.8 0.8
------------------------------------------------------- ----- -----
(b) Factors affecting taxation charge for the year
The effective tax rate for the year was 19% following a reduction of the rate to 19% on 1 April 2017. A further reduction to 17% from 1 April 2020 has been substantively enacted. UK temporary differences are measured at the rate at which they are expected to reverse. New legislation became effective in April 2017 which restricts the use of brought forward losses in the UK. This will not affect the ability to use recognised deferred tax assets but may affect the period over which the losses can be utilised.
2019 2018
--------------- ---------------
Tax rate GBPm Tax rate GBPm
-------------------------------------------------- -------- ----- -------- -----
Profit on continuing activities before taxation 4.6 2.7
Profit) on ordinary activities multiplied
by weighted average standard rate of corporation
tax in the UK of 19% 19% 0.9 19.2% 0.5
-------------------------------------------------- -------- ----- -------- -----
Effects of:
Expenses not deductible for tax purposes 1.1% 0.1 -
Profits not subject to tax - - (3.7)% (0.1)
Temporary differences not recognised (0.4)% (0.1) -
Effect of overseas tax rates (1.0)% (0.1) 3.7% 0.1
Prior year adjustments (1.7)% (0.1) 3.7% 0.1
Non-recognition of tax losses 0.3% 0.1 6.7% 0.2
-------------------------------------------------- -------- ----- -------- -----
17.3% 0.8 29.6% 0.8
-------------------------------------------------- -------- ----- -------- -----
5. Earnings per share
Earnings per share (EPS) are the amount of post-tax profit attributable to each share (excluding those held in the Employee Benefit Trust or by the Company). Basic EPS measures are calculated as the Group profit for the year attributable to equity shareholders divided by the weighted average number of shares in issue during the year. Diluted EPS takes into account the dilutive effect of all outstanding share options priced below the market price, in arriving at the number of shares used in its calculation.
Both of these measures are also presented on an adjusted basis, to remove the effects of non-recurring or special items, being items of both income and expense which are sufficiently large, volatile or one-off in nature, to assist the reader of the financial statements to get better understanding of the underlying performance of the Group. The note below demonstrates how this calculation has been performed.
2019 2018
Key m m
-------------------------------------------------- ---- ----- -----
Weighted average number of shares for the purpose
of basic earnings per share A 177.7 177.9
Dilutive effect of employee share options 10.4 9.2
-------------------------------------------------------- ----- -----
Weighted average number of shares for the purpose
of diluted earnings per share B 188.1 187.1
-------------------------------------------------- ---- ----- -----
Key GBPm GBPm
------------------------------------------------------ ---- ----- -----
Profit for the year 4.1 1.8
(Profit)/loss from discontinued operations, net of
tax (0.3) 0.1
------------------------------------------------------------ ----- -----
Continuing profit for the year attributable to equity
shareholders C 3.8 1.9
Total non-recurring or special items included in
profit before tax - (0.1)
------------------------------------------------------------ ----- -----
Earnings for adjusted EPS D 3.8 1.8
------------------------------------------------------ ---- ----- -----
Key 2019 2018
-------------------------------- ---- ---- ----
EPS measures
Basic continuing EPS C/A 2.1p 1.1p
Diluted continuing EPS C/B 2.0p 1.0p
-------------------------------- ---- ---- ----
Adjusted EPS measures
Adjusted basic continuing EPS D/A 2.1p 1.0p
Adjusted diluted continuing EPS D/B 2.0p 1.0p
-------------------------------- ---- ---- ----
6. Non-recurring or special items
Non -recurring or special items in FY18 relate to a release of an excess restructuring cost provision made in FY17 for the closure of the Group's facility in Torquay.
7. Discontinued operations
The Discontinued operation in the current year is comprised of the Queensgate Nano brand, sold on 15 February 2018.
