Final Results (1636G)

TIDMOPE

RNS Number : 1636G

Optare PLC

09 May 2011

Optare plc

("Optare" or the "Company")

Audited Results for the year ended 31 December 2010

Financial Highlights

-- EBITDA loss reduced 68% to GBP2.7m, in line with expectations despite turnover down 35%

-- Exceptional items reduced by GBP4.7m

-- Bank term debt reduced by GBP3.4m

Operational highlights

-- GBP7 million raised during the year.

-- Strategic alliance with Ashok entered into in September 2010.

-- Lease for new single production site signed.

-- Board strengthened by addition of two Ashok Leyland executives.

Jim Sumner, CEO, commenting said, "the last two years have been all about the turnaround of Optare from a challenging position. I believe that, with many of the difficulties of the last few years behind us, a new larger factory, the backing of Ashok and our institutional investors we have every reason to look forward to 2011 and beyond with confidence

For further information, please contact:

Optare plc Tel: [phone]

Jim Sumner - Chief Executive

Cenkos Securities plc Tel: [phone]

Stephen Keys/Camilla Hume

Chief Executive's Statement

Order Book and Market Conditions

The focus in 2010 has been on investing in new product and market development as part of the turnaround of Optare. This, however, was against the background of an extremely challenging year with the UK market down almost 40% against pre-recession levels. As announced in the 2009 interim results Optare started Q4 of 2009 with an extremely low order-book of GBP8.8m.

In the face of these adverse market influences, our strategy of developing low carbon buses and export markets following the placing in September 2009 was rewarded. At the date of the last Annual report in May 2010, I was able to report that the order book had improved to GBP25.3m, mainly due to securing a contract for 66 Hybrid buses for GMPTE of which 20 were delivered in Q3 of 2010.

Additionally, we successfully launched our new European specification Solo in the Benelux. In Q4 2010, 25% of our output was destined for export markets. However in the third quarter of 2010 there was a hiatus in UK order intake as the industry waited to see the impact of the Government's Comprehensive Spending Review ("CSR") in October 2010. This resulted in a number of smaller operators deciding to defer order placement into the New Year.

Overall the CSR was not as bad as had been expected by the industry and towards the end of 2010 it became clear that the big groups were planning to increase purchases of new buses in 2011. This along with the support provided by the Government's Green Bus Fund, has seen a significant improvement in the order-book, which had at, 6(th) May 2011, the last date available prior to this report, stood at a record GBP58m.

Product and Business Development

Despite the challenging market conditions, we invested GBP3.2m in to new product and market development in 2010. In addition to engineering activity to conform to new EU 'type approval' requirements from October 2010, the following milestones were achieved during the year including;

-- Introduction of Optare's market leading Driver console to aid fuel-efficient driving, which recently received a national award from the Chartered Institute of Logistics and Transport;

-- Launch of Optare's Advanced Hybrid system and delivery of the first tranche of twenty Solo and Versa variants as part of an extended contract for 88 Hybrid buses to Greater Manchester Passenger Transport Executive;

-- Introduction of the UK's first Bio-methane and Electric buses into service.

-- First sales of our new high-spec left-hand drive models for mainland Europe.

Operational highlights

Operationally 2010 was a very challenging year with the market down close to 40% from levels pre-recession. This resulted in operating with short lead-times putting great pressure on production and supply chains. Disruption was also experienced by the failure of two key suppliers during the year reflecting the difficult trading conditions faced by the industry.

As part of the turnaround strategy, a consistent focus has been to reduce from the 3 manufacturing sites the Company had in June 2009 (Rotherham, Blackburn & Leeds) to a single site in order to reduce the Group's break-even point. Following closure of the Rotherham site in August 2009, the decision was taken in September 2010 to cease the manufacture of new buses in Blackburn. The site now maintains a relatively small workforce for refurbishment, low-carbon upgrades, product development and some finishing operations.

Subsequent to the year end and as recently announced, Optare has signed a 17 year lease for a new manufacturing site in the Leeds area. The board believes that the new facility will be better able to support the Company in its growth phase by significantly increasing capacity enabling us to demonstrate to major operators that we have the ability to deliver fleet volumes. The new optimised plant layout is also expected to considerably improve efficiency.

Strategic partnership

We reported early last year that extensive discussions had been progressing with potential strategic partners. In July we were delighted to announce that Optare had entered into a strategic co-operation with Ashok Leyland ("Ashok"). Ashok, part of the Hinduja Group, acquired a 26% holding in Optare.

Ashok is India's largest bus manufacturer and second largest commercial vehicle maker in the medium and heavy vehicle segment. The Board continues to believe that entering into this partnership is a key part of Optare's strategy to realise the full potential of the business and that we will start to see the benefits, in terms of best cost sourcing and joint product development activity, emerging during 2011.

Board and Management Changes

Following the strategic partnership with Ashok Leyland, two very experienced industry professionals in Mr Seshasayee and Dr Sumantran have strengthened the board joining as Non-Executive Directors. Subsequently David Maughan stepped down as a Non-Executive Director to pursue other business interests and we thank him for his contribution to the Company. Glenn Saint also stepped down from the Board but remains in a full-time role as COO, having taken on additional responsibility for the forthcoming Leeds site move.

To support the growth of the business, the Company has also commenced an initiative to strengthen its Executive, senior and middle management team following significant restructuring.

Financial Performance

The Group's financial performance for the year ended 31 December 2010 is reported below, however key highlights relating to progress against the turnaround plan, to year end 2010 compared with 2009 are;

-- While turnover was down 35% on 2009, EBITDA losses were reduced 68%;

-- Gross profit improved from 5.4% in 2009 to 8.5% and overheads reduced 31%;

-- Breakeven revenue reduced 30%; and

-- Exceptional costs reduced from GBP6.9m in 2009 to GBP2.2m.

In addition, a key focus of the turnaround plan has been to significantly reduce debt, which in June 2009 was reported at GBP10.3m compared to GBP3.3m at end of Q1 2011. The Group has repaid early the GBP6.3m term loan taken out in July 2008. The only remaining term debt is a GBP2.3m mortgage secured against the Rotherham freehold site. The site is being sold in two parts with completion planned on the first tranche for just under GBP1m expected during May 2011.

A total of GBP22.1m of net proceeds have been raised via issue of equity during the turnaround and have been used as follows:

-- Debt reduction - GBP7.3m:

-- Capital investment in new product development - GBP4.1m;

-- Redundancy costs incurred during the restructuring and consolidation to a single site - GBP3.6m;

-- Funding allocated for investment to be made in new factory - GBP2.5m; and

-- Other capital investment - GBP0.8m.

Remaining funds have been consumed on trading losses during the turnaround and on the balance of exceptional costs which have been offset by some improvements in working capital management.

Outlook

The last two years have been all about the turnaround of Optare from a challenging position. Although trading conditions during 2010 were tough, we have managed to continue laying down solid foundations for the future and are extremely proud of what has been achieved so far.

To date we have achieved a substantial increase in the order book, a major reduction in net debt, reduced the break-even revenue and invested in new product development. The Board is now of the opinion that, two years into the three year turnaround plan, 2011 will be the year that we really begin to see the fruits of our labour as the company moves into profitability.

We have formed a very strong partnership with Ashok which has been a great support so far and we expect to see the benefits of best cost sourcing and joint product development activity coming through this year.

Following the Placing in January 2011 we have secured our new factory which we expect to move to in the third quarter of this year. This new factory will be designed to meet our specific needs and will thus allow us to improve the production process and increase production output.

Given the significant reduction in debt and progress with the turnaround, the board expects working capital and asset financing to be a more effective option to meet the funding needs of the business moving forward.

The Board anticipates stronger UK demand, particularly for single-deck buses in 2012 and 2013, driven by an expected pre-buy of existing Euro 5 emission buses to avoid the additional cost burdens of Euro 6 legislation compliance due in 2013 and to comply with the Disability Discrimination legislation which is required for all single-decker buses by 2014. The increased capacity in our new site will enable us to be able to meet this anticipated extra production demand. In addition the company is making solid progress in export markets and is qualifying to tender for substantial contracts with the support of Ashok Leyland.

In light of the above and with the difficulties of the last few years behind us, a new, larger factory and the backing of Ashok and our institutional investors we have every reason to look forward to 2011 and beyond with confidence.