Discontinued operations in 2018 comprise the Digitron, Titman Tip Tools Limited, Sheen Instruments Limited and Elektron Medical brands. The prior year balances have been restated in respect of any operations which became discontinued in the course of the current year as set below:
Summary
The profit from discontinued operations comprises:
2019 2018
GBPm GBPm
-------------------------------------------------------- ----- -----
Operating loss - (0.9)
Attributable tax - 0.2
-------------------------------------------------------- ----- -----
Loss after tax - (0.7)
Gain on disposal of discontinued operation 0.4 0.6
-------------------------------------------------------- ----- -----
Attributable tax expense (0.1) -
-------------------------------------------------------- ----- -----
Profit (loss) from discontinued operations attributable
to equity shareholders 0.3 (0.1)
-------------------------------------------------------- ----- -----
Queensgate Nano
The results of the Queensgate Nano discontinued operation, which have been included in the consolidated statement of comprehensive income, were as follows:
2019 2018
GBPm GBPm
--------------------------------------------------------- ----- -----
Revenue - 0.8
Expenses - (1.7)
--------------------------------------------------------- ----- -----
Loss before tax - (0.9)
--------------------------------------------------------- ----- -----
Attributable tax - 0.2
--------------------------------------------------------- ----- -----
Loss from discontinued operations attributable to equity
shareholders - (0.7)
--------------------------------------------------------- ----- -----
During the year, Queensgate Nano used less than GBP0.1m (2018: used GBP0.7m) of the Group's net operating cash flows, paid less than GBP0.1m (2018: paid GBP0.1m) in respect of investing and paid less than GBP0.1m (2018: less than GBP0.1m) in respect of financing activities.
Expenses of discontinued operations in the year to 31 January 2019 included GBPnil classified as non-recurring or special items (2018: GBPnil).
On 15 February 2018, the Group completed the disposal of business and certain assets of the Queensgate Nano brand for initial proceeds of GBP0.8m. Under the terms of the sale the Group received a further GBP0.6m based on Queensgate Nano's sales revenues achieving certain targets in the twelve months after completion.
Details of the disposal of Queensgate are set out below:
2019
GBPm
Property, plant and equipment 0.1
Development costs 0.4
Inventories 0.4
Total assets sold 0.9
------------------------------ -----
Costs of disposal 0.1
------------------------------ -----
Net gain on disposal 0.4
------------------------------ -----
Total consideration 1.4
------------------------------ -----
Satisfied by:
------------------------------ -----
Cash and cash equivalents 1.2
Deferred consideration 0.2
------------------------------ -----
Total consideration 1.4
------------------------------ -----
8. Post balance sheet events
Subsequent to the year end the Group completed the acquisition of Next Control Systems Limited ('Next') for a consideration of GBP8.8m.
Next is an excellent strategic fit for Checkit, providing technology and software that enables management teams to monitor, control and optimise business processes. Next will be combined with Checkit to create a global leader in the field of real-time operations management. It adds scale and one which the Board believes will significantly accelerate the path to profitability at Checkit.
Next is a leader in high-end service based temperature monitoring for healthcare and life sciences and provides data related Building Energy Management System ("BEMS") services. It has a major relationship with a leading UK retailer covering smart building and plant technologies.
In the year ending 31 December 2018 Next's audited operating profit was GBP1.2 million on turnover of GBP10.7 million (2017: GBP1.2 million on turnover of GBP9.8 million). Next's 2018 audited accounts state that 57% of income (2017: 54%) was in the form of recurring revenue relating to software services provided. The remaining income related to one-off charges for consultancy and other IoT services and hardware.
The management accounts for the four months to 30 April 2019 show an operating profit of GBP0.5 million year to date on turnover of GBP3.7 million (2018 GBP0.4 million on turnover of GBP3.3 million). It is expected that the acquisition will be immediately earnings accretive for Elektron in the current financial year
Audited net assets (excluding cash) were GBP1.7 million at 31 December 2018.