Jim Sumner

Chief Executive Officer

Chairman's Statement

2010 was a year in which huge strategic milestones were passed, despite a backdrop of continued weakness in the market. As the downturn extended longer than had been anticipated through 2010, it became the worst recession for bus manufacturing in living memory. The major achievements in the year included:

-- key green bus product developments completed and buses delivered, making Optare the leading single deck hybrid bus manufacturer in Europe;

-- securing a strategic partnership with a global bus manufacturer, Ashok Leyland;

-- reduction in debt levels; and

-- successful delivery of significant export contracts to mainland Europe for the first time.

Strategic Development

Our aim is to be:

-- a European leader in green bus technologies by the development of the full range of options from fuel-efficient diesels to dual fuel, hybrid and electric vehicles;

-- the UK leader in the midi-bus market;

-- offering a product portfolio with the full range of buses that is demanded by the UK bus market;

-- a significant exporter of buses;

-- expanding market share in UK and Europe by selling high quality designs at competitive costs

The Board is very pleased with the progress that has been made on all these fronts during the year.

Our People

The year brought with it new challenges, to which our management and workforce have risen. Whilst there is still a tremendous amount to do, I would like to thank all our employees for their dedication and hard work during what has been a very difficult period.

Summary

2010 was a year of strategic progress against a difficult market backdrop. We look forward to working with our strategic partner, and relocating to our new manufacturing facility, to take full advantage of the undoubtedly stronger market situation for 2011 and beyond.

John Fickling

Non-Executive Chairman

Consolidated Income Statement as at 31 December 2010

 
                        Before                                 Before 
                   Exceptional   Exceptional              Exceptional 
                         Items         items      Total         Items   Exceptional      Total 
 
                          Year          Year       Year          Year          Year       Year 
                         ended         ended      ended         ended         ended      ended 
                        31 Dec        31 Dec     31 Dec        31 Dec        31 Dec     31 Dec 
                          2010          2010       2010          2009          2009       2009 
                       GBP'000       GBP'000    GBP'000       GBP'000       GBP'000    GBP'000 
 
 Revenue                52,271             -     52,271        79,831             -     79,831 
 
 Cost of 
  sales               (47,826)         (200)   (48,026)      (72,670)       (2,236)   (74,906) 
 
 
 Gross profit            4,445         (200)      4,245         7,161       (2,236)      4,925 
 
 Administrative 
  expenses             (7,681)             -    (7,681)      (11,296)             -   (11,296) 
 Distribution 
  costs                  (524)             -      (524)         (558)             -      (558) 
 
 Amortisation 
  of intangible 
  assets                 (290)             -      (290)         (173)             -      (173) 
 Loss from 
  operations           (4,050)         (200)    (4,250)       (4,866)       (2,236)    (7,102) 
 
 Restructuring 
  and other 
  exceptional 
  costs                      -       (1,963)    (1,963)             -       (4,648)    (4,648) 
 Finance 
  costs                  (393)             -      (393)                                  (303) 
 Finance 
  income                    93             -         93            41             -         41 
 
 Loss for the 
  year from 
  continuing 
  operations           (4,350)       (2,163)    (6,513)       (5,128)       (6,884)   (12,012) 
 
 Loss on 
  ordinary 
  activities 
  before tax           (4,350)       (2,163)    (6,513)       (5,128)       (6,884)   (12,012) 
 
 Taxation                   73             -         73            28             -         28 
 
 Loss 
  attributable 
  to the equity 
  holders of the 
  parent 
  company              (4,277)       (2,163)    (6,440)       (5,100)       (6,884)   (11,984) 
 
 
 Loss per 
  share (Note 
  3): 
                                                                 2010                     2009 
 From continuing 
  and 
  discontinued 
  operations 
  (basic and 
  Diluted)                                                     (2.1)p                   (8.4)p 
 
 

There are no other recognised items of income and expense other than those presented above.

Consolidated Statement of Changes in Equity as at 31 December 2010

 
                                                              Share 
                                                              based 
                    Share     Share    Merger   Retained    payment 
                  capital   premium   reserve   earnings    reserve      Total 
 
                  GBP'000   GBP'000   GBP'000    GBP'000    GBP'000    GBP'000 
 
 Balance at 31 
  December 2008     1,084    15,798     5,542   (14,361)          -      8,063 
 
 Loss for the 
  year                  -         -         -   (11,984)          -   (11,984) 
 Total 
  comprehensive 
  income for 
  the year              -         -         -   (11,984)          -   (11,984) 
 
 Transactions 
 with owners in 
 their 
 capacity as 
 owners:- 
 Issue of 
  shares and 
  warrants          1,240     6,822         -          -          -      8,062 
 Total 
  transactions 
  with owners 
  in their 
  capacity as 
  owners            1,240     6,822         -          -          -      8,062 
 
 Share-based 
  payment               -         -         -          -         27         27 
 
 Balance at 31 
  December 2009     2,324    22,620     5,542   (26,345)         27      4,168 
 
 Loss for the 
  year                  -         -         -    (6,440)          -    (6,440) 
 
 Total 
  comprehensive 
  income for 
  the year              -         -         -    (6,440)          -    (6,440) 
 
 Transactions 
 with owners in 
 their 
 capacity as 
 owners:- 
 Issue of 
  shares and 
  warrants          1,497     4,139         -      1,648          -      7,284 
 
 Total 
  transactions 
  with owners 
  in their          1,497     4,139         -      1,648          -      7,284 
 
 
 Balance at 31 
  December 2010     3,821    26,759     5,542   (31,137)         27      5,012 
 

The merger reserve was created when Optare plc acquired Darwen Ltd via a share for share transaction.

Fair value of warrants issued within the year is GBP1,648,000 (2009 GBPnil)

Consolidated Balance Sheet as at 31 December 2010

 
                                  2010       2009 
                               GBP'000    GBP'000 
 Non - Current 
  Assets 
 Goodwill                        8,574      8,574 
 Other intangible 
  assets                         6,872      3,953 
 Property, plant 
  and equipment                  2,312      3,680 
 
                                17,758     16,207 
 
 Current Assets 
 Inventories                     7,742      7,175 
 Trade and other 
  receivables                    4,774      4,456 
 
                                12,516     11,631 
 
 Assets held for 
  sale                           2,000      2,400 
 
 Total Assets                   32,274     30,238 
 
 Current Liabilities 
 Trade and other 
  payables                      17,031     14,198 
 Bank loans and 
  overdrafts                     5,427      2,301 
 Provisions                      1,245      1,958 
 Obligations under 
  finance leases                    23         35 
 
                                23,726     18,492 
 
 Non Current Liabilities 
 Bank loans                      1,912      5,287 
 Provisions                      1,600      2,247 
 Obligations under 
  finance leases                    24         44 
 
                                 3,536      7,578 
 
 Total Liabilities              27,262     26,070 
 
 
 Net Assets                      5,012      4,168 
 
 Equity 
 Share capital                   3,821      2,324 
 Share premium                  26,759     22,620 
 Share based payment 
  reserve                           27         27 
 Merger reserve                  5,542      5,542 
 Retained loss                (31,137)   (26,345) 
 
 Total equity attributable 
  to equity holders 
  of the parent                  5,012      4,168 
 

Consolidated Cash Flow as at 31 December 2010

 
                                2010      2009 
                             GBP'000   GBP'000 
 Operating activities 
 Cash absorbed 
  by operations              (3,418)   (4,203) 
 Interest paid                 (393)     (303) 
 
 
 Net cash used 
  in operating activities    (3,811)   (4,506) 
 
 Investing Activities 
 Purchase of property, 
  plant and equipment           (75)   (1,065) 
 Purchase of intangible 
  assets                     (3,209)     (800) 
 
 Interest received                93        41 
 
 
 Net cash used 
  in investing activities    (3,191)   (1,824) 
 
 Financing activities 
 Proceeds from 
  issuance of ordinary 
  shares and warrants          7,284     8,062 
 Loan repayments             (3,407)   (1,715) 
 Short term loan               1,224         - 
 
 Net cash generated 
  from financing 
  activities                   5,101     6,347 
 
 Net increase /(decrease) 
  in cash and cash 
  equivalents                (1,901)        17 
 
 
 Cash and cash 
  equivalents at 
  end of year 
 Overdraft                   (2,720)     (819) 
 
 
 

Notes

1 The financial information set out herein does not constitute the Groups statutory accounts for the year ended 31 December 2010 or the year ended 31 December 2009 but is derived from those accounts. The information in respect of 2010 statutory accounts has been derived from the audited statutory accounts for the year ended on that date on which an unqualified audit opinion was expressed and which did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.. The comparative information in respect of the year ended 31 July 2009 has been derived from the audited statutory accounts for the year ended on that date upon which an unqualified audit opinion was expressed and which did not contain a statement under section 498 (2) or (3) of the Companies Act 2006. The audited accounts will be posted to all shareholders in due course and will be available on request by contacting the Company Secretary at the Company"s Registered Office.