The acquisition of Next was funded from the Group's existing cash reserves which as at 31 January 2019 stood at GBP10.1 million. The Group has taken the opportunity to put in a place a GBP3 million bank overdraft facility which combined with its existing invoice discount facilities of up to GBP3m will provide the Group with up to GBP6m of facilities for working capital purposes.
The initial accounting for the business combination is incomplete given the timing of the acquisition.
9. Non-GAAP performance measures
A reconciliation of non-GAAP performance measures to reported results is set out below:
i) Profit measures - EBITDA
2019
Business 2018
Exl. 2019 2019 Business 2018 2018
Checkit Checkit Total Ex. Checkit Checkit Total
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------------- --------- -------- ------ ------------ -------- ------
EBITDA 9.6 (2.8) 6.8 7.8 (2.7) 5.1
Depreciation and amortisation (0.5) (1.7) (2.2) (0.8) (1.7) (2.5)
------------------------------------- --------- -------- ------ ------------ -------- ------
Reported operating profit/(loss) for
the year 9.1 (4.5) 4.6 7.0 (4.4) 2.6
------------------------------------- --------- -------- ------ ------------ -------- ------
ii) Cash measures - Cash generated/(used) before working capital.
FY2019 FY2018
------------------------------------------------- --------------------------------------------------
Cash Cash
Capital generated/ Capital generated/
expenditure, (used) expenditure, (used)
including before including before
Operating IP working Operating IP working
profit/(loss) EBITDA purchase capital profit/(loss) EBITDA purchase capital
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------- ------------- ------ ------------ ------------ ------------- ------ ------------- ------------
Bulgin 9.0 9.4 (0.8) 8.6 7.2 7.9 (0.4) 7.5
Checkit (4.5) (2.8) (1.3) (4.1) (4.4) (2.7) (0.7) (3.4)
EET 0.1 0.2 (0.1) 0.1 (0.2) (0.1) (0.7) (0.8)
------------- ------------- ------ ------------ ------------ ------------- ------ ------------- ------------
Continuing
operations 4.6 6.8 (2.2) 4.6 2.6 5.1 (1.8) 3.3
Discontinued
operations - - - - (0.9) (0.7) (0.1) (0.8)
------------- ------------- ------ ------------ ------------ ------------- ------ ------------- ------------
4.6 6.8 (2.2) 4.6 1.7 4.4 (1.9) 2.5
------------- ------------- ------ ------------ ------------- ------ -------------
Working
capital
movement (0.8) 0.3
Movement in
provisions 0.3 (0.5)
Taxation paid (0.5) (0.2)
Bank interest - 0.1 Sale of businesses 1.3 2.0 Decrease in bank loans - (1.5) ------------- ------------- ------ ------------ ------------ ------------- ------ ------------- ------------ Net increase in cash and cash equivalents 4.9 2.7 ------------- ------------- ------ ------------ ------------ ------------- ------ ------------- ------------
10. Cautionary statement
This preliminary financial information has been prepared only for the shareholders of Elektron as a whole and its sole purpose and use is to assist shareholders to exercise their governance rights. Elektron and its Directors and employees are not responsible for any other purpose or use or to any other person in relation to this report.
The report contains indications of likely future developments and other forward-looking statements that are subject to risk factors associated with, among other things, the economic and business circumstances occurring from time to time in the countries, sectors and business segments in which the Group operates. Key risks and their mitigation have not changed materially in the period from those disclosed on pages 21 to 24 of the annual financial statements for the year ended 31 January 2018.
These and other factors could adversely affect the Group's results, strategy and prospects. Forward-looking statements involve risks, uncertainties and assumptions. They relate to events and/or depend on circumstances in the future which could cause actual results and outcomes to differ materially from those currently anticipated. No obligation is assumed to update any forward-looking statements, whether as a result of new information, future events or otherwise.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
END
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