2 Basis of Preparation

Optare plc is a company incorporated and domiciled in the UK.

The historical financial statements consolidate those of Optare plc and its subsidiaries.

The historical financial statements have been prepared in accordance with International Financial Reporting Standards and IFRIC interpretations issued by the International Accounting Standards Board (IASB) and adopted by the European Union ("Endorsed IFRS") and with those parts of the Companies Act 2006 applicable to companies preparing their accounts under Endorsed IFRS.

The financial statements have been prepared on the going concern basis, which assumes that the Group will continue to be able to meet its liabilities as they fall due for the foreseeable future. The Group's banking facilities were renegotiated in September 2010. The overdraft facility, which comprises GBP3.0m and is annually renewable, falls due for renewal in September 2011. The directors are confident that this will facility will be renewed.

The Group has prepared trading forecasts through to December 2012 which include detailed cash flow calculations. The forecasts are based on detailed assumptions as to sales performance by month. The forecasts reflect a higher level of turnover for the second half of 2011 than the first half, but are based largely upon order book. This includes an increased level of sales of Green Bus vehicles - both electric vehicles and hybrids. The forecast assumes a moderate level of savings in material costs, achieved both through the company's own efforts and through joint initiatives with Ashok.

During the first quarter of 2011, disruption was suffered due to restricted working capital. The forecast is based on the current state of affairs, where these issues have been resolved. Trade debtors and creditors are forecast to increase consistent with increased sales.

There is inherent uncertainty in any forecast. Such uncertainties include the risks involved in managing a rapid increase in output volumes; the risks involved in any site move; lack of visibility regarding sales beyond the current order book. and the possibility that the external economic environment might worsen. However the Company is taking measures to ensure that production management is strengthened to boost output, and experienced project management is heavily involved in planning and executing the site move. Labour efficiency is important in achieving profitability, and the Directors have put in place strengthened operational management and procedures to ensure that this is achieved. The Directors feel that a reasonably balanced approach has been taken to these risks in the forecast.

Against these uncertainties, there are upside opportunities which are not reflected in the forecast but which would offset or mitigate the impact of downside risks which might occur. These include the further benefits of savings in material costs arising from joint initiatives with Ashok. Sales opportunities exist in Europe and other foreign territories for our buses in excess of the forecast volumes.

The Directors are confident that the assumptions underlying their forecasts are reasonable and that the Group will be able to operate within its overdraft limit. The Board believes that it is appropriate to prepare the financial statements on the going concern basis and that the uncertainties referred to above, when considered together with the upside opportunities, do not represent a material uncertainty. The financial statements do not include any adjustment to the value of the balance sheet assets or provisions for further liabilities, which would result should the going concern concept not be valid.

The financial statements have been prepared on a historical cost basis.

3. Loss Per Share

The calculation of the basic and diluted earnings per share is based on the following data:

 
                                                    2010          2009 
 Loss: 
  Loss for the purposes of basic earnings per 
  share 
  (net profit for the year attributable to 
  equity holders of the parent)                    (6,440)      (11,984) 
                                                 Number        Number 
 Weighted average number of ordinary share 
  for the purposes of 
  basic earnings per share                       307,965,208   142,760,280 
 
 Basic and fully diluted loss per share               (2.1)p        (8.4)p 
 
 

Excluding Exceptional Items

 
                                                        2010          2009 
 Net loss for the year attributable to equity 
  holders of the parent                                (6,440)      (11,984) 
 Adjustment to exclude exceptional costs             2,163         6,884 
 Loss from continuing operations for the purposes 
  of basic earnings per share                        (4,277)       (5,100) 
                                                     Number        Number 
 Weighted average number of ordinary share 
  for the purposes of 
  basic earnings per share                           307,965,208   142,760,280 
 
 Basic and fully diluted loss per share                   (1.4)p        (3.6)p 
 
 

There are no dilutive potential ordinary shares in issue. Potentially dilutive share options in issue are detailed in the Directors Remuneration Report. Subsequent to the year-end a share issue took place which would have affected the number of shares in issue if had taken place prior to the year-end

This information is provided by RNS

The company news service from the London Stock Exchange

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